-----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, AmWeFxHvXpe1dzvvEnViWsFotwG1N8g1jrVA0+iUvVtygTaV+29QvfmoZA5PlCLI JLCwkqgG97ckJ6xcUcULeQ== 0001012870-00-001988.txt : 20000411 0001012870-00-001988.hdr.sgml : 20000411 ACCESSION NUMBER: 0001012870-00-001988 CONFORMED SUBMISSION TYPE: S-1/A PUBLIC DOCUMENT COUNT: 10 FILED AS OF DATE: 20000407 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NOOSH INC CENTRAL INDEX KEY: 0001076870 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-BUSINESS SERVICES, NEC [7389] IRS NUMBER: 770495080 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-1/A SEC ACT: SEC FILE NUMBER: 333-95377 FILM NUMBER: 596545 BUSINESS ADDRESS: STREET 1: 3401 HILLVIEW AVE STREET 2: BLDG 4 CITY: PALO ALTO STATE: CA ZIP: 94304 BUSINESS PHONE: 6508588300 MAIL ADDRESS: STREET 1: COOLEY GODWARD LLP STREET 2: 5 PALO ALTO SQ 3000 EL CAMINO REAL CITY: PALO ALTO STATE: CA ZIP: 94306 S-1/A 1 AMENDMENT #3 TO FORM S-1 As filed with the Securities and Exchange Commission on April 7, 2000 Registration No. 333-95377 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 -------------- Amendment No. 3 to FORM S-1 REGISTRATION STATEMENT Under The Securities Act of 1933 -------------- NOOSH, INC. (Exact name of registrant as specified in its charter) Delaware 7379 77-0495080 (State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer incorporation or organization) Classification Code Number) Identification Number)
-------------- 3401 Hillview Avenue, Palo Alto, California, 94304 (650) 320-6000 (Address, including zip code, and telephone number, including area code, of registrant's principal executive offices) -------------- Ofer Ben-Shachar President, Chief Executive Officer and Chairman 3401 Hillview Avenue, Palo Alto, California 94304 (650) 320-6000 (Name, address, including zip code, and telephone number, including area code, of agent for service) -------------- Copies To: Laura A. Berezin, Esq. Steven B. Stokdyk, Esq. Cooley Godward LLP Sullivan & Cromwell Five Palo Alto Square 1888 Century Park East Blvd., 21st Floor 3000 El Camino Real Los Angeles, California 90067 Palo Alto, CA 94306-2155 (310) 712-6600 (650) 843-5000
-------------- 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. [_] The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment that specifically states that this registration statement shall thereafter become effective in accordance with section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such date as the commission, acting pursuant to said section 8(a), may determine. - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ +The information in this prospectus is not complete and may be changed. These + +securities may not be sold until the registration statement filed with the + +Securities and Exchange Commission is effective. This preliminary prospectus + +is not an offer to sell nor does it seek an offer to buy these securities in + +any jurisdiction where the offer or sale is not permitted. + ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Subject to Completion. Dated April 7, 2000. 4,000,000 Shares [LOGO OF NOOSH, INC.] NOOSH, Inc. Common Stock ---------- This is an initial public offering of common stock of NOOSH, Inc. All of the 4,000,000 shares of common stock are being sold by NOOSH. Prior to this offering, there has been no public market for our common stock. We estimate the initial public offering price will be between $11.00 and $13.00 per share. We have applied to have our common stock listed for quotation on the Nasdaq National Market under the symbol "NOSH". See "Risk Factors" beginning on page 6 to read about factors you should consider before buying shares of our common stock. ---------- Neither the Securities and Exchange Commission nor any other regulatory body has approved or disapproved of these securities or passed upon the adequacy or accuracy of this prospectus. Any representation to the contrary is a criminal offense. ----------
Per Share Total --------- ----- Initial public offering price.................................. $ $ Underwriting discount.......................................... $ $ Proceeds, before expenses, to NOOSH............................ $ $
To the extent that the underwriters sell more than 4,000,000 shares of common stock, the underwriters have the option to purchase up to an additional 600,000 shares from NOOSH at the initial public offering price less the underwriting discount. ---------- The underwriters expect to deliver the shares in New York, New York on , 2000. Goldman, Sachs & Co. Robertson Stephens Banc of America Securities LLC PaineWebber Incorporated E*OFFERING ---------- Prospectus dated , 2000 [Description of Inside Front Cover Graphic: Graphic depicts the print job work-flow and communication process before and after Noosh.com. The graphic on the left-hand side of the page depicts the process before Noosh.com and contains circles, squares and triangles, arranged in a circular pattern, representing the parties involved in the print production process. In the center of the circle is a square representing a print broker, a circle representing the printing sales representative and a triangle representing the print buyer. Connecting the three parties in the center of the circle with the parties forming the outside of the circle are numerous lines representing the multiple interactions among the multiple parties prior to deploying our Noosh.com service. The graphic on the right-hand side of the page depicts the process after Noosh.com and also contains circles, squares and triangles, arranged in a circular pattern, representing the parties involved in the print production process. In the center of the circle is the Noosh logo. Lines connect the Noosh logo with each of the parties forming the outside of the circle representing the fact that Noosh acts as a central location enabling collaboration among all the parties involved in the print production process.] Top caption: Noosh leverages the power of the Internet to improve the process of managing the design, procurement and production of print projects. Caption above Caption above left-hand graphic: right-hand graphic: Noosh is a leading provider Traditional processes of designing, of business-to-business procuring and producing print projects e-commerce solutions for can be extremely inefficient and are the printing industry. often plagued by miscommunication errors Our Internet-based service, between print buyers, pring brokers, noosh.com, is designed to prepress specialists, printers, and address the complex, creative agencies. The noosh.com service multi-step process of provides a central location where the completing print projects. parties involved in a print job can collaborate effectively in a secure Internet environment. Caption below Caption below left-hand graphic: right-hand graphic: The traditional process of Noosh.com improves the process of managing print can be managing print by providing an hindered by miscommunication environment where print job participants errors--multiple faxes, returned can work together more efficiently with emails and missed phone better information. messages--throughout the job cycle. Accuracy, costs and timeliness are the biggest casualties. [Description of gatefold graphics: Graphic depicts Web site page views of our Noosh.com service. In the center is a depiction of the first page of our Web site. Underneath, in a semi-circle, are five additional graphics depicting other Web site page views correlating to features available on Noosh.com. Features highlighted are "Open Job", "Request/Accept Estimates", Collaborate", "Order Management/Event Tracking", "Ship Completed Jobs" and "Management Reporting." The gatefold also contains logos of our users.] Top Left Caption: Noosh provides a business-to-business, Internet-based service for managing the design, procurement and production of print projects. With our service, everyone involved in the print production and management process can communicate effectively, manage print job deadlines and view information regarding job status. Top Right Caption: Print buyers can easily create job specifications and collaborate with necessary parties throughout the design, procurement and production stages of the print project. As the project progresses, print buyers and printers can notify each other and other team members of status changes, pose specification questions, revise schedules, and collaborate on other aspects of the project in real time. Open Jobs: The Jobs page contains current job status, due date, and key contact information. Any job, even archived jobs, can be accessed quickly by sorting on due date, printer, client and other criteria. Both print buyers and printers use a one- click menu to easily update print job status. Request/Accept Estimates: Print jobs can be created and submitted by buyers, and quoted online by print vendors, locally or anywhere in the world. Job specifications and order revisions are managed consistently, enabling buyers and print vendors to share common order description formats. Collaborate: Users build job teams consisting of participants from multiple organizations. Each individual team member is assigned specific access privileges for modifying and viewing print projects. Team members can post messages as well as upload, edit and approve files to the print job. Order Management/Event Tracking: The noosh.com service provides online ordering, confirmation and order status reports from design through delivery enabling collaborative management and order tracking throughout the entire print process. A complete online record of the order history gives everyone involved in the print project a comprehensive and up-to-the-minute status report. Ship Completed Jobs: Print buyers can choose to ship projects to one or multiple locations. Noosh.com tracks the status of shipments and all relevant information about each delivery is displayed in one place. Management Reporting: Noosh.com provides instant access to real-time job-management reports. Printers can keep track of each customer's account history and a sales representative's performance. Print buyers are able to track the costs of print projects and budget spending in the future for similar projects. PROSPECTUS SUMMARY You should read the following summary together with the more detailed information regarding NOOSH, Inc., and our financial statements and the related notes appearing elsewhere in this prospectus. Unless otherwise indicated, this summary and all the information in this prospectus assumes the automatic conversion of all outstanding shares of our preferred stock into shares of common stock upon the closing of this offering, the reincorporation of NOOSH in Delaware and no exercise of the underwriters' over-allotment option. Our Business We are a leading provider of business-to-business e-commerce solutions for the printing industry. We have developed and operate noosh.com, an Internet- based service for managing the design, procurement and production of print orders. Our service can be used to manage print products as diverse as business cards and stationery, promotional brochures and direct mail, customized packaging and labels, and books and magazines. Our service leverages the benefits of the Internet to enable print buyers, print vendors and other providers of related services to communicate and collaborate efficiently through the complex, multi-step process of a print job. Through December 31, 1999, we did not generate any revenues. From our initial testing of our noosh.com service in July 1999 through December 31, 1999, over 80 print buyers and print vendors have managed the design, procurement and production of over 350 print orders using noosh.com. These print orders were managed by companies using our service for evaluation purposes, and we received no revenues from them. Our service is primarily targeted at large national corporations and their print vendors. Print vendors who use our service generally will pay us a transaction fee based on the size and volume of the print order, and print buyers who use our service generally will pay us a monthly fee. As of April 4, 2000 over 166 print buyers and print vendors have signed agreements with us to use our service, including Bank of America Corp., the General Electric Company and Wells Fargo & Company. In addition, to promote the acceptance of our service by large national corporations, we have entered into agreements with national vendors in the print industry under which they have agreed to market our service to their customers. To date, these vendors include Consolidated Graphics, Inc., Moore North America, Inc., R.R. Donnelley & Sons Company and Wallace Computer Services, Inc. These agreements do not obligate the print buyers or print vendors to use our service. We were incorporated in August 1998 and have a limited operating history. Through December 31, 1999, we did not generate any revenues, and we have a history of significant losses. We incurred a net loss of $17.6 million for the year ended December 31, 1999 and, as of December 31, 1999, we had an accumulated deficit of $18.0 million. We anticipate that we will continue to incur operating losses and negative operating cash flow in the foreseeable future. In addition, we operate in a competitive industry in which new competitors can enter with little difficulty. Accordingly, we expect competition in the market for print management services to intensify in the future. See "Risk Factors" beginning on page 6 to read about these and other factors you should consider before buying our shares. Corporate Information We were incorporated in California in August 1998 and reincorporated in Delaware in March 2000. Our corporate offices are located at 3401 Hillview Avenue, Palo Alto, California 94304. Our telephone number at that location is (650) 320-6000. Information contained on our Web site does not constitute part of this prospectus. We have filed for federal trademark registration for NOOSHSM, the NOOSHSM logo and LiveJobsSM. Other trademarks and tradenames appearing in this prospectus are the property of their holders. 3 The Offering Common stock offered by NOOSH.............. 4,000,000 shares Common stock to be outstanding after this offering.................................. 37,602,173 shares Use of proceeds............................ For working capital and general corporate purposes. See "Use of Proceeds". Proposed Nasdaq National Market symbol..... "NOSH"
The number of shares of common stock to be outstanding after this offering is stated as of April 4, 2000 and includes: . 21,981,137 shares of common stock and Class B common stock to be issued upon automatic conversion of preferred stock upon completion of this offering, based on an assumed initial public offering price of $12.00 per share; . 4,000,000 shares of common stock to be issued upon completion of this offering; and . 35,000 shares of common stock issuable upon exercise of a portion of an outstanding warrant at an exercise price of $7.45 per share prior to this offering. The number of shares of common stock to be outstanding after this offering excludes: . 14,950,000 shares of common stock authorized for issuance under our employee stock option plans, non-employee directors' stock option plan and our employee stock purchase plan, of which 4,392,538 shares, at a weighted average exercise price of $2.06, were subject to outstanding options as of April 4, 2000; . warrants for 1,573,308 shares of common stock and Class B common stock that are exercisable as of April 4, 2000 at a weighted average exercise price of $11.31; and . warrants for an additional 2,785,250 shares of common stock that may become exercisable in the future based on the holders meeting stated volume targets for business conducted over our service. Upon completion of this offering, our executive officers, directors, principal stockholders and their affiliates will beneficially own, in the aggregate, approximately 64.3% of our outstanding common stock. In addition, following this offering, our existing stockholders will own approximately 89.4% of our stock. As a result, these stockholders may be able to control all matters requiring stockholder approval, including the election of directors and approval of significant corporate transactions, which could delay or prevent a change of control of NOOSH. 4 SUMMARY FINANCIAL DATA The following summary financial data are derived from our financial statements included elsewhere in this prospectus. The pro forma balance sheet data reflects the receipt of net proceeds of $15.6 million upon the issuance and sale of 1,418,182 shares of Series D preferred stock to R.R. Donnelley and two other investors in January 2000 and the receipt of net proceeds of $10.0 million upon the issuance and sale of 769,231 shares of Series E preferred stock to GE Capital Equity Investments, Inc., an affiliate of the General Electric Company, in April 2000. The pro forma as adjusted balance sheet data reflects the receipt of net proceeds from the sale of 4,000,000 shares of common stock offered by us at an assumed initial public offering price of $12.00 per share after deducting an assumed underwriting discount and estimated offering expenses payable by us and assumes the exercise of a portion of an outstanding warrant for a total of 35,000 shares of common stock at an exercise price of $7.45 per share prior to this offering.
Period from Period from August 3, August 3, 1998 (date 1998 (date of of inception) inception) to Year Ended to December 31, December 31, December 31, 1998 1999 1999 ------------ ------------ ------------ (in thousands, except share and per share data) Statements of Operations Data: Costs and expenses: Research and development (exclusive of non-cash compensation expense of $771 in 1999 reported below).............. $ 111 $ 3,053 $ 3,164 Sales and marketing (exclusive of non- cash compensation expense of $984 and value of warrants granted of $1,249 in 1999 reported below).............. 96 9,412 9,508 Value of warrants granted in connection with marketing agreements........................... -- 1,468 1,468 General and administrative (exclusive of non-cash compensation expense of $813 in 1999 reported below)......... 107 1,795 1,902 Amortization of deferred stock compensation......................... -- 2,568 2,568 --------- ---------- --------- Total operating expenses............ 314 18,296 18,610 Interest income, net.................... -- (648) (648) --------- ---------- --------- Net loss................................ $ (314) $ (17,648) $ (17,962) ========= ========== ========= Net loss per share--basic and diluted... $ (0.12) $ (4.13) $ (4.77) ========= ========== ========= Shares used in per share calculation-- basic and diluted...................... 2,521,485 4,275,090 3,763,399 ========= ========== ========= Pro forma net loss per share--basic and diluted................................ $ (1.15) ========== Shares used in pro forma net loss per share--basic and diluted............... 15,356,918 ========== As of December 31, 1999 -------------------------------------- Pro Forma Actual Pro Forma As Adjusted ------------ ------------ ------------ (in thousands) Balance Sheet Data: Cash and cash equivalents............... $ 48,349 $73,949 $ 117,650 Working capital......................... 47,238 72,838 116,539 Total assets............................ 53,029 78,629 122,330 Long-term debt.......................... 79 79 79 Total stockholders' equity.............. 50,892 76,492 120,193
5 RISK FACTORS You should carefully consider the following risk factors and all other information contained in this prospectus before purchasing our common stock. Investing in our common stock involves a high degree of risk. The risks and uncertainties described below are those we currently believe are material to our business, our industry and this offering. If any of the following risks actually occurs, our business, operating results and financial condition could be seriously harmed. In addition, the trading price of our common stock could decline due to the occurrence of any of these risks, and you may lose all or part of your investment. Additional unknown or unanticipated risks and uncertainties could also harm our business. See "Note Regarding Forward-Looking Statements". Risks Related to Our Business We only incorporated in August 1998 and generated no revenue through December 31, 1999. Because our limited operating history makes it difficult to evaluate our business, our future financial performance may disappoint investors and result in a decline in our common stock price. We were incorporated in August 1998 and have a limited operating history, which makes an evaluation of our current business and prospects difficult. Through December 31, 1999, we did not generate any revenues. In addition, the revenue and income potential of our business are unproven. Due to our limited operating history, it will be difficult to predict accurately our future revenues or results of operations. This may result in one or more quarters where our financial performance falls below expectations of investors. As a result, the price of our common stock may decline. The market for Internet-based print management services is at an early stage of development and, if our noosh.com service does not achieve widespread commercial acceptance, we will be unable to generate revenue. Because the market for Internet-based print management services is at an early stage of development, our noosh.com service may fail to achieve market acceptance. The acceptance of our Internet-based service may be hindered by: . the reluctance of prospective customers to change their existing print purchasing habits and alter the nature of their direct print vendor relationships; . our failure to effectively communicate the value of our service to prospective customers; . the inability of national printers with whom we have a relationship to effectively co-market our service to their customers; and . the emergence of new technologies or industry standards that could cause our service to be less competitive. If our potential customers do not recognize the value of, or choose not to adopt, our service, we will be unable to generate revenue. Because print buyers and print vendors currently coordinate print orders through a medium other than the Internet, they may not accept our Internet- based print management service and our business could suffer. Most print buyers and print vendors currently coordinate the procurement and management of customized print orders through either a combination of telephone, facsimile and paper or through proprietary software solutions. Growth in the demand for our noosh.com service depends on the adoption of e- commerce and Internet services by print buyers and print vendors, which requires their 6 acceptance of a new way of managing the design, procurement and production of print orders. However, we may not be able to persuade print buyers or print vendors to abandon their traditional print management processes because of comfort with these processes and because of the existing direct relationships between print buyers and their vendors. Our business could suffer if Internet- based print management services are not accepted or not perceived to be effective by print buyers and print vendors. We expect to incur significant future operating losses and may never achieve profitability. We did not generate any revenue through December 31, 1999, and we have never been profitable. We incurred a net loss of $11.7 million for the quarter ended December 31, 1999 and a net loss of $17.6 million for the year ended December 31, 1999. We anticipate that we will continue to incur operating losses and net losses for the foreseeable future. The extent of our future losses are dependent, in part, on the amount of growth in our revenue relative to our operating expenses. However, we currently expect to increase our operating expenses significantly as we incur expenses related to the development, operation and marketing of our service. In turn, our ability to generate revenue depends on our ability to convert our current users to paying customers and obtain new customers. If we fail to generate significant revenue, or if our operating expenses increase without a corresponding increase in revenue, our losses will continue to increase in future periods. Converting our existing users to revenue-generating customers and attracting new customers is a complex and time-consuming process which may take longer than we expect. As of December 31, 1999, all of the users of our service were using it for evaluation purposes and were not paying for their usage of our service. In addition, our user agreements do not obligate our users to use our service in the future. We cannot assure you that we will be able to convert our existing users to revenue-generating customers or what price these customers will be willing to pay for our service. In addition, the comprehensive implementation of our service by large print buyers or vendors can be complex and time consuming because it may require us to perform a workflow analysis, input contact lists and past documents as templates and train the individuals within the print buyer's or print vendor's organization. Therefore, to sell our service successfully, we must educate our potential customers on the uses and benefits of our service, which can require significant time and resources on our part. Consequently, we can not assure you that we will be able to attract new customers. If we are unable to convert our existing users to revenue- generating customers or attract new customers, our ability to expand our business will be hindered. Intense competition in our industry could substantially impair our business and our operating results. We expect competition in the market for Internet-based print management services to intensify significantly in the future because new competitors can enter the market with little difficulty and can launch new Internet-based services for a relatively low cost. Competitors may offer Internet-based print management services superior to our current or proposed offerings and achieve greater market acceptance. In addition, because we have only recently implemented a pricing structure for our service, we cannot be certain that current users and future customers will be willing to pay the prices we have set. If we do not achieve market acceptance before our competitors offer more attractive services, we will lose customers and our market share will decline. We currently or potentially will compete with a number of other companies, including print vendors offering traditional methods of buying and managing print orders, companies that offer business-to-business Internet-based services for the printing industry, such as Collabria, Inc., printCafe, Inc. and Impresse Corporation, and companies that provide proprietary management software and who may develop alternative print procurement and management services. In addition, 7 existing print vendors, including some of our users, may develop competing Internet-based services for the management of print orders. These vendors have well-established relationships with our current print buyers and potential customers, a large base of installed customers, extensive knowledge of our industry and significantly greater financial and marketing resources than we do. To the extent existing print vendors elect to offer their services over the Internet, their relationships with their customers and industry knowledge may provide them with a competitive advantage because print buyers may be unwilling to adopt a new Internet-based system or may be more comfortable adopting the Internet-based services offered by their current print vendors. Because our quarterly operating results are difficult to predict and likely to fluctuate in future periods, we may fail to meet the expectations of investors, which may cause the market price of our common stock to decrease. Operating results are difficult to predict and are likely to vary significantly from quarter to quarter in the future. We compete in the general printing market, which is characterized by individual orders from customers for specific printing projects rather than long-term contracts. Continued engagement for successive print orders depends on the customers' satisfaction with our service. Therefore, the number, size and profitability of print orders may fluctuate from quarter to quarter. As a result, our quarterly operating results are difficult to predict and may fall below the expectations of current or potential investors in some future quarters, which could lead to a significant decline in the market price of our stock. Because we have granted some of our print vendors and print buyers performance- based warrants, we expect to incur substantial non-cash charges which will reduce our operating results. We expect to incur substantial non-cash charges associated with the grant of warrants to four print vendors and three print buyers. For example, for the quarter ended December 31, 1999, we recorded an expense of $1.5 million in connection with portions of warrants issued to two print vendors. We expect to record an expense of $3.9 million in the quarter ending March 31, 2000 in connection with a portion of the warrant issued to a third print vendor and, based on an assumed initial public offering price of $12.00 per share, an expense of $5.7 million in the quarter ending June 30, 2000 in connection with a portion of a warrant issued to a print buyer. The remaining portions of these warrants and the warrants to one of the print vendors and to the print buyers are exercisable when the holders meet stated volume targets for business conducted on or through our noosh.com service. The magnitude of each additional charge will be measured and the charge will be taken when it becomes probable that the applicable volume targets will be achieved. Accordingly the magnitude of these potential charges cannot be currently calculated. However we expect that the charges will be relatively large, and our operating results will be reduced correspondingly. If we are unable to expand our sales, marketing and customer support infrastructure successfully, our ability to increase sales of our service will be compromised. Our ability to expand our business will depend in part on recruiting and training additional direct sales, marketing and customer support personnel, including additional personnel in new geographic markets as we expand. Competition for qualified sales, marketing and customer support personnel is intense. We may not be able to expand our direct sales force successfully, which would limit our ability to expand our customer base. We may be unable to hire highly trained customer support personnel, which would make it difficult for us to meet customer demands. Any difficulties we may have in expanding our sales, marketing or customer support organizations will have a negative impact on our ability to attract new customers and retain existing users. 8 If we are unable to retain our current management and product development personnel, we may not be able to support the growth of our business. In order for our business to be successful, we must be able to retain the services of Ofer Ben-Shachar, our President and Chief Executive Officer, David Hannebrink, our Vice President of Marketing and Business Development, Lawrence Slotnick, our Vice President of Engineering and Robert Shaw, our Senior Vice President of Sales. The loss of the services of any one of these members of management could have a negative effect on our business. In particular, because competition for senior management, experienced sales and marketing personnel, software developers, qualified engineers and other employees is intense, we cannot be certain that we will be successful in attracting and retaining such personnel. If we fail to retain the services of our current management and product development personnel, our business and future product development could be severely harmed. Because many of the members of our management team have been employed with us for less than one year, we cannot be certain that they will be able to manage our business successfully. We are dependent on the successful integration of our management team in order for our business to be successful. Because of our limited operating history, many of our existing management personnel have been employed by us for less than a year. Therefore, we cannot be certain that we will be able to allocate responsibilities satisfactorily and that the new members of our management team will succeed in their roles. Our inability to integrate members of our current management team or any additional qualified personnel would make it difficult for us to manage our business successfully and pursue our growth strategy. If we are unable to update the features and functionality for our service in response to rapid changes in customer needs, competitive offerings, industry standards and technology, our service may become obsolete and we will be unable to compete. For us to succeed, we must continue to enhance the features and functionality of our current service and to develop and introduce new services in a timely and cost-effective manner. We cannot be certain that the features and functionality that we currently offer, or the features and functionality that we may offer in the future, will be sufficient to encourage and facilitate the use of our noosh.com service. If we are unable to accurately determine, design or implement the appropriate features and functionality for our noosh.com service, or if we are unable to adapt to changing conditions, including new competitive service offerings, emerging industry standards and rapidly changing technology, users may delay or decide against purchasing our service. We may incur substantial expenses pursuing new or complementary business objectives, which may harm our operating results. Part of our strategy is to pursue new or complementary business opportunities within and outside the printing industry and to expand internationally. We may not be able to expand our service offerings and related operations in a cost- effective or timely manner. Expansion of our business into other print-related markets will require significant additional expenditures and strain our personnel and resources. For example, we may need to incur significant marketing expenses to develop relationships with new suppliers and customers. In addition, we cannot be certain that we will be able to use our Live Jobs technology to expand our service offerings outside the printing industry in a timely and cost-effective manner. Even if we are successful in applying our technology to non-print related markets, our new service offerings may not achieve market acceptance, which could damage our reputation. 9 Because we have recently granted stock options to our employees at exercise prices significantly below the assumed initial public offering price, we will recognize a significant deferred stock compensation expense which could harm our operating results. Since inception in August 1998 through December 1999, we have granted options to employees at exercise prices which, based on the assumed initial public offering price of $12.00, we determined are below the deemed fair market value of our common stock for financial reporting purposes. As a result, we have recorded deferred stock-based compensation of $17.9 million for the period since inception through December 31, 1999. Of this $17.9 million, we recognized deferred stock compensation of $2.6 million for the year ended December 31, 1999. The remainder will be amortized as stock-based compensation over the vesting period of the options, or through 2003. In addition to these charges, we expect to record an additional $14.2 million of deferred stock-based compensation for options granted to employees from January 1, 2000 to April 4, 2000, which could harm our operating results. Third parties may increase the fees they charge us for their technology or refuse to license technology to us, which may increase our costs or harm our service. We rely on third parties to provide us with some software and hardware, for which we pay fees. Although this technology is currently available, third parties may increase their fees significantly or refuse to license their software or provide their hardware to us. While other vendors may provide similar technology, we cannot be certain that we would be able to obtain the required technology on favorable terms or at all. If we cannot obtain the required technology at a reasonable cost or this technology is inadequate, we may incur additional expenses or experience delays or disruptions in our service. Our inability to protect our intellectual property rights from third-party challenges may significantly impair our competitive position. If we fail to protect our proprietary rights adequately, our competitors could offer similar services, potentially harming our competitive position. We rely on a combination of copyright, trademark and trade secret laws and restrictions on disclosure to protect our intellectual property rights. We have filed for trademark protection for NOOSH, the NOOSH logo and LiveJobs. We also have four U.S. patent applications pending in connection with the internally developed software applications that comprise our LiveJobs technology. However, we do not have any issued patents to date, and we can not be sure any patents will issue. We cannot be certain that the steps we have taken to protect our intellectual property rights will be adequate or that third parties will not infringe or misappropriate our proprietary rights. We also cannot be sure that competitors will not independently develop technologies that are substantially equivalent or superior to the proprietary technologies employed in our Internet-based service. Our service may infringe on the intellectual property rights of third parties, which may result in lawsuits and prevent us from selling our service. In recent years, there has been significant litigation in the United States concerning patents and other intellectual property rights involving companies in the Internet industry. Our business activities may infringe on the proprietary rights of others and other parties may assert infringement claims against us. In February 2000, we received a letter from an individual advising us that the individual's patent may cover certain aspects of our service and requesting that we consider licensing the patent. We are currently evaluating the patent. However, based upon our preliminary review, we do not believe that we require a license under the patent to operate our current service. If this matter, or any similar future matters or claims, cannot be resolved through a license or similar arrangement, we could become a party to litigation. Intellectual property claims and any resulting lawsuits, if successful, could subject us to significant liability for damages and result in invalidation of our proprietary rights. In addition, these claims, regardless of whether they result in litigation and 10 regardless of the outcome of the litigation, would be time-consuming and expensive to resolve and divert management time and attention. Any intellectual property dispute may cause us to do one or more of the following: . stop selling or using our service; . attempt to obtain from the owner of the infringed intellectual property right a license to sell or use the relevant technology, which license may not be available on reasonable terms or at all; or . redesign the service. If we are forced to take any of these actions, our business may be harmed. Although we carry general liability insurance, our insurance may not cover claims of this type or may not be adequate to indemnify us for all liability that may be imposed. Risks Related to the Internet Industry We depend on the increasing use of the Internet and on the growth of electronic commerce. If businesses do not accept Internet-based print management services, our business will fail. For us to succeed, the Internet must continue to be adopted as a significant business-to-business tool for managing vital business functions such as managing and producing printed business materials. To date, many businesses have been deterred from using the Internet for a number of reasons, including: . unavailability of cost-effective, high-speed Internet access; . inconsistent quality of service; . potentially inadequate development of the global Internet infrastructure; and . the difficulty of integrating existing business software applications with online systems. Although the Internet has been widely adopted for business transactions, it may not achieve broad market acceptance for managing the design, procurement and production of print orders. Companies that have already invested substantial resources in traditional methods of managing and producing printed business materials may be reluctant to adopt new Internet-based services. Any damage to or failure of our service could disrupt our business and undermine our reputation. Our operations depend in part on our ability to protect our systems against physical damage from fire, earthquakes, power loss, telecommunications failures, computer viruses, hacker attacks, physical break-ins and similar events. Any software or hardware damage or failure that causes interruption or an increase in response time of our online service could reduce customer satisfaction and decrease usage of our service. We have entered into a colocation agreement with AboveNet, Inc. to provide data center colocation, Internet connectivity, conditioned power and support and maintenance of our hardware and software at AboveNet's San Jose, California facility. Since our data warehousing and network facilities are located in California, an earthquake, other natural disaster, or telecommunications failure could affect our operations unexpectedly and prevent us from offering our service. We cannot be certain, and AboveNet does not guarantee, that our service will be uninterrupted, error-free or secure. From time to time, we have experienced disruptions in service as a result of telecommunications failure. Any future interruptions, errors or breaches of security could harm our business and our reputation. 11 Security risks and concerns may deter the use of the Internet for conducting e- commerce, which may inhibit the use of our service and limit our growth. Secure transmission of confidential information over public networks is critical for conducting e-commerce. Advances in computer capabilities, new discoveries in the field of cryptography or other events or developments could result in compromises or breaches of our security systems. If any well-publicized compromises of security were to occur, they could have the effect of substantially reducing the use of the Internet for commerce and communications, which could reduce usage of our service and harm our business. Anyone who circumvents our security measures could misappropriate proprietary information or cause interruptions in our service or operations. In the past, computer viruses or software programs that disable or impair computers, have been distributed and have rapidly spread over the Internet. Computer viruses could be introduced into our systems or those of our users, which could disrupt our network or make it inaccessible to users. We may be required to expend significant capital and other resources to protect against the threat of security breaches or to alleviate problems caused by breaches. To the extent that our activities may involve the storage and transmission of proprietary information, security breaches could expose us to a risk of loss or litigation and possible liability. Our security measures may be inadequate to prevent security breaches, and our business would be harmed if we do not prevent them. Because the volume of data traffic over the Internet, in general, and our Web site, in particular, has increased significantly over a short period of time, users may experience performance problems with our service which may hinder the adoption of our Internet-based print management service. Our success in attracting and retaining customers and convincing them to increase their reliance on our Internet-based print management service depends on our ability to offer customers reliable and continuous service. This requires us to ensure continuous and error-free operation of our systems. To the extent that the volume of data traffic on our web site and other systems increases, we must upgrade and enhance our technical infrastructure to accommodate the increased demands placed on our systems. Our ability to increase the speed and reliability of our service, however, is limited by and depends upon both the infrastructure supporting the Internet and the internal networks of our existing users and future customers. As a result, the success of our service is dependent upon improvements in networking infrastructure. If these improvements are not available or are not implemented in a timely fashion by our current users and future customers, we will have difficulty in retaining current users or attracting new customers, and our business would be harmed. Increasing governmental regulation on electronic commerce and legal uncertainties could limit our growth. The adoption of new laws or the adaptation of existing laws to the Internet may decrease the growth in the use of the Internet, which could in turn decrease the demand for our services, increase our cost of doing business or otherwise harm our business. Federal, state, local and foreign governments are considering a number of legislative and regulatory proposals relating to Internet commerce. As a result, a number of laws or regulations may be adopted regarding Internet user privacy, security, taxation, pricing, quality of products and services and intellectual property ownership which may also be applicable to us. How existing laws will be applied to the Internet in areas such as property ownership, copyright, trademark, trade secret, obscenity and defamation is uncertain. The recent growth of Internet commerce has been attributed by some to the lack of sales and value-added taxes on interstate sales of goods and services over the Internet. Numerous state and local authorities have expressed a desire to impose such taxes on sales to consumers and businesses in their jurisdictions. The Internet Tax Freedom Act of 1998 prevents imposition of such taxes through October 2001. If the federal moratorium on state and local taxes on Internet sales is not renewed, or if it is terminated before its expiration, sales of goods and services over the Internet could be subject to multiple overlapping tax schemes, which could substantially hinder the growth of Internet-based commerce, including sales of our service. 12 Risks Related to this Offering In the future, we may need to raise additional capital to fund our operations. Any difficulty in obtaining additional financial resources could force us to curtail our operations or prevent us from pursuing our growth strategy. We believe that our existing cash and cash equivalents will be sufficient to meet our anticipated cash needs for working capital and capital expenditures for at least the next twelve months. However, even with the proceeds of this offering, we may need to raise additional capital in the future in order to fund our planned expansion of operations, to pursue additional customer sales and to pursue our growth strategy. Our future capital requirements will depend on many factors that are difficult to predict, including our rate of revenue growth, our operating losses, the cost of obtaining new customers, the cost of upgrading and maintaining our infrastructure and other systems and the size, timing and structure of any acquisition that we complete. As a result, we cannot predict with certainty the timing or amount of our future capital needs. We have no commitments for additional financing, and we may experience difficulty in obtaining additional funding on favorable terms or at all. If adequate funds are not available or not available on acceptable terms, we may be unable to fund our expansion, promote our brand identity, take advantage of unanticipated acquisition opportunities, develop or enhance services or respond to competitive pressures. Any such inability could force us to curtail our operations and would have a negative effect on our business. Any future funding may dilute the ownership of our stockholders or impose limitations on our operations. If we raise additional funding through the issuance of equity, the percentage of our company owned by our then current stockholders will be correspondingly reduced. Our stock price may be volatile, and you may not be able to resell your shares at or above the initial public offering price. Prior to this offering, there has been no public market for our common stock. The initial public offering price of our common stock will be determined through negotiations between us and the representatives of the underwriters. However, we cannot predict whether the market price of our common stock following this offering will be below, at, or above the initial public offering price. We also cannot be certain whether an active trading market in the common stock will develop following this offering and how liquid that market will be. As a result, if you decide to purchase our shares, you may not be able to resell your shares at or above the initial public offering price. The market price for our shares of common stock may be volatile. A number of factors can contribute to volatility in our stock price, including: . actual or anticipated variations in our quarterly operating results; . changes in revenue; . changes in market valuations of other Internet or online commerce companies; . the gain or loss of significant relationships with national printers or major print buyers; . announcements of technological innovations or significant contracts by us or our competitors; . acquisitions, strategic partnerships, joint ventures or capital commitments; . additions or departures of key personnel; and . general conditions in the Internet commerce and printing industries. 13 In addition, the stock market in general has experienced extreme price and volume fluctuations that have been unrelated to the operating performance of particular companies. This is particularly characteristic of many companies in the technology and emerging growth sectors. These broad market fluctuations could materially adversely affect the market price of our common stock. Our existing stockholders will be able to exercise significant control over all matters requiring stockholder approval. On completion of this offering, our executive officers, directors and greater than 5% stockholders, consisting of Accel Partners, Advanced Technology Ventures, Meritech Capital and R.R. Donnelley and their affiliates, will beneficially own, in the aggregate, approximately 64.3% of our outstanding common stock. As a result, these stockholders, acting together, would be able to exercise significant control over all matters requiring stockholder approval, including the election of directors and approval of significant corporate transactions, which may have the effect of delaying or preventing a third party from acquiring control over us. Provisions of our charter documents and Delaware law contain provisions that may discourage a takeover, which could limit the price investors might be willing to pay in the future for our common stock. Provisions of our certificate of incorporation and our bylaws may have the effect of delaying or preventing an acquisition, a merger in which we are not the surviving company or changes in our management. These provisions: . establish a classified board of directors so that not all members of the board may be elected at one time; . authorize the issuance of "blank check" preferred stock that could be issued by our board of directors to increase the number of outstanding shares and thwart a takeover attempt; . limit who may call a special meeting of the stockholders; . prohibit stockholder action by written consent, thereby requiring all stockholder actions to be taken at a meeting of our stockholders; and . establish advance notice requirements for nominations for election to the board of directors or for proposing matters that can be acted upon by stockholders at stockholder meetings. In addition, because we reincorporated in Delaware, we are governed by the provisions of Section 203 of the Delaware General Corporation Law. These provisions may prohibit large stockholders, in particular those owning 15% or more of the outstanding voting stock, from consummating a merger or combination including us. These provisions could limit the price that investors might be willing to pay in the future for our common stock. 14 Future sales of our common stock may depress our stock price. Sales of our common stock into the market could cause the market price of our common stock to drop significantly, even if our business is doing well. After this offering, we will have outstanding 37,602,173 shares of common stock assuming no exercise of the underwriters' over-allotment option. All the 4,000,000 shares sold in this offering will be freely tradable at the date of this prospectus. The remaining 33,602,173 shares of our common stock that will be outstanding after this offering will be eligible for sale as follows:
Number of Shares Date eligible for sale ---------------- ---------------------- 20,106,997 180 days after the date of this prospectus, if sales meet the restrictions under federal securities laws 13,495,176 Beginning in November 2000, if sales meet the restrictions under federal securities laws
The table above gives effect to lockup agreements with the underwriters or agreements with us under which our directors, officers, employees and other stockholders have agreed not to sell, transfer or otherwise dispose of their shares of common stock for 180 days after the date of this prospectus. Although there is no agreement or understanding for the underwriters to waive the lock- up agreements, Goldman, Sachs & Co. may, in its sole discretion and at any time without prior notice, release all or any portion of the common stock subject to lock-up agreements. Additionally, of the 4,392,538 shares that may be issued upon the exercise of outstanding options as of April 4, 2000, approximately 2,416,264 shares will be vested and eligible for sale 180 days after the date of this prospectus. As of April 4, 2000, warrants for 1,573,308 shares of common stock and Class B common stock were exercisable and warrants for an additional 2,785,250 shares of common stock and Class B common stock may become exercisable in the future based on the holders meeting stated volume targets for business conducted over our service. If exercised, the earliest that these shares will be eligible for sale under Rule 144 is December 2000. For a further description of the eligibility of shares for sale into the public market following this offering, see "Shares Eligible for Future Sale". 15 NOTE REGARDING FORWARD-LOOKING STATEMENTS Some of the statements under "Prospectus Summary", "Risk Factors", "Management's Discussion and Analysis of Financial Condition and Results of Operations", "Business" and elsewhere in this prospectus constitute forward- looking statements. These statements involve known and unknown risks, uncertainties and other factors that may cause our or our industry's actual results, levels of activity, performance or achievements to be materially different than any expressed or implied by these statements. In some cases, you can identify statements by terminology such as "may", "will", "should", "expects", "plans", "anticipates", "believes", "estimates", "predicts", "potential", "continue" or the negative of these terms or other comparable terminology. Although we believe that the expectations reflected in the statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. We are under no duty to update any of the statements after the date of this prospectus to conform these statements to actual results or events except to the extent required under law. 16 USE OF PROCEEDS We estimate that the net proceeds to us from the sale of the shares being offered will be $43.4 million, at an assumed initial public offering price of $12.00 per share after deducting an assumed underwriting discount and estimated offering expenses payable by us. If the underwriters exercise their over- allotment option in full, then we estimate that the net proceeds to us from the sale of the shares being offered will be $50.1 million. We intend to use all of the proceeds for working capital and general corporate purposes. However, we have not made a specific allocation of the proceeds. The primary purposes of this offering are to fund our operations, increase our visibility in the marketplace, create a public market for our common stock and facilitate future access to public equity markets. We may also use a portion of the net proceeds to acquire complementary technologies or businesses. However, we currently have no commitments or agreements and are not involved in any negotiations involving any of these transactions. Pending use of the net proceeds of this offering, we intend to invest the net proceeds in interest-bearing, investment grade securities. DIVIDEND POLICY We have never declared or paid cash dividends on our capital stock. We do not anticipate paying any cash dividends in the foreseeable future. We currently intend to retain any future earnings to finance the expansion of our business. 17 CAPITALIZATION The following table sets forth our capitalization as of December 31, 1999 on an actual, pro forma and pro forma as adjusted basis. The pro forma column reflects the receipt of net proceeds of $15.6 million upon the issuance and sale of 1,418,182 shares of Series D preferred stock to R.R. Donnelley and two other investors in January 2000, the receipt of net proceeds of $10.0 million upon the issuance and sale of 769,231 shares of Series E preferred stock to GE Capital Equity Investments in April 2000 and the automatic conversion of all shares of outstanding preferred stock, into 21,981,137 shares of common stock and Class B common stock upon the closing of this offering, based on an assumed initial public offering price of $12.00 per share. The pro forma as adjusted column reflects our pro forma capitalization plus: . our sale of 4,000,000 shares of common stock at an assumed initial public offering price of $12.00 per share, after deducting an assumed underwriting discount and estimated offering expenses payable by us; and . 35,000 shares of common stock issuable upon exercise of a portion of an outstanding warrant at an exercise price of $7.45 per share prior to this offering. None of the columns reflect: . 14,950,000 shares of common stock authorized for issuance under our employee stock option plans, non-employee directors' stock option plan and our employee stock purchase plan of which 4,392,538 shares were subject to outstanding options as of April 4, 2000; . warrants for 1,573,308 shares of common stock and Class B common stock that were exercisable as of April 4, 2000 at a weighted average exercise price of $11.31; . warrants for an additional 2,785,250 shares of common stock and Class B common stock outstanding as of April 4, 2000 that may become exercisable in the future based on the holders meeting stated volume targets for business conducted over our service; . the issuance of 2,151,477 shares of common stock in connection with the exercise of stock options from December 31, 1999 through April 4, 2000; and . the issuance of 19,886 shares of common stock in connection with services rendered from December 31, 1999 through April 4, 2000. You should read the table below along with our balance sheet as of December 31, 1999 and the related notes.
As of December 31, 1999 -------------------------------- Pro Forma Actual Pro Forma As Adjusted -------- --------- ----------- (in thousands, except share data) Cash and cash equivalents...................... $ 48,349 $ 73,949 $117,650 ======== ======== ======== Long-term debt................................. $ 79 $ 79 $ 79 -------- -------- -------- Stockholders' equity: Preferred stock, par value $0.001; 14,035,000 shares authorized, actual; 15,200,000 shares authorized pro forma; 5,000,000 shares authorized, pro forma as adjusted; 13,195,849 shares issued and outstanding, actual; no shares issued and outstanding, pro forma and pro forma, as adjusted ........ 13 -- -- Common stock, par value $0.001; 45,000,000 shares authorized, actual and pro forma; 75,000,000 shares authorized, pro forma as adjusted; 9,414,673 shares outstanding, actual; 31,395,810 shares outstanding pro forma; 35,430,810 shares outstanding pro forma as adjusted ........................... 9 30 34 Additional paid-in capital.................... 84,525 110,117 153,814 Deferred stock compensation................... (15,379) (15,379) (15,379) Notes receivable from common stockholders..... (314) (314) (314) Deficit accumulated during the development stage........................................ (17,962) (17,962) (17,962) -------- -------- -------- Total stockholders' equity ................. 50,892 76,492 120,193 -------- -------- -------- Total capitalization...................... $ 50,971 $ 76,571 $120,272 ======== ======== ========
18 DILUTION Our pro forma net tangible book value as of December 31, 1999 was $76.5 million, or $2.45 per share. Pro forma net tangible book value per share represents the amount of our total tangible assets, reduced by the amount of our total liabilities, divided by the total number of shares of common stock outstanding after giving effect to the sale and issuance of 1,418,182 shares of Series D preferred stock in January 2000, the sale and issuance of 769,231 shares of Series E preferred stock in April 2000 and the automatic conversion of all shares of outstanding preferred stock into 21,981,137 shares of common stock and Class B common stock upon the closing of this offering based on an assumed initial public offering price of $12.00 per share. Dilution in net tangible book value per share represents the difference between the amount paid per share by purchasers of shares of common stock in this offering and the net tangible book value per share of common stock immediately after the completion of this offering. After giving effect to the sale of the 4,000,000 shares of common stock offered by us at an assumed initial public offering price of $12.00 per share, after deducting an assumed underwriting discount and estimated offering expenses payable by us and after giving effect to the issuance of 35,000 shares of common stock upon the exercise of a portion of a warrant at an exercise price of $7.45 per share prior to this offering, our pro forma net tangible book value at December 31, 1999 would have been $120.2 million or $3.41 per share of common stock. This represents an immediate increase in pro forma net tangible book value of $0.96 per share to existing stockholders and an immediate dilution of $8.59 per share to new investors purchasing shares at the assumed initial offering price. The following table illustrates this dilution on a per share basis: Assumed initial public offering price per share............... $12.00 Pro forma net tangible book value per share at December 31, 1999....................................................... $2.45 Increase per share attributable to new investors............ 0.96 ----- Net tangible book value per share after the offering.......... 3.41 ------ Dilution per share to new investors........................... $ 8.59 ======
The following table summarizes, as of December 31, 1999, after giving effect to the Series D preferred stock and Series E preferred stock issued and the issuance of 35,000 shares of common stock upon the exercise of a portion of a warrant, the differences between the existing stockholders and new investors in this offering with respect to the number of shares of common stock and preferred stock purchased from us, the total consideration paid to us and the average price per share paid:
Shares Purchased Total Consideration Average ------------------ -------------------- Price Number Percent Amount Percent per Share ---------- ------- ------------ ------- --------- Existing stockholders......... 31,430,810 89% $ 90,011,000 65% $ 2.86 New investors................. 4,000,000 11 48,000,000 35 12.00 ---------- --- ------------ --- Totals...................... 35,430,810 100% 138,011,000 100% ========== === ============ ===
The preceding tables assume no issuance of shares of common stock or Class B common stock under warrants or our stock plans after December 31, 1999. As of April 4, 2000, there were outstanding: . 4,392,538 shares subject to outstanding options at a weighted average exercise price of $2.06 per share; . warrants for 1,573,308 shares of common stock and Class B common stock that are exercisable at a weighted average exercise price of $11.31; and . warrants for an additional 2,785,250 shares of common stock and Class B common stock that may become exercisable in the future based on the holders meeting stated volume targets for business conducted over our service. If all of these options were exercised, then the total dilution per share to new investors would be $7.78. 19 SELECTED FINANCIAL DATA The following selected financial data should be read together with our financial statements and related notes, and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included elsewhere in this prospectus. The statements of operations data and the balance sheet data presented below have been derived from financial statements that have been audited by PricewaterhouseCoopers, independent accountants, included elsewhere in this prospectus.
Period from Period from August 3, August 3, 1998 (date 1998 (date of of inception) inception) to Year Ended to December 31, December 31, December 31, 1998 1999 1999 ------------ ------------ ------------ (in thousands, except share and per share data) Statements of Operations Data: Costs and expenses: Research and development (exclusive of non-cash compensation expense of $771 in 1999 reported below).............. $ 111 $ 3,053 $ 3,164 Sales and marketing (exclusive non- cash compensation expenses of $984 and value of warrants granted of $1,249 in 1999 reported below)....... 96 9,412 9,508 Value of warrants granted in connection with marketing agreements........................... -- 1,468 1,468 General and administrative (exclusive of non-cash compensation expense of $813 in 1999 reported below)......... 107 1,795 1,902 Amortization of deferred stock compensation......................... -- 2,568 2,568 --------- ---------- --------- Total operating expenses.............. 314 18,296 18,610 Interest income, net.................... -- (648) (648) --------- ---------- --------- Net loss................................ $ (314) $ (17,648) $ (17,962) ========= ========== ========= Net loss per share, basic and diluted... $ (0.12) $ (4.13) $ (4.77) ========= ========== ========= Shares used in per share calculation -- basic and diluted...................... 2,521,485 4,275,090 3,763,399 ========= ========== ========= Pro forma net loss per share -- basic and diluted...................... $ (1.15) ========== Shares used in pro forma net loss per share -- basic and diluted...................... 15,356,918 ==========
As of December 31, -------------- 1998 1999 ------ ------- (in thousands) Balance Sheet Data: Cash and cash equivalents....................................... $1,117 $48,349 Working capital................................................. 902 47,238 Total assets.................................................... 1,239 53,029 Long-term debt.................................................. -- 79 Total liabilities............................................... 241 2,137 Total stockholders' equity...................................... 998 50,892
20 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following is a discussion of our operations and should be read together with our financial statements and related notes included elsewhere in this prospectus. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of factors including, but not limited to, those set forth under "Risk Factors" and elsewhere in this prospectus. We were incorporated in August 1998, and we initiated testing of our service with users, whom we refer to as beta users, in July 1999. On October 1, 1999, we made our service commercially available to users other than our beta users. Since inception, our operating activities were related primarily to the design and development of our noosh.com service, building our corporate infrastructure, establishing relationships with print buyers and vendors and raising capital. During this time, we have grown our organization by hiring personnel in key areas, particularly sales and marketing and research and development. From inception through December 31, 1999, we accumulated net losses of $18.0 million. Through December 31, 1999, we did not generate any revenues. We intend to generate revenues by charging print vendors a transaction fee based on the size of the print order and the aggregate volume of orders processed by the particular user. Some large print vendors will receive discounts based on aggregate volume and other services they provide. In addition, print buyers generally will pay a monthly fee for using our service. As of December 31, 1999, over 80 print buyers and print vendors had successfully processed over 350 print orders using our service. The aggregate amount paid or payable by print buyers to print vendors for these print orders was $3.36 million, with an average order size in excess of $8,000. These print orders were processed by companies using our service for evaluation purposes, and we received no revenues from them. As we seek to expand our business, we intend to continue to commit significant resources to sales and marketing and research and development activities. We expect that we will incur losses and generate negative cash flow from operations for the foreseeable future. Our ability to achieve profitability depends upon our ability to increase our sales substantially. In view of the rapidly changing nature of our business and our limited operating history, we believe that period-to-period comparisons of our operating results, including our operating expenses, should not be relied upon as an indication of our future performance. In December 1999, we entered into agreements with two print vendors, Consolidated Graphics and Wallace Computer Services, under which they will be able to process print orders placed by their customers using our service. In connection with these agreements, we issued a warrant to Wallace Computer Services to purchase 270,000 shares of common stock and a warrant to Consolidated Graphics to purchase 225,000 shares of common stock. A total of 140,000 shares subject to the Wallace warrant were immediately exercisable and an additional 35,000 shares are exercisable on December 31, 2000, or earlier, if certain targets for business conducted over our service are met, at an exercise price of $7.45 per share. The value of these portions of the warrant, $1,095,000, was charged to operations for the year ended December 31, 1999 because there were no performance targets associated with their exercise. A total of 75,000 shares subject to the Consolidated Graphics warrant were immediately exercisable at an exercise price of $11.00 per share. The value of this portion of the warrant, $373,000, was also charged to operations for the year ended December 31, 1999 because there were no performance targets associated with its exercise. The remaining portions of these two warrants become exercisable only when these print vendors meet stated volume targets for business conducted over our service at exercise prices ranging from $7.45 per share to the fair market value of our common stock on the date the volume targets are met. The remaining shares under the warrants will be valued and a charge will be taken in a similar manner when it becomes probable that the volume targets will be met. 21 In January 2000, we entered into an agreement with a print buyer, Bank of America Technology and Operations, Inc., under which Bank of America will be able to process its print orders using our service. In connection with that agreement, we issued Bank of America a warrant to purchase 50,000 shares of common stock. All of the shares are exercisable at an exercise price of $11.00 per share, but only if Bank of America meets a stated volume target for business conducted over our service. A charge on these shares will be taken using the Black-Scholes option pricing model, assuming a term of three years and expected volatility of 60%. This charge will be taken when it becomes probable that the volume target will be met. In January 2000, we entered into an agreement with R.R. Donnelley to co- market and make our noosh.com service available to R.R. Donnelley's customers. In connection with the agreement, R.R. Donnelley purchased 1,272,727 shares of series D preferred stock for a total of $14.0 million. In addition, we issued two warrants to R.R. Donnelley to purchase an aggregate of 2,780,158 shares of common stock at an exercise price of $11.00 per share. A total of 946,308 shares of common stock are issuable immediately upon the exercise of portions of the warrants. The remaining portions of the warrants are exercisable when R.R. Donnelley or, in the case of one of the warrants, a specific business unit of R.R. Donnelley, meets stated volume targets for business conducted over our service at an exercise price of $11.00 per share. Using the Black-Scholes option pricing model and assuming a term of two years and expected volatility of 60%, the fair value of the shares that are immediately exercisable under the warrants approximated $3.9 million. Accordingly, we will record a charge of $3.9 million for the quarter ending March 31, 2000 in connection with these warrants. The remaining shares under the warrants will be valued and a charge will be taken in a similar manner when it becomes probable that the volume targets will be met. We have also granted R.R. Donnelley the right to require us to register the sales of the shares of common stock issuable to them upon conversion of the warrants. In February 2000, we entered into agreements with a print vendor, ColorGraphics, Inc., and a print buyer, J.Crew Group Inc., under which they will be able to process their print orders using our service. In connection with these agreements, we issued a warrant to ColorGraphics to purchase 100,000 shares of common stock and a warrant to J.Crew to purchase 10,000 shares of common stock. The ColorGraphics warrant is exercisable on the date following the first anniversary of the date of grant and only to the extent ColorGraphics meets stated targets for business conducted over our service. The exercise price of the ColorGraphics warrant ranges from the initial public offering price to the fair market value of our common stock as of the end of the calendar quarter during which the volume target is met. The J. Crew warrant is exercisable on the date following the first anniversary of the date of grant and only to the extent J. Crew meets a target for business conducted over our service. The exercise price for the J. Crew warrant is equivalent to the initial public offering price per share. In April 2000, we entered into an agreement with a print buyer, General Electric Capital Services, Inc., an affiliate of the General Electric Company, under which GE, and any affiliate of GE, will be able to process their print orders using our service. In connection with this agreement, GE Capital Equity Investments, Inc., another affiliate of the General Electric Company, purchased 769,231 shares of Series E preferred stock for a total of $10.0 million. The shares of Series E preferred stock held by GE Capital Equity Investments will convert into Class B common stock upon the closing of this offering. In addition, we issued GE Capital Equity Investments a warrant to purchase up to 958,400 shares of capital stock. A portion of the warrant, for a total of 432,000 shares of capital stock, is immediately exercisable. The remaining portion of the warrant becomes exercisable in increments when GE, together with its affiliates, meets stated volume targets for business conducted over our service and recommends our service to a stated percentage of identified print vendors and customers of GE Capital's Card Services. Initially, the exercise price of the warrant is $13.00 per share. Upon the automatic conversion of our Series E preferred stock upon the closing of this offering, the exercise price of the warrant will be adjusted to the lesser of 22 $13.00 per share or the conversion price of the Series E preferred stock in effect immediately prior to such conversion. Initially, the warrant is exercisable for Class B common stock. At the option of GE Capital Equity Investments, on the date 90 days after this offering, a portion of the warrant may be exercisable for common stock. In addition, on the earlier of April 4, 2001 or the date 180 days after this offering, the remainder of the warrant will become exercisable for common stock. Using a Black-Scholes option pricing model and assuming a term of four years, an initial public offering price of $12.00 per share and expected volatility of 60%, the fair value of the shares that are immediately exercisable under the warrant approximated $5.7 million. Accordingly, we will record a charge of $5.7 million for the quarter ending June 30, 2000 in connection with this portion of the warrant. The remaining shares under the warrant will be valued and a charge will be taken in a similar manner when its becomes probable that the targets applicable to the shares will be met. GE Capital Equity Investments also has the right to require us to register the sales of the common stock issuable upon conversion of the warrant. Options granted to our employees from our inception through December 31, 1999 have been granted at exercise prices which, based on the assumed initial public offering price of $12.00 per share, we determined are below the deemed fair market value for financial reporting purposes. Since inception through December 31, 1999, we had recorded aggregate deferred stock compensation for these options of $17.9 million. The deferred stock compensation is being amortized over the vesting periods of the stock options. We recognized no deferred stock compensation expense during the period ended December 31, 1998 and $2.6 million for the year ending December 31, 1999. Future amortization based on options granted through December 31, 1999 is anticipated to be approximately:
Year Ending December 31, Amount(s) ------------------------ ---------- 2000......................................................... $9,337,000 2001......................................................... 3,866,000 2002......................................................... 1,766,000 2003......................................................... 410,000
In addition to these charges, we expect to record an additional $14.2 million of deferred stock compensation for similar options granted from January 1, 2000 to April 4, 2000. Results of Operations for the Period Ended December 31, 1998 and Year Ended December 31, 1999 Revenue From inception through the period ended December 31, 1999, we were a development stage company and had no revenue. We expect to generate revenue primarily from transaction fees from print vendors and monthly service fees from print buyers. Revenue from transaction fees will be recognized upon completion of the associated print project. Revenue from monthly service fees will be recognized ratably over the month. Cost of revenues will primarily consist of all direct and indirect labor expenses related to the support organization. Operating Expenses We categorize our operating expenses into research and development, sales and marketing, general and administrative, value of warrants granted in connection with marketing agreements and amortization of deferred stock compensation. Research and Development. Research and development expenses consist of personnel and other expenses associated with developing and enhancing software in support of our noosh.com service. Research and development expenses increased from $111,000 for the period ended 23 December 31, 1998 to $3.1 million for the year ended December 31, 1999. These expenses in 1998 were comprised primarily of salaries for an initial development team. In 1999, these expenses consisted principally of staffing and associated costs related to the design and development and maintenance of our noosh.com service, and content and design expenses. We believe that our success is dependent in large part on continued enhancement of our noosh.com service. Accordingly, we expect research and development expenses to increase in future periods. Sales and Marketing. Sales and marketing expenses consist primarily of participation in trade shows, advertisements, personnel and related costs for our marketing staff and customer support groups. Sales and marketing expenses increased from $96,000 for the period ended December 31, 1998 to $9.4 million for the year ended December 31, 1999. These increases primarily resulted from expenses related to increases in sales and marketing personnel and participation in industry trade shows for a full fiscal year. We intend to increase our sales and marketing expenses to develop relationships with print buyers, print vendors and providers of related services and build brand recognition. General and Administrative. General and administrative expenses consist primarily of salaries to employees and fees for professional services. General and administrative expenses increased from $107,000 for the period ended December 31, 1998 to $1.8 million for the year ended December 31, 1999 primarily as a result of operations for the full fiscal year and the addition of finance and administrative personnel as well as expenses related to increased professional service fees. We expect general and administrative expenses to increase in future periods to the extent we continue to expand operations and bear the increased expenses associated with being a public company. Value of Warrants Granted in Connection with Marketing Agreements. For the year ended December 31, 1999, we recognized costs totaling $1,468,000 related to the valuation of the portions of warrants exercisable without performance obligations to two print vendors. Amortization of Deferred Stock Compensation. We recorded aggregate deferred stock compensation of $17.9 million in connection with some of the stock options we granted through December 31, 1999. We expensed $2.6 million of this deferred stock compensation in the year ended December 31, 1999, related to these stock options. The deferred compensation amounts are being amortized over the vesting period of the stock options, generally four years. Interest Income, Net Interest income, net has been derived primarily from earnings on cash investments. We had no interest income, net for the period ended December 31, 1998 and $648,000 for the year ended December 31, 1999, which resulted from higher average cash balances for a full fiscal year in 1999. We expect our interest income to increase in the short term as a result of our investing the proceeds from our sale of series D preferred stock and this offering. Income Taxes We incurred operating losses and accordingly did not record a provision for income taxes for any of the periods presented. On December 31, 1999, for federal and state income tax purposes, we had net operating loss carryforwards of $13.1 million and $150,000. These net operating losses will expire in the years 2005 through 2019 if not utilized. Future changes in our share ownership, as defined in the Tax Reform Act of 1986 and similar state provisions, may restrict the utilization of carryforwards. Liquidity and Capital Resources Since our inception in August 1998 through December 31, 1999, we have funded our operations primarily through the sale of $64.1 million of equity securities. As of December 31, 1999, our principal 24 sources of liquidity were cash and cash equivalents of $48.3 million. In addition, in January 2000, we raised an additional $15.6 million from the sale of our equity securities. Net cash used in operating activities was $123,000 for the period ended December 31, 1998 and $12.0 million for the year ended December 31, 1999. Net cash used in operating activities for the period ended December 31, 1998 primarily resulted from operating losses of $314,000 incurred during the period. Net cash used in operating activities for the year ended December 31, 1999 primarily resulted from operating losses of $17.4 million, partially offset by $3.8 million of amortization of deferred stock compensation and the value of warrants granted in connection with marketing agreements. Net cash used in investing activities was $72,000 for the period ended December 31, 1998, and $3.7 million for the year ended December 31, 1999. The cash used in investing activities in both periods was related principally to purchases of computer equipment and, to a lesser extent, software and office furniture to support expansion of our operations. Net cash provided by financing activities was $1.3 million for the period ended December 31, 1998, and $62.9 million for the year ended December 31, 1999. Cash provided by financing activities was primarily from proceeds of the sale of our preferred stock. As of December 31,1999, we had operating lease obligations of $1.7 million for 2000, $606,000 for 2001 and $102,000 for 2002. In future periods, we anticipate significant increases in operating expenses primarily as a result of planned investment to support increased sales and marketing activities and ongoing research and development activities. We believe that our current balances of cash and cash equivalents, will be sufficient to meet our anticipated cash needs for working capital, operating expenses and capital expenditures for at least the next twelve months. After twelve months, we may need additional capital. However, we may need to raise additional funds sooner to fund additional expansion, develop new or enhanced services, respond to competitive pressures or make acquisitions. Although we have no current plans to do so, we may seek to raise additional funds after this offering through equity or debt financings. We cannot be certain that additional financing will be available to us on favorable terms, if at all. If adequate funds are not available on acceptable terms, our business will be harmed. If additional funds were raised through the issuance of equity securities, the percentage ownership of Noosh by our stockholders would be reduced. Furthermore, such equity securities might have rights, preferences or privileges senior to our common stock. See "Risk Factors--In the future, we may need to raise additional capital to fund our operations. Any difficulty in obtaining additional financial resources could force us to curtail our operations or prevent us from pursuing our growth strategy." Year 2000 Readiness Disclosure Many currently installed computer systems and software products are coded to accept or recognize only two digit entries in the date code field. These systems and software products will need to accept four digit entries to distinguish dates before and after January 1, 2000. This could result in system failures or miscalculations causing disruption of operations for any company using computer programs or hardware. As a result, many companies' computer systems may need to be upgraded or replaced in order to avoid year 2000 issues. The majority of software and hardware we use to manage our business has been purchased or developed by us within the last 24 months. While this does not completely protect us against year 2000 exposure, we believe our exposure is limited because the technology we use to manage our business is not based upon hardware and software systems that were already developed or installed. 25 To date, we have not experienced any material interruptions in our operations related to the year 2000 issue. We have not incurred material costs with respect to our year 2000 remediation efforts and do not expect that future costs will be material. However, if we, or third-party providers of hardware, software and communications services fail to remedy any future year 2000 issues, the result could be lost revenues, increased operating expenses, the loss of users and other business interruptions, any of which could harm our business. The failure to adequately address year 2000 compliance issues in the delivery of products and services to our users could result in claims against us of misrepresentation or breach of contract and related litigation, any of which could be costly and time consuming to defend. We have not developed and do not plan to develop any specific contingency plans for year 2000 issues. Our worst case scenario for year 2000 problems would be our inability to operate our noosh.com service. Quantitative and Qualitative Disclosures About Market Risk The primary objective of our investment activities is to preserve principal while at the same time maximizing the income we receive from our investments without significantly increasing risk of loss. Most of our cash equivalents and short-term investments are at fixed interest rates. Therefore, the value of these investments is subject to market risk. This means that a change in prevailing interest rates causes the market value of the investment to fluctuate. For example, if we hold a security that was issued with a fixed interest rate at the then-prevailing rate and the prevailing interest rate later rises, the market value of our investment will decline. To minimize this risk in the future, we intend to maintain our portfolio of cash equivalents and short-term investments in a variety of securities, including commercial paper, money market funds, government and non-government debt securities. In general, money market funds are not subject to market risk because the interest paid on such funds fluctuates with the prevailing interest rate. As of December 31, 1999, we did not have any hedging instruments. We operate solely in the United States and all expenses to date have been made in United States dollars. Accordingly, we have not had any exposure to foreign currency rate fluctuations or weak economic conditions in foreign markets. However, in future periods, we expect to sell in foreign markets, including Europe and Asia. As our sales are made in U.S. dollars, a strengthening of the U.S. dollar could cause our service to be less attractive in foreign markets. Recent Accounting Pronouncements In June 1998, the Financial Accounting Standards Board issued SFAS No. 133 "Accounting for Derivative Instruments and Hedging Activities". SFAS No. 133 establishes accounting and reporting standards, requiring that every derivative instrument be recorded in the balance sheet as either an asset or liability measured at its fair value. SFAS No. 133 is effective for fiscal years beginning after June 30, 2000. Because we do not currently hold any derivative instruments and do not engage in hedging activities, we do not believe that the adoption of SFAS No. 133 will have a material impact on our financial position or results of operations. In March 1998, the American Institute of Certified Public Accountants issued Statement of Position ("SOP') No. 98-1, "Software for Internal Use" which provides guidance on accounting for the cost of computer software developed or obtained for internal use. SOP No. 98-1 is effective for financial statements for fiscal years beginning after December 15, 1998. The adoption of this SOP did not have any significant effect on our financial statements. 26 BUSINESS Overview We are a leading provider of business-to-business e-commerce solutions for the printing industry. We have developed and operate noosh.com, an Internet- based service for managing the design, procurement and production of print orders. Our service is designed to address the complex, multi-step process of completing a print order. It leverages the benefits of the Internet to enable print buyers, print vendors and other providers of related services to communicate and collaborate efficiently throughout the life cycle of a print order. Our service is primarily targeted at national corporations which budget at least $10 million annually for their print buying requirements and their print vendors. Print vendors who use our service generally will pay us a transaction fee based on the size and volume of the print order, and print buyers who use our service generally will pay us a monthly fee. As of April 4, 2000, over 166 print buyers and print vendors have signed agreements with us for the use of our service. Of these, Bank of America and Wells Fargo have recommended that their print vendors also adopt our noosh.com service, and GE has agreed to recommend that its print vendors, the print vendors of its affiliates and the major retail customers of G.E. Capital's Card Services adopt noosh.com. In addition, to promote the acceptance of our service by large corporations, we have entered into co-marketing agreements with national vendors in the print industry. To date, these vendors include Consolidated Graphics, R.R. Donnelley, Moore and Wallace Computer Services. Industry Background Growth of Business-to-Business Commerce on the Internet The Internet has emerged as one of the fastest growing communications mediums in history and is fundamentally reshaping the way businesses interact with other businesses. The Internet enables businesses to integrate complex business processes, exchange information easily with multiple partners and provide buyers and sellers with a consistent means of executing transactions. As a result, companies of all sizes are adopting Internet strategies to conduct business. According to Forrester Research, business-to-business e-commerce is expected to grow from $43 billion in 1998 to $1.3 trillion in 2003. The widespread adoption of business-to-business e-commerce is driving the demand for industry-specific solutions that offer business environments that can accommodate increasingly large numbers of users. These e-commerce solutions provide businesses with opportunities to reduce the costs of accessing information and to expand their ability to conduct transactions with multiple parties. Business-to- business e-commerce solutions are being targeted at and are most likely to be accepted by industries characterized by a large number of buyers, sellers and intermediaries, a high degree of fragmentation, significant dependence on information exchange, high transaction volumes and broad user adoption of the Internet. The U.S. Printing Industry The U.S. printing industry is very large, with numerous print buyers, print vendors and other providers of related services, interacting with one another in the process of managing the design, procurement and production of printed business materials. Total sales in the U.S. printing industry were $149 billion in 1998, according to Printing Industries of America, an industry trade association. Total worldwide sales in the printing industry were $365 billion in 1998 according to TrendWatch, an independent market research firm. The printing industry includes the following product categories: . Basic business printing, which includes simple, standardized products such as business cards, stationery and business forms; 27 . Promotional printing, which consists of customized products such as brochures, direct mail and catalogs; . Bill-of-material printing, which consists of customized packaging, labels and other shipping materials; . Publications, which includes newspapers, magazines and books; and . Specialty printing, such as T-shirts, calendars and souvenirs. The traditional process of designing, procuring and producing a print order can require extensive collaboration by multiple parties and can be highly inefficient. CAP Ventures, Inc., an independent print research firm, estimates that for every $1 paid by a print buyer to a print vendor, there are $5 to $8 of additional costs associated predominantly with late fees, reworks, obsolete materials and shipping. These expenses result from the traditional labor- intensive process of managing a print order, as well as delays from and miscommunications among the many people from multiple organizations who must collaborate through the various steps required to complete a print order. Key processes that require the coordination of multiple parties include job design and specification, submitting requests for estimates, vendor selection, job revision, production, warehousing, shipment and payment. The U.S. printing industry is highly fragmented, with an estimated 51,000 printing businesses, 60,000 related creative concerns such as advertising agencies, graphic design firms, publishers and corporate design groups, 12,000 print brokers and thousands of print-buying organizations. Contributing to this fragmentation is the capital-intensive nature of print production, which causes print vendors to specialize in specific print products based on the type of equipment they own. Therefore, print vendors generally offer a limited selection of customizable products. This high degree of industry fragmentation and specialization generally leads print buyers, particularly large enterprises with a broad range of printing needs, to establish relationships with multiple print vendors. According to CAP Ventures, a large print buying company spends between 6% and 15% of its annual revenues to design, develop, procure, produce, distribute and store printed and electronic documents and business communications programs. Each individual print order typically involves the collaboration of multiple parties across such varied organizations as the print buyer, print vendor, advertising agency, independent designer, prepress specialist, bindery specialist, direct mailer and print broker. Further, most large print buyers lack standardized procurement, print management and tracking tools, hindering the development of their spending and operating controls. According to CAP Ventures, over 80% of print buyers manage the print process inefficiently, resulting in up to a 40% waste of investment in annual print spending. Limitations of Existing Print Management Processes The typical process of producing a customized print product involves multiple interactions among many people within numerous organizations, or a "many-to- many" workflow process. For example, a large print buyer may engage advertising and creative agencies to design, specify and buy print on its behalf. Alternatively, print buyers may coordinate these processes in-house or rely on a print broker to act as a sales middleman or project manager. Once a print order is completed, direct mail and fulfillment companies often coordinate the receipt, packaging and mailing of print products from several printers simultaneously. As a result of this complicated production chain, we believe that a print order which costs several thousand to several hundred thousand dollars may require the collaboration of 10 to 30 people across three to seven organizations. 28 Lacking a centralized system for coordinating these many-to-many workflow processes, the production of customized print products traditionally has been characterized by significant inefficiencies, including: Print Buyer . Numerous communications across multiple mediums, including telephone, facsimile, email, voicemail and paper; . Cumbersome, error-prone procurement cycle; . Labor-intensive print vendor selection process; . Inconsistent pricing from numerous print vendors; . Difficulty managing, coordinating and accounting for numerous print orders across multiple organizations and from numerous print vendors; . Unreliable storage and delivery of content files; and . Obsolete inventory, accounting for a significant percentage of annual print spending. Print Vendor . High customer acquisition and retention costs; . Costly sales order administration and customer service; . Difficulty managing, coordinating and accounting for numerous print orders across multiple organizations; . Manual reconciliation of internal job specifications, changes, file and production instructions; . Rework resulting from poorly documented specifications and other errors; and . Inefficient equipment utilization. In addition, agencies and brokers who serve as intermediaries between print buyers, print vendors and other providers of related services face many of these same inefficiencies. The most common method today for coordinating the procurement and management of customized print orders remains a combination of telephone, facsimile and paper. Using these "one-to-one" communication tools, print buyers and vendors manually conduct the multiple steps required to manage the print order, including project design, proofing, rework and delivery. More recently, some print buyers and vendors have adopted software solutions designed to automate different elements of the design, procurement and production processes. While these proprietary software solutions improve on some of the inefficiencies of traditional paper and phone-based methods, they too are largely inadequate because they are based on one-to-one processes, while corporate print orders generally require many-to-many communications. More specifically, one-to-one methods are inadequate because: . the production of a customized print product requires extensive interaction and collaboration across many organizations and among numerous parties; . the creative process of producing a customized print product is dynamic and highly iterative, requiring all parties to have input throughout the process; and . full automation of any single print buyer/print vendor solution can require a substantial investment in proprietary software and system integration that often cannot be leveraged across multiple print buyer/print vendor relationships. Collectively, these shortcomings make one-to-one solutions difficult to scale and thus limit their widespread adoption by the printing industry. We believe that print buyers, print vendors and the numerous providers of related services involved in the production of a print order desire a standardized, collaborative environment where they can easily manage the entire print order life 29 cycle. We believe that these needs can be addressed with a comprehensive, Internet-based communication and collaboration service for the management of the design, procurement and production of print. The noosh.com Service We have developed and operate noosh.com, an Internet-based service for managing the design, procurement and production of print orders. Our noosh.com service is designed specifically to address the complex needs of the printing industry and offers a set of features that are not generally available from off-the-shelf software solutions. Key elements of our service include: . providing a central location where all current information about a print order is readily accessible through an Internet browser; . enabling collaboration among all parties involved at each step of the print order life cycle in an Internet environment in which additional parties can be added rapidly and cost-effectively; and . enabling parties to build project specific working groups consisting of participants from multiple organizations. We believe that the principal benefits to print buyers, print brokers and advertising agencies using our noosh.com service are: Increased Productivity. We provide online, real-time access to information regarding the status of a print order. This capability reduces the time it takes print buyers to determine the progress of their print job and to identify the status of proposed changes. This capability can also substantially reduces the manual communication methods involved in the traditional process of producing a print order, enabling more efficient job management. As a result, our service can be particularly helpful to users who manage multiple jobs from several print vendors simultaneously. Reduced Print Purchasing Costs. Our service can reduce print purchasing costs by allowing print buyers to analyze purchasing trends and conduct a broader request for quotes process. As a result, print buyers can reduce procurement costs and benefit from better vendor management. Shortened Job Lead Times. Noosh.com enables print buyers to design, procure and produce print orders more efficiently by providing a centralized location where the multiple parties involved in the print supply chain can collaborate with each other in real time regarding the print order. This collaboration capability can reduce miscommunications among the parties, which in turn results in fewer errors and shorter job lead times. Better Tracking and Communication. Our service maintains a detailed history of changes to job specifications and tracks print budgets and usage. Our service also allows users to send messages and assign tasks to one another within a standard communication environment. We believe that our service also offers significant benefits to print vendors, related suppliers, print brokers and advertising agencies, including: Enhanced Customer Relationships. By allowing print vendors to manage print orders through our collaboration and messaging capabilities, noosh.com can simplify the daily routine of the vendor's customer service personnel, thereby allowing for improved responsiveness and higher quality customer service relative to traditional methods of managing print. Reduced Print Production Costs. Our service centralizes information regarding a print project. This helps users to reduce paperwork and improve accuracy by identifying job problems early in the print job life cycle that, if left unattended, could result in costly reworks, document distributions and higher administrative costs. 30 Higher Sales Productivity. Because our service streamlines the procurement process, print vendors are able to reduce their selling and marketing costs while extending their reach. Print vendors, therefore, have the opportunity to access new customers and markets through our service. In addition, because noosh.com simplifies the process for managing print orders, printers can allocate sales and marketing resources to developing new client relationships. Minimal Initial Investment. Because noosh.com is an entirely Internet-based service and, other than a browser, does not require the purchase of any software, print buyers and print vendors are able to establish an Internet presence easily and quickly with little or no initial investment. Our Strategy To grow our business and customer base and increase usage of our service, we intend to: Capitalize on Market Position. We believe that we are one of the first companies to offer a completely Internet-based service for managing the design, procurement and production of print orders. As of December 31, 1999, over 80 print buyers and print vendors have used our service to process print orders for evaluation purposes. To increase the number of print buyers, print vendors and other related parties using our service, we intend to build on the existing print relationships of our current users with other companies in the print supply chain. Our direct sales force, comprised of 50 professionals as of December 31, 1999, targets primarily large print buyers and print vendors. Build Brand Recognition. We intend to develop the most well-known and trusted brand as the leading Internet-based service for managing the design, procurement and production of print orders. We intend to pursue an aggressive brand development strategy through targeted advertising and promotions, press coverage and participation in trade association and industry events. Additionally, we will also rely on our co-marketing relationships with national print vendors in order to build our brand recognition. Develop Relationships with National Printers. We intend to develop relationships to increase our customer base, broaden our service offerings and enhance our technology platform. Specifically, we are seeking co-marketing relationships with national printers. We have already entered into these agreements with Consolidated Graphics, R.R. Donnelley, Moore and Wallace Computer Services under which they have agreed to co-market our service to their customers. By aggressively pursuing these types of relationships, we believe we can help strengthen our value proposition for both print buyers and vendors and generate increased usage of our noosh.com service. Maintain Technology Leadership. We intend to maintain our technology leadership by continuously improving the functionality of our services to meet the evolving needs of our current users and our future customers. For example, we intend to develop business relationships with enterprise resource planning and business-to-business e-commerce software vendors by using our technology to integrate our noosh.com service with the enterprise resource planning or management software systems of these vendors. This capability would enable our current users and our future customers to use both our noosh.com service and the products and services of these vendors to conduct e-commerce. Additionally, we plan on developing links with the information systems of print vendors and graphic file transfer and management services to improve production workflow, reduce data entry at the print vendors' sites and provide complementary services for print vendors. Foster Our Commitment to Customer Service. We focus on serving the interests of our users because we believe a loyal base of users will afford us a significant competitive advantage. Throughout each phase of the design and implementation of our service, we maintain an active 31 dialogue with our users. At every stage of our design process, we seek user feedback to develop new versions of and add enhancements to our system to better serve the needs of our users. We also intend to enhance our customer service capabilities by expanding our customer support and account management teams and improving our online training tools. Pursue Additional Revenue Opportunities. We intend to pursue additional revenue opportunities by expanding our business and using our LiveJobs technology in other print-related markets, such as creative design process management and file and data storage. We also plan to expand internationally into other markets that we believe would benefit from our service. Further, we see applications for our technology in other non print-related markets. Additionally, we intend to pursue selective acquisitions of, or investments in, complementary products, services and businesses. Products and Services We provide a comprehensive, business-to-business, Internet-based service for managing the design, procurement and production of print orders. Our service uses our patent-pending LiveJobs technology to enable print buyers, print vendors and other providers of related services involved in the print production and management process to communicate and collaborate with each other regarding any print order. Each user with a noosh.com password can access the noosh.com web site with a standard Internet browser. Using their password- protected account, each user can have access to the print jobs they are working on, to lists of their customer and business contacts and to reports of historical performance. Print buyers can easily create job specifications, submit the specifications to print vendors for bids, award the print order to the chosen print vendor, post the resulting print order online and collaborate with necessary parties throughout the design, procurement and production stages of the print order. Print vendors have access to the print buyer's specifications after they have been asked to quote on a print order through noosh.com. Print vendors may submit quotes and subsequently manage print orders through our collaboration and messaging capabilities. As the print order progresses, print buyers and print vendors may notify each other of status changes, pose specification questions, revise schedules, and collaborate on other aspects of the print order in real time so that problems are resolved expeditiously. Our service can be accessed through standard web browsers by corporations, their print vendors and other participants in the print supply chain, such as graphic design, advertising and marketing agencies. Other than the browser, there is no special software required to use noosh.com. With our service, we create a standardized environment which addresses the printing industry's communications and procurement needs by: . providing a central location where all current information about a print order, including specifications, job status, estimates, change orders and shipping instructions, is located; . enabling collaboration among print buyers, print vendors and other providers of related services involved in the print production and management process; . enabling parties to build a team on a project and print order basis consisting of participants from multiple organizations; . assigning roles and privileges to individual team members, designating their status and ability to view or make changes to a print order; and . providing secure and selective access on print orders. 32 Our service enables print buyers, print vendors and other providers of related services to communicate and collaborate efficiently throughout the life cycle of a print order. The key features of our service are: Estimating, Quoting and Specifications Management. Print jobs can be created and submitted by buyers, and quoted online by print vendors. The buyer decides which and how many print vendors can bid on a job. Job specifications and order revisions are managed consistently, enabling buyers and print vendors to share common order description formats. Order Management. Noosh.com provides online ordering, confirmation and order status from design through delivery. This enables collaborative management and tracking of orders by print buyers, print vendors, graphic designers and direct mail and fulfillment companies. Online records of complete order history and revisions give everyone involved in the order a comprehensive, relevant, up-to- the-minute status. Management Reporting. Noosh.com provides print buyers with access to a range of detailed performance reports, including purchasing, client history and print vendor activity. Noosh.com also provides print vendors with a variety of detailed reports, including account history and sales performance. Content Delivery and File Management. Noosh.com allows for text and graphic file transfers, real-time proofing and job file archiving, which are key features needed to develop an integrated and full-service online environment for creating and producing complex print orders. Integration with Other Systems. Our technology allows us to integrate our noosh.com service with our users' information systems, including their operating resource procurement, enterprise resource planning or print management systems. Industry Reference. Noosh.com provides profiles of print vendors registered with our service for review by print buyers and advertising agencies. Our service also contains reference information about the printing industry for all visitors, regardless of whether they have an account with us. 33 Users We primarily target major corporations which budget at least $10 million annually for their print buying requirements, together with their printers. In addition, we also target print brokers which serve these large print buyers, printers and advertising agencies. Since we initiated testing of our noosh.com service in July 1999 through December 31, 1999, over 80 print buyers and printers have used our service for evaluation purposes to process print orders, for which we received no revenues. As of April 4, 2000, the following is a list of print buyers, printers and other providers of related services who have entered into agreements to use our service and to pay us for training, technical support, implementation services or user or transaction fees in connection with their use of our service: Print Buyers Printers with Co-Marketing Agreements Advantica ColorGraphics, Inc. Aetna Services, Inc. Consolidated Graphics, Inc. and American Leprosy Mission their 63 affiliated companies Ameritech Moore North America, Inc. Bank of America Corp. R.R. Donnelley & Sons Company Champion International Wallace Computer Services, Inc. Compact Air Products, Inc. Cornell Dubilier Cran Barry, Inc. Dean Johnson Design Dunlop Corp. E*TRADE Group, Inc. Faith Inkubators General Electric Capital Services, Inc., an affiliate of the General Electric Company I Was Framed, Inc. Infusive Marketing Group J.Crew Group Inc. KNTV News Channel 11 La Bov & Beyond, Inc. Levi Strauss & Co. Merrill Lynch Asset Management Miller Freeman, Inc. MINDEF Modus Media International, Inc. Multiple Zones International Publicis Technology Stimuli Lab, LLC The Timberland Company Tribe Design Upward Unlimited, Inc. Wells Fargo & Company Wizards of the Coast
34 Printers, Pre-Press Vendors and Print Brokers ABC Synnyvale LAgraphico.com Ace Printing LA Label Company Action Printing Liberty Graphic Systems, Inc. Advanced Color Graphics Litho Press Inc. Allied Printing Services, Inc. Litho Technical Services Alphagraphics Marketing IV, Inc. American Lithographers, Inc. McCallum Envelope & Printing Co. American Printing Co. Media Graphix, Inc. Applied Printing Technologies, L.P. Mercury Signs & Display, Inc. Assembly Services and Packaging Meredith-Webb Printing Co. Automated Graphic Systems MidAtlantic Printers, Ltd. Babor Forms, Inc. Miller Promotional Graphics (MPG) Baucom Press New Leaf Press Bayshore Press Newport Printing Systems Bibbero Systems, Inc. Nova Graphics, Ltd. Bofors Inc. Outlook Envelope Business Card Express Florida Pacific Communication Concepts, Inc. Capital Printing Co., Inc Packaging Results, Inc. Carqueville Graphics, Inc. Patterson Printing Company Challenge Printing, Inc. Penn Lithographics ColorMagic, Inc. PGI Web, Inc. Colson Printing Co. Precision Direct, Inc. Commercial Printing Co. Print Craft, Inc. Creative Retail Packaging Printers Unlimited, Inc. Crowson-Stone Printing Co. Printing, Inc. CRT Color Printing, Inc. Printing Control Daily Printing, Inc. Printing Express, Inc. Dean Litho Prodigy Press, Inc. DG Printing, Inc. Response Envelope Diversified Graphics Incorporated Rhodes Productions Eastern Rainbow Inc. Richardson & Edwards, Inc. Elements Royal Envelope Corp. ESCO RW Nielsen Associates F&T Graphics Inc. Santa Cruz Web Integration and Design Favorite Printing Sexton Printing Source, Inc. FBK Group Shapco Printing, Inc. Fong Brothers Printing Source, Inc. FoxIntegrity Graphics Inc. Spencer & Worth, Ltd. Franklin Press Stormm Graphicworks, Inc. Gamma One, Inc. Systems Packaging General Printing Tension Envelope Corporation Gopher State Litho, Inc. The Bureau of Engraving Inc. Grande & Associates, Inc. The Horah Group Graphic Finishers of America The Irving Press, Inc. Heart Printing & Graphics, Inc. The John Roberts Company Heinrich Envelope Corp. The Journeyman Press Inc. House of Printing TN Printing IC Group Transo Envelope Co. Imperial Company, Inc. Tulip Graphics, Inc. Impressions, Inc. Universal Printing Infinity Direct Waller Press Iridio Digital Printing Waters Lithograph Inc. Japs-Olson Wicklander Printing Corporation Johnson & Quin Inc. Winchester Printers, Inc. Just Solutions Wintry Press
35 Our agreements with printers, generally require them to pay us a transaction fee on a monthly basis based upon applicable dollar volume of print jobs run on noosh.com. The agreements generally have initial terms of one or two years. Our agreements with print buyers typically require buyers to pay us a monthly service fee based upon applicable dollar volumes. The following are case studies of three users that have adopted our noosh.com service: Bank of America. Bank of America is one of the largest banking institutions in the United States, providing its customers with a wide array of banking and other financial services. Bank of America estimates that it spends between $50 million and $70 million annually on its print and print-related needs with 30 to 50 printers. Bank of America was looking for a way to increase the productivity of its new marketing and communications departments, generate savings by reducing its number of print vendors and provide an internal, nationwide communications service for managing the design, procurement and production of its print needs. We worked with Bank of America's San Francisco and Charlotte offices to analyze their current print procurement and production process. We have since then developed a specific application for their invoicing and procurement process and a front-end tracking system. As a result of implementing our service in both offices, Bank of America believes that it has been able to reduce the time required for it to obtain estimates from print vendors and that it has experienced an increase in the number of bids it receives for print orders. In addition, Bank of America believes that our service enables its marketing department to make more revisions, more frequently, to print projects, track the costs of print projects and budget spending in the future for similar projects. Through December 31, 1999, Bank of America processed over 115 orders with 11 print vendors using noosh.com. It is currently in the process of deploying noosh.com on a nationwide basis. Through December 31, 1999, we had not derived any revenue from this agreement, and Bank of America is not obligated to use our service. Aetna Services. Aetna Services is one of the largest healthcare insurers in the United States. Aetna estimates that it buys over $120 million worth of printed business materials annually from numerous print vendors. Aetna was looking for a way to manage its multiple print vendors, quick production cycles and complex print-buying requirements. In addition, Aetna needed a way to identify trends in their buying practices and develop a community among their in-house print buyers to improve print order tracking and scheduling. With noosh.com, Aetna expects to increase the productivity of its print buyers and shorten print order turn-around time. Specifically, our service provided a central location for Aetna's print buyers to collaborate on print orders and track the status of numerous orders across an assortment of product lines. In addition, with noosh.com Aetna believes it has been able to significantly reduce the time it takes to specify and order reprint work. Further, Aetna believes that noosh.com's scheduling and messaging capabilities will dramatically expedite its print procurement process that, prior to noosh.com, had been manual and paper-intensive. As a result of implementing our service, Aetna believes it will be able to significantly reduce the time required to obtain estimates on its print orders. Aetna anticipates that our service will also result in significant cost savings. For example, since deploying our service, Aetna has found that it is easier to receive multiple bids on print orders, thereby providing it with access to more competitive pricing. Further, Aetna believes that the centralized tracking features of our service have given them the ability to spot trends in their print buying that may result in cost savings in the future. Through December 31, 1999, Aetna has processed over 37 orders with 12 print vendors using noosh.com. Through December 31, 1999, we had not derived any revenue from this agreement, and Aetna is not obligated to use our service. ColorGraphics. ColorGraphics is one of the largest, privately owned commercial printing companies in the western United States, with annual revenues of approximately $120 million. ColorGraphics was asked by several of their largest print-buying customers to investigate an Internet-based service for improving the procurement and production of print orders. ColorGraphics adopted our noosh.com because it offered them a tool through which ColorGraphics could enhance its ability to communicate more effectively with its clients as well as reduce the time required to provide estimates on its print jobs. We worked with ColorGraphics' sales and customer service representatives to uncover and resolve key customer service problems. ColorGraphics believes that our service expedites the 36 estimating and quoting of print orders to its customers. In addition, after adoption of our service, ColorGraphics has experienced an increase in the number of prospective clients submitting requests for estimates. ColorGraphics also believes that our service enables it to improve responsiveness and customer service by allowing its customers to access all current information about their print orders from remote locations on a 24-hour basis. Through December 31, 1999, ColorGraphics processed over 66 orders with 20 print buyers using noosh.com. Through December 31, 1999, we had not derived any revenue from this agreement, and ColorGraphics is not obligated to use our service. Sales, Marketing and Customer Service We sell our service in the United States primarily through our direct sales organization. As of December 31, 1999, our direct sales force consisted of 50 sales professionals located in twelve offices throughout the United States. We believe that we have hired top sales professionals from leading printing, graphic arts and enterprise software companies. Our sales force targets executive level decision makers in large print-buying organizations across a broad range of industries. We believe that these executives are also influential in promoting the adoption of our service among print vendors. We intend to expand our sales force into additional major markets across the country in order to broaden our customer base. Our marketing programs are designed to increase brand awareness, educate our target market about our services and generate new sales opportunities. As of December 31, 1999, our marketing team consisted of 27 marketing professionals. We have engaged in marketing activities that include trade shows, seminars, press relations, direct mailings, Web site marketing, trade association relations and industry analyst relations. We also have co-marketing agreements with national print vendors. To help increase our customer base, we also have entered into agreements to conduct co-marketing activities with corporate procurement system providers, including Commerce One, Inc. and, through a memorandum of understanding, Ariba Technologies, Inc. Our customer service organization assists users in planning, learning and implementing our noosh.com service. As of December 31, 1999, we employed nine professionals in our customer service organization. We have a technical support team available to users by telephone, over the Internet or by electronic mail in order to resolve their customer support requests. In addition, we offer training to users of our noosh.com service through live classes. We plan to expand the size of our sales and marketing and customer supports organizations and to establish additional sales offices. Our ability to do so will depend on recruiting and training additional direct sales, marketing and customer support personnel. If we are unable to hire highly trained sales, marketing and customer support personnel, we would be unable to either increase our customer base or meet customer demands. Commercial Relationships With National Printers and Print Buyers We are actively seeking to develop commercial relationships with national printers in which they would co-market our service to their customers and with national print buyers in which they would co-market and endorse our service to their printers and business partners. These relationships are intended to help us rapidly gain adoption of our service and, in some cases, involve capital investment and incentives to meet targeted dollar volume of usage through our noosh.com service. For example, we have entered into agreements with the General Electric Company, R.R. Donnelley, Consolidated Graphics, Moore and Wallace Computer Services. In January 2000, we entered into a co-development and co-marketing agreement with R.R. Donnelley, a leading North American commercial printer and information services company, to develop a co-branded Web site utilizing the noosh.com service for R.R. Donnelley's customers, particularly in the catalog, magazine and book publishing markets. In the fiscal year ended December 31, 1998, R.R. Donnelley reported that revenues from these markets accounted for over one-half of its consolidated net sales of $5.0 billion. Under the agreements, we and R.R. Donnelley 37 committed to actively promote and market the noosh.com service to R.R. Donnelley's customers. In connection with the agreements, R.R. Donnelley purchased approximately $14.0 million of our Series D preferred stock. We issued R.R. Donnelley warrants to purchase our common stock. A portion of each warrant is exercisable only when R.R. Donnelley meets stated volume targets for business conducted over our service. R.R. Donnelley also agreed to pay to us a transaction fee based on the aggregate volume of print orders processed by them. R.R. Donnelley is not committed to any volume targets. In April 2000, we entered into a print buyer agreement with General Electric Capital Services, Inc., an affiliate of the General Electric Company, under which GE and its affiliates will be able to process their print orders using our noosh.com service. Under this agreement, GE committed to use reasonable commercial efforts to introduce and provide an endorsement of our noosh.com service to its print vendors and to major retail customers of GE Capital's Card Services and to recommend that these vendors and customers use noosh.com for their print jobs. GE also agreed to use reasonable commercial efforts to assist us in identifying and facilitating the deployment of our LiveJobs collaboration technology as a procurement solution in markets other than print and to serve as a beta customer for at least one such new offering. The parties also agreed to participate in mutually agreeable co-marketing activities and events designed to promote the parties' alliance. In connection with the agreement, General Electric Capital Corporation, an affiliate of GE, assigned to us rights relating to its technology designed to measure the quality of products and services rendered to GE by its vendors. In connection with the agreement, GE Capital Equity Investments, another affiliate of GE, purchased $10.0 million of our Series E preferred stock. In addition, we granted GE Capital Equity Investments a warrant to purchase an aggregate of 958,400 shares of our capital stock. Although GE is not committed to any volume targets under the print buyer agreement, portions of the warrant are exercisable only when GE, together with its affiliates, meets stated volume targets for business conducted over our service and recommends our service to a stated percentage of identified print vendors and customers of GE Capital's Card Services. We rely on these types of relationships to help generate increased usage of noosh.com and strengthen our value proposition to our users. As a result, we expect to continue to devote engineering and marketing resources to develop these relationships. However, we cannot be certain that we will be able to enter into additional commercial relationships with national printers or print buyers. NOOSH Technology and System Architecture Our noosh.com service is an Internet-based application that allows us to add new users and support existing users and effectively control access to print projects, worldwide, from a single location. It resides on our servers colocated at AboveNet's San Jose, California facility. Our users access noosh.com using standard Internet browsers, which eliminates the need to install our software at the customer site and facilitates rapid integration of any enhancements to our service. Our principal technical assets are our internally developed software applications that comprise noosh.com. Noosh.com is built on a multi-layer system architecture, centered around our LiveJobs technology. By designing these software layers to function independently of each other and by taking advantage of multi-computer configurations at our AboveNet data center, we seek to provide continuous access to noosh.com, even in the event that some element of our system fails. Our service is designed to run on a variety of hardware platforms and will allow us to add capacity as transaction volumes increase. Communications Layer. The communications layer connects our service with our customers' desktop computers. The ability to integrate these diverse systems has enabled us to create a collaborative online environment supporting a wide range of users. The NOOSH firewall filters the 38 incoming data stream and provides a first line of site security. Our communications architecture is based on standard industry technologies and protocols. Interface and Presentation Layer. The interface and presentation layer provides the "look and feel" of noosh.com. Based upon user requests and access rights, this layer retrieves information from the lower layers of the system and transforms it into presentable content, which is delivered to the desktop by the communications layer. LiveJobs Technology. Our LiveJobs technology delivers the business logic necessary to allow the user to access, manage and communicate information about each print order. Each print order is modeled in our application as a sequence of user-determined workflow steps. In order to facilitate communication between users, we have developed event notification and messaging capabilities that assist our users in completing each workflow step. This notification subsystem also enables communication with customers' third-party print management tools. Enterprise Services Layer. The enterprise services layer facilitates information exchange with our data repository. Our databases are implemented using industry-leading database software from Oracle and run on standard server hardware. We control access to our service through login, authentication and authorization mechanisms and user role definitions, allowing the automated enforcement of access privileges. Our LiveJobs technology helps assure that users only see the information to which they are permitted access based on their role in a job or project and their group manager's authorization. Intellectual Property We rely on a combination of copyright, trademark and trade secret laws and restrictions on disclosure to protect our intellectual property rights. We also enter into confidentiality agreements with our employees and consultants and other third parties and control access to software, documentation and other proprietary information. Currently we have four U.S. patents pending relating to our noosh.com service. We do not have any issued patents. We have also filed for federal trademark registration for "NOOSH" and the "NOOSH" logo in the United States, Canada, Japan and Europe and for "LiveJobs" in the United States. However, we cannot be certain that the steps we have taken to protect our intellectual property rights will be adequate or that third parties will not infringe or misappropriate our proprietary rights. We also cannot be sure that competitors will not independently develop technologies that are substantially equivalent or superior to the proprietary technologies employed in our Internet-based services. If we fail to protect our proprietary rights adequately, our competitors could offer similar services, potentially harming our competitive position and decreasing our revenues in the United States and other jurisdictions. In addition, in recent years, there has been significant litigation in the United States involving patents and other intellectual property rights, including among companies in the Internet industry. We cannot be certain that our business activities will not infringe on the proprietary rights of others, or that other parties will not assert infringement claims against us. In February 2000, we received a letter from an individual advising us that the individual's patent may cover certain aspects of our service and requesting that we consider licensing the patent. We are currently evaluating the patent. However, based upon our preliminary review we do not believe that we require a license under the patent to operate our current service. If this matter or any other matters or claims that may be asserted against us in the future cannot be resolved through a license or similar arrangement, we could become a party to litigation. Any claim of infringement of proprietary rights of others, even if ultimately decided in our favor, could result in substantial costs and diversion of resources. In addition, we cannot be sure that licenses to third- party technology will be available to us at a reasonable cost, or at all. If we were unable to obtain a license on reasonable terms, we could be forced to redesign our service or to cease selling or using it. 39 Competition We primarily encounter competition with respect to different aspects of our service from print vendors offering traditional methods of designing and managing print orders, companies that offer business-to-business Internet-based procurement services focused on the print industry such as Collabria, Inc., printCafe, Inc. and Impresse Corporation, or traditional enterprise software companies that offer proprietary management software and may develop alternative print procurement and management services. In addition, some large commercial print vendors have developed proprietary e-commerce services and other print vendors may develop or acquire competing services. Because barriers to entry in the market for Internet-based print management services are relatively insubstantial, we expect additional competition from other established and emerging companies as the market continues to develop and expand. We believe that the principal competitive factors affecting our market include adoption by a significant number of print buyers and print vendors, product quality and performance, industry-specific expertise, customer service and support, core technology, breadth and depth of product features and value of solution. Although we believe that our solution currently competes favorably with respect to these factors, our market is relatively new and is evolving rapidly. We may not be able to maintain our competitive position against current and potential competitors, especially those with significantly greater financial, marketing, service, support, technical and other resources. Some of our current and potential competitors may develop Internet-based solutions that achieve greater market acceptance than our service. Many of our existing and potential competitors have greater name recognition, larger customer bases and significantly greater financial, technical and marketing resources than we do. Such competitors can undertake more extensive marketing campaigns for their brands, products and services, adopt more aggressive pricing policies and make more attractive offers to customers, potential employees, distribution partners, and commercial print suppliers. In addition, current and potential competitors have established or may establish cooperative relationships among themselves or with third parties to increase the ability of their products to address customer needs. For example, other Internet-based print management services may establish relationships with business-to-business procurement system providers. Accordingly, it is possible that new competitors or alliances among competitors may emerge and rapidly achieve customer acceptance. Employees As of December 31, 1999, we had 147 full-time employees. Of these employees, we have 97 in sales and marketing, 35 in research and development and 15 in general and administrative services and operations. None of our employees is represented by a labor union, and we consider our labor relations to be good. Facilities We are headquartered in Palo Alto, California, where we lease approximately 23,000 square feet pursuant to a term lease that expires on December 31, 2000 and 9,000 square feet pursuant to a term lease that expires on December 31, 2001. These facilities are used for executive office space, including sales and marketing, finance and administration, research and design and customer support. We also lease an aggregate of approximately 38,000 square feet in Broomfield, Connecticut; Santa Monica and Irvine, California; Atlanta, Georgia; Chicago, Illinois; Cincinnati, Ohio; Dallas, Texas; Indianapolis, Indiana; Jacksonville, Florida; McLean, Virginia; Milwaukee, Wisconsin; Needham, Massachusetts; New York, New York; Parsippany, New Jersey; Plymouth, Minnesota; Portland, Oregon; and St. Louis, Missouri. These facilities are used for our sales activities. The term lease for our facility in Needham, Massachusetts expires on October 21, 2002, the term lease for our 40 facility in New York, New York expires on November 15, 2000, the term lease for our facility in McLean, Virginia expires on November 15, 2004, the term lease for our facility in Parsippany, New Jersey expires on July 30, 2003, the term lease for our facility in Chicago, Illinois expires on May 1, 2003 and the term lease for our facility in Irvine, California expires on May 22, 2005. The other facilities are leased on a month-to-month basis. We believe that we will need to obtain additional space for our headquarters and additional sales offices in the near future and that this additional space can be obtained on commercially reasonable terms. Legal Proceedings From time to time, we may be involved in various lawsuits and legal proceedings which arise in the ordinary course of business. Currently, we are not a party to any material litigation or arbitration proceedings. 41 MANAGEMENT Executive Officers, Directors and Certain Key Employees The following table sets forth information regarding our executive officers, directors and certain key employees as of April 4, 2000:
Name Age Position(s) ---- --- ---------- Ofer Ben-Shachar........ 39 President, Chief Executive Officer and Chairman of the Board Kevin Akeroyd........... 31 Vice President of Sales David Hannebrink........ 50 Vice President of Marketing and Business Development Raymond Martinelli...... 41 Vice President of Human Resources Timothy Moore........... 43 Vice President of Strategic Alliances, General Counsel and Secretary Hagi Schwartz........... 38 Vice President of Finance and Chief Financial Officer Robert Shaw............. 37 Senior Vice President of Sales Lawrence Slotnick....... 48 Vice President of Engineering Mathew Spolin........... 28 Chief Technology Officer Steven Baloff........... 44 Director Edward Barr............. 63 Director Kathy Levinson.......... 44 Director Arthur Patterson........ 56 Director
Ofer Ben-Shachar founded NOOSH and has served as our President, Chief Executive Officer and Chairman of the Board since August 1998. From December 1994 until February 1998, Mr. Ben-Shachar was the founder, Chairman and Chief Technical Officer of NetDynamics, Inc., an Internet-based technology company that was acquired by Sun Microsystems Inc. in summer 1998. Prior to NetDynamics, Mr. Ben-Shachar founded Software Xcellence, a software consulting company, and served as president until December 1994. From June 1987 to October 1990, Mr. Ben-Shachar served as a senior software engineer for Teknekron Software Systems, now Tibco Software Inc. Mr. Ben-Shachar holds a B.S. degree, cum laude, in Math and Computer Science from Hebrew University in Jerusalem and an M.S. in Computer Science from Washington State University. Kevin Akeroyd has served as our Vice President of Sales since August 1999. From July 1990 to August 1999, Mr. Akeroyd worked at R.R. Donnelley & Sons Company, a provider of printing and integrated services, in a variety of positions, including National Sales Vice President for their PreMedia division. Mr. Akeroyd holds a B.A. degree in Business Administration from the University of Washington. David Hannebrink has served as our Vice President of Marketing and Business Development since January 1999. From May 1997 to December 1998, he was a consultant providing general management and marketing services to small and mid-sized companies. In November 1982 he founded Covalent Systems Corporation, a supplier of enterprise software and data collection systems for the printing and electronic publishing industries. Mr. Hannebrink was with Covalent, and with Logic Associates, Inc. after it acquired Covalent, until April 1997. He served in several senior executive positions at Covalent, including service as President and Chief Executive Officer of Covalent from March 1991 to April 1995. Most recently, he served as Vice President Sales and Marketing of Logic. Mr. Hannebrink holds a B.S. degree in Mechanical Engineering from Cornell University, an S.M. degree in Mechanical Engineering from the Massachusetts Institute of Technology and an M.B.A. degree from the Leavey School of Business at Santa Clara University. Raymond Martinelli has served as our Vice President of Human Resources since September 1999. From July 1995 to September 1999, Mr. Martinelli was Vice President of Human Resources for Computer Curriculum Corporation, a provider of educational software and services for K-12 schools. From August 1988 to July 1995, Mr. Martinelli was Divisional Human Resources Manager at Apple 42 Computer, Inc. Mr. Martinelli holds a B.A. degree in Organizational Communications from California State University, Sacramento and an M.A. degree in Organizational Development from Golden Gate University. Timothy Moore has served as our Vice President of Strategic Alliances and General Counsel since January 2000. Mr. Moore has also served as our Secretary since inception. From October 1997 to January 2000, Mr. Moore was a partner in the law firm of Cooley Godward LLP, where his practice focused on the representation of emerging technology companies. Prior to joining Cooley Godward, Mr. Moore served for two years as Vice President, Strategic Investments and General Counsel of Verity, Inc. From 1986 to 1996, Mr. Moore practiced law at Gray Cary Ware & Freidenrich, where he was elected partner in 1991 and was a member of the compensation committee. Mr. Moore holds a J.D. degree from Stanford Law School and a B.A. degree in Economics, with distinction, from Stanford University. Hagi Schwartz has served as our Vice President of Finance and Chief Financial Officer since October 1999. From January 1996 to October 1999, Mr. Schwartz served as Chief Financial Officer and Vice President of Finance of Check Point Software Technologies Ltd., a worldwide leader in securing the Internet. From April 1991 to December 1995, Mr. Schwartz served as the acting Chief Financial Officer and Controller of Mercury Interactive Corporation, a software testing company. Mr. Schwartz holds a B.A. degree in Accounting and Economics from Bar Ilan University, Israel. Robert Shaw has served as our Senior Vice President of Sales since January 2000. From July 1985 to January 2000, Mr. Shaw worked at R.R. Donnelley & Sons Company, a provider of printing and integrated services, in a variety of capacities including Senior Vice President of Sales and Marketing for the Merchandise Media Business and Senior Vice President of Business-to-Business. Mr. Shaw holds a B.A. degree in Business Administration and a B.S. degree in Economics from Geneva College in Western Pennsylvania. Lawrence Slotnick has served as our Vice President of Engineering since April 1999. From April 1997 to April 1999, he served as Vice President of Internet and Enterprise Products at Apple Computer, Inc. where he was responsible for charting Apple's strategic course for networking, collaboration and communications products. From August 1995 to April 1997 he served as Vice President of Engineering for the Global Business Systems division of Octel Communications Corp. From March 1991 to June 1995, Mr. Slotnick served as Vice President of Product Development in Apple's Claris subsidiary. Mr. Slotnick holds B.S. and M.S. degrees in Computer Science from the University of California, Berkeley. Mathew Spolin has served as our Chief Technology Officer since January 1999. Prior to joining us, Mr. Spolin was professional services and product manager at Pangea Systems, Inc., a Java Fund startup specializing in development and maintenance of large enterprise systems for pharmaceutical research. From March 1993 to April 1997, he was the senior bioinformatics architect for Human Genome Sciences, Inc., a genomics and pharmaceutical company. Mr. Spolin holds a B.S. in Computer Information Systems from The American University in Washington D.C. Steven Baloff has served as a member of our board of directors since April 1999. Since February 1996, Mr. Baloff has worked for Advanced Technology Ventures, a venture capital firm, and currently serves as a General Partner. Prior to joining Advanced Technology Ventures, Mr. Baloff was Chief Executive Officer and founder of Worldview, a co-creator of Travelocity. Mr. Baloff has also held a variety of executive positions with Covalent Systems. Mr. Baloff serves on the boards of directors of several privately held companies. Mr. Baloff holds an A.B. degree in Economics from Harvard University and an M.B.A. degree from Stanford University. 43 Edward E. Barr has served as a member of our board of directors since March 2000. Since 1998, Mr. Barr served as Chairman of Sun Chemical Group, B.V., the holding company of Sun Chemical Corporation, a manufacturer of printing inks and organic pigments. From 1987 to 1998, Mr. Barr served as President and Chief Executive Officer of Sun Chemical. Mr. Barr also is Chairman of the Board of Kodak Polychrome Graphics, Sun Chemical's joint-venture with Kodak Company and a provider of printing supplies to the graphics art market. Mr. Barr also serves on the boards of directors of Sun Chemical's parent company, Dainippon Ink & Chemicals of Tokyo, Japan, United Water Resources, Inc., a provider of water and waste water services and First Union Corporation, a financial services company. Mr. Barr is a trustee of Northwestern Mutual Life Insurance Company. Mr. Barr holds a B.S. degree in Business from New York University's Stern School of Business and an M.S. degree in Economics from the University of Michigan. Kathy Levinson has served as a member of our board of directors since November 1999. Since January 1999, Ms. Levinson has served as President and Chief Operating Officer of E*TRADE Group, Inc., a global provider of electronic personal financial services. Since January 1996, Ms. Levinson served as President and Chief Operating Officer of E*TRADE Securities, Inc., a wholly owned subsidiary of E*TRADE Group, Inc. From 1980 to 1994, Ms. Levinson worked at Charles Schwab & Co., Inc., a securities brokerage firm, in a variety of senior executive positions. Ms. Levinson holds a B.A. degree in Economics from Stanford University. Arthur Patterson has served as a member of our board of directors since April 1999. He is currently General Partner at Accel Partners, a venture capital firm which he co-founded in 1983. He is currently on the board of directors of Actuate Corp., an Internet reporting company, Weblink Wireless Inc., a wireless managing company, and Portal Software Inc., an Internet customer management and billing software company, as well as several privately held Internet services companies. Mr. Patterson holds A.B. and M.B.A. degrees from Harvard University. Board Composition We currently have five directors. Upon the closing of this offering, the terms of office of the board of directors will be divided into three classes. As a result, a portion of our board of directors will be elected each year. The division of the three classes, the initial directors and their respective election dates are as follows: . the class I directors will be Ofer Ben-Shachar and Arthur Patterson, and their terms will expire at the annual meeting of stockholders to be held in 2001; . the class II directors will be Steven Baloff and Edward Barr, and their terms will expire at the annual meeting of stockholders to be held in 2002; and . the class III director will be Kathy Levinson, and her term will expire at the annual meeting of stockholders to be held in 2003. At each annual meeting of stockholders after the initial classification, the successors to directors whose terms will then expire will be elected to serve from the time of election and qualification until the third annual meeting following election. In addition, our amended and restated certificate of incorporation provides that the authorized number of directors may be changed only by resolution of the board of directors. 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 one-third of the directors. This classification of the board of directors may have the effect of delaying or preventing changes in control or management of NOOSH. Board Committees . Audit Committee. Our audit committee reviews our internal accounting procedures and consults with, and reviews the services provided by, our independent auditors. Current members of our audit committee are Steven Baloff, Edward Barr and Kathy Levinson. 44 . Compensation Committee. Our compensation committee reviews and recommends to the board of directors the compensation and benefits of all our officers and reviews general policy relating to compensation and benefits of our employees. The compensation committee also administers the issuance of stock options and other awards under our stock plans. Current members of the compensation committee are Steven Baloff and Arthur Patterson. Compensation Committee Interlocks and Insider Participation Neither member of the compensation committee has at any time been an officer or employee of NOOSH. 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 interlocking relationship existed in the past. Director Compensation We do not provide cash compensation to members of our board of directors for their services as members of the board or for attendance at committee meetings. Members of the board of directors are reimbursed for some expenses in connection with attendance at board and committee meetings. Under our 1998 equity incentive plan and our 2000 equity incentive plan, non-employee directors are eligible to receive stock option grants at the discretion of our board of directors or other administrator of the plan. In May 1999, Arthur Patterson, one of our non-employee directors, received an option to purchase 300,000 shares of common stock at an exercise price of $0.1375 per share. In November 1999, Kathy Levinson, one of our non-employee directors, received an option to purchase 100,000 shares of common stock at an exercise price of $1.50 per share. In January 2000, Steven Baloff, one of our non-employee directors, received an option to purchase 25,000 shares of common stock at $2.50 per share. In March 2000, Edward Barr, one of our non-employee directors, received an option to purchase 25,000 shares of common stock at an exercise price of $9.50 per share. These options vest over a three year period in equal monthly increments. In January 2000, we adopted our 2000 non-employee directors' stock option plan to provide for the automatic grant of options to purchase shares of our common stock to our directors who are not employees of NOOSH or any of our affiliates. Any non-employee director elected after the effective date of this offering will automatically receive an option to purchase 25,000 shares of common stock when elected to the board of directors. Starting at the annual stockholder meeting in 2001, all non-employee directors will receive an annual option to purchase 10,000 shares of common stock. See "--Stock Plans--2000 Non- Employee Directors' Stock Option Plan" for a more detailed explanation of the terms of these stock options. 45 Executive Compensation The following table sets forth information concerning the compensation received for services rendered to us by our Chief Executive Officer and our four other most highly compensated executive officers in 1999 who earned, or would have earned on an annualized basis, more than $100,000 during the fiscal year ended December 31, 1999. Summary Annual Compensation Table
Long-Term Compensation Awards Annual (Option Compensation Awards) ---------------- ------------ Number of Securities Underlying Name and Principal Position Salary Bonus Options --------------------------- -------- ------- ------------ Ofer Ben-Shachar................................. $163,333 -- -- President, Chief Executive Officer and Chairman of the Board Kevin Akeroyd(1)................................. 56,248 $25,004 100,000 Vice President of Sales David Hannebrink(2).............................. 143,750 60,000 416,000 Vice President of Marketing and Business Development Hagi Schwartz(3)................................. 32,290 65,000 300,000 Vice President of Finance and Chief Financial Officer Lawrence Slotnick(4)............................. 107,116 15,000 450,000 Vice President of Engineering
- -------- (1) Mr. Akeroyd joined NOOSH in August 1999. On an annualized basis, Mr. Akeroyd's base salary would have been $150,000. Mr. Akeroyd is guaranteed a minimum monthly commission of $6,250 until January 1, 2001. Until January 1, 2001, Mr. Akeroyd is also eligible to receive an additional monthly commission of $6,250 for achieving sales commission goals. (2) Mr. Hannebrink joined NOOSH in January 1999. On an annualized basis, Mr. Hannebrink's base salary would have been $150,000. Mr. Hannebrink is also eligible to receive a bonus of $30,000 for each fiscal year upon achievement of quarterly performance milestones. (3) Mr. Schwartz joined NOOSH in October 1999. On an annualized basis, Mr. Schwartz's base salary would have been $154,992. (4) Mr. Slotnick joined NOOSH in April 1999. On an annualized basis, Mr. Slotnick's base salary would have been $160,008. Mr. Slotnick is also eligible to receive a bonus of $30,000 for each fiscal year upon achievement of quarterly performance milestones. 46 Option Grants The following table sets forth information regarding stock options granted, if any, to our Chief Executive Officer and our four other most highly compensated executive officers during the fiscal year ended December 31, 1999. The exercise price for each option was equal to the fair market value of our common stock on the date of grant as determined by our board of directors. Percentage of total options as set forth below was calculated based on an aggregate of 5,294,990 shares of common stock granted under the 1998 equity incentive plan in fiscal 1999. The potential realizable value as set forth below was calculated based on the ten-year term of the option and assumed rates of stock appreciation of 5% and 10%, compounded annually from the date the options were granted to their expiration date based on the fair market value of the common stock on the date of grant and an assumed initial public offering price of $12.00 per share. Option Grants During Fiscal 1999
Percentage Potential Realizable of Total Value At Assumed Number of Options Annual Rates of Stock Securities Granted Exercise Price Appreciation for Underlying during Price Option Term Options Fiscal Per Expiration ---------------------- Name Granted 1999 Share Date 5% 10% ---- ---------- ---------- -------- ---------- ---------- ----------- Ofer Ben-Shachar........ -- -- -- -- -- -- Kevin Akeroyd........... 100,000 1.9% $ 0.50 8/18/09 $1,811,594 $ 2,779,537 David Hannebrink........ 416,000 7.9% 0.0325 1/24/09 7,730,710 11,757,355 Hagi Schwartz........... 300,000 5.7% 1.00 10/7/09 5,284,782 8,188,612 Lawrence Slotnick....... 400,000 8.5% 0.1375 6/7/09 7,391,375 11,263,149 50,000 1.00 10/7/09 880,797 1,364,769
The options listed in the table above are subject to vesting. The option shares vest over a four-year period, with 25% of the option shares vesting after one year and 2.08% vesting monthly thereafter. See "Stock Plans" for a description of the material terms of these options. 47 Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option Values The following table provides summary information concerning the shares of common stock represented by outstanding stock options held by our Chief Executive Officer and our four other most highly compensated executive officers as of December 31, 1999. Options granted to purchase shares of our common stock under our 1998 equity incentive plan are immediately exercisable by certain optionees at the discretion of the board, but are subject to a right of repurchase pursuant to the vesting schedule of each specific grant. The repurchase option generally lapses over a four year period, with 25% lapsing after the first year and 2.08% lapsing monthly thereafter. In the event that an employee ceases to provide service to us or our affiliates, we have the right to repurchase any of that employee's unvested shares of common stock at the original option price. Amounts shown in the value realized column were calculated based on the difference between the option exercise price and the fair market value of the common stock on the date of exercise, without taking into account any taxes that may be payable in connection with the transaction, multiplied by the number of shares of common stock underlying the option. Exercise prices ranged from $0.0325 to $1.00. We have calculated the value of unexercised in-the-money options based on the assumed initial public offering price of $12.00 per share of common stock without taking into account any taxes that may be payable in connection with the transaction, multiplied by the number of shares underlying the option, less the aggregate exercise price payable for these shares.
Number of Securities Underlying Unexercised Options at Value of Unexercised December 31, In-the-Money Options at Shares 1999 December 31, 1999 Acquired on Value --------------- ------------------------- Name Exercise Realized Vested Unvested Exercisable Unexercisable ---- ----------- -------- ------ -------- ----------- ------------- Ofer Ben-Shachar........ -- -- -- -- -- -- Kevin Akeroyd........... -- -- -- 100,000 $1,150,000 -- David Hannebrink........ 416,000(1) $0.00 -- -- -- -- Hagi Schwartz........... 300,000(2) 0.00 -- -- -- -- Lawrence Slotnick....... -- -- -- 450,000 5,025,000 --
- -------- (1) As of December 31, 1999, 416,000 shares held by Mr. Hannebrink were unvested and subject to repurchase by us. (2) As of December 31, 1999, 300,000 shares held by Mr. Schwartz were unvested and subject to repurchase by us. Employment Arrangements At the time of commencement of employment, our employees generally sign offer letters specifying the basic terms and conditions of employment. In October 1999, we entered into an employment offer letter with Hagi Schwartz, our Vice President of Finance and Chief Financial Officer. Under his employment offer letter, we granted Mr. Schwartz an option to purchase 300,000 shares of common stock at an exercise price of $1.00 per share. This option will vest 25% on the first anniversary of his date of hire with the remainder vesting monthly over the following three years. In the event Mr. Schwartz voluntarily terminates his employment or is involuntarily terminated without cause, he is entitled to six months continued salary and benefits and our repurchase right with respect to his option shares continues to lapse over the six-month period. In January 2000, we entered into an employment offer letter with Timothy Moore, our Vice President of Strategic Alliances, General Counsel and Secretary. Under his employment offer letter, we granted Mr. Moore an option to purchase 285,000 shares of common stock at an exercise price of $2.25 per share. This option will vest 25% on the first anniversary of his date of hire with the 48 remainder vesting monthly over the following three years. In the event Mr. Moore is terminated without cause, he is entitled to six months continued salary, benefits and vesting of stock options. In addition, in the event Mr. Moore is terminated without cause before the first anniversary of his date of hire, he is entitled to vesting for each month of employment. In January 2000, we entered into an employment offer letter with Robert Shaw, our Senior Vice President of Sales. Under his employment offer letter, we granted Mr. Shaw an option to purchase 270,000 shares of common stock at an exercise price of $2.50 per share. This option will vest 25% on the first anniversary of his date of hire with the remainder vesting monthly over the following three years. In the event Mr. Shaw is terminated without cause he is entitled to twelve months continued salary and benefits. In addition, in the event Mr. Shaw is terminated without cause before the first anniversary of his date of hire, 25% of his option shares would become immediately vested. Stock Plans 2000 Equity Incentive Plan Our board of directors adopted our 2000 plan in January 2000, and our stockholders approved the 2000 plan in March 2000. The 2000 plan will be effective on the effective date of this offering. At that time, no further option grants will be made under our 1998 plan described in more detail below. Share Reserve. A total of 6,000,000 shares of our common stock have been reserved for issuance under the 2000 plan. On the date of each annual stockholders' meeting, beginning with the annual stockholders' meeting in 2001, the share reserve will increase by the least of the following: . 4.5% of our total outstanding common stock; . 2,000,000 shares of our common stock; or . a lesser amount as determined by our board of directors. When a stock award expires or is terminated before it is exercised, the shares not acquired pursuant to the stock awards shall again become available for issuance under the 2000 plan. Eligibility. The 2000 plan permits the grant of options to employees, directors and consultants. Options may be either incentive stock options, or ISOs, within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended, or nonstatutory stock options, or NSOs. In addition, the 2000 plan permits the grant of stock bonuses and rights to purchase restricted stock. The 2000 plan is administered by our board of directors. Our board of directors may delegate its authority to administer the 2000 plan to a committee of two or more board members appointed by the board of directors. The administrator has the authority to select the eligible persons to whom award grants are to be made, to designate the number of shares to be covered by each award, to determine whether an option is to be an ISO or NSO, to establish vesting schedules, to specify the exercise price of options and the type of consideration to be paid upon exercise and to specify other terms of awards. In general, the term of the stock options granted under the 2000 plan may not exceed ten years. An optionholder may not transfer a stock option other than by will or the law of descent or distribution. The exercise price for an ISO cannot be less than 100% of the fair market value of our common stock on the date of grant. The exercise price for NSOs cannot be less than 85% of the fair market value of our common stock on the date of grant. In the event the optionholder is a 10% stockholder, then the exercise price per share of an ISO cannot be less than 110% of the fair market value of our common stock on the date of grant. 49 Unless the terms of an optionholder's stock option agreement provide for earlier termination, in the event an optionholder's service relationship with us ceases due to death, the optionholder's beneficiary may exercise any vested options up to 18 months after the date the service relationship ends. In the event an optionholder's service relationship with us ceases due to disability, the optionholder may exercise any vested option up to twelve months after the date the service relationship ends. If an optionholder's relationship with us ceases for any reason other than disability or death, the optionholder may, unless the terms of the stock option agreement provide for earlier termination, exercise any vested options up to three months from the date the service relationship ends. ISOs may be granted only to our employees. The aggregate fair market value, determined at the time of grant, of shares of our common stock with respect to which ISOs are exercisable for the first time by an optionholder during any calendar year under all of our stock plans may not exceed $100,000. No ISO may be granted to any person who at the time of the grant owns or is deemed to own stock possessing more than 10% of the total combined voting power of us or any of our affiliates unless the term of the ISO award does not exceed five years from the date of grant. Effect on Options of a Change in Control. In the event of a change in control in the beneficial ownership of NOOSH, all outstanding stock awards under the 2000 plan either will be assumed, continued or substituted for by any surviving entity. If the surviving entity determines not to assume, continue or substitute for these awards, the vesting provisions of such stock awards will be accelerated and all outstanding awards will be immediately exercisable. Awards not exercised prior to the effective date of the change of control shall terminate and cease to be outstanding. In certain change in control circumstances the vesting provisions of the outstanding stock awards will be accelerated automatically. Furthermore, if a holder of a stock award is terminated due to a constructive termination or involuntarily terminated without cause within one month before or 13 months after a change in control, the vesting of that holder's stock awards will be accelerated. Other Provisions. The terms of any stock bonuses or restricted stock purchase awards granted under the 2000 plan will be determined by the administrator. The administrator may award stock bonuses in consideration of past services without a purchase payment. The purchase price of restricted stock under any restricted stock purchase agreement will not be less than 85% of the fair market value of our common stock on the date of grant. Shares sold or awarded under the 2000 plan may be subject to repurchase by us. Our board of directors may amend or modify the 2000 plan at any time. However, no amendment or modification shall adversely affect the rights and obligations with respect to options or unvested awards unless the participant consents to such an amendment or modification. In addition, the approval of our stockholders is required for our board of directors to: . increase the maximum number of shares issuable under the 2000 equity incentive plan (except for permissible adjustments in the event of certain changes in the company's capitalization); . materially modify the eligibility requirements for participation; or . materially increase the benefits accruing to participants. 1998 Equity Incentive Plan Our board of directors adopted and our stockholders approved our 1998 equity incentive plan in November 1998. The 1998 plan was amended in April 1999 and in December 1999, and our stockholders approved both amendments. An aggregate of 8,000,000 shares of common stock currently are authorized for issuance under the 1998 plan. Upon the effective date of this offering, no further option grants will be made under the 1998 plan. The options granted under the 1998 plan have substantially the same terms as will be in effect for grants made under the 2000 plan. With 50 respect to change in control provisions, all outstanding options under the 1998 plan either will be assumed or substituted by any surviving entity. If the surviving entity determines not to assume or substitute such awards, the vesting schedule of all outstanding awards shall accelerate and all outstanding awards will be immediately exercisable. Awards not exercised prior to the effective date of the change in control shall terminate and cease to be outstanding on the effective date of a change in control. As of April 4, 2000, options to purchase a total of 3,490,050 shares of common stock had been exercised, none of which had been repurchased and 2,808,522 of which were subject to repurchase; options to purchase a total of 4,392,538 shares of common stock with a weighted average price of $2.06 per share were outstanding; and 117,412 shares remained available for future issuance under the 1998 plan. As of April 4, 2000, the board had not granted any stock bonuses or stock appreciation rights under the 1998 plan. 2000 Employee Stock Purchase Plan Our board of directors adopted the 2000 employee stock purchase plan in January 2000, and our stockholders approved the 2000 stock purchase plan in March 2000. Share Reserve. A total of 600,000 shares of common stock have been authorized for issuance under the 2000 purchase plan. On the date of each annual stockholders' meeting, beginning with the annual stockholders' meeting in 2001, the share reserve will increase by the least of the following: . 1.5% of our total outstanding common stock; . 600,000 shares of our common stock; or . a lesser amount as determined by the board of directors. The 2000 purchase plan is intended to qualify as an employee stock purchase plan within the meaning of Section 423 of the Internal Revenue Code of 1986, as amended. Under the 2000 purchase plan, eligible employees will be able to purchase common stock at a discount price in periodic offerings. The 2000 purchase plan will commence on the effective date of this offering. Eligibility. All employees are eligible to participate in the 2000 purchase plan so long as they are employed by us, or a subsidiary designated by the board of directors, for at least 20 hours per week and are customarily employed by us, or a subsidiary designated by the board of directors, for at least five months per calendar year. Any employee who is a 5% stockholder is not eligible to participate in the 2000 purchase plan. Under the 2000 purchase plan, employees who participate in an offering generally may have up to 15% of their earnings for the period of that offering withheld. The amount withheld is used on each purchase date of the offering period to purchase shares of common stock. The price paid for common stock on the purchase dates will equal the lower of 85% of the fair market value of the common stock on the first day of the offering period or 85% of the fair market value of the common stock on the purchase date. Employees may end their participation in the offering at any time during the offering period, and participation ends automatically on termination of employment. Effect of a Change in Control. Upon a change in control of the beneficial ownership of us, our board of directors has discretion to provide that each right to purchase common stock will be assumed or an equivalent right substituted by the successor entity or the board of directors may provide for all sums collected by payroll deductions to be applied to purchase stock immediately prior to the effective date of the change in control transaction. 51 Other Provisions. Our board of directors has the authority to amend or terminate the 2000 purchase plan; provided, however, that no amendment or termination of the 2000 purchase plan may adversely affect any outstanding rights to purchase common stock. Amendments generally will be submitted for stockholder approval only to the extent required by law. 2000 Non-Employee Directors' Stock Option Plan Our board of directors adopted the 2000 non-employee directors' stock option plan in January 2000, and our stockholders approved the 2000 non-employee directors' stock option plan in March 2000. The directors' plan will be effective on the effective date of this offering. Share Reserve. A total of 350,000 shares of our common stock have been reserved for issuance under the 2000 directors' plan. When a stock option expires or is terminated before it is exercised, the shares not acquired pursuant to the stock option shall again become available for issuance under the 2000 directors' plan. Eligibility and Option Terms. The directors' plan permits the grant of NSOs to non-employee directors. The 2000 directors' plan is administered by our board of directors. However, the grant of stock options is automatic. On the effective date of this offering, each non-employee director will automatically be granted an option to purchase 25,000 shares of common stock, unless that director has previously been granted an option. Any individual who becomes a non-employee director after this offering will automatically receive this initial grant upon being elected to the board of directors. On each annual stockholders' meeting, beginning with the annual stockholders' meeting in 2001, any person who is then a non-employee director will automatically be granted an option to purchase 10,000 shares of common stock. In general, the stock options granted under the directors' plan may not exceed ten years. An optionholder may not transfer a stock option other than by will or the law of descent or distribution. The exercise price for nonstatutory stock options will be 100% of the fair market value of the common stock on the date of grant. Unless the terms of an optionholder's stock option agreement provide for earlier termination, in the event an optionholder's service relationship with us ceases due to death, the optionholder's beneficiary may exercise any vested options up to 18 months after the date such service relationship ends. In the event an optionholder's service relationship with us ceases due to disability, the optionholder may exercise any vested option up to twelve months after the cessation of service. If an optionholder's relationship with us ceases for any reason other than disability or death, the optionholder may, unless the terms of the stock option agreement provide for earlier termination, exercise any vested options up to three months from the date the service relationship ends. Effect on Options of a Change in Control. In the event of certain changes in control in the beneficial ownership of us, the vesting provisions of all outstanding stock options under the directors' plan will be accelerated and the stock options will be terminated upon the change of control if not previously exercised. Other Provisions. Our board of directors may amend or modify the directors' plan at any time. However, no such amendment or modification shall adversely affect the rights and obligations with respect to options unless the participant consents to such an amendment or modification. 52 401(k) Plan We sponsor a 401(k) plan, a defined contribution plan intended to qualify under Section 401(a) of the Internal Revenue Code of 1986, as amended. All employees are eligible to participate. Participants may make pre-tax contributions to the 401(k) plan of up to 25% of their eligible earnings, subject to a statutorily prescribed annual limit ($10,500 in 2000). Under the 401(k) plan, each employee is fully vested in his or her deferred salary contributions. Employee contributions are held and invested by the 401(k) plan's trustee. Each participant's contributions, and the corresponding investment earnings, are generally not taxable to the participants until withdrawn. Individual participants may direct the trustee to invest their accounts in authorized investment alternatives. Limitation of Liability of Directors and Indemnification Matters Our amended and restated certificate of incorporation limits the liability of directors to the maximum extent permitted by Delaware law. Delaware law provides that directors of a corporation will not be personally liable for monetary damages for breach of their fiduciary duties as directors, except liability for: . any breach of their duty of loyalty to the corporation or its stockholders; . acts or omissions not in good faith or which 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. This limitation of liability does not apply to liabilities arising under the federal securities laws and does not affect the availability of equitable remedies such as injunctive relief or rescission. Our amended and restated certificate of incorporation and bylaws provide that we will indemnify our directors and officers, and may indemnify our other employees and agents, to the fullest extent permitted by law. We believe that indemnification under our bylaws covers at least negligence and gross negligence on the part of indemnified parties. Our bylaws also permit us to secure insurance on behalf of any officer, director, employee or other agent for any liability arising out of his or her actions in that capacity and certain other capacities, including serving as a director of another corporation at the request of our board, regardless of whether the bylaws would permit indemnification. We intend to enter into agreements to indemnify our directors and executive officers in addition to indemnification provided for in our certificate of incorporation and our bylaws. These agreements, among other things, provide for indemnification of our directors and executive officers for expenses specified in the agreements, including attorneys' fees, judgments, fines and settlement amounts incurred by any of these persons in any action or proceeding arising out of these persons' services as a director or officer for us, any of our subsidiaries or any other entity to which the person provides services at our request. We believe that these provisions and agreements are necessary to attract and retain qualified persons as directors and officers. At present, we are not aware of any pending or threatened litigation or proceeding involving a director, officer, employee or agent in which indemnification would be required or permitted. 53 Change of Control Arrangements In August 1998 and September 1998, we entered into founder stock purchase agreements with Ofer Ben-Shachar, our President, Chief Executive Officer and Chairman of the Board. Under the terms of the agreements, as amended in April 1999, approximately 33% of his shares were immediately vested with approximately 1.85% of his shares vesting monthly thereafter. Upon involuntary termination prior to a change of control of us, approximately 11% of his shares would become immediately vested. Upon involuntary termination following a change of control of us, 100% of his remaining unvested shares would become immediately vested. In October 1999, we entered into an employment offer letter with Hagi Schwartz, our Vice President of Finance and Chief Financial Officer, and in January 2000, we entered into an employment offer letter with Timothy Moore, our Vice President of Strategic Alliances, General Counsel and Secretary. Under the terms of their employment offer letters, Mr. Schwartz and Mr. Moore are entitled to full acceleration of the unvested portion of their option shares in the event of a change of control. According to the terms of the stock option grants to four of our directors, Steven Baloff, Edward Barr, Kathy Levinson and Arthur Patterson, vesting of their option shares will immediately accelerate upon a change of control transaction. For more information about the change of control provisions under our stock plans, See "--Stock Plans." 54 RELATED PARTY TRANSACTIONS The following executive officers, directors or holders of more than five percent of any class of our voting securities purchased securities in the amounts as of the date shown below. For more detail on shares held by these purchasers see "Principal Stockholders." All preferred share amounts are listed on an as-converted to common stock basis.
Shares of Preferred Stock --------------------------------------- Warrants for Common Stock Series A Series B Series C Series D Common Stock ----------------- --------- --------- --------- --------- ------------ Ofer Ben-Shachar................ 8,000,000 2,999,998 160,000 100,671 45,455 -- Kevin Akeroyd................... 100,000 -- -- -- -- -- David Hannebrink................ 436,706 -- -- -- -- -- Raymond Martinelli.............. 75,000 -- -- -- -- -- Timothy Moore................... 285,000 -- -- -- -- -- Hagi Schwartz................... 310,000 -- 14,546 -- -- -- Robert Shaw..................... 270,000 -- -- -- -- -- Lawrence Slotnick............... 400,000 -- -- -- -- -- Mathew Spolin................... 216,720 -- -- -- -- -- Steven Baloff................... 25,000 -- -- -- -- -- Edward Barr..................... 25,000 -- -- -- -- -- Kathy Levinson.................. 100,000 -- -- -- -- -- Accel Internet Fund II L.P.(1).. -- -- 605,090 139,597 -- -- Accel Investors '98 L.P.(1)..... -- -- 401,456 92,617 -- -- Accel Keiretsu VI L.P.(1)....... -- -- 75,636 17,450 -- -- Accel VI L.P.(1)................ -- -- 4,736,000 1,092,618 -- -- Advanced Technology Ventures V, L.P.(2)........................ -- -- 2,106,582 560,913 -- -- ATV Entrepreneurs V, L.P.(2).... -- -- 75,236 20,033 -- -- MeriTech Capital Affiliates L.P. ............................... -- -- -- 32,215 -- -- MeriTech Capital Partners L.P. ............................... -- -- -- 1,981,208 -- -- R. R. Donnelley & Sons Company.. -- -- -- -- 1,272,727 2,780,158 Price Per Share................. $0.00125 to $9.50 $ 0.65 $ 2.75 $ 7.45 $ 11.00 $ 11.00 Date(s) of Purchase............. 8/98 to 3/00 11/98 4/99 11/99 1/00 1/00
- -------- (1) Arthur Patterson, one of our directors, is a general partner of Accel Partners. (2) Steven Baloff, one of our directors, is a general partner of Advanced Technology Ventures. We have entered into the following agreements with our executive officers, directors and holders of more than five percent of our voting securities. Co-Marketing Agreement. In January 2000, we entered into a co-development and co-marketing agreement with R.R. Donnelley, a beneficial holder of 6.5% of our common stock. Under the agreement, we and R.R. Donnelley are committed to actively promote and market the noosh.com service to R.R. Donnelley's customers, particularly in the catalog, magazine and book publishing markets. R.R. Donnelley also agreed to pay us a transaction fee based on the aggregate volume of print orders processed by them. R.R. Donnelley is not committed to any volume targets. Amended and Restated Investor Rights Agreement. We, the preferred stockholders described above and R.R. Donnelley have entered into an agreement, under which they and other stockholders will have registration rights with respect to their shares of common stock which we refer to as registrable shares, following this offering. These registration rights include two demand registration rights, an unlimited number of registration rights requiring us to register sales of their shares when we undertake a public offering, or piggyback registration rights, and an unlimited number of Form S-3 registration rights. In order to exercise their demand registration rights, 55 stockholders holding at least 30% of the registrable shares must submit a written request that we file a registration statement for a public offering of the registrable shares having an anticipated aggregated offering price of at least $15,000,000. In order to exercise their piggyback registration rights, each holder of registrable shares must submit written notice to us within 15 days of receiving notice from us that we intend to file a registration statement for the public offering of our common stock. In order to exercise their Form S-3 registration rights, stockholders holding at least 20% of the registrable shares must submit a written request that we effect a registration on Form S-3. See "Description of Capital Stock--Registration Rights" for a further description of the terms of this agreement. E*TRADE Agreement. In December 1999, we entered into our standard form of print buyer agreement with E*TRADE Group, Inc. Kathy Levinson, one of our directors, serves as president and chief operating officer of E*TRADE. Under the agreement, if E*TRADE uses our service, it has agreed to pay us a monthly service fee based upon applicable dollar volumes. Indebtedness of Management. From April 1999 to March 2000, we made loans to the following officers and directors:
Name Amount Due Date ---- -------- ---------------- David Hannebrink................................... $ 13,520 April 15, 2001 Hagi Schwartz...................................... 300,000 October 8, 2004 David Hannebrink................................... 100,000 November 1, 2000 Kevin Akeroyd...................................... 49,900 January 3, 2005 Raymond Martinelli................................. 59,925 January 3, 2005 Timothy Moore...................................... 641,250 January 3, 2005 Steven Baloff...................................... 61,475 January 15, 2005 David Hannebrink................................... 100,000 January 15, 2002 Robert Shaw........................................ 674,730 January 15, 2005 Hagi Schwartz...................................... 64,990 February 4, 2005 Edward Barr........................................ 237,475 March 15, 2005
Each loan was made under a promissory note secured by a pledge of early exercised common shares. The notes bear interest at between 6% and 6.8% per year. Stock Options. Stock option grants to our executive officers and directors are described in this prospectus under the captions "Management--Director Compensation" and "--Executive Compensation." Management Rights. In November 1999, we entered into a management rights letter agreement with MeriTech Capital, a holder of 6.0% of our common stock. Under the terms of the letter agreement, MeriTech is entitled to consult with and advise us on significant business issues and to attend all board meetings in a non-voting observer capacity. Executive Employment Arrangements. In October 1999, we entered into an employment offer letter with Hagi Schwartz, our Vice President of Finance and Chief Financial Officer. In January 2000, we entered into employment offer letters with Robert Shaw, our Senior Vice President of Sales, and Timothy Moore, our Vice President of Strategic Alliances and General Counsel. See "Management--Employment Arrangements." Indemnification Agreements. We intend to enter into indemnification agreements with our directors and executive officers for the indemnification of these persons to the full extent permitted by law. We also intend to execute these agreements with our future directors and officers. 56 PRINCIPAL STOCKHOLDERS The following table sets forth certain information with respect to the beneficial ownership of our outstanding common stock as of April 4, 2000, and as adjusted to reflect the sale of our common stock in this offering, by: . our Chief Executive Officer and each of our four other most highly compensated executive officers; . each director; . each stockholder who is known by us to own beneficially 5% or more of any class of our voting securities; and . all directors and executive officers as a group. Percentage of ownership in the following table is calculated based on 33,602,173 shares of common stock outstanding as of April 4, 2000 and 37,602,173 shares of common stock outstanding after completion of this offering. Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission. In computing the number of shares beneficially owned by a person and the percentage ownership of that person, shares of common stock subject to options held by that person that are currently exercisable or exercisable within 60 days of April 4, 2000 are deemed outstanding. Those shares, however, are not deemed outstanding for the purposes of computing the percentage ownership of each other person. Except as indicated in the footnotes to the table, the persons named in the table have sole voting and investment power with respect to all shares of common stock shown as beneficially owned by them, subject to community property laws where applicable. Unless otherwise indicated, the address of each of the individuals named above is: 3401 Hillview Avenue, Palo Alto, CA 94304.
Beneficial Ownership -------------------------------------------------------------- Number of Options or Shares Warrants NOOSH may Exercisable Repurchase Within Within Percent 60 Days of 60 Days of ----------------- Name and Address of Number of April 4, April 4, Before After Beneficial Owner Shares(1) 2000 2000(2) Total Offering Offering - ------------------- ---------- ----------- ---------- ---------- -------- -------- Ofer Ben-Shachar(3)..... 6,120,977 -- 1,185,147 7,306,124 21.7% 19.4% Kevin Akeroyd........... -- -- 100,000 100,000 * * David Hannebrink........ 142,039 -- 277,334 436,706 1.3 1.2 Hagi Schwartz........... 14,546 -- 310,000 324,546 * * Lawrence Slotnick....... -- -- 341,667 450,000 1.3 1.2 Steven Baloff(4)........ 3,078,094 -- 15,973 3,095,456 9.2 8.2 Edward Barr............. -- -- 23,612 25,000 * * Arthur Patterson(5)..... 7,160,464 108,333 -- 7,268,797 21.6 19.3 Kathy Levinson(6)....... 95,543 -- 83,334 178,877 * * Accel Partners(5)....... 7,160,464 -- -- 7,160,464 21.3 19.0 Advanced Technology Ventures(4)............ 3,070,456 -- -- 3,070,456 9.1 8.2 MeriTech Capital(7)..... 2,013,423 -- -- 2,013,423 6.0 5.4 R.R. Donnelley & Sons Company................ 1,272,727 961,308 -- 2,234,035 6.5 5.8 All directors and executive officers as a group (13 persons)(8).. 16,817,595 108,333 3,098,002 20,032,226 59.4% 53.1
57 - -------- * Less than 1% of the outstanding shares of common stock. (1) Excludes shares of common stock subject to a right of repurchase within 60 days of April 4, 2000. (2) The unvested portion of the shares of common stock is subject to a right of repurchase, at the original option price, in the event the holder ceases to provide services to Noosh and its affiliates or upon a change of control of NOOSH. The option exercise prices range from $0.0325 to $9.50. (3) Does not include 3,983,500 shares held by the Ben-Shachar Family Generation Skipping Trust. Mr. Ben-Shachar has no voting or investment power with respect to the shares and, therefore, does not have beneficial ownership of the shares. (4) Includes 2,975,187 shares held by Advanced Technology Ventures V, L.P., and 95,269 shares held by ATV Entrepreneurs V, L.P. Advanced Technology Ventures is located at 485 Ramona Street, Suite 200, Palo Alto, CA 94301. Mr. Baloff is a general partner of Advanced Technology Ventures and disclaims beneficial ownership of these shares except to the extent of his proportionate partnership interest in these shares. (5) Includes 744,687 shares held by Accel Internet Fund II L.P., 494,073 shares held by Accel Investors '98 L.P., 93,086 shares held by Accel Keiretsu VI L.P. and 5,828,618 shares held by Accel VI L.P. Accel Partners are located at 428 University Avenue, Palo Alto, CA 94303. Mr. Patterson is a general partner of Accel Partners and disclaims beneficial ownership of these shares except to the extent of his proportionate partnership interest in these shares. (6) Includes 78,877 shares held by Internet Experience, L.P. Internet Experience is located at 4500 Bohannan Drive, Menlo Park, CA 94025. Ms. Levinson is a general partner and a limited partner of Internet Experience and disclaims beneficial ownership of these shares except to the extent of her proportionate partnership interest in these shares. (7) Includes, 32,215 shares held by MeriTech Capital Affiliates L.P. and 1,981,208 shares held by MeriTech Capital Partners L.P. MeriTech Capital is located at 428 University Avenue, Palo Alto, CA 94303. (8) Total number of shares includes 10,309,797 shares of common stock held by entities affiliated with directors and executive officers. See footnotes 4 through 6 above. 58 DESCRIPTION OF CAPITAL STOCK Upon completion of this offering, our authorized capital stock will consist of 75,000,000 shares of common stock, $0.001 par value, 2,600,000 shares of Class B common stock, $0.001 par value, and 5,000,000 shares of undesignated preferred stock, $0.001 par value. The following description of our capital stock does not purport to be complete and is subject to, and qualified in its entirety by, our amended and restated certificate of incorporation and bylaws, which we have included as exhibits to the registration statement of which this prospectus forms a part. Common Stock and Class B Common Stock As of April 4, 2000, there were 33,602,173 shares of capital stock outstanding, held of record by 106 stockholders. These amounts assume the conversion of all outstanding shares of preferred stock into common stock and Class B common stock, based on an assumed initial public offering price of $12.00, which is to occur upon the closing of this offering. In addition, as of April 4, 2000, there were 4,392,538 shares of common stock subject to outstanding options. Upon completion of this offering, there will be 37,602,173 shares of common stock and Class B common stock outstanding, assuming no additional exercise of outstanding stock options. Each share of common stock entitles its holder to one vote on all matters to be voted upon by stockholders. Subject to preferences that may apply to any outstanding preferred stock, holders of common stock may receive ratably any dividends that the board of directors may declare out of funds legally available for that purpose. In the event of our liquidation, dissolution or winding up, the holders of common stock are entitled to share ratably in all assets remaining after payment of liabilities and any liquidation preference of preferred stock that may be outstanding. The common stock has no preemptive rights, conversion rights or other subscription rights or redemption or sinking fund provisions. All outstanding shares of common stock are fully paid and non- assessable, and the shares of common stock that we will issue upon completion of this offering will be fully paid and non-assessable. The rights of holders of Class B common stock will be identical to the rights of holders of common stock except that the holders of Class B common stock do not have voting rights. Commencing on the date 90 days after this offering, twenty-five percent of the outstanding Class B common stock may be converted into common stock on a one-to-one basis at the option of the holder. In addition, commencing on the earlier of April 4, 2001, 180 days after this offering or upon our written consent, the remaining shares of Class B common stock may be converted into shares of common stock on a one-to-one basis. There are currently no shares of Class B common stock outstanding. Preferred Stock Upon the completion of the offering, each outstanding share of Series A and Series B preferred stock will automatically convert into two shares of common stock, each outstanding share of Series C and Series D preferred stock will automatically convert into one share of common stock and each outstanding share of Series E preferred stock will convert into the number of shares of Class B common stock that is equal to $13.00 divided by the lesser of the conversion price of the Series E preferred stock in effect immediately prior to the automatic conversion or 85% of the initial public offering price per share. Assuming an initial public offering price of $12.00 per share, upon completion of this offering, each share of Series E preferred stock will convert into 1.27 shares of Class B common stock. According to our amended and restated certificate of incorporation, our board of directors will have the authority, without further action by the stockholders, to issue up to 5,000,000 shares of preferred stock in one or more series. Our board shall designate the rights, preferences, privileges 59 and restrictions of the preferred stock, including dividend rights, conversion rights, voting rights, terms of redemption, liquidation preference, sinking fund terms and number of shares constituting any series or the designation of any series. The issuance of preferred stock could have the effect of restricting dividends on the common stock, diluting the voting power of the common stock, impairing the liquidation rights of the common stock or delaying or preventing a change in control without further action by the stockholders. We have no present plans to issue any shares of preferred stock after the completion of this offering. Warrants As of April 4, 2000, we had outstanding the following warrants: . A warrant to purchase 270,000 shares of common stock, of which a total of 140,000 shares is immediately exercisable. Of these 140,000 shares, the right to purchase 35,000 shares will terminate upon the closing of this offering. An additional 35,000 shares are exercisable on December 31, 2000 or earlier if stated volume targets for business conducted over our service are met. The remaining portion of the warrant becomes exercisable in increments only upon the holder meeting stated volume targets. The exercise price for the warrant ranges from $7.45 per share to the fair market value of our common stock on the date the volume targets are met. This warrant expires in December 2002. . A warrant to purchase 225,000 shares of common stock, of which a total of 75,000 shares is immediately exercisable. The remaining portion of the warrant becomes exercisable in increments upon the holder meeting stated volume targets. The exercise price for the warrant ranges from $11.00 per share to the fair market value of our common stock at the end of the calendar quarter that the stated volume target is met. This warrant expires in December 2002. . Two warrants to purchase a total of 2,780,158 shares of common stock at an exercise price of $11.00 per share. A portion of the warrants, for a total of 961,308 shares of common stock, is immediately exercisable. The remaining portions of the warrants become exercisable in increments upon the holder meeting stated volume targets. These warrants expire in January 2003. . A warrant to purchase 50,000 shares of common stock at an exercise price of $11.00. The entire warrant becomes exercisable upon the holder meeting stated volume requirements. This warrant expires in January 2003. . A warrant to purchase 100,000 shares of common stock. The warrant becomes exercisable in increments one year from the date of grant and only to the extent the holder meets stated volume targets. The exercise price for the warrant ranges from the initial public offering price per share to the fair market value of our common stock as of the end of the calendar quarter during which the stated volume targets are met. This warrant expires in February 2003. . A warrant to purchase 10,000 shares of common stock. The entire warrant becomes exercisable one year from the date of grant and only if the holder meets a target for the conduct of business over our service. The exercise price will be the initial public offering price per share. This warrant expires in February 2003. . A warrant to purchase 958,400 shares of capital stock at an initial exercise price of $13.00 per share. A portion of the warrant, for a total of 432,000 shares of capital stock, is immediately exercisable. The remaining portion of the warrant becomes exercisable in increments upon the holder meeting stated targets. Initially, the warrant is exercisable for Class B common stock. At the option of the holder, on the date 90 days after this offering, a portion of the warrant will become exercisable for common stock. In addition, on the earlier of April 4, 2001 or the date 180 days after this offering, the remainder of the warrant will become exercisable for common stock. This warrant expires in April 2004. 60 Each of the warrants contains provisions for the adjustment of the exercise prices and the aggregate number of shares that may be issued upon exercise of the warrants in the event of a stock split, stock dividend, reorganization, reclassification or consolidation. In addition, the warrant that is initially exercisable for Class B common stock provides that the exercise price will adjust upon the closing of this offering to a price equal to the lesser of $13.00 or the conversion price of the Series E preferred stock in effect immediately prior to its automatic conversion into Class B common stock upon completion of this offering. In addition, each warrant allows for cashless exercise. Registration Rights The holders of 21,989,137 shares of the common stock currently outstanding or issued or issuable upon conversion of the preferred stock and Class B common stock, R.R. Donnelley, with respect to 2,780,158 shares of common stock issuable upon conversion of the warrants issued to it, and GE Capital Equity Investments, with respect to 958,400 shares of common stock issuable upon conversion of the Class B common stock issuable upon conversion of the warrant issued to it, are entitled to require us to register the sales of their shares under the Securities Act, under the terms of an agreement between us and the holders of these securities. Subject to limitations specified in the agreement, these registration rights include the following: . two demand registration rights that holders may exercise no sooner than 180 days after our initial public offering, which require us to register the sale of a holder's shares, subject to the discretion of our board of directors to delay the registration; . an unlimited number of registration rights that require us to register sales of a holder's shares when we undertake a public offering, subject to the discretion of the managing underwriter of the offering to decrease the amount that holders may register; and . an unlimited number of rights to require us to register sales of shares on Form S-3, a short form of registration statement permitted to be used by some companies, which holders may exercise if they request registration of the sale of more than $750,000 of common stock following the time we first qualify for the use of this form of registration with the Securities and Exchange Commission. In addition, the holders of 8,000,000 shares of the common stock that will be outstanding after this offering are entitled to the same piggyback and Form S-3 registration rights listed above. We will bear all registration expenses if these registration rights are exercised, other than underwriting discounts and commissions. These registration rights terminate as to a holder's shares when that holder may sell those shares under Rule 144(k) of the Securities Act, which for most parties means two years after the acquisition of the shares from us. Anti-Takeover Provisions Delaware Law We are subject to Section 203 of the Delaware General Corporation Law, which regulates acquisitions of some Delaware corporations. In general, Section 203 prohibits a publicly held Delaware corporation from engaging in a business combination with an interested stockholder for a period of three years following the date the person becomes an interested stockholder, unless: . our board of directors approved the business combination or the transaction in which the person became an interested stockholder prior to the date the person attained this status; . upon consummation of the transaction that resulted in the person becoming an interested stockholder, the person owned at least 85% of the voting stock of the corporation outstanding at 61 the time the transaction commenced, excluding shares owned by persons who are directors and also officers; or . on or subsequent to the date the person became an interested stockholder, our board of directors approved the business combination and the stockholders other than the interested stockholder authorized the transaction at an annual or special meeting of stockholders. Section 203 defines a "business combination" to include: . any merger or consolidation involving the corporation and the interested stockholder; . any sale, transfer, pledge or other disposition involving the interested stockholder of 10% or more of the assets of the corporation; . in general, any transaction that results in the issuance or transfer by the corporation of any stock of the corporation to the interested stockholder; or . the receipt by the interested stockholder of the benefit of any loans, advances, guarantees, pledges or other financial benefits provided by or through the corporation. In general, Section 203 defines an "interested stockholder" as any person who, together with the person's affiliates and associates, owns, or within three years prior to the determination of interested stockholder status did own, 15% or more of a corporation's voting stock. Certificate of Incorporation and Bylaw Provisions Our amended and restated certificate of incorporation and bylaws, to be effective upon the closing of this offering, divide our board into three classes as nearly equal in size as possible, with each class serving a three- year term. The terms are staggered, so that one-third of the board is to be elected each year. The classification of our board could have the effect of making it more difficult than otherwise for a third party to acquire control of us, because it would typically take more than a year for our stockholders to elect a majority of our board. In addition, our amended and restated certificate of incorporation and bylaws will provide that any action required or permitted to be taken by our stockholders at an annual or special meeting may be taken only if it is properly brought before the meeting, and may not be taken by written consent in lieu of a meeting. The bylaws will also provide that special meetings of the stockholders may be called only by our board of directors, our Chairman of the Board or our Chief Executive Officer. Under our bylaws, stockholders wishing to propose business to be brought before a meeting of stockholders will be required to comply with various advance notice requirements. Finally, our amended and restated certificate of incorporation and bylaws will not permit stockholders to take any action without a meeting. Transfer Agent and Registrar The transfer agent and registrar for our common stock is American Stock Transfer & Trust Company. The transfer agent's address is 40 Wall Street, 46th Floor, New York, New York, 10005. 62 SHARES ELIGIBLE FOR FUTURE SALE Prior to this offering, there has been no market for our common stock. Future sales of substantial amounts of our common stock in the public market could adversely affect prevailing market prices. Sales of substantial amounts of our common stock in the public market after any restrictions on sale lapse could adversely affect the prevailing market price of the common stock and impair our ability to raise equity capital in the future. Upon completion of the offering, we will have 37,602,173 outstanding shares of common stock, outstanding options to purchase 4,392,538 shares of common stock and outstanding warrants to purchase 4,358,558 shares of common stock and Class B common stock, assuming no additional option or warrant grants or exercises after April 4, 2000. We expect that the 4,000,000 shares sold in this offering, plus any shares issued upon exercise of the underwriters' over- allotment option, will be freely tradable without restriction under the Securities Act, unless purchased by our "affiliates" as that term is defined in Rule 144 under the Securities Act. In general, affiliates include officers, directors and 10% or greater stockholders. The remaining 33,602,173 shares outstanding and 8,606,133 shares subject to outstanding options and warrants are "restricted securities" within the meaning of Rule 144. Restricted securities may be sold in the public market only if the sale is registered or if it qualifies for an exemption from registration, such as under Rule 144, 144(k) or 701 promulgated under the Securities Act, which are summarized below. Sales of restricted securities in the public market, or the availability of such shares for sale, could adversely affect the market price of the common stock. As a result of contractual restrictions described below and the provisions of Rules 144, 144(k) and 701, the restricted shares will be available for sale in the public market as follows: . Beginning 180 days after the effective date, 20,106,997 shares will be eligible for sale pursuant to Rule 144, Rule 144(k) and Rule 701. . Beginning in November 2000, the remaining 13,495,176 shares will be eligible for sale under Rule 144, Rule 144(k) or Rule 701 once they have been held for the required period of time. Additionally, of the 4,392,538 shares that may be issued upon the exercise of outstanding options as of April 4, 2000, approximately 2,416,264 shares will be vested and eligible for sale beginning 180 days after the effective date. As of April 4, 2000, warrants for 1,573,308 shares of common stock and Class B common stock were exercisable and warrants for an additional 2,785,250 shares of common stock and Class B common stock may become exercisable in the future based on the holders meeting stated volume targets for business conducted over our service. If exercised, the earliest that these shares will be eligible for sale under Rule 144 is December 2000. Lock-Up Agreements Our directors, officers, employees and other stockholders, who together hold all of our securities, have entered into lock-up agreements in connection with this offering or are locked up under agreements with us. These lock-up agreements generally provide that these holders will not offer, sell, contract to sell, grant any option to purchase or otherwise dispose of our common stock or any securities exercisable for or convertible into our common stock owned by them for a period of 180 days after the date of this prospectus without the prior written consent of Goldman, Sachs & Co. Notwithstanding possible earlier eligibility for sale under the provisions of Rules 144, 144(k) and 701, shares subject to lock-up agreements may not be sold until these agreements expire or are waived by Goldman, Sachs & Co. 63 Rule 144 In general, under Rule 144 as currently in effect, after the expiration of the lock-up agreements, a person who has beneficially owned restricted securities for at least one year would be entitled to sell within any three- month period a number of shares that does not exceed the greater of: . one percent of the number of shares of common stock then outstanding, which will equal approximately 373,910 shares immediately after this offering; and . the average weekly trading volume of our common stock during the four calendar weeks preceding the sale. Sales under Rule 144 are also subject to requirements with respect to manner of sale, notice and the availability of current public information about us. Rule 144(k) Under Rule 144(k), a person who is not deemed to have been our affiliate at any time during the three months preceding a sale, and who has beneficially owned the shares proposed to be sold for at least two years, may sell these shares without complying with the manner of sale, public information, volume limitation or notice requirements of Rule 144. Rule 701 Rule 701, as currently in effect, permits our employees, officers, directors or consultants who purchased shares pursuant to a written compensatory plan or contract to resell such shares in reliance upon Rule 144, but without compliance with certain restrictions. Rule 701 provides that affiliates may sell their Rule 701 shares under Rule 144 90 days after effectiveness without complying with the holding period requirement and that non-affiliates may sell such shares in reliance on Rule 144 90 days after effectiveness without complying with the holding period, public information, volume limitation or notice requirements of Rule 144. Registration Rights On the date 180 days after the completion of this offering, the holders of 29,989,137 shares of our common stock will have rights to require us to register their shares under the Securities Act. Upon the effectiveness of a registration statement covering these shares, the shares would become freely tradable. Stock Options We intend to file a registration statement under the Securities Act after the effective date of this offering to register shares to be issued pursuant to our employee benefit plans. As a result, any options or rights exercised under the 1998 equity incentive plan, the 2000 equity incentive plan, the 2000 employee stock purchase plan and the 2000 non-employee directors' stock option plan will also be freely tradable in the public market. However, shares held by affiliates will still be subject to the volume limitation, manner of sale, notice and public information requirements of Rule 144, unless otherwise resalable under Rule 701. As of April 4, 2000 options to purchase 4,392,538 shares of common stock were outstanding, of which options to purchase 1,111,379 shares were vested and exercisable. In addition, as of that date, we had reserved 217,412 shares for possible future issuance under our 1998 equity incentive plan, and an aggregate of 6,950,000 shares for possible future issuance under our 2000 equity incentive plan, 2000 employee stock purchase plan and 2000 non-employee directors' stock option plan. 64 UNDERWRITING NOOSH and the underwriters named below have entered into an underwriting agreement with respect to the shares being offered. Subject to certain conditions, each underwriter has severally agreed to purchase the number of shares indicated in the following table. Goldman, Sachs & Co., FleetBoston Robertson Stephens Inc., Banc of America Securities LLC, PaineWebber Incorporated and E*OFFERING Corp. are the representatives of the underwriters.
Number of Underwriters Shares ------------ --------- Goldman, Sachs & Co. .............................................. FleetBoston Robertson Stephens Inc. ............................... Banc of America Securities LLC..................................... PaineWebber Incorporated........................................... E*OFFERING Corp. .................................................. ----- Total............................................................ =====
If the underwriters sell more shares than the total number set forth in the table above, the underwriters have an option to buy up to an additional 600,000 shares from NOOSH to cover such sales. They may exercise that option for 30 days. If any shares are purchased pursuant to this option, the underwriters will severally purchase shares in the same proportion as set forth in the table above. The following table shows the per share and total underwriting discounts and commissions to be paid to the underwriters by NOOSH. Such amounts are shown assuming both no exercise and full exercise of the underwriters' option to purchase 600,000 additional shares. Paid by NOOSH
No Full Exercise Exercise -------- -------- Per Share.................................................. $ $ Total...................................................... $ $
Shares sold by the underwriters to the public will initially be offered at the initial public offering price set forth on the cover of this prospectus. Any shares sold by the underwriters to securities dealers may be sold at a discount of up to $ per share from the initial public offering price. Any such securities dealers may resell any shares purchased from the underwriters to certain other brokers or dealers at a discount of up to $ per share from the initial public offering price. If all the shares are not sold at the initial public offering price, the representatives may change the offering price and the other selling terms. NOOSH and its directors, officers, employees and other stockholders have agreed with the underwriters, except under limited circumstances, not to offer, sell, contract to sell, grant any option to purchase or otherwise dispose of our common stock or any securities exercisable for or convertible into our common stock owned by them for a period of 180 days after the date of this prospectus without the prior written consent of Goldman, Sachs & Co. See "Shares Eligible for Future Sale" for a discussion of transfer restrictions. 65 Prior to this offering, there has been no public market for the common stock. The initial public offering price for the common stock has been negotiated among NOOSH and the representatives of the underwriters. Among the factors considered in determining the initial public offering price of the shares, in addition to prevailing market conditions, were NOOSH's historical performance, estimates of NOOSH's business potential and earnings prospects, an assessment of Noosh's management and the consideration of the above factors in relation to market valuation of companies in related businesses. NOOSH has applied to have its common stock listed for quotation on the Nasdaq National Market under the symbol "NOSH." In connection with the offering, the underwriters may purchase and sell shares of common stock in the open market. These transactions may include short sales, stabilizing transactions and purchases to cover positions created by short sales. Short sales involve the sale by the underwriters of a greater number of shares than they are required to purchase in the offering. Stabilizing transactions consist of certain bids or purchases made for the purpose of preventing or retarding a decline in the market price of the common stock while the offering is in progress. The underwriters may also impose a penalty bid. This occurs when a particular underwriter repays to the underwriters a portion of the underwriting discount received by it because the representatives have repurchased shares sold by or for the account of such underwriter in stabilizing or short-sale covering transactions. These activities by the underwriters may stabilize, maintain or otherwise affect the market price of the common stock. As a result, the price of the common stock may be higher than the price that otherwise might exist in the open market. If these activities are commenced, they may be discontinued by the underwriters at any time. These transactions may be effected on The Nasdaq National Market, in the over-the-counter market or otherwise. The underwriters do not expect sales to discretionary accounts to exceed five percent of the total number of shares offered. The underwriters have reserved for sale, at the initial public offering price, up to 600,000 shares of the common stock offered hereby for certain individuals designated by NOOSH who have expressed an interest in purchasing such shares of common stock in the offering. The number of shares available for sale to the general public will be reduced to the extent such persons purchase such reserved shares. Any reserved shares not so purchased will be offered by the underwriters to the general public on the same basis as other shares offered hereby. A prospectus in electronic format may be made available on the web sites maintained by one or more underwriters or securities dealers. The representatives of the underwriters may agree to allocate a number of shares to underwriters for sale to their online brokerage account holders. Internet distribution will be allocated by the representatives to underwriters that may make Internet distributions on the same basis as other allocations. In addition, shares may be sold by the underwriters to securities dealers who resell shares to online brokerage account holders. NOOSH estimates that the total expenses of the offering, excluding underwriting discounts and commissions, will be approximately $1,200,000. NOOSH has agreed to indemnify the underwriters against certain liabilities, including liabilities under the Securities Act of 1933. 66 VALIDITY OF COMMON STOCK The validity of the common stock offered hereby will be passed upon for NOOSH by Cooley Godward LLP, Palo Alto, California and for the underwriters by Sullivan & Cromwell, Los Angeles, California. As of the date of this prospectus, Cooley Godward LLP, together with certain investment funds affiliated with the firm, own an aggregate of 120,834 shares of our common stock. EXPERTS The financial statements as of December 31, 1998 and 1999 included in this prospectus have been audited by PricewaterhouseCoopers LLP, independent accountants, as stated in their report appearing herein, and have been so included in reliance upon the report of such firm given upon their authority as experts in accounting and auditing. ADDITIONAL INFORMATION We have filed with the Securities and Exchange Commission a registration statement on Form S-1 under the Securities Act with respect to the common stock offered in this offering. This prospectus does not contain all of the information set forth in the registration statement and the exhibits and schedule thereto. For further information with respect to us and the common stock offered in this offering, we refer you to the registration statement and to the attached exhibits and schedules. Statements made in this prospectus concerning the contents of any document referred to in this prospectus are not necessarily complete. With respect to each such document filed as an exhibit to the registration statement, we refer you to the exhibit for a more complete description of the matter involved. The reports and other information we file with the SEC can be inspected and copied at the public reference facilities that the SEC maintains at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the SEC's regional offices located at 7 World Trade Center, 13th Floor, New York, New York 10048, and Suite 140, Citicorp Center, 50 West Madison Street, Chicago, Illinois 60661. Copies of these materials can be obtained at prescribed rates from the Public Reference Section of the SEC at the principal offices of the SEC, 450 Fifth Street, N.W., Washington, D.C. 20549. You may obtain information regarding the operation of the public reference room by calling 1(800) SEC- 0330. The SEC also maintains a web site (http://www.sec.gov) that makes available the reports and other information we have filed with the SEC. 67 NOOSH, INC. (A COMPANY IN THE DEVELOPMENT STAGE) INDEX TO FINANCIAL STATEMENTS
Page ---- Report of Independent Accountants........................................ F-2 Balance Sheets as of December 31, 1998 and 1999.......................... F-3 Statements of Operations for the period from inception to December 31, 1998, Year ended December 31, 1999, and the period from inception to December 31, 1999....................................................... F-4 Statements of Stockholders' Equity for the period from inception to December 31, 1999....................................................... F-5 Statements of Cash Flows for the period from inception to December 31, 1998, Year ended December 31, 1999, and the period from inception to December 31, 1999....................................................... F-6 Notes to Financial Statements............................................ F-7
F-1 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors of NOOSH, Inc. In our opinion, the accompanying balance sheets and the related statements of operations, changes in stockholders' equity and cash flow present fairly, in all material respects, the financial position of NOOSH, Inc. at December 31, 1998 and 1999 and the results of its operations and cash flows for the period from August 3, 1998 (date of inception) to December 31, 1998 and the year ended December 31, 1999, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these 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. PricewaterhouseCoopers LLP San Jose, California January 21, 2000 F-2 NOOSH, INC. (A COMPANY IN THE DEVELOPMENT STAGE) BALANCE SHEETS (in thousands, except share data)
Pro Forma at December 31, December 31, December 31, 1998 1999 1999 ------------ ------------ ------------ (Unaudited) ASSETS Current assets: Cash and cash equivalents............. $1,117 $ 48,349 $73,949 Prepaid expenses and other current assets............................... 26 947 ------ -------- Total current assets................ 1,143 49,296 Property and equipment, net............. 69 3,339 Other assets............................ 27 394 ------ -------- Total assets........................ $1,239 $ 53,029 ====== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable...................... $ 109 $ 634 Accrued liabilities................... 132 1,424 ------ -------- Total current liabilities........... 241 2,058 Long-term debt.......................... -- 79 ------ -------- Total liabilities................... 241 2,137 ------ -------- Commitments (Note 4) Stockholders' equity: Convertible Preferred Stock: $0.001 par value; Series A, Authorized: 2,023,077 shares Issued and outstanding: 2,023,077 shares at December 31, 1998 and December 31, 1999.................... 2 2 $ -- Series B, Authorized: 4,363,637 shares Issued and outstanding: 4,363,637 shares at December 31, 1999.......... -- 4 -- Series C, Authorized: 7,648,286 shares Issued and outstanding: 6,809,135 shares at December 31, 1999.......... -- 7 -- Common Stock: $0.001 par value; Authorized: 45,000,000 shares actual and pro forma; Issued and outstanding: 9,414,673 shares actual; 31,395,810 shares pro forma................................ 8 9 30 Additional paid-in capital............ 1,431 84,525 110,117 Deferred stock compensation........... (129) (15,379) (15,379) Notes receivable from common stockholders......................... -- (314) (314) Deficit accumulated during the development stage.................... (314) (17,962) (17,962) ------ -------- -------- Total Stockholders' equity.......... 998 50,892 $ 76,492 ------ -------- ======== Total liabilities and Stockholders' equity............. $1,239 $ 53,029 ====== ========
The accompanying notes are an integral part of these financial statements. F-3 NOOSH, INC. (A COMPANY IN THE DEVELOPMENT STAGE) STATEMENTS OF OPERATIONS (in thousands, except share and per share data)
Period from Period from August 3, August 3, 1998 (date 1998 (date of of inception) inception) to Year Ended to December 31, December 31, December 31, 1998 1999 1999 ------------ ------------ ------------ Costs and expenses: Research and development (exclusive of non-cash compensation expense of $771 in 1999 reported below) ............. $ 111 $ 3,053 $ 3,164 Sales and marketing (exclusive of non- cash compensation expenses of $984 and value of warrants granted of $1,249 in 1999 reported below)....... 96 9,412 9,508 Value of warrants granted in connection with marketing agreements........................... -- 1,468 1,468 General and administrative (exclusive of non-cash compensation expense of $813 in 1999 reported below) ........ 107 1,795 1,902 Amortization of deferred stock compensation......................... -- 2,568 2,568 ---------- ---------- ---------- Total operating expenses............ 314 18,296 18,610 ---------- ---------- ---------- Interest income, net.................... -- (648) (648) ---------- ---------- ---------- Net loss................................ $ (314) $ (17,648) $ (17,962) ========== ========== ========== Net loss per share--basic and diluted... $ (0.12) $ (4.13) $ (4.77) ========== ========== ========== Shares used in per share calculation-- basic and diluted...................... 2,521,485 4,275,090 3,763,399 ========== ========== ========== Pro forma net loss per share--basic and diluted................................ $ (1.15) ========== Shares used in pro forma net loss per share--basic and diluted............... 15,356,918 ==========
The accompanying notes are an integral part of these financial statements. F-4 NOOSH, INC. (A COMPANY IN THE DEVELOPMENT STAGE) STATEMENTS OF STOCKHOLDERS' EQUITY (in thousands, except share data)
Deficit Convertible Notes Accumulated Preferred Shares Common Stock Additional Receivable Deferred During the Total ----------------- ---------------- Paid-In from Common Stock Development Stockholders' Shares Amount Shares Amount Capital Shareholders Compensation Stage Equity ---------- ------ --------- ------ ---------- ------------ ------------ ----------- ------------- Issuance of common stock to founders in August 1998 at $0.00125 per share, net.................. -- $-- 8,040,000 $ 8 $ 1 $ -- $ -- $ -- $ 9 Issuance of Series A Convertible Preferred Stock at $0.65 per share in November 1998, net of issuance costs................ 2,023,077 2 -- -- 1,301 -- -- -- 1,303 Deferred stock compensation......... -- -- -- -- 129 -- (129) -- -- Net loss............. -- -- -- -- -- -- -- (314) (314) ---------- --- --------- --- ------- ----- -------- -------- -------- Balances at December 31, 1998............. 2,023,077 2 8,040,000 8 1,431 -- (129) (314) 998 Issuance of common stock................ -- -- 1,200,220 1 497 (314) -- -- 184 Issuance of common stock in connection with services rendered............. -- -- 174,453 -- 700 -- -- -- 700 Issuance of Series B Convertible Preferred Stock at $2.75 per share in April 1999, net of issuance costs................ 4,363,637 4 -- -- 11,955 -- -- -- 11,959 Issuance of Series C Convertible Preferred Stock at $7.45 per share in November 1999, net of issuance costs................ 6,809,135 7 -- -- 50,656 -- -- -- 50,663 Value of warrants granted in connection with marketing agreements........... -- -- -- -- 1,468 -- -- -- 1,468 Deferred stock compensation......... -- -- -- -- 17,818 -- (17,818) -- -- Amortization of deferred stock compensation......... -- -- -- -- -- -- 2,568 -- 2,568 Net loss............. -- -- -- -- -- -- -- (17,648) (17,648) ---------- --- --------- --- ------- ----- -------- -------- -------- Balances at December 31, 1999............. 13,195,849 $13 9,414,673 $ 9 $84,525 $(314) $(15,379) $(17,962) $ 50,892 ========== === ========= === ======= ===== ======== ======== ========
The accompanying notes are an integral part of these financial statements. F-5 NOOSH, INC. (A COMPANY IN THE DEVELOPMENT STAGE) STATEMENTS OF CASH FLOWS (in thousands)
Period from August Period from 3, 1998 August 3, 1998 (date of inception) Year Ended (date of inception) to December 31, December 31, to December 31, 1998 1999 1999 ------------------- ------------ ------------------- Cash flows from operating activities: Net loss................ $ (314) $(17,648) $(17,962) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization.......... 3 455 458 Value of warrants granted in connection with marketing agreements............ -- 1,468 1,468 Amortization of deferred stock compensation.......... -- 2,568 2,568 Issuance of common stock in connection with services rendered.............. -- 667 667 Changes in assets and liabilities: Prepaid expenses and other current assets............... (26) (921) (947) Accounts payable...... 109 525 634 Accrued liabilities... 132 1,292 1,424 Other long-term assets............... (27) (367) (394) ------ -------- -------- Net cash used in operating activities.......... (123) (11,961) (12,084) ------ -------- -------- Cash flows from investing activities: Purchase of property and equipment.............. (72) (3,725) (3,797) ------ -------- -------- Net cash used in investing activities.......... (72) (3,725) (3,797) ------ -------- -------- Cash flows from financing activities: Proceeds from issuance of Convertible Preferred Stock net.... 1,303 62,622 63,925 Proceeds from issuance of Common Stock, net... 9 184 193 Proceeds from issuance of Common Stock in connection with services rendered...... -- 33 33 Proceeds from long-term debt................... -- 79 79 ------ -------- -------- Net cash provided by financing activities.......... 1,312 62,918 64,230 ------ -------- -------- Net increase in cash and cash equivalents........ 1,117 47,232 48,349 Cash and cash equivalents at beginning of period.. -- 1,117 -- ------ -------- -------- Cash and cash equivalents at end of period........ $1,117 $ 48,349 $ 48,349 ====== ======== ======== Noncash activity: Deferred stock compensation........... $ 129 $ 17,818 $ 17,947 ====== ======== ======== Issuance of Common Stock for notes receivable from shareholder....... $ -- $ 314 $ 314 ====== ======== ======== Value of warrants granted in connection with marketing agreements............. $ -- $ 1,468 $ 1,468 ====== ======== ========
The accompanying notes are an integral part of these financial statements. F-6 NOOSH, INC. (A COMPANY IN THE DEVELOPMENT STAGE) NOTES TO FINANCIAL STATEMENTS NOTE 1--THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES: NOOSH, Inc. (the "Company") was incorporated in the state of California and commenced operations on August 3, 1998. NOOSH is a provider of business-to- business e-commerce solutions for the printing industry. The Company has developed and operates noosh.com, an Internet-based communication and collaboration service for managing the design, procurement and production of print orders. The service leverages the benefits of the Internet to enable print buyers, print vendors and other providers of related services to communicate and collaborate efficiently through the complex, multi-step process of completing a print order. The Company is in the development stage and since inception has devoted substantially all of its efforts to developing its service and raising capital. Use of estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Cash and cash equivalents The Company considers all highly liquid investments purchased with original maturities of three months or less to be cash equivalents and are stated at amounts that approximate fair value, based on quoted market prices. Cash equivalents consist primarily of deposits in money market funds. Concentration of credit risk The Company's cash and cash equivalents are maintained at a major U.S. financial institution. Deposits in this institution may exceed the amount of insurance provided on such deposits. Fair value of financial instruments The carrying amounts of the Company's financial instruments, including cash and cash equivalents, accounts payable and accrued liabilities approximate fair value due to their short maturities. Property and equipment Property and equipment are stated at cost and are depreciated on a straight- line basis over their estimated useful lives of three to five years. Leasehold improvements are amortized over the lesser of the useful life of the asset or the period of the lease. Maintenance and repairs are charged to operations as incurred. Research and development Research and development costs are charged to operations as incurred. F-7 NOOSH, INC. (A COMPANY IN THE DEVELOPMENT STAGE) NOTES TO FINANCIAL STATEMENTS--(Continued) Statement of Financial Accounting Standards ("SFAS") No. 86, "Accounting for the Costs of Computer Software to be Sold, Leased or Otherwise Marketed," requires that certain software development costs be capitalized after technological feasibility has been established. The Company defines technological feasibility as the establishment of a working model. Costs incurred subsequent to such point have been insignificant and have been expensed. Income taxes The Company accounts for income taxes under the liability method whereby deferred tax asset or liability account balances are calculated at the balance sheet date using current tax laws and rates in effect for the year in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amounts expected to be realized. Advertising The Company expenses advertising costs as they are incurred. Advertising expense for the period from August 3, 1998 to December 31, 1998 and the year ended December 31, 1999 was $0 and $272,000. Accounting for stock compensation The Company's stock-based compensation plan are accounted for in accordance with Accounting Principles Board Opinion No. 25 ("APB No. 25"), "Accounting for Stock Issued to Employees" and complies with the disclosure provisions of Statement of Financial Accounting Standards 123 ("SFAS No. 123"), "Accounting for Stock-Based Compensation." Under APB No. 25, compensation expense is based on the difference, if any, on the date of the grant, between the estimated fair value of the Company's stock and the exercise price of options to purchase that stock. Comprehensive income The Company adopted Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS No. 130"). SFAS No. 130 requires that all items recognized under accounting standards as components of comprehensive income be reported in an annual financial statement that is displayed with the same prominence as other annual financial statements. The Company has no comprehensive income component other than net loss. Net loss per share Basic net loss per share is computed by dividing net loss available to common stockholders by the weighted average number of vested common shares outstanding for the period. Diluted net loss per share is computed giving effect to all dilutive potential common stock, including options, non vested common stock, preferred stock and common stock warrants. Options, non vested common stock, preferred stock and common stock warrants were not included in the computation of diluted net loss per share in the periods reported because the effect would be antidilutive. F-8 NOOSH, INC. (A COMPANY IN THE DEVELOPMENT STAGE) NOTES TO FINANCIAL STATEMENTS--(Continued) Antidilutive securities not included in net loss per share calculation for the periods:
Period from Period from August 3, August 3, 1998 1998 (date (date of of inception) inception) to Year Ended to December 31, December 31, December 31, 1998 1999 1999 ------------ ------------ ------------ Non vested common stock............... 4,814,804 4,109,338 4,109,338 Common stock options.................. 496,720 4,521,490 4,521,490 Convertible Preferred Stock........... 2,023,077 13,195,849 13,195,849 Common stock warrants................. -- 215,000 215,000 --------- ---------- ---------- 7,334,601 22,041,677 22,041,677 ========= ========== ==========
Pro forma net loss per share (unaudited) Pro forma net loss per share for the year ended December 31, 1999 is computed using the weighted average number of common stock outstanding, including the pro forma effects of the automatic conversion of the Company's Series A, Series B and Series C convertible preferred stock into shares of the Company's common stock upon the closing of the Company's initial public offering (see Note 8--Subsequent Events) as if such conversion occurred on January 1, 1999, or at the date of original issuance, if later. Pro forma common equivalent shares, composed of unvested restricted common stock and incremental common shares issuable upon the exercise of stock options, are not included in pro forma diluted net loss per share because they would be anti-dilutive. Pro forma (unaudited) Upon the closing of the Company's initial public offering, it is contemplated that the outstanding shares of Series A, Series B, Series C and Series D convertible preferred stock will convert into 21,000,745 shares of common stock (see Note 8--Subsequent Events). The pro forma column reflects the receipt of net proceeds of $15.6 million upon the issuance and sale of 1,418,182 shares of Series D preferred stock in January 2000, the receipt of net proceeds of $10.0 million upon the issuance and sale of 769,231 shares of Series E preferred stock in April 2000 and the effect of the conversion of Series A, Series B, Series C, Series D and Series E into common stock. Recent accounting pronouncement In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," which establishes accounting and reporting standards for derivative instruments and hedging activities and will be adopted in the year 2000. It requires that an entity recognize all derivatives as either assets or liabilities in the balance sheet and measure those instruments at fair value. The Company does not expect the adoption of SFAS 133 to have a material impact on its financial statements. In March 1998, the American Institute of Certified Public Accountants issued Statement of Position ("SOP") No. 98-1, "Software for Internal Use," which provides guidance on accounting for the cost of computer software developed or obtained for internal use. SOP No. 98-1 is effective for financial statements for fiscal years beginning after December 15, 1998. The adoption of this SOP did not have any significant effect on the Company's financial statements. F-9 NOOSH, INC. (A COMPANY IN THE DEVELOPMENT STAGE) NOTES TO FINANCIAL STATEMENTS--(Continued) NOTE 2--PROPERTY AND EQUIPMENT: Property and equipment comprise (in thousands):
December 31, ------------ 1998 1999 ---- ------ Computer equipment................................................ $31 $3,024 Communication equipment........................................... 11 63 Leasehold improvements............................................ -- 69 Furniture and fixtures............................................ 30 641 --- ------ 72 3,797 Less: Accumulated depreciation and amortization................... (3) (458) --- ------ $69 $3,339 === ======
NOTE 3--INCOME TAXES: Deferred tax assets and liabilities consist of the following (in thousands):
December 31, ------------- 1998 1999 ----- ------ Deferred tax assets: Net operating loss carryforwards............................... $ 24 $5,231 Accrued employee benefits...................................... 14 52 Start-up costs................................................. 95 -- Other.......................................................... 5 (35) ----- ------ Total deferred tax assets.................................... 138 5,248 Valuation allowance.............................................. (138) (5,248) ----- ------ $ -- $ -- ===== ======
At December 31, 1998 and 1999, the Company had approximately $150,000 and $13,132,000 of California and federal net operating loss carryforwards which expire between 2005 to 2019, if not utilized beforehand. Under the Tax Reform Act of 1986, the amounts of and benefits from net operating loss carryforwards may be impaired or limited in certain circumstances. Events which cause limitations in the amount of net operating losses that the Company may utilize in any one year include, but are not limited to, a cumulative ownership change of more than 50%, as defined, in any three year period. Due to uncertainty of realizing the benefits of the deferred tax assets, the Company has provided a valuation allowance against the net deferred tax assets. F-10 NOOSH, INC. (A COMPANY IN THE DEVELOPMENT STAGE) NOTES TO FINANCIAL STATEMENTS--(Continued) The difference between the Company's effective income tax rate and the federal statutory rate is as follows (in thousands):
Period from Period from August 13, August 13, 1998 (date of 1998 (date of inception) to Year Ended inception) to December 31, December 31, December 31, 1998 1999 1999 ------------- ------------ ------------- Statutory tax benefit................ $(110) $(6,177) $(6,287) Permanent differences--non-deductible expenses............................ -- 1,674 1,674 State taxes, net of federal tax benefit............................. (18) (995) (1,013) Change in valuation allowance........ 138 5,110 5,248 Other................................ (10) 388 378 ----- ------- ------- Net tax provision.................... $ -- $ -- $ -- ===== ======= =======
NOTE 4--COMMITMENTS: Operating lease The Company leases its facilities under non-cancelable operating lease agreements expiring through October 2002. Under the terms of the lease, the Company is responsible for paying common area expenses, as incurred by the lessor. Future minimum lease payments under the non-cancelable lease as of December 31, 1999 were as follows (in thousands):
Year Ending December 31, ------------ 2000............................................................ $1,679 2001............................................................ 606 2002............................................................ 102 ------ Total......................................................... $2,387 ======
Rent expense under the operating lease totaled $19,000 and $616,000 for the period ending December 31, 1998 and the year ended December 31, 1999. Patent Licensing The Company received a letter from an individual advising that his patent may cover certain aspects of the Company's service and requesting the Company to consider licensing the patent. The Company is currently evaluating the patent. However, based on the Company's preliminary review, management does not believe that the Company requires a license under the patent to operate its service. F-11 NOOSH, INC. (A COMPANY IN THE DEVELOPMENT STAGE) NOTES TO FINANCIAL STATEMENTS--(Continued) NOTE 5--STOCKHOLDERS' EQUITY: Convertible Preferred Stock The convertible preferred stock at December 31, 1999 comprises:
Number of Number of Shares Liquidation Shares Issued and Value Authorized Outstanding Per Share ---------- ----------- ----------- Series A..................................... 2,023,077 2,023,077 $0.65 Series B..................................... 4,363,637 4,363,637 $2.75 Series C..................................... 7,648,286 6,809,135 $7.45 ---------- ---------- 14,035,000 13,195,849 ========== ==========
The rights, preferences and privileges with respect to the Preferred Stock are as follows: Dividends Holders of Series A, Series B and Series C Preferred Stock, in preference to the holders of Common Stock of the Corporation, shall be entitled to receive, when and as declared by the Board of Directors, but only out of funds that are legally available therefor, cash dividends at the rate of eight percent (8%) of the "Original Issue Price" per annum on each outstanding share of Series A, Series B and Series C Preferred Stock (as adjusted for any stock dividends, combinations, splits, recapitalizations and the like with respect to such shares). Such dividends shall be payable only when, as and if declared by the Board of Directors and shall be non-cumulative. No dividends have been declared as of December 31, 1999. Liquidation preference Upon any liquidation, dissolution, or winding up of the Corporation, whether voluntary or involuntary, before any distribution or payment shall be made to the holders of any Common Stock, the holders of Series A, Series B and Series C Preferred Stock shall be entitled to receive an amount per share equal to the Original Issue Price of $0.65, $2.75 and $7.45 plus all declared and unpaid dividends. In the event funds are insufficient to make a complete distribution to holders of Preferred Stock as described above, the remaining assets will be distributed to the holders of Common Stock ratably among such holders of Common Stock. Voting rights The holders of Preferred Stock have one vote for each share of Common Stock into which such Preferred Stock may be converted. Conversion Each share of Preferred Stock is convertible at any time into shares of Common Stock at the option of the holder, subject to adjustment for dilution. Such conversion is automatic upon the earlier of the date specified by vote, written consent or agreement of a majority of the holders of such series then outstanding or immediately upon the closing date of a public offering of the Company's Common Stock for which the aggregate net proceeds exceed $10,000,000. The conversion ratio as of December 31, 1998 and 1999 is 2:1 for Series A and B Preferred Stock after giving retroactive effect to the stock split effected in 1999. The conversion ratios as of December 31, 1999 is 1:1 for Series C Preferred Stock. The conversion ratio of Series A, B and C Preferred Stock may be adjusted under circumstances described in the Company's Restated Articles of Incorporation. F-12 NOOSH, INC. (A COMPANY IN THE DEVELOPMENT STAGE) NOTES TO FINANCIAL STATEMENTS--(Continued) Common Stock The Company is authorized to issue 45,000,000 shares of Common Stock as of December 31, 1999. A portion of the outstanding shares of common stock are subject to repurchase by the Company over a four year period. As of December 31, 1998 and 1999, there were 4,814,804 shares of nonvested stock issued pursuant to a stock purchase agreement with the Company's founder and 4,109,338 shares of stock issued under early exercises of options all of which were subject to repurchase by the Company. The repurchase rights with respect to the Company's agreement with the founder lapse over 36 months and the repurchase rights with respect to the early exercises of options lapse over the original vesting period of the options. Incentive stock plan In November 1998, the Company adopted the 1998 Stock Option Plan (the "Plan") under which the Company may grant stock options for Common Stock to employees, consultants and outside investors. The Board of Directors has the authority to determine to whom options will be granted, the number of shares, the term and exercise price (which cannot be less than fair market value at date of grant for incentive stock options). If an employee owns stock representing more than 10% of the outstanding shares, the price of each share shall be at least 110% of fair market value, as determined by the Board of Directors. Options granted generally vest over four years. The Company has reserved 8,000,000 shares of Common Stock for issuance under the Plan. A summary of activity under the Plan is as follows:
Number of Weighted Number of Shares Average Shares Issued and Exercise Aggregate Authorized Outstanding Price Price ---------- ----------- -------- ---------- Shares reserved.................. 1,980,000 -- -- $ -- Options granted.................. (496,720) 496,720 $0.0325 16,143 ---------- ---------- ------- ---------- Balances, December 31, 1998...... 1,483,280 496,720 $0.0325 16,143 Shares reserved.................. 6,020,000 -- -- Options granted.................. (5,294,990) 5,294,990 $0.6278 3,324,195 Options exercised................ (1,200,220) $0.4149 (497,971) Options cancelled................ 70,000 (70,000) $0.0325 (2,275) ---------- ---------- ------- ---------- Balances, December 31, 1999...... 2,278,290 4,521,490 $0.6281 $2,840,092
For financial reporting purposes, the Company has determined that the estimated value of common stock, based on the expected price per share of the common stock in the company's initial public offering, was in excess of the exercise price, which was considered to be the fair market value as of the date of grant for 496,720 options issued in 1998 and 5,294,990 options issued in the year ended December 31, 1999. In connection with the grants of such options, the Company has recorded deferred compensation of $129,000 in the period from August 3, 1998 to December 31, 1998 and $17,818,000 during the year ended December 31, 1999. Deferred stock compensation will be amortized over the vesting period which is generally 48 months from the date of grant; $2,568,000 was expensed in the year ended December 31, 1999. Future amortization based on options granted through December 31, 1999 is expected to be $9,337,000, $3,866,000, $1,766,000 and $410,000 in the years 2000, 2001, 2002 and 2003. F-13 NOOSH, INC. (A COMPANY IN THE DEVELOPMENT STAGE) NOTES TO FINANCIAL STATEMENTS--(Continued) The following table summarizes information about stock options outstanding at December 31, 1999:
Options Outstanding Options ------------------------------------------- Currently Exercisable Weighted Average Weighted ----------- Number Remaining Average Number Range of Exercise Price Outstanding Contractual Life Exercise Price Outstanding - ----------------------- ----------- ---------------- -------------- ----------- $ 0.0325................ 837,500 9.13 $0.0325 51,041 $ 0.1375................ 1,477,980 9.44 $0.1375 66,666 $ 0.5000................ 258,000 9.63 $0.5000 -- $ 0.8000................ 447,750 9.71 $0.8000 -- $ 1.0000................ 625,850 9.77 $1.0000 -- $1.250 - $1.750......... 555,960 9.87 $1.4728 2,500 $2.000 - $2.250......... 318,450 9.98 $2.1288 6,250 --------- ------- 4,521,490 126,457 ========= =======
Fair value disclosures The Company has adopted the disclosure-only provisions of Statement of Financial Accounting Standards No. 123, "Accounting for Stock-based Compensation." Had compensation cost for the plan been determined based on the fair value at grant date for all awards consistent with the provisions of SFAS No. 123, the impact on the Company's financial statements would be as follows:
Period from August 13, Period from 1998 (date August 13, of 1998 (date inception) of to Year Ended inception) December 31, December 31, to December 1998 1999 31, 1999 ------------ ------------ ------------ Net loss: As reported......................... $(314,000) $(17,429,000) $(17,743,000) Pro forma........................... $(314,000) $(17,489,000) $(17,803,000) Basic and diluted net loss per share: As reported......................... $ (0.12) $ (4.08) $ (4.71) Pro forma........................... $ (0.12) $ (4.09) $ (4.73)
The fair value of each option grant is estimated on the date of grant using the minimum value method with the following weighted average assumptions:
1998 1999 ------- ------- Risk-free interest rate....................................... 4.38% 5.35% Expected life 4 years 4 years Expected dividends............................................ $ -- $ --
The weighted average per share fair value of common stock options granted during 1998 and 1999 was $0.02 and $3.55. Options granted to consultants are valued using the Black-Scholes method and this value is charged against income over the vesting period of the options. F-14 NOOSH, INC. (A COMPANY IN THE DEVELOPMENT STAGE) NOTES TO FINANCIAL STATEMENTS--(Continued) Warrants In connection with long-term marketing agreements entered into in December 1999, the Company issued two warrants to purchase up to an aggregate of 495,000 shares of common stock. A total of 140,000 shares subject to one of the warrants was immediately exercisable at an exercise price of $7.45 and a total of 75,000 shares subject to the other warrant was immediately exercisable at an exercise price of $11.00. An additional 35,000 shares subject to the first warrant will become exercisable on December 31, 2000 or earlier if certain volume targets are met. The remaining portions of the warrants will be exercisable when the holders meet stated volume targets for business conducted over the noosh.com service at exercise prices ranging from $7.45 per share to the fair market value of the common stock at the date the volume targets are met. The Company valued the portions of the warrants which have no performance requirements associated with their exercise on the date of issuance using the Black-Scholes method with the following assumptions: dividend yield at 0%; expected warrant term of 3 years; risk free interest rate of 6.29% and expected volatility of 60%. The fair value of those portions was $1,468,000. The remaining warrants will be valued and charged to expense when it is probable that the performance targets will be met. NOTE 6--UNAUDITED PRO FORMA LOSS PER SHARE AND PRO FORMA SHAREHOLDERS' EQUITY: Pro forma basic net loss per share has been computed as described in Note 1 and also gives effect to common equivalent stock from preferred shares that will convert upon the closing of the Company's initial public offering (using the as-if-converted-method). A reconciliation of the numerator and denominator used in the calculation of pro forma basic and diluted net loss per share follow:
Year Ended December 31, 1999 ------------ Pro forma net loss per share, basic and diluted: Net loss....................................................... $(17,429,000) Shares used in computing net loss per share, basic and diluted....................................................... 4,275,090 Adjustment to reflect the effect of the assumed conversion of convertible preferred stock................................... (11,081,828) ------------ Shares used in computing pro forma net loss per share, basic and diluted................................................... 15,356,918 Pro forma net loss per share, basic and diluted................ $ (1.13)
If the offering contemplated by this Prospectus is consummated as contemplated, all of the convertible preferred stock outstanding as of the closing date will be converted into an aggregate of approximately 19,582,563 shares of common stock based on the shares of convertible preferred stock outstanding at December 31, 1999. Unaudited pro forma shareholders' equity at December 31, 1999, as adjusted for the conversion of preferred stock, is disclosed on the balance sheet. F-15 NOOSH, INC. (A COMPANY IN THE DEVELOPMENT STAGE) NOTES TO FINANCIAL STATEMENTS--(Continued) NOTE 7--401(k) SAVINGS PLAN: The Company established a 401(k) Savings Plan (the "Plan") that covers substantially all employees. Under the Plan, employees are permitted to contribute a portion of gross compensation not to exceed standard limitations provided by the Internal Revenue Service. The Company maintains the right to match employee contributions, but for the period from August 3, 1998 (date of inception) to December 31, 1998, for the year ended December 31, 1999 and for the period from August 3, 1998 (date of inception) to December 31, 1999, no Company matching contributions were made. NOTE 8--SUBSEQUENT EVENTS: Initial public offering In January 2000, the Company's Board of Directors authorized the Company to file a registration statement with the Securities and Exchange Commission for the purpose of an initial public offering of the Company's common stock. Upon the completion of this offering, if the per share price in the offering is at least $11.00 and the gross proceeds are at least $20,000,000, the Company's preferred stock will automatically be converted into common stock. Reincorporation In January 2000, the Company's Board of Directors approved reincorporation of the Company in Delaware. The stockholders approved the reincorporation in March 2000 and the Company reincorporated in Delaware in March 2000. Warrants In connection with a long-term marketing agreement entered into in January 2000, the Company has issued warrants to purchase up to an aggregate of 2,780,159 shares of common stock at an exercise price of $11.00 per share, of which warrants to purchase 961,309 shares were immediately exercisable and the remaining warrants will be exercisable in the future based on the holder meeting stated volume targets for business conducted over the noosh.com service. In connection with a print buyer user agreement entered into in January 2000, the Company has issued a warrant to purchase up to 50,000 shares of common stock at an exercise price of $11.00 per share, all shares of which will be exercisable in the future based on the holder meeting a stated volume target for business conducted over the noosh.com service. In connection with a print buyer agreement entered into in February 2000, the Company has issued a warrant to purchase up to 10,000 shares of common stock at an exercise price equivalent to the initial public offering price per share. All shares subject to this warrant will be exercisable when the print buyer meets a stated target for business conducted over the noosh.com service. In connection with a print vendor agreement entered into in February 2000, the Company has issued a warrant to purchase up to 100,000 shares of common stock which will be exercisable in the future based on the holder meeting stated volume targets for business conducted over the noosh.com service at exercise prices ranging from the initial public offering price to the fair market value of the common stock at the date the volume targets are met. F-16 NOOSH, INC. (A COMPANY IN THE DEVELOPMENT STAGE) NOTES TO FINANCIAL STATEMENTS--(Continued) Amended and Restated Certificate of Incorporation (unaudited) In January 2000, the Company amended and restated its Articles of Incorporation to increase the authorized number of shares of preferred stock to 15,200,000 shares, of which 2,000,000 were designated as Series D. In April 2000, the Company amended and restated its Certificate of Incorporation to increase the authorized number of shares of capital stock to 94,400,000 shares, of which 75,000,000 shares were designated common stock, 16,800,000 shares were designated preferred stock and 2,600,000 shares were designated Class B common stock. Of the 16,800,000 shares that were designated preferred stock, 800,000 shares were designated Series E preferred stock and 800,000 shares were designated Series E-1 preferred stock. Series D Preferred Financing In January 2000, the Company completed the closing of the Series D preferred stock financing. The Company raised $15.6 million and issued 1,418,182 shares of Series D preferred stock. The Series D preferred stock has substantially the same preferences as the Series A, B and C preferred stock with a liquidation value of $11.00 per share plus all declared and unpaid dividends. The Series D preferred stock is convertible into common stock at a conversion ratio of 1:1. Series E Preferred Financing (unaudited) In April 2000, the Company completed the closing of the Series E preferred stock financing. The Company raised $10.0 million and issued 769,231 shares of Series E preferred stock. The Series E preferred stock has substantially the same preferences as the Series A, B, C and D preferred stock except that the Series E preferred stock has a liquidation value of $13.00 per share plus all declared and unpaid dividends, is non-voting and is convertible into Class B common stock which is also non-voting. The conversion ratio for the Series E preferred stock into Class B common stock is one to one, except in the event of an initial public offering of the Company's equity securities or a sale of the Company, each share of Series E preferred stock will convert into such number of shares of Class B common stock that is equal to the quotient of $13.00 divided by the lesser of the conversion price of the Series E preferred stock then in effect or 85% of the initial public offering price per share. In addition, the Class B common stock converts into common stock on a one-to-one basis at the option of the holder on the earlier of April 4, 2001, the date 180 days after an initial public offering or the Company's prior written consent, and the Class B common stock converts into common stock on a one-to-one basis automatically upon any transfer of the Class B common stock to a third-party that occurs on the earlier of April 4, 2001 or 180 days after an initial public offering. In connection with a print buyer user agreement entered into in April 2000, the Company has issued a warrant to purchase up to 958,400 shares of capital stock. A portion of the warrant, for a total of 432,000 shares of capital stock, is immediately exercisable. The remaining portion of the warrant becomes exercisable in increments upon the holder meeting stated targets. Initially, the exercise price of the warrant is $13.00 per share. Upon the automatic conversion of the Company's Series E preferred stock immediately prior to an initial public offering, the exercise price of the warrant is adjusted to the lesser of $13.00 per share or the conversion price of the Series E preferred stock in effect immediately prior to such conversion. F-17 NOOSH, INC. (A COMPANY IN THE DEVELOPMENT STAGE) NOTES TO FINANCIAL STATEMENTS--(Continued) While the warrant is initially exercisable for Class B common stock, the warrant becomes exercisable for common stock as to one-fourth of the shares 90 days following this offering and as to the remaining portion on the earlier of April 4, 2001 or 180 days following this offering. Employee Stock Purchase Plan In January 2000, the Company's Board of Directors adopted the 2000 Employee Stock Purchase Plan under which eligible employees will be able to purchase common stock at a discount price in periodic offerings. The purchase plan will commence on the effective date of the offering. A total of 600,000 shares of common stock have been authorized for issuance under the 2000 purchase plan. Non-Employee Directors' Stock Option Plan In January 2000, the Company's Board of Directors adopted the 2000 Non- Employee Directors' Stock Option Plan under which non-employee directors will automatically be granted options to purchase shares of common stock on the effective date of the offering and on each annual stockholders' meeting, beginning with the annual stockholders meeting in 2001. A total of 350,000 shares of common stock have been authorized for issuance under the 2000 Non-Employee Directors' Stock Option Plan. 2000 Equity Incentive Plan In January 2000, the Company's Board of Directors adopted the 2000 Equity Incentive Plan under which 6,000,000 shares of common stock have been reserved for issuance of options to employees, directors and consultants. The 2000 Equity Incentive Plan will be effective on the effective date of the offering at which time no further option grants will be made under the 1998 Equity Incentive Plan. F-18 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- No dealer, salesperson or other person is authorized to give any information or to represent anything not contained in this prospectus. You must not rely on any unauthorized information or representations. This prospectus is an offer to sell only the shares offered hereby, but only under circumstances and in jurisdictions where it is lawful to do so. The information contained in this prospectus is current only as of its date. -------------- TABLE OF CONTENTS
Page ---- Prospectus Summary....................................................... 3 Risk Factors............................................................. 6 Note Regarding Forward-Looking Statements................................ 16 Use of Proceeds.......................................................... 17 Dividend Policy.......................................................... 17 Capitalization........................................................... 18 Dilution................................................................. 19 Selected Financial Data.................................................. 20 Management's Discussion and Analysis of Financial Condition and Results of Operations .......................................................... 21 Business................................................................. 27 Management............................................................... 42 Related Party Transactions............................................... 55 Principal Stockholders................................................... 57 Description of Capital Stock ............................................ 59 Shares Eligible for Future Sale.......................................... 63 Underwriting............................................................. 65 Validity of Common Stock................................................. 67 Experts.................................................................. 67 Additional Information................................................... 67 Index to Financial Statements............................................ F-1
-------------- Through and including , 2000 (the 25th day after the date of this prospectus), all dealers effecting transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to a dealer's obligation to deliver a prospectus when acting as an underwriter and with respect to an unsold allotment or subscription. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 4,000,000 Shares NOOSH, Inc. Common Stock -------------- [NOOSH, INC. LOGO APPEARS HERE] -------------- Goldman, Sachs & Co. Robertson Stephens Banc of America Securities LLC PaineWebber Incorporated E*OFFERING Representatives of the Underwriters - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- PART II INFORMATION NOT REQUIRED IN PROSPECTUS Item 13. Other Expenses of Issuance and Distribution. The following table sets forth all expenses, other than the underwriting discounts and commissions, payable by us in connection with the sale of the common stock being registered. All the amounts shown are estimates except for the registration fee, the NASD filing fee and the Nasdaq National Market application fee. Registration fee................................................. $ 15,788 NASD filing fee.................................................. 6,480 Nasdaq National Market application fee........................... 95,000 Blue sky qualification fee and expenses.......................... 20,000 Printing and engraving expenses.................................. 250,000 Legal fees and expenses.......................................... 500,000 Accounting fees and expenses..................................... 250,000 Transfer agent and registrar fees................................ 15,000 Miscellaneous.................................................... 47,738 ---------- Total............................................................ $1,200,000 ==========
Item 14. Indemnification of Officers and Directors. As permitted by Delaware law, our amended and restated certificate of incorporation provides that no director of ours will be personally liable to us or our stockholders for monetary damages for breach of fiduciary duty as a director, except for liability for: . any breach of duty of loyalty to us or to our stockholders; . acts or omissions not in good faith or that involve intentional misconduct or a knowing violation of law; . unlawful payment of dividends or unlawful stock repurchases or redemptions; or . any transaction from which the director derived an improper personal benefit. Our amended and restated certificate of incorporation further provides that we must indemnify our directors and officers and may indemnify our other employees and agents to the fullest extent permitted by Delaware law. We believe that indemnification under our amended and restated certificate of incorporation covers negligence and gross negligence on the part of indemnified parties. We intend to enter into indemnification agreements with each of our directors and executive officers. These agreements, among other things, require us to indemnify each director and executive officer for some expenses including attorneys' fees, judgments, fines and settlement amounts incurred by any of these persons in any action or proceeding, including any action by or in the right of NOOSH, arising out of these persons' services as our director or executive officer, any subsidiary of ours or any other company or enterprise to which the person provides services at our request. The underwriting agreement will provide for indemnification by the underwriters of NOOSH, our directors, our officers who sign the registration statement, and our controlling persons for some liabilities, including liabilities arising under the securities act. II-1 Item 15. Recent Sales of Unregistered Securities. Since inception, we have sold and issued the following unregistered securities: (1) From August 15, 1998 to April 4, 2000, we granted stock options to purchase 7,992,188 shares of the our common stock to employees, consultants and directors pursuant to our 1998 equity incentive plan. Of these stock options, 109,600 shares have been cancelled without being exercised, 3,490,050 shares have been exercised, 0 have been repurchased and 4,392,538 shares remain outstanding. (2) On August 15, 1998, we issued an aggregate of 40,000 shares of common stock to Cooley Godward LLP at $0.00125 per share for an aggregate purchase price of $50. (3) In August 1998 through September 1999, we issued an aggregate of 8,000,000 shares of common stock to Ofer Ben-Shachar at $0.00125 per share for an aggregate purchase price of $10,000. (4) In November 1998, we issued an aggregate of 2,000,000 shares of Series A preferred stock to one accredited trust, two accredited partnerships and eight accredited individuals at $0.65 per share for an aggregate purchase price of $1,300,000. Shares of Series A preferred stock are convertible into shares of common stock at the rate of two shares of common stock for each share of Series A preferred stock owned. (5) In December 1998, we issued an aggregate of 23,077 shares of Series A preferred stock to one accredited individual at $0.65 per share for an aggregate purchase of $15,000. Shares of Series A preferred stock are convertible into shares of common stock at the rate of two shares of common stock for each share of Series A preferred stock owned. (6) In January 1999 through March 1999, we issued an aggregate of 76,986 shares of common stock to four consultants at $0.325 per share for an aggregate purchase price of $2,502. (7) On April 26, 1999, we issued an aggregate of 4,363,637 shares of Series B preferred stock to three accredited trusts, eleven accredited partnerships and eight accredited individuals at $2.75 per share for an aggregate purchase price of $12,000,002. Shares of Series B preferred stock are convertible into shares of common stock at the rate of two shares of common stock for each share of Series B preferred stock owned. (8) On September 15, 1999, we issued an aggregate of 13,216 shares of common stock to six consultants at $0.80 per share for an aggregate purchase price of $10,573. (9) On October 8, 1999, we issued an aggregate of 11,609 shares of common stock to eight consultants at $1.00 per share for an aggregate purchase price of $11,609. (10) On October 15, 1999, we issued an aggregate of 19,000 shares of common stock to one employee as consideration with an aggregate fair market value of $19,000 under a technology transfer agreement. (11) On November 1, 1999, we issued an aggregate of 5,727 shares of common stock to two consultants at $1.25 per share for an aggregate purchase price of $7,159. (12) In November 1999, we issued an aggregate of 6,809,135 shares of Series C preferred stock to two accredited trusts, twenty-one accredited partnerships, one institutional investor and fifteen accredited individuals at $7.45 per share for an aggregate purchase price of $50,728,056. Shares of Series C preferred stock are convertible into shares of common stock at the rate of one share of common stock for each share of Series C preferred stock owned. (13) On November 15, 1999, we issued an aggregate of 33,865 shares of common stock to four consultants at $1.50 per share for an aggregate purchase price of $50,798. II-2 (14) On November 30, 1999, we issued an aggregate of 847 shares of common stock to three consultants at $1.75 per share for an aggregate purchase price of $1,482. (15) On December 30, 1999, we issued two warrants to two print vendors to purchase an aggregate of 495,000 shares of common stock. A portion of the first warrant, for a total of 140,000 shares, became immediately exercisable upon issuance at an exercise price of $7.45. A portion of the second warrant, for a total of 75,000 shares, became immediately exercisable upon issuance at an exercise price of $11.00. The remaining portions of the warrants are exercisable when the print vendors meet stated volume targets for business conducted over our service at exercise prices ranging from $7.45 per share to the fair market value of our common stock on the date the volume targets are met. (16) On December 31, 1999, we issued an aggregate of 13,203 shares of common stock to seven consultants for an aggregate purchase price of $29,707. (17) On January 14, 2000, we issued one warrant to Bank of America Technology and Operations, Inc. to purchase an aggregate of 50,000 shares of common stock at an exercise price of $11.00 per share. (18) On January 25, 2000 we issued an aggregate of 1,418,182 shares of Series D preferred stock to R.R. Donnelley & Sons Company and two accredited individuals at $11.00 per share for a total of $15,600,002. Shares of Series D preferred stock are convertible into shares of common stock at the rate of one share of common stock for each share of Series D preferred stock owned. In addition, we issued two warrants to R.R. Donnelley & Sons Company to purchase an aggregate of 2,780,159 shares of common stock at an exercise price of $11.00 per share. A total of 961,309 shares of common stock are immediately exercisable under the warrants. The remaining shares under the warrants are exercisable when the holder meets stated volume targets for business conducted over our service. (19) On February 4, 2000, we issued one warrant to ColorGraphics, a print vendor, to purchase an aggregate of 100,000 shares of common stock. The warrant is first exercisable on the one year anniversary of the date of grant and only to the extent ColorGraphics meets stated volume targets for business conducted over our service. The exercise price for the warrant ranges from the initial public offering price to the fair market value of our common stock as of the end of the calendar quarter during which the stated volume targets are met. (20) On February 4, 2000, we issued an aggregate of 17,350 shares of common stock to two consultants for an aggregate purchase price of $138,775. (21) On February 14, 2000, we issued one warrant to J. Crew Group, Inc., a print buyer, to purchase an aggregate of 10,000 shares of common stock. The warrant is first exercisable on the one year anniversary of the date of grant and only to the extent J. Crew meets a target for business conducted over our service. The exercise price for the warrant is equal to the initial public offering price. (22) On April 4, 2000, we issued an aggregate of 769,231 shares of Series E preferred stock to GE Capital Equity Investments, Inc. at $13.00 per share for a total of $10,000,003. Initially, shares of Series E preferred stock are convertible into shares of Class B common stock at the rate of one share of Class B common stock for each share of Series E preferred stock. In the event of an initial public offering or a sale of NOOSH, each share of Series E preferred stock will be convertible into that number of shares of Class B common stock equal to $13.00 divided by the lesser of the conversion price then in effect for the Series E preferred stock or 85% of the initial public offering price per share. Assuming an initial public offering price of $12.00, each share of Series E preferred stock will be convertible into approximately 1.27 shares of Class B common stock. In addition, we issued a warrant to GE Capital Equity Investments to purchase up to 958,400 shares of capital stock. A portion of the warrant, for a total of 432,000 shares of II-3 capital stock, is immediately exercisable. The remaining portion of the warrant becomes exercisable in increments upon the holder meeting stated targets. Initially, the exercise price of the warrant is $13.00 per share. Upon the automatic conversion of our Series E preferred stock upon the closing of an initial public offering, the exercise price of the warrant is adjusted to the lesser of $13.00 per share or the conversion price of the Series E preferred stock in effect immediately prior to such conversion. Initially, the warrant is exercisable for Class B common stock. At the option of GE Capital Equity Investments, on the date 90 days after this offering, a portion of the warrant will become exercisable for common stock. In addition, on the earlier of April 4, 2001 or the date 180 days after this offering, the remainder of the warrant will become exercisable for common stock. With respect to the grant of stock options described in paragraph (1), an exemption from registration was unnecessary in that none of the transactions involved a "sale" of securities as this term is used in Section 2(3) of the Securities Act. The sale and issuance of securities and the exercise of options described in paragraphs (1), (6), (8), (9), (11), (13), (14) and (16) above were deemed to be exempt from registration under the Securities Act by virtue of Rule 701 promulgated thereunder in that they were offered and sold either pursuant to a written compensatory benefit plan or pursuant to a written contract relating to compensation, as provided in Rule 701. The sale and issuance of securities described in paragraphs (2), (3), (4), (5), (7), (10), (12), (15), (17), (18), (19), (20), (21) and (22) above were deemed to be exempt from registration under the Securities Act by virtue of Rule 4(2) or Regulation D promulgated thereunder. Appropriate legends are affixed to the stock certificates issued in the aforementioned transactions. Similar legends were imposed in connection with any subsequent sales of any of these securities. All recipients either received adequate information about NOOSH or had access, through employment or other relationships, to such information. Item 16. Exhibits and Financial Statement Schedules. (a) Exhibits.
Exhibit Number Description of Document ------- ----------------------- 1.1** Form of Underwriting Agreement. 3.1++ Restated Certificate of Incorporation of Registrant, as currently in effect. 3.2** Form of Amended and Restated Certificate of Incorporation of Registrant to be filed upon the closing of the offering made pursuant to this Registration Statement. 3.3** Bylaws of the Registrant as currently in effect. 4.1** Specimen Common Stock Certificate. 4.2++ Amended and Restated Investor Rights Agreement dated April 4, 2000 between Registrant and holders of the Registrant's Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock and Series E Preferred Stock. 5.1** Opinion of Cooley Godward LLP. 10.1** Form of Indemnity Agreement. 10.2** 1998 Equity Incentive Plan and related documents. 10.3** 2000 Equity Incentive Plan and related documents. 10.4** 2000 Employee Stock Purchase Plan. 10.5** 2000 Non-Employee Directors Stock Option Plan and related documents. 10.6** Lease Agreement, dated April 1, 1999, between Registrant and Syntex (U.S.A.) Inc. 10.7** Sublease Agreement, dated November 1, 1999, between the Registrant and Xerox Corporation. 10.8** Promissory Note, dated April 15, 1999, between Registrant and David Hannebrink. 10.8.1 Amendment No. 1 to Promissory Note, dated April 15, 1999, between Registrant and David Hannebrink. 10.9** Promissory Note, dated October 8, 1999, between Registrant and Hagi Schwartz.
II-4
Exhibit Number Description of Document ------- ----------------------- 10.10** Promissory Note, dated November 1, 1999, between Registrant and David Hannebrink. 10.11** Promissory Note, dated January 3, 2000, between Registrant and Kevin Akeroyd. 10.12** Promissory Note, dated January 3, 2000, between Registrant and Ray Martinelli. 10.13** Promissory Note, dated January 3, 2000, between Registrant and Timothy Moore. 10.14** Promissory Note, dated January 15, 2000, between Registrant and Steven Baloff. 10.15** Promissory Note, dated January 15, 2000, between Registrant and David Hannebrink. 10.16** Promissory Note, dated January 15, 2000 between Registrant and Robert Shaw. 10.17++ Promissory Note, dated February 4, 2000 between Registrant and Hagi Schwartz. 10.18** Internet Services and Colocation Agreement, dated as of July 20, 1999, between the Registrant and Abovenet. 10.19**+ Co-Development and Marketing Agreement, dated as of January 25, 2000, between the Registrant and R.R. Donnelley & Sons Company. 10.20**+ Warrant for the Purchase of 225,000 shares of Common Stock issued to Consolidated Graphics, Inc. dated December 30, 1999. 10.21**+ Warrant for the Purchase of 270,000 shares of Common Stock issued to Wallace Computer Services, Inc. dated December 30, 1999. 10.22**+ Warrant for the Purchase of 50,000 shares of Common Stock issued to Bank of America Technology and Operations, Inc. dated January 14, 2000. 10.23** Warrant for the Purchase of 2,430,158 shares of Common Stock issued to R.R. Donnelley & Sons Company dated January 25, 2000. 10.24** Warrant for the Purchase of 350,000 shares of Common Stock issued to R.R. Donnelley & Sons Company dated January 25, 2000. 10.25 Warrant for the Purchase of 958,400 shares of Class B Common Stock issued to GE Capital Equity Investments, Inc. dated April 4, 2000. 10.26 Promissory Note, dated March 15, 2000 between Registrant and Edward E. Barr. 10.27 Office Lease dated March 31, 2000 by and between Registrant and PAC Court Associates, L.P., a California limited partnership. 10.28 Lease dated October 1999 by and between the Realty Associates Fund IV, L.P. and Registrant of the Hillsite Building, 75 Second Ave., Needham, Massachusetts, 02912. 23.1 Consent of Independent Accountants. 23.2** Consent of Cooley Godward LLP (included in Exhibit 5.1). 24.1** Power of Attorney. 27.1** Financial Data Schedule.
- -------- * To be filed by amendment. ** Previously filed. + Confidential treatment has been requested for a portion of this exhibit. ++ Replaces previously filed exhibit. (b) Financial Statement Schedules. Schedules are omitted because they are not applicable, or because the information is included in the Financial Statements or the Notes thereto. Item 17. Undertakings. The undersigned registrant hereby undertakes: (1) That for purposes of determining any liability under the Securities Act, the information omitted from the form of this 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. II-5 (2) That for purposes 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 the securities at that time shall be deemed to be the initial bona fide offering thereof. (3) 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 referenced in Item 15 of this Registration Statement or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission this indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against these 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 a director, officer, or controlling person in connection with the securities being registered, 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 of whether the indemnification by it is against public policy as expressed in the Securities Act of 1933, and will be governed by the final adjudication of this issue. (4) To provide to the Underwriters at the closing specified in the Underwriting Agreement certificates in the denomination and registered in the names required by the Underwriters to permit prompt delivery to each purchaser. II-6 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the registrant has caused this Amendment No. 3 to Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the County of Santa Clara, State of California, on the 7th day of April, 2000. NOOSH, Inc. * By: _________________________________ Ofer Ben-Shachar President, Chief Executive Officer and Chairman Pursuant to the requirements of the Securities Act of 1933, this Amendment No. 3 to Registration Statement has been signed below by the following persons in the capacities and on the dates indicated.
Signatures Title Date ---------- ----- ---- * President, Chief Executive April 7, 2000 ______________________________________ Officer and Chairman of Ofer Ben-Shachar the Board of Directors (principal executive officer) /s/ Hagi Schwartz Vice President and Chief April 7, 2000 ______________________________________ Financial Officer Hagi Schwartz (principal financial and accounting officer) * Director April 7, 2000 ______________________________________ Steven Baloff * Director April 7, 2000 ______________________________________ Edward Barr * Director April 7, 2000 ______________________________________ Arthur Patterson * Director April 7, 2000 ______________________________________ Kathy Levinson
/s/ Hagi Schwartz *By: ____________________________ Name: Hagi Schwartz Attorney-in-Fact II-7 EXHIBIT INDEX
Exhibit Number Description of Document ------- ----------------------- 1.1** Form of Underwriting Agreement. 3.1++ Restated Certificate of Incorporation of Registrant, as currently in effect. 3.2** Form of Amended and Restated Certificate of Incorporation of Registrant to be filed upon the closing of the offering made pursuant to this Registration Statement. 3.3** Bylaws of the Registrant as currently in effect. 4.1** Specimen Common Stock Certificate. 4.2++ Amended and Restated Investor Rights Agreement dated April 4, 2000 between Registrant and holders of the Registrant's Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock and Series E Preferred Stock. 5.1** Opinion of Cooley Godward LLP. 10.1** Form of Indemnity Agreement. 10.2** 1998 Equity Incentive Plan and related documents. 10.3** 2000 Equity Incentive Plan and related documents. 10.4** 2000 Employee Stock Purchase Plan. 10.5** 2000 Non-Employee Directors Stock Option Plan and related documents. 10.6** Lease Agreement, dated April 1, 1999, between Registrant and Syntex (U.S.A.) Inc. 10.7** Sublease Agreement, dated November 1, 1999, between the Registrant and Xerox Corporation. 10.8** Promissory Note, dated April 15, 1999, between Registrant and David Hannebrink. 10.8.1 Amendment No. 1 to Promissory Note, dated April 15, 1999, between Registrant and David Hannebrink. 10.9** Promissory Note, dated October 8, 1999, between Registrant and Hagi Schwartz. 10.10** Promissory Note, dated November 1, 1999, between Registrant and David Hannebrink. 10.11** Promissory Note, dated January 3, 2000, between Registrant and Kevin Akeroyd. 10.12** Promissory Note, dated January 3, 2000, between Registrant and Ray Martinelli. 10.13** Promissory Note, dated January 3, 2000, between Registrant and Timothy Moore. 10.14** Promissory Note, dated January 15, 2000, between Registrant and Steven Baloff. 10.15** Promissory Note, dated January 15, 2000, between Registrant and David Hannebrink. 10.16** Promissory Note, dated January 15, 2000 between Registrant and Robert Shaw. 10.17++ Promissory Note, dated February 4, 2000 between Registrant and Hagi Schwartz. 10.18** Internet Services and Colocation Agreement, dated as of July 20, 1999, between the Registrant and Abovenet. 10.19**+ Co-Development and Marketing Agreement, dated as of January 25, 2000, between the Registrant and R.R. Donnelley & Sons Company. 10.20**+ Warrant for the Purchase of 225,000 shares of Common Stock issued to Consolidated Graphics, Inc. dated December 30, 1999. 10.21**+ Warrant for the Purchase of 270,000 shares of Common Stock issued to Wallace Computer Services, Inc. dated December 30, 1999. 10.22**+ Warrant for the Purchase of 50,000 shares of Common Stock issued to Bank of America Technology and Operations, Inc. dated January 14, 2000. 10.23** Warrant for the Purchase of 2,430,158 shares of Common Stock issued to R.R. Donnelley & Sons Company dated January 25, 2000. 10.24** Warrant for the Purchase of 350,000 shares of Common Stock issued to R.R. Donnelley & Sons Company dated January 25, 2000. 10.25 Warrant for the Purchase of 958,400 shares of Class B Common Stock issued to GE Capital Equity Investments, Inc. dated April 4, 2000. 10.26 Promissory Note, dated March 15, 2000 between Registrant and Edward E. Barr. 10.27 Office Lease dated March 31, 2000 by and between Registrant and PAC Court Associates, L.P., a California limited partnership. 10.28 Lease dated October 1999 by and between the Realty Associates Fund IV, L.P. and Registrant of the Hillsite Building, 75 Second Ave., Needham, Massachusetts, 02912.
Exhibit Number Description of Document ------- ----------------------- 23.1 Consent of Independent Accountants. 23.2** Consent of Cooley Godward LLP (included in Exhibit 5.1). 24.1** Power of Attorney. 27.1** Financial Data Schedule.
- -------- * To be filed by amendment. ** Previously filed. + Confidential treatment has been requested for a portion of this exhibit. ++ Replaces previously filed exhibit. EX-3.1 2 RESTATED CERTIFICATE OF INCORPORATION EXHIBIT 3.1 AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF NOOSH, INC. Ofer Ben-Shachar and Timothy J. Moore hereby certify that: ONE: The original name of this corporation is NOOSH Merger Corporation and the date of filing the original Certificate of Incorporation of this corporation with the Secretary of State of the State of Delaware is January 28, 2000. TWO: They are the duly elected and acting President and Secretary, respectively, of NOOSH, Inc., a Delaware corporation. THREE: The Certificate of Incorporation of this corporation is hereby amended and restated to read as follows: "I. The name of the Corporation is NOOSH, Inc. (the "Corporation"). II. The address of the registered office of the Corporation in the State of Delaware is Corporation Trust Center, 1209 Orange Street, City of Wilmington, County of New Castle, and the name of the registered agent of the corporation in the State of Delaware at such address is the CT Corporation System. III. The purpose of the Corporation is to engage in any lawful act or activity for which a corporation may be organized under the General Corporation Law of the State of Delaware ("DGCL"). IV. A. This Corporation is authorized to issue three classes of stock to be designated, respectively, "Common Stock," "Class B Common Stock" and "Preferred Stock." B. The total number of shares which the Corporation is authorized to issue is ninety-four million four hundred thousand (94,400,000) shares, seventy- five million (75,000,000) shares of which shall be Common Stock (the "Common Stock"), sixteen million eight hundred thousand (16,800,000) shares of which shall be Preferred Stock (the "Preferred Stock") and two million six hundred thousand (2,600,000) shares of which shall be Class B Common Stock (the "Class B Common Stock"). The Common Stock and the Class B Common shall, together, hereinafter be referred to as the "Common Shares." The Preferred Stock shall have a par value of 1. one tenth of one cent ($0.001) per share, the Common Stock shall have a par value of one tenth of one cent ($0.001) per share and the Class B Common Stock shall have a par value of one tenth of one cent ($0.001) per share. C. Two million twenty three thousand seventy seven (2,023,077) of the authorized shares of Preferred Stock are hereby designated "Series A Preferred Stock" (the "Series A Preferred"). Four million three hundred sixty three thousand six hundred thirty seven (4,363,637) of the authorized shares of Preferred Stock are hereby designated "Series B Preferred Stock" (the "Series B Preferred"). Six million eight hundred nine thousand one hundred thirty-five (6,809,135) of the authorized shares of Preferred Stock are hereby designated "Series C Preferred Stock" (the "Series C Preferred"). Two million (2,000,000) of the authorized shares of Preferred Stock are hereby designated "Series D Preferred Stock" (the "Series D Preferred"). Eight hundred thousand (800,000) of the authorized shares of Preferred Stock are hereby designated "Series E Preferred Stock" (the "Series E Preferred"). Eight hundred thousand (800,000) of the authorized shares of Preferred Stock are hereby designated "Series E-1 Preferred Stock" (the "Series E-1 Preferred"). D. Preferred Stock. The rights, preferences, privileges, restrictions and other matters relating to the Series A Preferred, Series B Preferred, Series C Preferred, Series D Preferred, Series E Preferred and Series E-1 Preferred (together, the "Series Preferred") are as follows: 1. Dividend Rights. a. Holders of Series Preferred, in preference to the holders of any other stock of the Corporation ("Junior Stock"), shall be entitled to receive on a pro rata basis, when and as declared by the Board of Directors, but only out of funds that are legally available therefor, cash dividends at the rate of eight percent (8%) of the "Original Issue Price" per annum on each outstanding share of Series Preferred (as adjusted for any stock dividends, combinations, splits, recapitalizations and the like with respect to such shares). The Original Issue Price of the Series A Preferred shall be Sixty-Five Cents ($0.65) (the "Series A Original Issue Price"). The Original Issue Price of the Series B Preferred shall be Two Dollars and Seventy-Five Cents ($2.75) (the "Series B Original Issue Price"). The Original Issue Price of the Series C Preferred shall be Seven Dollars and Forty-Five Cents ($7.45) (the "Series C Original Issue Price"). The Original Issue Price of the Series D Preferred shall be Eleven Dollars ($11.00) (the "Series D Original Issue Price"). The Original Issue Price of the Series E Preferred shall be Thirteen Dollars ($13.00) (the "Series E Original Issue Price"). The Original Issue Price of the Series E-1 Preferred shall be Thirteen Dollars ($13.00) (the "Series E-1 Original Issue Price"). Such dividends shall be payable only when, as and if declared by the Board of Directors and shall be non-cumulative. b. So long as any shares of Series Preferred shall be outstanding, no dividend, whether in cash or property, shall be paid or declared, nor shall any other distribution be made, on any Junior Stock, nor shall any shares of any Junior Stock of the Corporation be purchased, redeemed, or otherwise acquired for value by the Corporation (except for acquisitions of Common Stock by the Corporation pursuant to agreements which permit the Corporation to repurchase such shares upon termination of services to the Corporation or in exercise of the 2. Corporation's right of first refusal upon a proposed transfer) until all dividends (set forth in Section 1a above) on the Series Preferred shall have been paid or declared and set apart. In the event dividends are paid on any share of Junior Stock, an additional dividend shall be paid with respect to all outstanding shares of Series Preferred in an amount equal per share (on an as-if-converted to Common Stock basis) to the amount paid or set aside for each share of Junior Stock. The provisions of this Section 1b shall not, however, apply to (i) a dividend payable in Junior Stock, or (ii) the acquisition of shares of any Junior Stock in exchange for shares of any other Junior Stock. The holders of the Series Preferred expressly waive their rights, if any, as described in California Corporations Code Sections 502, 503 and 506 as they relate to repurchase of shares upon termination of employment or service as a consultant or director. 2. Voting Rights. a. General Rights. Subject to Sections 2b, 2c and 2d and the last sentence of this Section 2a, and except as otherwise provided herein or as required by law, the Series Preferred shall be voted equally with the shares of the Common Stock of the Corporation and not as a separate class, at any annual or special meeting of stockholders of the Corporation, and may act by written consent in the same manner as the Common Stock, in either case upon the following basis: each holder of shares of Series Preferred shall be entitled to such number of votes as shall be equal to the whole number of shares of Common Stock into which such holder's aggregate number of shares of Series Preferred are convertible (pursuant to Section 5 hereof) immediately after the close of business on the record date fixed for such meeting or the effective date of such written consent. Except as required by law or as otherwise set forth herein, holders of Series E Preferred Stock shall not be entitled to vote for the election of directors or to vote on any other matter. b. Separate Vote of Series Preferred. For so long as at least seven million (7,000,000) shares of Series Preferred (subject to adjustment for any stock split, reverse stock split or other similar event affecting the Series Preferred) remain outstanding, in addition to any other vote or consent required herein or by law, the vote or written consent of the holders of at least sixty- six and two-thirds percent (66-2/3%) of the outstanding Series Preferred (voting on an as-if-converted basis as a single class) shall be necessary for effecting or validating the following actions: (i) Any amendment, alteration, or repeal of any provision of the Certificate of Incorporation or the Bylaws of the Corporation (including any filing of a Certificate of Determination) that affects adversely the voting powers, preferences, or other special rights or privileges, qualifications, limitations, or restrictions of any series of the Series Preferred; (ii) Any authorization or any designation, whether by reclassification or otherwise, of any new class or series of stock or any other securities convertible into equity securities of the Corporation ranking senior to or on parity with any series of the Series Preferred in rights of redemption, liquidation preference, voting or dividends or any increase in the authorized or designated number of any such new class or series; 3. (iii) Any redemption, repurchase, payment of dividends or other distributions with respect to Junior Stock (except for acquisitions of Common Stock by the Corporation pursuant to agreements which permit the Corporation to repurchase such shares upon termination of services to the Corporation or in exercise of the Corporation's right of first refusal upon a proposed transfer); (iv) Any action that results in the payment or declaration of a dividend on any shares of Junior Stock; (v) Any agreement by the Corporation or its stockholders regarding an Asset Transfer or Acquisition (each as defined in Section 3c); (vi) Any increase or decrease in the authorized number of shares of the Series A Preferred, Series B Preferred, Series C Preferred, Series D Preferred, Series E Preferred or Series E-1 Preferred; or (vii) Any issuance of shares of Series D Preferred, whether directly or indirectly, that would result in more than 1,500,000 shares of Series D Preferred being outstanding unless such issuance of shares occurs in connection with (a) a merger, consolidation, acquisition or similar business combination approved by the Board of Directors, (b) any equipment leasing arrangement, or debt financing from a bank or similar financial institution approved by the Board of Directors, or (c) any strategic transactions involving the Corporation and other entities, including joint ventures, manufacturing, marketing or distribution arrangements, and technology transfer or development arrangements approved by the Board of Directors. c. Separate Vote of Series C Preferred. For so long as at least three million five hundred thousand (3,500,000) shares of Series C Preferred (subject to adjustment for any stock split, reverse stock split or other similar event affecting the Series C Preferred) remain outstanding, in addition to any other vote or consent required herein or by law, the vote or written consent of the holders of at least a majority of the outstanding Series C Preferred shall be necessary for effecting or validating the following actions: (i) Any amendment, alteration, or repeal of any provision of the Certificate of Incorporation or the Bylaws of the Corporation (including any filing of a Certificate of Determination) that alters or changes the voting powers, preferences, or other special rights or privileges, qualifications, limitations, or restrictions of the Series C Preferred; (ii) Any increase or decrease in the authorized number of shares of the Series C Preferred; or (iii) Any agreement by the Corporation or its stockholders regarding an Asset Transfer or Acquisition (each as defined in Section 3c) in which the value of the proceeds received by the Series C Preferred is an amount per share of Series C Preferred less than the product obtained by multiplying two by the Series C Original Issue Price (as adjusted for any stock dividends, combinations, splits, recapitalizations and the like with respect to such shares). 4. d. Election of Board of Directors. For so long as at least three million (3,000,000) shares of Series A Preferred and Series B Preferred remain outstanding (subject to adjustment for any stock split, reverse stock split or similar event affecting the Series Preferred), (i) the holders of Series A Preferred, voting as a separate class, shall be entitled to elect one (1) member of the Corporation's Board of Directors at each meeting or pursuant to each consent of the Corporation's stockholders for the election of directors, and to remove from office such director and to fill any vacancy caused by the resignation, death or removal of such director; (ii) the holders of Series B Preferred, voting as a separate class, shall be entitled to elect one (1) member of the Corporation's Board of Directors at each meeting or pursuant to each consent of the Corporation's stockholders for the election of directors, and to remove from office such director and to fill any vacancy caused by the resignation, death or removal of such director; (iii) the holders of Common Stock, voting as a separate class, shall be entitled to elect one (1) member of the Board of Directors at each meeting or pursuant to each consent of the Corporation's stockholders for the election of directors, and to remove from office such director and to fill any vacancy caused by the resignation, death or removal of such director; and (iv) the holders of Common Stock and Series Preferred, voting together as a single class on an as-if-converted basis, shall be entitled to elect all remaining members of the Board of Directors at each meeting or pursuant to each consent of the Corporation's stockholders for the election of directors, and to remove from office such directors and to fill any vacancy caused by the resignation, death or removal of such directors. 3. Liquidation Rights. a. Upon any liquidation, dissolution, or winding up of the Corporation, whether voluntary or involuntary, before any distribution or payment shall be made to the holders of any Junior Stock, (i) the holders of Series A Preferred shall be entitled to be paid out of the assets of the Corporation an amount per share of Series A Preferred equal to the Series A Original Issue Price plus all declared and unpaid dividends on such shares of Series A Preferred (as adjusted for any stock dividends, combinations, splits, recapitalizations and the like with respect to such shares) for each share of Series A Preferred held by them, (ii) the holders of Series B Preferred shall be entitled to be paid out of the assets of the Corporation an amount per share of Series B Preferred equal to the Series B Original Issue Price plus all declared and unpaid dividends on such shares of Series B Preferred (as adjusted for any stock dividends, combinations, splits, recapitalizations and the like with respect to such shares) for each share of Series B Preferred held by them, (iii) the holders of Series C Preferred shall be entitled to be paid out of the assets of the Corporation an amount per share of Series C Preferred equal to the Series C Original Issue Price plus all declared and unpaid dividends on such shares of Series C Preferred (as adjusted for any stock dividends, combinations, splits, recapitalizations and the like with respect to such shares) for each share of Series C Preferred held by them, (iv) the holders of Series D Preferred shall be entitled to be paid out of the assets of the Corporation an amount per share of Series D Preferred equal to the Series D Original Issue Price plus all declared and unpaid dividends on such shares of Series D Preferred (as adjusted for any stock dividends, combinations, splits, recapitalizations and the like with respect to such shares) for each share of Series D Preferred held by them, (v) the holders of Series E Preferred shall be entitled to be paid out of the assets of the Corporation an amount per share of Series E Preferred equal to the Series E Original Issue Price plus all declared and unpaid dividends on such shares of Series E Preferred (as adjusted for any stock dividends, combinations, splits, recapitalizations and the like 5. with respect to such shares) for each share of Series E Preferred held by them, and (vi) the holders of Series E-1 Preferred shall be entitled to be paid out of the assets of the Corporation an amount per share of Series E-1 Preferred equal to the Series E-1 Original Issue Price plus all declared and unpaid dividends on such shares of Series E-1 Preferred (as adjusted for any stock dividends, combinations, splits, recapitalizations and the like with respect to such shares) for each share of Series E-1 Preferred held by them. b. After the payment of the full liquidation preference of the Series Preferred as set forth in Section 3a above, the assets of the Corporation legally available for distribution, if any, shall be distributed ratably to the holders of the Common Shares. c. The following events shall be considered a liquidation under this Section: (i) any consolidation or merger of the Corporation with or into any other corporation or other entity or person, or any other corporate reorganization, in which the stockholders of the Corporation immediately prior to such consolidation, merger or reorganization, as a result of their ownership of the Corporation's securities own less than 50% of the surviving corporation's voting power immediately after such consolidation, merger or reorganization (an "Acquisition"); or (ii) a sale, lease or other disposition of all or substantially all of the assets of the Corporation (an "Asset Transfer"). d. If, upon any liquidation, distribution, or winding up of the Corporation, the assets of the Corporation shall be insufficient to make payment in full to all holders of Series Preferred of the liquidation preference set forth in Section 3a, then such assets shall be distributed among the holders of Series Preferred at the time outstanding, ratably in proportion to the full amounts to which they would otherwise be respectively entitled. 4. Redemption. The Series Preferred shall not be redeemable by the Corporation. 5. Conversion Rights. The holders of the Series Preferred shall have the following rights with respect to the conversion of the Series Preferred into shares of Common Shares (the "Conversion Rights"): a. Optional Conversion. (i) Subject to and in compliance with the provisions of this Section 5, each share of Series A Preferred, Series B Preferred, Series C Preferred, Series D Preferred and Series E-1 Preferred may, at the option of the holder, be converted at any time into fully-paid and nonassessable shares of Common Stock. The number of shares of Common Stock to which a holder of such shares shall be entitled upon conversion shall be the product obtained by multiplying the "Series A Preferred Conversion Rate", "Series B Preferred Conversion Rate", "Series C Preferred Conversion Rate", "Series D Preferred Conversion Rate" or "Series E-1 6. Conversion Rate", as applicable, then in effect (determined as provided in Section 5b) by the number of shares of Series A Preferred, Series B Preferred, Series C Preferred, Series D Preferred or Series E-1 Preferred, as applicable, being converted. (ii) Subject to and in compliance with the provisions of this Section 5, each share of Series E Preferred shall be convertible, at the option of the holder thereof, at any time beginning upon the earlier of (A) the date one year after the date on which any share of Series E Preferred was first issued (the "Original Series E Issuance Date") or (B) the date of the Corporation's written consent to such conversion, which written consent will not be unreasonably withheld or delayed, into one fully paid and nonassessable share of Series E-1 Preferred Stock. (iii) Subject to and in compliance with the provisions of this Section 5, each share of Series E Preferred shall be convertible, at the option of the holder thereof, at any time, into such number of fully paid and nonassessable shares of Class B Common Stock as is determined by multiplying the "Series E Preferred Conversion Rate" then in effect (determined as provided in Section 5b) by the number of shares of Series E Preferred being converted. (iv) Subject to and in compliance with the provisions of this Section 5, each share of Class B Common Stock shall be convertible, at the option of the holder thereof, at any time beginning upon the earlier of (A) the date one year after the Original Series E Issuance Date, (B) the date 180 days after an Initial Public Offering (as defined in Section B.1 of Article V) or (C) the date of the Corporation's written consent to such conversion, which written consent will not be unreasonably withheld or delayed, into one fully paid and nonassessable share of Common Stock. b. Series Preferred Conversion Rate. The conversion rate in effect at any time for conversion of each of the Series A Preferred (the "Series A Preferred Conversion Rate"), the Series B Preferred (the "Series B Preferred Conversion Rate"), the Series C Preferred (the "Series C Preferred Conversion Rate"), the Series D Preferred (the "Series D Preferred Conversion Rate"), the Series E Preferred (the "Series E Preferred Conversion Rate") and the Series E-1 Preferred (the "Series E-1 Preferred Conversion Rate") shall be the quotient obtained by dividing the Series A Original Issue Price, the Series B Original Issue Price, the Series C Original Issue Price, the Series D Original Issue Price, the Series E Original Issue Price and the Series E-1 Original Issue Price of the Series A Preferred, the Series B Preferred, the Series C Preferred, the Series D Preferred, the Series E Preferred and the Series E-1 Preferred, respectively, by the "Series A Preferred Conversion Price", the "Series B Preferred Conversion Price," the "Series C Preferred Conversion Price," the "Series D Preferred Conversion Price," the "Series E Preferred Conversion Price" and the "Series E-1 Preferred Conversion Price," respectively, calculated as provided in Section 5c. c. Series Preferred Conversion Price. As of the date of filing of this Amended and Restated Certificate of Incorporation (the "Filing Date"), the conversion price for the Series A Preferred shall be $0.325 (the "Series A Preferred Conversion Price"), the conversion price for the Series B Preferred shall be $1.375 (the "Series B Preferred Conversion Price"), the conversion price for the Series C Preferred shall be the Series C Original Issue Price 7. (the "Series C Preferred Conversion Price"), the conversion price for the Series D Preferred shall be the Series D Original Issue Price (the "Series D Preferred Conversion Price"), the conversion price for the Series E Preferred shall be the Series E Original Issue Price (the "Series E Preferred Conversion Price") and the conversion price for the Series E-1 Preferred shall be the Series E-1 Original Issue Price (the "Series E-1 Preferred Conversion Price"). Such Series A Preferred Conversion Price, Series B Preferred Conversion Price, Series C Preferred Conversion Price, Series D Preferred Conversion Price, Series E Preferred Conversion Price and Series E-1 Preferred Conversion shall be adjusted from time to time in accordance with this Section 5. All references to the Series A Preferred Conversion Price, Series B Preferred Conversion Price, Series C Preferred Conversion Price, Series D Preferred Conversion Price, Series E Preferred Conversion Price and Series E-1 Preferred Conversion herein shall mean the Series A Preferred Conversion Price, Series B Preferred Conversion Price, Series C Preferred Conversion Price, Series D Preferred Conversion Price, Series E Preferred Conversion Price and Series E-1 Preferred Conversion Price, respectively, as so adjusted after the Filing Date. d. Mechanics of Conversion. Each holder of Series Preferred or Class B Common Stock who desires to convert the same into shares of Common Stock or, for holders of Series E Preferred Stock, into shares of Series E-1 Preferred Stock or Class B Common Stock pursuant to this Section 5 shall surrender the certificate or certificates therefor, duly endorsed, at the office of the Corporation or any transfer agent for the Series Preferred or Class B Common Stock, and shall give written notice to the Corporation at such office that such holder elects to convert the same. Such notice shall state the number of shares being converted. Thereupon, the Corporation shall promptly issue and deliver at such office to such holder a certificate or certificates for the number of shares of Common Stock, Class B Common Stock or Series E-1 Preferred Stock to which such holder is entitled and shall promptly pay in cash or, to the extent sufficient funds are not then legally available therefor, in Common Stock, Class B Common Stock, or Series E-1 Preferred Stock, as applicable (at the fair market value for such shares as determined by the Board of Directors as of the date of such conversion), any declared and unpaid dividends on the shares being converted. Such conversion shall be deemed to have been made at the close of business on the date of such surrender of the certificates representing the shares to be converted, and the person entitled to receive the shares of Common Stock, Class B Common Stock or Series E-1 Preferred Stock issuable, as applicable, upon such conversion shall be treated for all purposes as the record holder of such shares, as applicable, on such date. e. Adjustment for Stock Splits and Combinations. If the Corporation shall at any time or from time to time after the Filing Date effect a subdivision of the outstanding Common Stock without a corresponding subdivision of the Series Preferred, the Series A Preferred Conversion Price, the Series B Preferred Conversion Price, the Series C Preferred Conversion Price, the Series D Preferred Conversion Price, the Series E Preferred Conversion Price and the Series E-1 Preferred Conversion Price in effect immediately before that subdivision shall be proportionately decreased. Conversely, if the Corporation shall at any time or from time to time after the Filing Date combine the outstanding shares of Common Stock into a smaller number of shares without a corresponding combination of the Series Preferred, the Series A Preferred Conversion Price, the Series B Preferred Conversion Price, the Series C Preferred Conversion Price, the Series D Preferred Conversion Price, the Series E Preferred Conversion Price and the Series E-1 Preferred Conversion Price in effect immediately before the combination shall be proportionately increased. Any adjustment under this Section 5e shall 8. become effective at the close of business on the date the subdivision or combination becomes effective. f. Adjustment for Common Stock Dividends and Distributions. If the Corporation at any time or from time to time after the Filing Date makes, or fixes a record date for the determination of holders of Common Stock entitled to receive, a dividend or other distribution payable in additional shares of Common Stock, in each such event the Series A Preferred Conversion Price, Series B Preferred Conversion Price, Series C Preferred Conversion Price, Series D Preferred Conversion Price, Series E Preferred Conversion Price and Series E-1 Preferred Conversion Price that is then in effect shall be decreased as of the time of such issuance or, in the event such record date is fixed, as of the close of business on such record date, by multiplying the Series A Preferred Conversion Price, Series B Preferred Conversion Price, Series C Preferred Conversion Price, Series D Preferred Conversion Price, Series E Preferred Conversion Price and Series E-1 Conversion Price then in effect by a fraction (i) the numerator of which is the total number of shares of Common Stock issued and outstanding immediately prior to the time of such issuance or the close of business on such record date, and (ii) the denominator of which is the total number of shares of Common Stock issued and outstanding immediately prior to the time of such issuance or the close of business on such record date plus the number of shares of Common Stock issuable in payment of such dividend or distribution; provided, however, that if such record date is fixed and such dividend is not fully paid or if such distribution is not fully made on the date fixed therefor, the Series A Preferred Conversion Price, Series B Preferred Conversion Price, Series C Preferred Conversion Price, Series D Preferred Conversion Price, Series E Preferred Conversion Price and Series E-1 Preferred Conversion Price shall be recomputed accordingly as of the close of business on such record date and thereafter the Series A Preferred Conversion Price, the Series B Preferred Conversion Price, the Series C Preferred Conversion Price, Series D Preferred Conversion Price, Series E Preferred Conversion Price and Series E-1 Preferred Conversion Price shall be adjusted pursuant to this Section 5f to reflect the actual payment of such dividend or distribution. g. Adjustments for Other Dividends and Distributions. If the Corporation at any time or from time to time after the Filing Date makes, or fixes a record date for the determination of holders of Common Stock entitled to receive, a dividend or other distribution payable in securities of the Corporation other than shares of Common Stock, in each such event provision shall be made so that the holders of the Series Preferred shall receive upon conversion thereof, in addition to the number of shares of Common Stock receivable thereupon, the amount of other securities of the Corporation which they would have received had their Series Preferred been converted into Common Stock on the date of such event and had they thereafter, during the period from the date of such event to and including the conversion date, retained such securities receivable by them as aforesaid during such period, subject to all other adjustments called for during such period under this Section 5 with respect to the rights of the holders of the Series Preferred or with respect to such other securities by their terms. h. Adjustment for Reclassification, Exchange and Substitution. If at any time or from time to time after the Filing Date, the Common Stock issuable upon the conversion of the Series Preferred is changed into the same or a different number of shares of any class or classes of stock, whether by recapitalization, reclassification or otherwise (other than an Acquisition or Asset Transfer as defined in Section 3c or a subdivision or combination of 9. shares or stock dividend or a reorganization, merger, consolidation or sale of assets provided for elsewhere in this Section 5), in any such event each holder of Series Preferred shall have the right thereafter to convert such stock into the kind and amount of stock and other securities and property receivable upon such recapitalization, reclassification or other change by holders of the maximum number of shares of Common Stock into which such shares of Series Preferred could have been converted immediately prior to such recapitalization, reclassification or change, all subject to further adjustment as provided herein or with respect to such other securities or property by the terms thereof. i. Reorganizations, Mergers, Consolidations or Sales of Assets. If at any time or from time to time after the Filing Date, there is a capital reorganization of the Common Stock (other than an Acquisition or Asset Transfer as defined in Section 3c or a recapitalization, subdivision, combination, reclassification, exchange or substitution of shares provided for elsewhere in this Section 5), as a part of such capital reorganization, provision shall be made so that the holders of the Series Preferred shall thereafter be entitled to receive upon conversion of the Series Preferred the number of shares of stock or other securities or property of the Corporation to which a holder of the number of shares of Common Stock deliverable upon conversion would have been entitled on such capital reorganization, subject to adjustment in respect of such stock or securities by the terms thereof. In any such case, appropriate adjustment shall be made in the application of the provisions of this Section 5 with respect to the rights of the holders of Series Preferred after the capital reorganization to the end that the provisions of this Section 5 (including adjustment of each Series Preferred Conversion Price then in effect and the number of shares issuable upon conversion of the Series Preferred) shall be applicable after that event and be as nearly equivalent as practicable. j. Sale of Shares Below Series Preferred Conversion Price. (i) If at any time or from time to time after the Filing Date, the Corporation issues or sells, or is deemed by the express provisions of this subsection 5j to have issued or sold, Additional Shares of Common Stock (as defined in subsection 5j(iv) below), other than as a dividend or other distribution on any class of stock as provided in Section 5f above, and other than a subdivision or combination of shares of Common Stock as provided in Section 5e above, for an Effective Price (as defined in subsection 5j(iv) below) less than the then effective Series A Preferred Conversion Price, Series B Preferred Conversion Price, Series C Preferred Conversion Price, Series D Preferred Conversion Price, Series E Preferred Conversion Price or Series E-1 Preferred Conversion Price, then and in each such case the then existing Series A Preferred Conversion Price, Series B Preferred Conversion Price, Series C Preferred Conversion Price, Series D Preferred Conversion Price, Series E Preferred Conversion Price or Series E-1 Preferred Conversion Price, as the case may be, shall be reduced, as of the opening of business on the date of such issue or sale, to a price determined by multiplying the Series A Preferred Conversion Price, Series B Preferred Conversion Price, Series C Preferred Conversion Price, Series D Preferred Conversion Price, Series E Preferred Conversion Price or Series E-1 Preferred Conversion Price, as applicable, by a fraction (i) the numerator of which shall be (A) the number of shares of Common Stock deemed outstanding (as defined below) immediately prior to such issue or sale, plus (B) the number of shares of Common Stock which the aggregate consideration received (as defined in subsection 5j(ii)) by the Corporation for the total number of Additional Shares of Common Stock so issued would purchase at such Series A Preferred Conversion Price, 10. Series B Preferred Conversion Price, Series C Preferred Conversion Price, Series D Preferred Conversion Price, Series E Preferred Conversion Price or Series E-1 Preferred Conversion Price, as the case may be, and (ii) the denominator of which shall be the number of shares of Common Stock deemed outstanding (as defined below) immediately prior to such issue or sale plus the total number of Additional Shares of Common Stock so issued. For the purposes of the preceding sentence, the number of shares of Common Stock deemed to be outstanding as of a given date shall be the sum of (A) the number of shares of Common Stock actually outstanding, (B) the number of shares of Common Stock into which the then outstanding shares of Series Preferred could be converted if fully converted as of the time of such issuance, and (C) the number of shares of Common Stock which could be obtained through the exercise or conversion of all other rights, options and convertible securities outstanding as of the time of such issuance. (ii) For the purpose of making any adjustment required under this Section 5j, the consideration received by the Corporation for any issue or sale of securities shall (A) to the extent it consists of cash, be computed as the net amount of cash received by the Corporation after deduction of any underwriting or similar commissions, compensation or concessions paid or allowed by the Corporation in connection with such issue or sale but without deduction of any expenses payable by the Corporation, (B) to the extent it consists of property other than cash, be computed as the fair value of that property as determined in good faith by the Board of Directors, and (C) if Additional Shares of Common Stock, Convertible Securities (as defined in subsection 5j(iii)) or rights or options to purchase either Additional Shares of Common Stock or Convertible Securities are issued or sold together with other stock or securities or other assets of the Corporation for a consideration which covers both, be computed as the portion of the consideration so received that may be reasonably determined in good faith by the Board of Directors to be allocable to such Additional Shares of Common Stock, Convertible Securities or rights or options. (iii) For the purpose of the adjustment required under this Section 5j, if the Corporation issues or sells (i) stock or other securities convertible into, Additional Shares of Common Stock (such convertible stock or securities being herein referred to as "Convertible Securities") or (ii) rights or options for the purchase of Additional Shares of Common Stock or Convertible Securities and if the Effective Price of such Additional Shares of Common Stock is less than the Series A Preferred Conversion Price, Series B Preferred Conversion Price, Series C Preferred Conversion Price, Series D Preferred Conversion Price, Series E Preferred Conversion Price or Series E-1 Preferred Conversion Price, as the case may be, in each case the Corporation shall be deemed to have issued at the time of the issuance of such rights or options or Convertible Securities the maximum number of Additional Shares of Common Stock issuable upon exercise or conversion thereof and to have received as consideration for the issuance of such shares an amount equal to the total amount of the consideration, if any, received by the Corporation for the issuance of such rights or options or Convertible Securities, plus, in the case of such rights or options, the minimum amounts of consideration, if any, payable to the Corporation upon the exercise of such rights or options, plus, in the case of Convertible Securities, the minimum amounts of consideration, if any, payable to the Corporation (other than by cancellation of liabilities or obligations evidenced by such Convertible Securities) upon the conversion thereof; provided that if in the case of Convertible Securities the minimum amounts of such consideration cannot be ascertained, but are a function of antidilution or similar protective clauses, the Corporation shall be deemed to 11. have received the minimum amounts of consideration without reference to such clauses; provided further that if the minimum amount of consideration payable to the Corporation upon the exercise or conversion of rights, options or Convertible Securities is reduced over time or on the occurrence or non- occurrence of specified events other than by reason of antidilution adjustments, the Effective Price shall be recalculated using the figure to which such minimum amount of consideration is reduced; provided further that if the minimum amount of consideration payable to the Corporation upon the exercise or conversion of such rights, options or Convertible Securities is subsequently increased, the Effective Price shall be again recalculated using the increased minimum amount of consideration payable to the Corporation upon the exercise or conversion of such rights, options or Convertible Securities. No further adjustment of the Series A Preferred Conversion Price, Series B Preferred Conversion Price, Series C Preferred Conversion Price, Series D Preferred Conversion Price, Series E Preferred Conversion Price or Series E-1 Preferred Conversion Price, as adjusted upon the issuance of such rights, options or Convertible Securities, shall be made as a result of the actual issuance of Additional Shares of Common Stock on the exercise of any such rights or options or the conversion of any such Convertible Securities. If any such rights or options or the conversion privilege represented by any such Convertible Securities shall expire without having been exercised, the Series A Preferred Conversion Price, Series B Preferred Conversion Price, Series C Preferred Conversion Price, Series D Preferred Conversion Price, Series E Preferred Conversion Price or Series E-1 Preferred Conversion Price as adjusted upon the issuance of such rights, options or Convertible Securities shall be readjusted to the Series A Preferred Conversion Price, Series B Preferred Conversion Price, Series C Preferred Conversion Price, Series D Preferred Conversion Price, Series E Preferred Conversion Price or Series E-1 Preferred Conversion Price, as the case may be, which would have been in effect had an adjustment been made on the basis that the only Additional Shares of Common Stock so issued were the Additional Shares of Common Stock, if any, actually issued or sold on the exercise of such rights or options or rights of conversion of such Convertible Securities, and such Additional Shares of Common Stock, if any, were issued or sold for the consideration actually received by the Corporation upon such exercise, plus the consideration, if any, actually received by the Corporation for the granting of all such rights or options, whether or not exercised, plus the consideration received for issuing or selling the Convertible Securities actually converted, plus the consideration, if any, actually received by the Corporation (other than by cancellation of liabilities or obligations evidenced by such Convertible Securities) on the conversion of such Convertible Securities, provided that such readjustment shall not apply to prior conversions of Series A Preferred, Series B Preferred, Series C Preferred, Series D Preferred, Series E Preferred or Series E-1 Preferred. (iv) "Additional Shares of Common Stock" shall mean all Common Shares issued by the Corporation or deemed to be issued pursuant to this Section 5j, whether or not subsequently reacquired or retired by the Corporation other than (A) Common Shares issued or issuable upon conversion of the Series Preferred; (B) Common Shares and/or options, warrants or other Common Share purchase rights, and the Common Shares issued or issuable pursuant to such options, warrants or other rights (as adjusted for any stock dividends, combinations, splits, recapitalizations and the like) after the Filing Date to employees, officers or directors of, or consultants or advisors to the Corporation or any subsidiary pursuant to stock purchase or stock option plans or other arrangements that are approved by the Board of Directors; (C) Common Shares issued or issuable pursuant to the exercise of options, warrants or 12. convertible securities outstanding as of the Filing Date, (D) Common Shares and/or options, warrants or other Common Share purchase rights, and the Common Shares issued or issuable pursuant to such options, warrants or other rights issued for consideration other than cash pursuant to a merger, consolidation, acquisition or similar business combination approved by the Board of Directors, (E) Common Shares issued or issuable pursuant to the special adjustment provisions of Section 5k below; (F) Common Shares issued or issuable pursuant to any equipment leasing arrangement, or debt financing from a bank or similar financial institution approved by the Board of Directors, and (G) Common Shares issued or issuable in connection with strategic transactions involving the Corporation and other entities, including joint ventures, manufacturing, marketing or distribution arrangements, and technology transfer or development arrangements approved by the Board of Directors. References to Common Shares in the subsections of this clause (iv) above shall mean all Common Shares issued by the Corporation or deemed to be issued pursuant to this Section 5j. The "Effective Price" of Additional Shares of Common Stock shall mean the quotient determined by dividing the total number of Additional Shares of Common Stock issued or sold, or deemed to have been issued or sold by the Corporation under this Section 5j, into the aggregate consideration received, or deemed to have been received by the Corporation for such issue under this Section 5j, for such Additional Shares of Common Stock. k. Special Adjustments to Series E and E-1 Conversion Prices. In addition to any other adjustments that may be made to the Conversion Prices of the Series E Preferred and the Series E-1 Preferred pursuant to this Section 5, in the event of (i) an Initial Public Offering (as defined in Article V.B.1), the Conversion Price per share of each of the Series E-1 Preferred and Series E Preferred shall automatically be adjusted, immediately prior to the closing of such offering, and immediately prior to any conversion pursuant to Sections 5n(i) and (ii), to a price equal to the lesser of (x) the Conversion Price then in effect for the Series E Preferred and Series E-1 Preferred, respectively, or (y) the amount equal to 85% multiplied by the price to the public of shares of the Corporation's Common Stock as sold by the Corporation in the an Initial Public Offering (as defined in Article V.B.1) and (ii) an Asset Transfer or Acquisition (each as defined in Article V.D.3.c), the Conversion Price per share of each of the Series E-1 Preferred and Series E Preferred shall automatically be adjusted, immediately prior to the closing of the Asset Transfer or Acquisition (and only in the event an Initial Public Offering (as defined in Article V.B.1) has not yet been consummated), to a price equal to the lesser of (x) the Conversion Price then in effect for the Series E Preferred and Series E- 1 Preferred, respectively, or (y) the amount equal to 85% multiplied by the Acquisition Price Per Share. For purposes of the preceding sentence, "Acquisition Price Per Share" shall equal the aggregate dollar value of the consideration payable pursuant to the Asset Transfer or Acquisition, as the case may be, in exchange for the Outstanding Shares divided by the Outstanding Shares. "Outstanding Shares" for this purpose shall be measured immediately prior to such closing (after giving effect to any adjustment under this Section 5k) and shall equal, as of such time, the sum of (A) the number of shares of Common Stock then outstanding, including any shares issued prior to or in connection with such transaction as a result of the exercise of any options and warrants, and (B) the number of shares of Common Stock into which the then outstanding shares of Series Preferred could then be converted if fully converted as of the time of such issuance. l. Certificate of Adjustment. In each case of an adjustment or readjustment of the Series A Preferred Conversion Price, Series B Preferred Conversion Price, 13. Series C Preferred Conversion Price, Series D Preferred Conversion Price, Series E Preferred Conversion Price or Series E-1 Preferred Conversion Price for the number of Common Shares or other securities issuable upon conversion of the Series A Preferred, Series B Preferred, Series C Preferred, Series D Preferred, Series E Preferred or Series E-1 Preferred, if the Series A Preferred, Series B Preferred, Series C Preferred or Series D Preferred, Series E Preferred or Series E-1 Preferred is then convertible pursuant to this Section 5, the Corporation, at its expense, shall compute such adjustment or readjustment in accordance with the provisions hereof and prepare a certificate showing such adjustment or readjustment, and shall mail such certificate, by first class mail, postage prepaid, to each registered holder of Series A Preferred, Series B Preferred, Series C Preferred, Series D Preferred, Series E Preferred or Series E-1 Preferred at the holder's address as shown in the Corporation's books. The certificate shall set forth such adjustment or readjustment, showing in detail the facts upon which such adjustment or readjustment is based, including a statement of (i) the consideration received or deemed to be received by the Corporation for any Additional Shares of Common Stock issued or sold or deemed to have been issued or sold, (ii) the Series A Preferred Conversion Price, Series B Preferred Conversion Price, Series C Preferred Conversion Price, Series D Preferred Conversion Price, Series E Preferred Conversion Price or Series E-1 Preferred Conversion Price at the time in effect, (iii) the number of Additional Shares of Common Stock and (iv) the type and amount, if any, of other property which at the time would be received upon conversion of the Series A Preferred, Series B Preferred, Series C Preferred, Series D Preferred, Series E Preferred or Series E-1 Preferred. m. Notices of Record Date. Upon (i) any taking by the Corporation of a record of the holders of any class of securities for the purpose of determining the holders thereof who are entitled to receive any dividend or other distribution, or (ii) any Acquisition (as defined in Section 3c) or other capital reorganization of the Corporation, any reclassification or recapitalization of the capital stock of the Corporation, any merger or consolidation of the Corporation with or into any other corporation, or any Asset Transfer (as defined in Section 3c), or any voluntary or involuntary dissolution, liquidation or winding up of the Corporation, the Corporation shall mail to each holder of Series Preferred at least twenty (20) days prior to the record date specified therein a notice specifying (A) the date on which any such record is to be taken for the purpose of such dividend or distribution and a description of such dividend or distribution, (B) the date on which any such Acquisition, reorganization, reclassification, transfer, consolidation, merger, Asset Transfer, dissolution, liquidation or winding up is expected to become effective, and (C) the date, if any, that is to be fixed as to when the holders of record of Common Stock (or other securities) shall be entitled to exchange their shares of Common Stock (or other securities) for securities or other property deliverable upon such Acquisition, reorganization, reclassification, transfer, consolidation, merger, Asset Transfer, dissolution, liquidation or winding up. n. Automatic Conversion. (i) Each share of Series A Preferred, Series B Preferred, Series C Preferred and Series D Preferred shall automatically be converted into shares of Common Stock, based on the then-effective Series A Preferred Conversion Price, Series B Preferred Conversion Price, Series C Preferred Conversion Price and Series D Preferred Conversion Price, as the case may be, (a) at any time upon the affirmative vote of the holders of 14. at least sixty-six and two-thirds percent (66-2/3%) of the outstanding shares of the Series Preferred (voting on an as-if-converted basis as a single class) or (b) immediately upon the closing of a firmly 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 for the account of the Corporation in which (A) the per share price is at least $11.00 (as adjusted for any stock dividends, combinations, splits, recapitalizations and the like), and (B) the gross cash proceeds to the Corporation (before deducting underwriting discounts, commissions and fees) are at least $20,000,000 (a "Qualified IPO"). Each share of Series E-1 Preferred shall automatically be converted into shares of Common Stock based on the then-effective Series E-1 Preferred Conversion Price and each share of Series E Preferred Stock shall automatically be converted into shares of Class B Common Stock, based upon the then-effective Series E Preferred Conversion Price, (a) at any time upon the affirmative vote of the holders of at least sixty-six and two-thirds percent (66-2/3%) of the outstanding shares of Series E Preferred and Series E-1 Preferred, as the case may be, or (b) immediately upon the closing of a Qualified IPO. Upon such automatic conversion, any declared and unpaid dividends shall be paid in accordance with the provisions of Section 5d. (ii) Each share of Class B Common Stock shall automatically be converted into the identical number of fully paid and nonassessable shares of Common Stock immediately upon any sale, disposition, assignment or transfer of any shares of Class B Common Stock by the holder thereof after the earlier of (A) the date one year after the Original Series E Issuance Date or (B) the date 180 days after a Qualified IPO. (iii) Upon the occurrence of any of the events specified in subsections (i) and (ii) above, the outstanding shares of Series Preferred or Class B Common Stock, as applicable, shall be converted automatically without any further action by the holders of such shares and whether or not the certificates representing such shares are surrendered to the Corporation or its transfer agent; provided, however, that the Corporation shall not be obligated to issue certificates evidencing the shares of Common Stock or Class B Common Stock, as the case may be, issuable upon such conversion unless the certificates evidencing such shares of Series Preferred or Class B Common Stock, as applicable, are either delivered to the Corporation or its transfer agent as provided below, or the holder notifies the Corporation or its transfer agent 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. Upon the occurrence of such automatic conversion of such shares, the holders of such shares shall surrender the certificates representing such shares at the office of the Corporation or any transfer agent for such shares. Thereupon, there shall be issued and delivered to such holder promptly at such office and in its name as shown on such surrendered certificate or certificates, a certificate or certificates for the number of shares of Common Stock or Class B Common Stock, as the case may be, into which the shares surrendered were convertible on the date on which such automatic conversion occurred, and any declared and unpaid dividends shall be paid in accordance with the provisions of Section 5d. o. Fractional Shares. No fractional Common Shares shall be issued upon conversion of Series Preferred. All shares of Common Stock or Class B Common Stock (including fractions thereof) issuable upon conversion of more than one share of Series Preferred by a holder thereof shall be aggregated for purposes of determining whether the conversion 15. would result in the issuance of any fractional share. If, after the aforementioned aggregation, the conversion would result in the issuance of any fractional share, the Corporation shall, in lieu of issuing any fractional share, pay cash equal to the product of such fraction multiplied by the Common Stock's fair market value (as determined by the Board of Directors) on the date of conversion. p. Reservation of Stock Issuable Upon Conversion. The Corporation shall at all times reserve and keep available out of its authorized but unissued shares of Common Stock, Class B Common Stock and Series E-1 Preferred, solely for the purpose of effecting the conversion of the shares of Class B Common Stock or Series Preferred, such number of its shares of Common Stock, Class B Common Stock and Series E-1 Preferred as shall from time to time be sufficient to effect the conversion of all outstanding shares of Class B Common Stock or Series Preferred. If at any time the number of authorized but unissued shares of Common Stock, Class B Common Stock or Series E-1 Preferred shall not be sufficient to effect the conversion of all then outstanding shares of Class B Common Stock or Series Preferred, the Corporation will take such corporate action as may, in the opinion of its counsel, be necessary to increase its authorized but unissued shares of Common Stock, Class B Common Stock and Series E-1 Preferred to such number of shares as shall be sufficient for such purpose. q. Notices. Any notice required by the provisions of this Section 5 shall be in writing and shall be deemed effectively given: (i) upon personal delivery to the party to be notified, (ii) when sent by confirmed telex or facsimile if sent during normal business hours of the recipient; if not, then on the next business day, (iii) five (5) days after having been sent by registered or certified mail, return receipt requested, postage prepaid, or (iv) one (1) day after deposit with a nationally recognized overnight courier, specifying next day delivery, with written verification of receipt. All notices shall be addressed to each holder of record at the address of such holder appearing on the books of the Corporation. r. Payment of Taxes. The Corporation will pay all taxes (other than taxes based upon income) and other governmental charges that may be imposed with respect to the issue or delivery of shares of Common Stock, Class B Common Stock or Series E-1 Preferred upon conversion of shares of Class B Common Stock or Series Preferred, excluding any tax or other charge imposed in connection with any transfer involved in the issue and delivery of shares of Common Stock, Class B Common Stock or Series E-1 Preferred in a name other than that in which the shares of Series Preferred so converted were registered. s. No Dilution or Impairment. Without the consent of the holders of the then outstanding Series Preferred, as required under Section 2b, the Corporation shall not amend its Amended and Restated Certificate of Incorporation or participate in any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or take any other voluntary action, for the purpose of avoiding or seeking to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Corporation, but shall at all times in good faith assist in carrying out all such action as may be reasonably necessary or appropriate in order to protect the conversion rights of the holders of the Series Preferred against dilution or other impairment. 16. 6. No Reissuance of Series Preferred. No share or shares of Series Preferred or Class B Common Stock acquired by the Corporation by reason of redemption, purchase, conversion or otherwise shall be reissued; and in addition, the Amended and Restated Certificate of Incorporation shall be appropriately amended to effect the corresponding reduction in the Corporation's authorized stock. E. Common Shares. 1. Voting Rights. The holder of each share of Common Stock shall have the right to one vote, and shall be entitled to notice of any stockholders' meeting in accordance with the Bylaws of the Corporation, and shall be entitled to vote upon such matters and in such manner as may be provided by law. Except as required by law or as set forth herein, holders of Class B Common Stock shall not be entitled to vote for the election of directors or to vote on any other matter. 2. Dividend Rights. Subject to the prior rights of holders of all classes of stock at the time outstanding having prior rights as to dividends, the holders of the Common Stock and the Class B Common Stock shall be entitled to receive, when and as declared by the Board of Directors, out of any assets and funds of the Corporation legally available therefor, such dividends as may be declared from time to time by the Board of Directors. 3. Liquidation Rights. Upon the liquidation, dissolution or winding up of the Corporation, the assets of the Corporation shall be distributed as provided in Section D3 of this Article IV. 4. Redemption. The Common Stock and the Class B Common Stock are not redeemable. 5. Conversion. The Class B Common Stock will be convertible as provided in Section D5 of this Article IV. F. Treatment of Series E Preferred Stock and Series E-1 Preferred Stock. Except as otherwise set forth herein, the rights, preferences, privileges and restrictions of the Series E Preferred Stock and the Series E-1 Preferred Stock shall be identical in all respects, and any action by the Corporation affecting the shares of Series E Preferred Stock or the Series E-1 Preferred Stock, including without limitation, stock dividends, subdivisions, combinations, consolidations, distributions, reclassifications, exchanges and substitutions, shall affect the shares of the Series E Preferred Stock and the Series E-1 Preferred Stock equally. G. Treatment of Common Stock and Class B Common Stock. Except as otherwise set forth herein, the rights, privileges and restrictions of the Common Stock and the Class B Common Stock shall be identical in all respects, and any action by the Corporation affecting the Common Stock or Class B Common Stock, including without limitation, stock dividends, subdivisions, combinations, consolidations, distributions, reclassifications, exchanges and substitutions, shall affect the shares of Common Stock and Class B Common Stock equally. V. 17. For the management of the business and for the conduct of the affairs of the Corporation, and in further definition, limitation and regulation of the powers of the Corporation, of its directors and of its stockholders or any class thereof, as the case may be, it is further provided that: A. Management. The management of the business and the conduct of the affairs of the Corporation shall be vested in its Board of Directors. The number of directors which shall constitute the whole Board of Directors shall be fixed exclusively by one or more resolutions adopted by the Board of Directors. B. Board of Directors. 1. Subject to the rights of the holders of any series of Preferred Stock to elect additional directors under specified circumstances, following the closing of the initial public offering pursuant to an effective registration statement under the Securities Act of 1933, as amended (the "1993 Act"), covering the offer and sale of Common Stock to the public (the "Initial Public Offering"), the directors shall be divided into three classes designated as Class I, Class II and Class III, respectively. Directors shall be assigned to each class in accordance with a resolution or resolutions adopted by the Board of Directors. At the first annual meeting of stockholders following the closing of the Initial Public Offering, the term of office of the Class I directors shall expire and Class I directors shall be elected for a full term of three years. At the second annual meeting of stockholders following the Initial Public Offering, the term of office of the Class II directors shall expire and Class II directors shall be elected for a full term of three years. At the third annual meeting of stockholders following the Initial Public Offering, the term of office of the Class III directors shall expire and Class III directors shall be elected for a full term of three years. At each succeeding annual meeting of stockholders, directors shall be elected for a full term of three years to succeed the directors of the class whose terms expire at such annual meeting. During such time or times that the corporation is subject to Section 2115(b) of the California General Corporation Law ("CGCL"), this Section B.1. of this Article V shall become effective and be applicable only when the Corporation is a "listed" corporation within the meaning of Section 301.5 of the CGCL. 2. In the event that the Corporation is unable to have a classified board under applicable law, Section 301.5 of the CGCL, Section B.1. of this Article V shall not apply and all directors shall be elected at each annual meeting of stockholders to hold office until the next annual meeting. 3. No stockholder entitled to vote at an election for directors may cumulate votes to which such stockholder is entitled, unless, at the time of such election, the Corporation (i) is subject to Section 2115(b) of the CGCL and (ii) is not or ceases to be a "listed" corporation under Section 301.5 of the CGCL. During this time, every stockholder, entitled to vote at an election for directors may cumulate such stockholder's votes and give one candidate a number of votes equal to the number of directors to be elected multiplied by the number of votes to which such stockholder's shares are otherwise entitled, or distribute the stockholder's votes on the same principle among as many candidate or candidates have been placed in nomination prior to the voting and (ii) the stockholder has given notice at the meeting, prior to the voting, of such stockholder's intention to cumulate such stockholder's votes. If any stockholder has given 18. proper notice to cumulate votes, all stockholders may cumulate their votes for any candidates who have been properly placed in nomination. Under cumulative voting, the candidates receiving the highest number of votes, up to the number of directors to be elected, are elected. Notwithstanding the foregoing provisions of this section, each director shall serve until his successor is duly elected and qualified or until his death, resignation or removal. No decrease in the number of directors constituting the Board of Directors shall shorten the term of any incumbent director. C. Removal of Directors. 1. During such time or times that the Corporation is subject to Section 2115(b) of the CGCL, the Board of Directors or any individual director may be removed from office at any time without cause by the affirmative vote of the holders of at least a majority of the outstanding shares entitled to vote on such removal; provided, however, that unless the entire Board is removed, no individual director may be removed when the votes cast against such director's removal, or not consenting in writing to such removal, would be sufficient to elect that director if voted cumulatively at an election which the same total number of votes were cast (or, if such action is taken by written consent, all shares entitled to vote were voted) and the entire number of directors authorized at the time of such director's most recent election were then being elected. 2. At any time or times that the Corporation is not subject to Section 2115(b) of the CGCL and subject to any limitations imposed by law, Section C.1. above shall no longer apply and removal shall be as provided in Section 141(k) of the DGCL. D. Vacancies. 1. Subject to the rights of the holders of any series of Preferred Stock and Article IV.D.2.d., any vacancies on the Board of Directors resulting from death, resignation, disqualification, removal or other causes and any newly created directorships resulting from any increase in the number of directors, shall, unless the Board of Directors determines by resolution that any such vacancies or newly created directorships shall be filled by the stockholders, except as otherwise provided by law, be filled only by the affirmative vote of a majority of the directors then in office, even though less than a quorum of the Board of Directors, and not by the stockholders. Any director elected in accordance with the preceding sentence shall hold office for the remainder of the full term of the director for which the vacancy was created or occurred and until such director's successor shall have been elected and qualified. 2. If at the time of filling any vacancy or any newly created directorship, the directors then in office shall constitute less than a majority of the whole board (as constituted immediately prior to any such increase), the Delaware Court of Chancery may, upon application of any stockholder or stockholders holding at least ten percent (10%) 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 offices as aforesaid, which election shall be governed by Section 211 of the DGCL. 19. 3. At any time or times that the Corporation is subject to Section 2115(b) of the CGCL, if, after the filling of any vacancy by the directors then in office who have been elected by stockholders shall constitute less than a majority of the directors then in office, then a. Any holder or holders of an aggregate of five percent (5%) or more of the total number of the shares at the time outstanding having the right to vote for those directors may call a special meeting of stockholders; or b. The Superior Court of the proper county shall, upon application of such stockholder or stockholders, summarily order a special meeting of stockholders, to be held to elect the entire board, all in accordance with Section 305(c) of the CGCL. The term of office of any director shall termination upon that election of a successor. E. Bylaw Amendments. Subject to paragraph (h) of Section 43 of the Bylaws, the Bylaws may be altered or amended or new Bylaws adopted by the affirmative vote of at least sixty-six and two-thirds percent (66-2/3%) of the voting power of all of the then-outstanding shares of the voting stock of the Corporation entitled to vote. The Board of Directors shall also have the power to adopt, amend, or repeal Bylaws. F. Ballots. The directors of the Corporation need not be elected by written ballot unless the Bylaws so provide. G. Action By Stockholders. No action shall be taken by the stockholders of the Corporation except at an annual or special meeting of stockholders called in accordance with the Bylaws or by written consent of stockholders in accordance with the Bylaws prior to the closing of the Initial Public Offering and following the closing of the Initial Public Offering no action shall be taken by the stockholders by written consent. H. Advance Notice. Advance notice of stockholder nominations for the election of directors and of business to be brought by stockholders before any meeting of the stockholders of the Corporation shall be given in the manner provided by the Bylaws of the Corporation. VI. A. The liability of the directors of the Corporation for monetary damages shall be eliminated to the fullest extent permissible under applicable law. B. The Corporation is authorized to provide indemnification of agents (as defined in Section 317 of the CGCL) for breach of duty to the Corporation and its stockholders through bylaw provisions or through agreements with agents, or through stockholder resolutions, or otherwise, in excess of the indemnification otherwise permitted by Section 317 of the CGCL, subject, at any time or times that the Corporation is subject to Section 2115(b) of the CGCL, to the limits on such excess indemnification set forth in Section 204 of the CGCL. C. Any repeal or modification of this Article shall only be prospective and shall not effect the rights under this Article in effect at the time of the alleged occurrence of any action or omission to act giving rise to liability. 20. VII. A. The Corporation reserves the right to amend, alter, change or repeal any provision contained in this Amended and Restated Certificate of Incorporation, in the manner now or hereafter prescribed by statute, except as provided in paragraph B of this Article VII, and all rights conferred upon the stockholders herein are granted subject to this reservation. B. Notwithstanding any other provisions of this Amended and Restated Certificate of Incorporation or any provision of law which might otherwise permit a lesser vote or no vote, but in addition to any affirmative vote of the holders of any particular class or series of the voting stock required by law, this Certificate of Incorporation or any Preferred Stock designation, the affirmative vote of the holders of at least sixty-six and two-thirds percent (66-2/3%) of the voting power of all of the then-outstanding shares of the voting stock, voting together as a single class, shall be required to alter, amend or repeal Articles V, VI and VII." FOUR: The foregoing amendment and restatement of the Certificate of Incorporation has been duly approved by the Board of Directors of this Corporation. FIVE: This Amended and Restated Certificate of Incorporation has been duly adopted in accordance with the provisions of Sections 228, 242 and 245 of the DGCL by the Board of Directors and the stockholders of the Corporation. SIX: The total number of outstanding shares entitled to vote with respect to the amendment herein set forth was 11,486,266 shares of Common Stock, 2,023,077 shares of Series A Preferred Stock, 4,363,637 shares of Series B Preferred Stock, 6,809,135 shares of Series C Preferred Stock and 1,418,182 shares of Series D Preferred Stock. The number of shares voting in favor of the amendment equaled or exceeded the vote required. The percentage vote required was a majority of the outstanding Common Stock, voting as a separate class, a majority of the outstanding Series C Preferred Stock, voting as a separate class, and at least seventy-five percent (75%) of the outstanding Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock, voting together as a separate class. 21. The undersigned, Ofer Ben-Shachar and Timothy J. Moore, the President and Secretary, respectively, of NOOSH, Inc., declare under penalty of perjury under applicable law that the matters set out in the foregoing Amended and Restated Certificate of Incorporation are true of their own knowledge. Executed at Palo Alto, California on March 31, 2000. /s/ Ofer Ben-Shachar ------------------------------------- Ofer Ben-Shachar, President /s/ Timothy J. Moore ------------------------------------- Timothy J. Moore, Secretary 22. EX-4.2 3 AMENDED & RESTATED INVESTOR RIGHTS AGREEMENT EXHIBIT 4.2 NOOSH, INC. AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT APRIL 4, 2000 Table Of Contents
Page Section 1. General.......................................................... 2 1.1 Definitions...................................................... 2 Section 2. Registration; Restrictions On Transfer........................... 3 2.1 Restrictions on Transfer......................................... 3 2.2 Demand Registration.............................................. 4 2.3 Piggyback Registrations.......................................... 6 2.4 Form S-3 Registration............................................ 7 2.5 Expenses of Registration......................................... 8 2.6 Obligations of the Company....................................... 9 2.7 Termination of Registration Rights............................... 9 2.8 Delay of Registration; Furnishing Information.................... 10 2.9 Indemnification.................................................. 10 2.10 Assignment of Registration Rights................................ 12 2.11 Amendment of Registration Rights................................. 12 2.12 Limitation on Subsequent Registration Rights..................... 12 2.13 "Market Stand-Off" Agreement; Agreement to Furnish Information... 13 2.14 Rule 144 Reporting............................................... 13 Section 3. Covenants Of The Company......................................... 14 3.1 Basic Financial Information and Reporting........................ 14 3.2 Inspection Rights................................................ 14 3.3 Confidentiality of Records....................................... 15 3.4 Reservation of Stock............................................. 15 3.5 Employee Proprietary Information and Inventions Agreement........ 15 3.6 Key Man Insurance................................................ 15 3.7 Stock Vesting.................................................... 15 3.8 Observer Rights.................................................. 15 3.9 Qualified Small Business Stock................................... 16 3.10 Potential Conversion of Class B Common Stock..................... 16 3.11 Termination of Covenants......................................... 16
i. Table Of Contents (Continued)
Page Section 4. Rights Of First Refusal.......................................... 17 4.1 Subsequent Offerings............................................. 17 4.2 Exercise of Rights............................................... 17 4.3 Issuance of Equity Securities to Other Persons................... 17 4.4 Termination and Waiver of Rights of First Refusal................ 18 4.5 Transfer of Rights of First Refusal.............................. 18 4.6 Excluded Securities.............................................. 18 Section 5. Miscellaneous.................................................... 19 5.1 Governing Law.................................................... 19 5.2 Survival......................................................... 19 5.3 Successors and Assigns........................................... 19 5.4 Entire Agreement................................................. 19 5.5 Severability..................................................... 19 5.6 Amendment and Waiver............................................. 19 5.7 Delays or Omissions.............................................. 20 5.8 Notices.......................................................... 20 5.9 Attorneys' Fees.................................................. 20 5.10 Titles and Subtitles............................................. 20 5.11 Prior Agreement.................................................. 20 5.12 Aggregation of Stock............................................. 20 5.13 Counterparts..................................................... 20 5.14 Waiver of Right of First Offer................................... 21 5.15 Publicity........................................................ 21 5.16 Consent to Jurisdiction, Jury Waiver............................. 21
ii. NOOSH, INC. AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT This Amended and Restated Investor Rights Agreement (the "Agreement") is entered into as of the 4/th/ day of April, 2000, by and among NOOSH, Inc., a Delaware corporation (the "Company"), the holders of the Company's Series A Preferred Stock (the "Series A Stock"), the holders of the Company's Series B Preferred Stock (the "Series B Stock"), the holders of the Company's Series C Preferred Stock (the "Series C Stock"), the holders of the Company's Series D Preferred Stock (the "Series D Stock") and the purchaser of the Company's Series E Preferred Stock (the "Series E Stock") set forth on Exhibit A of that certain Series E Preferred Stock Purchase Agreement of even date herewith (the "Purchase Agreement"). The purchaser of the Series E Stock shall be referred to hereinafter as the "Purchaser" or "GE," and the holders of the Series A Stock (the "Series A Holders"), the holders of the Series B Stock (the "Series B Holders"), the holders of the Series C Stock (the "Series C Holders"), the holders of Series D Stock (the "Series D Holders") and the Purchaser shall be referred to hereinafter, together, as the "Investors" and each individually as an "Investor." Recitals Whereas, the Company proposes to sell and issue up to eight hundred thousand (800,000) shares of its Series E Stock to the Purchaser pursuant to the Purchase Agreement (the "Series E Stock"); Whereas, the Company, the Series A Holders, the Series B Holders, the Series C Holders and the Series D Holders previously entered into that certain Amended and Restated Investor Rights Agreement, dated as of January 25, 2000 (the "Prior Agreement"); Whereas, as a condition of entering into the Purchase Agreement, the Purchaser has requested that the Company, the Series A Holders, the Series B Holders, the Series C Holders, and Series D Holders agree to amend and restate the Prior Agreement to extend to them registration rights, information rights and other rights as set forth below; and Whereas, pursuant to Section 5.6 of the Prior Agreement, the holders of at least seventy-five percent (75%) of the Registrable Securities (as defined therein) have agreed to amend and restate the Prior Agreement and supersede said Prior Agreement in its entirety with this Agreement. Now, Therefore, in consideration of the mutual promises, representations, warranties, covenants and conditions set forth in this Agreement and in the Purchase Agreement, the parties mutually agree that the Prior Agreement shall be amended and restated to read in its entirety as follows: 1. SECTION 1. General 1.1 Definitions. As used in this Agreement the following terms shall have the following respective meanings: "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Form S-3" means such form under the Securities Act as in effect on the date hereof or any successor registration form under the Securities Act subsequently adopted by the SEC which permits inclusion or incorporation of substantial information by reference to other documents filed by the Company with the SEC. "Holder" means any person owning of record Registrable Securities that have not been sold to the public or any assignee of record of such Registrable Securities in accordance with Section 2.10 hereof. "Initial Offering" means the Company's first firm commitment underwritten public offering of its Common Stock registered under the Securities Act. "Register," "registered," and "registration" refer to a registration effected by preparing and filing a registration statement in compliance with the Securities Act, and the declaration or ordering of effectiveness of such registration statement or document. "Registrable Securities" means (a) Common Stock of the Company issued or issuable upon conversion of the Series A Stock, Series B Stock, Series C Stock, Series D Stock and Series E-1 Stock (b) Common Stock of the Company issued upon conversion of the Series E Stock, (c) any Common Stock issued to Ofer Ben-Shachar, including Common Stock transferred by Ofer Ben-Shachar to the Ben-Shachar Family Generation Skipping Trust, dated November 6, 1998, on or before the date of this Agreement (the "Founder Shares"); (d) Common Stock of the Company issued upon the exercise of warrants issued to R.R. Donnelley & Sons Company ("RRD") as of January 25, 2000 and to GE as of the date hereof (the "GE Warrant"); (e) Common Stock of the Company issued upon conversion of the Class B Common Stock issued upon conversion of the Series E Stock or upon exercise of the GE Warrant and (f) any Common Stock of the Company issued as (or issuable upon the conversion or exercise of any warrant, right or other security which is issued as) a dividend or other distribution with respect to, or in exchange for or in replacement of, such above-described securities. Notwithstanding the foregoing, Registrable Securities shall not include any securities sold by a person to the public either pursuant to a registration statement or Rule 144 or sold in a private transaction in which the transferor's rights under Section 2 of this Agreement are not assigned pursuant to the terms of this Agreement. "Registrable Securities then outstanding" shall be the number of shares determined by calculating the total number of shares of the Company's Common Stock that are Registrable Securities and either (a) are then issued and outstanding or (b) are then issuable pursuant to then exercisable or convertible securities. "Registration Expenses" shall mean all expenses incurred by the Company in complying with Sections 2.2, 2.3 and 2.4 hereof, including, without limitation, all registration 2. and filing fees, printing expenses, fees and disbursements of counsel for the Company, reasonable fees and disbursements of a single special counsel for the Holders, blue sky fees and expenses and the expense of any special audits incident to or required by any such registration (but excluding the compensation of regular employees of the Company which shall be paid in any event by the Company). "SEC" or "Commission" means the Securities and Exchange Commission. "Securities Act" shall mean the Securities Act of 1933, as amended. "Selling Expenses" shall mean all underwriting discounts and selling commissions applicable to the sale. "Series E-1 Stock" shall mean the Series E-1 Preferred Stock issued upon conversion of the Series E Stock. "Shares" shall mean the Company's Series A Stock issued pursuant to the Company's Series A Preferred Stock Purchase Agreement, dated November 20, 1998, and held by the Investors listed on Exhibit A thereto and their permitted assigns, the Company's Series B Stock issued pursuant to the Series B Preferred Stock Purchase Agreement, dated April 26, 1999, and held by the Investors listed on Exhibit A thereto and their permitted assigns, the Company's Series C Stock issued pursuant to the Series C Preferred Stock Purchase Agreement, dated November 3, 1999, and held by the Investors listed on Exhibit A thereto and their permitted assigns, the Company's Series D Stock issued pursuant to the Series D Preferred Stock Purchase Agreement, dated January 25, 2000, and held by the Investors listed on Exhibit A thereto and their permitted assigns, and the Company's Series E Stock issued pursuant to the Purchase Agreement and held by the Purchaser listed on Exhibit A thereto and its permitted assigns. SECTION 2. Registration; Restrictions On Transfer 2.1 Restrictions on Transfer. (a) Each Holder agrees not to make any disposition of all or any portion of the Shares, the Class B Common Stock issuable upon conversion of the Series E Stock (the "Class B Common Stock") or the Registrable Securities("Conversion Shares") unless and until: (i) There is then in effect a registration statement under the Securities Act covering such proposed disposition and such disposition is made in accordance with such registration statement; or (ii) (A) The transferee has agreed in writing to be bound by the terms of this Agreement if such disposition occurs prior to the Initial Offering, (B) such Holder shall have notified the Company of the proposed disposition and shall have furnished the Company with a detailed statement of the circumstances surrounding the proposed disposition, and (C) if reasonably requested by the Company, such Holder shall have furnished the Company with an opinion of counsel, reasonably satisfactory to the Company, that such disposition will not require registration of such shares under the Securities Act. It is agreed that the Company will not 3. require opinions of counsel for transactions made pursuant to Rule 144 except in unusual circumstances. (iii) Notwithstanding the provisions of paragraphs (i) and (ii) above, no such registration statement or opinion of counsel shall be necessary for a transfer by a Holder which is (A) a partnership to its partners or former partners in accordance with partnership interests, (B) a corporation to its stockholders in accordance with their interest in the corporation, (C) a limited liability company to its members or former members in accordance with their interest in the limited liability company, or (D) to the Holder's family member or trust for the benefit of an individual Holder; provided that in each case the transferee will be subject to the terms of this Agreement to the same extent as if he were an original Holder hereunder. (b) Each certificate representing Shares, Series E-1 Stock, Class B Common Stock or Registrable Securities shall (unless otherwise permitted by the provisions of the Agreement) be stamped or otherwise imprinted with a legend substantially similar to the following (in addition to any legend required under applicable state 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, ASSIGNED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER THE ACT OR UNLESS THE COMPANY HAS RECEIVED AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY AND ITS COUNSEL THAT SUCH REGISTRATION IS NOT REQUIRED. (c) The Company shall be obligated to reissue promptly unlegended certificates at the request of any holder thereof if the holder shall have obtained an opinion of counsel (which counsel may be counsel to the Company) reasonably acceptable to the Company to the effect that the securities proposed to be disposed of may lawfully be so disposed of without registration, qualification or legend. (d) Any legend endorsed on an instrument pursuant to applicable state securities laws and the stop-transfer instructions with respect to such securities shall be removed upon receipt by the Company of an order of the appropriate blue sky authority authorizing such removal. 2.2 Demand Registration. (a) Subject to the conditions of this Section 2.2, if the Company shall receive a written request from the Holders of thirty percent (30%) or more of the Registrable Securities (other than the Founder Shares) then outstanding (the "Initiating Holders") that the Company file a registration statement under the Securities Act covering the registration of Registrable Securities having an anticipated aggregate offering price of at least $15,000,000, then the Company shall, within thirty (30) days of receipt thereof, give written notice of such request to all Holders, and subject to the limitations of this Section 2.2, use its best efforts to effect, as soon 4. as practicable, the registration under the Securities Act of all Registrable Securities that the Holders request to be registered. (b) If the Initiating Holders intend to distribute the Registrable Securities covered by their request by means of an underwriting, they shall so advise the Company as a part of their request made pursuant to this Section 2.2 or any request pursuant to Section 2.4 and the Company shall include such information in the written notice referred to in Section 2.2(a) or Section 2.4(a), as applicable. In such event, the right of any Holder to include its Registrable Securities in such registration shall be conditioned upon such Holder's participation in such underwriting and the inclusion of such Holder's Registrable Securities in the underwriting to the extent provided herein. All Holders proposing to distribute their securities through such underwriting shall enter into an underwriting agreement in customary form with the underwriter or underwriters selected for such underwriting by a majority in interest of the Initiating Holders (which underwriter or underwriters shall be reasonably acceptable to the Company). Notwithstanding any other provision of this Section 2.2 or Section 2.4, if the underwriter advises the Company that marketing factors require a limitation of the number of securities to be underwritten (including Registrable Securities), then the Company shall so advise all Holders of Registrable Securities which would otherwise be underwritten pursuant hereto, and the number of shares that may be included in the underwriting shall be allocated to the Holders of such Registrable Securities on a pro rata basis based on the number of Registrable Securities held by all such Holders (including the Initiating Holders). Any Registrable Securities excluded or withdrawn from such underwriting shall be withdrawn from the registration. (c) The Company shall not be required to effect a registration pursuant to this Section 2.2: (i) prior to the earlier of April 26, 2004, or one hundred eighty (180) days following the effective date of the registration statement pertaining to the Initial Offering; (ii) after the Company has effected two (2) registrations pursuant to this Section 2.2, and such registrations have been declared or ordered effective; (iii) during the period starting with the date of filing of, and ending on the date one hundred eighty (180) days following the effective date of the registration statement pertaining to the Initial Offering; provided that the Company makes reasonable good faith efforts to cause such registration statement to become effective; (iv) if within thirty (30) days of receipt of a written request from the Initiating Holders pursuant to Section 2.2(a), the Company gives notice to the Holders of the Company's intention to make its Initial Offering within ninety (90) days; (v) if the Company shall furnish to the Holders requesting a registration statement pursuant to this Section 2.2, a certificate signed by the Chairman of the Board or the Chief Executive Officer stating that in the good faith judgment of the Board of Directors of the Company, it would be seriously detrimental to the Company and its stockholders for such registration statement to be effected at such time, in which event the Company shall have the right to defer such filing for a period of not more than ninety (90) days after receipt of 5. the request of the Initiating Holders; provided that such right to delay a request shall be exercised by the Company not more than once in any twelve (12) month period; or (vi) if the Initiating Holders propose to dispose of shares of Registrable Securities that may be immediately registered on Form S-3 pursuant to a request made pursuant to Section 2.4 below. 2.3 Piggyback Registrations. The Company shall notify all Holders of Registrable Securities in writing at least thirty (30) days prior to the filing of any registration statement under the Securities Act for purposes of a public offering of securities of the Company (including, but not limited to, registration statements relating to secondary offerings of securities of the Company, but excluding registration statements relating to employee benefit plans or with respect to corporate reorganizations or other transactions under Rule 145 of the Securities Act) and will afford each such Holder an opportunity to include in such registration statement all or part of such Registrable Securities held by such Holder. Each Holder desiring to include in any such registration statement all or any part of the Registrable Securities held by it shall, within fifteen (15) days after the above-described notice from the Company, so notify the Company in writing. Such notice shall state the intended method of disposition of the Registrable Securities by such Holder. If a Holder decides not to include all of its Registrable Securities in any registration statement thereafter filed by the Company, such Holder shall nevertheless continue to have the right to include any Registrable Securities in any subsequent registration statement or registration statements as may be filed by the Company with respect to offerings of its securities, all upon the terms and conditions set forth herein. (a) Underwriting. If the registration statement under which the Company gives notice under this Section 2.3 is for an underwritten offering, the Company shall so advise the Holders of Registrable Securities. In such event, the right of any such Holder to be included in a registration pursuant to this Section 2.3 shall be conditioned upon such Holder's participation in such underwriting and the inclusion of such Holder's Registrable Securities in the underwriting to the extent provided herein. All Holders proposing to distribute their Registrable Securities through such underwriting shall enter into an underwriting agreement in customary form with the underwriter or underwriters selected for such underwriting by the Company. Notwithstanding any other provision of the Agreement, if the underwriter determines in good faith that marketing factors require a limitation of the number of shares to be underwritten, the number of shares that may be included in the underwriting shall be allocated, first, to the Company; second, to the Holders' on a pro rata basis based on the total number of Registrable Securities held by the Holders (provided, that, only 2,000,000 of the Founder's Shares (as adjusted for splits, combinations, and the like) shall be included as Registrable Securities for the purposes of this allocation); third, to the Holders of the portion of the Founders Shares not considered for the purposes of the previous allocation; and, fourth, to any stockholder of the Company (other than a Holder) on a pro rata basis. No such reduction shall (i) reduce the securities being offered by the Company for its own account to be included in the registration and underwriting or (ii) reduce the amount of securities of the selling Holders included in the registration below twenty-five percent (25%) of the total amount of securities included in such registration, unless such offering is the Initial Offering and such registration does not include shares of any other selling stockholders, in which event any or all of the Registrable Securities of the Holders may be excluded in accordance with the immediately preceding sentence. In no 6. event will shares of any other selling stockholder be included in such registration which would reduce the number of shares which may be included by Holders without the written consent of Holders of not less than sixty-six and two-thirds percent (66/2/3/%) of the Registrable Securities proposed to be sold in the offering. If any Holder disapproves of the terms of any such underwriting, such Holder may elect to withdraw therefrom by written notice to the Company and the underwriter, delivered at least ten (10) business days prior to the effective date of the registration statement. Any Registrable Securities excluded or withdrawn from such underwriting shall be excluded and withdrawn from the registration. For any Holder which is a partnership or corporation, the partners, retired partners and stockholders of such Holder, or the estates and family members of any such partners and retired partners and any trusts for the benefits of any of the foregoing person shall be deemed to be a single "Holder", and any pro rata reduction with respect to such "Holder" shall be based upon the aggregate amount of shares carrying registration rights owned by all entities and individuals included in such "Holder," as defined in this sentence. (b) Right to Terminate Registration. The Company shall have the right to terminate or withdraw any registration initiated by it under this Section 2.3 prior to the effectiveness of such registration whether or not any Holder has elected to include securities in such registration. The Registration Expenses of such withdrawn registration shall be borne by the Company in accordance with Section 2.5 hereof. 2.4 Form S-3 Registration. In case the Company shall receive from any Holder or Holders of at least twenty percent (20%) of the Registrable Securities then outstanding a written request or requests that the Company effect a registration on Form S-3 (or any successor to Form S-3) or any similar short- form registration statement and any related qualification or compliance with respect to all or a part of the Registrable Securities owned by such Holder or Holders, the Company will: (a) promptly give written notice of the proposed registration, and any related qualification or compliance, to all other Holders of Registrable Securities; and (b) as soon as practicable, effect such registration and all such qualifications and compliances as may be so requested and as would permit or facilitate the sale and distribution of all or such portion of such Holder's or Holders' Registrable Securities as are specified in such request, together with all or such portion of the Registrable Securities of any other Holder or Holders joining in such request as are specified in a written request given within fifteen (15) days after receipt of such written notice from the Company; provided, however, that the Company shall not be obligated to effect any such registration, qualification or compliance pursuant to this Section 2.4: (i) if Form S-3 (or any successor or similar form) is not available for such offering by the Holders, or (ii) if the Holders, together with the holders of any other securities of the Company entitled to inclusion in such registration, propose to sell Registrable Securities and such other securities (if any) at an aggregate price to the public of less than seven hundred fifty thousand dollars ($750,000), or 7. (iii) if within thirty (30) days of receipt of a written request from Initiating Holders pursuant to Section 2.2(a), the Company gives notice to the Holders of the Company's intention to make a firm commitment underwritten public offering of its Common Stock within ninety (90) days; (iv) if the Company shall furnish to the Holders a certificate signed by the Chairman of the Board of Directors of the Company stating that in the good faith judgment of the Board of Directors of the Company, it would be seriously detrimental to the Company and its stockholders for such Form S-3 registration to be effected at such time, in which event the Company shall have the right to defer the filing of the Form S-3 registration statement for a period of not more than ninety (90) days after receipt of the request of the Holder or Holders under this Section 2.4; provided, that such right to delay a request shall be exercised by the Company not more than once in any twelve (12) month period, or (v) if the Company has, within the twelve (12) month period preceding the date of such request, already effected two (2) registrations on Form S-3 for the Holders pursuant to this Section 2.4, or (vi) in any particular jurisdiction in which the Company would be required to qualify to do business or to execute a general consent to service of process in effecting such registration, qualification or compliance. (c) Subject to the foregoing, the Company shall file a Form S-3 registration statement covering the Registrable Securities and other securities so requested to be registered as soon as practicable after receipt of the request or requests of the Holders. Registrations effected pursuant to this Section 2.4 shall not be counted as demands for registration or registrations effected pursuant to Sections 2.2 or 2.3, respectively. All such Registration Expenses incurred in connection with registrations requested pursuant to this Section 2.4 shall be paid by the Company. 2.5 Expenses of Registration. Except as specifically provided herein, all Registration Expenses incurred in connection with any registration, qualification or compliance pursuant to Section 2.2 or any registration, qualification, or compliance under Section 2.3 or 2.4 herein shall be borne by the Company. All Selling Expenses incurred in connection with any registrations, qualifications, or compliances hereunder, shall be borne by the holders of the securities so registered pro rata on the basis of the number of shares so registered. The Company shall not, however, be required to pay for expenses of any registration proceeding begun pursuant to Section 2.2 or 2.4, the request of which has been subsequently withdrawn by the Initiating Holders or the Holders under Section 2.4 unless (a) the withdrawal is based upon material adverse information concerning the Company of which the Initiating Holders or the Holders under Section 2.4 were not aware at the time of such request or (b) the Holders of a majority of Registrable Securities agree to forfeit their right to one requested registration pursuant to Section 2.2 or 2.4, in which event such right shall be forfeited by all the Holders. If the Holders are required to pay the Registration Expenses, such expenses shall be borne by the holders of securities (including Registrable Securities) requesting such registration in proportion to the number of shares for which registration was requested. If the Company is required to pay 8. the Registration Expenses of a withdrawn offering pursuant to clause (a) above, then the Holders shall not forfeit their rights pursuant to Section 2.2 or 2.4 to a demand registration. 2.6 Obligations of the Company. Whenever required to effect the registration of any Registrable Securities, the Company shall, as expeditiously as reasonably possible: (a) Prepare and file with the SEC a registration statement with respect to such Registrable Securities and use all reasonable efforts to cause such registration statement to become effective, and, upon the request of the Holders of a majority of the Registrable Securities registered thereunder, keep such registration statement effective for up to ninety (90) days or, if earlier, until the Holder or Holders have completed the distribution related thereto. The Company shall not be required to file, cause to become effective or maintain the effectiveness of any registration statement that contemplates a distribution of securities on a delayed or continuous basis pursuant to Rule 415 under the Securities Act. (b) Prepare and file with the SEC such amendments and supplements to such registration statement and the prospectus used in connection with such registration statement as may be necessary to comply with the provisions of the Securities Act with respect to the disposition of all securities covered by such registration statement for the period set forth in paragraph (a) above. (c) Furnish to the Holders such number of copies of a prospectus, including a preliminary prospectus, in conformity with the requirements of the Securities Act, and such other documents as they may reasonably request in order to facilitate the disposition of Registrable Securities owned by them. (d) Use its reasonable best efforts to register and qualify the securities covered by such registration statement under such other securities or Blue Sky laws of such jurisdictions as shall be reasonably requested by the Holders; provided that the Company shall not be required in connection therewith or as a condition thereto to qualify to do business or to file a general consent to service of process in any such states or jurisdictions. (e) In the event of any underwritten public offering, enter into and perform its obligations under an underwriting agreement, in usual and customary form, with the managing underwriter(s) of such offering. Each Holder participating in such underwriting shall also enter into and perform its obligations under such an agreement. 2.7 Termination of Registration Rights. All registration rights granted under this Section 2 shall terminate and be of no further force and effect three (3) years after the date of the Company's Initial Offering. In addition, a Holder's registration rights shall expire if and when all Registrable Securities held by and issuable to such Holder (and its affiliates, partners, former partners, members and former members) may be sold under Rule 144 during any ninety (90) day period. 9. 2.8 Delay of Registration; Furnishing Information. (a) No Holder shall have any right to obtain or seek an injunction restraining or otherwise delaying any such registration as the result of any controversy that might arise with respect to the interpretation or implementation of this Section 2. (b) It shall be a condition precedent to the obligations of the Company to take any action pursuant to Section 2.2, 2.3 or 2.4 that the selling Holders shall furnish to the Company such information regarding themselves, the Registrable Securities held by them and the intended method of disposition of such securities as shall be reasonably required to effect the registration of their Registrable Securities. (c) The Company shall have no obligation with respect to any registration requested pursuant to Section 2.2 or Section 2.4 if, due to the operation of subsection 2.2(b), the number of shares or the anticipated aggregate offering price of the Registrable Securities to be included in the registration does not equal or exceed the number of shares or the anticipated aggregate offering price required to originally trigger the Company's obligation to initiate such registration as specified in Section 2.2 or Section 2.4, whichever is applicable. 2.9 Indemnification. In the event any Registrable Securities are included in a registration statement under Sections 2.2, 2.3 or 2.4: (a) To the extent permitted by law, the Company will indemnify and hold harmless each Holder, the partners, officers and directors of each Holder, any underwriter (as defined in the Securities Act) for such Holder and each person, if any, who controls such Holder or underwriter within the meaning of the Securities Act or the Exchange Act, against any losses, claims, damages, or liabilities (joint or several) to which they may become subject under the Securities Act, the Exchange Act or other federal or state law, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any of the following statements, omissions or violations (collectively a "Violation") by the Company: (i) any untrue statement or alleged untrue statement of a material fact contained in such registration statement, including any preliminary prospectus or final prospectus contained therein or any amendments or supplements thereto, (ii) the omission or alleged omission to state therein a material fact required to be stated therein, or necessary to make the statements therein not misleading, or (iii) any violation or alleged violation by the Company of the Securities Act, the Exchange Act, any state securities law or any rule or regulation promulgated under the Securities Act, the Exchange Act or any state securities law in connection with the offering covered by such registration statement; and the Company will pay as incurred to each such Holder, partner, officer, director, underwriter or controlling person for any legal or other expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, damage, liability or action; provided however, that the indemnity agreement contained in this Section 2.9(a) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or action if such settlement is effected without the consent of the Company, which consent shall not be unreasonably withheld, nor shall the Company be liable in any such case for any such loss, claim, damage, liability or action to the extent that it arises out of or is based upon a Violation which occurs in reliance upon and in conformity with written information furnished expressly for 10. use in connection with such registration by such Holder, partner, officer, director, underwriter or controlling person of such Holder. (b) To the extent permitted by law, each Holder will, if Registrable Securities held by such Holder are included in the securities as to which such registration, qualifications or compliance is being effected, indemnify and hold harmless the Company, each of its directors, its officers and each person, if any, who controls the Company within the meaning of the Securities Act, any underwriter and any other Holder selling securities under such registration statement or any of such other Holder's partners, directors or officers or any person who controls such Holder, against any losses, claims, damages or liabilities (joint or several) to which the Company or any such director, officer, controlling person, underwriter or other such Holder, or partner, director, officer or controlling person of such other Holder may become subject under the Securities Act, the Exchange Act or other federal or state law, insofar as such losses, claims, damages or liabilities (or actions in respect thereto) arise out of or are based upon any Violation, in each case to the extent (and only to the extent) that such Violation occurs in reliance upon and in conformity with written information furnished by such Holder under an instrument duly executed by such Holder and stated to be specifically for use in connection with such registration; and each such Holder will pay as incurred any legal or other expenses reasonably incurred by the Company or any such director, officer, controlling person, underwriter or other Holder, or partner, officer, director or controlling person of such other Holder in connection with investigating or defending any such loss, claim, damage, liability or action if it is judicially determined that there was such a Violation; provided, however, that the indemnity agreement contained in this Section 2.9(b) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or action if such settlement is effected without the consent of the Holder, which consent shall not be unreasonably withheld; provided further, that in no event shall any indemnity under this Section 2.9 exceed the net proceeds from the offering received by such Holder. (c) Promptly after receipt by an indemnified party under this Section 2.9 of notice of the commencement of any action (including any governmental action), such indemnified party will, if a claim in respect thereof is to be made against any indemnifying party under this Section 2.9, deliver to the indemnifying party a written notice of the commencement thereof and the indemnifying party shall have the right to participate in, and, to the extent the indemnifying party so desires, jointly with any other indemnifying party similarly noticed, to assume the defense thereof with counsel mutually satisfactory to the parties; provided, however, that an indemnified party shall have the right to retain its own counsel, with the fees and expenses to be paid by the indemnifying party, if representation of such indemnified party by the counsel retained by the indemnifying party would be inappropriate due to actual or potential differing interests between such indemnified party and any other party represented by such counsel in such proceeding. The failure to deliver written notice to the indemnifying party within a reasonable time of the commencement of any such action, if materially prejudicial to its ability to defend such action, shall relieve such indemnifying party of any liability to the indemnified party under this Section 2.9, but the omission so to deliver written notice to the indemnifying party will not relieve it of any liability that it may have to any indemnified party otherwise than under this Section 2.9. 11. (d) If the indemnification provided for in this Section 2.9 is held by a court of competent jurisdiction to be unavailable to an indemnified party with respect to any losses, claims, damages or liabilities referred to herein, the indemnifying party, in lieu of indemnifying such indemnified party thereunder, shall to the extent permitted by applicable law contribute to the amount paid or payable by such indemnified party as a result of such loss, claim, damage or liability in such proportion as is appropriate to reflect the relative fault of the indemnifying party on the one hand and of the indemnified party on the other in connection with the Violation(s) that resulted in such loss, claim, damage or liability, as well as any other relevant equitable considerations. The relative fault of the indemnifying party and of the indemnified party shall be determined by a court of law by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission to state a material fact relates to information supplied by the indemnifying party or by the indemnified party and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission; provided, that in no event shall any contribution by a Holder hereunder exceed the proceeds from the offering received by such Holder. (e) The obligations of the Company and Holders under this Section 2.9 shall survive completion of any offering of Registrable Securities in a registration statement and the termination of this agreement. No Indemnifying Party, in the defense of any such claim or litigation, shall, except with the consent of each Indemnified Party, consent to entry of any judgment or enter into any settlement which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such Indemnified Party of a release from all liability in respect to such claim or litigation. 2.10 Assignment of Registration Rights. The rights to cause the Company to register Registrable Securities pursuant to this Section 2 may be assigned by a Holder to a transferee or assignee of Registrable Securities which (a) is a subsidiary, parent, general partner, limited partner, retired partner, member or retired member of a Holder, (b) is a Holder's family member or trust for the benefit of an individual Holder, or (c) acquires at least fifty thousand (50,000) shares of Registrable Securities (as adjusted for stock splits and combinations); provided, however, (i) the transferor shall, within ten (10) days after such transfer, furnish to the Company written notice of the name and address of such transferee or assignee and the securities with respect to which such registration rights are being assigned and (ii) such transferee shall agree to be subject to all restrictions set forth in this Agreement. 2.11 Amendment of Registration Rights. Any provision of this Section 2 may be amended and the observance thereof may be waived (either generally or in a particular instance and either retroactively or prospectively), only with the written consent of the Company and the Holders of at least sixty-six and two- thirds percent (66 2/3%) of the Registrable Securities then outstanding. Any amendment or waiver effected in accordance with this Section 2.11 shall be binding upon each Holder and the Company. By acceptance of any benefits under this Section 2, Holders of Registrable Securities hereby agree to be bound by the provisions hereunder. 2.12 Limitation on Subsequent Registration Rights. After the date of this Agreement, the Company shall not, without the prior written consent of the Holders of at least sixty-six and two-thirds percent (66 2/3%) of the Registrable Securities then outstanding, enter 12. into any agreement with any holder or prospective holder of any securities of the Company that would grant such holder registration rights senior to those granted to the Holders hereunder. 2.13 "Market Stand-Off" Agreement; Agreement to Furnish Information. Each Holder hereby agrees that such Holder shall not sell or otherwise transfer or dispose of any Common Stock (or other securities) of the Company held by such Holder (other than those included in the registration) for a period specified by the representative of the underwriters of Common Stock (or other securities) of the Company not to exceed one hundred eighty (180) days following the effective date of a registration statement of the Company filed under the Securities Act; provided that (a) the obligations described in this Section 2.13 shall apply only to the Company's Initial Offering; (b) all officers and directors of the Company and holders of at least one percent (1%) of the Company's securities enter into similar agreements; (c) such agreements shall not apply to securities purchased by the Holder in the public market or in a registered offering; and (d) any discretionary waiver or termination of the restrictions contained in such agreement (or any similar lock up provision to which the Company is a party) for the benefit of any officer, director, or holder of at least one percent (1%) of the Company's securities shall apply to all the Holders on a pro-rata basis (according to the total number of Registrable Securities owned by each Holder). Each Holder agrees to execute and deliver such other agreements as may be reasonably requested by the Company or the underwriter which are consistent with the foregoing or which are necessary to give further effect thereto. In addition, if requested by the Company or the representative of the underwriters of Common Stock (or other securities) of the Company, each Holder shall provide, within ten (10) days of such request, such information as may be reasonably required by the Company or such representative in connection with the completion of any public offering of the Company's securities pursuant to a registration statement filed under the Securities Act. The obligations described in this Section 2.13 shall not apply to a registration relating solely to employee benefit plans on Form S-1 or Form S-8 or similar forms that may be promulgated in the future, or a registration relating solely to a Commission Rule 145 transaction on Form S-4 or similar forms that may be promulgated in the future. The Company may impose stop-transfer instructions with respect to the shares of Common Stock (or other securities) subject to the foregoing restriction until the end of said one-hundred eighty (180) day period. 2.14 Rule 144 Reporting. With a view to making available to the Holders the benefits of certain rules and regulations of the SEC which may permit the sale of the Registrable Securities to the public without registration, the Company agrees to use its best efforts to: (a) Make and keep public information available, as those terms are understood and defined in SEC Rule 144 or any similar or analogous rule promulgated under the Securities Act, at all times after the effective date of the first registration filed by the Company for an offering of its securities to the general public; (b) File with the SEC, in a timely manner, all reports and other documents required of the Company under the Exchange Act; and (c) So long as a Holder owns any Registrable Securities, furnish to such Holder forthwith upon request: a written statement by the Company as to its compliance with 13. the reporting requirements of said Rule 144 of the Securities Act, and of the Exchange Act (at any time after it has become subject to such reporting requirements); a copy of the most recent annual or quarterly report of the Company; and such other reports and documents as a Holder may reasonably request in availing itself of any rule or regulation of the SEC allowing it to sell any such securities without registration. SECTION 3. Covenants Of The Company 3.1 Basic Financial Information and Reporting. (a) The Company will maintain true books and records of account in which full and correct entries will be made of all its business transactions pursuant to a system of accounting established and administered in accordance with generally accepted accounting principles consistently applied, and will set aside on its books all such proper accruals and reserves as shall be required under generally accepted accounting principles consistently applied. (b) As soon as practicable after the end of each fiscal year of the Company, and in any event within ninety (90) days thereafter, the Company will furnish each Investor owning not less than 500,000 shares of Registrable Securities (other than Founder Shares and as adjusted for stock splits and combinations) (a "Major Investor") a balance sheet of the Company, as at the end of such fiscal year, and a statement of income and a statement of cash flows of the Company, for such year, all prepared in accordance with generally accepted accounting principles consistently applied and setting forth in each case in comparative form the figures for the previous fiscal year, all in reasonable detail. Such financial statements shall be accompanied by a report and opinion thereon by independent public accountants of national standing selected by the Company's Board of Directors. (c) The Company will furnish each Major Investor, 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 forty-five (45) days thereafter, a balance sheet of the Company as of the end of each such quarterly period, and a statement of income and a statement of cash flows of the Company for such period and for the current fiscal year to date, prepared in accordance with generally accepted accounting principles, with the exception that no notes need be attached to such statements and year-end audit adjustments may not have been made. (d) The Company will furnish each Major Investor (i) at least thirty (30) days prior to the beginning of each fiscal year an annual budget and operating plans for such fiscal year (and as soon as available, any subsequent revisions thereto); and (ii) as soon as practicable after the end of each month, and in any event within twenty (20) days thereafter, a balance sheet of the Company as of the end of each such month, and a statement of income and a statement of cash flows of the Company for such month and for the current fiscal year to date, including a comparison to plan figures for such period, prepared in accordance with generally accepted accounting principles consistently applied, with the exception that no notes need be attached to such statements and year-end audit adjustments may not have been made. 3.2 Inspection Rights. Each Major Investor shall have the right to visit and inspect any of the properties of the Company or any of its subsidiaries, and to discuss the affairs, 14. finances and accounts of the Company or any of its subsidiaries with its officers, and to review such information as is reasonably requested all at such reasonable times and as often as may be reasonably requested; provided, however, that the Company shall not be obligated under this Section 3.2 with respect to a competitor of the Company or with respect to information which the Board of Directors determines in good faith is confidential and should not, therefore, be disclosed. 3.3 Confidentiality of Records. Each Investor agrees to use, and to use its best efforts to insure that its authorized representatives use, the same degree of care as such Investor uses to protect its own confidential information to keep confidential any information furnished to it which the Company identifies as being confidential or proprietary (so long as such information is not in the public domain), except that such Investor may disclose such proprietary or confidential information to any partner, subsidiary or parent of such Investor for the purpose of evaluating its investment in the Company as long as such partner, subsidiary or parent is advised of and bound by the confidentiality provisions of this Section 3.3. Each of RRD and GE further covenants that it will use all information obtained pursuant to this Agreement only for the purpose of evaluating its investment in the Company and not in connection with its business activities. 3.4 Reservation of Stock. The Company will at all times reserve and keep available, solely for issuance and delivery upon the conversion of the Preferred Stock and Class B Common Stock, all Series E-1 Stock, Class B Common Stock and Common Stock issuable from time to time upon such conversion. 3.5 Employee Proprietary Information and Inventions Agreement. The Company shall require all employees and consultants to execute and deliver a standard Employee Proprietary Information and Inventions Agreement. 3.6 Key Man Insurance. The Company will use its best efforts to maintain in full force and effect term life insurance in the amount of one million ($1,000,000) dollars on each of the lives of Ofer Ben-Shachar and David Hannebrink, naming the Company as beneficiary. 3.7 Stock Vesting. Unless otherwise approved by the Board of Directors, all stock options and other stock equivalents issued after the date of this Agreement to employees, directors, consultants, and other service providers shall be subject to vesting as follows: twenty five percent (25%) of such stock shall vest at the end of the first year following the date of such person's services commencement date with the Company and seventy five percent (75%) of such stock shall vest no more rapidly than monthly over the next three years. With respect to any shares of stock purchased by any such person, the Company's repurchase option shall provide that upon such person's termination of employment or service with the Company, with or without cause, the Company or its assignee (to the extent permissible under applicable securities laws and other laws) shall have the option to purchase at cost any unvested shares of stock held by such person. 3.8 Observer Rights. Each of MeriTech Capital Partners, Bowman Capital Management, Technology Crossover Ventures (so long as the Series C Preferred does not have a separate representative on the Company's Board of Directors), RRD and GE for so long as each 15. is a Major Investor, shall be entitled to have a representative reasonably acceptable to the Company attend all meetings of its Board of Directors in a non-voting observer capacity and, in this respect, the Company shall provide such representative copies of all notices, minutes, consents and other material that it provides to its directors at the same time that such notices, minutes, consents and other materials are provided to its directors; provided, however, that the Company reserves the right to exclude such representative from access to any material or meeting or portion thereof if the Company believes that such exclusion is reasonably necessary to preserve the attorney-client privilege, to protect highly confidential proprietary information or for other similar reasons. 3.9 Qualified Small Business Stock. In the event that the Company proposes to act or engage in a transaction that would be reasonably expected to result in the termination or impairment of the status of the Series A Stock or Series B Stock (or the Common Stock issuable upon conversion thereof) as "qualified small business stock" as set forth in Section1202(c) of the Internal Revenue Code of 1986, as amended (the "Code"), the Company shall use reasonable efforts to notify the Major Investors who are Major Investors as of the date hereof and consult in good faith to attempt to devise, if commercially practicable, a mutually agreeable and reasonable alternative transaction structure that would preserve such status. In addition, the Company shall use reasonable efforts to submit to the Major Investors and with the Internal Revenue Service any reports that may be required under Section 1202(d)(1)(C) of the Code and any related Treasury Regulations. In addition, within twenty (20) days after any Major Investor has delivered to the Company a written request therefor, the Company shall deliver to such Major Investor a written statement informing the Major Investor whether to the Company's knowledge such Major Investor's interest in the Company should constitute "qualified small business stock" as defined in Section 1202(c) of the Code. The Company's obligation to furnish a written statement pursuant to this Section 3.9 shall continue notwithstanding the fact that a class of the Company's stock may be traded on an established securities market. The Company's obligations under this Section 3.9 shall continue irrespective of the number of shares any such Major Investor may hold subsequent to the date of this Agreement. 3.10 Potential Conversion of Class B Common Stock. The Company agrees that, in the event that a holder of the Company's Class B Common Stock requests that the Company provide its written consent to the conversion of such shares into shares of Common Stock pursuant to Article IV.D.5(a)(iv) of the Company's Amended and Restated Certificate of Incorporation prior to the earlier of (i) the date one year after the date the Series E Stock was first issued or (ii) the date 180 days after a Initial Offering, the Company will not unreasonably withhold such consent, provided further, the Company agrees that ninety (90) days after an Initial Offering, the Company will consent to the conversion of twenty-five percent (25%) of the Class B Common Stock held by each holder of Class B Common Stock into the equivalent number of fully paid and nonassessable shares of Common Stock. 3.11 Termination of Covenants. All covenants, except Section 3.9 and 3.10, of the Company contained in Section 3 of this Agreement shall expire and terminate as to each Investor upon the earlier of (i) the effective date of the registration statement pertaining to the Initial Offering or (ii) upon (a) the acquisition of all or substantially all of the assets of the Company or (b) an acquisition of the Company by another corporation or entity by consolidation, merger or other reorganization in which the holders of the Company's outstanding voting stock 16. immediately prior to such transaction own immediately after such transaction, securities representing less than fifty percent (50%) of the voting power of the corporation or other entity surviving such transaction (a "Change of Control"). SECTION 4. Rights Of First Refusal 4.1 Subsequent Offerings. Each Major Investor shall have a right of first refusal to purchase its pro rata share of all Equity Securities, as defined below, that the Company may, from time to time, propose to sell and issue after the date of this Agreement, other than the Equity Securities excluded by Section 4.6 hereof. Each Major Investor's pro rata share is equal to the ratio of (a) the number of shares of the Company's Common Stock (including all shares of Common Stock issued or issuable upon conversion of the Shares) which such Major Investor is deemed to be a holder immediately prior to the issuance of such Equity Securities to (b) the total number of shares of the Company's outstanding Common Stock (including all shares of Common Stock issued or issuable upon conversion of the Shares or upon the exercise of any outstanding warrants or options) immediately prior to the issuance of the Equity Securities. The term "Equity Securities" shall mean (i) any Common Stock, Preferred Stock or other security of the Company, (ii) any security convertible, with or without consideration, into any Common Stock, Preferred Stock or other security (including any option to purchase such a convertible security), (iii) any security carrying any warrant or right to subscribe to or purchase any Common Stock, Preferred Stock or other security or (iv) any such warrant or right. 4.2 Exercise of Rights. If the Company proposes to issue any Equity Securities, it shall give each Major Investor written notice of its intention, describing the Equity Securities, the price and the terms and conditions upon which the Company proposes to issue the same. Each Major Investor shall have fifteen (15) days from the giving of such notice to agree to purchase its pro rata share of the Equity Securities for the price and upon the terms and conditions specified in the notice by giving written notice to the Company and stating therein the quantity of Equity Securities to be purchased. Notwithstanding the foregoing, the Company shall not be required to offer or sell such Equity Securities to any Major Investor who would cause the Company to be in violation of applicable federal securities laws by virtue of such offer or sale. 4.3 Issuance of Equity Securities to Other Persons. If not all of the Major Investors elect to purchase their pro rata share of the Equity Securities, then the Company shall promptly notify in writing the Major Investors who do so elect and shall offer such Major Investors the right to acquire such unsubscribed shares on a pro rata basis. The Major Investors shall have five (5) days after receipt of such notice to notify the Company of its election to purchase all or a portion thereof of the unsubscribed shares. If the Major Investors fail to exercise in full the rights of first refusal, the Company shall have ninety (90) days thereafter to sell the Equity Securities in respect of which the Major Investor's rights were not exercised, at a price and upon general terms and conditions materially no more favorable to the purchasers thereof than specified in the Company's notice to the Major Investors pursuant to Section 4.2 hereof. If the Company has not sold such Equity Securities within ninety (90) days of the notice provided pursuant to Section 4.2, the Company shall not thereafter issue or sell any Equity Securities, without first offering such securities to the Major Investors in the manner provided above. 17. 4.4 Termination and Waiver of Rights of First Refusal. The rights of first refusal established by this Section 4 shall not apply to, and shall terminate upon the earlier of (i) immediately upon the closing of a firmly underwritten public offering pursuant to an effective registration statement under the Securities Act covering the offer and sale of Common Stock for the account of the Company in which the per share price is at least $11.00 (as adjusted for stock splits, combinations, and the like) and the gross cash proceeds to the Company (before underwriting discounts, commissions and fees) are at least $20,000,000 (a "Qualifying IPO") or (ii) a Change in Control. The rights of first refusal established by this Section 4 may be amended, or any provision waived with the written consent of Major Investors with rights under this Section 4 holding at least sixty-six and two-thirds percent (66/2/3/%) of the Registrable Securities held by all such Major Investors, or as permitted by Section 5.6. 4.5 Transfer of Rights of First Refusal. Subject to Section 2.1 hereof, the rights of first refusal of each Major Investor having rights under this Section 4 may be transferred to the same parties, subject to the same restrictions as any transfer of registration rights pursuant to Section 2.10. 4.6 Excluded Securities. The rights of first refusal established by this Section 4 shall have no application to any of the following Equity Securities: (a) shares of Common Stock (and/or options, warrants or other Common Stock purchase rights issued pursuant to such options, warrants or other rights) issued or to be issued to employees, officers or directors of, or consultants or advisors to the Company or any subsidiary, pursuant to stock purchase or stock option plans or agreements or other arrangements that are approved by the Board of Directors; (b) stock issued pursuant to any rights or agreements outstanding as of the date of this Agreement, options and warrants outstanding as of the date of this Agreement; and stock issued pursuant to any such rights or agreements granted after the date of this Agreement; provided that the rights of first refusal established by this Section 4 applied with respect to the initial sale or grant by the Company of such rights or agreements; (c) any Equity Securities issued for consideration other than cash pursuant to a merger, consolidation, acquisition or similar business combination approved by the Board of Directors; (d) shares of Common Stock issued in connection with any stock split, stock dividend or recapitalization by the Company; (e) shares of Common Stock issued upon conversion of the Shares, the Series E-1 Stock or the Class B Common Stock; (f) any Equity Securities issued pursuant to any equipment leasing arrangement, or debt financing from a bank or similar financial institution approved by the Board of Directors; (g) any Equity Securities that are issued by the Company pursuant to a registration statement filed under the Securities Act in connection with a Qualifying IPO; 18. (h) shares of the Company's Common Stock or Preferred Stock issued in connection with strategic transactions involving the Company and other entities, including (i) joint ventures, manufacturing, marketing or distribution arrangements or (ii) technology transfer or development arrangements; provided that such strategic transactions and the issuance of shares therein, have been approved by the Company's Board of Directors; and (i) shares of Series E Stock (including shares of Series E-1 Stock, Class B Common Stock and Common Stock issuable upon conversion of such Series E Stock and/or Class B Common Stock) issued or issuable pursuant to the Purchase Agreement. SECTION 5. Miscellaneous 5.1 Governing Law. This Agreement shall be governed by and construed under the laws of the State of California as applied to agreements among California residents entered into and to be performed entirely within California. 5.2 Survival. The representations, warranties, covenants, and agreements made herein shall survive any investigation made by any Holder and the closing of the transactions contemplated hereby. All statements as to factual matters contained in any certificate or other instrument delivered by or on behalf of the Company pursuant hereto in connection with the transactions contemplated hereby shall be deemed to be representations and warranties by the Company hereunder solely as of the date of such certificate or instrument. 5.3 Successors and Assigns. Except as otherwise expressly provided herein, the provisions hereof shall inure to the benefit of, and be binding upon, the successors, assigns, heirs, executors, and administrators of the parties hereto and shall inure to the benefit of and be enforceable by each person who shall be a holder of Registrable Securities from time to time; provided, however, that prior to the receipt by the Company of adequate written notice of the transfer of any Registrable Securities specifying the full name and address of the transferee, the Company may deem and treat the person listed as the holder of such shares in its records as the absolute owner and holder of such shares for all purposes, including the payment of dividends or any redemption price. 5.4 Entire Agreement. This Agreement, the Exhibits and Schedules hereto, the Purchase Agreement and the other documents delivered pursuant thereto constitute the full and entire understanding and agreement between the parties with regard to the subjects hereof and no party shall be liable or bound to any other in any manner by any representations, warranties, covenants and agreements except as specifically set forth herein and therein. 5.5 Severability. In case any provision of the Agreement shall be invalid, illegal, or unenforceable, the validity, legality, and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. 5.6 Amendment and Waiver. (a) Except as otherwise expressly provided, this Agreement may be amended or modified only upon the written consent of the Company and the holders of at least sixty-six and two-thirds percent (66 2/3%) of the Registrable Securities. 19. (d) Except as otherwise expressly provided, the obligations of the Company and the rights of the Holders under this Agreement may be waived only with the written consent of the holders of at least sixty-six and two-thirds percent (66 2/3%) of the Registrable Securities. (c) Notwithstanding the foregoing, this Agreement may be amended with only the written consent of the Company to include additional purchasers of Shares as "Investors," "Holders" and parties hereto. 5.7 Delays or Omissions. It is agreed that no delay or omission to exercise any right, power, or remedy accruing to any Holder, upon any breach, default or noncompliance of the Company under this Agreement shall impair any such right, power, or remedy, nor shall it be construed to be a waiver of any such breach, default or noncompliance, or any acquiescence therein, or of any similar breach, default or noncompliance thereafter occurring. It is further agreed that any waiver, permit, consent, or approval of any kind or character on any Holder's part of any breach, default or noncompliance under the Agreement or any waiver on such Holder's part of any provisions or conditions of this Agreement must be in writing and shall be effective only to the extent specifically set forth in such writing. All remedies, either under this Agreement, by law, or otherwise afforded to Holders, shall be cumulative and not alternative. 5.8 Notices. All notices required or permitted hereunder shall be in writing and shall be deemed effectively given: (a) upon personal delivery to the party to be notified, (b) when sent by confirmed telex or facsimile if sent during normal business hours of the recipient; if not, then on the next business day, (c) five (5) days after having been sent by registered or certified mail, return receipt requested, postage prepaid, or (d) one (1) day after deposit with a nationally recognized overnight courier, specifying next day delivery, with written verification of receipt. All communications shall be sent to the party to be notified at the address as set forth on the signature pages hereof or Exhibit A hereto or at such other address as such party may designate by ten (10) days advance written notice to the other parties hereto. 5.9 Attorneys' Fees. In the event that any dispute among the parties to this Agreement should result in litigation, the prevailing party in such dispute shall be entitled to recover from the losing party all fees, costs and expenses of enforcing any right of such prevailing party under or with respect to this Agreement, including without limitation, such reasonable fees and expenses of attorneys and accountants, which shall include, without limitation, all fees, costs and expenses of appeals. 5.10 Titles and Subtitles. The titles of the sections and subsections of this Agreement are for convenience of reference only and are not to be considered in construing this Agreement. 5.11 Prior Agreement. The Prior Agreement is hereby superseded in its entirety and shall be of no further force or effect. 5.12 Aggregation of Stock. All Shares held or acquired by affiliated entities or person shall be aggregated together for the purpose of determining the availability of any rights under this Agreement. 5.13 Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be an original, but all of which together shall constitute one instrument. 20. 5.14 Waiver of Right of First Offer. By execution of this Agreement below, the holders of the Company's Series A Stock, Series B Stock, Series C Stock and Series D Stock and each of them, hereby consent to the issuance of the shares of Series E Stock to the Purchaser as contemplated by the Purchase Agreement and waive any rights to notice or to acquire shares of Series E Stock to which they may be entitled, including but not limited to, those provided in Section 4 of the Prior Agreement. 5.15 Publicity. Each of the parties hereto agrees that it will make no statement regarding the transactions contemplated hereby which is inconsistent with any press release agreed to by the parties hereto. In addition, neither the Company nor any of its subsidiaries will, without the prior written consent of the Purchaser, refer to the Purchaser or any trademark or trade name of the Purchaser or any of its affiliates in any corporate, marketing or promotional material or otherwise identify the Purchaser as an investor in or business associate of the Company or any of its subsidiaries. Notwithstanding the foregoing, each of the parties hereto may, in documents required to be filed by it with any regulatory body, make such statements with respect to the transactions contemplated hereby as each may be advised is legally necessary upon advice of its counsel, subject to prior review and comment by the other party. 5.16 Consent to Jurisdiction, Jury Waiver. Each of the parties hereto hereby irrevocably and unconditionally consents to submit to the non-exclusive jurisdiction of the courts of the State of California and of the United States of America, located in the State of California, for any action, proceeding or investigation in any court or before any governmental authority ("Litigation") arising out of or relating to this Agreement and the transactions contemplated hereby, and further agrees that service of any process, summons, notice or document by U.S. registered mail to its respective address set forth in this Agreement shall be effective service of process for any Litigation brought against it in any such court. Each of the parties hereto hereby irrevocably and unconditionally waives any objection to the laying of venue of any Litigation arising out of this Agreement or the transactions contemplated hereby in the courts of the State of California or the United States of America, located in the State of California, and hereby further irrevocably and unconditionally waives, to the fullest extent permitted by applicable law, any and all rights to trial by jury in connection with any Litigation arising out of or relating to this Agreement or the transactions contemplated hereby. [THIS SPACE INTENTIONALLY LEFT BLANK] 21. EX-10.8.1 4 AMENDMENT #1 TO PROMISSORY NOTE EXHIBIT 10.8.1 AMENDMENT NO. 1 TO PROMISSORY NOTE Whereas, David Hannebrink has previously executed that certain Promissory Note dated April 15, 1999 (the "Note") for benefit of NOOSH, Inc., a Delaware corporation (the "Company") for the principal sum of Thirteen Thousand Five Hundred Twenty Dollars ($13,520); Whereas, the principal amount outstanding under the Note is due and payable in full on April 15, 2000 (the "Due Date"); Whereas, the Company and Mr. Hannebrink now wish to amend the Note to extend the Due Date to April 15, 2001; Now, Therefore, for value received, receipt of which is hereby acknowledged, the parties mutually agree that the Note shall be amended as follows: "Principal Repayment. The outstanding principal amount hereunder shall be due and payable in full on April 15, 2001." NOOSH, Inc. David Hannebrink By: /s/ Ofer Ben Shachar By: /s/ David Hannebrink ------------------------------------- ----------------------- Name: Ofer Ben Shachar ------------------------------------- Title: President and Chief Executive Officer EX-10.17 5 PROMISSORY NOTE, DATED FEBRUARY 4, 2000 EXHIBIT 10.17 PROMISSORY NOTE $64,990.00 Palo Alto, CA February 4, 2000 For Value Received, the undersigned hereby unconditionally promises to pay to the order of NOOSH, Inc., a California corporation (the "Company"), at 3401 Hillview Avenue, Bldg. B, Palo Alto, CA, or at such other place as the holder hereof may designate in writing, in lawful money of the United States of America and in immediately available funds, the principal sum of Sixty Four Thousand Nine Hundred Ninety Dollars ($64,990.00) together with interest accrued from the date hereof on the unpaid principal at the rate of 6% per annum, or the maximum rate permissible by law (which under the laws of the State of California shall be deemed to be the laws relating to permissible rates of interest on commercial loans), whichever is less, as follows: Principal Repayment. The outstanding principal amount hereunder shall be due and payable in full on February 3, 2005. Interest Payments. Interest shall be payable annually in arrears on the Principal Repayment Date and shall be calculated on the basis of a 360- day year for the actual number of days elapsed; provided, however, that in the event that the undersigned's employment by or association with the Company or its Affiliate is terminated for any reason prior to payment in full of this Note, this Note shall be accelerated and all remaining unpaid principal and interest shall become due and payable immediately after such termination. If the undersigned fails to pay any of the principal and accrued interest when due, the Company, at its sole option, shall have the right to accelerate this Note, in which event the entire principal balance and all accrued interest shall become immediately due and payable, and immediately collectible by the Company pursuant to applicable law. This Note may be prepaid at any time without penalty. All money paid toward the satisfaction of this Note shall be applied first to the payment of interest as required hereunder and then to the retirement of the principal. The full amount of this Note is secured by a pledge of shares of Common Stock of the Company, and is subject to all of the terms and provisions of the Early Exercise Stock Purchase Agreement and Stock Pledge Agreement of even date herewith between the undersigned and the Company. 1 The undersigned hereby represents and agrees that the amounts due under this Note are not consumer debt, and are not incurred primarily for personal, family or household purposes, but are for business and commercial purposes only. The undersigned hereby waives presentment, protest and notice of protest, demand for payment, notice of dishonor and all other notices or demands in connection with the delivery, acceptance, performance, default or endorsement of this Note. The holder hereof shall be entitled to recover, and the undersigned agrees to pay when incurred, all costs and expenses of collection of this Note, including without limitation, reasonable attorneys' fees. This Note shall be governed by, and construed, enforced and interpreted in accordance with, the laws of the State of California, excluding conflict of laws principles that would cause the application of laws of any other jurisdiction. /s/ Hagi Schwartz -------------------------- Hagi Schwartz 2 EX-10.25 6 WARRANT FOR THE PURCHASE OF CLASS B COMMON STOCK EXHIBIT 10.25 THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER THE SECURITIES LAWS OF ANY STATE. THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE ACT AND THE APPLICABLE STATE SECURITIES LAWS, PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM. THE ISSUER OF THESE SECURITIES MAY REQUIRE AN OPINION OF COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER TO THE EFFECT THAT ANY PROPOSED TRANSFER OR RESALE IS IN COMPLIANCE WITH THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS. NOOSH, Inc. Warrant for the Purchase of Shares of Class B Common Stock No. W-C8 958,400 Shares FOR VALUE RECEIVED, as of April 4, 2000 (the "Effective Date"), NOOSH, Inc., a Delaware corporation (the "Company"), with its principal office at 3401 Hillview Avenue, Palo Alto, CA 94304, hereby certifies that GE Capital Equity Investments, Inc. (the "Holder") is entitled, subject to the provisions of this Warrant, to purchase from the Company, at such times and in such increments as set forth below in Section 1, during the period commencing on the applicable Milestone Date (as defined below) and ending on the Expiration Date (as defined in Section 12 below) nine hundred fifty-eight thousand four hundred (958,400) fully paid and nonassessable shares of the capital stock of the Company, subject to adjustment as hereinafter provided. Initially, this Warrant shall entitle the Holder to purchase shares of the Class B Common Stock, par value $0.001 per share, of the Company (the "Class B Common Stock"). Upon the earlier of (i) the date one year after the Effective Date and (ii) the date 180 days after an IPO (as defined in Section 13 below), the shares purchasable upon exercise of this Warrant shall change from such Class B Common Stock to Common Stock, par value $0.001 per share, of the Company (the "Common Stock"), notwithstanding the twenty-five percent (25%) of the Class B Common Stock which may converted to Common Stock ninety (90) days after an IPO under the terms of the Investor Rights Agreement (as defined in Section 7 below), and, this Warrant, to the extent then unexercised, shall thereafter be exercisable for shares of such Common Stock. The shares of Class B Common Stock or Common Stock, as the case may be, issuable upon exercise of this Warrant, as adjusted from time to time pursuant to the terms of this Warrant, are hereinafter sometimes referred to as the "Warrant Shares." The number of Warrant Shares to be received upon the exercise of this Warrant and the price to be paid per share upon such exercise are subject to adjustment from time to time as hereinafter set forth. 1. The Holder may purchase such Warrant Shares at the price per share of thirteen dollars ($13.00) (as appropriately adjusted pursuant to Section 8 hereof) on an increment by increment basis as set forth below in Section 1 (the "Exercise Price"). Section 1. Exercise of Warrant. (a) Exercise Schedule. This Warrant may only be exercised in increments according to the following schedule and provided that each increment of Warrant Shares may only be exercised in whole or in part during the period commencing upon the date of achievement of the milestone (or from the Effective Date with respect to the First Increment) relating to such increment ("Milestone Date") and ending on the Expiration Date:
------------------------------------------------------------------------------------------- Number of Warrant Shares Milestone ------------------------------------------------------------------------------------------- First Increment 432,000 Execution and delivery to the Company of the Print Buyer Agreement and the License Agreement. ------------------------------------------------------------------------------------------- Second Increment 88,200 AV * $30 million in any period of four consecutive months ending on or before the date ("Milestone End Date") of March 31, 2001. -------------------------------------------------------------------------------------------
* greater than or equal to 2. ------------------------------------------------------------------------------------------- Third Increment 175,000 (1) AV * $60 million in any period of four consecutive months ending on or before the Milestone End Date of March 31, 2001; and (2) On or before September 30, 2000, Holder's introducing and endorsing the Company and the use of the Service to at least 15 GE Retailers designated by the Company and at least 40% of the GE Printers (as identified by the parties by such date) pursuant to Sections F1 and F2, respectively, of the Print Buyer Agreement ------------------------------------------------------------------------------------------- Fourth Increment 50,000 AV * $200 million on or before the Milestone End Date of March 31, 2002 ------------------------------------------------------------------------------------------- Fifth Increment 75,000 AV * $400 million on or before the Milestone End Date of March 31, 2002 -------------------------------------------------------------------------------------------
* greater than or equal to 3. ------------------------------------------------------------------------------------------- Sixth Increment 138,200 (1) AV * $600 million on or before the Milestone End Date of March 31, 2002; and (2) On or before March 31, 2001, Holder's introducing and endorsing the Company and the use of the Service to at least 30 GE Retailers designated by Noosh and at least 80% of the GE Printers (as identified by the parties by such date) pursuant to Sections F1 and F2, respectively, of the Print Buyer Agreement. ------------------------------------------------------------------------------------------- Total Warrant Shares: 958,400 -------------------------------------------------------------------------------------------
(b) Certain Definitions. For the purposes of the table above, in Section 1(a), the following definitions should apply: (i) "Affiliate" means any person, corporation or other entity (i) which owns more than fifty percent (50%) of the voting securities or ownership interest of Holder ("Parent"); (ii) in which Holder, directly or indirectly, owns more than fifty percent (50%) of the voting securities or ownership interest; or (iii) in which Holder's Parent, directly or indirectly, owns more than fifty percent (50%) of the voting securities or ownership interest. Any such person, corporation or other entity shall only be considered an "Affiliate" as such times as it means one or more of the above criteria; provided, however, that the term "Affiliate" shall include any person, corporation or entity which GE Capital Services, Inc. and the Company may agree should be deemed an Affiliate pursuant to Section 1 of the Print Buyer Agreement. (ii) "AV" shall mean, with respect to each of the second through sixth increments set forth above in Section 1(a), the aggregate Job Value of Qualifying Jobs with Job Due Dates falling during the applicable period specified in Section 1(a) for such increment, as such amount is determined in good faith by the Company within thirty (30) days following each calendar quarter during such period. (iii) "GE Printers" shall be as defined in the Print Buyer Agreement. (iv) "GE Retailers" shall be as defined in the Print Buyer Agreement. (v) "Job Due Date" shall mean the due date for a Noosh Job as entered on the Service, and as adjusted pursuant to Section 2 of the attached Addendum A to the Print Buyer Agreement; provided, however, that to the extent that such date for a particular Qualifying * greater than or equal to 4. Job is extended beyond a Milestone End Date due to performance problems with the Service which cause an unscheduled interruption or outage of the Service, then the applicable Job Due Date shall be deemed to occur on such Milestone End Date. (vi) "Job Value" shall mean the applicable dollar value for a Noosh Job as entered on the Service. (vii) "License Agreement" shall mean that certain license agreement by and between the Company and GE Capital Services, Inc. dated as of the Effective Date. (viii) "Noosh Job" shall be as defined in the Print Buyer Agreement. (ix) "Print Buyer Agreement" shall mean that certain print buyer agreement by and between Company and GE Capital Services, Inc. dated as of the Effective Date. (x) "Qualifying Jobs" shall mean Noosh Jobs (i) for which Holder or its Affiliates act as users of the Service in the capacity of a "Buyer", as defined in the Print Buyer Agreement or (ii) for which customers of Holder or any Affiliate (while it remains an Affiliate) act as users of the Service in the capacity of a "Buyer", but only where an employee of Holder or any such Affiliate also participates as a user of the Service for the purposes of such Noosh Job and, in such capacity as a user, serves a bona fide, active role in the processing, production and/or management of the specific tasks of such Noosh Job. (xi) "Service" shall be as defined in the attached Addendum A to the Print Buyer Agreement. (c) To exercise, Holder shall surrender to the Company at its principal office at the address set forth in the initial paragraph hereof the Warrant (or at such other address as the Company may hereafter notify the Holder in writing) with the Purchase Form annexed hereto duly executed and accompanied by proper payment of the Exercise Price in lawful money of the United States of America in the form of a check, subject to collection, for the number of Warrant Shares specified in the Purchase Form. Upon receipt by the Company of this Warrant and such Purchase Form, together with proper payment of the Exercise Price, at such office, and subject to compliance with applicable law, including any waiting period applicable under Hart-Scott-Rodino regulations, the Holder shall be deemed to be the holder of record of the Warrant Shares, notwithstanding that the stock transfer books of the Company shall then be closed or that certificates representing such Warrant Shares shall not then be actually delivered to the Holder. Section 2. Right to Convert Warrant into Stock: Net Issuance. (a) Right to Convert. In addition to and without limiting the rights of the holder under the terms of this Warrant, the holder shall have the right to convert this Warrant or any portion thereof (the "Conversion Right") into Warrant Shares as provided in this Section 2 pursuant to the exercise schedule, increments, and Milestone set forth in Section 1 above. Upon exercise of the Conversion Right with respect to a particular number of shares subject to this Warrant (the "Converted Warrant Shares"), the Company shall deliver to the holder (without 5. payment by the holder of any exercise price or any cash or other consideration) (X) that number of fully paid and nonassessable Warrant Shares equal to the quotient obtained by dividing the value of this Warrant (or the specified portion hereof) on the Conversion Date (as defined in subsection (b) hereof), which value shall be determined by subtracting (A) the aggregate Exercise Price of the Converted Warrant Shares immediately prior to the exercise of the Conversion Right from (B) the aggregate fair market value of the Converted Warrant Shares issuable upon exercise of this Warrant (or the specified portion hereof) on the Conversion Date (as herein defined) by (Y) the fair market value (as herein defined) of one (1) share of Common Stock on the Conversion Date. Expressed as a formula, such conversion shall be computed as follows: X = B - A ------- Y Where: X = the number of shares of Warrant Shares to be issued to holder Y = the fair market value (FMV) of one (1) share of Common Stock A = the aggregate Exercise Price (i.e., Converted Warrant Shares x Exercise Price) B = the aggregate FMV (i.e. FMV x Converted Warrant Shares) No fractional shares shall be issuable upon exercise of the Conversion Right, and, if the number of shares to be issued determined in accordance with the foregoing formula is other than a whole number, the Company shall pay to the holder an amount in cash equal to the fair market value of the resulting fractional share on the Conversion Date (as hereinafter defined). For purposes of Section 2 of this Warrant, shares issued pursuant to the Conversion Right shall be treated as if they were issued upon the exercise of this Warrant. (b) Method of Exercise. The Conversion Right may be exercised by the holder by the surrender of this Warrant at the principal office of the Company together with a written statement specifying that the holder thereby intends to exercise the Conversion Right and indicating the number of shares subject to this Warrant which are being surrendered (referred to in subsection (a) hereof as the Conversion Warrant Shares) in exercise of the Conversion Right. Subject to compliance with applicable law, including any waiting period applicable under Hart-Scott-Rodino regulations, such conversion shall be effective upon receipt by the Company of this Warrant together with the aforesaid written statement, or on such later date as is specified therein (the "Conversion Date"), and, at the election of the holder hereof, may be made contingent upon an IPO (as defined in Section 13 below) or a Change in Control (which for the purposes of this Warrant shall mean (i) the sale of all or substantially all of the assets of the Company, or (ii) the closing date of a merger or consolidation of the Company with or into any other entity, including a reverse triangular merger involving the Company (other than a merger or consolidation in which the holders of the voting power of the Company immediately prior to such consolidation or merger hold a majority of the surviving or resulting entity immediately following such 6. consolidation or merger)). Certificates for the shares issuable upon exercise of the Conversion Right and, if applicable, a new warrant evidencing the balance of the shares remaining subject to this warrant, shall be issued as of the Conversion Date and shall be delivered to the holder as soon as possible. (c) Determination of Fair Market Value. For purposes of this Section 2, "fair market value" of a share of Common Stock as of a particular date (the "Determination Date") shall mean: (i) If the Conversion Right is exercised in connection with, and contingent upon, an IPO, and if the Company's registration statement relating to such IPO ("Registration Statement") has been declared effective by the SEC, then the initial "Price to Public" specified in the final prospectus with respect to such offering. (ii) If the Conversion Right is exercised in connection with, and contingent upon, a Change in Control, then the portion of the purchase price paid by the acquirer that such share would be entitled to in such transaction. (iii) If the Conversion Right is not exercised in connection with, and contingent upon, an IPO or a Change in Control, then as follows: (1) If traded on a securities exchange, the fair market value of each Warrant Share shall be deemed to be the closing price of the Common Stock on the Determination Date; and (2) If traded over-the-counter, the fair market value of each Warrant Share shall be deemed to be the closing bid price of the Common Stock on the Determination Date; and (3) If there is no public market for the Common Stock, then fair market value shall be determined in good faith by an independent third party experienced in the valuation of such securities or property selected in good faith by the Board of Directors or a committee thereof and reasonably acceptable to the holders of a majority of the Warrant Shares. Section 3. Reservation of Shares. The Company hereby agrees that at all times there shall be reserved for issuance and delivery upon exercise of this Warrant all shares of its Class B Common Stock or Common Stock, as applicable, or other shares of capital stock of the Company from time to time issuable upon exercise of this Warrant. All such shares shall be duly authorized and, when issued upon such exercise in accordance with the terms of this Warrant, shall be validly issued, fully paid and nonassessable. Section 4. Fractional Interest. The Company will not issue a fractional share of Class B Common Stock or Common Stock, as applicable, upon exercise of this Warrant. Instead, the Company will deliver its check for the current fair market value of the fractional share, as determined in good faith by the Board of Directors of the Company. 7. Section 5. Payment of Taxes. The Company shall pay all taxes (other than taxes based upon income) and other governmental charges with respect to the issuance and delivery of the Warrant Shares, unless such tax or charge is imposed by law upon Holder. Company shall not be required, however, to pay any transfer tax or other similar charge imposed in connection with the issuance and delivery of any certificate for shares of Class B Common Stock or Common Stock, as applicable, in any name other than that of Holder, and in such case Company shall not be required to issue or deliver any stock certificate until such tax or other charge has been paid or it has been established to the satisfaction of the Company that no such tax or other charge is due. Section 6. Assignment or Loss of Warrant. (a) The Holder of this Warrant shall not be entitled, without obtaining the consent of the Company, to assign, by operation of law or otherwise, its interest in this Warrant in whole or in part to any person or persons, except to Affiliates. (b) Upon receipt of evidence satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant, and (in the case of loss, theft or destruction) of indemnification satisfactory to the Company, and upon surrender and cancellation of this Warrant, if mutilated, the Company shall execute and deliver a new Warrant of like tenor and date. Section 7. Rights of the Holder. The Holder shall not, by virtue hereof, be entitled to any rights of a stockholder in the Company, either at law or equity, and the rights of the Holder are limited to those expressed in this Warrant and that certain Amended and Restated Investor Rights Agreement, dated April 4, (the "Investor Rights Agreement"), of which Holder is a party. Nothing contained in this Warrant shall be construed as conferring upon the Holder hereof the right to vote or to consent or to receive notice as a stockholder of the Company on any matters or with respect to any rights whatsoever as a stockholder of the Company. No dividends or interest shall be payable or accrued in respect of this Warrant or the interest represented hereby or the Warrant Shares purchasable hereunder until, and only to the extent that, this Warrant shall have been exercised in accordance with its terms. Section 8. Adjustment of Exercise Price and Number of Shares. The number and kind of securities purchasable upon the exercise of the Warrant and the Exercise Price shall be subject to adjustment from time to time upon the occurrence of certain events, as follows: (a) Reclassification of Outstanding Securities. In case of any reclassification, change or conversion of securities of the class issuable upon exercise of this Warrant (other than a change in par value, or from par value to no par value, or from no par value to par value, or as a result of a subdivision or combination), the Company shall execute a new Warrant (in form and substance reasonably satisfactory to the Holder of this Warrant) providing that the Holder of this Warrant shall have the right to exercise such new Warrant and upon such exercise to receive, in lieu of each Warrant Share theretofore issuable upon exercise of this Warrant, the kind and amount of shares of stock, other securities, money and property receivable upon such reclassification or change by a holder of one Warrant Share of the same class and series. Such 8. new Warrant shall provide for adjustments that shall be as nearly equivalent as may be practicable to the adjustments provided for in this Section 8. The provisions of this subsection (a) shall similarly apply to successive reclassification or changes. (b) Subdivisions or Combination of Shares. If the Company at any time while this Warrant remains outstanding and unexpired shall subdivide or combine its Common Stock, the Exercise Price and the number of Warrant Shares issuable upon exercise hereof shall be proportionately adjusted. (c) Merger. If at any time prior to the Expiration Date there shall be a merger or consolidation of the Company with or into another corporation when the Company is not the surviving corporation, then, as part of such merger or consolidation, lawful provision shall be made so that the Holder of the Warrant evidenced hereby shall thereafter be entitled to receive upon exercise of rights granted herein, during the period specified herein and upon payment of the Exercise Price, the number of shares of stock or other securities or property of the successor corporation resulting from such merger or consolidation, to which a holder of the stock deliverable upon exercise of the rights granted in this Warrant would have been entitled in such merger or consolidation if such rights had been exercised immediately before such merger or consolidation. In any such case, appropriate adjustment shall be made in the application of the provisions of this Warrant with respect to the rights and interests of the Holder after the merger or consolidation. (d) Adjustment of Exercise Price. (i) If the Company's outstanding shares of Series E Preferred Stock or Series E-1 Preferred Stock are converted automatically into Common Stock or Class B Common Stock upon an IPO pursuant to the terms of the Company's Restated Certificate of Incorporation, then the Exercise Price shall be adjusted as of the date of such conversion to the lesser of (i) $13.00 (as adjusted for stock splits, stock dividends, recapitalizations and the like) or (ii) the Series E Conversion Price or Series E-1 Conversion Price, as the case may be, in effect as of the date of such conversion. (ii) If at any time prior to an IPO there shall be an Asset Transfer or Acquisition, then the Exercise Price shall be adjusted immediately prior to the closing of such Asset Transfer or Acquisition to the lesser of (x) $13.00 (as adjusted for stock splits, stock dividends, recapitalizations and the like) or (y) 85% of the Acquisition Price Per Share. The terms "Acquisition Price Per Share," "Acquisition," "Asset Transfer," "Series E Conversion Price" and "Series E-1 Conversion Price" shall be as defined in the Restated Certificate as in effect as of the Effective Date. (e) Stock Dividends. If the Company at any time while this Warrant is outstanding and unexpired shall pay a dividend payable in shares of Common Stock (except any distribution specifically provided for in the foregoing subsections (a) and (b)), then the Exercise Price shall be adjusted, from and after the date of determination of stockholders entitled to receive such dividend or distribution, to that price determined by multiplying the Exercise Price in effect immediately prior to such date of determination by a fraction (a) the numerator of which 9. shall be the total number of shares of Common Stock outstanding immediately prior to such dividend or distribution, and (b) the denominator of which shall be the total number of shares of Common Stock outstanding immediately after such dividend or distribution and the number of Warrant Shares subject to this Warrant shall be proportionately adjusted. (f) Minimum Adjustment. No adjustment in the Exercise Price of this Section 8 shall be required unless such adjustment would require an increase or decrease of at least $.05 in such Exercise Price; provided, however, that any adjustments which by reason of this subsection are not required to be made, shall be carried forward and taken into account in any subsequent adjustment. All calculations under this Section 8 shall be made to the nearest cent or to the nearest share, as the case may be. (g) Notice of Record Date. In the event of any taking by the Company of a record of its stockholders for the purpose of determining stockholders who are entitled to receive payment of any dividend (other than a cash dividend) or other distribution, any right to subscribe for, purchase or otherwise acquire any share of any class or any other securities or property, or to receive any other right, or for the purpose of determining stockholders who are entitled to vote in connection with any proposed merger or consolidation of the Company with or into any other corporation, or any proposed sale, lease or conveyance of all or substantially all of the assets of the Company, or any proposed liquidation, dissolution or winding up of the Company, the Company shall mail to the Holder of this Warrant, at least twenty (20) days prior to the date specified therein, a notice specifying the date on which any such record is to be taken for the purpose of such dividend, distribution or right, and the amount and character of such dividend, distribution or right. (h) No Adjustment Upon Exercise of Warrants. No adjustments shall be made under any Section herein in connection with the issuance of Warrant Shares upon exercise of the Warrants. Section 9. Officer's Certificate. Whenever the Exercise Price shall be adjusted as required by the provisions of Section 8, the Company shall deliver an officer's certificate showing the adjusted Exercise Price determined as herein provided, setting forth in reasonable detail the facts requiring such adjustment and the manner of computing such adjustment. Each such officer's certificate shall be signed by the chairman, president or chief financial officer of the Company. Section 10. No Impairment. Without the consent of Holder, the Company shall not by any action, including, without limitation, amending its certificate of incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such actions as may be reasonably necessary or appropriate to protect the rights of Holder against impairment. Without limiting the generality of the foregoing, Company will take all such action as may be reasonably necessary or appropriate in order that the Company may validly and legally issue fully paid and nonassessable shares of Class B Common Stock or Common Stock, as applicable, upon the exercise of this Warrant in accordance with the 10. terms of the Warrant, including Section 1(c), including taking such action as is reasonably necessary for the current Exercise Price to be not less than the par value of the shares of Class B Common Stock or Common Stock, as applicable, issuable upon exercise of this Warrant. Company will take such action as is reasonably necessary to obtain all such authorizations, exemptions or consents from any governmental authority having jurisdiction thereof as may be necessary to enable Company to perform its obligations under this Warrant. Section 11. Transfer to Comply with the Securities Act of 1933. This Warrant may not be sold, assigned, pledged, hypothecated, encumbered or in any other manner transferred or disposed of, in whole or in part, except to Affiliates. The Warrant Shares, nor any interest in them, may be sold, assigned, pledged, hypothecated, encumbered or in any other manner transferred or disposed of, in whole or in part, except in compliance with applicable United States federal and state securities or Blue Sky laws and the terms and conditions hereof. The Warrant shall bear a legend in substantially the same form as the legend set forth on the first page of this Warrant. Each certificate for Warrant Shares issued upon exercise of this Warrant, unless at the time of exercise such Warrant Shares are acquired pursuant to a registration statement that has been declared effective under the Act, shall bear a legend substantially in the following form: THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER THE SECURITIES LAWS OF ANY STATE. THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE ACT AND THE APPLICABLE STATE SECURITIES LAWS, PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM. THE ISSUER OF THESE SECURITIES MAY REQUIRE AN OPINION OF COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER TO THE EFFECT THAT ANY PROPOSED TRANSFER OR RESALE IS IN COMPLIANCE WITH THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS. Any certificate for any Warrant Shares issued at any time in exchange or substitution for any certificate for any Warrant Shares bearing such legend (except a new certificate for any Warrant Shares issued after the acquisition of such Warrant Shares pursuant to a registration statement that has been declared effective under the Act) shall also bear such legend unless, in the opinion of counsel for the Company, the Warrant Shares represented thereby need no longer be subject to the restriction contained herein. The provision of this Section 11 shall be binding upon all subsequent Holders of certificates for Warrant Shares bearing the above legend and all subsequent Holders of this Warrant, if any. In addition in connection with the issuance of this Warrant, the Holder specifically represents to the Company by acceptance of this Warrant as follows: (a) The Holder is aware of the Company's business affairs and financial condition, and has acquired information about the Company sufficient to reach an informed and 11. knowledgeable decision to acquire this Warrant. The Holder is acquiring this Warrant for its own account for investment purposes only and not with a view to, or for the resale in connection with, any "distribution" thereof in violation of the Act. (b) The Holder is a "qualified institutional buyer" as defined in Rule 144A under the Act. (c) The Holder understands that this Warrant has not been registered under the Act in reliance upon a specific exemption therefrom, which exemption depends upon, among other things, the bona fide nature of the Holder's investment intent as expressed herein. (d) The Holder further understands that this Warrant must be held indefinitely unless subsequently registered under the Act and qualified under any applicable state securities laws, or unless exemptions from registration and qualification are otherwise available. Moreover, the Holder understands that the Company is under no obligation to register and qualify this Warrant. (e) The Holder is aware of the provisions of Rule 144 promulgated under the Act, which, in substance, permit 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, if applicable, including, among other things: The availability of certain public information about the Company, the resale occurring not less than one year after the party has purchased and paid for the securities to be sold (unless the securities have been acquired pursuant to the net issuance provisions of Section 2 in which case the securities may generally be sold one year from the date of this Warrant); the sale 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, as amended) and the amount of securities being sold during any three month period not exceeding the specified limitations stated therein. (f) The Holder further understands that at the time it wishes to sell this Warrant there may be no public market upon which to make such a sale, and that, even if such a public market then exists, the Company may not be satisfying the current public information requirements of Rule 144, and that, in such event, the Holder may be precluded from selling this Warrant under Rule 144 even if the one year minimum holding period had been satisfied. (g) The Holder further understands that in the event all of the requirements of Rule 144 are not satisfied, registration under the Act, compliance with Regulation A, or some other registration exemption will be required; and that, notwithstanding the fact that Rule 144 is not exclusive, the staff of the Securities and Exchange Commission (the "SEC") has expressed its opinion that persons proposing to sell private placement securities other than in a registered offering and otherwise than pursuant to Rule 144 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. 12. Section 12. Expiration Date. This Warrant shall expire and shall be wholly void and have no effect after 5:00 p.m. on April 3, 2004 (the "Expiration Date"). Section 13. Market Standoff. The holder of this Warrant, by acceptance hereof, agrees that such holder will not, without the prior written consent of the lead underwriter of the initial public offering of the Common Stock of the Company pursuant to a registration statement filed under the Act (the "IPO"), directly or indirectly offer to sell, contract to sell (including, without limitation, any short sale), grant any option for the sale of, acquire any option to dispose of, or otherwise dispose of any Warrant Shares, or securities into which such Warrant Shares are converted, for a period of 180 days following the day on which the registration statement filed on behalf of the Company in connection with the IPO shall become effective by order of the SEC; provided, however, that the foregoing market standoff shall apply only to the extent that holders of the Company's Series C Preferred Stock are subject to the same restrictions. Section 14. Governing Law. This Warrant shall be construed and enforced in accordance with, and the right of the parties shall be governed by, the laws of State of Delaware, excluding its rules governing conflicts of laws. Section 15. Modification and Waiver. Neither this Warrant nor any term hereof may be amended, waived, discharged or terminated other than by an instrument in writing signed by the Company and by the Holder hereof. Section 16. Notices. Any notice, request or other document required or permitted to be given or delivered to the Holder hereof or the Company shall be delivered or shall be sent by certified mail, postage prepaid, to each such Holder at its address as shown on the books of the Company or to the Company at the address indicated therefor in the first paragraph of this Warrant. Section 17. Descriptive Headings. The description headings of the several sections and paragraphs of this Warrant are inserted for convenience only and do not constitute a part of this Warrant. Section 18. Entire Agreement. This Warrant and the Investor Rights Agreement constitute the entire agreement between the parties pertaining to the subject matter herein and supersedes all prior and contemporaneous agreements, representation and undertakings of the parties. 13. IN WITNESS WHEREOF, the Company has duly caused this Warrant to be signed by a duly authorized officer as of the Effective Date. NOOSH, Inc. By: /s/ Ofer Ben-Shachar ---------------------- Name: Ofer Ben-Shachar Title: President and Chief Executive Officer ACCEPTED AND AGREED TO: GE CAPITAL EQUITY INVESTMENTS, INC. By: /s/ Jerome C. Marcus ---------------------- Name: Jerome C. Marcus Title: Managing Director 14. EX-10.26 7 PROMISSORY NOTE, DATED MARCH 15, 2000 EXHIBIT 10.26 PROMISSORY NOTE $237,475.00 Palo Alto, CA For Value Received, the undersigned hereby unconditionally promises to pay to the order of NOOSH, Inc., a California corporation (the "Company"), at 3401 Hillview Avenue, Building B, Palo Alto, CA, or at such other place as the holder hereof may designate in writing, in lawful money of the United States of America and in immediately available funds, the principal sum of Two Hundred Thirty Seven Thousand Four Hundred Seventy Five Dollars ($237,475.00) together with interest accrued from the date hereof on the unpaid principal at the rate of 6.8% per annum, or the maximum rate permissible by law (which under the laws of the State of California shall be deemed to be the laws relating to permissible rates of interest on commercial loans), whichever is less, as follows: Principal Repayment. The outstanding principal amount hereunder shall be due and payable in full on March 8, 2005. Interest Payments. Interest shall be payable annually in arrears on the Principal Repayment Date and shall be calculated on the basis of a 360- day year for the actual number of days elapsed; provided, however, that in the event that the undersigned's position as a director with the Company or its Affiliate is terminated for any reason prior to payment in full of this Note, this Note shall be accelerated and all remaining unpaid principal and interest shall become due and payable immediately after such termination. If the undersigned fails to pay any of the principal and accrued interest when due, the Company, at its sole option, shall have the right to accelerate this Note, in which event the entire principal balance and all accrued interest shall become immediately due and payable, and immediately collectible by the Company pursuant to applicable law. This Note may be prepaid at any time without penalty. All money paid toward the satisfaction of this Note shall be applied first to the payment of interest as required hereunder and then to the retirement of the principal. The full amount of this Note is secured by a pledge of shares of Common Stock of the Company, and is subject to all of the terms and provisions of the Early Exercise Stock Purchase Agreement and Stock Pledge Agreement of even date herewith between the undersigned and the Company. -1- The undersigned hereby represents and agrees that the amounts due under this Note are not consumer debt, and are not incurred primarily for personal, family or household purposes, but are for business and commercial purposes only. The undersigned hereby waives presentment, protest and notice of protest, demand for payment, notice of dishonor and all other notices or demands in connection with the delivery, acceptance, performance, default or endorsement of this Note. The holder hereof shall be entitled to recover, and the undersigned agrees to pay when incurred, all costs and expenses of collection of this Note, including without limitation, reasonable attorneys' fees. This Note shall be governed by, and construed, enforced and interpreted in accordance with, the laws of the State of California, excluding conflict of laws principles that would cause the application of laws of any other jurisdiction. Signed /s/ Edward E. Barr -------------------------------------- Edward E. Barr -2- EX-10.27 8 OFFICE LEASE DATED MARCH 31, 2000 EXHIBIT 10.27 OFFICE LEASE This Office Lease dated March 31, 2000 (this "Lease") is entered into by and between PAC COURT ASSOCIATES, L.P., a California limited partnership ("Landlord"), and NOOSH, INC., a California corporation ("Tenant"). ARTICLE I BASIC LEASE PROVISIONS Each reference in this Lease to the "Basic Lease Provisions" shall mean and refer to the following terms, the application of which shall be governed by the provisions in the remaining Articles of this Lease: 1. Address of Landlord: c/o Banyan Pacific, LLC 114 Pacifica, Suite 230 Irvine, California 92618-3318 2. Premises Address: 114 Pacifica, Suite 340 Irvine, California 92618-3318 3. Address of Tenant: (a) Notices: 114 Pacifica, Suite 340 Irvine, California 92618-3318 (b) Billing: 114 Pacifica, Suite 340 Irvine, California 92618-3318 4. Tenant's Trade Name: Noosh.com 5. Tenant's Contact: Sergio Soria Telephone: (___)___________________ 6. Premises Rentable Square Feet: 3,641 Square Feet Tenant's Share: 3.39% Building Rentable Square Feet: 107,296 Square Feet 7. Anticipated Commencement Date: May 22, 2000 8. Term: Five (5) years 9. Monthly Rent: Lease Month/Year: Monthly Rent Amount: 1 - 12 $ 9,648.65 13 - 24 $ 9,830.70 25 - 36 $ 10,012.75 37 - 48 $ 10,194.80 49 - 60 $ 10,376.85 10. Security Deposit: $10,376.85 11. Tenant Improvement Allowance $98,040.00 12. Broker(s): Landlord: CB Richard Ellis Tenant: Travers Realty 13. Landlord's Space Planner: H. Hendy Associates 14. Guarantor: None. 15. Project Expense Base: Actual operating expenses for calendar year 2000, projected to 95% occupancy. Exhibits: A Graphic Depiction of Premises D Commencement Date Memorandum B Project Site Plan E Rules and Regulations C Work Letter Riders: Rider No. 1 - Additional Security Letter of Credit Rider No. 2 - Lease Modifications Page 1 of 26 ARTICLE II DEFINITIONS 2.1. Certain Definitions. The capitalized terms set forth below, unless the context clearly requires otherwise, shall have the following meanings in this Lease: "Additional Rent" means any and all sums (whether or not specifically called "Additional Rent" in this Lease) other than Monthly Rent which Tenant is or becomes obligated to pay to Landlord under this Lease. See also "Rent." "Alterations" means any alterations, decorations, modifications, additions or improvements made in, on, about, under or contiguous to the Building or the Premises after the Commencement Date, including, but not limited to, lighting, HVAC and electrical fixtures, pipes and conduits, fiber-optics and other telecommunications cabling, transfer, storage and disposal facilities, partitions, drapery, wall coverings, shelves, cabinetwork, carpeting and other floor coverings, ceiling tiles, fixtures and carpentry installations. "Applicable Laws" means the laws, rules, regulations, ordinances, restrictions, and practices described in Section 5.2. "Applicable Rate" means the greater of ten percent (10%) per annum or five percent (5%) in excess of the discount rate of the Federal Reserve Bank of San Francisco in effect on the twenty-fifth (25th) day of the calendar month immediately prior to the event giving rise to the Applicable Rate imposition; provided, however, the Applicable Rate shall in no event exceed the maximum interest rate permitted to be charged by applicable law. "BOMA Standard" means the Standard Method for Measuring Floor Area in Office Buildings, ANSI Z65.1-1996. "Broker" means the person or entity identified in Item 12 of the Basic Lease Provisions. "Building" means that certain building known as Pacifica Court and within which the Premises are located. "Casualty" is defined in Section 12.1. "City" means the City of Irvine, California. "Claims" is defined in Section 11.3.1. "Commencement Date" means the commencement date of the Term, described in Section 3.2. "Common Area" means all interior and exterior areas and facilities within the Project exclusive of the Premises and other portions of the Project leased (or to be leased) exclusively to other tenants. The Common Area includes, but is not limited to lobbies, hallways, restrooms, parking areas, access and perimeter roads, sidewalks, landscaped areas and similar areas and facilities. Tenant's use of the Common Area, and its rights and obligations with respect thereto, are more particularly described in Article X. "County" means the County of Orange, California. "Event of Default" means the Tenant defaults described in Section 15.1. "HVAC" means the heating, ventilating and air conditioning system serving the Building. "Hazardous Materials" is defined in Section 6.1. "Hazardous Materials Laws" is defined in Section 6.2. "Landlord's Agents" means Landlord's authorized agents, representatives, property managers (whether as agents or independent contractors), consultants, contractors, partners, subsidiaries, affiliates, directors, officers and employees. "Landlord Parties" is defined in Section 11.1. "Landlord's Space Planner" means the interior design consultant, space planner or architect or architectural firm from time to time designated by Landlord to perform the function of Landlord's Space Planner set forth in this Lease. Landlord's Space Planner initially shall be the firm designated in Item 13 of the Basic Lease Provisions. "Lease" means this instrument together with all exhibits, amendments, addenda and riders attached hereto and made a part hereof. "Monthly Rent" means the monthly rental which Tenant is to pay to Landlord pursuant to Section 4.1, as the same may be adjusted from time to time as set forth in this Lease. See also "Rent." Page 2 of 26 "Mortgage" means any mortgage, deed of trust, or similar lien on or covering the Project or any part thereof. "Mortgagee" means any mortgagee of a mortgage, beneficiary of a deed of trust or lender having a lien on or covering the Project or any part thereof. "Notice" means each and every notice, communication, request, demand, reply or advice, or duplicate thereof, in this Lease provided or permitted to be given, made or accepted by either party to any other party, which shall be in writing and given in accordance with the provisions of Section 21.6. "Operating Expenses" is defined in Section 7.3. "Plans" means the final working drawings for the construction of the Tenant Improvements to be prepared and approved as set forth in the Work Letter. "Premises" means the premises depicted on the floor plan attached hereto as Exhibit "A". The Premises are located within and constitute a portion of the - ----------- Building at the address set forth in Item 2 of the Basic Lease Provisions. "Project" means that certain real property, and all improvements thereon, including the Building and other buildings, if any, located within the boundaries of such property, shown on the Project Site Plan. "Project Expense Base" means the allowance for Project Expenses that Landlord will credit to Tenant's Share of Project Expenses under Article VII, which allowance amount is set forth under Item 15 of the Basic Lease Provisions. "Project Expenses" means, collectively, Operating Expenses and Real Property Taxes. "Project Site Plan" means the plan attached hereto as Exhibit "B". ----------- "Real Property Taxes" is defined in Section 7.4. "Rent" means Monthly Rent and Additional Rent, collectively. "Premises Rentable Square Feet" means (a) with respect to the Premises, the usable area of the Premises determined in accordance with the Method for Measuring Floor Area in Office Buildings, ANSI Z65.1-1996, plus a pro-rata portion of the main lobby area on the ground floor and all elevator machine rooms, electrical and telephone equipment rooms and mail delivery facilities, janitor rooms and other common areas used by all tenants of the Building, if any, plus (i) for single tenancy floors, all the area covered by the elevator lobbies, corridors, special stairways, restrooms, mechanical rooms, electrical rooms, janitor rooms and telephone closets on such floors, or (ii) for multiple tenancy floors, a pro-rata portion of all of the area covered by the elevator lobbies, corridors, special stairways, restrooms, mechanical rooms, electrical rooms, janitor rooms, telephone closets and any other common areas on such floor, and (b) with respect to the Building, the total rentable area for all floors in the Building computed in accordance with the provisions of clause (a) above. In calculating the "Premises Rentable Square Feet" of the Premises or the Building, the area contained within the exterior walls of the Building stairs, fire towers, vertical ducts, elevator shafts, flues, vents, stacks and major pipe shafts will be excluded. In connection with the initial improvement of the Premises with Tenant Improvements, if Landlord believes that there is a discrepancy between the actual Premises Rentable Square Feet and the number set forth in the Basic Lease Provisions of this Lease, Landlord may require that Landlord's Space Planner physically measure the Premises prior to occupancy of the Premises by Tenant in order to verify the Premises Rentable Square Feet, which determination by Landlord's Space Planner shall be conclusive. If Landlord's Space Planner discovers a discrepancy, the Premises Rentable Square Feet shall be adjusted accordingly; provided, however, that any adjustment to the Premises Rentable Square Feet shall not result in an increase or decrease greater than two (2) percent of the Premises Rentable Square Feet stated in the Basic Lease Provisions of this Lease. Upon an adjustment, if any, to the Premises Rentable Square Feet, there shall also be an appropriate adjustment to Tenant's Share, the Monthly Rent and the Security Deposit, which adjustments shall be reflected in the Commencement Date Memorandum or other writing signed by Landlord and Tenant. "Restrictions" means, collectively, the covenants, conditions or restrictions and all other matters of record affecting the Premises, as the same may be amended from time to time. "Rules and Regulations" means the rules and regulations attached hereto as Exhibit "E" and any modifications thereto promulgated by Landlord or Landlord's - ----------- Agents from time to time. "Security Deposit" means the amount set forth in Item 10 of the Basic Lease Provisions, which shall be paid to Landlord by Tenant pursuant to Section 4.5. "Substantial Completion" and "substantially completed" means the Tenant Improvements, or repair of the Premises following a Casualty, have been fully completed except for minor details of construction, mechanical adjustments or decoration which do not materially interfere with Tenant's use and enjoyment of the Premises (items normally referred to as "punch list" items). "Tenant Delays" means (i) any and all delays in the construction of the Tenant Improvements due to the fault of the Tenant, as defined and specified in the Work Letter, and/or (ii) delays due to Tenant's failure to deliver Page 3 of 26 to Landlord prior to the Anticipated Commencement Date, executed copies of policies of insurance or certificates thereof as required under Article XI, or other deposits or information required under this Lease. "Tenant Improvements" means those certain improvements, if any, to be constructed on the Premises as provided in Section 3.6 and in the Work Letter. "Tenant's Agents" means Tenant's agents, representatives, consultants, contractors, affiliates, subsidiaries, officers, directors, employees, subtenants, guests and invitees. "Tenant Parties" is defined in Section 11.1. "Tenant's Personal Property" means Tenant's removable trade fixtures, furniture, equipment and other personal property located in or on the Premises. "Tenant's Share" is defined in Section 7.2. "Term" means the term of this Lease, as provided in Section 3.2. "Unavoidable Delay" means any delays which are beyond a party's reasonable control, including, but not limited to, delays due to inclement weather, strikes, acts of God, inability to obtain labor or materials, inability to secure governmental approvals or permits, governmental restrictions, civil commotion, fire, earthquake, explosion, flood, hurricane, the elements, or the public enemy, action or interference of governmental authorities or agents, war, invasion, insurrection, rebellion, riots, lockouts, "Y2K"-related problems or any other cause whether similar or dissimilar to the foregoing which is beyond a party's reasonable control; provided however, that in no event shall any of the foregoing ever apply with respect to the payment of any monetary obligation. "Usable Square Feet" of the Premises as used in Exhibit "C" means the ----------- usable area of the Premises as determined in accordance with the BOMA Standard. "Work Letter" means the work letter between Landlord and Tenant regarding the construction of the Tenant Improvements, if any, in the form as attached hereto as Exhibit "C". ----------- 2.2. Other Definitions. Terms defined elsewhere in this Lease, unless the context clearly requires otherwise, shall have the meaning as there given. ARTICLE III PREMISES AND TERM 3.1. Lease of Premises. Subject to and upon the terms and conditions set forth herein, Landlord hereby leases the Premises to Tenant, and Tenant hereby leases the Premises from Landlord. 3.2. Term and Commencement. Unless sooner terminated as provided herein, the Term of this Lease shall be for that period of years and months set forth in Item 8 of the Basic Lease Provisions, as the same may be extended in accordance with any option or options to extend the Term granted herein, and shall commence (the "Commencement Date"), subject to Section 3.5 below, on the earlier of (i) the date upon which the City or County has approved the Tenant Improvements in accordance with its building code, as evidenced by its written approval thereof in accordance with the building permits issued for the Tenant Improvements, (ii) the date Landlord's Space Planner has certified in writing that the Tenant Improvements are substantially completed in accordance with the Plans, or (iii) the date Tenant commences occupancy of the Premises. When the actual Commencement Date has occurred, Landlord and Tenant shall execute a Commencement Date Memorandum in the form shown in Exhibit "D". Landlord and Tenant ----------- anticipate that the Term will commence on the "Anticipated Commencement Date" set forth in Item 7 of the Basic Lease Provisions, but the Anticipated Commencement Date shall in no event affect the actual Commencement Date, which shall be determined as set forth in this Section 3.2. 3.3. Early Entry. Tenant and its authorized agents, contractors, subcontractors and employees shall be granted a license by Landlord to enter upon the Premises, at Tenant's sole risk and expense, during ordinary business hours prior to the Commencement Date, for the sole purpose of installing Tenant's trade fixtures and equipment in the Premises; provided, however, (i) the provisions of this Lease, other than with respect to the payment of Monthly Rent, shall apply during such early entry, including, but not limited to, the provisions of Article XI relating to Tenant's exculpation and indemnification of Landlord, (ii) prior to any such entry, Tenant shall pay for and provide evidence of the insurance to be provided by Tenant pursuant to the provisions of Article XI, (iii) Tenant shall pay all utility, service and maintenance charges for the Premises attributable to Tenant's early entry and use of the Premises as reasonably determined by Landlord, (iv) Tenant shall not unreasonably interfere, delay or hinder Landlord, its agents, contractors or subcontractors in the construction of the Tenant Improvements in accordance with the provisions of this Lease, (v) Tenant shall not use the Premises for the storage of inventory or otherwise commence the operation of business during the period of such early entry, and (vi) Tenant shall at all times comply with Landlord's rules and regulations regarding tenant move-in procedures. Upon Tenant's breach of any of the foregoing conditions, Landlord may, in addition to exercising any of its other rights and remedies set forth herein, revoke such license upon written notice to Tenant. Early entry by Tenant in accordance with this Section 3.3 shall not constitute occupancy of the Premises for purposes of establishing the Commencement Date. 3.4. Delay in Possession. If for any reason Landlord cannot deliver possession of the Premises to Tenant with the Tenant Improvements substantially completed on or before the Anticipated Commencement Date, Landlord shall not be subject to any liability therefor, and such failure shall not affect the validity of this Lease or Page 4 of 26 the obligations of Tenant hereunder, but in such case, Tenant shall not be obligated to pay Monthly Rent or Additional Rent other than as provided in Section 3.3 and Section 3.5 until the Commencement Date has occurred. If the Commencement Date has not occurred within sixty (60) days following the Anticipated Commencement Date plus periods attributable to Tenant Delays or Unavoidable Delay, Tenant may, at its option, by Notice to Landlord within twenty (20) days thereafter, terminate this Lease, in which event the parties shall be discharged from all further obligations hereunder; provided, however, if Tenant fails to give such notice to Landlord within such twenty-day period, Tenant shall no longer have the right to terminate this Lease under this Section 3.4. Tenant understands that, notwithstanding anything to the contrary contained herein, Landlord shall have no obligation to deliver possession of the Premises to Tenant for so long as Tenant fails to deliver to Landlord executed copies of policies of insurance or certificates thereof as required under Article XI. 3.5. Tenant Delays. The Commencement Date shall not be delayed or postponed due to Tenant Delays, and the Term, Tenant's obligations to pay Rent and all of Tenant's other obligations under this Lease shall commence upon the date which would have been the Commencement Date but for Tenant Delays. 3.6. Condition of Premises. Landlord's sole construction obligations, if any, regarding Tenant Improvements for the Premises and the obligations of Tenant with respect to the Tenant Improvements, are set forth in the Work Letter attached as Exhibit "C". It is acknowledged and agreed that all Tenant ----------- Improvements under this Lease are and shall be the property of Landlord from and after their installation. The taking of possession or use of the Premises by Tenant for any purpose other than as provided in Section 3.3 shall conclusively establish that Tenant has inspected the Premises and accepts them as being in good and sanitary order, condition and repair and that the Tenant Improvements have been constructed in accordance with the Plans; provided, however, Tenant shall have a period of thirty (30) days after taking possession of the Premises in which to notify Landlord in writing of any construction deficiencies or defects and any uncompleted punch list items (the punch list shall be limited to items required to be accomplished by Landlord under the Work Letter) and, except as hereafter provided, Landlord will repair, replace or complete at its expense all items referenced in such notice within thirty (30) days after receipt of such notice, subject to Unavoidable Delay, or as soon thereafter as Landlord, acting in good faith, can repair, replace or complete the same. If Landlord reasonably contends that a particular item in such notice is not justified, the parties will refer the issue to Landlord's Space Planner for resolution. Landlord's Space Planner's determination shall be final and binding upon the parties. Nothing in this Section 3.6 shall limit or expand Landlord's maintenance and repair obligations set forth in Article IX. Article XVIII notwithstanding, Tenant's acceptance of the Premises is with the understanding that, as other tenants lease space in the Building from time to time, certain noise, distractions and other inconveniences with respect to the Project (including the Building and the parking area) may result from the construction or renovation of tenant improvements or the moving of such other tenants into their premises. 3.7. No Representations. Tenant acknowledges that neither Landlord nor any of Landlord's Agents has 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 other than as general and administrative offices uses, including, but not limited to, any representations or warranties regarding zoning or other land use matters, or for any other purpose, and that neither Landlord nor any of Landlord's Agents has agreed to undertake any alterations or additions or construct any Tenant Improvements to the Premises except as expressly provided in this Lease. ARTICLE IV RENT AND ADJUSTMENTS 4.1. Monthly Rent. From and after the Commencement Date, Tenant shall pay to the Landlord, for each calendar month of the Term, the Monthly Rent set forth in Item 9 of the Basic Lease Provisions and in any Riders attached hereto. Monthly Rent shall be due and payable to Landlord in lawful money of the United States, in advance, on the first (1st) day of each calendar month of the Term, without abatement, deduction, claim or offset, and without prior notice, invoice or demand, at Landlord's address set forth in Item 1 of the Basic Lease Provisions or at such place as Landlord may from time to time designate. Tenant's payment of Monthly Rent for the first (1st) month of the Term shall be delivered to Landlord concurrently with Tenant's execution of this Lease. 4.2. Additional Rent. All Additional Rent shall be due and payable to Landlord in lawful money of the United States, at Landlord's address set forth in Item 1 of the Basic Lease Provisions or at such other place as Landlord may from time to time designate, without abatement, withholding, deduction, claim or offset, within ten (10) days of receipt of Landlord's invoice or statement for same, or, if this Lease provides another time for the payment of certain items of Additional Rent, then at such other time. 4.3. Prorations. If the Commencement Date is not the first (1st) day of a month, or if the expiration of the Term of this Lease is not the last day of a month, a prorated installment of Monthly Rent based on a thirty (30) day month shall be paid for the fractional month during which the Term commences or terminates. 4.4. Late Payment Charges. Tenant acknowledges that late payment by Tenant to Landlord of Rent under this Lease will cause Landlord to incur costs not contemplated by this Lease, the exact amount of which is extremely difficult or impracticable to determine. Such costs include, but are not limited to, processing and accounting charges, late charges that may be imposed on Landlord by the terms of any Mortgage, and late charges and penalties that may be imposed due to late payment of Real Property Taxes or any item of Operating Expenses. Therefore, if any installment of Monthly Rent or any payment of Additional Rent due from Tenant is not received by Landlord in good funds by the fifth (5th) calendar day from the applicable due date, Tenant shall pay to Landlord an additional sum equal to six percent (6%) of the amount overdue as a late charge for every month or portion thereof that such amount remains unpaid. The parties acknowledge 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. Acceptance of any late Rent and late charge therefor shall not prevent Landlord from exercising any of the other rights and Page 5 of 26 remedies available to Landlord for any other Event of Default under this Lease. Notwithstanding the foregoing (i) should any payment of Rent by personal check be rejected for insufficient funds, Landlord shall have the right, upon notice to Tenant, to require that all future payments by Tenant under this Lease be by cashier's check acceptable to Landlord, and (ii) upon the third (3rd) occurrence during the Term of Tenant's failure to timely pay Rent when due, Landlord may, upon notice to Tenant, require that Monthly Rent for the balance of the Term be made in quarterly installments, in advance, in certified funds, in an amount equal to the sum of the Monthly Rent amounts payable during such three (3) month period. 4.5. Security Deposit. Tenant has deposited with Landlord the sum set forth in Item 10 of the Basic Lease Provisions as a Security Deposit for the full and faithful performance of every provision of this Lease to be performed by Tenant. Landlord may apply, in its sole discretion at any time during the Term of this Lease, all or any part of the Security Deposit to the payment of all prepaid expenses by Landlord for which Tenant would be required to reimburse Landlord under this Lease, including without limitation for Tenant Improvements and Broker commissions. Such application of the Security Deposit is not and shall never be dependent upon an Event of Default. Upon an Event of Default, and whether or not Landlord is informed of or has knowledge of the Event of Default, the Security Deposit (if not already applied as hereinabove provided) shall be deemed to be automatically applied, without waiver of any rights Landlord may have under this Lease or at law or in equity as a result of an Event of Default, to the payment of any Rent not paid when due, the repair of damage to the Premises or the payment of any other amount which Landlord may spend or become obligated to spend by reason of an Event of Default, or to compensate Landlord for any other loss or damage which Landlord may suffer by reason of an Event of Default, to the full extent permitted by law. If any portion of the Security Deposit is so applied, Tenant shall, 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. Landlord shall not be required to keep the Security Deposit separate from its general funds. The unused portion of the Security Deposit, if any, shall be returned to Tenant within thirty (30) days of the expiration of this Lease or any termination of this Lease not resulting from an Event of Default, so long as Tenant has (i) vacated the Premises in the manner required by this Lease (including without limitation the proper and timely removal of Tenant's telecommunications cabling and facilities from the Premises and Building, if required by Landlord), (ii) paid all sums required to be paid under this Lease, (iii) returned all security/access cards and keys to the Premises and Building; provided, however, Landlord may retain the Security Deposit or a portion thereof until such time as the amount of any Additional Rent due from Tenant has been determined and paid in full. Tenant hereby waives the provisions of Section 1950.7(c) of the California Civil Code and any present or future laws otherwise governing the return of the Security Deposit, to Tenant to the extent of reasonably anticipated Additional Rent retained by Landlord pursuant to the previous sentence. ARTICLE V USE 5.1. Tenant's Use. Tenant shall use the Premises solely for general and administrative office uses and for no other purpose. Tenant shall not employ at the Premises more employees than normally associated with general office uses, so as not to over-burden common area facilities (including without limitation, the parking areas) or cause excessive wear-and-tear on the Premises and Building. Tenant's use of the Premises shall be subject to all of the terms and conditions of this Lease, including, but not limited to, all the provisions of this Article V. Tenant, at Tenant's sole cost and expense, shall procure, maintain and make available for Landlord's inspection throughout the Term, all governmental approvals, licenses and permits required for the proper and lawful conduct of Tenant's permitted use of the Premises. At Landlord's request, Tenant shall deliver copies of all such approvals, licenses and permits to Landlord. 5.2. Compliance With Applicable Laws. Throughout the Term, Tenant, at Tenant's sole cost and expense, shall comply with, and shall not use the Premises, Building or Common Area, or suffer or permit anything to be done in or about the same which will in any way conflict with, (i) any and all present and future laws, statutes, zoning restrictions, ordinances, orders, regulations, directions, rules and requirements of all governmental or private authorities having jurisdiction over all or any part of the Premises (including, but not limited to, state, municipal, county and federal governments and their departments, bureaus, boards and officials) pertaining to the use or occupancy of, or applicable to, the Premises or privileges appurtenant to or in connection with the enjoyment of the Premises, (ii) Hazardous Materials Laws (as defined in Section 6.2), (iii) any and all applicable federal, state and local laws, regulations or ordinances pertaining to air and water quality, waste disposal, air emissions and other environmental or health and safety matters, zoning, land use and utility availability, which impose any duty upon Landlord or Tenant directly or with respect to the use or occupation of the Project or any portion thereof, (iv) the requirements of the Board of Fire Underwriters or other similar body now or hereafter constituted relating to or affecting the condition, use or occupancy of the Project or any portion thereof, (v) any covenants, conditions, easements or restrictions, including but not limited to the Restrictions, now or hereafter affecting or encumbering the Project or any portion thereof, regardless of when they become effective, (vi) the Rules and Regulations, and (vii) good business practices (collectively, (i) through (vi) above are hereinafter referred to as "Applicable Laws"). Tenant shall not commit any waste of the Premises, Building or Project, or 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. Tenant shall not place or permit to be placed any loads upon the floors, walls or ceilings in excess of the maximum designed load specified by Landlord or which might damage the Premises or the Building, or place or permit to be placed any harmful liquids in the drainage systems, and Tenant shall not dump or store, or permit to be dumped or stored, any inventory, waste materials, refuse or other materials or allow any such materials to remain outside the Building proper, except in designated enclosed trash areas. Tenant shall not conduct or permit any auctions, sheriff's sales or other like activities at the Project or any portion thereof. [SEE RIDER] 5.3. Restrictions. Tenant agrees that this Lease is subject and subordinate to the Restrictions, as the same may now or hereafter exist, and that it will execute and deliver to Landlord within fifteen (15) days of Page 6 of 26 Landlord's request therefor, any further documentation or instruments which Landlord deems necessary or desirable to evidence or effect such subordination. Without limiting the provisions of Section 5.2, Tenant shall throughout the Term timely comply with all of the terms, provisions, conditions and restrictions of the Restrictions which pertain to, restrict or affect the Premises or Tenant's use thereof, or Tenant's use of any other area of the Project permitted hereunder, including the payment by Tenant of any periodic or special dues or assessments charged against the Premises or Tenant which may be allocated to the Premises or Tenant in accordance with the provisions of the Restrictions. Tenant shall hold Landlord, Landlord's Agents and the Premises harmless and shall indemnify, protect and defend Landlord and Landlord's Agents from and against any loss, expense, damage, attorneys' fees and costs or liability arising out of or in connection with the failure of Tenant to so perform or comply with the Restrictions. Tenant agrees that it will subordinate this Lease to any other covenants, conditions and restrictions and any reciprocal easement agreements or any similar agreements which Landlord may hereafter record against the Premises and to any amendment or modification to any of the existing Restrictions, provided that such subordination does not unreasonably interfere with Tenant's use and employment of the Premises. 5.4. Landlord's Right of Entry. Landlord and Landlord's Agents shall have the right to enter the Premises at all reasonable times upon reasonable notice to Tenant, except for emergencies in which case no notice shall be required, to inspect the Premises, to take samples and conduct environmental investigations, to post notices of non-responsibility and similar notices and signs indicating the availability of the Premises for sale and/or lease, to show the Premises to interested parties such as prospective tenants, consultants, lenders and purchasers, to make necessary Alterations or maintenance and repairs, to perform Tenant's obligations as permitted herein when Tenant has failed to do so and, at any reasonable time after one hundred eighty (180) days prior to the expiration of the Term, to place upon the Premises reasonable signs indicating the availability of the Premises for lease and to show the Premises to prospective tenants, all without being deemed to have caused an eviction of Tenant and without any liability to Tenant or abatement of Rent. The above rights are subject to reasonable security regulations of Tenant, and in exercising its rights set forth herein, Landlord shall endeavor to cause the least possible interference with Tenant's business. Landlord shall at all times have the right to retain a key which unlocks all of the doors in the Premises, and any security codes and/or passwords for any security system installed by Tenant, but excluding Tenant's vaults and safes, and Landlord and Landlord's Agents shall have the right to use any and all means which Landlord may deem proper to open the doors in an emergency to obtain entry to the Premises, and any entry to the Premises so obtained by Landlord or Landlord's Agents shall not under any circumstances be deemed to be a forcible or unlawful entry into, or a detainer of, the Premises, or an eviction of Tenant from the Premises. ARTICLE VI HAZARDOUS MATERIALS 6.1. Definition of Hazardous Materials. For purposes of this Lease, the term "Hazardous Materials" includes (i) any "hazardous materials" as defined in Section 25501(o) of the California Health and Safety Code unless Tenant establishes, to the satisfaction of Landlord, that because of the quantity, concentration, or physical or chemical characteristics, such substance or matter does not pose a present or potential hazard to human health and safety or to the environment, (ii) any other substance or matter which results in liability to any person or entity from exposure to such substance or matter under any statutory or common law theory, and (iii) any substance or matter which is in excess of relevant and appropriate levels set forth in any applicable federal, state or local law or regulation pertaining to any hazardous or toxic substance, material or waste, or for which any applicable federal, state or local agency orders or otherwise requires removal, treatment or remediation. 6.2. Definition of Hazardous Materials Laws. The term "Hazardous Materials Law(s)" shall mean any federal, state or local laws, ordinances, codes, statutes, regulations, administrative rules, policies and orders, and other authority, existing now or in the future, which classify, regulate, list or define hazardous substances, materials, wastes, contaminants, pollutants and/or the Hazardous Materials, including without limitation, the following statutes and regulations, and any other legal authority, rules, regulations, or policies relating to or implementing such statues and regulations: (a) Federal. Comprehensive Environmental Response, Compensation and Liability Act of 1980 ("CERCLA" or "Superfund"), as amended by the Superfund Amendments and Reauthorization Act of 1986 ("SARA"), 42 U.S.C. (S)9601 et seq.; Resource conservation and Recovery Act of 1976 ("RCRA"), -- ---- 42 U.S.C. (S)6901 et seq.; Clean Water Act ("CWA"), 33 U.S.C. (S)1251 et -- ---- -- seq.; Clean Air Act ("CAA"), 42 U.S.C. (S)78401 et seq.; Toxic Substances ---- -- ---- Control Act ("TCSA"), 15 U.S.C. (S)2601 et seq.; The Refuse Act of 1899, 33 -- ---- U.S.C. (S)407; Occupational Safety and Health Act ("OSHA"), 29 U.S.C. (S)651 et seq.; Hazardous Materials Transportation Act, 49 U.S.C. (S)1801 -- ---- et seq.; United States Department of Transportation Table (49 CFR 172.101 -- ---- and amendments thereto) and the Environmental Protection Agency Table (40 CFR Part 302 and amendments thereto); (b) California. Carpenter-Presley-Tanner Hazardous Substance Account Act ("California Superfund"), Cal. Health & Safety Code (S)25300 et seq.; -- ---- California Hazardous Waste Control Act, Cal. Health & Safety Code Sections 25100 et seq.; Porter-Cologne Water Quality Control Act ("Porter-Cologne -- ---- Act"), Cal. Water Code (S)13000 et seq.; Hazardous Waste Disposal Land Use -- ---- Law, Cal. Heath & Safety Code (S)25220 et seq.; Safe Drinking Water and -- ---- Toxic Enforcement Act of 1986 ("Proposition 65"), Cal. Health & Safety Code (S)25280 et seq.; California Hazardous Substance Act, Cal. Health & Safety -- ---- Code (S)28740 et seq.; Air Resources Law, Cal. Health & Safety Code -- ---- (S)39000 et seq.; Hazardous Materials Release Response Plans and Inventory, -- ---- Cal. Health & Safety Code (S)(S)25500-25541 et seq.; Toxic Pits Cleanup Act -- ---- of 1984 ("TCPA"), Cal. Health & Safety Code (S)(S)25208-25208.17 et seq.; -- ---- (c) Other Laws and Regulations. All other rules and regulations promulgated pursuant to said foregoing laws or any amendments or Page 7 of 26 replacements thereof, provided such amendments or replacements shall in no way limit the original scope and/or definition of Hazardous Materials defined herein as of the execution of this Lease. 6.3. Use of Hazardous Materials. Tenant shall not cause or permit any Hazardous Materials to be brought upon, kept, or used in the Premises or within the Project by Tenant, its agents, employees, contractors or invitees in a manner or for a purpose prohibited by or which could result in liability under any applicable law, regulation, rule or ordinance, including, without limitation, the Hazardous Materials Laws. Tenant shall, at its own expense, at all times and in all respects comply with all Hazardous Materials Laws relating to the industrial hygiene, environmental protection or the use, analysis, generation, manufacture, storage, presence, disposal or transportation of any Hazardous Materials on the Premises or brought upon, kept, or used within the Project by Tenant, its agents, employees, contractors or invitees. Tenant shall, at its own expense, procure, maintain in effect and comply with all conditions of any and all permits, licenses and other governmental and regulatory approvals relating to the presence of Hazardous Materials within, on, under or about the Premises or required for Tenant's use of the Premises. Tenant shall cause any and all Hazardous Materials to be removed from the Premises and transported in accordance with and in compliance with all Hazardous Materials Laws. Tenant shall in all respects, handle, treat, deal with, and manage any and all Hazardous Materials in conformance with Hazardous Materials Laws and prudent industry practices regarding the management of such Hazardous Materials. Upon expiration or earlier termination of this Lease, Tenant shall at its own expense, cause all Hazardous Materials (to the extent such Hazardous Materials are generated, stored, released or disposed of during the Term of this Lease by Tenant) to be removed from the Premises and transported for use, storage or disposal in accordance and in compliance with all applicable Hazardous Materials Laws. Tenant shall not take any remedial action in response to the presence of any Hazardous Materials in, on, about or under the Premises or the Project, nor enter into any settlement agreement, consent, decree or other compromise in respect to any claims relating to or in any way connected with the Premises or the Project without first notifying Landlord of Tenant's intention to do so and affording Landlord ample opportunity to take over the obligation for such remedial action and/or appear, intervene or otherwise appropriately assert and protect Landlord's interest with respect thereto. 6.4. Disclosures. Tenant shall promptly notify Landlord of, and shall promptly provide Landlord with true, correct, complete and legible copies of, all of the following environmental items relating to the Premises: reports filed pursuant to any self-reporting requirements; reports filed pursuant to any Applicable Laws or this Lease; all permit applications, permits, monitoring reports, workplace exposure and community exposure warnings or notices, and all other reports, disclosures, plans or documents (even those which may be characterized as confidential) relating to water discharges, air pollution, waste generation or disposal, underground storage tanks or Hazardous Materials; all orders, reports, notices, listings and correspondence (even those which may be considered confidential) of or concerning the release, investigation, compliance, clean up, remedial and corrective actions, and abatement of Hazardous Materials whether or not required by Applicable Laws; and all complaints, pleadings and other legal documents filed against Tenant related to Tenant's use, handling, storage or disposal of Hazardous Materials. Tenant shall also comply with all laws, ordinances and regulations regarding the disclosure of the presence or danger of Hazardous Materials. Tenant shall be solely responsible for complying with Hazardous Materials Laws regarding the disclosure of, the presence or danger of Hazardous Materials, including, without limitation, all notices or other requirements under California Health and Safety Code Section 25915 et seq.; and 25249.5 et seq. and California Code of -- ---- -- ---- Regulations Section 12000 et seq. -- ---- 6.5. Inspection; Compliance. Subject to Section 5.4, Landlord and ----------- Landlord's Agents shall have the right, but not the obligation, to inspect, investigate, sample and/or monitor the Premises, including any air, soil, water, groundwater or other sampling, and any other testing, digging, drilling or analyses, at any time to determine whether Tenant is complying with the terms of this Article VI, and in connection therewith, Tenant shall provide Landlord with full access to all relevant facilities, records and personnel. If Tenant is not in compliance with any of the provisions of this Article VI, or in the event of a release of any Hazardous Material on, under, from or about the Premises, Landlord and Landlord's Agents shall have the right, but not the obligation, without limitation on any of Landlord's other rights and remedies under this Lease, to immediately enter upon the Premises and to discharge Tenant's obligations under this Article VI at Tenant's expense, including without limitation the taking of emergency or long-term remedial action. Landlord and Landlord's Agents shall endeavor to minimize interference with Tenant's business but shall not be liable for any such interference. All sums reasonably disbursed, deposited or incurred by Landlord in connection herewith, including, but not limited to, all costs, expenses and actual attorneys fees, shall be due and payable by Tenant to Landlord, as an item of Additional Rent, on demand by Landlord, together with interest thereon at the Applicable Rate from the date of such demand until paid by Tenant. 6.6. Indemnification. To the fullest extent permitted by law, Tenant hereby agrees to indemnify, hold harmless, protect and defend (with attorneys acceptable to Landlord) Landlord and Landlord's Agents, and any successors to all or any portion of Landlord's interest in the Premises, the Building and the Project and their directors, officers, partners, employees, authorized agents, affiliates, representatives and Mortgagees, from and against any and all liabilities, losses, damages (including, but not limited to, damages for the loss or restriction on use of rentable or usable space or any amenity of the Premises, the Building and the Project or damages arising from any adverse impact on marketing of space in the Premises, the Building and the Project), diminution in the value of the Premises, the Building and the Project, judgments, fines, demands, claims, recoveries, deficiencies, costs and expenses (including, but not limited to, reasonable attorneys' fees, disbursements and court costs and all other professional or consultant's expenses), whether foreseeable or unforeseeable, arising directly or indirectly out of the presence, use, generation, storage, treatment, on or off-site disposal or transportation of Hazardous Materials on, into, from, under or about the Premises, the Building and the Project by Tenant or Tenant's Agents, and specifically including the cost of any required or necessary repair, restoration, clean-up (including, but not limited to, the costs of investigation and removal of Hazardous Materials) or detoxification of the Premises, the Building and the Project and the preparation of any closure or other required plans, whether or not such action is require or necessary during the Term or after the expiration of this Lease. Page 8 of 26 6.7. Assignment and Subletting. If (i) any anticipated use of the Premises by any proposed assignee or subtenant involves the generation, storage, use, treatment or disposal of Hazardous Materials in a manner or for a purpose prohibited by any governmental agency or authority, or (ii) the proposed assignee or subtenant has been required by any prior landlord, lender or governmental authority to take remedial action in connection with Hazardous Material contaminating a property if the contamination resulted from such party's action or use of the property in question, or (iii) the proposed assignee or subtenant is subject to an enforcement order issued by any governmental agency in connection with the use, disposal, or storage of Hazardous Materials, it shall not be unreasonable for Landlord to withhold its consent to an assignment or subletting to such proposed assignee or subtenant. ARTICLE VII OPERATING EXPENSES; TAXES; UTILITIES 7.1. Tenant to Bear Tenant's Share of Excess Project Expenses. Tenant shall pay to Landlord Tenant's Share (as defined in Section 7.2) of Project Expenses in excess of the Project Expense Base as follows: Prior to the Commencement Date and thereafter within ninety (90) days of the commencement of each calendar year during the Term, Landlord shall give Tenant a written estimate of Tenant's Share of Project Expenses in excess of the Project Expense Base for the ensuing fiscal year or partial fiscal year, as the case may be. Tenant shall pay, as an item of Additional Rent, such estimated amount in equal monthly installments, in advance, on or before the first (1st) day of each calendar month concurrent with its payment of Monthly Rent. If Landlord has not furnished its written estimate by the time set forth above, Tenant shall pay monthly installments of Project Expenses in excess of the Project Expense Base at the rate established for the prior fiscal year, if any; provided that when the new estimate is delivered to Tenant, Tenant shall at the next monthly payment date pay Landlord any accrued deficiency based on the new estimate, or Landlord shall credit any accrued overpayment based on such estimate toward Tenant's next installment payment hereunder. Within a reasonable period of time after the end of each fiscal year (in no event less than one hundred twenty (120) days after the end of each fiscal year unless sooner completed by Landlord) Landlord shall furnish Tenant a statement showing in reasonable detail Tenant's Share of the actual Project Expenses in excess of the Project Expense Base incurred for the period in question. If Tenant's estimated payments are less than Tenant's Share of actual Project Expenses in excess of the Project Expense Base as shown by the applicable statement, Tenant shall pay the difference to Landlord within thirty (30) days thereafter. If Tenant shall have overpaid Landlord, Landlord shall credit such overpayment toward Tenant's next installment payment hereunder. When the final determination is made of Tenant's Share of the actual Project Expenses in excess of the Project Expense Base for the fiscal year in which this Lease terminates, Tenant shall, even if this Lease has terminated, pay to Landlord within fifteen (15) days after notice the excess of Tenant's Share of such actual Project Expenses in excess of the Project Expense Base over the estimate of Tenant's Share of such Project Expenses paid. Conversely, any overpayment shall be rebated by Landlord to Tenant. If Landlord shall determine at any time that the estimate of Tenant's Share of Project Expenses in excess of the Project Expense Base for the current fiscal year is or will become inadequate to meet Tenant's Share of all such Project Expenses for any reason, Landlord shall immediately determine the approximate amount of such inadequacy and issue a supplemental estimate as to Tenant's Share of such Project Expenses and Tenant shall pay any increase as reflected by such supplemental estimate. Landlord shall keep or cause to be kept separate and complete books of accounting covering all Project Expenses and showing the method of calculating Tenant's Share of Project Expenses in excess of the Project Expense Base, and shall preserve for at least twelve (12) months after the close of each fiscal year all material documents evidencing said Project Expenses for that fiscal year. Tenant, at its sole cost and expense, through any certified public accountant designated by it, shall have the right, during reasonable business hours and not more frequently than once during any fiscal year, to examine and/or audit the books and documents mentioned above evidencing such costs and expenses for the previous fiscal year. Any delay or failure by Landlord in delivering any estimate or statement pursuant to this Section 7.1 shall not constitute a waiver of its right to require Tenant to pay Tenant's Share of Project Expenses in excess of the Project Expense Base pursuant hereto. 7.2. Definition of Tenant's Share. The term "Tenant's Share" means a fraction, the numerator of which is the Premises Rentable Square Feet of the Premises and the denominator of which is the Premises Rentable Square Feet of the Building. For purposes of establishing Tenant's Share as of the date of this Lease, the number of Premises Rentable Square Feet of the Premises and the number of Premises Rentable Square Feet of the Building are deemed to be as set forth in Section 6 of the Basic Lease Provisions. From time to time at Landlord's option, Landlord's Space Planner may redetermine the actual number of the Building Rentable Square Feet, which determination will be conclusive. Upon a redetermination of the Building Rentable Square Feet in accordance with the BOMA Standard, if any, there will be appropriate adjustments to (i) the Premises Rentable Square Feet, based upon the definition of Premises Rentable Square Feet set forth in Section 2.1 of this Lease, (ii) Tenant's Share, (iii) the Monthly Rent and (iv) the Security Deposit. Landlord and Tenant agree to execute an amendment to this Lease to reflect any such adjustment. 7.3. Definition of Operating Expenses. The term "Operating Expenses" means all costs and expenses paid or incurred by Landlord in connection with the management, operation, maintenance and repair of the Project as determined by generally accepted accounting practices consistently applied and shall include the following costs and expenses by way of illustration but not limitation: the cost of air conditioning, electricity, heating, mechanical, telephone, ventilating and elevator systems and all other utilities; janitorial, trash removal, trash recycling and security services; labor; salaries and benefits, if any, of on-site property management staff; landscaping, fountains and other interior and/or exterior water features; operation, maintenance, and repair of the interior common and exterior areas of the Project, including without limitation any specialty features such as the ground floor lobby aquarium, and the operation, maintenance, repair and replacement of all common area surfaces, carpets, coverings, decorations and art; supplies; materials; equipment; tools; property management costs and fees, including, without limitation, the rental value of the on-site management office as determined at Landlord's sole Page 9 of 26 discretion; the cost of any capital improvements made to the Project by Landlord which Landlord determines in its reasonable discretion reduce Operating Expenses and/or are required under any governmental law or regulation not now applicable to the Project or not in effect at the time it was constructed, such cost to be amortized over such reasonable period as Landlord shall determine and to include a return on capital at the rate of the lesser of ten percent (10%) per annum or the maximum per annum rate permitted by law on the unamortized balance; fees or other charges incurred by Landlord in connection with membership in energy conservation associations; water and sewer charges; insurance premiums for all insurance carried on the Project or in connection with the use or occupancy thereof, including, without limitation, the cost of rental interruption insurance, unemployment insurance, fidelity bonds, errors and omissions insurance and, if available at commercially reasonable rates as determined by Landlord in its sole discretion, earthquake insurance; fees, expenses and disbursements for legal, accounting and bookkeeping services; and license, permit and inspection fees. [SEE RIDER] 7.4. Definition of Real Property Taxes. The term "Real Property Taxes" means any form of tax, assessment, charge, license, fee, rent tax, levy, penalty (if a result of Tenant's delinquency), real property or other tax, now or hereafter imposed with respect to the Project or any part thereof (including any Alterations), this Lease or any Rent payable under this Lease by any authority having the direct or indirect power to tax, or by any city, county, state or federal government or any improvement district or other district or division thereof, whether such tax or any portion thereof (i) is determined by the area of the Project or any part thereof or the Rent payable under this Lease by Tenant including, but not limited to, any gross income or excise tax levied by any of the foregoing authorities with respect to receipt of the Rent due under this Lease, (ii) is levied or assessed in lieu of, in substitution for, or in addition to, existing or additional taxes with respect to the Project or any part thereof whether or not now customary or within the contemplation of Landlord or Tenant, or (iii) is based upon any legal or equitable interest of Landlord in the Project or any part thereof. Real Property taxes shall include, without limitation, the following: (i) any tax imposed upon the transaction or based upon a reassessment of the Premises due to a change in ownership or transfer of all or part of Landlord's interest in the Premises; (ii) any assessments, taxes, fees, levies or charges in addition to, or in substitution of, partially or totally, any items previously included within the definition of Property Taxes; (iii) any assessment, tax or charge for fire protection, schools, streets, street lighting, sidewalks, area-wide road and landscape maintenance, transportation management agency membership, refuse collection and/or management, sewer, water or other services provided to the Premises by any governmental or quasi-governmental agencies, boards, districts or associations; (iv) capital levy, sales or use tax, gross receipts tax or other tax on the rents received therefrom or from Landlord's business of operating the Building or revenues derived therefrom or on the parking spaces within the Building, or a franchise tax, or an assessment, levy or charge measured by or based in whole or in part upon such rents or value, now or an assessment, levy or charge measured by or based in whole or in part upon such rents or value, now or hereafter imposed, and (v) any and all costs, including without limitation the fees for experts, tax consultants and attorneys incurred by Landlord should Landlord elect to negotiate or contest such Property taxes in formal or informal proceedings before the governmental authority, it being acknowledged by Landlord and tenant that Proposition 13 was adopted by the voters of the State of California in the June, 1978 election and that assessments, taxes, fees, levies and charges may be imposed by governmental agencies for such services as fire protection, street sidewalk and road maintenance, refuse removal and for other governmental services formerly provided without charge to property owners or occupants. Property Taxes shall also include any and all costs including, without limitation, the fees of experts, tax consultants and attorneys, incurred by Landlord should Landlord elect to negotiate or contest the amount of any Property Taxes in formal or informal proceedings before the taxing governmental agency. If at any time during the Lease Term the laws concerning the methods of real prope rty taxation prevailing at the commencement of the Lease Term are changed so that a tax or excise on rents or any other tax, however described, is levied or assessed against Tenant as a substitution in whole or in part for any real property taxes, then, Property Taxes shall include but not be limited to any such assessment, tax fee, levy, or charge allocable to or measured by the area of the Premises or the rent payable hereunder, including, without limitation, any gross income tax with respect to the receipt of such rent, or upon or with respect to the possession, leasing, operating, management, maintenance, alteration, repair, use or occupancy by Tenant of the Building, or any portion thereof. Property Taxes do not, however, include Landlord's state or federal income, franchise, estate, gift or inheritance taxes. Any tax reassessment which results from construction of the Tenant Improvements pursuant to the Work Letter will be included in the Property Tax component of the Project Expense Base. 7.5. Intentionally Deleted. 7.6. Tax on Improvements. Tenant shall, at Landlord's election, be directly responsible for and shall pay the full amount of any increase in Real Property Taxes attributable to any and all Tenant Improvements and any other improvements of any kind whatsoever placed in, on or about the Premises for the benefit of, at the request of, or by Tenant, to the extent such improvements cause the value of all improvements in the Premises to exceed (i) the Tenant Improvement Allowance, if any, specified in Exhibit "C" to this Lease, or (ii) in the case ----------- where no Tenant Improvement Allowance is specified, the value of the improvements existing in the Premises as of the Commencement Date of this Lease. 7.7. Utilities and Services. Provided that no Event of Default has occurred and is continuing, Landlord agrees to furnish to the Premises during reasonable hours of generally recognized business days, subject to the conditions and in accordance with the standards set forth in the Rules and Regulations, as may be amended in writing by Landlord from time to time during the Term of this Lease and delivered to Tenant, reasonable quantities of electric current for normal lighting and fractional horsepower office machines, water for lavatory and drinking purposes, heat and air conditioning required in Landlord's judgment for the comfortable use and occupation of the Premises, janitorial service, and to the extent provided in the Building only, elevator service by non-attended automatic elevators. The cost of all such utilities and services shall be included within the definition of Project Expenses, and shall be paid by Tenant in the manner set forth in Section 7.1. Landlord shall not be liable for, and Tenant shall not be entitled to any abatement or reduction of Rent by reason of Landlord's failure to furnish any of Page 10 of 26 the foregoing when such failure is caused by accident, breakage, repairs, Unavoidable Delay or for any other causes. If Tenant requires or utilizes more water or electrical power than is considered reasonable or normal by Landlord, Landlord may at its option require Tenant to pay, as Additional Rent, the cost, as reasonably determined by Landlord, incurred by such extraordinary usage. In addition, Landlord may install separate meter(s) for the Premises, at Tenant's sole expense, and Tenant thereafter shall pay all charges of the metered service. Tenant shall cooperate with any present or future government conservation requirements and with any conservation practices established by Landlord. If there is any failure, stoppage or interruption of any services provided hereunder, Landlord shall use reasonable diligence to resume services promptly. Landlord shall at all times have free access to all mechanical installations of the Building and Premises, including but not limited to air conditioning equipment and vents, fans, ventilating and machine rooms and electrical closets. 7.8. Security Measures. Tenant hereby acknowledges that Landlord shall have no obligation whatsoever to provide guard service or other security measures for the benefit of the Premises or the Project. Tenant assumes all responsibility for the protection of Tenant, Tenant's Agents and the property of Tenant and of Tenant's Agents from acts of third parties. Nothing herein contained shall prevent Landlord, at Landlord's sole option, from providing security protection for the Project or any part thereof, in which event the cost thereof shall be included within the definition of Operating Expenses and paid by Tenant in the manner set forth in Section 7.1. ARTICLE VIII ALTERATIONS 8.1. Permitted Alterations. 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. Notwithstanding the foregoing, in no event shall any Alterations (i) affect the exterior of the Building or the outside areas (or be visible from adjoining sites), (ii) affect or penetrate any of the structural portions of the Building, including, but not limited to, the roof, (iii) require any change to the basic floor plan of the Premises, any change to the structural or mechanical components of the Premises, or any governmental approval or permit as a prerequisite to the construction thereof, (iv) interfere in any manner with the proper functioning of or Landlord's access to any mechanical, electrical, plumbing or HVAC systems, facilities or equipment located in or serving the Building, or (v) diminish the value of the Premises (collectively, "Design Problems"). All Alterations shall be constructed pursuant to plans and specifications previously provided to and, when applicable, approved in writing by Landlord, shall be installed by a licensed contractor at Tenant's sole expense in compliance with all Applicable Laws, and shall be accomplished in a good and workmanlike manner conforming in quality and design with the Premises existing as of the Commencement Date. No Hazardous Materials, including, but not limited to, asbestos or asbestos-containing materials, shall be used by Tenant or Tenant's Agents in the construction of any Alterations permitted hereunder. All Alterations made by Tenant shall be and become the property of Landlord upon the installation thereof and shall not be deemed Tenant's Personal Property; provided, however, that Landlord may, at its option, require that Tenant, upon the termination of this Lease, at Tenant's expense, remove any or all non-structural Alterations installed by or on behalf of Tenant (including without limitation, telephone, data transmission, fiber-optic and other telecommunications cabling and related facilities) and return the Premises to its condition as of the Commencement Date of this Lease, normal wear and tear excepted. Notwithstanding any other provisions of this Lease, Tenant shall be solely responsible for the maintenance, repair and replacement of any and all Alterations made by Tenant to the Premises (except to the extent part of Landlord's normal maintenance obligations with respect to the Premises). [SEE RIDER] 8.2. Trade Fixtures. Tenant shall, at its own expense, provide, install and maintain in good condition all of Tenant's Personal Property required in the conduct of its business in the Premises. 8.3. Mechanics' Liens. Tenant shall give Landlord Notice of Tenant's intention to perform any work on the Premises which might result in any claim of lien at least twenty (20) days prior to the commencement of such work to enable Landlord to post and record a notice of non-responsibility or other notice Landlord deems proper prior to the commencement of any such work. Tenant shall not permit any mechanic's, materialmen's or other liens to be filed against the property of which the Premises are a part or against Tenant's leasehold interest in the Premises. If Tenant fails to cause the release of record of any lien(s) filed against the Premises or its leasehold estate therein by payment or posting of a proper bond within ten (10) days from the date of the lien filing(s), then Landlord may, at Tenant's expense, cause such lien(s) to be released by any means Landlord deems proper, including, but not limited to, payment of or defense against the claim giving rise to the lien(s). All sums reasonably disbursed, deposited or incurred by Landlord in connection with the release of the lien(s), including, but not limited to, all costs, expenses and actual attorneys' fees, shall be due and payable by Tenant to Landlord, as an item of Additional Rent, on demand by Landlord, together with interest thereon at the Applicable Rate from the date of such demand until paid by Tenant. 8.4 Alterations by Landlord. Landlord reserves the right at any time and from time to time without the same constituting an actual or constructive eviction and without incurring any liability to Tenant therefor or otherwise affecting Tenant's obligations under this Lease, to make such changes, alterations, additions, improvements, repairs or replacements in or to the Building (including the Premises if required to do so by any Applicable Laws) and the fixtures and equipment thereof, as well as in or to the street entrances, walls, passages, and stairways thereof, or to change the name by which the Building is commonly known, as Landlord may deem necessary or desirable. Nothing contained herein shall be deemed to relieve Tenant of any duty, obligation or liability of Tenant with respect to making any repair, replacement or improvement or complying with any Applicable Laws in connection with the Premises, and nothing contained herein shall be deemed or construed to impose upon Landlord any obligation, responsibility or liability whatsoever for the care, supervision or repair of the Building or any part thereof other than as otherwise especially provided in this Lease. Page 11 of 26 ARTICLE IX MAINTENANCE AND REPAIR 9.1. Landlord's Maintenance and Repair Obligations. Landlord shall, subject to receiving Tenant's Share of Operating Expenses in excess of the Project Expense Base, and subject to Section 9.2, Article XII and Article XIII, maintain in good condition and repair the roof structure and membrane (including any skylights, and including as needed any replacement thereof), exterior walls, exterior entrances and foundation of the Building, provide normal maintenance services for the HVAC serving the Building through maintenance contracts or otherwise, and paint the exterior of the Building and clean the exterior windows of the Building as and when such painting or window cleaning, as the case may be, becomes necessary in Landlord's sole discretion. Landlord shall also provide maintenance and repair services to the automatic and manual fire extinguisher equipment, such as sprinkler systems and alarms, electrical, plumbing, manual fire extinguishers and mechanical systems serving the Premises and the interior portions of the Common Area. Landlord shall not be required to make any unscheduled or unanticipated repairs to the roof, exterior walls, exterior entrances, foundation or any systems within the Premises unless and until Tenant has notified Landlord in writing of the need for such repair and Landlord shall have a reasonable period of time thereafter to commence and complete said repair, if warranted. The cost of any maintenance and repairs on the part of Landlord provided for in this Section 9.1 shall be considered part of Operating Expenses, except that repairs which Landlord deems arise out of any act or omission of Tenant or Tenant's Agents shall be made at the expense of Tenant. Landlord's obligation to so repair and maintain the Premises shall be limited to the cost of effecting such repair and maintenance and in no event shall Landlord be liable for any costs or expenses in excess of said amounts, including, but not limited to, any consequential damages, opportunity costs or lost profits incurred or suffered by Tenant. 9.2. Tenant's Maintenance and Repair Obligations. Subject to Section 9.1, Tenant shall at all times during the Term of this Lease, at Tenant's sole cost and expense, clean, keep, maintain, repair and make necessary improvements to, the Premises and every portion thereof and all improvements therein or thereto, in good and sanitary order and condition to the reasonable satisfaction of Landlord and in compliance with all Applicable Laws, usual wear and tear excepted. Any damage or deterioration of the Premises shall not be deemed usual wear and tear if the same could have been prevented by good maintenance practices by Tenant. Tenant's repair and maintenance obligations herein shall include, but are not limited to, all necessary maintenance and repairs to all portions of the Premises, and all interior glass, windows, window casements, show window moldings, partitions, doors, doorjambs, door closures, hardware, fixtures, electrical lighting and outlets, lighting switches, plumbing fixtures, sewage facilities, interior walls, floors, ceilings, fans and exhaust equipment. Landlord may impose reasonable restrictions and requirements with respect to repairs by Tenant, which repairs shall be at least equal in quality to the original work, and the provisions of Section 8.3 shall apply to all such repairs. Tenant's obligation to repair includes the obligation to replace, as necessary, regardless of whether the benefit of such replacement extends beyond the Term. Notwithstanding the foregoing, Landlord shall have the right, upon notice to Tenant, to undertake the responsibility for maintenance and repair obligations of Tenant hereunder which Landlord deems appropriate to undertake that affect the Building as a whole, in which event the cost thereof shall be included as part of Operating Expenses and paid by Tenant in the manner set forth in Section 7.1. Tenant shall not permit or authorize any person to go onto the roof of the Building without the prior written consent of Landlord. 9.3. Waiver. Tenant hereby waives all rights provided for by the provisions of Sections 1941 and 1942 of the California Civil Code and any present or future laws regarding Tenant's right to make repairs at the expense of Landlord or to terminate this Lease because of the condition of the Premises. 9.4. Self-Help. If Tenant refuses or fails to repair and maintain the Premises as required hereunder within ten (10) days from the date on which Landlord makes a written demand on Tenant to effect such repair and maintenance, Landlord may enter upon the Premises and make such repairs or perform such maintenance without liability to Tenant for any loss or damage that may accrue to Tenant or its merchandise, fixtures or other property or to Tenant's business by reason thereof. All sums reasonably disbursed, deposited or incurred by Landlord in connection with such repairs or maintenance, plus ten percent (10%) for overhead, shall be due and payable by Tenant to Landlord, as an item of Additional Rent, on demand by Landlord, together with interest at the Applicable Rate on such aggregate amount from the date of such demand until paid by Tenant. ARTICLE X COMMON AREA AND PARKING 10.1. Grant of Nonexclusive Common Area License and Right. Landlord hereby grants to Tenant and its permitted subtenants, in common with Landlord and all persons, firms and corporations conducting business in the Project and their respective customers, guests, licensees, invitees, subtenants, employees and agents, a nonexclusive license and right to use the interior and exterior portions of the Common Area within the Project for pedestrian and vehicular ingress, egress and travel, parking and for such other purposes and for doing such other things as may be provided for, authorized and/or permitted by the Restrictions, such nonexclusive license and right to be appurtenant to Tenant's leasehold estate created by this Lease. The nonexclusive license and rights granted pursuant to the provisions of this Article X shall be subject to the provisions of the Restrictions, which pertain in any way to the Common Area covered by such Restrictions, and the provisions of this Lease. 10.2. Use of Common Area. Notwithstanding anything to the contrary herein, Tenant and its successors, assigns, employees, agents and invitees shall use the Common Area only for the purposes permitted hereby and by the Restrictions and the Rules and Regulations. All uses permitted within the Common Area shall be undertaken with reason and judgment so as not to interfere with the primary uses of the Common Area. In no event shall Tenant obstruct the interior portions of the Common Area or erect, install, or place, or cause to be erected, installed, or placed any structure, building, trailer, fence, wall, signs or other obstructions on the exterior portions of Page 12 of 26 the Common Area. Tenant shall not store or sell any merchandise, equipment or materials within the interior or exterior portions of the Common Area. 10.3. Control of Common Area. Subject to provisions of the Restrictions, all Common Area and all improvements located from time to time within the Common Area shall at all times be subject to the exclusive control and management of the Landlord. Landlord shall have the right to construct, maintain and operate lighting facilities within the exterior portions of the Project; to police the interior and exterior portions of the Common Area from time to time; to change the area, location and arrangement of the parking areas and other improvements within the Common Area; to restrict parking by tenants, their officers, agents and employees to employee parking areas; to enforce parking charges (by operation of meters or otherwise); to close all or any portion of the exterior portions of the Common Area or improvements therein to such extent as may, in the opinion of counsel for Landlord, be legally sufficient to prevent a dedication thereof or the accrual of any rights to any person or to the public therein; to close temporarily all or any portion of the Common Area and/or the improvements thereon; to discourage unauthorized parking; and to do and perform such other acts in and to said Common Area and improvements thereon as, in the use of good business judgment, Landlord shall determine to be advisable. 10.4. Maintenance of Common Area. Subject to the provisions of the Restrictions, Landlord shall operate and maintain (or cause to be operated and maintained) the Common Area in good condition, in such manner as Landlord in its sole discretion shall determine from time to time. Without limiting the scope of such discretion, Landlord shall have the full right and authority to employ or cause to be employed all personnel and to make or cause to be made all rules and regulations pertaining to or necessary for the proper operation and maintenance of the Common Area and the improvements located thereon. The cost of such maintenance of the Common Area shall be included as part of Operating Expenses. No part of the Common Area may be used for the storage of any items, including without limitation, vehicles, materials, inventory and equipment. All trash and other refuse shall be placed in designated receptacles. No work of any kind, including, but not limited to, painting, drying, cleaning, repairing, manufacturing, assembling, cutting, merchandising or displaying shall be permitted within any portion of the Common Area. 10.5. Revocation of License. All Common Area and improvements located thereon which Tenant is permitted to use and occupy pursuant to the provisions of this Lease are to be used and occupied under a revocable license and right, and if any such license be revoked, or if the amount of such areas be diminished, Landlord shall not be subject to any liability nor shall Tenant be entitled to compensation or diminution or abatement of Rent, and such revocation or diminution of such areas shall not be deemed constructive or actual eviction. It is understood and agreed that the condemnation or other taking or appropriation by any public or quasi-public authority, or sale in lieu of condemnation, of all or any portion of the Common Area shall not constitute a violation of Landlord's agreements hereunder, and Tenant shall not be entitled to participate in or make any claim for any award or other condemnation proceeds arising from any such taking or appropriation of the Common Area. Notwithstanding the foregoing, so long as no Event of Default has occurred and is continuing, Landlord shall provide to Tenant the number of vehicle parking spaces allocated to Tenant under this Lease (subject to the rights of Landlord under this Article X). 10.6. Landlord's Reserved Rights. Landlord reserves the right to install, use, maintain, repair, relocate and replace pipes, ducts, conduits, wires and appurtenant meters and equipment included in the Premises or outside the Premises, change the boundary lines of the Project and install, use, maintain, repair, alter or relocate, expand and replace any Common Area; provided, however, Landlord shall not unreasonably interfere with Tenant's use of the Premises. Such rights of Landlord shall include, but are not limited to, designating from time to time certain portions of the Common Area as exclusively for the benefit of certain tenants in the Project. 10.7. Parking. Tenant shall be entitled to use, on a non-exclusive basis, a reasonable number of parking spaces consistent with the permitted uses of the Premises, which spaces shall be unreserved and unassigned, within those portions of the exterior Common Area designated by Landlord for parking. Tenant shall not overly-burden the parking area. All parking of vehicles shall be in strict accordance with the Rules and Regulations attached hereto as Exhibit "E" ----------- and incorporated herein by reference, and any modifications or supplements thereto. Landlord reserves the right to institute a paid parking program for building guests and invitees, and a reserved parking system for Tenants of the Project; in no event, however, shall Tenant or Tenant's regular employees employed at the Premises be charged for unreserved parking. 10.8. Satellite Dish. If Landlord permits Tenant to install a satellite dish within the Project (which Landlord has the right to condition upon the payment of additional rent, in an amount to be specified by Landlord), such installation shall be installed in a manner and location acceptable to Landlord in its sole discretion. Tenant shall indemnify, protect, defend and hold Landlord and Landlord's Indemnitees harmless from any and all damages, liabilities, costs and expenses (including without limitation attorneys' fees and costs of defense), arising from or attributable to any damages to the roof or other structures or improvements within the Project resulting from any permitted installation of the antennae and/or related facilities by Tenant or any impairment of any roof warranties of Landlord. The location and installation of the satellite dish antennae shall also be subject to all governmental regulations, to the approval of the appropriate governing agencies, and to the Restrictions. Tenant shall not be permitted to enter upon the roof or any restricted area of the Project to maintain, service, repair, replace or remove any satellite dish equipment without the prior written consent of Landlord. The failure of any satellite dish to function or operate as desired by Tenant, for any reason, shall not constitute interference by Landlord of Tenant's enjoyment of the Premises or constitute a breach of this Lease by Landlord. ARTICLE XI EXCULPATION, INDEMNIFICATION AND INSURANCE 11.1. Indemnification. To the fullest extent permitted by law, Tenant hereby agrees to defend (with Page 13 of 26 attorneys acceptable to Landlord), indemnify, protect and hold harmless Landlord and Landlord's Agents and any successors to all or any portion of Landlord's interest in the Premises and their directors, officers, partners, employees, authorized agents, representatives, affiliates and Mortgagees, from and against any and all damage, loss, claim, liability and expense including, but not limited to, actual attorneys' fees and legal costs, incurred directly or indirectly by reason of any claim, suit or judgment brought by or on behalf of (i) any person or persons for damage, loss or expense due to, but not limited to, bodily injury or property damage sustained by such person or persons which arise out of, are occasioned by, or are in any way attributable to the use or occupancy of the Premises or the acts or omissions of the Tenant or Tenant's Agents in or about the Premises or the Project (including but not limited to any Event of Default hereunder), or (ii) Tenant or Tenant's Agents for damage, loss or expense due to, but not limited to, bodily injury or property damage which arise out of, are occasioned by, or are in any way attributable to the use of any of the Common Area, except to the extent caused by the sole active negligence or willful misconduct of Landlord. 11.2. Landlord's Property Insurance. Landlord shall obtain and keep in force during the Term of this Lease a policy or policies of insurance, with deductibles at the sole discretion of Landlord, covering loss or damage to the Premises and the Building, the Tenant Improvements and objects owned by Landlord and normally covered under a "Boiler and Machinery" policy (as such term is used in the insurance industry) at least in the amount of the full replacement cost thereof, and in no event less than the total amount required by Mortgagees, against all perils included within the classification of fire, extended coverage, vandalism, malicious mischief, special extended perils ("all risk" or "special causes of action," as such terms are used in the insurance industry, including, at Landlord's option, collapse, earthquake and flood) and other perils as required by the Mortgagees or deemed necessary by Landlord. A stipulated value or agreed amount endorsement deleting any co-insurance provision of said policy or policies shall be procured with said insurance. The cost of such insurance policies shall be included in the definition of Operating Expenses, and shall be paid by Tenant in the manner set forth in Section 7.1. Such insurance policies shall provide for payment of loss thereunder to Landlord or, at Landlord's election, to the Mortgagees. If the Premises are part of a larger building, or if the Premises are part of a group of buildings owned by Landlord which are adjacent to the Premises, then Tenant shall pay for any increase in the property insurance of the Building or such other building or buildings within the Project if such increase is caused by Tenant's acts, omissions, use or occupancy of the Premises. Tenant shall obtain and keep in force during the Term, at its sole cost and expense, (i) an "all risk" or "special causes of action" property policy in the amount of the full replacement cost covering Tenant's Personal Property and any Alterations made by or at the request of Tenant, with Landlord insured as its interest may appear, and (ii) an "all risk" or "special causes of action" policy of business interruption and/or loss of income insurance covering a period of two (2) years, plus such additional period of time, if any, as will permit Tenant to be in a position to have the same revenues as were in effect the day before a loss giving rise to a claim under such insurance occurs, with loss payable to Landlord to the extent of Monthly Rent and Additional Rent only. 11.3 Tenant's Insurance. Tenant shall maintain in full force and effect at all times during the Term (plus such earlier and later periods as Tenant may be in occupancy of the Premises), at its sole cost and expense, for the protection of Tenant, Landlord and Landlord's Agents and Mortgagees, policies of insurance issued by a carrier or carriers acceptable to Landlord and the Mortgagees which afford the following coverages: (i) statutory workers' compensation, (ii) employer's liability with minimum limits of Five Hundred Thousand Dollars ($500,000.00), (iii) comprehensive/commercial general liability insurance including, but not limited to, blanket contractual liability (including the indemnity set forth in Section 11.1), fire and water legal liability (having a minimum coverage of $50,000.00), broad form property damage, personal injury, completed operations, products liability, independent contractors, warehouser's legal liability and, if alcoholic beverages are served, manufactured, distributed or sold in the Premises, comprehensive liquor liability, and owned, non-owned and hired vehicles, on an occurrence basis and not less than $2,000,000.00, combined single limit (or current limit carried, whichever is greater), naming Landlord, Landlord's Agents and the Mortgagees as additional insureds, and including a cross-liability or severability of interests indorsement, (iv) insurance against fire, vandalism, malicious mischief and fixtures, furnishings, equipment and items of personal property in the Premises owned or leased by Tenant, in an amount equal to not less than ninety percent (90%) of their actual replacement cost (and with a replacement cost endorsement), income/business interruption/extra expense coverage in an amount of not less than nine (9) months of loss of income from Tenant's business in the Premises, and (v) such other insurance in such form and amounts as may be required by the Mortgagees or reasonably required by Landlord from time to time. Landlord or Landlord's Agents on behalf of Landlord may, at Landlord's election, obtain liability insurance in such amounts and on such terms as Landlord shall determine, and the cost thereof shall be included in Operating Expenses and paid by Tenant in the manner described in Section 7.1. In no event shall the limits of any policy obtained by Tenant with respect to the Premises or required to be obtained by Tenant under this Lease be considered as limiting the liability of Tenant under this Lease. 11.4. Deductibles. Any policy of insurance required pursuant to this Lease containing a deductible exceeding Five Thousand Dollars ($5,000.00) per occurrence must be approved in writing by Landlord prior to the issuance of such policy. Tenant shall be solely responsible for the payment of any deductible. 11.5 Blanket Coverage. Any insurance required of Tenant pursuant to this Lease may be provided by means of a so-called "blanket policy", so long as (i) the Premises are specifically covered (by rider, endorsement or otherwise), (ii) the limits of the policy are applicable on a "per location" basis to the Premises and provide for restoration of the aggregate limits, and (iii) the policy otherwise complies with the provisions of this Lease. 11.6. 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 the Mortgagees may reasonably require. 11.7. Sufficiency of Coverage. Neither Landlord nor any of Landlord's Agents makes any representation that the types of insurance and limits specified to be carried by Tenant under this Lease are adequate Page 14 of 26 to protect Tenant. If Tenant believes that any such insurance coverage is insufficient, Tenant shall provide, at its own expense, such additional insurance as Tenant deems adequate. Nothing contained herein shall limit Tenant's liability under this Lease, and Tenant's liability under any provision of this Lease, including without limitation under any indemnity provisions, shall not be limited to the amount of any insurance obtained. 11.8. Insurance Requirements. Tenant's insurance (i) shall be in a form satisfactory to Landlord and the Mortgagees and shall be carried with companies that have a general policyholder's rating of not less than "A" and a Financial Class Size of "VIII" or higher according to the current version of A.M. Best's Key Rating Guide or as otherwise approved in writing by Landlord, in its sole discretion, as financially sound on a current basis, (ii) 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, and (iii) shall be primary, and any insurance carried by Landlord or Landlord's Agents shall be non-contributing. Tenant's policy or policies, or duly executed certificates for them in the form and content reasonably satisfactory to Landlord, shall be deposited with Landlord prior to the Commencement Date, and thereafter during the Term not later than thirty (30) days prior to expiration/renewal date of such policies. If Tenant fails to procure and maintain the insurance required to be procured by Tenant under this Lease, such failure shall constitute an "Event of Default" by Tenant under Section 15.1 of the Lease, and Landlord may, but shall not be required to, without waiver of such default, order such insurance at Tenant's expense. All sums reasonably disbursed, deposited or incurred by Landlord in connection therewith, including, but not limited to, all costs, expenses and actual attorneys' fees, shall be due and payable by Tenant to Landlord, as an item of Additional Rent, on demand by Landlord, together with interest thereon at the Applicable Rate from the date of such demand until paid by Tenant. 11.9. Impound Funds. If requested by any Mortgagees to whom Landlord has granted a security interest in the Premises, or if any Event of Default occurs under this Lease, Tenant shall, at Landlord's election, pay Landlord, concurrently with each payment of Monthly Rent, a sum equal to one-twelfth (1/12) of the annual insurance premiums payable by Tenant for all insurance which Tenant is required to obtain pursuant to this Article XI. Such sums (the "Impound Funds") shall be held by Landlord and applied to the payment of such insurance premiums when due; provided, however, Landlord shall not be required to keep the Impound Funds separate from other funds, Tenant shall not be entitled to interest on the Impound Funds and no trust relationship shall be created with respect to the Impound Funds. The amount of the Impound Funds when unknown shall be reasonably estimated by Landlord. If the Impound Funds paid to Landlord by Tenant under this Section 11.9 are insufficient to discharge the obligations of Tenant to pay such insurance premiums as the same become due, Tenant shall pay to Landlord, within ten (10) days after Landlord's written request therefor, such additional sums necessary to pay such obligations. If an Event of Default has occurred, any balance remaining from the Impound Funds may, at the option of Landlord, be applied to any obligation then due under this Lease in lieu of being applied to the payment of insurance premiums. The unused portion of the Impound Funds, if any, shall be returned to Tenant within thirty (30) days of the expiration of this Lease or any termination of this Lease not resulting from an Event of Default, provided that Tenant has vacated the Premises in the manner required by this Lease. 11.10. Landlord's Disclaimer. Notwithstanding any other provisions of this Lease, and to the fullest extent permitted by law, Landlord and Landlord's Agents shall not be liable for any loss or damage to persons or property resulting from theft, vandalism, fire, explosion, falling materials, glass, tile or sheet rock, steam, gas, electricity, water or rain which may leak from any part of the Premises, or from the pipes, appliances or plumbing works therein or from the roof, street or subsurface or whatsoever, unless caused by or due to the sole active negligence or willful misconduct of Landlord. Landlord and Landlord's Agents shall not be liable for interference with light or air, or for any latent defect in the Premises except as otherwise expressly provided in this Lease. Tenant shall give prompt Notice to Landlord in case of a casualty, accident or repair needed to the Premises. 11.11. Waiver of Subrogation. Landlord and Tenant agree to cause the insurance companies issuing their respective property (first party) insurance to waive any subrogation rights that those companies may have against Tenant or Landlord, respectively, as long as the insurance is not invalidated by the waiver. If the waivers of subrogation are contained in their respective insurance policies, Landlord and Tenant waive any right that either may have against the other on account of any loss or damage to their respective property to the extent that the loss or damage is insured under their respective insurance policies. ARTICLE XII DAMAGE OR DESTRUCTION 12.1. Landlord's Obligation to Rebuild. If the Premises are damaged or destroyed by fire or other casualty (a "Casualty"), Tenant shall promptly give notice thereof to Landlord, and Landlord shall thereafter repair the Premises as set forth in Sections 12.4 and 12.5 unless Landlord has the right to terminate this Lease as provided in Section 12.2 and Landlord elects to terminate or Tenant has the right to terminate this Lease as provided in Section 12.3 and Tenant elects to so terminate. 12.2. Landlord's Right to Terminate. Landlord shall have the right to terminate this Lease following a Casualty if any of the following occurs: (i) insurance proceeds (together with any additional amounts Tenant elects, at its option, to contribute) are not available to Landlord to pay one hundred percent (100%) of the cost to fully repair the Premises, excluding the deductible (for which Tenant shall pay Tenant's Share of such deductible); (ii) Landlord's Space Planner determines that the Premises cannot, with reasonable diligence, be fully repaired by Landlord (or cannot be safely repaired because of the presence of hazardous factors, including, but not limited to, Hazardous Materials, earthquake faults, radiation, chemical waste and other similar dangers) within one hundred eighty (180) days after the date of such Casualty; (iii) the Premises are destroyed or damaged during the last twelve (12) months of the Term; or (iv) an Event of Default has occurred and is continuing at the time of such Casualty. If Landlord elects to terminate this Lease following a Casualty pursuant to this Section 12.2, Landlord shall give Page 15 of 26 Tenant Notice of its election to terminate within thirty (30) days after Landlord has knowledge of such Casualty, and this Lease shall terminate fifteen (15) days after the date of such Notice. 12.3. Tenant's Right to Terminate. Subject to the later terms hereof, Tenant shall have the right to terminate this Lease following the destruction of the Premises (or damage to the Premises so extensive as to reasonably prevent Tenant's substantial use and enjoyment of the Premises) if any of the following occurs: (i) the Premises cannot, with reasonable diligence, be fully repaired by Landlord within one hundred eighty (180) days after the date of the damage or destruction, as determined by Landlord's Space Planner; (ii) the Premises cannot safely be repaired because of the presence of hazardous factors, including Hazardous Materials, earthquake faults, radiation, chemical waste and other similar dangers; or (iii) the damage or destruction occurs during the last twelve (12) months of the Term and cannot, with reasonable diligence, be fully repaired by Landlord within ninety (90) days after the date of the destruction or damage, as determined by Landlord's Space Planner. Notwithstanding the foregoing, Tenant shall not have the right to terminate under this Section 12.3 if (a) an Event of Default has occurred and is continuing at the time of such damage or destruction or at the time of exercising the right to terminate, or (b) the damage or destruction was caused, in whole or in part, by the act or omission of Tenant or Tenant's Agents. If Tenant elects to terminate this Lease pursuant to this Section 12.3, Tenant shall give Landlord Notice of its election to terminate within ten (10) days after the date of such damage or destruction, and this Lease shall terminate thirty (30) days after the date of such Notice. 12.4. Effect of Termination. If this Lease is terminated following a Casualty pursuant to Section 12.2 or Section 12.3, Landlord shall, subject to the rights of the Mortgagees, be entitled to receive and retain all the insurance proceeds resulting from or attributable to such Casualty, except for those proceeds payable under policies obtained by Tenant which specifically insure Tenant's Personal Property. If neither party exercises any such right to terminate this Lease, this Lease will continue in full force and effect, and Landlord shall, promptly following the tenth (10th) day after the date of such Casualty and receipt of the amounts set forth in clause (i) of Section 12.2, commence the process of obtaining necessary permits and approvals for the repair of the Premises, and shall commence such repair and prosecute the same diligently to completion as soon thereafter as is practicable. Tenant shall fully cooperate with Landlord in removing Tenant's Personal Property and any debris from the Premises to facilitate the making of such repairs. 12.5. Limited Obligation to Repair. Landlord's obligation, should it elect or be obligated to repair the Premises following a Casualty, shall be limited to the basic Building and Tenant Improvements and Tenant shall, at its expense, replace or fully repair all Tenant's Personal Property and any Alterations installed by Tenant existing at the time of such Casualty. If the Premises are to be repaired in accordance with the foregoing, Tenant shall make available to Landlord any portion of insurance proceeds it receives which are allocable to the Tenant Improvements. 12.6. Abatement of Monthly Rent. During any period when Landlord or Landlord's Space Planner reasonably determines that there is substantial interference with Tenant's use of the Premises by reason of a Casualty, Monthly Rent shall be temporarily abated in proportion to the degree of such substantial interference, but only to the extent of any business interruption or loss of income insurance proceeds received by Landlord from Tenant's insurance described in Section 11.5.4.2. Such abatement shall commence upon the date Tenant notifies Landlord of such Casualty and shall end upon the Substantial Completion of the repair of the Premises which Landlord undertakes or is obligated to undertake hereunder. Tenant shall not be entitled to any compensation or damages from Landlord for loss of the use of the Premises, Tenant's Personal Property or other damage or any inconvenience occasioned by a Casualty or by the repair or restoration of the Premises thereafter, including, but not limited to, any consequential damages, opportunity costs or lost profits incurred or suffered by Tenant. Tenant hereby waives the provisions of Section 1932(2) and Section 1933(4) of the California Civil Code, and the provisions of any similar or successor statutes. 12.7. Landlord's Determination. The determination in good faith by Landlord's Space Planner of or relating to the estimated cost of repair of any damage, replacement cost, the time period required for repair or the interference with or suitability of the Premises for Tenant's use or occupancy shall be conclusive for purposes of this Article XII and Article XIII. ARTICLE XIII CONDEMNATION 13.1. Total Taking - Termination. If title to the Premises or so much thereof is taken for any public or quasi-public use under any statute or by right of eminent domain so that reconstruction of the Premises will not 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 possession of the Premises or part thereof is so taken. 13.2. Partial Taking. If any part of the Premises is taken for any public or quasi-public use under any statute or by right of eminent domain and the remaining part is reasonably suitable for Tenant's continued occupancy for the 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 the Monthly Rent shall be reduced in the same proportion that the floor area of the portion of the Premises so taken (less any addition thereto by reason of any reconstruction) bears to the original floor area of the Premises, as reasonably determined by Landlord or Landlord's Space Planner. Landlord shall, at its own cost and expense, make all necessary repairs or alterations to the Premises so as to make the portion of the Premises not taken a complete architectural unit. Such work shall not, however, exceed the scope of the work done by Landlord in originally constructing the Premises. If severance damages from the condemning authority are not available to Landlord in sufficient amounts to permit such restoration, Landlord may terminate this Lease upon Notice to Tenant. Monthly Rent due and payable hereunder shall be temporarily abated during such Page 16 of 26 restoration period in proportion to the degree to which there is substantial interference with Tenant's use of the Premises, as reasonably determined by Landlord or Landlord's Space Planner. Each party hereby waives the provisions of Section 1265.130 of the California Code of Civil Procedure and any present or future law allowing either party to petition the Superior Court to terminate this Lease in the event of a partial taking of the Building or Premises. 13.3. No Apportionment of Award. No award for any partial or total taking shall be apportioned, it being agreed and understood that Landlord shall be entitled to the entire award for any partial or entire taking. Tenant assigns to Landlord its interest in any award which may be made in such taking or condemnation, together with any and all rights of Tenant arising in or to the same or any part thereof. Nothing contained herein shall be deemed to give Landlord any interest in or require Tenant to assign to Landlord any separate award made to Tenant for the taking of Tenant's Personal Property, for the interruption of Tenant's business or its moving costs, or for the loss of its goodwill. 13.4. Temporary Taking. No temporary taking of the Premises (which for purposes hereof shall mean a taking of all or any part of the Premises for one hundred eighty (180) days or less) shall terminate this Lease or give Tenant any right to any abatement of Rent. Any award made to Tenant by reason of such temporary taking shall belong entirely to Tenant and Landlord shall not be entitled to share therein. Each party agrees to execute and deliver to the other all instruments that may be required to effectuate the provisions of this Section 13.4. 13.5. Sale Under Threat of Condemnation. A sale made in good faith 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 Article XIII. ARTICLE XIV ASSIGNMENT AND SUBLETTING 14.1. Prohibition. Tenant shall not directly or indirectly, voluntarily or by operation of law, assign (which term shall include any transfer, assignment, pledge, mortgage or hypothecation) this Lease, or any right or interest hereunder, or sublet the Premises or any part thereof, or allow any other person or entity to occupy or use all or any part of the Premises without first obtaining the written consent of Landlord in each instance, which consent shall not be unreasonably withheld, conditioned or delayed. No assignment, encumbrance, subletting or other transfer in violation of the terms of this Article XIV, whether voluntary or involuntary, by operation of law, under legal process or proceedings, by receivership, in bankruptcy, or otherwise shall be valid or effective and, at the option of Landlord, shall constitute an Event of Default under this Lease. To the extent not prohibited by provisions of the Bankruptcy Code of 1978, 11 U.S.C. Section 101 et seq. (the "Bankruptcy Code"), -- --- Tenant on behalf of itself, creditors, administrators and assigns waives the applicability of Sections 541(c) and 365(e) of the Bankruptcy Code unless the proposed assignee of the trustee for the estate of the bankrupt meets Landlord's standards for consent as set forth below. Landlord has entered into this Lease with Tenant in order to obtain for the benefit of the Project the unique attraction of Tenant's name and business; the foregoing prohibition on assignment or subletting is expressly agreed to by Tenant in consideration of such fact. If this Lease is assigned to any person or entity pursuant to the provisions of the Bankruptcy Code, any and all monies or other considerations payable or otherwise to be delivered in connection with such assignment shall be paid or delivered to Landlord, shall be and remain the exclusive property of Landlord and shall not constitute property of Tenant or the estate of Tenant within the meaning of the Bankruptcy Code. Any and all monies or other considerations constituting Landlord's property under the preceding sentence not paid or delivered to Landlord shall be held in trust for the benefit of Landlord and be promptly paid or delivered to Landlord. Any person or entity to which this Lease is assigned pursuant to the provisions of the Bankruptcy Code shall be deemed without further act or deed to have assumed all of the obligations arising under this Lease on and after the date of such assignment. Any such assignee shall upon demand execute and deliver to Landlord an instrument confirming such assumption. 14.2. Landlord's Consent. In the event Landlord consents to any assignment or subletting, such consent shall not constitute a waiver of any of the restrictions of this Article XIV and the same shall apply to each successive assignment or subletting hereunder, if any. In no event shall Landlord's consent to an assignment or subletting affect the continuing primary liability of Tenant (which, following assignment, shall be joint and several with the assignee), or relieve Tenant of any of its obligations hereunder without an express written release being given by Landlord. In the event that Landlord shall consent to an assignment or subletting under this Article XIV, such assignment or subletting shall not be effective until the assignee or sublessee shall assume all of the obligations of this Lease on the part of Tenant to be performed or observed and whereby the assignee or sublessee shall agree that the provisions contained in this Lease shall, notwithstanding such assignment or subletting, continue to be binding upon it with respect to all future assignments and sublettings. Such assignment or sublease agreement shall be duly executed and a fully executed copy thereof shall be delivered to Landlord, and Landlord may collect Monthly Rent and Additional Rent due hereunder directly from the assignee or sublessee and shall apply it to Tenant's obligations hereunder. Collection of Monthly Rent and Additional Rent directly from an assignee or sublessee shall not constitute a consent or a waiver of the necessity of consent to such assignment or subletting, nor shall such collection constitute a recognition of such assignee or sublessee as the Tenant hereunder or a release of Tenant from the performance of all of its obligations hereunder. Any sign rights granted to Tenant under this Lease shall not be assignable to or usable by any assignee or sublessee of Tenant without the prior written consent of Landlord, in its sole and absolute discretion. 14.3. Information. Regardless of whether Landlord's consent is required under this Article XIV, Tenant shall notify Landlord in writing of Tenant's intent to assign this Lease or any right or interest hereunder, or to sublease the Premises or any part thereof, and of the name of the proposed assignee or sublessee, the nature of the proposed assignee's or sublessee's business to be conducted on the Premises, the terms and provisions of the Page 17 of 26 proposed assignment or sublease, a copy of the proposed assignment or sublease form, and such other information as Landlord may reasonably request concerning the proposed assignee or sublessee, including, but not limited to, a description of the business of the proposed assignee or sub-tenant, the net worth, income statements and other financial statements of the proposed assignee or sub-tenant (including individual principals, if requested by Landlord) for a two-year period preceding Tenant's request for consent, evidence of insurance complying with the requirements of Article XI, and the fee described in Section 14.7. Landlord may require that the sublessee complete and submit an application to Landlord providing the foregoing information and such additional information as Landlord may require. 14.4. Standard for Consent. Landlord shall, within thirty (30) days of receipt of such Notice and all information requested by Landlord concerning the proposed assignee or sublessee, elect to take one of the following actions: (a) consent to such proposed assignment or sublease; (b) refuse to consent to such proposed assignment or sublease, which refusal shall be on reasonable grounds; or (c) if Tenant proposes to sublease all or part of the Premises for the entire remaining Term, Landlord may, at its option exercised by thirty (30) days Notice to Tenant, elect to recapture such portion of the Premises as Tenant proposes to sublease and as of the thirtieth (30th) day after Landlord so notifies Tenant of its election to recapture, this Lease shall terminate as to the portion of the Premises recaptured and the Monthly Rent payable under this Lease shall be reduced in the same proportion that the floor area of that portion of the Premises so recaptured bears to the floor area of the Premises prior to such recapture. Tenant agrees, by way of example and without limitation, that it shall not be unreasonable for Landlord to withhold its consent to a proposed assignment or subletting if any of the following situations exist or may exist: (i) Landlord determines that the proposed assignee's or sublessee's use of the Premises conflicts with Article V or Article VI, presents an unacceptable risk, as determined by Landlord, under Article VI, will overburden the services and common area facilities of the Project, or conflicts with any other provision under this Lease; (ii) Landlord determines that the proposed assignee or sublessee is not as financially responsible as Tenant as of the date of Tenant's request for consent or as of the effective date of such assignment or subletting; (iii) Landlord determines that the proposed assignee or sublessee lacks sufficient business reputation or experience to conduct on the Premises a business of a type and quality equal to that conducted by Tenant; (iv) Landlord determines that the proposed assignment or subletting would breach a covenant, condition or restriction in some other lease, financing agreement or other agreement relating to the Project, the Building, the Premises or this Lease; or (v) An Event of Default has occurred and is continuing at the time of Tenant's request for Landlord's consent, or as of the effective date of such assignment or subletting. Tenant acknowledges that if Tenant has any exterior sign rights under this Lease, such rights are personal to Tenant and may not be assigned or transferred to any assignee of this Lease or sublessee of the Premises without Landlord's prior written consent, which consent may be withheld in Landlord's sole and absolute discretion. 14.5. Bonus Value. Tenant agrees that fifty percent (50%) of any amounts paid by the assignee or sublessee, however described, in excess of (i) the Monthly Rent payable by Tenant hereunder (or, in the case of sublease of a portion of the Premises, in excess of the Monthly Rent reasonably allocable to such portion), plus (ii) Tenant's direct out-of-pocket costs which Tenant certifies to Landlord have been paid to provide occupancy related services to such assignee or sublessee of a nature commonly provided by landlords of similar space, shall be the property of Landlord and such amounts shall be payable directly to Landlord by the assignee or sublessee. At Landlord's request, a written agreement shall be entered into by and among Tenant, Landlord and the proposed assignee or sublessee confirming the requirements of this Section 14.5. 14.6. Certain Transfers. The sale of all or substantially all of Tenant's assets (other than bulk sales in the ordinary course of business), or, if Tenant is a corporation, an unincorporated association, a limited liability company, or a partnership, the transfer, assignment or hypothecation of any stock or interest in such corporation, association, limited liability company, or partnership in the aggregate in excess of twenty-five percent (25%) (except for publicly traded shares of stock constituting a transfer of twenty-five percent (25%) or more in the aggregate, so long as no change in the controlling interests of Tenant occurs as a result thereof) shall be deemed an assignment within the meaning and provisions of this Article XIV. [SEE RIDER] 14.7. Landlord's Fee and Expenses. If Tenant requests Landlord's consent to an assignment or subletting by Tenant under this Lease, Tenant shall pay to Landlord a fee of Five Hundred Dollars ($500.00) and all Page 18 of 26 of Landlord's out-of-pocket expenses, including, but not limited to, attorneys' fees reasonably incurred related to such assignment or subletting by Tenant, whether or not the assignment or subletting is approved. 14.8. Transfer of the Premises by Landlord. Upon any conveyance of the Premises and assignment by Landlord of this Lease, Landlord shall and is hereby entirely released from all liability under any and all of its covenants and obligations contained in or derived from this Lease occurring after the date of such conveyance and assignment, and Tenant agrees to attorn to any entity purchasing or otherwise acquiring the Premises. ARTICLE XV DEFAULTS AND REMEDIES 15.1. Tenant's Default. At the option of Landlord, a default under this Lease by Tenant shall exist if any of the following events shall occur (each is called an "Event of Default"): (a) Tenant fails to pay the Rent payable hereunder, as and when due, for a period of three (3) days after Notice by Landlord; provided, however, the Notice given hereunder shall be in lieu of, and not in addition to, any notice required under Section 1161, et seq., of the California Code of -- --- Civil Procedure; (b) Tenant attempts to make or suffers to be made any transfer, assignment or subletting, except as provided in Article XIV hereof; (c) Any of Tenant's rights under this Lease are sold or otherwise transferred by or under court order or legal process or otherwise or if any of the actions described in Section 15.2 are taken by or against Tenant or any Guarantor; (d) The Premises are used for any purpose other than as permitted pursuant to Article V; (e) Tenant vacates or abandons the Premises or fails to continuously and uninterruptedly conduct its business in the Premises; (f) Any representation or warranty given by Tenant under or in connection with this Lease proves to be materially false or misleading; (g) Tenant fails to timely comply with the provisions of Article VI ("Hazardous Materials"), Article XIV ("Assignment and Subletting"), Article XVI ("Subordination; Estoppel Certificate; Financials"), Section 21.5 ("Modifications for Mortgagees") or Section 21.19 ("Authority"); or (h) Tenant fails to observe, keep, perform or cure within fifteen (15) days after Notice by Landlord any of the other terms, covenants, agreements or conditions contained in this Lease or those set forth in any other agreements or rules or regulations which Tenant is obligated to observe or perform. In the event such default reasonably could not be cured or corrected within such fifteen-day period, but is reasonably susceptible to cure or correction, then Tenant shall not be in default hereunder if Tenant commences the cure or correction of such default within such fifteen-day period and diligently prosecutes the same to completion after commencing such cure or correction. The Notice required by this Section 15.1(h) shall be in lieu of, and not in addition to, any notice required under Section 1161, et seq., of the California Code of Civil Procedure. -- --- (i) Tenant fails to provide to Landlord initial evidence of all insurance required of Tenant under this Lease, and the renewal thereof from time to time as required in this Lease. Notices given under this Section 15.1 shall specify the alleged default and shall demand that Tenant perform the provisions of this Lease or pay the Rent that is in arrears, as the case may be, within the applicable period of time, or quit the Premises. No such Notice shall be deemed a forfeiture or a termination of this Lease unless Landlord so elects in the Notice. 15.2. Bankruptcy or Insolvency. In no event shall this Lease be assigned or assignable by operation of law and in no event shall this Lease be an asset of Tenant in any receivership, bankruptcy, insolvency or reorganization proceeding. In the event: (a) A court makes or enters any decree or order adjudging Tenant to be insolvent, or approving as properly filed by or against Tenant a petition seeking reorganization or other arrangement of Tenant under any provisions of the Bankruptcy Code or any applicable state law, or directing the winding up or liquidation of Tenant and such decree or order shall have continued for a period of thirty (30) days; (b) Tenant makes or suffers any transfer which constitutes a fraudulent or otherwise avoidable transfer under any provisions of the Bankruptcy Code or any applicable state law; (c) Tenant assigns its assets for the benefit of its creditors; or (d) The material part of the property of Tenant or any property essential to Tenant's business or of Tenant's interest in this Lease is sequestered, attached or executed upon, and Tenant fails to secure a return or release of such property within ten (10) days thereafter, or prior to sale pursuant to such sequestration, attachment or levy, whichever is earlier; Page 19 of 26 then this Lease shall, at Landlord's election, immediately terminate and be of no further force or effect whatsoever, without the necessity for any further action by Landlord, except that Tenant shall not be relieved of obligations which have accrued prior to the date of such termination. Upon such termination, the provisions herein relating to the expiration or earlier termination of this Lease shall control and Tenant shall immediately surrender the Premises in the condition required by the provisions of this Lease. Additionally, Landlord shall be entitled to all relief, including recovery of damages from Tenant, which may from time to time be permitted, or recoverable, under the Bankruptcy Code or any other applicable state laws. 15.3. Landlord's Remedies. Upon the occurrence of an Event of Default, then, in addition to and without waiving any other rights and remedies available to Landlord at law or in equity or otherwise provided in this Lease, Landlord may, at its option, cumulatively or in the alternative, exercise the following remedies: (a) Landlord may terminate Tenant's right to possession of the Premises, in which case this Lease shall terminate and Tenant shall immediately surrender possession of the Premises to Landlord. No act by Landlord other than giving Notice to Tenant of Landlord's election to terminate Tenant's right to possession shall terminate this Lease. Acts of maintenance, efforts to re-let the Premises, or 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. Termination shall terminate Tenant's right to possession of the Premises but shall not relieve Tenant of any obligation under this Lease which has accrued prior to the date of such termination. Upon such termination, Landlord shall have the right to re-enter the Premises, and remove all persons and property, and Landlord shall also be entitled to recover from Tenant: (i) The worth at the time of award of the unpaid Monthly Rent and Additional Rent which had been earned at the time of termination; (ii) The worth at the time of award of the amount by which the unpaid Monthly Rent and Additional Rent which would have been earned after termination until the time of award exceeds the amount of such rental loss that Tenant proves could have been reasonably avoided; (iii) The worth at the time of award of the amount by which the unpaid Monthly Rent and Additional Rent for the balance of the Term after the time of award exceeds the amount of such rental loss that Tenant proves could be reasonably avoided; (iv) Any other amount necessary to compensate Landlord for all the detriment proximately caused by Tenant's failure to perform its obligations under this Lease or which in the ordinary course of things would be likely to result from Tenant's default, including, but not limited to, the cost of recovering possession of the Premises, commissions and other expenses of re-letting, including necessary repair, demolition and renovation of the Premises to the condition existing immediately prior to Tenant's occupancy, the unamortized portion of any Tenant Improvements and brokerage commissions funded by Landlord in connection with this Lease, the cost of rectifying any damage to the Premises occasioned by the act or omission of Tenant, reasonable attorneys' fees, and any other reasonable costs; and (v) At Landlord's election, all other amounts in addition to or in lieu of the foregoing as may be permitted by law. As used in Sections (i) and (ii) above, the "worth at the time of award" shall be computed by allowing interest at the maximum legal rate permitted by law. As used in Section (iii) above, the "worth at the time of award" shall be computed by discounting the amount at the discount rate of the Federal Reserve Bank of San Francisco at the time of award plus one percent (1%). (b) Landlord may elect not to terminate Tenant's right to possession of the Premises, in which event this Lease will continue in full force and effect as long as Landlord does not terminate Tenant's right to possession, and Landlord may continue to enforce all of its rights and remedies under this Lease, including the right to collect all Rent as it becomes due. In the event that Landlord elects to avail itself of the remedy provided by this Section 15.3(b), Landlord shall not unreasonably withhold its consent to an assignment or subletting of the Premises subject to the reasonable standards for Landlord's consent as are contained in this Lease. In addition, in the event Tenant has entered into a sublease which is valid under the terms of this Lease, Landlord may also, at its option, cause Tenant to assign to Landlord the interest of Tenant under said sublease, including, but not limited to, Tenant's right to payment of Rent as it becomes due. Landlord may elect to enter the Premises and re-let them, or any part of them, to third parties for Tenant's account. Tenant shall be liable immediately to Landlord for all costs Landlord incurs in re-letting the Premises, including, but not limited to, broker's commissions, expenses of cleaning and remodeling the Premises required by the re-letting, attorneys' fees and like costs. Re-letting can be for a period shorter or longer than the remaining Term of this Lease and for the entire Premises or any portion thereof. Tenant shall pay to Landlord the Monthly Rent and Additional Rent due under this Lease on the dates the Monthly Rent and such Additional Rent are due, less the Rent Landlord actually collects from any re-letting. Except as provided in the preceding sentence, if Landlord re- lets the Premises or any portion thereof, such re-letting shall not relieve Tenant of any obligation hereunder. Notwithstanding the above, no act by Landlord allowed by this Section 15.3(b) shall terminate this Lease unless Landlord notifies Tenant in writing that Landlord elects to terminate this Lease. Page 20 of 26 15.4. No Surrender. Tenant waives any right of 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 an Event of Default. No act or thing done by Landlord or Landlord's Agents during the Term shall be deemed an acceptance of a surrender of the Premises, and no agreement to accept a surrender shall be valid unless in writing and signed by Landlord. No employee of Landlord or of Landlord's Agents shall have any power to accept the keys to the Premises prior to the termination of this Lease, and the delivery of the keys to any employee shall not operate as a termination of this Lease or a surrender of the Premises. 15.5. Interest on Late Payments. Any Rent due under this Lease that is not paid to Landlord within three (3) days of the date when due shall commence to bear interest at the Applicable Rate until fully paid. Neither the accrual nor the payment of interest shall cure any default by Tenant under this Lease. 15.6. Attorneys' and Other Fees. All sums reasonably incurred by Landlord in connection with an Event of Default or holding over of possession by Tenant after the expiration or termination of this Lease, including, but not limited to, all costs, expenses and actual accountants', appraisers', attorneys' and other professional fees, and any collection agency or other collection charges, shall be due and payable by Tenant to Landlord on demand, and shall bear interest at the Applicable Rate from the date of such demand until paid by Tenant. In addition, in the event that any action shall be instituted by either of the parties hereto for the enforcement of any of its rights in and under this Lease, the party in whose favor judgment shall be rendered shall be entitled to recover from the other party all expenses reasonably incurred by the prevailing party in such action, including actual costs and reasonable attorneys' fees. 15.7. 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 Notice by Tenant to Landlord (and the Mortgagees who have provided Tenant with notice) 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 thirty (30) day period and thereafter diligently prosecutes the same to completion. 15.8. Limitation of Landlord's Liability. The obligations of Landlord do not constitute the personal obligations of the individual partners, trustees, directors, officers or shareholders of Landlord or those of its constituent partners. If Landlord shall fail to perform any covenant, term, or condition of this Lease upon Landlord's part to be performed, Tenant shall be required to deliver to Landlord Notice of the same. If, as a consequence of such default, Tenant shall recover a money judgment against Landlord, such judgment shall be satisfied only out of the proceeds of sale received upon execution of such judgment and levied thereon against the right, title and interest of Landlord in the Building and out of rent or other income from such property receivable by Landlord or out of consideration received by Landlord from the sale or other disposition of all or any part of Landlord's right, title or interest in the Building, and no action for any deficiency may be sought or obtained by Tenant. 15.9. Mortgagee Protection. Upon any default on the part of Landlord, Tenant will give notice by registered or certified mail to any Mortgagee who has provided Tenant with notice of its interest together with an address for receiving notice, and shall offer such Mortgagee a reasonable opportunity to cure the default (which in no event shall be less than sixty [60] days), 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. Tenant agrees that each of the Mortgagees to whom this Lease has been assigned by Landlord is an express third party beneficiary hereof. Tenant shall not make any prepayment of Monthly Rent more than one (1) month in advance without the prior written consent of such Mortgagee. Tenant waives any right under California Civil Code Section 1950.5 or any other present or future law to the collection of any deposit from such Mortgagee or any purchaser at a foreclosure sale of such Mortgagee's interest unless such Mortgagee or such purchaser shall have actually received and not refunded the deposit. Tenant agrees to make all payments under this Lease to the Mortgagee with the most senior encumbrance upon receiving a direction, in writing, to pay said amounts to such Mortgagee. Tenant shall comply with such written direction to pay without determining whether an event of default exists under such Mortgagee's loan to Landlord. 15.10. Landlord's Right to Perform. If Tenant shall at any time fail, beyond any applicable cure periods, to make any payment or perform any other act on its part to be made or performed under this Lease, Landlord may (but shall not be obligated to), at Tenant's expense, 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 paid by Landlord and all penalties, interest and costs, including, but not limited to, collection costs and attorneys' fees reasonably incurred in connection therewith, shall be due and payable by Tenant to Landlord, as an item of Additional Rent, on demand by Landlord, together with interest thereon at the Applicable Rate from the date of such demand until paid by Tenant. 15.11. Limitation of Actions Against Landlord. Any claim, demand or right of any kind by Tenant which is based upon or arises in connection with this Lease shall be barred unless Tenant commences an action thereon within six (6) months after the date that the act, omission, event or default upon which the claim, demand or right arises, has occurred. Tenant waives all statutes of limitations providing for a greater period of time for the bringing of such action. 15.12. Waiver of Jury Trial. To the full extent permitted by law, Tenant hereby waives the right to trial by jury in any action, proceeding or counterclaim brought by Tenant on any matter whatsoever arising out of or in Page 21 of 26 any way connected with this Lease, the relationship of Landlord and Tenant, Tenant's use or occupancy of the Premises and/or any claim of injury or damage. ARTICLE XVI SUBORDINATION; ESTOPPEL CERTIFICATE; FINANCIALS 16.1. Subordination, Attornment and Non-Disturbance. Without the necessity of any additional document being executed by Tenant for the purpose of effecting a subordination, and at the election of Landlord or any Mortgagee or any ground lessor with respect to the land of which the Premises are a part, this Lease shall be subject and subordinate at all times to (i) all ground leases or underlying leases which may now exist or hereafter be executed affecting the Building, and (ii) the lien of any Mortgage which may now exist or hereafter be executed in any amount for which the Project, the Building, ground leases or underlying leases, or Landlord's interest or estate in any of said items is specified as security. Landlord or any such Mortgagee or ground lessor shall have the right, at its election, to subordinate or cause to be subordinated any such ground leases or underlying leases or any such liens to this Lease. No subordination shall permit material interference with Tenant's rights hereunder, and any ground lessor or Mortgagee shall recognize Tenant and its permitted successors and assigns as the tenant of the Premises and shall not disturb Tenant's right to quiet possession of the Premises during the Term so long as no Event of Default has occurred and is continuing under this Lease. If Landlord's interest in the Premises is acquired by any ground lessor or Mortgagee, or in the event proceedings are brought for the foreclosure of, or in the event of exercise of the power of sale under, any Mortgage made by Landlord covering the Premises or any part thereof, or in the event a conveyance in lieu of foreclosure is made for any reason, Tenant shall, notwithstanding any subordination and upon the request of such successor in interest to Landlord, attorn to and become the Tenant of the successor in interest to Landlord and recognize such successor in interest as the Landlord under this Lease. Although this Section 16.1 is self-executing, Tenant covenants and agrees to execute and deliver, upon demand by Landlord and in the form requested by Landlord, or any Mortgagee or ground lessor, any additional documents evidencing the priority or subordination of this Lease with respect to any such ground leases or underlying leases or the lien of any such Mortgage, or evidencing the attornment of Tenant to any successor in interest to Landlord as herein provided. Tenant's failure to timely execute and deliver such additional documents shall, at Landlord's option, constitute an Event of Default hereunder. 16.2. Estoppel Certificate. Tenant shall within ten (10) days following written request by Landlord, execute and deliver to Landlord any documents, including estoppel certificates, in a form required by Landlord (i) certifying that this Lease is unmodified and in full force and effect or, if modified, attaching a copy 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, (ii) acknowledging that there are not, to Tenant's knowledge, any uncured defaults on the part of the Landlord or stating the nature of any uncured defaults, (iii) evidencing the status of this Lease as may be required by a Mortgagee or a purchaser of the Premises, (iv) certifying the current Monthly Rent amount and the amount and form of Security Deposit on deposit with Landlord, and (v) certifying to such other information as Landlord, Landlord's Agents, Mortgagees and prospective purchasers may reasonably request, including, but not limited to, any requested information regarding Hazardous Materials. Tenant's failure to deliver an estoppel certificate within ten (10) days after delivery of Landlord's written request therefor shall constitute an Event of Default hereunder. 16.3. Financial Information. Tenant shall deliver to Landlord, prior to the execution of this Lease, and within ten (10) days following written request therefor by Landlord at any time during the Term, Tenant's current financial statements, and Tenant's financial statements for the two (2) years prior to the current fiscal financial statement's year, certified to be true, accurate and complete by the chief financial officer of Tenant, including a balance sheet and profit and loss statement for the most recent prior year (collectively, the "Statements"), which Statements shall accurately and completely reflect the financial condition of Tenant. Landlord agrees that it will keep the Statements confidential, except that Landlord shall have the right to deliver the same to any proposed purchaser of the Premises, the Project or any portion thereof, and to the Mortgagees of Landlord or such purchaser. Tenant acknowledges that Landlord is relying on the Statements in its determination to enter into this Lease, and Tenant represents to Landlord, which representation shall be deemed made on the date of this Lease and again on the Commencement Date, that no material change in the financial condition of Tenant, as reflected in the Statements, has occurred since the date Tenant delivered the Statements to Landlord. If any material change in Tenant's financial condition, as reflected in the Statements, which occurs prior to the date of this Lease or prior to the Commencement Date, as the case may be, or if Tenant fails to inform Landlord of any such material change which occurs prior to the date of this Lease or prior to the Commencement Date, Landlord shall have the right, in addition to any other rights and remedies of Landlord, to terminate this Lease by notice to Tenant given within thirty (30) days after Landlord learns of such material change. ARTICLE XVII SIGNS AND GRAPHICS Landlord shall, at Tenant's expense, install a suite identification plaque next to the door to the entrance to the Premises and install directory strips in the lobby directory identifying Tenant's trade name. Tenant shall have no right to maintain identification signs in any other location in, on or about the Premises and shall not display or erect any other signs, displays or other advertising materials that are visible from the exterior of the Building, except as otherwise expressly permitted by Landlord in writing. If any exterior sign rights are granted to Tenant by Landlord in connection with this Lease, (i) the size, design, color and other physical aspects of such specially permitted signs shall be subject to Landlord's written approval prior to installation, which approval may be withheld in Landlord's discretion, any Restrictions and any applicable municipal or other governmental permits and approvals, (ii) all such Tenant signs and graphics shall conform to the sign criteria established by Landlord from time to time in writing, (iii) upon notice from Landlord, Tenant shall reimburse Landlord for Landlord's costs of installing support bracing Page 22 of 26 for such exterior signs, (iv) the cost of all such signs and graphics, including the installation, maintenance and removal thereof, shall be at Tenant's sole cost and expense, and (v) such sign rights shall not be assignable to any lease assignee, subtenant or other party and shall automatically terminate on the assignment by Tenant of its interest in this Lease (whether consented to by Landlord or not) or the subleasing of a substantial portion of the Premises by Tenant (whether consented to by Landlord or not). If Tenant fails to maintain any permitted Tenant exterior signs, or if Tenant fails to remove same upon termination of this Lease and repair any damage caused by such removal (including, but not limited to, repainting the affected area, if required by Landlord), Landlord may do so at Tenant's expense. All sums reasonably disbursed, deposited or incurred by Landlord in connection with such removal, including, but not limited to, all costs, expenses and actual attorneys' fees, shall be due and payable by Tenant to Landlord on demand by Landlord, together with interest thereon at the Applicable Rate from the date of such demand until paid by Tenant. ARTICLE XVIII QUIET ENJOYMENT Landlord covenants that Tenant, upon performing the terms, conditions and covenants of this Lease, shall have quiet and peaceful possession of the Premises as against any person claiming the same by, through or under Landlord. ARTICLE XIX SURRENDER; HOLDING OVER 19.1. Surrender of the Premises. Upon the expiration or earlier termination of this Lease, Tenant shall surrender the Premises to Landlord in its condition existing as of the Commencement Date, normal wear and tear and acts of God excepted, with all interior walls in good repair, all carpets shampooed and cleaned, the HVAC equipment, plumbing, electrical and other mechanical installations in good operating order and all floors cleaned and waxed, all to the reasonable satisfaction of Landlord. Tenant shall remove from the Premises all of Tenant's Alterations which Landlord requires Tenant to remove pursuant to Section 8.1 and all Tenant's Personal Property and all telephone, data transmission, fiber-optic and other telecommunications cabling and related facilities installed by Tenant in the Premises and Building, and shall repair any damage and perform any restoration work caused by such removal. If Tenant fails to remove such Alterations and Tenant's Personal Property which Tenant is authorized and obligated to remove pursuant to the above, and such failure continues after the termination of this Lease, Landlord may retain such property and all rights of Tenant with respect to it shall cease, or Landlord may place all or any portion of such property in public storage for Tenant's account. Tenant shall pay to Landlord, upon demand, the 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 attorneys' fees and interest on said amounts at the Applicable Rate from the date of expenditure by Landlord. If the Premises are not so surrendered at the termination of this Lease, Tenant hereby agrees to indemnify Landlord and Landlord's Agents against all loss or liability resulting from any delay by Tenant in so surrendering the Premises, including, but not limited to, any claims made by any succeeding tenant, losses to Landlord due to lost opportunities to lease to succeeding tenants, and actual attorneys' fees and costs. Landlord may withhold all or any portion of Tenant's Security Deposit pending disposition and accounting of expenses Landlord will incur as a result of Tenant's failure to remove the items specified in this Section 19.1. 19.2. Holding Over. If Tenant remains in possession of all or any part of the Premises after the expiration of the Term with the prior written consent of Landlord, such possession shall constitute a month-to-month tenancy only and shall not constitute a renewal or extension for any further term. If Tenant remains in possession of all or any part of the Premises after the expiration of the Term without the prior written consent of Landlord, such possession shall constitute a tenancy at sufferance. In either of such events, Monthly Rent shall be increased to an amount equal to one hundred fifty percent (150%) of the Monthly Rent payable during the last month of the Term, and any other sums due hereunder shall be payable in the amounts and at the times specified in this Lease. Any such tenancy shall be subject to every other term, condition, and covenant contained in this Lease. ARTICLE XX INTENTIONALLY DELETED ARTICLE XXI MISCELLANEOUS AND INTERPRETIVE PROVISIONS 21.1. Broker. Landlord and Tenant each warrant and represent to the other that neither has had any dealings with any real estate broker, agent or finder in connection with the negotiation of this Lease or the introduction of the parties to this transaction, except for the Broker (whose commission shall be paid by Landlord), and that it knows of no other real estate broker, agent or finder who is or might be entitled to a commission or fee in connection with this Lease. In the event of any additional claims for brokers' or finders' fees with respect to this Lease, Tenant shall indemnify, hold harmless, protect and defend Landlord from and against such claims if they shall be based upon any statement or representation or agreement made by Tenant, and Landlord shall indemnify, hold harmless, protect and defend Tenant from and against such claims if they shall be based upon any statement, representation or agreement made by Landlord. 21.2. Examination of Lease. Submission of this Lease for examination or signature by Tenant does not create a reservation of or option to lease. This Lease shall become effective and binding only upon full execution of this Lease by both Landlord and Tenant. Page 23 of 26 21.3. No Recording. Tenant shall not record this Lease or any memorandum of this Lease without Landlord's prior written consent, but if Landlord so requests, Tenant agrees to execute, have acknowledged and deliver a memorandum of this Lease in recordable form which Landlord thereafter may file for record. 21.4. Quitclaim. Upon any termination of this Lease, Tenant shall, at Landlord's request, execute, have acknowledged and deliver to Landlord an instrument in writing releasing and quit-claiming to Landlord all right, title and interest of Tenant in and to the Premises by reason of this Lease or otherwise. 21.5. Modifications for Mortgagees. If in connection with obtaining financing for the Premises or any portion thereof, Landlord's Mortgagees shall request reasonable modifications to this Lease as a condition to such financing, Tenant shall not unreasonably withhold, delay or defer its consent thereto, provided such modifications do not adversely affect Tenant's rights or increase its obligations hereunder. Tenant's failure to so consent shall constitute an Event of Default under this Lease. 21.6. Notice. Any Notice required or desired to be given under this Lease shall be in writing and shall be addressed to the address of the party to be served. The addresses of Landlord and Tenant are as set forth in Items 1 and 3, respectively, of the Basic Lease Provisions, except that (a) prior to the Commencement Date, the address for Notices to Tenant shall be as set forth opposite Tenant's signature on this Lease, and (b) from and after the Commencement Date, notwithstanding the addresses for Tenant set forth in Item 3 of the Basic Lease Provisions, all Notices regarding the operation and maintenance of the Project shall be delivered to Tenant at the Premises. Each such Notice shall be deemed effective and given (i) upon receipt, if personally delivered (which shall include delivery by courier or overnight delivery service), (ii) upon being telephonically confirmed as transmitted, if sent by telegram, telex or telecopy, (iii) two (2) business days after deposit in the United States mail in the county in which the Premises are located, certified and postage prepaid, properly addressed to the party to be served, or (iv) upon receipt if sent in any other way. Any party hereto may from time to time, by Notice to the other in accordance with this Section 21.6, designate a different address than that set forth above for the purposes of Notice. 21.7. 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. 21.8. Executed Copy. Any fully executed copy of this Lease shall be deemed an original for all purposes. 21.9. Time. Time is of the essence for the performance of each term, condition and covenant of this Lease. 21.10. Severability. If any one or more of the provisions contained herein shall for any reason be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality, or un-enforceability 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. 21.11. Survival. All covenants and indemnities set forth herein which contemplate the payment of sums, or the performance by Tenant after the Term or following an Event of Default, including specifically, but not limited to, the covenants and indemnities set forth in Section 5.3, Article VI, Article VII, Section 8.1, Section 9.2, Article XI, Article XV, and Article XIX, and all representations and warranties of Tenant shall survive the expiration or sooner termination of this Lease. 21.12. 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. 21.13. 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, the singular includes the plural and the plural includes the singular. 21.14. Non-Agency. It is not the intention of Landlord or Tenant to create hereby a relationship of master-servant or principal-agent, and under no circumstance shall Tenant herein be considered the agent of Landlord, it being the sole purpose and intent of the parties hereto to create a relationship of landlord and tenant. 21.15. Successors. The terms, covenants, conditions and agreements contained in this Lease shall, subject to the provisions as to assignment, subletting, and bankruptcy contained herein and any other provisions restricting successors or assigns, apply to and bind the heirs, successors, legal representatives and assigns of the parties hereto. 21.16. Waiver; Remedies Cumulative. The waiver by either party of any term, covenant, agreement or condition herein contained shall not be deemed to be a waiver of any subsequent breach of the same or any other term, covenant, agreement or condition herein contained, nor shall any custom or practice which may grow up between the parties in the administration of this Lease be construed to waive or to lessen the right of Landlord to insist upon the performance by Tenant in strict accordance with all of the provisions of this Lease. The subsequent acceptance of Rent hereunder by Landlord shall not be deemed to be a waiver of any preceding breach by Tenant of any provisions, covenant, agreement or condition of this Lease, other than the failure of Tenant to pay the particular Rent payment so accepted, regardless of Landlord's knowledge of such preceding breach at the time of acceptance of such Rent payment. Landlord's acceptance of any check, letter or payment shall in no event be deemed an accord and satisfaction, and Landlord shall accept the check, letter or payment without prejudice to Landlord's right to Page 24 of 26 recover the balance of the Rent or pursue any other remedy available to it. The rights and remedies of either party under this Lease shall be cumulative and in addition to any and all other rights and remedies which either party has or may have. 21.17. Unavoidable Delay. Except for the monetary obligations of Tenant under this Lease, neither party shall be chargeable with, liable for, or responsible to the other for anything or in any amount for any Unavoidable Delay and any Unavoidable Delay shall not be deemed a breach of or default in the performance of this Lease, it being specifically agreed that any time limit provision contained in this Lease (other than the scheduled expiration of the Term) shall be extended for the same period of time lost by Unavoidable Delay. 21.18. Entire Agreement. This Lease is the entire agreement between the parties, and supersedes any prior agreements, representations, negotiations or correspondence 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. 21.19. Authority. If Tenant is a corporation, limited liability company or partnership, each individual executing this Lease on behalf of the corporation, limited liability company 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, operating agreement, statement of partnership or certificate of limited partnership, as the case may be, and that this Lease is binding upon said entity in accordance with its terms. If Tenant is a corporation, Tenant shall, if requested by Landlord, within thirty (30) days after execution of this Lease and prior to entering into possession of the Premises, deliver to Landlord a certified copy of a resolution of the Board of Directors of the corporation or certificate of the Secretary of the corporation, authorizing, ratifying or confirming the execution of this Lease. If Tenant is a limited liability company or partnership, Tenant shall, if requested by Landlord, within thirty (30) days after the execution of this Lease and prior to entering into possession of the Premises, deliver to Landlord a certified copy of its operating agreement or partnership agreement, as the case may be, authorizing such execution. 21.20. Intentionally Deleted. 21.21. Exhibits; References. All exhibits, amendments, riders and addenda attached to this Lease are hereby incorporated into and made a part of this Lease and Tenant acknowledges disclosure of all information therein. In the event of variation or discrepancy, the duplicate original hereof (including exhibits, amendments, riders and addenda, if any, specified above) held by Landlord shall control. All references in this Lease to Articles, Sections, Exhibits, Riders and clauses are made, respectively, to Articles, Sections, Exhibits, Riders and clauses of this Lease, unless otherwise specified. 21.22. Basic Lease Provisions. The Basic Lease Provisions at the beginning of this Lease are intended to provide general information only. In the event of any inconsistency between the Basic Lease Provisions and the specific provisions of this Lease, the specific provisions of this Lease shall prevail. 21.23. No Merger. The voluntary or other surrender of this Lease by Tenant, or a mutual cancellation thereof, or a termination by Landlord, shall not work a merger, and shall, at the option of Landlord, terminate all or any existing sub-tenancies or may, at the option of Landlord, operate as an assignment to Landlord of any or all such sub-tenancies. 21.24. Joint and Several Obligations. If more than one person or entity is Tenant, the obligations imposed on each such person or entity shall be joint and several. 21.25. No Light or Air Easement. Any diminution or shutting off of light or air by any structure which may be erected on lands adjacent to the Building shall in no way affect this Lease, abate Rent or otherwise impose any liability on Landlord. This Lease does not confer any right with regard to the subsurface below the ground level of the Building. 21.26. Lease Subject to Matters of Record. Tenant acknowledges that this Lease is subject to all covenants, conditions, restrictions, liens and encumbrances of record ("Matters of Record"). To the extent applicable, Tenant shall be bound by all such Matters of Record. 21.27 Hazardous Materials Disclosure. Tenant acknowledges that the property on which the Building is located has previously been used for agricultural purposes. Landlord is not aware of any other uses nor is Landlord aware of any releases of Hazardous Materials on or beneath the property - with the following exceptions: (a) Over the years, various agricultural chemicals have been applied to the property. Residues of these chemicals may exist in the upper levels of the soil. Landlord anticipates that any such residues will decompose over time. The grading and development of the property will also reduce the potential for exposure. The risks associated with this previous agricultural chemical use on the property appear to be no greater than those associated with other similarly used properties in the area. (b) The El Toro Marine Corps Air Station, which is located approximately one mile northeast of the Building, has had several releases of Hazardous Materials, many of which involved underground storage tanks. Contaminated ground water emanating from the Air Station may have migrated beneath portions of the property. Page 25 of 26 21.28 Tenant's and Guarantor's Financial Condition. Tenant represents to Landlord that any and all applications and financial statements provided to Landlord regarding Tenant and any Guarantor are true, accurate and complete in all material respects, and do not fail to omit or misstate any material aspect of the financial condition of Tenant or any Guarantor. Tenant acknowledges that the foregoing representation is a material inducement to Landlord in entering into this Lease and accepting Tenant as a tenant of the Project. Any breach of the foregoing representation shall constitute an incurable "Event of Default" under Section 15.1 of this Lease. THIS LEASE is effective as of the date the last signatory necessary to execute this Lease shall have executed this Lease. "LANDLORD" PAC COURT ASSOCIATES, L.P., a California limited partnership By: Banyan Pacific, LLC, a California limited liability company, general partner By: Banyan Realty Group, LLC, a California limited liability company, managing member By: /s/ George W. Ceithaml ---------------------------------------- George W. Ceithaml, Trustee of the Ceithaml Living Trust #2 dated April 15, 1989, managing member ADDRESS FOR NOTICES PRIOR TO COMMENCEMENT DATE: "TENANT" NOOSH, INC., a California corporation By: /s/ Ofer Ben-Shachar ------------------------------------ Ofer Ben-Shachar, Its President By: /s/ Sergio Soria ------------------------------------ Sergio Soria, Its Facilities Manager Page 26 of 26 LEASE RIDER NOLEASE RIDER NO. 1 ADDITIONAL SECURITY - LETTER OF CREDIT -------------------------------------- THIS LEASE RIDER is attached to and made a part of that certain Office Lease dated March 31, 2000, by and between PAC COURT ASSOCIATES, L.P. a California limited partnership, as "Landlord", and NOOSH, INC., a California corporation, as "Tenant", for the Premises known as 114 Pacifica, Suite 340, Irvine, California 92618. The capitalized terms used and not otherwise defined herein shall have the same definitions as set forth in the Lease. The provisions of this Lease Rider shall supersede any inconsistent or conflicting provisions of the Lease. THE FOLLOWING IS HEREBY ADDED TO THE END OF SECTION 4.5: Letter of Credit. - ---------------- (a) Letter of Credit Requirement. As additional security for the full and faithful performance of every provision of this Lease to be performed by Tenant, Tenant shall deposit with Landlord on or before the commencement of construction of Tenant Improvements, an unconditional, irrevocable sight draft letter of credit ("Letter of Credit") with the stated amount set forth in subparagraph (b) in form and content acceptable to Landlord and ---------------- drawn on a commercial lender acceptable to Landlord, having a term (after taking into account any automatic renewals) not shorter than the Lease Term. Tenant shall deliver its proposed form of letter of credit to Landlord no later than ten (10) days after the date of this Lease. Landlord shall not have any obligation to commence construction of the Tenant Improvements until Tenant has delivered the Letter of Credit, and any delay in the commencement of construction of the Tenant Improvements resulting therefrom shall be chargeable to Tenant as a Tenant Delay (as defined in the Work Letter). Tenant shall pay all expenses, points and/or fees incurred in obtaining, renewing or replacing the Letter of Credit. (b) Stated Amount. The initial stated amount of the Letter of Credit shall be the sum ("Original Stated Amount") of: 1. an amount ("Landlord Costs") equal to the sum of the Tenant Improvement Allowance (as may be adjusted pursuant to Paragraph A of ----------- Lease Rider No. 2 - Lease Modifications), leasing commissions, legal costs, and other expenses incurred by Landlord in connection with this Lease or the construction of the Tenant Improvements, all as determined by Landlord, in it sole discretion. Tenant and Landlord shall execute an amendment to this Lease which shall set forth the amount of "Landlord Costs"; and 2. $30,038.25, representing three (3) months of Rent, based on the average effective Monthly Rent over the Term of the Lease. Provided no Event of Default has occurred, upon each anniversary of the Commencement Date, the stated amount of the Letter of Credit shall be reduced by representing 25% of the Landlord Costs. Upon the occurrence of an Event of Default, Landlord shall have the right to prevent the reduction of the stated amount of the Letter of Credit described in the preceding sentence and reinstate the Original Stated Amount of the Letter of Credit. (c) Landlord Rights upon Default. Upon any Event of Default, without waiver of any rights Landlord may have under this Lease or at law or in equity as a result of an Event of Default, Landlord shall have the right, in Landlord's sole and absolute discretion, to draw upon the Letter of Credit in whole or in part. Landlord may use the proceeds drawn from the Letter of Credit for one or any combination of the following: (1) the payment of any Rent not paid when due, (2) the repair of damage to the Premises, (3) the payment of any other amount which Landlord may spend by reason of an Event of Default, (4) compensation of Landlord for any other loss or damage which Landlord may suffer by reason of an Event of Default to the full extent permitted by law, and/or (5) be retained by Landlord as security ("L/C Security Deposit") for the full and faithful performance of every provision of this Lease to be performed by Tenant. The use, application, retention of or draw on the Letter of Credit, 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 be required to proceed against the Letter of Credit and shall not operate as a limitation on any recovery to which Landlord may otherwise be entitled. (d) Landlord Options upon Cure of Default. If an Event of Default is properly cured by Tenant, and such cure is acknowledged by Landlord, the Landlord may, but is not required to, elect Page 1 of 2 one or any of combination of the following options: (1) retain all or any part of amounts drawn on any Letter of Credit as an L/C Security Deposit, and/or (2) return to Tenant all or any part of amounts drawn, minus such amounts already applied by Landlord as provided in subparagraph (c) above, provided ---------------- that Tenant has satisfied the provisions of subparagraph (e). ---------------- (e) Restoration and Delivery of Letters of Credit. If all or any portion of the Letter of Credit is drawn upon by Landlord hereunder, Tenant shall, within five (5) days after written demand therefore, deposit with Landlord (1) additional cash as part of the L/C Security Deposit such that the sum of the L/C Security Deposit and any undrawn amounts under a valid and enforceable Letter of Credit is not less than the Original Stated Amount; or (2) a replacement Letter of Credit with a sufficient stated amount such that said stated amount plus any L/C Security Deposit is not less than the Original Stated Amount. Tenant's failure to (i) comply with the preceding sentence, or (ii) keep the Letter of Credit in full force and effect as required hereunder shall constitute an Event of Default under this Lease. (f) Right to Assign Letters of Credit. Tenant acknowledges that Landlord has the right to transfer or mortgage its interest in the Property and in this Lease and Tenant agrees that in the event of any such transfer or mortgage, Landlord shall have the right to transfer or assign the Letter of Credit or the L/C Security Deposit to the transferee or mortgagee, and in the event of such transfer, Tenant shall look solely to such transferee or mortgagee for the return of the L/C Security Deposit and/or the Letter of Credit. "LANDLORD" PAC COURT ASSOCIATES, L.P., a California limited partnership By: Banyan Pacific, LLC, a California limited liability company, general partner By: Banyan Realty Group, LLC, a California limited liability company, managing member By: /s/ George W. Ceithaml --------------------------------------- George W. Ceithaml, Trustee of the Ceithaml Living Trust #2 dated April 15, 1989, managing member "TENANT" NOOSH, INC., a California corporation By: /s/ Ofer Ben-Shachar ------------------------------------------- Ofer Ben-Shachar, Its President By: /s/ Sergio Soria ------------------------------------------- Sergio Soria, Its Facilities Manager Page 2 of 2 LEASE RIDER NO. 2 LEASE MODIFICATIONS ------------------- THIS LEASE RIDER is attached to and made a part of that certain Office Lease dated March 31, 2000, by and between PAC COURT ASSOCIATES, L.P. a California limited partnership, as "Landlord", and NOOSH, INC., a California corporation, as "Tenant", for the Premises known as 114 Pacifica, Suite 430, Irvine, California 92618. The capitalized terms used and not otherwise defined herein shall have the same definitions as set forth in the Lease. The provisions of this Lease Rider shall supersede any inconsistent or conflicting provisions of the Lease. A. Advance for Excess Tenant Improvements. Tenant has a Tenant Improvement Allowance of $98,040.00. Provided that Landlord has approved, in its sole discretion, the Tenant Improvements and the Tenant Improvement Costs, Landlord shall advance ("Additional TI Advance") fifty percent (50%) of the amount that the Tenant Improvements Costs exceed the Tenant Improvement Allowance. In no event shall the Additional TI Advance exceed $16,340.00. The Additional TI Advance shall increase the Monthly Rent during the initial Term of the Lease by an amount equal to the product of the Additional TI Advance multiplied by 0.0218. Tenant and Landlord shall execute an amendment to this Lease which shall set forth the appropriate increased Monthly Rent. B. Section 5.2: Compliance with Applicable Laws. The following sentence is added to the end of Section 5.2: ----------- Tenant shall not be responsible for compliance with any Applicable Laws not related to Tenant's use and occupancy of the Premises, Building or Common Area. C. Section 7.3: Definition of Operating Expenses. The following sentence is added to the end of Section 7.3: ----------- The cost, if any, of remediating Hazardous Materials which were located on the Project prior to the date of this Lease shall not be included within Operating Expenses. D. Section 8.1: Permitted Alterations. The following sentences are added at the end of Section 8.1: ----------- Notwithstanding the foregoing, Tenant shall have the right, without Landlord's consent, to make strictly cosmetic, non-structural additions and alterations which do not create a Design Problem and cost not more than $1,000, provided that Tenant has given five (5) business days prior notice to Landlord and delivered accurate plans and specifications. E. Section 14.6: Certain Transfers. The following sentences are added at the end of Section 14.6: ------------ Notwithstanding anything to the contrary contained in this Lease, Tenant may assign this Lease or sublet the Premises, or any portion thereof, without Landlord's consent, to any entity which controls, is controlled by, or is under common control with Tenant (hereinafter a "Permitted Transfer"). In addition, a sale or transfer of the capital stock of Tenant shall be deemed a Permitted Transfer if Tenant becomes a publicly traded corporation. The foregoing notwithstanding, no Permitted Transfer shall release the Tenant named herein from any liability under this Lease. Tenant shall immediately notify Landlord of any Permitted Transfer. For purposes of this Lease, "control" shall mean the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a person or entity, or majority ownership of any sort, whether through the ownership of voting securities, by contract or otherwise. [Signatures on the next page.] Page 1 of 2 "LANDLORD" PAC COURT ASSOCIATES, L.P., a California limited partnership By: Banyan Pacific, LLC, a California limited liability company, general partner By: Banyan Realty Group, LLC, a California limited liability company, managing member By: /s/ George W. Ceithaml ----------------------------------- George W. Ceithaml, Trustee of the Ceithaml Living Trust #2 dated April 15, 1989, managing member "TENANT" NOOSH, INC., a California corporation By: /s/ Ofer Ben-Shachar ----------------------------------- Ofer Ben-Shachar, Its President By: /s/ Sergio Soria ------------------------------------ Sergio Soria, Its Facilities Manager Page 2 of 2 EXHIBIT "C" WORK LETTER ----------- This Exhibit is attached to and made a part of that certain Standard Form Office Lease dated March 31, 2000, by and between PAC COURT ASSOCIATES, L.P., a California limited partnership, as "Landlord", and NOOSH, INC., a California corporation, as "Tenant", for the Premises known as 114 Pacifica, Suite 340, Irvine, California. 1. APPLICATION OF EXHIBIT Capitalized terms used and not otherwise defined herein shall have the same definitions as set forth in the Lease. The provisions of this Work Letter shall apply to the planning and completion of leasehold improvements requested by Tenant (the "Tenant Improvements") for the fitting out of the initial Premises, as more fully set forth herein. Unless otherwise expressly provided, all references to "days" in this Exhibit "C", shall be business days. ----------- 2. LANDLORD AND TENANT PRE-CONSTRUCTION OBLIGATIONS (a) Preliminary Space Plan. Prior to full execution of this Lease by both Landlord and Tenant, Landlord's Architect shall have completed and Tenant shall have approved a Preliminary Space Plan for Tenant Improvements (the "Preliminary Space Plan"), also known as a "test fit plan" which shall depict the general design of the Premises including location and relative sizes of offices and other enclosed rooms, open work areas as well as entry/exit locations. Execution of this Lease confirms Tenant Approval of said Preliminary Space Plan. (b) Pricing Plan. Within three (3) days following Tenant approval of the Preliminary Space Plan, Landlord's Architect shall complete a pricing plan ("Pricing Plan") for the Tenant Improvements which shall include, without limitation, drawings showing the locations of doors, partitioning, electrical outlets, lighting, plumbing fixtures, floor loads and other unusual requirements, and a list of all specialized installations and improvements and upgrade specifications determined by Tenant as required for its use of the Premises and which differ from the Building Standard Tenant Improvement Specifications then in effect. Tenant agrees to and shall promptly and fully cooperate with Landlord's Architect and shall supply all information Landlord's Architect deems necessary for the preparation of the Pricing Plan. Tenant acknowledges that the Pricing Plan shall be prepared by Landlord's Architect after consultation and cooperation between Tenant and Landlord's Architect regarding the proposed Tenant Improvements and Tenant's requirements. Landlord and Landlord's Architect shall be entitled, in all respects, to rely upon all information supplied by Tenant regarding the Tenant Improvements. Tenant shall approve the Pricing Plan within two (2) days following delivery thereof to Tenant by Landlord. The costs associated with preparation of the Pricing Plan shall be paid in the manner set forth in Sections 5 and 6 of the Work Letter. (c) Cost Approval - Pricing Plan. Within five (5) days following Tenant's approval of the Pricing Plan, Landlord shall submit to Tenant a preliminary written estimate ("Preliminary Estimate") of such Tenant Improvement Costs as hereinafter defined (including the amount to be paid for all plans referenced in this Exhibit and other non-construction costs). All costing shall be based on the Building Standard Tenant Improvement Specifications then in effect, unless otherwise noted. Tenant shall be obligated to bear the excess of the Tenant Improvement Costs in excess of the amount of the Tenant Improvement Allowance (as hereinafter defined), provided, however, that Tenant shall have two (2) days after receipt of the Preliminary Estimate in which to (a) elect to terminate this Lease by written notice to Landlord, or (b) submit to Landlord's Architect such revisions and modifications of the Pricing Plan, satisfactory in all respects to Landlord, as will reduce the estimated costs to an amount acceptable to Tenant. Failure to notify Landlord of Tenant's election to either cancel this Lease or revise the Pricing Plan shall be deemed Tenant's acceptance of the Preliminary Estimate and Tenant's agreement to pay the excess of the Tenant Improvement Costs over the Tenant Improvement Allowance. (d) Working Drawings. Within three (3) weeks following Tenant's approval of the Preliminary Estimate (whether as originally calculated or following Tenant's revision of the Pricing Plan), Landlord's Architect shall complete working drawings (the "Working Drawings") for the Tenant Improvements based upon the approved Pricing Plan. The Working Drawings shall include architectural, mechanical and electrical construction drawings for the Tenant Improvements based on the Pricing Plan. Notwithstanding the Pricing Plan, in all cases the Working Drawings (i) shall be subject to Landlord's final approval, which approval shall not be unreasonably withheld, (ii) shall not be in conflict with building codes for the City or County or with insurance requirements, and (iii) shall be in a form satisfactory to appropriate governmental authorities responsible for issuing permits and licenses required for construction. The costs associated with preparation of the Working Drawings shall be paid in the manner set forth in Sections 5 and 6 of this Work Letter. Page 1 of 5 (e) Approval of Working Drawings. Landlord or Landlord's Architect shall submit the Working Drawings to Tenant for Tenant's review, and Tenant shall notify Landlord and Landlord's Architect within two (2) days after delivery thereof of any requested revisions. Within three (3) days after receipt of Tenant's notice, Landlord's Architect shall draft all revisions to the Working Drawings that are approved by Landlord and shall submit two (2) copies thereof to Tenant for its final review and approval, which approval shall be given within two (2) days thereafter. Concurrently with the above review and approval process, Landlord may submit all plans and specifications to City and other applicable governmental agencies in an attempt to expedite City approval and issuance of all necessary permits and licenses to construct the Tenant Improvements as shown on the Working Drawings. Any changes which are required by City or other governmental agencies shall be immediately submitted to Landlord for Landlord's review and reasonable approval, and Landlord shall promptly notify Tenant of such changes. (f) Schedule of Critical Dates. Set forth below is a schedule of certain critical dates relating to Landlord's and Tenant's respective obligations for the design, approval, cost and construction of the Tenant Improvements. Such dates and the respective obligations of Landlord and Tenant are more fully described elsewhere in this Work Letter. The purpose of the following schedule is to provide a reference for Landlord and Tenant and to make certain the Final Approval Date occurs as set forth herein. Following the Final Approval Date, Tenant shall be deemed to have released Landlord to commence construction of the Tenant Improvements as set forth in Section 4 below.
Reference Date Due Responsible Party --------- -------- ----------------- A. "Preliminary Space Plan Prior to full execution of the Lease Tenant and Completion" Landlord B. "Pricing Plan Completion" Three (3) days after approval of Landlord Preliminary Space Plan C. "Approval of Pricing Plan" Two (2) days after submission to Tenant Tenant of Pricing Plan D. Preliminary Cost Five (5) days after Tenant approval of Landlord Pricing Plan E. Approval of Preliminary Two (2) days after submission to Tenant Tenant Cost of Preliminary Cost F. "Working Drawings Three (3) weeks after Tenant approval of Landlord Completion" Preliminary Cost to complete Tenant Improvements G. "Approval of Working Two (2) days after submission to Tenant Tenant Drawings" of Working Drawings H. "Working Drawing Revision Three (3) days after Landlord's receipt Landlord Completion" (if applicable) of Tenant revisions to Working Drawings I. "Final Approval Date" Two (2) days after submission to Tenant Tenant of Working Drawings Revision or upon Tenant approval of Working Drawings. J. Final Cost Estimate Five (5) days from receipt of Tenant Landlord Approval of Working Drawings K. Approval of Final Cost Two (2) days after submission to Tenant Tenant Estimate of Final Cost Estimate L. City Working Drawings Three (3) days after Landlord's receipt Landlord Revision Completion of City revisions to Working Drawings M. Approval of City Working Two (2) days after submission to Tenant Tenant Drawings Revisions of City Working Drawings Revisions (if substantial)
3. BUILDING PERMIT After the Final Approval Date has occurred, Landlord shall, if Landlord has not already done so, submit the Working Drawings to the appropriate governmental body or bodies for final plan checking and a building permit. Landlord, with Tenant's cooperation, shall cause to be made any change in the Working Page 2 of 5 Drawings necessary to obtain the building permit; provided, however, after the Final Approval Date, no substantial changes shall be made to the Working Drawings that will: (i) substantially increase the cost to Tenant; or, (ii) materially and adversely affect the use of the Premises by Tenant, without the prior written approval of both Landlord and Tenant to occur within two (2) days of presentation of said changes and increased costs, and then only after agreement by Tenant to pay any excess costs resulting from such changes. 4. CONSTRUCTION OF TENANT IMPROVEMENTS After the Final Approval Date has occurred and a building permit for the work has been issued, Landlord shall, through a guaranteed maximum cost or fixed price (at Landlord's sole option) construction contract ("Construction Contract") with a reputable, licensed contractor selected by Landlord ("Contractor"), cause the construction of the Tenant Improvements to be carried out in substantial conformance with the Working Drawings in a good and workmanlike manner using first class materials. The costs associated with the construction of the Tenant Improvements shall be paid as set forth in Sections 5 and 6 of this Work Letter. Landlord shall see that the construction complies with all Applicable Laws, including applicable building, fire, health, and sanitary codes and regulations, the satisfaction of which shall be evidenced by a certificate of occupancy for the Premises. Upon substantial completion of the Tenant Improvements, Tenant shall comply with all laws, ordinances, regulations, requirements and other directives of any federal, state or local governmental or quasi-governmental authority having or exercising jurisdiction there over. Tenant shall not use or occupy the Premises, or knowingly permit it to be used or occupied, contrary to any statute, rule, order, ordinance, requirement or regulation applicable thereto, or in any manner which would violate any certificate of occupancy affecting the same, or which would violate any certificate of occupancy affecting the same, or which would make void or voidable any insurance then in force with respect thereto or which would cause structural injury to the improvements or cause the value or usefulness of the Premises, or any portion thereof, substantially to diminish (reasonable wear and tear excepted), or which would constitute a public or private nuisance or waste and Tenant agrees that it will promptly, upon discovery of any such use, take all necessary steps to compel the discontinuance of such use. Tenant shall obtain and pay for all permits, required for Tenant's occupancy of the Premises and shall promptly take all substantial and non-substantial actions necessary to comply with all applicable statutes, ordinances, rules, regulations, orders and requirements regulating the use by Tenant of the Premises, including, without limitation, the Occupational Health and Safety Act and the Americans with Disabilities Act. If requested by Landlord, Tenant shall provide evidence satisfactory to Landlord of Tenant's compliance. 5. TENANT IMPROVEMENT ALLOWANCE Landlord shall provide Tenant with a Tenant Improvement Allowance in the amount of Ninety Eight Thousand Forty Dollars ($98,040.00) (as adjusted pursuant to Paragraph A of Lease Rider No. 2 - Lease Modifications) towards the ----------- cost of the design, permitting and construction of the Tenant Improvements, including without limitation design, engineering and consulting fees (collectively, the "Tenant Improvement Costs"). The Tenant Improvement Allowance shall be used for payment of the following Tenant Improvements Costs: (a) Preparation by Landlord's Architect of the Preliminary Space Plan, Pricing Plan and the Working Drawings and any and all revisions to same as provided in Section 2 of this Work Letter, including without limitation all fees charged by City (including without limitation fees for governmental review including building permits and plan checks) in connection with the Tenant Improvements work in the Premises; (b) Construction work for completion of the Tenant Improvements as reflected in the Construction Contract, as well as the costs of suite and directory sign identification of Tenant; and (c) All contractors' charges, general conditions, performance bond premiums, construction fees, and construction management and supervision fees. Notwithstanding anything in this Exhibit to the contrary, any costs that are due to the following shall not be included in the cost of Tenant Improvements: (i) any costs incurred due to the remediation of Hazardous Materials existing on the Project prior to the date of this Lease, and (ii) any costs incurred to correct any non-compliance with codes, laws, or statutes where such non-compliance existed prior to the date of this Lease. 6. COSTS IN EXCESS OF TENANT IMPROVEMENT ALLOWANCE AT TENANT'S EXPENSE (a) Cost Approval. Tenant shall be obligated to bear the excess of the Tenant Improvement Costs in excess of the amount of the Tenant Improvement Allowance (as adjusted pursuant to Paragraph A of Lease Rider No. 2 - Lease ----------- Modifications) available to defray such costs. Within five (5) days of the submission of Working Drawings for plan checking referred to in Section 3 of this Work Letter, Landlord shall prepare and Page 3 of 5 submit to Tenant a written estimate of the amount of the total Tenant Improvement Costs (the "Final Estimate"). In the event the Final Estimate exceeds the TI Cost Estimate (defined below) by more than five percent (5%), Tenant shall either approve or disapprove the Final Estimate by written notice delivered to Landlord within two (2) days after Tenant's receipt thereof. If Tenant fails to deliver to Landlord written notice of its disapproval within such two (2) day period or if the Final Estimate does not exceed the TI Cost Estimate by more than five percent (5%), Tenant shall be deemed to have approved the Final Estimate. If the Final Estimate exceeds the TI Cost Estimate and Tenant approves (or is deemed to have approved) the Final Estimate, Tenant shall include payment to Landlord for the full amount of such excess within said two (2) day period. Landlord shall not have any obligation to commence construction of the Tenant Improvements until Tenant has paid to Landlord the full amount of any such excess, and any delay in the commencement of construction of the Tenant Improvements resulting therefrom shall be chargeable to Tenant as a Tenant Delay (defined below). If Tenant disapproves the Final Estimate within the two (2) day period, Landlord shall have the right to instruct Landlord's Space Planner to revise the Working Drawings in a manner satisfactory to Landlord, after consultation with Tenant, so as to reduce the estimated costs to an amount not greater than five percent (5%) over the TI Cost Estimate, and any excess estimated costs remaining after such amendment shall be paid by Tenant within two (2) days of Tenant's receipt of the revised estimate. If the revised estimated costs remain greater than five percent (5%) over the TI Cost Estimate, then Landlord may, at its sole option, either (i) proceed with the construction of the Tenant Improvements in accordance with the revised Working Drawings, and absorb the cost in excess of five percent (5%) over the TI Cost Estimate, or (ii) terminate this Lease by written notice to Tenant. The term "TI Cost Estimate" shall refer to the greater of the Preliminary Estimate or the Tenant Improvement Allowance (as adjusted pursuant to Paragraph A of Lease Rider No. ----------- 2 - Lease Modifications), but, in any case, "TI Cost Estimate" shall exclude all costs associated with change orders requested by Tenant. (b) Final Costs. Within ninety (90) days after completion by Landlord of the Tenant Improvements, Landlord shall determine the actual final Tenant Improvements Costs and shall submit a written statement of such amount to Tenant. If any estimate previously paid by Tenant exceeds the amount due hereunder from Tenant for such work, such excess shall be refunded to Tenant. If any amount is still due from Tenant for such work, then Tenant shall pay such amount in full within ten (10) days of receipt of Landlord's statement. 7. CHANGE ORDERS Tenant may from time to time request and obtain change orders during the course of construction provided that: (a) each such request shall be reasonable, shall be in writing and signed by or on behalf of Tenant, and shall not result in any structural change in the Building, as reasonably determined by Landlord; (b) all additional charges and costs, including without limitation architectural and engineering costs, construction and material costs, delay costs resulting from such change orders, processing costs of any governmental entity, and increased construction, construction management and supervision fees, together with an administrative fee to Landlord to cover its change order processing costs of One Hundred Dollars ($100.00) per occurrence, shall be the sole and exclusive obligation of Tenant; and (c) any resulting delay in the completion of the Tenant Improvements shall be deemed a Tenant Delay and in no event shall extend the Commencement Date of the Lease. Upon Tenant's request for a change order, Landlord shall as soon as reasonably possible submit to Tenant a written estimate of the increased or decreased cost and anticipated delay, if any, attributable to such requested change. Within two (2) days of the date such estimated cost adjustment and delay are delivered to Tenant, Tenant shall advise Landlord whether it wishes to proceed with the change order, and if Tenant elects to proceed with the change order, Tenant shall remit, concurrently with Tenant's notice to proceed, the amount of the increased cost, if any, attributable to such change order. Election by Tenant to not proceed with any change order shall not relieve Tenant from its obligation to pay to Landlord its administration processing charge of One Hundred Dollars ($100.00). Unless Tenant includes in its initial change order request that the work in process at the time such request is made be halted pending approval and execution of a change order, Landlord shall not be obligated to stop construction of the Tenant Improvements, whether or not the change order relates to the work then in process or about to be started. 8. TENANT DELAYS In no event shall the Commencement Date of the Lease be extended or delayed due or attributable to delays due to the fault of Tenant ("Tenant Delays"). Tenant Delays shall include, but are not limited to, delays caused by or resulting from any one or more of the following: (a) Tenant's failure to timely review and reasonably approve the Preliminary Space Plan, Pricing Plan or Working Drawings or to promptly cooperate with Landlord's Architect and furnish information to Landlord for the preparation of the Preliminary Plan, Pricing Plan and Working Drawings; Page 4 of 5 (b) Tenant's request for or use of special materials, finishes or installations which are not readily available, provided that Landlord shall notify Tenant in writing that the particular material, finish, or installation is not readily available promptly upon Landlord's discovery of same; (c) Change orders requested by Tenant; (d) Interference by Tenant or by Tenant's Agents with Landlord's construction activities; (e) Tenant's failure to approve any other item or perform any other obligation in accordance with and by the dates specified herein or in the Construction Contract; (f) Tenant's requested changes in the Preliminary Space Plan, Pricing Plan, Working Drawings or any other plans and specifications after the approval thereof by Tenant or submission thereof by Tenant to Landlord; (g) Tenant's failure to approve written estimates of costs in accordance with this Work Letter; and (h) Tenant's obtaining or failure to obtain any necessary governmental approvals or permits for Tenant's intended use of the Premises. If the Commencement Date of the Lease is delayed by any Tenant Delays, whether or not within the control of Tenant, then the Commencement Date of the Lease and the payment of Rent shall be accelerated by the number of days of such delay. Landlord shall give Tenant written notice within a reasonable time of any circumstance that Landlord believes constitutes a Tenant Delay. 9. TRADE FIXTURES AND EQUIPMENT Tenant acknowledges and agrees that Tenant is solely responsible for obtaining, delivering and installing in the Premises all necessary and desired furniture, trade fixtures, equipment and other similar items, and that Landlord shall have no responsibility whatsoever with regard thereto. Tenant further acknowledges and agrees that neither the Commencement Date of the Lease nor the payment of Rent shall be delayed for any period of time whatsoever due to any delay in the furnishing of the Premises with such items. 10. FAILURE OF TENANT TO COMPLY Any failure of Tenant to comply with any of the provisions contained in this Work Letter within the times for compliance herein set forth shall be deemed a default under the Lease. In addition to the remedies provided to Landlord in this Work Letter upon the occurrence of such a default by Tenant, Landlord shall have all remedies available at law or equity to a landlord against a defaulting tenant pursuant to a written lease, including but not limited to those set forth in the Lease. Page 5 of 5 EXHIBIT "D" COMMENCEMENT DATE MEMORANDUM ---------------------------- DATE:______________________________, 2000 RE: Office Lease dated ___________________, 2000, by and between Pac Court Associates, L.P., a California limited partnership, as "Landlord", and Noosh, Inc., a California corporation, as "Tenant", for the Premises known as 114 Pacifica, Suite 340, Irvine, California. AGREEMENT --------- The undersigned hereby agree as follows: 1. The Tenant Improvements (as defined in the Lease) to the Premises have been substantially completed in accordance with the terms and conditions of the Lease, subject only to "punch list" items agreed to by Landlord and Tenant pursuant to the terms of the Lease. 2. The Commencement Date, as defined in and determined in accordance with the Lease, is hereby stipulated for all purposes to be ____________________________________________________. 3. In accordance with the Lease, Monthly Rent (as defined in the Lease) in the amount of $____________________________, subject to adjustment in accordance with the terms of the Lease, commences to accrue on ________________________________ and is due and payable in advance on the first day of each and every month during the Term (as defined in the Lease). Unless and until notified by Landlord to the contrary, Tenant shall make its Rent checks payable to ____________________________________________________. "LANDLORD" PAC COURT ASSOCIATES, L.P., a California limited partnership By: Banyan Pacific, LLC, a California limited liability company, general partner By: Banyan Realty Group, LLC, a California limited liability company, managing member By: /s/ George W. Ceithaml ------------------------------- George W. Ceithaml, Trustee of the Ceithaml Living Trust #2 dated April 15, 1989, managing member "TENANT" NOOSH, INC., a California corporation By: /s/ Hagi Schwartz ------------------------------------------ Hagi Schwartz, Its Chief Financial Officer By: /s/ Sergio Soria ------------------------------------------ Sergio Soria, Its Facilities Manager EXHIBIT "E" RULES AND REGULATIONS --------------------- 1. Landlord shall furnish to the Premises during the hours of 8:00 a.m. and 6:00 p.m., Monday through Friday, and 8:00 a.m. to 1:00 p.m. on Saturday, generally recognized national holidays excepted, reasonable air conditioning, heating and ventilation services. Landlord shall also furnish the Building with elevator service, reasonable amounts of electricity for normal lighting and office equipment, and water for lavatory and drinking purposes. 2. Landlord shall have the right from time to time to establish reasonable rules pertaining to elevator usage, including the allocation and reservation of such usage for Tenant' initial move-in to the Premises, subsequent deliveries to or removal of items from the Premises, and vacation of the Premises. 3. Landlord shall provide janitorial services five (5) days per week, Sunday through Thursday. The cleaning services provided by Landlord shall exclude refrigerators, microwave ovens and eating utensils (plates, drinking containers and silverware), and interior glass partitions. Should Tenant require any additional or unusual janitorial services necessitated by any nonstandard improvements to the Premises, including, without limitation, wall coverings and upgraded floor coverings installed by or for Tenant, or by reason of any use of the Premises which is in violation of the Lease (and nothing herein shall be deemed a waiver of any such violation), Tenant shall pay to Landlord the cost of any such additional services. Tenant shall pay Landlord for the cost of removal of any of Tenant's refuse and rubbish to the extent that they exceed the amounts usually generated by normal office usage, in Landlord's sole discretion. Any person employed by Tenant to provide janitorial or security services shall, while in the Project and outside of the Premises, be subject to and under the control and direction of Landlord or its designated representative (but not as an agent or servant of Landlord, and the Tenant shall be responsible for all acts of such persons). 4. No sign, advertisement or notice shall be displayed, printed or affixed on or to the Premises or to the outside or inside of the Project or so as to be visible from outside the Premises or Project without Landlord's prior written consent. Landlord shall have the right to remove any non-approved sign, advertisement or notice, without notice to and at the expense of Tenant, and Landlord shall not be liable in damages for such removal. All approved signs or lettering on doors and walls shall be printed, painted, affixed or inscribed at the expense of Tenant by Landlord or by a person selected by Landlord and in a manner and style acceptable to Landlord. 5. Tenant shall not obtain for use on the Premises ice, waxing, cleaning, interior glass polishing, rubbish removal, towel or other similar services, or accept barbering or bootblackening, or coffee cart services, milk, soft drinks or other like services on the Premises, except from persons authorized by Landlord and at the hours and under regulations fixed by Landlord. No vending machines or machines of any description shall be installed, maintained or operated upon the Premises without Landlord's prior written consent. 6. The sidewalks, halls, passages, exits, entrances, elevators and stairways shall not be obstructed by Tenant or used for any purpose other than for ingress and egress from Tenant's Premises. Under no circumstances is trash to be stored in the corridors. Written notice must be given to Landlord prior to Tenant's move-in, move-out and prior to any subsequent deliveries, including deliveries of furniture, freight and other large or heavy articles. These and all other deliveries may be brought into the Project only at times and in the manner designated by Landlord, as designated in a set of sub-rules and regulations prepared from time to time by Landlord and delivered to Tenant prior to any such move-in, move-out or delivery. These sub-rules and regulations may include, without limitation, a designation of the building door or doors which Tenant may utilize for deliveries, a designation of those sections of the Common Area which may be utilized by delivery vehicles for the purpose of loading or unloading, a requirement of the use of elevator pads, or temporary masonite or plywood floorings, and other protective measures to prevent damage to elevators, floors and walls, and a designation of the days and hours during which deliveries may be made. All deliveries shall always at Tenant's sole responsibility and risk. Tenant shall, prior to any move-in, move-out or delivery activity, obtain and comply with Landlord's current rules relating to such activities. All damage done to the Project by moving or maintaining such furniture, freight or articles shall be repaired by Landlord at Tenant's expense. Tenant shall move all supplies, furniture and equipment as soon as received directly to the Premises, and shall move all waste that is at any time being taken from the Premises directly to the areas designated for disposal. 7. Toilet rooms, toilets, urinals, wash bowls and other apparatus shall not be used for any purpose other than for which they were constructed and no foreign substance of any kind whatsoever shall be thrown therein. 8. Tenant shall not overload the floor of the Premises or mark, drive nails, screw or drill into the partitions, ceilings or floor or in any way deface the Premises. Tenant shall not place typed, handwritten or computer generated signs in the corridors or any other common areas. 9. In no event shall Tenant place a load upon any floor of the Premises or portion of any such flooring exceeding the floor load per square foot of area for which such floor is designed to carry and which is allowed by law, or any machinery or equipment which shall cause excessive vibration to the Premises or noticeable vibration to any other part of the Project. Prior to bringing any heavy safes, vaults, large computers or similarly heavy equipment into the Project, Tenant shall inform Landlord in writing of the dimensions and weights thereof and shall obtain Landlord's consent thereto. Such consent shall not constitute a representation or warranty by Landlord that the safe, vault or other equipment complies, with regard to distribution of weight and/or vibration, with the provisions of this Rule 8 nor relieve Tenant from responsibility for the consequences of such noncompliance, and any such safe, vault or other equipment which Landlord determines to constitute a danger of damage to the Project or a nuisance to other tenants, either alone or in combination with other heavy and/or Page 1 of 4 vibrating objects and equipment, shall be promptly removed by Tenant, at Tenant's cost, upon Landlord's written notice of such determination and demand for removal thereof. 10. Tenant shall not use or keep in the Premises or Project any kerosene, gasoline or inflammable, explosive or combustible fluid or material, or use any method of heating or air-conditioning other than that supplied by Landlord. 11. Tenant shall not lay linoleum, tile, carpet or other similar floor covering so that the same shall be affixed to the floor of the Premises in any manner except as approved by Landlord. 12. Tenant shall not install or use any blinds, shades, awnings or screens in connection with any window or door of the Premises and shall not use any drape or window covering facing any exterior glass surface other than the standard drapes, blinds or other window covering established by Landlord. 13. Tenant shall cooperate with Landlord in obtaining maximum effectiveness of the cooling system by closing window coverings when the sun's rays fall directly on windows of the Premises. Tenant shall not obstruct, alter, or in any way impair the efficient operation of Landlord's heating, ventilating and air-conditioning system. Tenant shall not tamper with or change the setting of any thermostats or control valves. If any lights, machines or equipment are used by Tenant in the Premises which materially affect the temperature otherwise maintained by the air conditioning system, or generate substantially more heat in the Premises than would be generated by the building standard lights and usual office equipment, Landlord shall have the right, at its election, to install or modify any machinery and equipment to the extent Landlord deems necessary to restore temperature balance. The cost of installation, and any additional cost of operation and maintenance, shall be paid by Tenant to Landlord promptly upon demand. 14. The Premises shall not be used for manufacturing or for the storage of merchandise except as such storage may be incidental to the permitted use of the Premises. Tenant shall not, without Landlord's prior written consent, occupy or permit any portion of the Premises to be occupied or used for the manufacture or sale of liquor or tobacco in any form, or a barber or manicure shop, or as an employment bureau. The Premises shall not be used for lodging or sleeping or for any improper, objectionable or immoral purpose. No auction shall be conducted on the Premises. 15. Tenant shall not make, or permit to be made, any unseemly or disturbing noises, or disturb or interfere with occupants of Project or neighboring buildings or premises or those having business with it by the use of any musical instrument, radio, phonographs or unusual noise, or in any other way. 16. No bicycles, vehicles or animals of any kind shall be brought into or kept in or about the Premises, and no cooking shall be done or permitted by any tenant in the Premises, except that the preparation of coffee, tea, hot chocolate and similar items for Tenant and its employees and visitors shall be permitted. Tenant not shall cause or permit any unusual or objectionable odors to be produced in or permeate from or throughout the Premises. The foregoing notwithstanding, Tenant shall have the right to use a microwave and to heat microwaveable items typically heated in an office. No hot plates, toasters, toaster ovens or similar open element cooking apparatus shall be permitted in the Premises. Tenant shall maintain all parts of the Premises, including without limitation all cooking and eating areas, in a neat and sanitary condition and free of crumbs, spills, spoilage, and any other condition which may attract insects, rodents or other vermin. 17. The sashes, sash doors, skylights, windows and doors that reflect or admit light and air into the halls, passageways or other public places in the Project shall not be covered or obstructed by Tenant, nor shall any bottles, parcels or other articles be placed on the window sills. 18. No additional locks or bolts of any kind shall be placed upon any of the doors or windows by Tenant, nor shall any changes be made in existing locks or the mechanisms thereof unless Landlord is first notified thereof, gives written approval, and is furnished a key therefor. Tenant must, upon the termination of its tenancy, give to Landlord all keys and key cards of stores, offices, or toilets or toilet rooms, either furnished to or otherwise procured by Tenant, and in the event of the loss of any keys so furnished, Tenant shall pay Landlord the cost of replacing the same or of changing the lock or locks opened by such lost key if Landlord shall deem it necessary to make such change. If more than two keys for one lock are desired, Landlord will provide them upon payment therefor by Tenant. Tenant shall not key or re-key any locks. All locks shall be keyed by Landlord's locksmith only. 19. Landlord shall have the right to prohibit any advertising by Tenant which, in Landlord's opinion, tends to impair the reputation of the Project or its desirability as an office building and upon written notice from Landlord Tenant shall refrain from and discontinue such advertising. 20. Tenant shall have access to the Building 24 hours per day, 7 days per week, 52 weeks per year, provided that Landlord may, but shall not be obligated to, install such access control systems as it deems advisable for the Building. Such systems may, but need not, include a card identification system, tenant access control system, fire stairwell exit door alarm system, elevator control system or any other access controls, in Landlord's discretion. In the event that Landlord elects to provide any or all of such systems or services, Landlord may discontinue providing them, or any of them, at any time with or without notice and in Landlord's sole and absolute discretion. Landlord may require a deposit as security against the loss of access control cards and/or keys issued to a Tenant and/or require a fee for the replacement of lost keys and/or access control cards. Landlord shall have no liability to Tenant for the provision by Landlord of improper or inadequate access control services, for any breakdown in service, or for the failure by Landlord to provide access control services or any particular access control service. Page 2 of 4 Tenant further acknowledges that Landlord's access control systems may be temporarily inoperative during building emergencies or system repairs. Tenant agrees to assume responsibility for compliance by its employees with any regulations established by Landlord with respect to any access control cards or any other system of building access as Landlord may establish, and further agrees to supply Landlord with, and update as necessary, a list of employees who have been provided with any access control cards, keys, or any other means of building access. In addition, upon any termination of employment of any employee formerly provided with any such means of access, Tenant agrees to require the return of any access control cards, keys, and any other devices, and to immediately notify Landlord of such termination and of any failure by Tenant to secure the return of any access control card or other device. Returned access control cards or other computer-encoded devices must be turned in to Landlord for reprogramming prior to any transfer to a new employee. If Tenant utilizes the services of outside vendors or service personnel, such as water delivery or plant maintenance, Tenant shall provide Landlord with a list of such persons or companies whether or not they have been provided with any access control cards or other means of access. Tenant shall be responsible for all persons to whom it allows after-hours access and shall be liable to Landlord for all acts of such persons. Tenant shall provide Landlord with the name and telephone numbers (including any mobile phone numbers) of an after-hours emergency contact on behalf of Tenant and the name and phone numbers of any security company providing security to the Premises. Should Tenant elect to provide its own security system with respect to the Premises, Tenant shall provide Landlord with advance notice of the installation of such system, a brief description of the operation of such system, the security code or codes to be used, and the names and telephone numbers (home and mobile) of two (2) emergency contacts on behalf of Tenant. 21. All doors opening on to public corridors shall be kept closed, except when being used for ingress and egress. Tenant shall cooperate and comply with any reasonable safety or security programs, including fire drills and air raid drills, and the appointment of "fire wardens" developed by Landlord for the Project, or required by law. Before leaving the Premises unattended, Tenant shall close and securely lock all doors or other means of entry to the Premises and shut off all lights and water faucets in the Premises. 22. The maintenance and service requirements of Tenant will be attended to only in response to inquiries made to Landlord's designated representatives. 23. Canvassing, soliciting and peddling in, at or around the Project are prohibited and Tenant shall cooperate to prevent the same. 24. All office equipment of any electrical or mechanical nature shall be placed by Tenant in the Premises in settings approved by Landlord, to absorb or prevent any vibration, noise or annoyance. Tenant shall furnish and utilize plastic or wood floor mats so as to minimize carpet damage resulting from the use of rollers on chairs. 25. No air-conditioning unit or other similar apparatus shall be installed or used by Tenant without the prior written consent of Landlord. Tenant shall pay the cost of all electricity used for air-conditioning in the Premises if such electrical consumption exceeds normal office requirements, regardless of whether additional apparatus is installed pursuant to the preceding sentence. 26. There shall not be used in any space, or in the public halls of the Project, either by or on behalf of Tenant, any hand trucks except those equipped with rubber tires and side guards. 27. All electrical ceiling fixtures hung in offices or spaces along the perimeter of the Project must be fluorescent and/or of a quality, type, design and bulb color approved by Landlord. Tenant shall not permit the consumption in the Premises of more than 2 1/2 watts per net usable square foot in the Premises in respect of office lighting nor shall Tenant permit the consumption in the Premises of more than 1 1/2 watts per net usable square foot of space in the Premises in respect of the power outlets therein, at any one time. In the event that such limits are exceeded, Landlord shall have the right to require Tenant to remove lighting fixtures and equipment and/or to charge Tenant for the cost of the additional electricity consumed. 28. Parking. a) Landlord agrees to maintain, or cause to be maintained, an area specially designated as automobile parking (the "Parking Area"). The Parking Area shall be for the use of Tenant, employees of Tenant, and other tenants or occupants of the Building, as well as patrons, visitors and other invitees of the Building. The Parking Area shall not be used to park large trucks or recreational vehicles. b) All vehicles must observe all directional signs and arrows and any posted speed limits. Unless otherwise posted, in no event shall the speed limit exceed five (5) miles per hour. c) All vehicles shall park in one (1) stall only. No vehicles shall be parked in areas which are posted or marked as "no parking" or on or in ramps, driveways, aisles or any other area not striped or otherwise designated for parking. Tenant and its employees shall not park in areas designated as "Guest Parking", "Visitor Parking" or as being time-limited, such as "1 Hour Parking". Any vehicle parked for any length of time deemed excess by Landlord shall be subject to towing without notice and at the vehicle owner's expense. In no event shall Tenant or its employees interfere with the use and enjoyment of the Parking Area by other tenants of the Building or their employees or invitees. d) Washing, waxing, cleaning or servicing of vehicles is prohibited unless authorized by Landlord. Page 3 of 3 e) Landlord shall not be liable for any damage to a vehicle and all persons parking in the Parking Area are instructed to lock their vehicles. All responsibility for any loss or damage to any vehicle or any personal property therein is assumed by the parker. f) Overnight parking is prohibited unless authorized in advance by Landlord. g) Tenant agrees to furnish to Landlord, upon request, a list of its employees' names and of Tenant's and its employees' vehicle license numbers. h) Tenant shall not use more parking spaces than specifically allocated to it under Section 10.7 of the Lease; nor shall Tenant assign nor sublet any of such spaces, either voluntarily or by operation of law, without the prior written consent of Landlord, except in connection with an authorized assignment of Tenant's Lease or an authorized subletting of the Premises. 29. The Project is a non-smoking Project. Smoking or carrying lighted cigars or cigarettes in the Premises or the Project, including the elevators in the Project, is prohibited. 30. Landlord shall have the right to control access to the telephone and telecommunications rooms and facilities within the Project for the privacy, security and benefit of all Project tenants and Landlord, and may specify from time to time the manner in which connections to such facilities are performed. 31. If Tenant has the right to use a balcony adjacent to the Premises (the "Balcony"), the foregoing Rules and Regulations shall apply to Tenant's use of the Balcony and, where applicable and only with respect to this Exhibit "E", the Premises shall be deemed to include the Balcony. In addition, there shall be no smoking, cooking or barbecues, and Tenant shall not play or allowed to be played any live or recorded music, on the Balcony. Tenant shall not place or allow any storage of materials of any kind or any signs, banners or advertisements on the Balcony. Tenant shall not place or allow any furniture or plants on the Balcony without the prior written consent of Landlord which shall not be unreasonably withheld. Tenant agrees to comply with all such Rules and Regulations and to cause such compliance by its employees and, to the extent applicable, its invitees. Should Tenant not comply with any of the Rules and Regulations set forth above, Landlord or any "Operator", "Association" or "Declarant" under any Restrictions may serve a three (3) day notice to correct the deficiencies. If Tenant does not comply with the correction notice by the end of the notice period, Tenant will be in default under the Lease, and Landlord and/or its designee shall have he right, without further notice, to cure the violation at Tenant's expense. Landlord reserves the right to amend or supplement the foregoing Rules and Regulations and to adopt additional rules and regulations applicable to the Premises. Notice of any such amendments and supplements shall be given to Tenant. Page 4 of 4 EXHIBIT "F" IDENTIFICATION OF RESTRICTIONS ------------------------------ 1. Irvine Center Development Agreement recorded January 23, 1984 as Instrument No. 84-030968 of Official Records of Orange County. 2. Covenants, conditions and restrictions in instruments recorded in the Official Records of Orange County as follows: (i) Instrument No. 85-351938, (ii) Instrument No. 86-047979 (amended by Instrument No. 86-063943), (iii) Instrument No. 87-677156 (amended by Instrument No. 88-000363); (iv) Instrument No. 88-206912, and (v) Instrument No. 88-206911 (as amended by Instrument Nos. 89-605650 and 19980598732) 3. Aircraft Notification for Irvine Center (Irvine Spectrum 1) recorded as Instrument No. 85-351939. EX-10.28 9 LEASE DATED OCTOBER 1999 Exhibit 10.28 LEASE BY AND BETWEEN THE REALTY ASSOCIATES FUND IV, L.P. and NOOSH, INC. of THE HILLSITE BUILDING 75 SECOND AVENUE NEEDHAM, MASSACHUSETTS 02192 DATED: October _______, 1999 STANDARD OFFICE LEASE 1. Basic Lease Provisions. 1.1 Date: October ______, 1999 1.2 Landlord: The Realty Associates Fund IV, L.P. 1.3 Tenant: Noosh, Inc., a California corporation 1.4 Building Address: The building known as and numbered The Hillsite Building, 75 Second Avenue, Needham, Massachusetts. 1.5 Suite Number(s): Suite 230 1.6 Rentable Area of Premises: Approximately 4,230 rentable square feet on the second floor of the Building. 1.7 Use: General office use, subject to the requirements and limitations contained in Section 6. 1.8 Term: Three (3) years 1.9 Commencement Date: November 1, 1999 1.10 Monthly Base Rent and Tenant Electricity Cost: Base Rent: $10,222.50 per month ($122,670.00 annually [($29.00 x 4,230]) Initial Tenant Electricity Cost: $4,653.00 per year / $387.75 per month ($1.10 x 4,230). See Section 4.1. Initial Tenant Electricity Rate: $1.10 per rentable square foot. See Section 4.1. 1.11 Base Rent Paid Upon Execution: $10,222.50 Applied To: November 1, 1999 1.12 Security Deposit: $62,000.00 1.13 Tenant's Percentage Share: 4.0% 1.14 Base Years: a) Tax Base Year: Actual Fiscal Tax Year 2000 (July 1, 1990 - June 30, 2000). b) Operating Cost Base Year: Actual Calendar Year 1999. 1.15 Number of Parking Spaces: Unreserved: Tenant shall have the right to use the unreserved spaces in the parking areas serving the building (including the adjacent parking garage) on a non- exclusive, "as available" basis, provided, however, that Tenant shall not have the right to use more than twelve (12) spaces in the parking garage. 1.16 Intentionally Deleted; Initial Monthly Parking Rates. 1.17 Real Estate Broker: Landlord: Insignia/ESG One Financial Center Boston, Massachusetts 02111 Attention: Andrew Majewski or Patrick Cavanagh Tenant: Merideth & Grew 160 Federal Street Boston, Massachusetts 02110 Attention: James Elcock
2 1.18 Exhibits Attached to Lease: Exhibit A - "Premises"; Exhibit B -"Verification Letter"; Exhibit C -"Rules and Regulations"; Exhibit D - "Letter of Credit" 1.19 Addresses for Notices: Landlord: THE REALTY ASSOCIATES FUND IV, L.P. c/o TA ASSOCIATES REALTY 28 State Street, 10th Floor Boston, Massachusetts 02109 Attention: Ms. Janene P. Behler With a Copy to: FINARD & COMPANY, INC. 3 Burlington Woods Drive Burlington, Massachusetts 01803 Attention: Ms. Laura Vosburgh Marshall Tenant: NOOSH, INC. 3401 Hillview Avenue, Building B Palo Alto, California 94304 Attention: Ann Marie Cady
1.20 Interpretation. The Basic Lease Provisions shall be interpreted in conjunction with all of the other terms and conditions of this Lease. Other terms and conditions of this Lease modify and expand on the Basic Lease Provisions. If there is a conflict between the Basic Lease Provisions and the other terms and conditions of this Lease, the other terms and conditions shall control. 2. Premises. 2.1 Lease of Premises and Definition of Project. The "Premises" shall mean the area shown on Exhibit "A" to this Lease. Landlord hereby leases to Tenant, and Tenant hereby leases from Landlord, upon all of the conditions set forth herein the Premises, together with certain rights to the Common Areas as hereinafter specified. The Premises shall not include an easement for light, air or view. The building of which the Premises is a part (the "Building"), the Common Areas (as defined below), the land upon which the same are located, along with all other buildings and improvements thereon or thereunder, including all parking facilities and the additional parking area covered by the ground lease dated September 21, 1987 from HRC Tower Corp. to Gerald W. Blakey, Jr. and Robert C. Linnell, Trustees of Hillsite Office Trust (a predecessor-in-interest to the Landlord) during the term of said ground lease and any extensions or amendments thereto, are herein collectively referred to as the "Project." The additional parking area covered by the foregoing ground lease was, to the best of Landlord's knowledge and belief, not necessary to comply with any applicable ordinances or regulations at the time the Project was constructed. 2.2 Calculation of Size of Building and Premises. The number of rentable square feet included within the Building has been calculated in accordance with the methods of measuring rentable square feet, as that method is described in the American National Institute Publication ANSI Z65.1-1996, as promulgated by the Building Owners and Managers Association (the "BOMA Standard"). The number of rentable square feet in the Premises has been calculated by measuring the number of usable square feet within the Premises calculated in accordance with the BOMA Standard and increasing the number of usable square feet by nineteen percent (19%). If the rentable square feet in the Premises changes after this Lease is executed by Landlord and Tenant, the Base Rent and any advance rent shall be adjusted by multiplying the new number of rentable square feet in the Premises by the per square foot rental obtained by dividing the Base Rent initially set forth in section 1.10 by the number of rentable square feet initially set forth in section 1.6. If the number of rentable square feet in the Premises is changed, Tenant's Share shall be adjusted as provided in section 4.2(a). 2.3 Common Areas-Defined. The term "Common Areas" is defined as all areas and facilities outside the Premises and within the exterior boundary line of the Project that are designated by Landlord from time to time for the general non- exclusive use of Landlord, Tenant and the other tenants of the Project and their respective employees, 3 suppliers, customers and invitees, including, but not limited to, common entrances, lobbies, corridors, stairwells, public restrooms, elevators, parking areas, loading and unloading areas, roadways and sidewalks. Landlord may also designate other land and improvements outside the boundaries of the Project to be a part of the Common Areas, provided that such other land and improvements have a reasonable and functional relationship to the Project. 3. Term. 3.1 Term and Commencement Date. The term and Commencement Date of this Lease are as specified in sections 1.8 and 1.9. The Commencement Date set forth in section 1.9 is an estimated Commencement Date. Subject to the limitations contained in this section 3, the actual Commencement Date shall be the date possession of the Premises is tendered to Tenant in accordance with section 3.4 below; provided, however, that the term of this Lease shall be computed from the first day of the calendar month following the Commencement Date. When the actual Commencement Date is established by Landlord, Tenant shall, within fifteen (15) days after Landlord's request, complete and execute the letter attached hereto as Exhibit "B" and deliver it to Landlord. Tenant's failure to execute the letter attached hereto as Exhibit "B" within said fifteen (15) day period shall be a material default hereunder and shall constitute Tenant's acknowledgment of the truth of the facts contained in the letter delivered by Landlord to Tenant. 3.2 Delay in Possession. Notwithstanding the estimated Commencement Date specified in section 1.9, if for any reason Landlord cannot deliver possession of the Premises to Tenant on said date, Landlord shall not be subject to any liability therefor, nor shall such failure affect the validity of this Lease or the obligations of Tenant hereunder; provided, however, in such a case, Tenant shall not be obligated to pay rent or perform any other obligation of Tenant under this Lease, except as may be otherwise provided in this Lease, until possession of the Premises is tendered to Tenant, as defined in section 3.4. If Landlord shall not have tendered possession of the Premises to Tenant within sixty (60) days following the estimated Commencement Date specified in section 1.9, as the same may be adjusted in accordance with section 3.3 or in accordance with the terms of any work letter agreement entered into by Landlord and Tenant, Tenant may, at Tenant's option, by notice in writing to Landlord within ten (10) days after the expiration of the sixty (60) day period, terminate this Lease. If Tenant terminates this Lease as provided in the preceding sentence, the parties shall be discharged from all obligations hereunder, except that Landlord shall return any money previously deposited with Landlord by Tenant. If Landlord is unable to deliver possession of the Premises to Tenant on the Commencement Date due to a "Force Majeure Event," the Commencement Date shall be extended by the period of the delay caused by the Force Majeure Event. A Force Majeure Event shall mean fire, earthquake, weather delays or other acts of God, strikes, boycotts, war, riot, insurrection, embargoes, shortages of equipment, labor or materials, delays in issuance of governmental permits or approvals, or any other cause beyond the reasonable control of Landlord. 3.3 Landlord's Work; Tenant Delays. (i) Landlord's Work. Promptly following the approval of the Plans and Specifications (as defined below), Landlord shall, subject to Subsection (ii) below, substantially complete the work shown thereon in accordance therewith ("Landlord's Work"). Landlord shall perform and complete Landlord's Work in a good and workmanlike manner. Landlord's Work shall be "substantially complete" when Landlord obtains a certificate of occupancy for the Premises (which may be a temporary certificate subject to completion of punch-list items or other reasonable evidence of substantial completion as may be provided by the applicable municipal authority) and all of Landlord's Work has been completed except for so-called "punch-list items" which shall consist only of minor work or installations, the completion of which will not materially interfere with Tenant's use and occupancy of the Premises for the Permitted Uses. Landlord shall complete such punch-list items as soon as practical. If the substantial completion of Landlord's Work shall be delayed due to Tenant Delays (as hereinafter defined), the Lease Commencement Date shall be deemed to have occurred on the date substantial completion would have occurred but for such Tenant Delays. For the purposes hereof, "Tenant Delays" shall mean any delay to Landlord's Work caused by Tenant or any of its agents, employees or contractors, including without limitation, (A) failure to promptly approve or comment on the Plans and Specifications, (B) delays caused by changes, alterations or additions to the Plans and Specifications requested by Tenant after its approval thereof or other change orders or modification requested by Tenant during the progress of Landlord's Work, and (C) delays caused by Tenant's interference with Landlord's Work. There shall be no abatement of rent, and the sixty (60) day period specified in section 3.2 shall be deemed extended, to the extent of any Tenant Delays. Landlord shall not be liable to Tenant if the substantial completion of Landlord's Work is delayed as a result of any Tenant Delays. Tenant shall pay to Landlord an amount equal to one thirtieth (1/30th) of the Base Rent due for the first full calendar month of the Lease term for each day of Tenant Delay. For purposes of the foregoing calculation, the Base Rent payable for the first full calendar month of the term of this Lease shall not be reduced by any abated rent, conditionally waived rent, free rent or similar rental concessions, if any. Landlord and Tenant agree that the foregoing payment constitutes a fair and reasonable estimate of the damages Landlord will incur as the result of a Tenant Delay. 4 Within thirty (30) days after Landlord tenders possession of the Premises to Tenant, Landlord shall notify Tenant of Landlord's reasonable estimate of the date Landlord could have delivered possession of the Premises to Tenant but for the Tenant Delays. After delivery of said notice, Tenant shall immediately pay to Landlord the amount described above for the period of Tenant Delay. (ii) Payment Of Construction And Other Costs. Landlord shall pay the costs and expenses incurred by Landlord in connection with the performance and completion of Landlord's Work up to but not more than $50,760.00 [$12.00 x 4,230] (the "Improvement Allowance") which amount is included in the Base Rent set forth in Section 1.10. Tenant shall be responsible for and shall pay directly or reimburse Landlord for, as appropriate, and indemnify Landlord from and against, any such costs in excess of the Improvement Allowance. (iii) Space Planning. Landlord shall promptly deliver to Tenant for Tenant's review and approval, all plans, designs and working drawings for the completion of the Landlord's Work (the "Plans and Specifications"). Tenant shall promptly review and either approve or comment on the Plans and Specifications within three (3) business days following Tenant's receipt thereof. Tenant's failure to approve or comment on the Plans and Specifications shall be deemed an approval thereof. After Tenant's final approval of the Plans and Specifications, Tenant shall not make any changes or revisions to the Plans and Specifications without obtaining Landlord's prior written consent. 3.4 Tender of Possession. Possession of the Premises shall be deemed tendered to Tenant when Landlord's architect or agent has determined that (a) Landlord's Work is substantially completed, and, if necessary, have been approved by the appropriate governmental entity, (b) the Project utilities are ready for use in the Premises, and (c) Tenant has reasonable access to the Premises. 3.5 Early Possession. If Tenant occupies the Premises prior to the Commencement Date for the purpose of conducting business therein, such occupancy shall be subject to all provisions of this Lease, such occupancy shall not change the termination date, and Tenant shall pay Base Rent and all other charges provided for in this Lease during the period of such occupancy. Tenant shall be liable for any damages or delays caused by Tenant's activities at the Premises. Prior to entering the Premises Tenant shall obtain all insurance it is required to obtain by the Lease and shall provide certificates of said insurance to Landlord. Tenant shall coordinate such entry with Landlord's building manager, and such entry shall be made in compliance with all terms and conditions of this Lease and the Rules and Regulations attached hereto. 3.6 Option To Extend. Tenant shall have the option to extend the Lease (the "Extension Option") term for one (1) additional period of two (2) years (the "Extension Period") upon the terms and conditions set forth in this Lease, except that the Base Rent and other charges during such Extension Period shall be equal to the Fair Market Rent. For the purposes of this Lease, "Fair Market Rent" shall mean the rental and all other monetary payments that Landlord could obtain from a third party desiring to lease the Premises as of the first day of the Extension Period, taking into account all relevant factors. Such Fair Market Rent may include annual adjustments and in no event shall the Fair Market Rent be less than the Base Rent and charges payable for the final year of the Lease Term. Tenant shall exercise the Extension Option, if at all, by giving written notice to Landlord no later than nine (9) months prior to the first day of the purported Extension Period (time being of the essence) and such exercise shall be irrevocable. Landlord shall initially designate Fair Market Rent by written notice to Tenant at least thirty (30) days prior to the commencement of the Extension Period (the "Designation"). If Tenant disagrees with the Designation, Tenant shall proceed with the Extension Option but advise Landlord in writing of its disagreement with Landlord's Designation within ten (10) days. If Tenant does not unequivocally advise Landlord of its disagreement with Landlord's Designation within said ten (10) day period, Tenant shall conclusively be deemed to have agreed to the Designation. If the parties shall not have agreed in writing (or to be deemed to have agreed pursuant to the immediately preceding sentence) as to the Fair Market Rent, within twenty (20) days after Landlord's receipt of Tenant's notice of disagreement with the Designation, each party shall, within thirty (30) days thereafter appoint an appraiser who shall be instructed to determine independently the Fair Market Rent. If the difference between the amounts so determined by such appraisers shall not exceed ten percent (10%) of the lesser of such amounts, then the Fair Market Rent shall be an amount equal to fifty percent (50%) of the total of the amounts so determined. If the difference between the amounts so determined shall exceed ten percent (10%) of the lesser of such amounts, then such two (2) appraisers shall have ten (10) days thereafter to appoint a third appraiser, but if such appraisers fail to do so within such ten (10) day period, then either Landlord or Tenant may request the Greater Boston Real Estate Board or any successor organization thereto to appoint an appraiser within ten (10) days of such request, and both Landlord and Tenant shall be bound by any appointment so made within such ten (10) day period. If no such 5 appraiser shall have been appointed within such ten (10) days either Landlord or Tenant may apply to any court having jurisdiction to have such appointment made by such court. Any appraiser appointed by the original appraisers, by the Greater Boston Real Estate Board or by such court shall be instructed to determine the Fair Market Rent in accordance with the definition of such term contained herein and within twenty (20) days after its appointment. If the third appraisal shall exceed the higher of the first two appraisals, the Fair Market Rent shall be the higher of the first two appraisals; if the third appraisal is less than the lower of the first two appraisals, the Fair Market Rent shall be the lower of the first two appraisals. In all other cases, the Fair Market Rent shall be equal to the third appraisal. All such determinations of the Fair Market Rent shall be final and binding upon Landlord and Tenant as the Fair Market Rent as of the first day of the Extension Option. Notwithstanding the foregoing, if either party shall fail to appoint its appraiser within the 30 day period specified above (such party being referred to herein as the "failing party"), the other party may serve notice on the failing party requiring the failing party to appoint its appraiser within ten (10) days of the giving of such notice. If the failing party shall not respond by appointment of its appraiser within said ten day period, then the appraiser appointed by the other party shall be the sole appraiser whose determination of the Fair Market Rent shall be binding and conclusive upon Tenant and Landlord. This provision for determination by appraisal shall be specifically enforceable to the extent such remedy is available under applicable law, and any determination hereunder shall be final and binding upon the parties except as otherwise provided by applicable law. Each party shall pay for the fees and expenses of the appraiser appointed by it, but the fees and expenses of the third appraiser shall be shared equally by the parties. All appraisers appointed hereunder shall be MAI appraisers, so- called. In the event that a determination of Fair Market Rent is not completed prior to the beginning of the Extension Period, then, if Landlord shall have made a Designation of Fair Market Rent, such Designation (notwithstanding Tenant's disagreement therewith) shall be deemed the Fair Market Rent until the Fair Market Rent is otherwise determined pursuant to applicable provisions hereof. On determination of the Fair Market Rent, if such determination would be the basis on which Basic Annual Rent is to be paid, retroactive adjustment shall be made in order to give it effect to the determination of Fair Market Rent. 4. Rent. 4.1 Base Rent. Subject to adjustment as hereinafter provided in section 4.3, Tenant shall pay to Landlord the Base Rent for the Premises set forth in section 1.10 plus the Tenant Electricity Cost (at the rate specified in Section 1.10 but subject to adjustment as set forth herein), without offset or deduction on the first day of each calendar month. At the time Tenant executes this Lease it shall pay to Landlord the advance Base Rent described in section 1.11. Base Rent for any period during the term hereof which is for less than one month shall be prorated based upon the actual number of days of the calendar month involved. Base Rent and all other amounts payable to Landlord hereunder shall be payable to Landlord in lawful money of the United States, and Tenant shall be responsible for delivering said amounts to Landlord at the address stated herein or to such other persons or to such other places as Landlord may designate in writing. The Tenant Electricity Cost and Tenant Electricity Rate specified in Section 1.10 are estimates and shall be reviewed and adjusted annually by Landlord in a commercially reasonable manner. 4.2 Operating Expense Increases. Tenant shall pay to Landlord during the term hereof, in addition to the Base Rent, Tenant's Share of the amount by which all Operating Expenses for each Comparison Year exceeds the amount of all Operating Expenses for the Base Year. If less than 95% of the rentable square feet in the Project is occupied by tenants or Landlord is not supplying services to 95% of the rentable square feet of the Project at any time during any calendar year (including the Base Year), Operating Expenses for such calendar year shall be an amount equal to the Operating Expenses which would normally be expected to be incurred had 95% of the Project's rentable square feet been occupied and had Landlord been supplying services to 95% of the Project's rentable square feet throughout such calendar year (hereinafter the "Grossed Up Operating Expenses"). Landlord's good faith estimate of Grossed Up Operating Expenses shall not be subject to challenge or recalculation by Tenant. Tenant's Share of Operating Expense increases shall be determined in accordance with the following provisions: (a) "Tenant's Share" is defined as the percentage set forth in section 1.13, which percentage has been determined by dividing the number of rentable square feet in the Premises by ninety-five percent (95%) of the total number of rentable square feet in the Project and multiplying the resulting quotient by one hundred (100). In the event that the number of rentable square feet in the Project or the Premises changes, Tenant's Share shall be adjusted in the year the change occurs, and Tenant's Share for such year shall be determined on the basis of the days during such year that each Tenant's Share was in effect. (b) "Comparison Year" is defined as each calendar year during the term of this Lease after the Base Year. Tenant's Share of the Operating Expense increases for the last Comparison Year of the Lease Term shall be 6 prorated according to that portion of such Comparison Year as to which Tenant is responsible for a share of such increase. (c) "Operating Expenses" shall include all costs, expenses and fees incurred by Landlord in connection with or attributable to the Project, including but not limited to, the following items: (i) all costs, expenses and fees associated with or attributable to the ownership, management, operation, repair, maintenance, improvement, alteration and replacement of the Project, or any part thereof, including but not limited to, the following: (A) all surfaces, coverings, decorative items, carpets, drapes, window coverings, parking areas, loading and unloading areas, trash areas, roadways, sidewalks, stairways, walls, structural elements, landscaped areas, striping, bumpers, irrigation systems, lighting facilities, building exteriors and roofs, fences and gates; (B) all heating, ventilating and air conditioning equipment ("HVAC") (including, but not limited to, the cost of replacing or retrofitting HVAC equipment to comply with laws regulating or prohibiting the use or release of chlorofluorocarbons or hydrochlorofluorocarbons), plumbing, mechanical, electrical systems, life safety systems and equipment, telecommunication equipment, elevators, escalators, tenant directories, fire detection systems including sprinkler system maintenance and repair; (ii) the cost of trash disposal, janitorial services and security services and systems; (iii) the cost of all insurance purchased by Landlord and enumerated in section 8 of this Lease, including any deductibles; (iv) the cost of water, sewer, gas, electricity, and other utilities available at the Project and paid by Landlord; (v) the cost of labor, salaries and applicable fringe benefits incurred by Landlord; (vi) the cost of materials, supplies and tools used in managing, maintaining and/or cleaning the Project; (vii) the cost of accounting fees, management fees, legal fees and consulting fees attributable to the ownership, operation, management, maintenance and repair of the Project plus the cost of any space occupied by the property manager and leasing agent (if Landlord is the property manager, Landlord shall be entitled to receive a fair market management fee); (viii) the cost of operating, replacing, modifying and/or adding improvements or equipment mandated by any law, statute, regulation or directive of any governmental agency and any repairs or removals necessitated thereby (including, but not limited to, the cost of complying with the Americans With Disabilities Act and regulations of the Occupational Safety and Health Administration); (ix) payments made by Landlord under any easement, license, operating agreement, declaration, restrictive covenant, or instrument pertaining to the payment or sharing of costs among property owners; (x) any business property taxes or personal property taxes imposed upon the fixtures, machinery, equipment, furniture and personal property used in connection with the operation of the Project; (xi) the cost of all business licenses, any gross receipt taxes based on rental income or other payments received by Landlord, commercial rental taxes or any similar taxes or fees; (xii) transportation taxes, fees or assessments, including but not limited to, mass transportation fees, metrorail fees, trip fees, regional and transportation district fees, (xiii) all costs and expenses associated with or related to the implementation by Landlord of any transportation demand management program or similar program; (xiv) fees assessed by any air quality management district or other governmental or quasi-governmental entity regulating pollution; (xv) the cost of installing intrabuilding network cabling ("INC") and maintaining, repairing, securing and replacing existing INC; and (xvi) ground rent payments and other charges, if any, due pursuant to the ground lease described in Section 2.1; and (xvii) the cost of any other service provided by Landlord or any cost that is elsewhere stated in this Lease to be an "Operating Expense." Real Property Taxes shall be paid in accordance with section 10 below and shall not be included in Operating Expenses. Landlord shall have the right but not the obligation, from time to time, to equitably allocate some or all of the Operating Expenses among different tenants of the Project or among the different buildings which comprise the Project (the "Cost Pools"). Such Cost Pools may include, but shall not be limited to, the office space tenants of the Project and the retail space tenants of the Project. (d) Operating Expenses shall not include: (i) leasing commissions, attorneys' fees, costs, disbursements, and other expenses incurred in connection with negotiations or disputes with tenants, or in connection with leasing, renovating or improving space for tenants or other occupants or prospective tenants or other occupants of the Building; (ii) the cost of any service sold to any tenant (including Tenant) or other occupant for which Landlord is entitled to be reimbursed as an additional charge or rental over and above the basic rent and escalations payable under the lease with that tenant; (iii) any depreciation on the Building or Property; (iv) costs of a capital nature, except as provided in section 4.2(e); (v) expenses in connection with services or other benefits of a type that are not provided to Tenant but which are provided another tenant or occupant of the Building or Property; 7 (vi) wages, salaries, or other compensation paid to any executive employees above the grade of building manager; (vii) the cost of correcting any building code or other violations which were violations prior to the Commencement Date; (viii) any expenses reimbursed by insurance proceeds. (e) If the cost incurred in making an improvement or replacing any equipment is not fully deductible as an expense in the year incurred in accordance with generally accepted accounting principles, the cost shall be amortized over the useful life of the improvement or equipment, as reasonably determined by Landlord, together with an interest factor on the unamortized cost of such item equal to the lesser of (i) twelve percent (12%) per annum or (ii) the maximum rate of interest permitted by applicable law. (f) Tenant's Share of Operating Expense increases shall be payable by Tenant within ten (10) days after a reasonably detailed statement of actual expenses is presented to Tenant by Landlord. At Landlord's option, however, Landlord may, from time to time, estimate what Tenant's Share of Operating Expense increases will be, and the same shall be payable by Tenant monthly during each Comparison Year of the Lease term, on the same day as the Base Rent is due hereunder. In the event that Tenant pays Landlord's estimate of Tenant's Share of Operating Expense increases, Landlord shall use its best efforts to deliver to Tenant within one hundred eighty (180) days after the expiration of each Comparison Year a reasonably detailed statement (the "Statement") showing Tenant's Share of the actual Operating Expense increases incurred during such year. Landlord's failure to deliver the Statement to Tenant within said period shall not constitute Landlord's waiver of its right to collect said amounts or otherwise prejudice Landlord's rights hereunder. If Tenant's payments under this section 4.2(f) during said Comparison Year exceed Tenant's Share as indicated on the Statement, Tenant shall be entitled to credit the amount of such overpayment against Tenant's Share of Operating Expense increases next falling due. If Tenant's payments under this section 4.2(f) during said Comparison Year were less than Tenant's Share as indicated on the Statement, Tenant shall pay to Landlord the amount of the deficiency within thirty (30) days after delivery by Landlord to Tenant of the Statement. Landlord and Tenant shall forthwith adjust between them by cash payment any balance determined to exist with respect to that portion of the last Comparison Year for which Tenant is responsible for Operating Expense increases, notwithstanding that the Lease term may have terminated before the end of such Comparison Year; and this provision shall survive the expiration or earlier termination of the Lease. (g) The computation of Tenant's Share of Operating Expense increases is intended to provide a formula for the sharing of costs by Landlord and Tenant and will not necessarily result in the reimbursement to Landlord of the exact costs it has incurred. (h) If Tenant disputes the amount set forth in the Statement, Tenant shall have the right, at Tenant's sole expense, not later than sixty (60) days following receipt of such Statement, to cause Landlord's books and records with respect to the calendar year which is the subject of the Statement to be audited by a certified public accountant mutually acceptable to Landlord and Tenant. The audit shall take place at the offices of Landlord where its books and records are located at a mutually convenient time during Landlord's regular business hours. Tenant's Share of Operating Expenses shall be appropriately adjusted based upon the results of such audit, and the results of such audit shall be final and binding upon Landlord and Tenant. Tenant shall have no right to conduct an audit or to give Landlord notice that it desires to conduct an audit at any time Tenant is in default under the Lease. The accountant conducting the audit shall be compensated on an hourly basis and shall not be compensated based upon a percentage of overcharges it discovers. No subtenant shall have any right to conduct an audit, and no assignee shall conduct an audit for any period during which such assignee was not in possession of the Premises. Tenant's right to undertake an audit with respect to any calendar year shall expire sixty (60) days after Tenant's receipt of the Statement for such calendar year, and such Statement shall be final and binding upon Tenant and shall, as between the parties, be conclusively deemed correct, at the end of such sixty (60) day period, unless prior thereto Tenant shall have given Landlord written notice of its intention to audit Operating Expenses for the calendar year which is the subject of the Statement. If Tenant gives Landlord notice of its intention to audit Operating Expenses, it must commence such audit within sixty (60) days after such notice is delivered to Landlord, and the audit must be completed within one hundred twenty (120) days after such notice is delivered to Landlord. If Tenant does not commence and complete the audit within such periods, the Statement which Tenant elected to audit shall be deemed final and binding upon Tenant and shall, as between the parties, be conclusively 8 deemed correct. Tenant agrees that the results of any Operating Expense audit shall be kept strictly confidential by Tenant and shall not be disclosed to any other person or entity. 4.3 Intentionally Deleted. 5. Security Deposit. Tenant shall, at its sole cost, deliver to Landlord at the time it executes this Lease an irrevocable letter of credit ("LOC") in the amount set forth as the security deposit in Section 1.12 as security for Tenant's faithful performance of Tenant's obligations hereunder. The LOC shall name Landlord (and its successors and assigns) as the beneficiary, and be drawn on a financial institution reasonably acceptable to Landlord in the form attached hereto as Exhibit E. Tenant shall maintain the required LOC in full force and effect throughout the Term of this Lease, renewing the LOC as often as is necessary with the same bank or financial institution (or a similar bank or financial institution acceptable to Landlord) and upon the same terms and conditions, not less than thirty (30) days prior to the purported expiration date of the LOC. In the event that Tenant fails to timely renew the LOC as aforesaid, Landlord shall be entitled to draw against the entire amount of the LOC. The LOC shall be assignable by Landlord to any party holding the lessor interest in this Lease, and upon such assignment, Landlord shall be relieved from all liability to Tenant therefor. If Tenant fails to pay Base Rent or other charges due hereunder, or otherwise defaults with respect to any provision of this Lease, Landlord shall have the right to draw the entire amount of the LOC or to draw upon so much of the LOC as equals the defaulted payment(s), plus any interest or other charges due thereon in accordance with this Lease, for the payment of any Base Rent or other charge due hereunder, to pay any other sum to which Landlord may become obligated by reason of Tenant's default, or to compensate Landlord for any loss or damage which Landlord may suffer thereby. If Landlord elects to make a partial draw upon the LOC, Tenant shall promptly restore the LOC to its original amount. Landlord's election to make a partial draw upon the LOC shall in no event prejudice or waive Landlord's right to terminate this Lease if permitted under applicable provisions of this Lease, nor shall such election prejudice or waive any other remedy of Landlord reserved under the terms of this Lease, including the right to draw the entire amount of the LOC. The LOC shall be available for payment against the presentation of a sight draft by the Landlord together with a certificate from Landlord that Tenant is in default of its obligations hereunder and that Landlord is entitled, by the terms of this Lease, to draw upon the LOC. If Tenant performs all of Tenant's obligations hereunder, the LOC, or so much thereof as has not heretofore been drawn or applied by Landlord, shall be returned, without payment of interest or other amount for its use, to Tenant (or, at Landlord's option, to the last assignee, if any, of Tenant's interest hereunder) at the expiration of the Term hereof, and after Tenant has vacated the Premises. No trust relationship is created herein between Landlord and Tenant with respect to said LOC. Tenant acknowledges that the LOC is not an advance payment of any kind or a measure of Landlord's damages in the event of Tenant's default. Tenant hereby waives the provision of any law which is inconsistent with this Section 5. In the event that (i) Tenant has a financing event that raises an amount in excess of $20,000,000, and (ii) Tenant has faithfully performed all of its obligations pursuant to this Lease without default for eighteen (18) months, Landlord will reduce the amount of the security deposit to an amount equal to four (4) months Base Rent or accept in lieu of the LOC an irrevocable letter of credit in such amount but otherwise in conformity with this section 5. 6. Use. 6.1 Use. The Premises shall be used and occupied only for the purpose set forth in section 1.7 and for no other purpose. If section 1.7 gives Tenant the right to use the Premises for general office use, by way of example and not limitation, general office use shall not include medical office use or any similar use, laboratory use, classroom use, an executive suite or similar use, any use not characterized by applicable zoning and land use restrictions as general office use, any use which would require Landlord or Tenant to obtain a conditional use permit or variance from any federal, state or local authority, or any other use not compatible, in Landlord's sole judgment, with a first class office building. Notwithstanding any permitted use inserted in section 1.7, Tenant shall not use the Premises for any purpose which would violate the Project's certificate of occupancy, any conditional use permit or variance applicable to the Project or violate any covenants, conditions or other restrictions applicable to the Project. No exclusive use has been granted to Tenant hereunder. 6.2 Compliance with Law. (a) Landlord warrants to Tenant that, to the best of Landlord's knowledge, the Premises, as of the Commencement Date, but without regard to alterations or improvements to be made by Tenant, does not and shall not materially violate any laws, covenants or restrictions of record, or any applicable building code, regulation or ordinance in effect on such date. 9 (b) Tenant shall, at Tenant's sole expense, promptly comply with all applicable laws, ordinances, rules, regulations, orders, certificates of occupancy, conditional use or other permits, variances, covenants and restrictions of record, the reasonable recommendations of Landlord's engineers or other consultants, and requirements of any fire insurance underwriters, rating bureaus or government agencies, now in effect or which may hereafter come into effect, whether or not they reflect a change in policy from that now existing, during the term or any part of the term hereof, relating in any manner to the Premises or the occupation and use by Tenant of the Premises. Tenant shall, at Tenant's sole expense, comply with all requirements of the Americans With Disabilities Act that relate to Tenant's specific use of the Premises, and all federal, state and local laws and regulations governing occupational safety and health. Tenant shall conduct its business and use the Premises in a lawful manner and shall not use or permit the use of the Premises or the Common Areas in any manner that will tend to create waste or a nuisance or shall tend to disturb other occupants of the Project. Tenant shall obtain, at its sole expense, any permit or other governmental authorization required to operate its business from the Premises. Landlord shall not be liable for the failure of any other tenant or person to abide by the requirements of this section or to otherwise comply with applicable laws and regulations, and Tenant shall not be excused from the performance of its obligations under this Lease due to such a failure. 6.3 Condition of Premises. Except as otherwise provided in this Lease, Tenant hereby accepts the Premises and the Project in their condition existing as of the date this Lease is executed by Landlord and Tenant, subject to all applicable federal, state and local laws, ordinances, regulations and permits governing the use of the Premises, the Project's certificate of occupancy, any applicable conditional use permits or variances, and any easements, covenants or restrictions affecting the use of the Premises or the Project. Tenant acknowledges that it has satisfied itself by its own independent investigation that the Premises and the Project are suitable for its intended use, and that neither Landlord nor Landlord's agents has made any representation or warranty as to the present or future suitability of the Premises, or the Project for the conduct of Tenant's business. 7. Maintenance, Repairs and Alterations. 7.1 Landlord's Obligations. Landlord shall keep the Project (excluding the interior of the Premises and space leased to other occupants of the Project) in good condition and repair. If plumbing pipes, electrical wiring, HVAC ducts or vents within the Premises are in need of repair, Tenant shall immediately notify Landlord, and Landlord shall cause the repairs to be completed within a reasonable time, and Tenant shall immediately pay the entire cost of the repairs to Landlord. Except as provided in section 9.3, there shall be no abatement of rent or liability to Tenant on account of any injury or interference with Tenant's business with respect to any improvements, alterations or repairs made by Landlord to the Project or any part thereof. Tenant expressly waives the benefits of any statute now or hereafter in effect which would otherwise afford Tenant the right to make repairs at Landlord's expense or to terminate this Lease because of Landlord's failure to keep the Project in good order, condition and repair. 7.2 Tenant's Obligations. (a) Subject to the requirements of section 7.3, Tenant shall be responsible for keeping the Premises in good condition and repair, at Tenant's sole expense. By way of example, and not limitation, Tenant shall be responsible, at Tenant's sole expense, for repairing and/or replacing, carpet, marble, tile or other flooring, paint, wall coverings, corridor and interior doors and door hardware, telephone and computer equipment, interior glass, window treatments, ceiling tiles, shelving, cabinets, millwork and other tenant improvements. In addition, Tenant shall be responsible for the installation, maintenance and repair of all telephone, computer and related cabling from the telephone terminal room on the floor on which the Premises is located to and throughout the Premises, and Tenant shall be responsible for any loss, cost, damage, liability and expense (including attorneys' fees) arising out of or related to the installation, maintenance, repair and replacement of such cabling. If Tenant fails to keep the Premises in good condition and repair, Landlord may, but shall not be obligated to, make any necessary repairs. If Landlord makes such repairs, Landlord may bill Tenant for the cost of the repairs as additional rent, and said additional rent shall be payable by Tenant within ten (10) days. (b) On the last day of the term hereof, or on any sooner termination, Tenant shall surrender the Premises to Landlord in the same condition as received, ordinary wear and tear and casualty damage excepted, clean and free of debris and Tenant's personal property. Tenant shall repair any damage to the Premises occasioned by the installation or removal of Tenant's trade fixtures, furnishings and equipment. Tenant shall leave the electrical distribution systems, plumbing systems, lighting fixtures, HVAC ducts and vents, window treatments, wall coverings, carpets and 10 other floor coverings, doors and door hardware, millwork, ceilings and other tenant improvements at the Premises and in good condition, ordinary wear and tear excepted. 7.3 Alterations and Additions. (a) Tenant shall not, without Landlord's prior written consent, which may be given or withheld in Landlord's sole discretion, make any alterations, improvements, additions, utility installations or repairs (hereinafter collectively referred to as "Alterations") in, on or about the Premises or the Project. Notwithstanding the foregoing, Landlord's consent shall not be unreasonably withheld to any Alterations which do not affect the structure or exterior portions of the Building or which adversely affect the mechanical, plumbing, electrical, HVAC or fire alarm systems of the Building. Alterations shall include, but shall not be limited to, the installation or alteration of security or fire protection systems, communication systems, millwork, shelving, file retrieval or storage systems, carpeting or other floor covering, window and wall coverings, electrical distribution systems, lighting fixtures, telephone or computer system wiring, HVAC and plumbing. At the expiration of the term, Landlord may require the removal of any Alterations installed by Tenant and the restoration of the Premises and the Project to their prior condition, at Tenant's expense. If a work letter agreement is entered into by Landlord and Tenant, Tenant shall not be obligated to remove the tenant improvements constructed in accordance with the work letter agreement. If, as a result of any Alteration made by Tenant, Landlord is obligated to comply with the Americans With Disabilities Act or any other law or regulation and such compliance requires Landlord to make any improvement or Alteration to any portion of the Project, as a condition to Landlord's consent, Landlord shall have the right to require Tenant to pay to Landlord prior to the construction of any Alteration by Tenant, the entire cost of any improvement or alteration Landlord is obligated to complete by such law or regulation. Should Landlord permit Tenant to make its own Alterations, Tenant shall use only such contractor as has been expressly approved by Landlord, and Landlord may require Tenant to provide to Landlord, at Tenant's sole cost and expense, a lien and completion bond in an amount equal to one and one-half times the estimated cost of such Alterations, to insure Landlord against any liability for mechanic's and materialmen's liens and to insure completion of the work. In addition, Tenant shall pay to Landlord a fee equal to six percent (6%) of the cost of the Alterations to compensate Landlord for the overhead and other costs it incurs in reviewing the plans for the Alterations and in monitoring the construction of the Alterations. Should Tenant make any Alterations without the prior approval of Landlord, or use a contractor not expressly approved by Landlord, Landlord may, at any time during the term of this Lease, require that Tenant remove all or part of the Alterations and return the Premises to the condition it was in prior to the making of the Alternations. In the event Tenant makes any Alterations, Tenant agrees to obtain or cause its contractor to obtain, prior to the commencement of any work, "builders all risk" insurance in an amount approved by Landlord and workers compensation insurance. (b) Any Alterations in or about the Premises that Tenant shall desire to make shall be presented to Landlord in written form, with plans and specifications which are sufficiently detailed to obtain a building permit. If Landlord consents to an Alteration, the consent shall be deemed conditioned upon Tenant acquiring a building permit from the applicable governmental agencies, furnishing a copy thereof to Landlord prior to the commencement of the work, and compliance by Tenant with all conditions of said permit in a prompt and expeditious manner. Tenant shall provide Landlord with as-built plans and specifications for any Alterations made to the Premises. (c) Tenant shall pay, when due, all claims for labor or materials furnished or alleged to have been furnished to or for Tenant at or for use in the Premises, which claims are or may be secured by any mechanic's or materialmen's lien against the Premises or the Project, or any interest therein. If Tenant shall, in good faith, contest the validity of any such lien, Tenant shall furnish to Landlord a surety bond satisfactory to Landlord in an amount equal to not less than one and one half times the amount of such contested lien claim indemnifying Landlord against liability arising out of such lien or claim. Such bond shall be sufficient in form and amount to free the Project from the effect of such lien. In addition, Landlord may require Tenant to pay Landlord's reasonable attorneys' fees and costs in participating in such action. (d) Tenant shall give Landlord not less than ten (10) days' advance written notice prior to the commencement of any work in the Premises by Tenant, and Landlord shall have the right to post notices of non-responsibility in or on the Premises or the Project. (e) All Alterations (whether or not such Alterations constitute trade fixtures of Tenant) which may be made to the Premises by Tenant shall be paid for by Tenant, at Tenant's sole expense, and shall be made and done in a good and workmanlike manner and with new materials satisfactory to Landlord, and such Alteration shall be the 11 property of Landlord and remain upon and be surrendered with the Premises at the expiration of the Lease term, unless Landlord requires their removal pursuant to section 7.3(a). Tenant's personal property and equipment, other than that which is affixed to the Premises so that it cannot be removed without material damage to the Premises or the Project, shall remain the property of Tenant and may be removed by Tenant subject to the provisions of section 7.2(b). 7.4 Failure of Tenant to Remove Property. If this Lease is terminated due to the expiration of its term or otherwise, and Tenant fails to remove its property as required by section 7.2(b), in addition to any other remedies available to Landlord under this Lease, and subject to any other right or remedy Landlord may have under applicable law, Landlord may remove any property of Tenant from the Premises and store the same elsewhere at the expense and risk of Tenant. 8. Insurance. 8.1 Insurance-Tenant. (a) Tenant shall obtain and keep in force during the term of this Lease a commercial general liability policy of insurance with coverages reasonably acceptable to Landlord, which, by way of example and not limitation, protects Tenant and Landlord (as an additional insured) against claims for bodily injury, personal injury and property damage based upon, involving or arising out of the ownership, use, occupancy or maintenance of the Premises and all areas appurtenant thereto. Such insurance shall be on an occurrence basis providing single limit coverage in an amount not less than $2,000,000 per occurrence with an "Additional Insured-Managers and Landlords of Premises Endorsement" and contain the "Amendment of the Pollution Exclusion" for damage caused by heat, smoke or fumes from a hostile fire. The policy shall not contain any intra-insured exclusions as between insured persons or organizations, but shall include coverage for liability assumed under this Lease as an "insured contract" for the performance of Tenant's indemnity obligations under this Lease. (b) Tenant shall obtain and keep in force during the term of this Lease "all risk" extended coverage property insurance with coverages reasonably acceptable to Landlord. Said insurance shall be written on a one hundred percent (100%) replacement cost basis on Tenant's personal property, all tenant improvements installed at the Premises by Landlord or Tenant, Tenant's trade fixtures and other property. By way of example, and not limitation, such policies shall provide protection against any peril included within the classification "fire and extended coverage," against vandalism and malicious mischief, theft, sprinkler leakage, earthquake damage and flood damage. If this Lease is terminated as the result of a casualty in accordance with section 9, the proceeds of said insurance attributable to the replacement of all tenant improvements at the Premises shall be paid to Landlord. If insurance proceeds are available to repair the tenant improvements, at Landlord's option, all insurance proceeds Tenant is entitled to receive to repair the tenant improvements shall be paid by the insurance company directly to Landlord, Landlord shall select the contractor to repair and/or replace the tenant improvements, and Landlord shall cause the tenant improvements to be repaired and/or replaced to the extent insurance proceeds are available. (c) Tenant shall, at all times during the term hereof, maintain in effect workers' compensation insurance as required by applicable law and business interruption and extra expense insurance reasonably satisfactory to Landlord. 8.2 Insurance-Landlord. (a) Landlord shall obtain and keep in force a policy of general liability insurance with coverage against such risks and in such amounts as Landlord deems advisable insuring Landlord against liability arising out of the ownership, operation and management of the Project. (b) Landlord shall also obtain and keep in force during the term of this Lease a policy or policies of insurance covering loss or damage to the Project in the amount of not less than eighty percent (80%) of the full replacement cost thereof, as determined by Landlord from time to time. The terms and conditions of said policies and the perils and risks covered thereby shall be determined by Landlord, from time to time, in Landlord's sole discretion. In addition, at Landlord's option, Landlord shall obtain and keep in force, during the term of this Lease, a policy of rental interruption insurance, with loss payable to Landlord, which insurance shall, at Landlord's option, also cover all Operating Expenses. At Landlord's option, Landlord may obtain insurance coverages and/or bonds related to the operation of the parking areas. At Landlord's option, Landlord may obtain coverage for flood and earthquake damages. 12 In addition, Landlord shall have the right to obtain such additional insurance as is customarily carried by owners or operators of other comparable office buildings in the geographical area of the Project. Tenant will not be named as an additional insured in any insurance policies carried by Landlord and shall have no right to any proceeds therefrom. The policies purchased by Landlord shall contain such deductibles as Landlord may determine. In addition to amounts payable by Tenant in accordance with section 4.2, Tenant shall pay any increase in the property insurance premiums for the Project over what was payable immediately prior to the increase to the extent the increase is specified by Landlord's insurance carrier as being caused by the nature of Tenant's occupancy or any act or omission of Tenant. 8.3 Insurance Policies. Tenant shall deliver to Landlord copies of the insurance policies required under section 8.1 within fifteen (15) days prior to the Commencement Date of this Lease, and Landlord shall have the right to reasonably approve the terms and conditions of said policies. Tenant's insurance policies shall not be cancelable or subject to reduction of coverage or other material modification except after thirty (30) days prior written notice to Landlord. Tenant shall, at least thirty (30) days prior to the expiration of such policies, furnish Landlord with renewals thereof. Tenant's insurance policies shall be issued by insurance companies authorized to do business in the state in which the Project is located, and said companies shall maintain during the policy term a "General Policyholder's Rating" of at least A and a financial rating of at least "Class X" (or such other rating as may be required by any lender having a lien on the Project) as set forth in the most recent edition of "Best Insurance Reports." All insurance obtained by Tenant shall be primary to and not contributory with any similar insurance carried by Landlord, whose insurance shall be considered excess insurance only. Landlord, and at Landlord's option, the holder of any mortgage or deed of trust encumbering the Project and any person or entity managing the Project on behalf of Landlord, shall be named as an additional insured on all insurance policies Tenant is obligated to obtain by section 8.1 above. Tenant's insurance policies shall not include deductibles in excess of Five Thousand Dollars ($5,000). 8.4 Waiver of Subrogation. Landlord waives any and all rights of recovery against Tenant for or arising out of damage to, or destruction of, the Project to the extent that Landlord's insurance policies then in force insure against such damage or destruction and permit such waiver, and only to the extent of the insurance proceeds actually received by Landlord for such damage or destruction. Landlord's waiver shall not relieve Tenant from liability under section 21 below except to the extent Landlord's insurance company actually satisfies Tenant's obligations under section 21 in accordance with the requirements of section 21. Tenant waives any and all rights of recovery against Landlord, Landlord's employees, agents and contractors for liability or damages if such liability or damage is covered by Tenant's insurance policies then in force or the insurance policies Tenant is required to obtain by section 8.1 (whether or not the insurance Tenant is required to obtain by section 8.1 is then in force and effect), whichever is broader. Tenant's waiver shall not be limited by the amount of insurance then carried by Tenant or the deductibles applicable thereto. Tenant shall cause the insurance policies it obtains in accordance with this section 8 to provide that the insurance company waives all right of recovery by subrogation against Landlord in connection with any liability or damage covered by Tenant's insurance policies. 8.5 Coverage. Landlord makes no representation to Tenant that the limits or forms of coverage specified above or approved by Landlord are adequate to insure Tenant's property or Tenant's obligations under this Lease, and the limits of any insurance carried by Tenant shall not limit Tenant's obligations or liability under any indemnity provision included in this Lease or under any other provision of this Lease. 9. Damage or Destruction. 9.1 Effect of Damage or Destruction. If all or part of the Project is damaged by fire, earthquake, flood, explosion, the elements, riot, the release or existence of Hazardous Substances (as defined below) or by any other cause whatsoever (hereinafter collectively referred to as "damages"), but the damages are not material (as defined in section 9.2 below), Landlord shall repair the damages to the Project as soon as is reasonably possible, and this Lease shall remain in full force and effect. If all or part of the Project is destroyed or materially damaged (as defined in section 9.2 below), Landlord shall have the right, in its sole and complete discretion, to repair or to rebuild the Project or to terminate this Lease. Landlord shall within one hundred twenty (120) days after the discovery of such material damage or destruction notify Tenant in writing of Landlord's intention to repair or to rebuild or to terminate this Lease. Tenant shall in no event be entitled to compensation or damages on account of annoyance or inconvenience in making any repairs, or on account of construction, or on account of Landlord's election to terminate this Lease. Notwithstanding the foregoing, if Landlord shall elect to rebuild or repair the Project after material damage or destruction, but in good faith determines that the Premises cannot be substantially repaired within two hundred forty (240) days after the date of the discovery of the material damage or destruction, without payment of overtime or other premiums, and the damage to the Project will 13 render the entire Premises unusable during said two hundred forty (240) day period, Landlord shall notify Tenant thereof in writing at the time of Landlord's election to rebuild or repair, and Tenant shall thereafter have a period of fifteen (15) business days within which Tenant may elect to terminate this Lease, upon thirty (30) days' advance written notice to Landlord. Tenant's termination right described in the preceding sentence shall not apply if the damage was caused by the negligent or intentional acts of Tenant or its employees, agents, contractors or invitees. Failure of Tenant to exercise said election within said fifteen (15) business day period shall constitute Tenant's agreement to accept delivery of the Premises under this Lease whenever tendered by Landlord, provided Landlord thereafter pursues reconstruction or restoration diligently to completion, subject to delays caused by Force Majeure Events. If Landlord is unable to repair the damage to the Premises or the Project during such three hundred sixty (360) day period due to Force Majeure Events, the three hundred sixty (360) day period shall be extended by the period of delay caused by the Force Majeure Events. Subject to section 9.3 below, if Landlord or Tenant terminates this Lease in accordance with this section 9.1, Tenant shall continue to pay all Base Rent, Operating Expense increases and other amounts due hereunder which arise prior to the date of termination. 9.2 Definition of Material Damage. Damage to the Project shall be deemed material if, in Landlord's reasonable judgment, the uninsured cost of repairing the damage will exceed Twenty-Five Thousand Dollars ($25,000). If insurance proceeds are available to Landlord in an amount which is sufficient to pay the entire cost of repairing all of the damage to the Project, the damage shall be deemed material if the cost of repairing the damage exceeds One Hundred Thousand Dollars ($100,000). Damage to the Project shall also be deemed material if (a) the Project cannot be rebuilt or repaired to substantially the same condition it was in prior to the damage due to laws or regulations in effect at the time the repairs will be made, (b) the holder of any mortgage or deed of trust encumbering the Project requires that insurance proceeds available to repair the damage in excess of Twenty-Five Thousand Dollars ($25,000) be applied to the repayment of the indebtedness secured by the mortgage or the deed of trust, or (c) the damage occurs during the last twelve (12) months of the Lease term. 9.3 Abatement of Rent. If Landlord elects to repair damage to the Project and all or part of the Premises will be unusable or inaccessible to Tenant in the ordinary conduct of its business until the damage is repaired, and the damage was not caused by the negligence or intentional acts of Tenant or its employees, agents, contractors or invitees, Tenant's Base Rent and Tenant's Share of Operating Expense increases shall be abated until the repairs are completed in proportion to the amount of the Premises which is unusable or inaccessible to Tenant in the ordinary conduct of its business. Notwithstanding the foregoing, there shall be no abatement of Base Rent or Tenant's Share of Operating Expense increases by reason of any portion of the Premises being unusable or inaccessible for a period equal to five (5) consecutive business days or less. If the cause of the damage or destruction is an earthquake or a flood, Tenant shall only be entitled to an abatement of rent when and if Landlord receives reimbursement for such rent from insurance proceeds, if any. 9.4 Tenant's Acts. If such damage or destruction occurs as a result of the negligence or the intentional acts of Tenant or Tenant's employees, agents, contractors or invitees, and the proceeds of insurance which are actually received by Landlord are not sufficient to pay for the repair of all of the damage, Tenant shall pay, at Tenant's sole cost and expense, to Landlord upon demand, the difference between the cost of repairing the damage and the insurance proceeds received by Landlord. 9.5 Tenant's Property. As more fully set forth in section 47, and to the extent allowed by law, Landlord shall not be liable to Tenant or its employees, agents, contractors, invitees or customers for loss or damage to merchandise, tenant improvements, fixtures, automobiles, furniture, equipment, computers, files or other property (hereinafter collectively "Tenant's property") located at the Project. Tenant shall repair or replace all of Tenant's property at Tenant's sole cost and expense. Tenant acknowledges that it is Tenant's sole responsibility to obtain adequate insurance coverage to compensate Tenant for damage to Tenant's property. 9.6 Waiver. Landlord and Tenant hereby waive the provisions of any present or future statutes which relate to the termination of leases when leased property is damaged or destroyed and agree that such event shall be governed by the terms of this Lease. 14 10. Real and Personal Property Taxes. 10.1 Payment of Taxes. Tenant shall pay to Landlord during the term of this Lease, in addition to Base Rent and Tenant's Share of Operating Expense increases, Tenant's Share of the amount by which all "Real Property Taxes" (as defined in section 10.2 below) for each Comparison Year exceeds the amount of all Real Property Taxes for the Base Year. Tenant's Share of Real Property Tax increases shall be payable by Tenant at the same time, in the same manner and under the same terms and conditions as Tenant pays Tenant's Share of Operating Expense increases as provided in section 4.2(f) of this Lease. Except as expressly provided in section 10.4 below, if the Real Property Taxes incurred during any Comparison Year are less than the Real Property Taxes incurred during the Base Year, Tenant shall not be entitled to receive any credit, offset, reduction or benefit as a result of said occurrence. 10.2 Definition of "Real Property Tax". As used herein, the term "Real Property Taxes" shall include any form of real estate tax or assessment, general, special, ordinary or extraordinary, improvement bond or bonds imposed on the Project or any portion thereof by any authority having the direct or indirect power to tax, including any city, county, state or federal government, or any school, agricultural, sanitary, fire, street, drainage or other improvement district thereof, as against any legal or equitable interest of Landlord in the Project or in any portion thereof, unless such tax is defined as an Operating Expense by section 4.3(c). Real Property Taxes shall not include income, franchise, inheritance and gift taxes. 10.3 Personal Property Taxes. Tenant shall pay prior to delinquency all taxes assessed against and levied upon trade fixtures, furnishings, equipment and all other personal property of Tenant contained in the Premises or related to Tenant's use of the Premises. If any of Tenant's personal property shall be assessed with Landlord's real or personal property, Tenant shall pay to Landlord the taxes attributable to Tenant within ten (10) days after receipt of a written statement from Landlord setting forth the taxes applicable to Tenant's property. 10.4 Reassessments. From time to time Landlord may challenge the assessed value of the Project as determined by applicable taxing authorities and/or Landlord may attempt to cause the Real Property Taxes to be reduced on other grounds. If Landlord is successful in causing the Real Property Taxes to be reduced or in obtaining a refund, rebate, credit or similar benefit (hereinafter collectively referred to as a "reduction"), Landlord shall have the option, in its sole discretion, to (a) retain the benefit of the reduction and to pay, at Landlord's sole expense, the costs incurred by Landlord in causing the reduction to be made or (b) to the extent practicable, to credit the reduction(s) to Real Property Taxes for the calendar year to which a reduction applies and to recalculate the Real Property Taxes owed by Tenant for years after the year in which the reduction applies based on the reduced Real Property Taxes (if a reduction applies to Tenant's Base Year, the Base Year Real Property Taxes shall be reduced by the amount of the reduction and Tenant's Share of Real Property Tax increases shall be recalculated for all Comparison Years following the year of the reduction based on the lower Base Year amount). If Landlord proceeds in accordance with (b) above, all costs incurred by Landlord in obtaining the Real Property Tax reductions shall be considered an Operating Expense and Landlord shall determine, in its sole discretion, to which years any reductions will be applied. In addition, if Landlord proceeds in accordance with (b) above, all accounting and related costs incurred by Landlord in calculating new Base Years for tenants and in making all other adjustments shall be an Operating Expense. If Landlord proceeds in accordance with (a) above, Landlord shall not be obligated to refund to Tenant all or any portion of the reduction or to reduce Real Property Taxes for the years to which any reductions apply. 11. Utilities. 11.1 Services Provided by Landlord. Subject to all governmental rules, regulations and guidelines applicable thereto, Landlord shall use its best efforts to provide HVAC to the Premises and Common Areas during the times described in section 11.4, reasonable amounts of electricity for normal lighting, water in the Premises or in the Common Area for reasonable and normal drinking and lavatory use, replacement light bulbs and/or fluorescent tubes and ballasts for standard overhead fixtures, and building standard janitorial services. 11.2 Services Exclusive To Tenant. Tenant shall pay for all water, gas, heat, heat pump fuel costs and charges, telephone and other utilities and services supplied and/or metered exclusively to the Premises or to Tenant, together with any taxes thereon. If any such services are not separately metered to the Premises, Tenant shall pay, at Landlord's option, either Tenant's Share or a reasonable proportion to be determined by Landlord of all charges jointly metered with other premises in the Building. 15 11.3 Occupant Density. Tenant shall maintain a ratio of not more than one Occupant (as defined below) for each two hundred fifty (250) square feet of rentable area in the Premises. Upon request by Landlord, Tenant shall maintain on a daily basis an accurate record of the number of employees, visitors, contractors and other people that visit the Premises (collectively "Occupants"). Landlord shall have the right to audit Tenant's Occupant record and, at Landlord's option, Landlord shall have the right to periodically visit the Premises without advance notice to Tenant in order to track the number of Occupants arriving at the Premises. For purposes of this section, "Occupants" shall not include people not employed by Tenant that deliver or pick up mail or other packages at the Premises, employees of Landlord or employees of Landlord's agents or contractors. Tenant acknowledges that increased numbers of Occupants causes additional wear and tear on the Premises and the Common Areas, additional use of electricity, water and other utilities, and additional demand for other Building services. Tenant's failure to comply with the requirements of this section shall constitute a default under section 13.3 and Landlord shall have the right, in addition to any other remedies it may have at law or equity, to specifically enforce Tenant's obligations under this section. 11.4 Hours of Service. Building services and utilities shall be provided Monday through Friday from 8:00 a.m. to 6:00 p.m. and Saturdays from 9:00 a.m. to noon. Janitorial services shall be provided Monday through Friday. HVAC and other Building services shall not be provided at other times or on nationally recognized holidays. Tenant acknowledges that there will be no air circulation or temperature control within the Premises when the HVAC is not operating and, consequently, during such times the Premises may not be suitable for human occupation or for the operation of computers and other heat sensitive equipment. Nationally recognized holidays shall include, but shall not necessarily be limited to, New Years Day, Martin Luther King Jr. Day, Presidents' Day, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day. Landlord shall use its best efforts to provide HVAC to Tenant at times other than those set forth above subject to (a) the payment by Tenant of Landlord's standard charge, as determined by Landlord from time to time, in Landlord's sole discretion, for after hours HVAC. Tenant shall pay all after hours HVAC charges to Landlord within three (3) days after Landlord bills Tenant for said charges. 11.5 Excess Usage by Tenant. Notwithstanding the use set forth in section 1.7, Tenant shall not use Building utilities or services in excess of those used by the average office building tenant using its premises for ordinary office use. Tenant shall not install at the Premises office machines, lighting fixtures or other equipment which will generate above average heat, noise or vibration at the Premises or which will adversely effect the temperature maintained by the HVAC system. If Tenant does use Building utilities or services in excess of those used by the average office building tenant, Landlord shall have the right, in addition to any other rights or remedies it may have under this Lease, to (a) at Tenant's expense, install separate metering devices at the Premises, and to charge Tenant for its usage, (b) require Tenant to pay to Landlord all costs, expenses and damages incurred by Landlord as a result of such usage, and (c) require Tenant to stop using excess utilities or services. 11.6 Interruptions. Tenant agrees that, to the extent allowed by law, Landlord shall not be liable to Tenant for its failure to furnish gas, electricity, telephone service, water, HVAC or any other utility services or building services when such failure is occasioned, in whole or in part, by repairs, replacements, or improvements, by any strike, lockout or other labor trouble, by inability to secure electricity, gas, water, telephone service or other utility at the Project, by any accident, casualty or event arising from any cause whatsoever, including the act, negligence or default of Tenant or any other person or entity, or by any other cause, and such failures shall never be deemed to constitute an eviction or disturbance of Tenant's use and possession of the Premises or relieve Tenant from the obligation of paying rent or performing any of its obligations under this Lease. Furthermore, Landlord shall not be liable under any circumstances for loss of property or for injury to, or interference with, Tenant's business, including, without limitation, loss of profits, however occurring, through or in connection with or incidental to a failure to furnish any such services or utilities. Landlord may comply with voluntary controls or guidelines promulgated by any governmental entity relating to the use or conservation of energy, water, gas, light or electricity or the reduction of automobile or other emissions without creating any liability of Landlord to Tenant under this Lease. 12. Assignment and Subletting. 12.1 Landlord's Consent Required. Tenant shall not voluntarily or by operation of law assign, transfer, hypothecate, mortgage, sublet, or otherwise transfer or encumber all or any part of Tenant's interest in this Lease or in the Premises (hereinafter collectively a "Transfer"), without Landlord's prior written consent, which shall not be unreasonably withheld. Landlord shall respond to Tenant's written request for consent hereunder within twenty (20) days after Landlord's receipt of the written request from Tenant. Any attempted Transfer without such consent shall be void 16 and shall constitute a material default and breach of this Lease. Tenant's written request for Landlord's consent shall include, and Landlord's twenty (20) day response period referred to above shall not commence, unless and until Landlord has received from Tenant, all of the following information: (a) financial statements for the proposed assignee or subtenant for the past three (3) years (or, subject to Landlord's reasonable discretion, such lesser period if three (3) years' statements are unavailable) prepared in accordance with generally accepted accounting principles, (b) a TRW credit report or similar report on the proposed assignee or subtenant, (c) a detailed description of the business the assignee or subtenant intends to operate at the Premises, (d) the proposed effective date of the assignment or sublease, (e) a copy of the proposed sublease or assignment agreement which includes all of the terms and conditions of the proposed assignment or sublease, (f) a detailed description of any ownership or commercial relationship between Tenant and the proposed assignee or subtenant and (g) a detailed description of any Alterations the proposed assignee or subtenant desires to make to the Premises. If the obligations of the proposed assignee or subtenant will be guaranteed by any person or entity, Tenant's written request shall not be considered complete until the information described in (a) and (b) of the previous sentence has been provided with respect to each proposed guarantor. "Transfer" shall also include the transfer (a) if Tenant is a corporation, and Tenant's stock is not publicly traded over a recognized securities exchange, of more than twenty five percent (25%) of the voting stock of such corporation during the term of this Lease (whether or not in one or more transfers) or the dissolution, merger or liquidation of the corporation, or (b) if Tenant is a partnership or other entity, of more than twenty five percent (25%) of the profit and loss participation in such partnership or entity during the term of this Lease (whether or not in one or more transfers) or the dissolution, merger or liquidation of the partnership. If Tenant is a limited or general partnership (or is comprised of two or more persons, individually or as co-partners), Tenant shall not be entitled to change or convert to (i) a limited liability company, (ii) a limited liability partnership or (iii) any other entity which possesses the characteristics of limited liability without the prior written consent of Landlord, which consent may be given or withheld in Landlord's sole discretion. Tenant's sole remedy in the event that Landlord shall wrongfully withhold consent to or disapprove any assignment or sublease shall be to obtain an order by a court of competent jurisdiction that Landlord grant such consent; in no event shall Landlord be liable for damages with respect to its granting or withholding consent to any proposed assignment or sublease. If Landlord shall exercise any option to recapture the Premises, or shall deny a request for consent to a proposed assignment or sublease, Tenant shall indemnify, defend and hold Landlord harmless from and against any and all losses, liabilities, damages, costs and claims that may be made against Landlord by the proposed assignee or subtenant, or by any brokers or other persons claiming a commission or similar compensation in connection with the proposed assignment or sublease. Notwithstanding anything to the contrary contained in this Lease, the original Tenant hereunder may assign this Lease without the prior written consent of Landlord, but upon prior written notice to Landlord, to an entity which controls, is controlled by, or is under common control with Tenant; to any entity which results from a merger of, reorganization of, or consolidation with Tenant; or to any entity which acquires all or substantially all of the stock or the assets of Tenant, as a going concern, with respect to the business that is being conducted by Tenant at substantially all of its locations (collectively, a "Permitted Transfer"), provided: a. the assignee of this Lease shall have a net worth, on a consolidated basis, immediately prior to and following such assignment, in an amount not less than that of Tenant, immediately preceding the transfer and balance sheets and profit and loss statements certified by a certified public accountant or officer of Tenant and furnished by Tenant to Landlord with Tenant's notice of such assignment; and b. Tenant shall not be in default after the expiration of all applicable grace periods of any material term and/or provision of this Lease on the date Landlord is notified of such assignment and on the effective date of assignment; and c. The permitted use of the Premises shall be for the same permitted use as provided in this Lease; and d. Such assignee shall execute an assumption of lease agreement assuming the obligations of this Lease with the same force and effect as if such assignee executed this Lease as the Tenant; and e. The assignee or transferee or its parent, subsidiaries or affiliates shall not be subject to any bankruptcy or insolvency proceedings at the time of such sale; and f. Notwithstanding such assignment, Tenant shall remain fully liable and shall not be released from performing any of the terms of this Lease. 17 Furthermore and notwithstanding anything to the contrary contained herein, a sale or transfer of the capital stock of the original Tenant shall be deemed a Permitted Transfer if (1) such sale or transfer occurs in connection with a bona fide financing or capitalization for the benefit of the original Tenant, or (2) Tenant is or becomes a publicly traded corporation, and in either event Tenant shall notify Landlord in writing promptly after the occurrence of such an event. Landlord shall have no right to terminate the Lease in connection with, and shall have no right to any sums or other economic consideration resulting from any bona fide Permitted Transfer. 12.2 Leveraged Buy-out. Except as otherwise set forth in section 12.1, the involvement by Tenant or its assets in any transaction, or series of transactions (by way of merger, sale, acquisition, financing, refinancing, transfer, leveraged buy-out or otherwise) whether or not a formal assignment or hypothecation of this Lease or Tenant's assets occurs, which results or will result in a reduction of the "Net Worth" of Tenant as hereinafter defined, by an amount equal to or greater than twenty-five percent (25%) of such Net Worth of Tenant as it is represented to Landlord at the time of the execution by Landlord of this Lease, or as it exists immediately prior to said transaction or transactions constituting such reduction, at whichever time said Net Worth of Tenant was or is greater, shall be considered to be an assignment of this Lease by Tenant to which Landlord may reasonably withhold its consent. "Net Worth" of Tenant for purposes of this section 12.2 shall be the net worth of Tenant (excluding any guarantors) established under generally accepted accounting principles consistently applied. 12.3 Standard For Approval. Landlord shall not unreasonably withhold its consent to a Transfer provided that Tenant has complied with each and every requirement, term and condition of this section 12. Tenant acknowledges and agrees that each requirement, term and condition in this section 12 is a reasonable requirement, term or condition. It shall be deemed reasonable for Landlord to withhold its consent to a Transfer if any requirement, term or condition of this section 12 is not complied with or: (a) the Transfer would cause Landlord to be in violation of its obligations under another lease or agreement to which Landlord is a party; (b) in Landlord's reasonable judgment, a proposed assignee or subtenant has a smaller net worth than Tenant had on the date this Lease was entered into with Tenant or is less able financially to pay the rents due under this Lease as and when they are due and payable; (c) a proposed assignee's or subtenant's business will impose a burden on the Project's parking facilities, elevators, Common Areas or utilities that is greater than the burden imposed by Tenant, in Landlord's reasonable judgment; (d) the terms of a proposed assignment or subletting will allow the proposed assignee or subtenant to exercise a right of renewal, right of expansion, right of first offer, right of first refusal or similar right held by Tenant; (e) a proposed assignee or subtenant refuses to enter into a written assignment agreement or sublease, reasonably satisfactory to Landlord, which provides that it will abide by and assume all of the terms and conditions of this Lease (subject to section 12.4(k)) for the term of any assignment or sublease and containing such other terms and conditions as Landlord reasonably deems necessary; (f) the use of the Premises by the proposed assignee or subtenant will not be identical to the use permitted by this Lease; (g) any guarantor of this Lease refuses to consent to the Transfer or to execute a written agreement reaffirming the guaranty; (h) Tenant is in default as defined in section 13.1 at the time of the request; (i) if requested by Landlord, the assignee or subtenant refuses to sign a non-disturbance and attornment agreement in favor of Landlord's lender; (j) Landlord has sued or been sued by the proposed assignee or subtenant or has otherwise been involved in a legal dispute with the proposed assignee or subtenant; (k) the assignee or subtenant is involved in a business which is not in keeping with the then current standards of the Project; (l) the proposed assignee or subtenant is an existing tenant of the Project or is a person or entity then negotiating with Landlord for the lease of space in the Project; (m) the assignment or sublease will result in there being more than one subtenant of the Premises (e.g., the assignee or subtenant intends to use the Premises as an executive suite); or (n) the assignee or subtenant is a governmental or quasi-governmental entity or an agency, department or instrumentality of a governmental or quasi-governmental agency. 12.4 Additional Terms and Conditions. The following terms and conditions shall be applicable to any Transfer: (a) Regardless of Landlord's consent, no Transfer shall release Tenant from Tenant's obligations hereunder or alter the primary liability of Tenant to pay the rent and other sums due Landlord hereunder and to perform all other obligations to be performed by Tenant hereunder or release any guarantor from its obligations under its guaranty. (b) Landlord may accept rent from any person other than Tenant pending approval or disapproval of an assignment or subletting. 18 (c) Neither a delay in the approval or disapproval of a Transfer, nor the acceptance of rent, shall constitute a waiver or estoppel of Landlord's right to exercise its rights and remedies for the breach of any of the terms or conditions of this section 12. (d) The consent by Landlord to any Transfer shall not constitute a consent to any subsequent Transfer by Tenant or to any subsequent or successive Transfer by an assignee or subtenant. However, Landlord may consent to subsequent Transfers or any amendments or modifications thereto without notifying Tenant or anyone else liable on the Lease and without obtaining their consent, and such action shall not relieve such persons from liability under this Lease. (e) In the event of any default under this Lease, Landlord may proceed directly against Tenant, any guarantors or anyone else responsible for the performance of this Lease, including any subtenant or assignee, without first exhausting Landlord's remedies against any other person or entity responsible therefor to Landlord, or any security held by Landlord. (f) Landlord's written consent to any Transfer by Tenant shall not constitute an acknowledgment that no default then exists under this Lease nor shall such consent be deemed a waiver of any then existing default. (g) The discovery of the fact that any financial statement relied upon by Landlord in giving its consent to an assignment or subletting was materially false shall, at Landlord's election, render Landlord's consent null and void. (h) Landlord shall not be liable under this Lease or under any sublease to any subtenant. (i) No assignment or sublease may be modified or amended without Landlord's prior written consent. (j) The occurrence of a transaction described in section 12.2 shall give Landlord the right (but not the obligation) to require that Tenant immediately provide Landlord with an additional security deposit equal to twelve (12) times the monthly Base Rent payable under the Lease, and Landlord may make its receipt of such amount a condition to Landlord's consent to such transaction. (k) Any assignee of, or subtenant under, this Lease shall, by reason of accepting such assignment or entering into such sublease, be deemed, for the benefit of Landlord, to have assumed and agreed to conform and comply with each and every term, covenant, condition and obligation herein to be observed or performed by Tenant during the term of said assignment or sublease, other than such obligations as are contrary or inconsistent with provisions of an assignment or sublease to which Landlord has specifically consented in writing. 12.5 Additional Terms and Conditions Applicable to Subletting. The following terms and conditions shall apply to any subletting by Tenant of all or any part of the Premises and shall be deemed included in all subleases under this Lease whether or not expressly incorporated therein: (a) Tenant hereby absolutely and unconditionally assigns and transfers to Landlord all of Tenant's interest in all rentals and income arising from any sublease entered into by Tenant, and Landlord may collect such rent and income and apply same toward Tenant's obligations under this Lease; provided, however, that until a default shall occur in the performance of Tenant's obligations under this Lease, Tenant may receive, collect and enjoy the rents accruing under such sublease. Landlord shall not, by reason of this or any other assignment of such rents to Landlord nor by reason of the collection of the rents from a subtenant, be deemed to have assumed or recognized any sublease or to be liable to the subtenant for any failure of Tenant to perform and comply with any of Tenant's obligations to such subtenant under such sublease, including, but not limited to, Tenant's obligation to return any security deposit. Tenant hereby irrevocably authorizes and directs any such subtenant, upon receipt of a written notice from Landlord stating that a default exists in the performance of Tenant's obligations under this Lease, to pay to Landlord the rents due as they become due under the sublease. Tenant agrees that such subtenant shall have the right to rely upon any such statement and request from Landlord, and that such subtenant shall pay such rents to Landlord without any obligation or right to inquire as to whether such default exists and notwithstanding any notice from or claim from Tenant to the contrary. 19 (b) In the event Tenant shall default in the performance of its obligations under this Lease, Landlord at its option and without any obligation to do so, may require any subtenant to attorn to Landlord, in which event Landlord shall undertake the obligations of Tenant under such sublease from the time of the exercise of said option to the termination of such sublease; provided, however, Landlord shall not be liable for any prepaid rents or security deposit paid by such subtenant to Tenant or for any other prior defaults of Tenant under such sublease. 12.6 Transfer Premium from Assignment or Subletting. Landlord shall be entitled to receive from Tenant (as and when received by Tenant) as an item of additional rent (hereinafter the "Transfer Premium"), seventy-five percent (75%) of all amounts received by Tenant from the subtenant or assignee in excess of the amounts payable by Tenant to Landlord hereunder. The Transfer Premium shall be reduced by the reasonable brokerage commissions and legal fees actually paid by Tenant in order to assign the Lease or to sublet a portion of the Premises. "Transfer Premium" shall mean all Base Rent, additional rent or other consideration of any type whatsoever payable by the assignee or subtenant in excess of the Base Rent and additional rent payable by Tenant under this Lease. If less than all of the Premises is transferred, the Base Rent and the additional rent shall be determined on a per rentable square foot basis. "Transfer Premium" shall also include, but not be limited to, key money and bonus money paid by the assignee or subtenant to Tenant in connection with such Transfer, and any payment in excess of fair market value for services rendered by Tenant to the assignee or subtenant or for assets, fixtures, inventory, equipment, or furniture transferred by Tenant to the assignee or subtenant in connection with such Transfer. Notwithstanding the foregoing, this section 12.6 shall not apply to a bona fide Permitted Transfer. 12.7 Landlord's Option to Recapture Space. Notwithstanding anything to the contrary contained in this section 12, Landlord shall have the option, by giving written notice to Tenant within thirty (30) days after receipt of any request by Tenant to assign this Lease or to sublease space in the Premises, to terminate this Lease with respect to said space as of the date thirty (30) days after Landlord's election. In the event of a recapture by Landlord, if this Lease shall be canceled with respect to less than the entire Premises, the Base Rent, Tenant's Share of Operating Expense increases and the number of parking spaces Tenant may use shall be adjusted on the basis of the number of rentable square feet retained by Tenant in proportion to the number of rentable square feet contained in the original Premises, and this Lease as so amended shall continue thereafter in full force and effect, and upon request of either party, the parties shall execute written confirmation of same. If Landlord recaptures only a portion of the Premises, it shall construct and erect at its sole cost such partitions as may be required to sever the space to be retained by Tenant from the space recaptured by Landlord. Landlord may, at its option, lease any recaptured portion of the Premises to the proposed subtenant or assignee or to any other person or entity without liability to Tenant. Tenant shall not be entitled to any portion of the profit, if any, Landlord may realize on account of such termination and reletting. Tenant acknowledges that the purpose of this section 12.7 is to enable Landlord to receive profit in the form of higher rent or other consideration to be received from an assignee or subtenant, to give Landlord the ability to meet additional space requirements of other tenants of the Project and to permit Landlord to control the leasing of space in the Project. Tenant acknowledges and agrees that the requirements of this section 12.7 are commercially reasonable and are consistent with the intentions of Landlord and Tenant. 12.8 Landlord's Expenses. In the event Tenant shall assign this Lease or sublet the Premises or request the consent of Landlord to any Transfer, then Tenant shall pay Landlord's reasonable costs and expenses incurred in connection therewith, including, but not limited to, attorneys', architects', accountants', engineers' or other consultants' fees. 13. Default; Remedies. 13.1 Default by Tenant. Landlord and Tenant hereby agree that the occurrence of any one or more of the following events is a material default by Tenant under this Lease and that said default shall give Landlord the rights described in section 13.2. Landlord or Landlord's authorized agent shall have the right to execute and to deliver any notice of default, notice to pay rent or quit or any other notice Landlord gives Tenant. (a) Tenant's failure to make any payment of Base Rent, Tenant's Share of Operating Expense increases, Tenant's Share of Real Property Taxes, parking charges (if any), charges for after hours HVAC, late charges, or any other payment required to be made by Tenant hereunder, as and when due, where such failure shall continue for a period of three (3) business days after written notice thereof from Landlord to Tenant. In the event that Landlord serves Tenant with a notice to pay rent or quit pursuant to applicable unlawful detainer statutes, such notice shall also constitute the notice required by this section 13.1(a). 20 (b) The abandonment of the Premises by Tenant in which event Landlord shall not be obligated to give any notice of default to Tenant. (c) The failure of Tenant to comply with any of its obligations under sections 6.1, 6.2(b), 7.2, 7.3, 8, 12, 18, 19, 21, 23, 26, 34, 35 and 56 where Tenant fails to comply with its obligations or fails to cure any earlier breach of such obligation within ten (10) days following written notice from Landlord to Tenant. In the event Landlord serves Tenant with a notice to quit or any other notice pursuant to applicable unlawful detainer statutes, said notice shall also constitute the notice required by this section 13.1(c). (d) The failure by Tenant to observe or perform any of the covenants, conditions or provisions of this Lease to be observed or performed by Tenant (other than those referenced in sections 13.1(a), (b) and (c), above), where such failure shall continue for a period of ten (10) days after written notice thereof from Landlord to Tenant; provided, however, that if the nature of Tenant's non-performance is such that more than ten (10) days are reasonably required for its cure, then Tenant shall not be deemed to be in default if Tenant commences such cure within said ten (10) day period and thereafter diligently pursues such cure to completion. In the event that Landlord serves Tenant with a notice to quit or any other notice pursuant to applicable unlawful detainer statutes, said notice shall also constitute the notice required by this section 13.1(d). (e) The making by Tenant or any guarantor of Tenant's obligations hereunder of any general arrangement or general assignment for the benefit of creditors; (ii) Tenant or any guarantor becoming a "debtor" as defined in 11 U.S.C. 101 or any successor statute thereto (unless, in the case of a petition filed against Tenant or guarantor, the same is dismissed within sixty (60) days); (iii) the appointment of a trustee or receiver to take possession of substantially all of Tenant's assets located at the Premises or of Tenant's interest in this Lease, where possession is not restored to Tenant within thirty (30) days; (iv) the attachment, execution or other judicial seizure of substantially all of Tenant's assets located at the Premises or of Tenant's interest in this Lease, where such seizure is not discharged within thirty (30) days; or (v) the insolvency of Tenant. In the event that any provision of this section 13.1(e) is unenforceable under applicable law, such provision shall be of no force or effect. (f) The discovery by Landlord that any financial statement, representation or warranty given to Landlord by Tenant, or by any guarantor of Tenant's obligations hereunder, was materially false at the time given. Tenant acknowledges that Landlord has entered into this Lease in material reliance on such information. (g) If Tenant is a corporation or a partnership, the dissolution or liquidation of Tenant. (h) If Tenant's obligations under this Lease are guaranteed: (i) the death of a guarantor, (ii) the termination of a guarantor's liability with respect to this Lease other than in accordance with the terms of such guaranty, (iii) a guarantor's becoming insolvent or the subject of a bankruptcy filing, (iv) a guarantor's refusal to honor the guaranty, or (v) a guarantor's breach of its guaranty obligation on an anticipatory breach basis. 13.2 Remedies. (a) In the event of any material default or breach of this Lease by Tenant, Landlord may, at any time thereafter, with or without notice or demand, and without limiting Landlord in the exercise of any right or remedy which Landlord may have by reason of such default: (i) terminate Tenant's right to possession of the Premises by any lawful means, in which case this Lease and the term hereof shall terminate and Tenant shall immediately surrender possession of the Premises to Landlord. If Landlord terminates this Lease, Landlord may recover from Tenant (A) the worth at the time of award of the unpaid rent and all additional charges which would have been payable hereunder for the remainder of the term of the Lease including, without limitation, Tenant's share of Operating Expenses increases, Tenant's Share of Real Property Tax increases, and Tenant Electricity Cost which had been earned at the time of termination; (B) the worth at the time of award of the amount by which the unpaid rent and all additional charges which would have been payable hereunder for the remainder of the term of the Lease including, without limitation, Tenant's share of Operating Expenses increases, Tenant's Share of Real Property Tax increases, and Tenant Electricity Cost which would have been earned after termination until the time of award exceeds the amount of such rental loss that Tenant proves could have been reasonably avoided; (C) the worth at the time of award of the amount by which the unpaid rent and all additional charges 21 which would have been payable hereunder for the remainder of the term of the Lease including, without limitation, Tenant's share of Operating Expenses increases, Tenant's Share of Real Property Tax increases, and Tenant Electricity Cost for the balance of the term after the time of award exceeds the amount of such rental loss that Tenant proves could be reasonably avoided; and (D) any other amount necessary to compensate Landlord for all detriment proximately caused by Tenant's failure to perform its obligations under the Lease or which in the ordinary course of things would be likely to result therefrom, including, but not limited to, the cost of recovering possession of the Premises, the unamortized cost of Landlord's Work, expenses of releasing, including necessary renovation and alteration of the Premises, reasonable attorneys' fees, any real estate commissions actually paid by Landlord and the unamortized value of any free rent, reduced rent, tenant improvement allowance or other economic concessions provided by Landlord. The "worth at time of award" of the amounts referred to in section 13.2(a)(i)(A) and (B) shall be computed by allowing interest at the lesser of ten percent (10%) per annum or the maximum interest rate permitted by applicable law. The worth at the time of award of the amount referred to in section 13.2(a)(i)(C) shall be computed by discounting such amount at the discount rate of the Federal Reserve Bank of Boston at the time of award plus one percent (1%). For purposes of this section 13.2(a)(i), "rent" shall be deemed to be all monetary obligations required to be paid by Tenant pursuant to the terms of this Lease. (ii) collect sublease rents (or appoint a receiver to collect such rent) and otherwise perform Tenant's obligations at the Premises, it being agreed, however, that the appointment of a receiver for Tenant shall not constitute an election by Landlord to terminate this Lease. (iii) pursue any other remedy now or hereafter available to Landlord under the laws or judicial decisions of the state in which the Premises are located. (b) No remedy or election hereunder shall be deemed exclusive, but shall, wherever possible, be cumulative with all other remedies at law or in equity. The expiration or termination of this Lease and/or the termination of Tenant's right to possession of the Premises shall not relieve Tenant of liability under any indemnity provisions of this Lease as to matters occurring or accruing during the term of the Lease or by reason of Tenant's occupancy of the Premises. (c) If Tenant abandons or vacates the Premises, Landlord may re- enter the Premises and such re-entry shall not be deemed to constitute Landlord's election to accept a surrender of the Premises or to otherwise relieve Tenant from liability for its breach of this Lease. No surrender of the Premises shall be effective against Landlord unless Landlord has entered into a written agreement with Tenant in which Landlord expressly agrees to (i) accept a surrender of the Premises and (ii) relieve Tenant of liability under the Lease. The delivery by Tenant to Landlord of possession of the Premises shall not constitute the termination of the Lease or the surrender of the Premises. 13.3 Default by Landlord. Landlord shall not be in default under this Lease unless Landlord fails to perform obligations required of Landlord within thirty (30) days after written notice by Tenant to Landlord and to the holder of any mortgage or deed of trust encumbering the Project whose name and address shall have theretofore been furnished to Tenant in writing, specifying wherein Landlord has failed to perform such obligation; provided, however, that if the nature of Landlord's obligation is such that more than thirty (30) days are required for its cure, then Landlord shall not be in default if Landlord commences performance within such thirty (30) day period and thereafter diligently pursues the same to completion. In no event shall Tenant have the right to terminate this Lease as a result of Landlord's default, and Tenant's remedies shall be limited to damages and/or an injunction. Tenant hereby waives its right to recover consequential damages (including, but not limited to, lost profits) or punitive damages arising out of a Landlord default. This Lease and the obligations of Tenant hereunder shall not be affected or impaired because Landlord is unable to fulfill any of its obligations hereunder or is delayed in doing so, if such inability or delay is caused by reason of a Force Majeure Event, and the time for Landlord's performance shall be extended for the period of any such delay. 13.4 Late Charges. Tenant hereby acknowledges that late payment by Tenant to Landlord of Base Rent, Tenant's Share of Operating Expense increases, Tenant's Share of Real Estate Tax increases, Tenant Electricity Cost, parking charges (if any), after hours HVAC charges, or other sums due hereunder will cause Landlord to incur costs not contemplated by this Lease, the exact amount of which will be extremely difficult to ascertain. Such costs include, but are not limited to, processing and accounting charges and late charges which may be imposed on Landlord by the terms of any mortgage or trust deed encumbering the Project. Accordingly, if any installment of Base Rent, Tenant's Share of Operating Expense increases, parking charges (if any), after hours HVAC charges or any other sum due from Tenant shall not be received by Landlord when such amount shall be due, then, without any requirement for notice or demand to Tenant, Tenant shall immediately pay to Landlord a late charge equal to six percent (6%) of such overdue amount. The 22 parties hereby agree that such late charge represents a fair and reasonable estimate of the costs Landlord will incur by reason of late payment by Tenant. Acceptance of such late charge by Landlord shall in no event constitute a waiver of Tenant's default with respect to such overdue amount, nor prevent Landlord from exercising any of the other rights and remedies granted hereunder including the assessment of interest under section 13.5. 13.5 Interest on Past-due Obligations. Except as expressly herein provided, any amount due to Landlord that is not paid when due shall bear interest at the lesser of eighteen percent (18%) per annum or the maximum rate permitted by applicable law. Payment of such interest shall not excuse or cure any default by Tenant under this Lease; provided, however, that interest shall not be payable on late charges incurred by Tenant nor on any amounts upon which late charges are paid by Tenant. 13.6 Payment of Rent and Security Deposit after Default. If Tenant fails to pay Base Rent, Tenant's Share of Operating Expense increases, parking charges (if any) or any other monetary obligation due hereunder on the date it is due, after Tenant's third failure within twelve (12) consecutive months to pay any monetary obligation on the date it is due, at Landlord's option, all monetary obligations of Tenant hereunder shall thereafter be paid by cashier's check, and Tenant shall, upon demand, provide Landlord with an additional security deposit equal to three (3) months' Base Rent. If Landlord has required Tenant to make said payments by cashier's check or to provide an additional security deposit, Tenant's failure to make a payment by cashier's check or to provide the additional security deposit shall be a material default hereunder. 14. Landlord's Right to Cure Default; Payments by Tenant. All covenants and agreements to be kept or performed by Tenant under this Lease shall be performed by Tenant at Tenant's sole cost and expense and without any reduction of rent. If Tenant shall fail to perform any of its obligations under this Lease, within a reasonable time after such performance is required by the terms of this Lease, Landlord may, but shall not be obligated to, after three (3) days prior written notice to Tenant, make any such payment or perform any such act on Tenant's behalf without waiving its rights based upon any default of Tenant and without releasing Tenant from any obligations hereunder. Tenant shall pay to Landlord, within ten (10) days after delivery by Landlord to Tenant of statements therefore, an amount equal to the expenditures reasonably made by Landlord in connection with the remedying by Landlord of Tenant's defaults pursuant to the provisions of this section 14. 15. Condemnation. If any portion of the Premises or the Project are taken under the power of eminent domain, or sold under the threat of the exercise of said power (all of which are herein called "condemnation"), this Lease shall terminate as to the part so taken as of the date the condemning authority takes title or possession, whichever first occurs; provided that if so much of the Premises or Project are taken by such condemnation as would substantially and adversely affect the operation and profitability of Tenant's business conducted from the Premises, and said taking lasts for ninety (90) days or more, Tenant shall have the option, to be exercised only in writing within thirty (30) days after Landlord shall have given Tenant written notice of such taking (or in the absence of such notice, within thirty (30) days after the condemning authority shall have taken possession), to terminate this Lease as of the date the condemning authority takes such possession. If a taking lasts for less than ninety (90) days, Tenant's rent shall be abated during said period but Tenant shall not have the right to terminate this Lease. If Tenant does not terminate this Lease in accordance with the foregoing, this Lease shall remain in full force and effect as to the portion of the Premises remaining, except that the rent and Tenant's Share of Operating Expenses shall be reduced in the proportion that the usable floor area of the Premises taken bears to the total usable floor area of the Premises. Common Areas taken shall be excluded from the Common Areas usable by Tenant and no reduction of rent shall occur with respect thereto or by reason thereof. Landlord shall have the option in its sole discretion to terminate this Lease as of the taking of possession by the condemning authority, by giving written notice to Tenant of such election within thirty (30) days after receipt of notice of a taking by condemnation of any part of the Premises or the Project. Any award for the taking of all or any part of the Premises or the Project under the power of eminent domain or any payment made under threat of the exercise of such power shall be the property of Landlord, whether such award shall be made as compensation for diminution in value of the leasehold, for good will, for the taking of the fee, as severance damages, or as damages for tenant improvements; provided, however, that Tenant shall be entitled to any separate award for loss of or damage to Tenant's removable personal property and for moving expenses. In the event that this Lease is not terminated by reason of such condemnation, and subject to the requirements of any lender that has made a loan to Landlord encumbering the Project, Landlord shall to the extent of severance damages received by Landlord in connection with such condemnation, repair any damage to the Project caused by such condemnation except to the extent that Tenant has been reimbursed therefor by the condemning authority. Tenant shall pay any amount in excess of such severance damages required to complete 23 such repair. This section, not general principles of law, shall govern the rights and obligations of Landlord and Tenant with respect to the condemnation of all or any portion of the Project. 16. Vehicle Parking; Use of Parking Facilities. During the term and subject to the rules and regulations attached hereto as Exhibit "C," as modified by Landlord from time to time (the "Rules"), Tenant shall be entitled to use the number of parking spaces set forth in section 1.15 in the parking facility of the Project. Landlord may, in its sole discretion, assign tandem parking spaces to Tenant and designate the location of any reserved parking spaces. For purposes of this Lease, a "parking space" refers to the space in which one (1) motor vehicle is intended to park (e.g., a tandem parking stall includes two tandem parking spaces). Landlord reserves the right at any time to relocate Tenant's reserved and unreserved parking spaces. If Tenant commits or allows in the parking facility any of the activities prohibited by the Lease or the Rules, then Landlord shall have the right, without notice, in addition to such other rights and remedies that it may have, to remove or tow away the vehicle involved and charge the cost to Tenant, which cost shall be immediately payable by Tenant upon demand by Landlord. Tenant shall not transfer, assign, or otherwise convey its parking rights separate and apart from this Lease. 17. Broker's Fee. Tenant and Landlord each represent and warrant to the other that neither has had any dealings or entered into any agreements with any person, entity, broker or finder other than the persons, if any, listed in section 1.17, in connection with the negotiation of this Lease, and no other broker, person, or entity is entitled to any commission or finder's fee in connection with the negotiation of this Lease, and Tenant and Landlord each agree to indemnify, defend and hold the other harmless from and against any claims, damages, costs, expenses, attorneys' fees or liability for compensation or charges which may be claimed by any such unnamed broker, finder or other similar party by reason of any dealings, actions or agreements of the indemnifying party. 18. Estoppel Certificate. 18.1 Delivery of Certificate. Tenant shall from time to time upon not less than ten (10) business days' prior written notice from Landlord execute, acknowledge and deliver to Landlord a statement in writing certifying such information as Landlord may reasonably request including, but not limited to, the following: (a) 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) (b) the date to which the Base Rent and other charges are paid in advance and the amounts so payable, (c) that there are not, to Tenant's knowledge, any uncured defaults or unfulfilled obligations on the part of Landlord, or specifying such defaults or unfulfilled obligations, if any are claimed, (d) that all tenant improvements to be constructed by Landlord, if any, have been completed in accordance with Landlord's obligations and (e) that Tenant has taken possession of the Premises. Any such statement may be conclusively relied upon by any prospective purchaser or encumbrancer of the Project. 18.2 Failure to Deliver Certificate. At Landlord's option, the failure of Tenant to deliver such statement within such time shall constitute a material default of Tenant hereunder, or it shall be conclusive upon Tenant that (a) this Lease is in full force and effect, without modification except as may be represented by Landlord, (b) there are no uncured defaults in Landlord's performance, (c) not more than one month's Base Rent has been paid in advance, (d) all tenant improvements to be constructed by Landlord, if any, have been completed in accordance with Landlord's obligations and (e) Tenant has taken possession of the Premises. 19. Financial Information. From time to time, at Landlord's request, Tenant shall cause the following financial information to be delivered to Landlord, at Tenant's sole cost and expense, upon not less than ten (10) days' advance written notice from Landlord: (a) a current financial statement for Tenant and Tenant's financial statements for the previous two accounting years, (b) a current financial statement for any guarantor(s) of this Lease and the guarantor'(s) financial statements for the previous two accounting years and (c) such other financial information pertaining to Tenant or any guarantor as Landlord or any lender or purchaser of Landlord may reasonably request. All financial statements shall be prepared in accordance with generally accepted accounting principals consistently applied and, if such is the normal practice of Tenant, shall be audited by an independent certified public accountant. Tenant hereby authorizes Landlord, from time to time, without notice to Tenant, to obtain a credit report or credit history on Tenant from any credit reporting company. Landlord shall not request financial statements from Tenant more than once every six (6) months and Landlord or Landlord's lender, accounts, attorneys, financial representatives or agents, or prospective purchasers shall keep the information contained therein in confidence, subject to order by any court, governmental agency or other organization having jurisdiction over Landlord. Furthermore, Tenant's obligations with respect to Financial Statements shall be limited to Tenant's Financial Statements existing as of the time of the request. 24 20. Landlord's Liability. Tenant acknowledges that Landlord shall have the right to transfer all or any portion of its interest in the Project and to assign this Lease to the transferee. Tenant agrees that in the event of such a transfer Landlord shall automatically be released from all future liability under this Lease; and Tenant hereby agrees to look solely to Landlord's transferee for the performance of Landlord's obligations hereunder after the date of the transfer. Upon such a transfer, Landlord shall, at its option, return Tenant's security deposit to Tenant or transfer Tenant's security deposit to Landlord's transferee and, in either event, Landlord shall have no further liability to Tenant for the return of its security deposit. Subject to the rights of any lender holding a mortgage or deed of trust encumbering all or part of the Project, Tenant agrees to look solely to Landlord's equity interest in the Project for the collection of any judgment requiring the payment of money by Landlord arising out of (a) Landlord's failure to perform its obligations under this Lease or (b) the negligence or wilful misconduct of Landlord, its partners, employees and agents. No other property or assets of Landlord shall be subject to levy, execution or other enforcement procedure for the satisfaction of any judgment or writ obtained by Tenant against Landlord. No partner, employee or agent of Landlord shall be personally liable for the performance of Landlord's obligations hereunder or be named as a party in any lawsuit arising out of or related to, directly or indirectly, this Lease and the obligations of Landlord hereunder. The obligations under this Lease do not constitute personal obligations of the individual partners of Landlord, if any, and Tenant shall not seek recourse against the individual partners of Landlord or their assets. 21. Indemnity. To the extent allowed by law, Tenant hereby agrees to indemnify, defend and hold harmless Landlord and its employees, partners, agents, contractors, lenders and ground lessors (said persons and entities are hereinafter collectively referred to as the "Indemnified Parties") from and against any and all liability, loss, cost, damage, claims, loss of rents, liens, judgments, penalties, fines, settlement costs, investigation costs, the cost of consultants and experts, attorneys fees, court costs and other legal expenses, the effects of environmental contamination, the cost of environmental testing, the removal, remediation and/or abatement of Hazardous Substances (as defined below), insurance policy deductibles and other expenses (hereinafter collectively referred to as "Damages") arising out of or related to an "Indemnified Matter" (as defined below). For purposes of this section 21, an "Indemnified Matter" shall mean any matter for which one or more of the Indemnified Parties incurs liability or Damages if the liability or Damages arise out of or involve, directly or indirectly, (a) Tenant's or its employees, agents, contractors or invitees (all of said persons or entities are hereinafter collectively referred to as "Tenant Parties") use or occupancy of the Premises or the Project, (b) any act, omission or neglect of a Tenant Party, (c) Tenant's failure to perform any of its obligations under the Lease, (d) the existence, use or disposal of any Hazardous Substance (as defined in section 23 below) brought on to the project by a Tenant Party, or (e) any other matters for which Tenant has agreed to indemnify Landlord pursuant to any other provision of this Lease. Tenant's obligations hereunder shall include, but shall not be limited to (f) compensating the Indemnified Parties for Damages arising out of Indemnified Matters within ten (10) days after written demand from an Indemnified Party and (g) providing a defense, with counsel reasonably satisfactory to the Indemnified Party, at Tenant's sole expense, within ten (10) days after written demand from the Indemnified Party, of any claims, action or proceeding arising out of or relating to an Indemnified Matter whether or not litigated or reduced to judgment and whether or not well founded. If Tenant is obligated to compensate an Indemnified Party for Damages arising out of an Indemnified Matter, Landlord shall have the immediate and unconditional right, but not the obligation, without notice or demand to Tenant, to pay the damages and Tenant shall, upon ten (10) days advance written notice from Landlord, reimburse Landlord for the costs incurred by Landlord. By way of example, and not limitation, Landlord shall have the immediate and unconditional right to cause any damages to the Common Areas, another tenant's premises or to any other part of the Project to be repaired and to compensate other tenants of the Project or other persons or entities for Damages arising out of an Indemnified Matter. The Indemnified Parties need not first pay any Damages to be indemnified hereunder. Tenant's obligations under this section shall not be released, reduced or otherwise limited because one or more of the Indemnified Parties are or may be actively or passively negligent with respect to an Indemnified Matter or because an Indemnified Party is or was partially responsible for the Damages incurred. This indemnity is intended to apply to the fullest extent permitted by applicable law. Tenant's obligations under this section shall survive the expiration or termination of this Lease unless specifically waived in writing by Landlord after said expiration or termination. 22. Signs. Tenant shall not place any sign upon the Premises (including on the inside or the outside of the doors or windows of the Premises) or the Project without Landlord's prior written consent, which may be given or withheld in Landlord's sole discretion. Landlord shall have the right to place any sign it deems appropriate on any portion of the Project except the interior of the Premises. Any sign Landlord permits Tenant to place upon the Premises shall be maintained by Tenant, at Tenant's sole expense. If Landlord permits Tenant to include its name in the Building's directory, the cost of placing Tenant's name in the directory and the cost of any subsequent modifications thereto shall be paid by Tenant, at Tenant's sole expense. 25 23. Hazardous Substances. 23.1 Definition and Consent. The term "Hazardous Substance" as used in this Lease shall mean any product, substance, chemical, material or waste whose presence, nature, quantity and/or intensity of existence, use, manufacture, disposal, transportation, spill, release or affect, either by itself or in combination with other materials expected to be on the Premises, is either: (a) potentially injurious to the public health, safety or welfare, the environment or the Premises, (b) regulated or monitored by any governmental entity, (c) a basis for liability of Landlord to any governmental entity or third party under any federal, state or local statute or common law theory or (d) defined as a hazardous material or substance by any federal, state or local law or regulation. Except for small quantities or ordinary office supplies such as copier toner, liquid paper, glue, ink and common household cleaning materials, Tenant shall not cause or permit any Hazardous Substance to be brought, kept, or used in or about the Premises or the Project by Tenant, its agents, employees, contractors or invitees. 23.2 Duty to Inform Landlord. If Tenant knows, or has reasonable cause to believe, that a Hazardous Substance, or a condition involving or resulting from same, has come to be located in, on or under or about the Premises or the Project, Tenant shall immediately give written notice of such fact to Landlord. Tenant shall also immediately give Landlord (without demand by Landlord) a copy of any statement, report, notice, registration, application, permit, license, given to or received from, any governmental authority or private party, or persons entering or occupying the Premises, concerning the presence, spill, release, discharge of or exposure to, any Hazardous Substance or contamination in, on or about the Premises or the Project. 23.3 Inspection; Compliance. Landlord and Landlord's employees, agent, contractors and lenders shall have the right to enter the Premises at any time in the case of an emergency, and otherwise at reasonable times (upon reasonable notice), for the purpose of inspecting the condition of the Premises and for verifying compliance by Tenant with this section 23. Landlord shall have the right to employ experts and/or consultants in connection with its examination of the Premises and with respect to the installation, operation, use, monitoring, maintenance, or removal of any Hazardous Substance on or from the Premises. The costs and expenses of any such inspections shall be paid by the party requesting same, unless a contamination, caused or materially contributed to by Tenant, is found to exist or be imminent, or unless the inspection is requested or ordered by governmental authority as the result of any such existing or imminent violation or contamination. In any such case, Tenant shall upon request reimburse Landlord for the cost and expenses of such inspection. 24. Intentionally Deleted. 25. Tenant Improvements. Tenant acknowledges and agrees that except as otherwise set forth in this Lease, Landlord shall not be obligated to construct any tenant improvements on behalf of Tenant and it is specifically understood and agreed that Landlord has no obligation and has made no promises to alter, remodel, improve, renovate, repair or decorate the Premises, the Project, or any part thereof, or to provide any allowance for such purposes, and that no representations respecting the condition of the Premises or the Project have been made by Landlord to Tenant. 26 26. Subordination. 26.1 Effect of Subordination. This Lease, and any Option (as defined in section 27 below) granted hereby, upon Landlord's written election, shall be subject and subordinate to any ground lease, mortgage, deed of trust, or any other hypothecation or security now or hereafter placed upon the Project and to any and all advances made on the security thereof and to all renewals, modifications, consolidations, replacements and extensions thereof. Notwithstanding such subordination, Tenant's right to quiet possession of the Premises shall not be disturbed if Tenant is not in default and so long as Tenant shall pay the rent and observe and perform all of the provisions of this Lease, unless this Lease is otherwise terminated pursuant to its terms. At the request of any mortgagee, trustee or ground lessor, Tenant shall attorn to such person or entity. Landlord shall use commercially reasonable efforts to obtain a commercially reasonable subordination and nondisturbance and attornment agreement effecting the terms hereof from any mortgagee, trustee or ground lessor. If any mortgagee, trustee or ground lessor shall elect to have this Lease and any Option granted hereby prior to the lien of its mortgage, deed of trust or ground lease, and shall give written notice thereof to Tenant, this Lease and such Options shall be deemed prior to such mortgage, deed of trust or ground lease, whether this Lease or such Options are dated prior or subsequent to the date of said mortgage, deed of trust or ground lease or the date of recording thereof. In the event of the foreclosure of a security device, the new owner shall not (a) be liable for any act or omission of any prior landlord or with respect to events occurring prior to its acquisition of title, (b) be liable for the breach of this Lease by any prior landlord, (c) be subject to any offsets or defenses which Tenant may have against the prior landlord or (d) be liable to Tenant for the return of its security deposit. 26.2 Execution of Documents. Tenant agrees to execute and acknowledge any documents Landlord reasonably requests that Tenant execute to effectuate an attornment, a subordination, or to make this Lease or any Option granted herein prior to the lien of any mortgage, deed of trust or ground lease, as the case may be. Tenant acknowledges that the subordination agreement may give the lender the right, in the lender's sole discretion, to continue this Lease in effect or to terminate this Lease in the event of a foreclosure sale. Tenant's failure to execute such documents within ten (10) business days after written demand shall constitute a material default by Tenant hereunder or, at Landlord's option, Landlord shall have the right to execute such documents on behalf of Tenant as Tenant's attorney-in-fact. Tenant does hereby make, constitute and irrevocably appoint Landlord as Tenant's attorney-in-fact and in Tenant's name, place and stead, to execute such documents in accordance with this section 26.2. 27. Options. 27.1 Definition. As used in this Lease, the word "Option" shall mean the right or option to extend the term of this Lease. Any Option granted to Tenant by Landlord must be evidenced by a written option agreement attached to this Lease as a rider or addendum or said option shall be of no force or effect. 27.2 Options Personal. Each Option granted to Tenant in this Lease, if any, is personal to the original Tenant (and assignee pursuant to any Permitted Transfer) and may be exercised only by the original Tenant (or assignee pursuant to any Permitted Transfer) while occupying the entire Premises and may not be exercised or be assigned, voluntarily or involuntarily, by or to any person or entity other than Tenant (or assignee pursuant to any Permitted Transfer). The Option, if any, herein granted to Tenant are not assignable separate and apart from this Lease, nor may any Option be separated from this Lease in any manner, either by reservation or otherwise. If at any time an Option is exercisable by Tenant, the Lease has been assigned, or a sublease exists as to any portion of the Premises, the Option shall be deemed null and void and neither Tenant nor any assignee or subtenant shall have the right to exercise the Option. 27.3 Multiple Options. In the event that Tenant has multiple Options to extend or renew this Lease a later Option cannot be exercised unless the prior Option to extend or renew this Lease has been so exercised. 27.4 Effect of Default on Option. Tenant shall have no right to exercise an Option (i) during the time commencing from the date Landlord gives to Tenant a notice of default pursuant to section 13.1 and continuing until the noncompliance alleged in said notice of default is cured, or (ii) if Tenant is in default of any of the terms, covenants or conditions of this Lease. The period of time within which an Option may be exercised shall not be extended or enlarged by reason of Tenant's inability to exercise an Option because of the provisions of this section 27.4. 27 27.5 Limitations on Option. Notwithstanding anything to the contrary contained in any rider or addendum to this Lease, any Option, rights of first refusal or rights of first offer granted hereunder shall be subject and secondary to Landlord's right to first offer and lease any such space to any tenant who is then occupying or leasing such space at the time the space becomes available for leasing and shall be subject and subordinated to any other options, rights of first refusal or rights of first offer previously given to any other person or entity. 27.6 Notice of Exercise of Option. Notwithstanding anything to the contrary contained in section 41, Tenant may only exercise an Option by delivering its written notice of exercise to Landlord by certified mail, return receipt and date of delivery requested. It shall be Tenant's obligation to prove that such notice was so sent in a timely manner and was delivered to Landlord by the U.S. Postal Service. 28. Landlord Reservations. Landlord shall have the right: (a) to change the name and address of the Project or Building upon not less than ninety (90) days prior written notice; (b) to, at Tenant's expense, provide and install Building standard graphics on or near the door of the Premises and such portions of the Common Areas as Landlord shall determine, in Landlord's sole discretion; (c) to permit any tenant the exclusive right to conduct any business as long as such exclusive right does not conflict with any rights expressly given herein; and (d) to place signs, notices or displays upon the roof, interior, exterior or Common Areas of the Project. Tenant shall not use a representation (photographic or otherwise) of the Building or the Project or their name(s) in connection with Tenant's business or suffer or permit anyone, except in an emergency, to go upon the roof of the Building. Landlord reserves the right to use the exterior walls of the Premises, and the area beneath, adjacent to and above the Premises together with the right to install, use, maintain and replace equipment, machinery, pipes, conduits and wiring through the Premises, which serve other parts of the Project provided that Landlord's use does not unreasonably interfere with Tenant's use of the Premises. 29. Changes to Project. Landlord shall have the right, in Landlord's sole discretion, from time to time, to make changes to the size, shape, location, number and extent of the improvements comprising the Project (hereinafter referred to as "Changes") including, but not limited to, the Project interior and exterior, the Common Areas, elevators, escalators, restrooms, HVAC, electrical systems, communication systems, fire protection and detection systems, plumbing systems, security systems, parking control systems, driveways, entrances, parking spaces, parking areas and landscaped areas. In connection with the Changes, Landlord may, among other things, erect scaffolding or other necessary structures at the Project, limit or eliminate access to portions of the Project, including portions of the Common Areas, or perform work in the Building, which work may create noise, dust or leave debris in the Building. Tenant hereby agrees that such Changes and Landlord's actions in connection with such Changes shall in no way constitute a constructive eviction of Tenant or entitle Tenant to any abatement of rent. Landlord shall have no responsibility or for any reason be liable to Tenant for any direct or indirect injury to or interference with Tenant's business arising from the Changes, nor shall Tenant be entitled to any compensation or damages from Landlord for any inconvenience or annoyance occasioned by such Changes or Landlord's actions in connection with such Changes. 30. Substitution of Other Premises. Landlord shall have the right at any time to relocate Tenant to any other leasable space in the Project provided that said space shall be approximately the same size as the Premises and that Landlord shall pay the cost of moving Tenant's furniture and equipment to the new space. The new space shall include tenant improvements that are substantially equivalent to the tenant improvements contained in the Premises, and the cost of any required tenant improvements shall be paid by Landlord. If Landlord elects to relocate Tenant, Landlord shall give Tenant written notice of its election and Tenant shall have thirty (30) days thereafter to agree to be relocated in accordance with the terms and conditions of this section 30 or to elect to terminate this Lease. If Tenant elects to terminate this Lease within said thirty (30) day period or fails to respond to Landlord's notice within said thirty (30) day period, this Lease shall then terminate on the date which is sixty (60) days after the date Landlord gave Tenant its written notice electing to relocate Tenant. Landlord shall have no liability to Tenant as a result of Tenant's election to terminate this Lease. Prior to said termination, Landlord and Tenant shall perform all of their obligations under this Lease. If Tenant elects to be relocated, Landlord shall deliver substitute space to Tenant not more than one hundred eighty (180) days after (a) Tenant agrees to be relocated and (b) approves plans for the construction of required tenant improvements at the new space, if any. Tenant shall not unreasonably withhold or delay its approval of any plans for the construction of tenant improvements. Landlord shall give Tenant thirty (30) days advance notice of the estimated move in date. Prior to the date that Tenant is moved to the new space, Tenant shall remain in the Premises and shall continue to perform all of its obligations under this Lease. After Tenant moves into the new space, this Lease shall remain in full force and effect and be deemed applicable to such new space, except as to Base Rent, Tenant's Share of Operating Expense increases and the number of parking spaces Tenant shall be entitled to use, all of which shall be adjusted based on the relationship between the number of rentable square feet in the original Premises and the number of rentable square feet 28 in the substituted space. Upon Tenant's election to be relocated, Landlord and Tenant shall amend this Lease to provide for the relocation of the Premises. 31. Holding Over. If Tenant remains in possession of the Premises or any part thereof after the expiration or earlier termination of the term hereof with Landlord's consent, such occupancy shall be a tenancy from month to month upon all the terms and conditions of this Lease pertaining to the obligations of Tenant, except that the Base Rent payable for the first thirty (30) day period of such holdover shall be one hundred fifty (150%) percent of the Base Rent Base Rent payable immediately preceding the termination date of this Lease and after such thirty (30) day period of holdover, the Base Rent payable shall be two hundred percent (200%) of the Base Rent payable immediately preceding the termination date of this Lease and all Options, if any, shall be deemed terminated and be of no further effect. If Tenant remains in possession of the Premises or any part thereof after the expiration of the term hereof without Landlord's consent, Tenant shall, at Landlord's option, be treated as a tenant at sufferance or a trespasser. Nothing contained herein shall be construed to constitute Landlord's consent to Tenant holding over at the expiration or earlier termination of the Lease term or to give Tenant the right to hold over after the expiration or earlier termination of the Lease term. Tenant hereby agrees to indemnify, hold harmless and defend Landlord from any cost, loss, claim or liability (including attorneys' fees) Landlord may incur as a result of Tenant's failure to surrender possession of the Premises to Landlord upon the termination of this Lease. 32. Landlord's Access. 32.1 Access. Landlord and Landlord's agents, contractors and employees shall have the right to enter the Premises at reasonable times (and upon reasonable notice) for the purpose inspecting the Premises, performing any services required of Landlord, showing the Premises to prospective purchasers, lenders, or tenants, undertaking safety measures and making alterations, repairs, improvements or additions to the Premises or to the Project. In the event of an emergency, Landlord may gain access to the Premises by any reasonable means, and Landlord shall not be liable to Tenant for damage to the Premises or to Tenant's property resulting from such access. Landlord may at any time place on or about the Building for sale or for lease signs and Landlord may at any time during the last one hundred twenty (120) days of the term hereof place on or about the Premises for lease signs. 32.2 Keys. Landlord shall have the right to retain keys and electric codes or card keys to the locks and card key access systems and other security systems on the entry doors to the Premises and all interior doors at the Premises. At Landlord's option, Landlord may require Tenant to obtain all keys to door locks at the Premises from Landlord's engineering staff or Landlord's locksmith and to only use Landlord's engineering staff or Landlord's locksmith to change locks at the Premises. Tenant shall pay Landlord's or its locksmith's standard charge for all keys and other services obtained from Landlord's engineering staff or locksmith. 33. Security Measures. Tenant hereby acknowledges that Landlord shall have no obligation whatsoever to provide guard service or other security measures for the benefit of the Premises or the Project, and Landlord shall have no liability to Tenant due to its failure to provide such services. Tenant assumes all responsibility for the protection of Tenant, its agents, employees, contractors and invitees and the property of Tenant and of Tenant's agents, employees, contractors and invitees from acts of third parties. Nothing herein contained shall prevent Landlord, at Landlord's sole option, from implementing security measures for the Project or any part thereof, in which event Tenant shall participate in such security measures and the cost thereof shall be included within the definition of Operating Expenses, and Landlord shall have no liability to Tenant and its agents, employees, contractors and invitees arising out of Landlord's negligent provision of security measures. Landlord shall have the right, but not the obligation, to require all persons entering or leaving the Project to identify themselves to a security guard and to reasonably establish that such person should be permitted access to the Project. 34. Easements. Landlord reserves to itself the right, from time to time, to grant such easements, rights and dedications that Landlord deems necessary or desirable, and to cause the recordation of parcel maps and restrictions, so long as such easements, rights, dedications, maps and restrictions do not unreasonably interfere with the use of the Premises by Tenant. Tenant shall sign any of the aforementioned documents within ten (10) business days after Landlord's request and Tenant's failure to do so shall constitute a material default by Tenant. The obstruction of Tenant's view, air, or light by any structure erected in the vicinity of the Project, whether by Landlord or third parties, shall in no way affect this Lease or impose any liability upon Landlord. 29 35. Transportation Management. Tenant shall fully comply at its sole expense with all present or future programs implemented or required by any governmental or quasi-governmental entity or reasonably required by Landlord to manage parking, transportation, air pollution, or traffic in and around the Project or the metropolitan area in which the Project is located. 36. Severability. The invalidity of any provision of this Lease as determined by a court of competent jurisdiction shall in no way affect the validity of any other provision hereof. 37. Time of Essence. Time is of the essence with respect to each of the obligations to be performed by Tenant and Landlord under this Lease. 38. Definition of Additional Rent. All monetary obligations of Tenant to Landlord under the terms of this Lease, including, but not limited to, Base Rent, Tenant's Share of Operating Expenses, parking charges (if any), late charges and charges for after hours HVAC shall be deemed to be rent. 39. Incorporation of Prior Agreements. This Lease and the attachments listed in section 1.18 contain all agreements of the parties with respect to the lease of the Premises and any other matter mentioned herein. No prior or contemporaneous agreement or understanding pertaining to any such matter shall be effective. Except as otherwise stated in this Lease, Tenant hereby acknowledges that no real estate broker nor Landlord or any employee or agents of any of said persons has made any oral or written warranties or representations to Tenant concerning the condition or use by Tenant of the Premises or the Project or concerning any other matter addressed by this Lease. 40. Amendments. This Lease may be modified in writing only, signed by the parties in interest at the time of the modification. 41. Notices. Subject to the requirements of section 27.6 of this Lease, and except for notices required in sections 23.3 and 32.1, all notices required or permitted by this Lease shall be in writing and may be delivered (a) in person (by hand, by messenger or by courier service), (b) by U.S. Postal Service regular mail, (c) by U.S. Postal Service certified mail, return receipt requested, (d) by U.S. Postal Service Express Mail, Federal Express or other overnight courier, or (e) by facsimile transmission, and shall be deemed sufficiently given if served in a manner specified in this section 41. Any notice permitted or required hereunder, and any notice to pay rent or quit or similar notice, shall be deemed personally delivered to Tenant on the date the notice is personally delivered to any employee of Tenant at the Premises. The addresses set forth in section 1.19 of this Lease shall be the address of each party of notice purposes. Landlord or Tenant may by written notice to the other specify a different address for notices purposes, except that upon Tenant's taking possession of the Premises, the Premises shall constitute Tenant's address for the purpose of mailing or delivering notices to Tenant. A copy of all notices required or permitted to be given to Landlord hereunder shall be concurrently transmitted to such party or parties at such addresses as Landlord may from time to time hereinafter designate by written notice to Tenant. Any notice sent by regular mail or by certified mail, return receipt requested, shall be deemed given three (3) days after deposited with the U.S. Postal Service. Notices delivered by U.S. Express Mail, Federal Express or other courier shall be deemed given on the date delivered by the carrier to the appropriate party's address for notice purposes. If any notice is transmitted by facsimile transmission, the notice shall be deemed delivered upon telephone confirmation of receipt of the transmission thereof at the appropriate party's address for notice purposes. A copy of all notices delivered to a party by facsimile transmission shall also be mailed to the party on the date the facsimile transmission is completed. If notice is received on Saturday, Sunday or a legal holiday, it shall be deemed received on the next business day. Nothing contained herein shall be construed to limit Landlord's right to serve any notice to pay rent or quit or similar notice by any method permitted by applicable law, and any such notice shall be effective if served in accordance with any method permitted by applicable law whether or not the requirements of this section have been met. 42. Waivers. No waiver by Landlord or Tenant of any provision hereof shall be deemed a waiver of any other provision hereof or of any subsequent breach by Landlord or Tenant of the same or any other provision. Landlord's consent to, or approval of, any act shall not be deemed to render unnecessary the obtaining of Landlord's consent to or approval of any subsequent act by Tenant. The acceptance of rent hereunder by Landlord shall not be a waiver of any preceding breach by Tenant of any provision hereof, other than the failure of Tenant to pay the particular rent so accepted, regardless of Landlord's knowledge of such preceding breach at the time of acceptance of such rent. No acceptance by Landlord of partial payment of any sum due from Tenant shall be deemed a waiver by Landlord of its right 30 to receive the full amount due, nor shall any endorsement or statement on any check or accompanying letter from Tenant be deemed an accord and satisfaction. Tenant hereby waives for Tenant and all those claiming under Tenant all rights now or hereafter existing to redeem by order or judgment of any court or by legal process or writ, Tenant's right of occupancy of the Premises after any termination of this Lease or to otherwise obtain relief from the forfeiture or termination of this Lease. 43. Covenants. This Lease shall be construed as though the covenants contained herein are independent and not dependent and each party hereby waives the benefit of any statute to the contrary. All provisions of this Lease to be observed or performed are both covenants and conditions. 44. Binding Effect; Choice of Law. Subject to any provision hereof restricting assignment or subletting by Tenant, this Lease shall bind the parties, their heirs, personal representatives, successors and assigns. This Lease shall be governed by the laws of the state in which the Project is located and any litigation concerning this Lease between the parties hereto shall be initiated in the county in which the Project is located. 45. Attorneys' Fees. If Landlord or Tenant brings an action to enforce the terms hereof or declare rights hereunder, the prevailing party in any such action, or appeal thereon, shall be entitled to its reasonable attorneys' fees and court costs to be paid by the losing party as fixed by the court in the same or separate suit, and whether or not such action is pursued to decision or judgment. The attorneys' fee award shall not be computed in accordance with any court fee schedule, but shall be such as to fully reimburse all attorneys' fees and court costs reasonably incurred in good faith. Landlord shall be entitled to reasonable attorneys' fees and all other costs and expenses incurred in the preparation and service of notices of default and consultations in connection therewith, whether or not a legal action is subsequently commenced in connection with such default. Landlord and Tenant agree that attorneys' fees incurred with respect to defaults and bankruptcy are actual pecuniary losses within the meaning of section 365(b)(1)(B) of the Bankruptcy Code or any successor statute. 46. Auctions. Tenant shall not conduct, nor permit to be conducted, either voluntarily or involuntarily, any auction upon the Premises or the Common Areas. The holding of any auction on the Premises or Common Areas in violation of this section 46 shall constitute a material default hereunder. 47. Exemption of Landlord from Liability. To the extent allowed by law, Tenant hereby agrees that Landlord shall not be liable for injury to Tenant's business or any loss of income therefrom or for loss of or damage to the merchandise, tenant improvements, fixtures, furniture, equipment, computers, files, automobiles, or other property of Tenant, Tenant's employees, agents, contractors or invitees, or any other person in or about the Project, nor shall Landlord be liable for injury to the person of Tenant, Tenant's employees, agents, contractors or invitees, whether such damage or injury is caused by or results from any cause whatsoever including, but not limited to, theft, criminal activity at the Project, negligent security measures, bombings or bomb scares, Hazardous Substances, fire, steam, electricity, gas, water or rain, flooding, breakage of pipes, sprinklers, plumbing, air conditioning or lighting fixtures, or from any other cause, whether said damage or injury results from conditions arising upon the Premises or upon other portions of the Project, or from other sources or places, or from new construction or the repair, alteration or improvement of any part of the Project, and regardless of whether the cause of the damage or injury arises out of Landlord's or its employees, agents or contractors negligent or intentional acts. Landlord shall not be liable for any damages arising from any act or neglect of any employees, agents, contractors or invitees of any other tenant, occupant or user of the Project, nor from the failure of Landlord to enforce the provisions of the lease of any other tenant of the Project. Tenant, as a material part of the consideration to Landlord hereunder, hereby assumes all risk of damage to Tenant's property or business or injury to persons, in, upon or about the Project arising from any cause, including Landlord's negligence or the negligence of its employees, agents or contractors, and Tenant hereby waives all claims in respect thereof against Landlord, its employees, agents and contractors. 48. Merger. The voluntary or other surrender of this Lease by Tenant, or a mutual cancellation thereof, or a termination by Landlord, shall not result in the merger of Landlord's and Tenant's estates, and shall, at the option of Landlord, terminate all or any existing subtenancies or may, at the option of Landlord, operate as an assignment to Landlord of any or all of such subtenancies. 49. Quiet Possession. Subject to the other terms and conditions of this Lease, and the rights of any lender, and provided Tenant is not in default hereunder, Tenant shall have quiet possession of the Premises for the entire term hereof subject to all of the provisions of this Lease. 31 50. Authority. If Tenant is a corporation, trust, or general or limited partnership, Tenant, and each individual executing this Lease on behalf of such entity, represents and warrants that such individual is duly authorized to execute and deliver this Lease on behalf of said entity, that said entity is duly authorized to enter into this Lease, and that this Lease is enforceable against said entity in accordance with its terms. If Tenant is a corporation, trust or partnership, Tenant shall deliver to Landlord upon demand evidence of such authority satisfactory to Landlord. 51. Conflict. Except as otherwise provided herein to the contrary, any conflict between the printed provisions, exhibits, addenda or riders of this Lease and the typewritten or handwritten provisions, if any, shall be controlled by the typewritten or handwritten provisions. 52. Multiple Parties. If more than one person or entity is named as Tenant herein, the obligations of Tenant shall be the joint and several responsibility of all persons or entities named herein as Tenant. Service of a notice in accordance with section 41 on one Tenant shall be deemed service of notice on all Tenants. 53. Interpretation. This Lease shall be interpreted as if it was prepared by both parties and ambiguities shall not be resolved in favor of Tenant because all or a portion of this Lease was prepared by Landlord. The captions contained in this Lease are for convenience only and shall not be deemed to limit or alter the meaning of this Lease. As used in this Lease the words tenant and landlord include the plural as well as the singular. Words used in the neuter gender include the masculine and feminine gender. 54. Prohibition Against Recording. Neither this Lease, nor any memorandum, affidavit or other writing with respect thereto, shall be recorded by Tenant or by anyone acting through, under or on behalf of Tenant. Landlord shall have the right to record a memorandum of this Lease, and Tenant shall execute, acknowledge and deliver to Landlord for recording any memorandum prepared by Landlord. 55. Relationship of Parties. Nothing contained in this Lease shall be deemed or construed by the parties hereto or by any third party to create the relationship of principal and agent, partnership, joint venturer or any association between Landlord and Tenant. 56. Rules and Regulations. Tenant agrees to abide by and conform to the Rules and to cause its employees, suppliers, customers and invitees to so abide and conform. Landlord shall have the right, from time to time, to modify, amend and enforce the Rules in a non-discriminatory manner. Landlord shall not be responsible to Tenant for the failure of other persons including, but not limited to, other tenants, their agents, employees and invitees to comply with the Rules. 57. Right to Lease. Landlord reserves the absolute right to effect such other tenancies in the Project as Landlord in its sole discretion shall determine, and Tenant is not relying on any representation that any specific tenant or number of tenants will occupy the Project. 58. Intentionally Deleted. 59. Security for Performance of Tenant's Obligations. Notwithstanding any security deposit held by Landlord pursuant to section 5, Tenant hereby agrees that in the event of a default by Tenant, Landlord shall be entitled to seek and obtain a writ of attachment and/or a temporary protective order and Tenant hereby waives any rights or defenses to contest such a writ of attachment and/or temporary protective order on the basis of any relevant law. 60. Attachments. The items listed in section 1.18 are a part of this Lease and are incorporated herein by this reference. 61. Confidentiality. Tenant acknowledges and agrees that the terms of this Lease are confidential and constitute propriety information of Landlord. Disclosure of the terms hereof could adversely affect the ability of Landlord to negotiate other leases with respect to the Project and may impair Landlord's relationship with other tenants of the Project. Tenant agrees that it and its partners, officers, directors, employees, brokers, and attorneys, if any, shall not disclose the terms and conditions of this Lease to any other person or entity without the prior written consent of Landlord which may be given or withheld by Landlord, in Landlord's sole discretion. It is understood and agreed that 32 damages alone would be an inadequate remedy for the breach of this provision by Tenant, and Landlord shall also have the right to seek specific performance of this provision and to seek injunctive relief to prevent its breach or continued breach. 62. Costs Related to Tenant Requests. Tenant shall reimburse Landlord promptly upon request for the costs and expenses incurred by Landlord as a result of any Tenant request, for example, legal fees and expenses incurred to review an assignment or subletting request or architectural and engineering fees incurred to review a proposed alteration by Tenant. 63. WAIVER OF JURY TRIAL. LANDLORD AND TENANT HEREBY WAIVE THEIR RESPECTIVE RIGHT TO TRIAL BY JURY OF ANY CAUSE OF ACTION, CLAIM, COUNTERCLAIM OR CROSS- COMPLAINT IN ANY ACTION, PROCEEDING AND/OR HEARING BROUGHT BY EITHER LANDLORD AGAINST TENANT OR TENANT AGAINST LANDLORD ON ANY MATTER WHATSOEVER ARISING OUT OF, OR IN ANY WAY CONNECTED WITH, THIS LEASE, THE RELATIONSHIP OF LANDLORD AND TENANT, TENANT'S USE OR OCCUPANCY OF THE PREMISES, OR ANY CLAIM OF INJURY OR DAMAGE, OR THE ENFORCEMENT OF ANY REMEDY UNDER ANY LAW, STATUTE, OR REGULATION, EMERGENCY OR OTHERWISE, NOW OR HEREAFTER IN EFFECT. LANDLORD AND TENANT ACKNOWLEDGE THAT THEY HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND PROVISION CONTAINED HEREIN AND, BY EXECUTION OF THIS LEASE, SHOW THEIR INFORMED AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE TIME THIS LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE AND EFFECTUATE THE INTENT AND PURPOSE OF LANDLORD AND TENANT WITH RESPECT TO THE PREMISES. TENANT ACKNOWLEDGES THAT IT HAS BEEN GIVEN THE OPPORTUNITY TO HAVE THIS LEASE REVIEWED BY ITS LEGAL COUNSEL PRIOR TO ITS EXECUTION. PREPARATION OF THIS LEASE BY LANDLORD OR LANDLORD'S AGENT AND SUBMISSION OF SAME TO TENANT SHALL NOT BE DEEMED AN OFFER BY LANDLORD TO LEASE THE PREMISES TO TENANT OR THE GRANT OF AN OPTION TO TENANT TO LEASE THE PREMISES. THIS LEASE SHALL BECOME BINDING UPON LANDLORD ONLY WHEN FULLY EXECUTED BY BOTH PARTIES AND WHEN LANDLORD HAS DELIVERED A FULLY EXECUTED ORIGINAL OF THIS LEASE TO TENANT. LANDLORD TENANT THE REALTY ASSOCIATES FUND IV, L.P. NOOSH, INC. By: REALTY ASSOCIATES FUND IV LLC Its: General Partner By: TA REALTY CORP. By:________________________ Its: Manager Name:______________________ By:_______________________ Its:______________, duly authorized 33 EXHIBIT A FLOOR PLAN ---------- A-1 EXHIBIT B VERIFICATION LETTER ------------------- Noosh, Inc. ("Tenant") hereby certifies that it has entered into a lease with The Realty Associates Fund IV, L.P., ("Landlord") and verifies the following information as of the _______ day of ____________________________, 1999: Address of Building: The Hillsite Building, 75 Second Avenue, Needham, Massachusetts 02192 Number of Rentable Square Feet in Premises: 4,230 Commencement Date: November 1, 1999 Lease Termination Date: October 31, 2002 Tenant's Percentage Share: 4.0% Initial Base Rent: $122,670.00/ year and /$10,222.50/month Billing Address for Tenant: Noosh, Inc. 3401 Hillview Avenue, Building B Palo Alto, California 94304 Attention: Ann Marie Cady Telephone Number: (650) 858-8300 Federal Tax I.D. No.: 77-0495080
Tenant acknowledges and agrees that all tenant improvements Landlord is obligated to make to the Premises, if any, have been completed to Tenant's satisfaction, that Tenant has accepted possession of the Premises, and that as of the date hereof, there exist no offsets or defenses to the obligations of Tenant under the Lease. TENANT NOOSH, INC. By:____________________________ Name:__________________________ (print name) Its:____________________, duly authorized B-1 EXHIBIT C RULES AND REGULATIONS GENERAL RULES ------------- Tenant shall faithfully observe and comply with the following Rules and Regulations. 1. Tenant shall not alter any locks or install any new or additional locks or bolts on any doors or windows of the Premises without obtaining Landlord's prior written consent. Tenant shall bear the cost of any lock changes or repairs required by Tenant. Keys required by Tenant must be obtained from Landlord at a reasonable cost to be established by Landlord. 2. All doors opening to public corridors shall be kept closed at all times except for normal ingress and egress to the Premises. Tenant shall assume 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. 3. Landlord reserves the right to close and keep locked all entrance and exit doors of the Project except during the Project's normal hours of business as defined in section 11.4 of the Lease. Tenant, its employees and agents must be sure that the doors to the Project are securely closed and locked when leaving the Premises if it is after the normal hours of business of the Project. Tenant, its employees, agents or any other persons entering or leaving the Project at any time when it is so locked, or any time when it is considered to be after normal business hours for the Project, may be required to sign the Project register. Access to the Project may be refused unless the person seeking access has proper identification or has a previously received authorization for access to the Project. Landlord and its agents shall in no case be liable for damages for any error with regard to the admission to or exclusion from the Project of any person. In case of invasion, mob, riot, public excitement, or other commotion, Landlord reserves the right to prevent access to the Project during the continuance thereof by any means it deems appropriate for the safety and protection of life and property. 4. Landlord reserves the right, in Landlord's sole and absolute discretion, to close or limit access to the Project and/or the Premises, from time to time, due to the failure of utilities, due to damage to the Project and/or the Premises, to ensure the safety of persons or property or due to government order or directive, and Tenant agrees to immediately comply with any such decision by Landlord. If Landlord closes or limits access to the Project and/or the Premises for the reasons described above, Landlord's actions shall not constitute a breach of the Lease. 5. No furniture, freight or equipment of any kind shall be brought into the Project without Landlord's prior authorization. Tenant shall only move in and out of the Premises at times designated by Landlord, in Landlord's reasonable discretion (e.g., Landlord could require that all moves in and out of the Premises only occur on weekends or on weekdays between 5:00 p.m. and 11:00 p.m.). All moves in and out of the Premises shall be scheduled with Landlord in advance, on a first come, first served basis. All property shall be moved in and out of the Premises using the freight elevator. Landlord shall have the right, in its sole discretion, to permit only one tenant to move in or out of the Building at a time. When moving equipment, furniture and other items into and out of the Premises, Tenant shall take whatever precautions Landlord designates to protect the Project from damage (e.g., placing plastic or other protective material on carpets in the common areas and the Premises). Landlord shall have the right to prescribe the weight, size and position of all safes and other heavy property brought into the Project and also the times and manner of moving the same in and out of the Project. Safes and other heavy objects shall, if considered necessary by Landlord, stand on supports of such thickness as is necessary to properly distribute the weight, and Tenant shall be solely responsible for the cost of installing all supports. Landlord will not be responsible for loss of or damage to any such safe or property in any case. Any damage to any part of the Project, its contents, occupants or visitors by moving or maintaining any such safe or other property shall be the sole responsibility and expense of Tenant. 6. The requirements of Tenant will be attended to only upon application at the management office for the Project or at such office location designated by Landlord. Tenant shall not ask employees of Landlord to do anything outside their regular duties without special authorization from Landlord. 7. Tenant shall not disturb, solicit, or canvass any occupant of the Project and shall cooperate with Landlord and its agents to prevent the same. Tenant, its employees and agents shall not loiter in or on the entrances, corridors, sidewalks, lobbies, halls, stairways, elevators, or any Common Areas for the purpose of smoking tobacco products or for any other purpose, nor in any way obstruct such areas, and shall use them only as a means of ingress and egress for the Premises. Smoking shall not be permitted in the Common Areas. C-2 8. The toilet rooms, urinals and wash bowls shall not be used for any purpose other than that for which they were constructed, and no foreign substance of any kind whatsoever shall be thrown therein. The expense of any breakage, stoppage or damage resulting from the violation of this rule shall be borne by the tenant who, or whose employees or agents, shall have caused it. 9. Except for vending machines intended for the sole use of Tenant's employees and invitees, no vending machine or machines other than fractional horsepower office machines shall be installed, maintained or operated upon the Premises without the written consent of Landlord. All vendors or other persons visiting the Premises shall be subject to the reasonable control of Landlord. Tenant shall not permit its vendors or other persons visiting the Premises to solicit other tenants of the Project. 10. Tenant shall not use or keep in or on the Premises or the Project any kerosene, gasoline or other inflammable or combustible fluid or material. Tenant shall not bring into or keep within the Premises or the Project any animals, birds, bicycles or other vehicles. 11. Tenant shall not use, keep or permit to be used or kept, any foul or noxious gas or substance in or on the Premises, or permit or allow the Premises to be occupied or used in a manner offensive or objectionable to Landlord or other occupants of the Project by reason of noise, odors, or vibrations, or to otherwise interfere in any way with the use of the Project by other tenants. 12. No cooking shall be done or permitted on the Premises, nor shall the Premises be used for the storage of merchandise, for loading or for any improper, objectionable or immoral purposes. Notwithstanding the foregoing, Underwriters' Laboratory approved equipment and microwave ovens may be used in the Premises for heating food and brewing coffee, tea, hot chocolate and similar beverages for employees and visitors of Tenant, provided that such use is in accordance with all applicable federal, state and city laws, codes, ordinances, rules and regulations; and provided further that such cooking does not result in odors escaping from the Premises. 13. Landlord shall have the right to approve where and how telephone wires are to be introduced to the Premises. No boring or cutting for wires shall be allowed without the consent of Landlord. The location of telephone call boxes and other office equipment affixed to the Premises shall be subject to the approval of Landlord. Tenant shall not mark, drive nails or screws, or drill into the partitions, woodwork or plaster contained in the Premises or in any way deface the Premises or any part thereof without Landlord's prior written consent. Tenant shall not install any radio or television antenna, satellite dish, loudspeaker or other device on the roof or exterior walls of the Project. Tenant shall not interfere with broadcasting or reception from or in the Project or elsewhere. 14. Landlord reserves the right to exclude or expel from the Project any person who, in the judgment of Landlord, is intoxicated or under the influence of liquor or drugs, or who shall in any manner do any act in violation of any of these Rules and Regulations. 15. Tenant shall not waste electricity, water or air conditioning and agrees to cooperate fully with Landlord to ensure the most effective operation of the Project's heating and air conditioning system, and shall refrain from attempting to adjust any controls. Tenant shall not without the prior written consent of Landlord use any method of heating or air conditioning other than that supplied by Landlord. Tenant shall not use electric fans or space heaters in the Premises. 16. Tenant shall store all its 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 in the vicinity of the Project without violation of any law or ordinance governing such disposal. All trash, garbage and refuse disposal shall be made only through entry-ways and elevators provided for such purposes at such times as Landlord shall designate. 17. Tenant shall comply with all safety, fire protection and evacuation procedures and regulations established by Landlord or any governmental agency. 18. No awnings or other projection shall be attached to the outside walls or windows of the Project by Tenant. No curtains, blinds, shades or screens shall be attached to or hung in any window or door of the Premises without the prior written consent of Landlord. Landlord shall have the right to require Tenant to use Landlord's standard curtains or window coverings. Tenant shall not place any signs in the windows of the Premises or the Project. All electrical ceiling fixtures hung in the Premises must be fluorescent and/or of a quality, type, design and bulb color approved by Landlord. Tenant shall abide by Landlord's regulations concerning the opening and closing of window coverings which are attached to the windows in the Premises. The skylights, windows, and doors that reflect or admit light and air into the C-3 halls, passageways or other public places in the Project shall not be covered or obstructed by Tenant, nor shall any bottles, parcels or other articles be placed on the windowsills. 19. 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 in writing by Landlord. Except with the prior written consent of Landlord, no person or persons other than those approved by Landlord shall be permitted to enter the Project for the purpose of cleaning same. Landlord shall in no 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 or any of its employees or other persons by the janitor of Landlord. Landlord shall not be obligated to notify Tenant of the times at which the janitorial staff will enter the Premises, and Tenant hereby authorizes the janitorial staff to enter the Premises at any time, without notice. Janitor service shall include ordinary dusting and cleaning by the janitor assigned to such work and shall not include cleaning of carpets or rugs, except normal vacuuming, or moving of furniture and other special services. Window cleaning shall be done only by Landlord at reasonable intervals and as Landlord deems necessary. 20. Tenant acknowledges that the local fire department has previously required Landlord to participate in a fire and emergency preparedness program or may require Landlord and/or Tenant to participate in such a program in the future. Tenant agrees to take all actions necessary to comply with the requirements of such a program including, but not limited to, designating certain employees as "fire wardens" and requiring them to attend any necessary classes and meetings and to perform any required functions. 21. Tenant and its employees shall comply with all federal, state and local recycling and/or resource conversation laws and shall take all actions requested by Landlord in order to comply with such laws. Tenant and its employees shall participate in any recycling or resource conservation program implemented by Landlord, at Tenant's sole expense. PARKING RULES ------------- 1. Parking areas shall be used only for parking by vehicles no longer than full size, passenger automobiles. Tenant and its employees shall park automobiles within the lines of the parking spaces. 2. Tenant shall not permit or allow any vehicles that belong to or are controlled by Tenant or Tenant's employees, suppliers, shippers, customers, or invitees to be loaded, unloaded, or parked in areas other than those designated by Landlord for such activities. Users of the parking area will obey all posted signs and park only in the areas designated for vehicle parking. 3. Parking stickers, parking cards and other identification devices shall be the property of Landlord and shall be returned to Landlord by the holder thereof upon termination of the holder's parking privileges. Landlord may require Tenant and each of its employees to give Landlord a deposit when a parking card or other parking device is issued. Landlord shall not be obligated to return the deposit unless and until the parking card or other device is returned to Landlord. Tenant will pay such replacement charges as is reasonably established by Landlord for the loss of such devices. Loss or theft of parking identification stickers or devices from automobiles must be reported to the parking operator immediately. Any parking identification stickers or devices reported lost or stolen found on any unauthorized car will be confiscated and the illegal holder will be subject to prosecution. 4. Landlord reserves the right to relocate all or a part of parking spaces within the parking area and/or to reasonably adjacent off site locations(s), and to allocate them between compact and standard size and tandem spaces, as long as the same complies with applicable laws, ordinances and regulations. 5. Unless otherwise instructed, every person using the parking area is required to park and lock his own vehicle. Landlord will not be responsible for any damage to vehicles, injury to persons or loss of property, all of which risks are assumed by the party using the parking area. 6. Validation of visitor parking, if established, will be permissible only by such method or methods as Landlord may establish at rates determined by Landlord, in Landlord's sole discretion. Only persons visiting Tenant at the Premises shall be permitted by Tenant to use the Project's visitor parking facilities. 7. The maintenance, washing, waxing or cleaning of vehicles in the parking structure or Common Areas is prohibited. 8. Tenant shall be responsible for seeing that all of its employees, agents and invitees comply with the applicable parking rules, regulations, laws and agreements. Parking area managers or attendants, if any, are not authorized to make C-4 or allow any exceptions to these Parking Rules and Regulations. Landlord reserves the right to terminate parking rights for any person or entity that willfully refuses to comply with these rules and regulations. 9. Every driver is required to park his own car. Tenant agrees that all responsibility for damage to cars or the theft of or from cars is assumed by the driver, and further agrees that Tenant will hold Landlord harmless for any such damages or theft. 10. No vehicles shall be parked in the parking garage overnight. The parking garage shall only be used for daily parking and no vehicle or other property shall be stored in a parking space. 11. Any vehicle parked by Tenant, its employees, contractors or visitors in a reserved parking space or in any area of the parking area that is not designated for the parking of such a vehicle may, at Landlord's option, and without notice or demand, be towed away by any towing company selected by Landlord, and the cost of such towing shall be paid for by Tenant and/or the driver of said vehicle. 12. At Landlord's request, Tenant shall provide Landlord with a list which includes the name of each person using the parking facilities based on Tenant's parking rights under this Lease and the license plate number of the vehicle being used by that person. Tenant shall provide Landlord with an updated list within five (5) days after any part of the list becomes inaccurate. Landlord reserves the right at any time to change or rescind any one or more of these Rules and Regulations, or to make such other and further reasonable Rules and Regulations as in Landlord's judgment may from time to time be necessary for the management, safety, care and cleanliness of the Project, and for the preservation of good order therein, as well as for the convenience of other occupants and tenants therein. Landlord may waive any one or more of these Rules and Regulations for the benefit of any particular tenant, but no such waiver by Landlord shall be construed as a waiver of such Rules and Regulations in favor of any other tenant, nor prevent Landlord from thereafter enforcing any such Rules or Regulations against any or all tenants of the Project. Tenant shall be deemed to have read these Rules and Regulations and to have agreed to abide by them as a condition of its occupancy of the Premises. C-5 EXHIBIT D LETTER OF CREDIT THE REALTY ASSOCIATES FUND IV, L.P. c/o TA Associates Realty 28 State Street, 10/th/ Floor Boston, Massachusetts 02110 Ladies and Gentlemen: By order of our client, Noosh, Inc., we have established our irrevocable standby Letter of Credit #_________ in your favor for a sum or sums not to exceed $62,000.00 in United States currency, effective immediately for a term of one (1) year. We shall make payment hereunder against presentation of your sight draft drawn on us bearing the clause "drawn under __________ Bank, Letter of Credit #_________", signed by an authorized officer or agent and accompanied by a statement signed by an authorized officer or agent reading as follows: "The amount of this draft constitutes funds due us from Noosh, Inc. in connection with a default under a certain Lease dated September ___, 1999, between THE REALTY ASSOCIATES FUND IV, L.P. and NOOSH, INC., relating to premises situated at 75 SECOND AVENUE, NEEDHAM, MASSACHUSETTS 02192." It is a condition of this Letter of Credit that it shall be deemed automatically extended without amendment for an additional period of one (1) year from the present or any future expiration date hereof unless at least thirty (30) days prior to any such date we shall notify you in writing by certified mail that we elect not to consider this Letter of Credit renewed for any such additional period. Upon receipt by you of such notice of non- renewal, you may draw hereunder your sight draft(s) on ourselves signed by an authorized officer or agent and accompanied by a statement signed by an authorized officer or agent reading as follows: "We have received notice of non-renewal of Letter of Credit #_____________ from _____________ Bank and the applicant has failed to provide us with a substitute Letter of Credit not less than thirty (30) days prior to the purported expiration date of the Letter of Credit." We hereby agree with you that drafts drawn under and in compliance with the terms of this Letter of Credit will by duly honored upon presentation and delivery thereof to the Bank's ____ Department. This Letter of Credit sets forth in full our undertaking, and such undertaking shall not in any way be modified, amended, amplified or limited by reference to any document, instrument or agreement referred to herein and any such reference shall not be deemed to incorporate herein by reference any document, instrument or agreement. This Letter of Credit is subject to the Uniform Customs and Practices for Documentary Credits, 1993 revision, ICC Publication No. 500. Partial drawings shall be permitted under this Letter of Credit. This Letter of Credit is transferable in whole or in part by the beneficiary to any successor or assign of the beneficiary. This Letter of Credit may be transferred more than once. Very truly yours, ________________ EX-23.1 10 CONSENT OF INDEPENDENT ACCOUNTANTS EXHIBIT 23.1 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the use in this Amendment No. 3 to Registration Statement on Form S-1 of our report dated January 21, 2000 relating to the financial statements of Noosh, Inc., which appear in such Registration Statement. We also consent to the reference to us under the headings "Experts" in such Registration Statement. /s/ PricewaterhouseCoopers LLP San Jose, California April 7, 2000 -----END PRIVACY-ENHANCED MESSAGE-----