-----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, FtFfDsu8AzOAhWtWYU4ziuaEAhAsR/xwnrn+0hiVX4ynPbEgztLPfo9of6q7TQ5z Fm0WBFe4+FlF4BKrm2NLog== 0000891618-99-005800.txt : 19991223 0000891618-99-005800.hdr.sgml : 19991223 ACCESSION NUMBER: 0000891618-99-005800 CONFORMED SUBMISSION TYPE: S-1 PUBLIC DOCUMENT COUNT: 36 FILED AS OF DATE: 19991222 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NIKU CORP CENTRAL INDEX KEY: 0001076641 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 770473454 STATE OF INCORPORATION: DE FISCAL YEAR END: 0131 FILING VALUES: FORM TYPE: S-1 SEC ACT: SEC FILE NUMBER: 333-93439 FILM NUMBER: 99779360 BUSINESS ADDRESS: STREET 1: 305 MAIN STREET CITY: REDWOOD CITY STATE: CA ZIP: 94063 BUSINESS PHONE: 6502984600 MAIL ADDRESS: STREET 1: 305 MAIN STREET CITY: REDWOOD CITY STATE: CA ZIP: 94063 S-1 1 FORM S-1 1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 22, 1999 REGISTRATION NO. 333- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 NIKU CORPORATION (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 7371 77-0473454 (STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
NIKU CORPORATION 305 MAIN STREET REDWOOD CITY, CALIFORNIA 94063 (650) 298-4600 (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES) FARZAD DIBACHI CHIEF EXECUTIVE OFFICER NIKU CORPORATION 305 MAIN STREET REDWOOD CITY, CALIFORNIA 94063 (650) 298-4600 (NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE) COPIES TO: DENNIS R. DEBROECK, ESQ. ALAN F. DENENBERG, ESQ. JEFFREY R. VETTER, ESQ. SHEARMAN & STERLING FENWICK & WEST LLP 1550 EL CAMINO REAL TWO PALO ALTO SQUARE MENLO PARK, CALIFORNIA 94025 PALO ALTO, CALIFORNIA 94306 (650) 330-2200 (650) 494-0600
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after the effective date of this Registration Statement. 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, 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, 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 of 1933, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. [ ] CALCULATION OF REGISTRATION FEE - ------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------ PROPOSED MAXIMUM AMOUNT OF TITLE OF EACH CLASS OF SECURITIES AGGREGATE OFFERING REGISTRATION TO BE REGISTERED PRICE(1) FEE - ------------------------------------------------------------------------------------------------------------ Common Stock, $0.0001 par value............................. $115,000,000 $30,360 - ------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------
(1) Estimated solely for the purpose of computing the amount of the registration fee pursuant to Rule 457(o) under the Securities Act of 1933. ------------------------ THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE SECURITIES ACT 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. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 THE INFORMATION IN THIS PRELIMINARY 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 DECEMBER 22, 1999. Shares NIKU CORPORATION LOGO Niku Corporation Common Stock ---------------------- This is an initial public offering of shares of common stock of Niku Corporation. All of the shares of common stock are being sold by us. Prior to this offering, there has been no public market for our common stock. Niku anticipates that the initial public offering price per share will be between $ and $ . Niku has applied for approval for quotation of our common stock on the Nasdaq National Market under the symbol "NIKU." 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 ACCURACY OR ADEQUACY 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 Niku Corporation.............. $ $
To the extent that the underwriters sell more than shares of common stock, the underwriters have the option to purchase up to an additional shares from Niku at the initial public offering price, less the underwriting discount. ---------------------- The underwriters expect to deliver the shares on , 2000. GOLDMAN, SACHS & CO. DAIN RAUSCHER WESSELS THOMAS WEISEL PARTNERS LLC U.S. BANCORP PIPER JAFFRAY ---------------------- Prospectus dated , 2000. 3 [Description of graphics for inside front cover] The graphic consists of three sets of screen shots for eNiku, xNiku and iNiku. Each set consists of three individual screen shots overlapping one another in different arrangements. (a) eNiku Screen Shot - consists of a parent frame and two child frames, one behind the parent on the left side and one in front of the parent on the right side. Below the screen shots is the sentence "Our ENIKU Internet software enables organizations to automate core business processes such as management of resources, knowledge and information, and time and expenses on their corporate intranets." At the top of each of the screen shots are navigational buttons for Home, Engagements, Knowledge Store, Practice Management, Resource Management, Sales & Marketing and Service Lines. On the left side of each side of these screens is the Niku logo with hyperlinks listed vertically below it. (b) xNiku Screen Shot - consists of a parent frame and two child frames, with the child frames in front of the left hand and right hand corners of the parent frame. To the right of the screen shots is the sentence "Our XNIKU Internet software allows organizations to collaborate with customers, partners and suppliers using extranets." At the top of each of the screen shots are navigational buttons for Home, Engagements, Knowledge Store, Practice Management, Resource Management, Sales & Marketing and Service Lines. On the left side of each screen is a vertical list of hyperlinks. (c) iNiku Screen Shot - consists of a parent frame and two child frames, with one child frame in the back of the parent on the left side and the other child frame in front of the left hand corner of the parent frame. To the left and above the screen shots is the sentence "Our business portal, INIKU, allows small businesses and individual professionals to access relevant content and services and to operate their businesses online." At the top of each of the screen shots are two sets of navigational buttons. The top set of navigational buttons are for Help, Email, Account Info, Support, Feedback, Site Map and Logout. The bottom set of navigational buttons are for Home, Do Work, Find Work, Network, Services and Magazine. On the left side of each screen is a vertical list of hyperlinks. [Description of graphics on inside front cover gatefold] The inside front cover gatefold contains two pages of graphics. The graphic on the first page is entitled "A Common Platform for the Sourcing, Management and Delivery of Professional Services." Directly below the title is the sentence "Our eNiku, xNiku, and iNiku solutions are designed to be used in an integrated fashion, with users in large enterprises collaborating with smaller businesses and individual professionals." In the center of the page a circle with the phrase "Niku Services Marketplace" inside of it. On the upper left side of the circle, a cylindrical line connects the circle a depiction of a seven story office building, which is labeled "Large Enterprises." To the left of the office building depiction is the phrase "eNiku- Enterprises using corporate intranets." On the lower left side of the circle in the center of the page is a set of four cylindrical lines. The uppermost cylindrical line connects the circle to a three story office building labeled "Partners." The next cylindrical line is shorter in length than the top cylindrical line and it connects the circle to a three story office building labeled "Customers." The next cylindrical line is the same length as the first one and it connects the circle to a depiction of a lap-top computer which is labeled "Remote Users." The last cylindrical line is shorter in length than the cylindrical line above it and connects the circle to a three story office building labeled "Suppliers." This set of graphical depictions sit on top of a map of the world. Below this set of four cylindrical lines is the phrase "xNiku - Partners, customers and suppliers connecting via extranets." On the upper right side of the circle in the center of the page is a set of three cylindrical lines. The top and bottom cylindrical lines connect the circle to depictions of a lap-top computer which is labeled "Individual Professionals." The cylindrical line in the middle of the set is longer in length than the other two cylindrical lines and it connects the circle to a depiction of a desktop computer labeled "Small Businesses." Below this set of three cylindrical lines is the phrase "iNiku - Individuals accessing a business portal via the Internet." The eNiku, xNiku and iNiku depictions that surround the center circle are connected to each other by double-sided arrows that arc around the center circle to form a larger circle. The arrow connecting the eNiku set and xNiku set is labeled "Communication." The arrow connecting the xNiku set and iNiku set is labeled "Community." The arrow connecting the iNiku set and eNiku set is labeled "Collaboration." The Niku logo is in the bottom left hand corner of the page. At the bottom right hand corner are the sentences "The Niku Services Marketplace is designed to be a marketplace for buyers and sellers of professional services. Individuals seeking work can post profiles showing skills, certifications and experience. Organizations seeking resources can post project specifications, requirements and terms. Because users of eNiku, xNiku and iNiku share a common platform, all of them can easily participate in the Niku Services Marketplace." [Insert Picture] [Description of graphic on page 49] This graphic is entitled "Niku Application Framework." Under the title is a cloud-shaped object with the word "Browser" written in the middle of it. Below the cloud shape is a large rectangle with several smaller horizontal rectangles arranged top to bottom and two vertical rectangles towards the sides inside of it. A small arrow points upwards from the outside of the top of the rectangle to the cloud shape. Another small arrow points downwards from the inside of the box to a smaller rectangle within the box which is labeled "FrontWorks." Directly below and connected to this rectangle is a smaller rectangle labeled "Application Modules." Directly below this rectangle is another rectangle of the same size labeled "Niku Adaptable KnowledgeStore." Directly below this rectangle are three small rectangles lined up from left to right. The rectangle on the left is labeled "Relational Database Management System." The middle rectangle is labeled "File System." The rectangle on the right is labeled "Search Engine." From the left hand side of the inside of the large rectangle is a small arrow pointing to the right that is directed towards a vertical rectangle labeled "ImportWorks." From the right hand side of the inside of the large rectangle is a small arrow pointing to the left that is directed towards a vertical rectangle labeled "Datalink Adapters." On the left hand side of the graphic, on the outside of the large rectangle, is a rectangle with arced edges. Inside this rectangle are the words, in order from top to bottom, "Web," "E-mail," "Fax" and "Other." On the right hand side of the graphic, on the outside of the large rectangle, a small arrow points towards a rectangle with arced edges. Inside this rectangle are the words, in order from top to bottom, "Enterprise Resource Planning," "Document Management," "Groupware" and "Other." 4 PROSPECTUS SUMMARY You should read this summary together with the entire prospectus, including the more detailed information in our consolidated financial statements and accompanying notes appearing elsewhere in this prospectus. Unless otherwise indicated, all information contained in this prospectus assumes (1) no exercise of the underwriters' over-allotment option, (2) the conversion of each outstanding share of preferred stock into one share of common stock and (3) no exercise of outstanding stock options or warrants. NIKU We are a leading provider of Internet solutions for the sourcing, management and delivery of professional services. Professional services include consulting, financial services, medicine, law, engineering, advertising and other industries in which knowledge and information, or intellectual capital, are an important element of the services. Our Internet software and business portal are designed to automate the core business processes of professional services organizations, professional services providers within enterprises, and small businesses and individual professionals. Our customers include consulting organizations as well as enterprises such as Business Objects, Comdisco, Computer Associates, EMC, Gateway, Sybase and Xerox. As of December 15, 1999, our iNiku business portal had over 12,000 registered users. Service businesses generated more than $2 trillion in revenue and employed more workers than any other sector in the United States in 1997, according to the Encyclopedia of American Industries. The professional services industry represents a large part of the services economy. According to the U.S. Department of Commerce, the gross domestic product of the professional services industry, including business, health, legal and educational services, exceeded $900 billion in 1997. Unlike product-oriented businesses, which produce finished goods from raw materials and component parts and sell these goods on a per-item basis, professional services businesses create information-based deliverables using human resources that are often billed at time-based rates. As a result of these characteristics, professional services businesses require complex intellectual capital and resource management applications capable of handling substantial amounts of unstructured data. International Data Corporation estimates that the service industries supply chain automation packaged application market will grow from approximately $600 million in 1999 to approximately $12 billion by 2003, representing a five-year compound annual growth rate of approximately 108%. The advent of the Internet has provided a technology platform for professional services industry solutions using Internet software and business portals. Across industries, professional services businesses have common core requirements, including creation, storage and reuse of intellectual capital, management of resources and projects, tracking of time and expenses and analysis of resource utilization and productivity. We address these requirements through an integrated set of products and services: eNiku, xNiku and iNiku. eNiku enables organizations to automate core business processes on their corporate "intranets," internal Internet protocol-based networks. xNiku enables organizations to extend the Niku solution to partners, customers and suppliers using corporate "extranets," private Internet protocol-based networks reaching beyond the enterprise. iNiku, our business portal, allows small businesses and individual professionals to gain access to relevant content and services and operate their businesses online. We have designed our solutions to be used in an integrated fashion. For example, an organization using eNiku on its intranet could work with partners through its xNiku extranet and supplement its resources with contractors who are part of the iNiku community. The common Internet platform linking eNiku, xNiku and iNiku also allows users to easily participate in the Niku Services Marketplace, a marketplace for buyers and sellers of professional services. The market for business-to-business electronic commerce for services is large and growing, with Forrester Research estimating that it will increase from approximately $22 billion in 1999 to approximately $220 billion by 2003, representing a compound annual growth rate of approximately 78%. 3 5 We believe key benefits of our solutions include: - significantly enhanced client service; - substantially expanded revenue opportunities; - increased profitability; and - improved recruitment and retention of employees and contractors. Our goal is to be the leading provider of Internet solutions for the sourcing, management and delivery of professional services in a number of professional services industries. Key elements of our strategy to achieve this goal are as follows: - target leading enterprise customers; - enhance our iNiku business portal; - expand the Niku Services Marketplace; - target additional professional services industries, including financial services, medicine, law and advertising; - pursue acquisitions of complementary businesses, products and technologies; and - expand our global operations. We were incorporated in Delaware in January 1998. In December 1999, we acquired Proamics Corporation, a provider of project accounting, time-and-expense and billing solutions for the professional services industry. Our principal executive offices are located at 305 Main Street, Redwood City, California 94063. Our telephone number at this location is (650) 298-4600. The information on our web site does not constitute a part of this prospectus. The Niku logo, Niku, eNiku, iNiku, xNiku, Niku Adaptable KnowledgeStore, NAKS and Niku Services Marketplace are our trademarks. All other brand names and trademarks appearing in this prospectus are the property of their respective owners. THE OFFERING Common stock offered....... shares Common stock to be outstanding after the offering................. shares Use of proceeds............ For general corporate purposes, capital expenditures and working capital. See "Use of Proceeds." Proposed Nasdaq National Market symbol............ "NIKU" The number of shares of our common stock to be outstanding after the offering is based on the number of shares outstanding as of December 15, 1999. The number of shares to be outstanding excludes as of December 15, 1999: - 5,648,887 shares of our common stock subject to outstanding options and warrants; and - 7,812,490 shares of our common stock to be available for future grant under our stock plans. 4 6 SUMMARY CONSOLIDATED FINANCIAL DATA (IN THOUSANDS, EXCEPT PER SHARE DATA)
PRO FORMA ------------------------- NINE NINE MONTHS MONTHS YEAR ENDED ENDED OCTOBER 31, YEAR ENDED ENDED JANUARY 31, ------------------ JANUARY 31, OCTOBER 31, 1999 1998 1999 1999 1999 ----------- ------- -------- ----------- ----------- CONSOLIDATED STATEMENT OF OPERATIONS DATA: Revenues................................ $ 15 $ -- $ 2,976 $ 10,880 $ 12,175 ------- ------- -------- -------- -------- Gross profit............................ 11 -- 2,373 5,729 6,150 ------- ------- -------- -------- -------- Operating expenses...................... 3,161 1,721 16,084 21,918 32,654 ------- ------- -------- -------- -------- Operating loss.......................... (3,150) (1,721) (13,711) (16,189) (26,504) ------- ------- -------- -------- -------- Net loss................................ $(3,020) $(1,665) $(13,533) $(16,545) $(26,546) Basic and diluted net loss per share.... $ (0.62) $ (0.35) $ (2.31) $ (1.11) $ (1.67) Shares used in computing basic and diluted net loss per share............ 4,882 4,800 5,871 14,875 15,864
AT OCTOBER 31, 1999 ---------------------------------- PRO FORMA ACTUAL PRO FORMA AS ADJUSTED -------- --------- ----------- CONSOLIDATED BALANCE SHEET DATA: Cash, cash equivalents and short-term investments........... $ 19,329 $ 62,507 $ Working capital............................................. 10,323 53,350 Total assets................................................ 28,738 125,145 Long-term obligations, less current portion................. 968 3,334 3,334 Redeemable convertible preferred stock...................... 28,580 100,966 Total stockholders' equity (deficit)........................ (13,828) 3,682
See note 1 of notes to our financial statements for a description of the method that we used to compute the net loss per share amounts. The unaudited pro forma combined statement of operations data give effect to our acquisition of Proamics Corporation in December 1999 as if the acquisition had occurred at the beginning of the periods indicated and does not assume the conversion of the shares of our outstanding preferred stock into common stock upon the closing of this offering. The unaudited pro forma combined balance sheet data gives effect to (1) our acquisition of Proamics and (2) the sale of 7,998,012 shares of our Series D preferred stock in November 1999 for proceeds of approximately $39.9 million as if the acquisition and sale both occurred on October 31, 1999. The pro forma as adjusted balance sheet data give effect to the conversion of all outstanding shares of our preferred stock into common stock upon the closing of this offering and the sale of the shares of common stock that we are offering under this prospectus, at an assumed initial public offering price of $ per share, and after deducting the estimated underwriting discounts and commissions and estimated offering expenses. See "Capitalization." Pro forma net loss for the nine months ended October 31, 1999 excludes an extraordinary gain on early extinguishment of long-term debt of $2.4 million recorded by Proamics. 5 7 RISK FACTORS You should carefully consider the risks and uncertainties described below and the other information in this prospectus before deciding whether to invest in shares of our common stock. The occurrence of any of the following risks could materially and adversely affect our business, financial condition and operating results. In this case, the trading price of our common stock could decline and you might lose all or part of your investment. RISKS RELATED TO OUR BUSINESS WE ARE AN EARLY STAGE COMPANY WHICH MAKES IT DIFFICULT TO EVALUATE OUR CURRENT BUSINESS We were incorporated in January 1998 and have a limited operating history. We began licensing our Internet software in December 1998 and introduced the latest version of this software and our iNiku business portal in November 1999. Therefore, we have only a limited operating history upon which to base an evaluation of our current business and prospects. Due to our limited operating history, it is difficult or impossible for us to predict future results of operations. For example, we cannot forecast operating expenses based on our historical results because we have recently introduced the latest version of iNiku, acquired Proamics Corporation, or Proamics, and begun to pursue additional markets, and we are required to forecast expenses in part based on future revenue projections. Before investing, you should evaluate the risks, expenses and problems frequently encountered by companies such as ours that are in the early stages of development and that are entering new and rapidly changing markets like the Internet. These risks include our need to: - successfully introduce new products and enhance our existing products; - expand our sales force; - attract additional customers for our products; - increase usage of our services, including iNiku and the Niku Services Marketplace, and derive revenues from these services; - effectively respond to competitive developments; - integrate recent and possible future acquisitions of businesses, products and technologies; and - manage our anticipated growth. We may not successfully address any of these risks. WE HAVE INCURRED LOSSES AND WE EXPECT TO INCUR FUTURE LOSSES We have experienced operating losses in each quarterly and annual period since we were formed and we expect to incur significant losses in the future. We incurred net losses of $3.0 million for the year ended January 31, 1999 and $13.5 million for the nine months ended October 31, 1999. As of October 31, 1999, we had an accumulated deficit of $16.6 million. Proamics has never been profitable, and as of September 30, 1999, it had an accumulated deficit of $13.4 million. We expect to significantly increase our research and development, sales and marketing, and general and administrative expenses, in part as a result of our recent acquisition of Proamics. In addition, as a result of our acquisition of Proamics, we will record for the quarter ended January 31, 2000 approximately $47.8 million of goodwill and other intangible assets, which will result in non-cash charges as these assets are amortized over the next three to five years. Further, we will incur substantial stock-based compensation expense in future periods, which represents non-cash charges incurred as a result of the issuance of stock and stock options prior to this offering. As a result of these factors, we will need to significantly increase our revenues to achieve and maintain profitability. We may not be able to sustain our recent revenue growth rates. In fact, we may not have any revenue growth, and our revenues could 6 8 decline. Our failure to significantly increase our revenues would seriously harm our business and operating results. For a more detailed description of our operating results, please see "Selected Consolidated Financial Data" and "Management's Discussion and Analysis of Financial Condition and Results of Operations." OUR QUARTERLY FINANCIAL RESULTS ARE SUBJECT TO SIGNIFICANT FLUCTUATIONS AND SEASONALITY, AND IF OUR FUTURE RESULTS ARE BELOW THE EXPECTATIONS OF PUBLIC MARKET ANALYSTS AND INVESTORS, THE PRICE OF OUR COMMON STOCK WILL DECLINE Our results of operations could vary significantly from quarter to quarter. We expect to incur significant sales and marketing expenses to promote our products and services. Therefore, our quarterly operating results are likely to be particularly affected by the number of customers licensing our products during any quarter as well as sales and marketing, research and development and other expenses for a particular period. If revenues fall below our expectations, we will not be able to reduce our spending rapidly in response to the shortfall. Other factors that could affect our quarterly operating results include those described below and elsewhere in this prospectus: - our ability to attract new customers and retain current customers; - our ability to license additional products to current customers; - our ability to increase levels of usage of our services, including iNiku and the Niku Services Marketplace, and to derive revenues from these services; - the announcement or introduction of new products or services by us or our competitors; - changes in the pricing of our products and services or those of our competitors; - variability in the mix of our products and services revenues in any quarter; - technical difficulties or service interruptions of our computer network or the Internet generally; and - the amount and timing of operating costs and capital expenditures relating to expansion of our business. Due to these and other factors, we believe that period-to-period comparisons of our results of operations are not meaningful and should not be relied upon as indicators of our future performance. It is possible that in some future periods, our results of operations may be below the expectations of public market analysts and investors. If this occurs, the price of our common stock will decline. In addition, we expect to experience seasonality in the sales of our products and services. For example, we expect that sales may decline during summer months, particularly in European markets. We also anticipate that sales may be lower in our first fiscal quarter due to patterns in the capital budgeting and purchasing cycles of our current and prospective customers as well as due to our sales commission structure. These seasonal variations in our sales may lead to fluctuations in our quarterly operating results. For a discussion of our quarterly operating results, see "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Quarterly Results of Operations." OUR PRODUCTS HAVE A LONG SALES CYCLE WHICH MAKES IT DIFFICULT TO PREDICT OUR QUARTERLY RESULTS AND MAY CAUSE OPERATING RESULTS TO VARY SIGNIFICANTLY The sales cycle for our products is long, ranging from three to more than six months, making it difficult to predict the quarter in which we may recognize revenue from a sale, if at all. Our products often are part of a significant strategic decision by our customers regarding their information systems infrastructure. Accordingly, the decision to license our products typically requires significant pre-purchase evaluation. We spend substantial time educating and providing 7 9 information to prospective customers regarding the use and benefits of our products. During this evaluation period, we may expend significant funds in sales and marketing efforts. Our lengthy sales cycle may cause license revenues and operating results to vary significantly from period to period. If anticipated sales from a specific customer for a particular quarter are not realized in that quarter, our operating results may vary significantly. IF WE FAIL TO EXPAND OUR DIRECT AND INDIRECT SALES CHANNELS, OUR ABILITY TO INCREASE REVENUES WILL BE LIMITED In order to grow our business, we need to increase market awareness and sales of our products and services. To achieve this goal, we need to increase both our direct and indirect sales channels. Our failure to do so could harm our ability to increase revenues. We currently receive substantially all of our revenues from direct sales, but intend to increase sales through indirect sales channels in the future. We need to expand our direct sales force by hiring additional salespersons and sales management. There is strong competition for qualified sales personnel in our business, and we may not be able to attract and retain sufficient new sales personnel to expand our operations. We intend to derive some of our revenues from our indirect sales channels, which involves selling our software through value added resellers and other third parties. These resellers would offer our software products to their customers together with consulting and implementation services or integrate our software solutions with other software. We also intend to offer our Internet software through application service providers, who install our software on their own computer servers and charge their customers for access to our software. We need to expand our indirect sales channel by entering into additional relationships with these third parties and we may not be able to do so successfully. TO DATE, WE HAVE NOT DEPLOYED OUR PRODUCTS ON A LARGE-SCALE AND WE MAY EXPERIENCE CUSTOMER DISSATISFACTION AND LOST SALES IF OUR PRODUCTS DO NOT ACCOMMODATE LARGE SCALE DEPLOYMENTS Our software must be able to accommodate substantial increases in the number of people using our products. To date, however, a limited number of our customers have deployed our Internet software. Thus, our products have not been tested in the context of large-scale customer implementations. If our customers cannot successfully implement large-scale deployments, or if they determine that our products cannot accommodate large-scale deployments, we could lose some or all of our existing customers and be unable to obtain new customers. IMPLEMENTATION OF OUR PRODUCTS BY LARGE CUSTOMERS MAY BE COMPLEX AND CUSTOMERS COULD BECOME DISSATISFIED IF IMPLEMENTATION OF OUR PRODUCTS PROVES DIFFICULT, COSTLY OR TIME-CONSUMING Our products must integrate with many existing computer systems and software programs used by our customers. Integrating with many other computer systems and software programs can be complex, time-consuming and expensive and cause delays in the deployment of our products. Because we are one of the first companies to offer products designed for professional services automation, many customers will be facing these integration issues for the first time in the context of professional services automation software. Customers could become dissatisfied with our products if implementations prove to be difficult, costly or time-consuming. WE EXPECT TO DEPEND ON LICENSES OF OUR ENIKU INTERNET SOFTWARE PRODUCT FOR SUBSTANTIALLY ALL OF OUR REVENUES FOR THE FORESEEABLE FUTURE Licenses of our Internet software products, particularly our eNiku for IT Consulting product, accounted for substantially all of our revenues for our fiscal year ended January 31, 1999 and for the nine months ended October 31, 1999. We anticipate that revenues from the license of these 8 10 products and related services revenues, as opposed to transactional and other revenues from iNiku and the Niku Services Marketplace, will continue to constitute the vast majority of our revenues for the foreseeable future. Consequently, a decline in the price of or demand for these products and related services, or their failure to achieve broader market acceptance, would seriously harm our business. WE MAY NOT BE ABLE TO SELL OUR NIKU PRODUCTS TO PROAMICS' CUSTOMERS OR EFFECTIVELY UTILIZE THE PROAMICS PROFESSIONAL SERVICES PERSONNEL We acquired Proamics in December 1999. For the nine months ended September 30, 1999, Proamics had $9.2 million of revenues, which primarily consisted of $2.5 million of software licenses and approximately $6.7 million of services. However, we do not intend to separately market the Proamics product line in the future. Although we plan to market Niku products incorporating functionality contained in Proamics' products to Proamics' customers, we do not know whether any Proamics' customer will purchase any Niku products. In addition, a large portion of Proamics' business consisted of software implementation services. If we are unable to successfully market our products to Proamics' customers or effectively utilize the Proamics professional services personnel, our business will be harmed and we may not meet investors' expectations, either of which could adversely affect our operating results and cause a drop in the market price of our common stock. WE HAVE SOLD OUR PRODUCTS TO COMPANIES AS PART OF BROADER BUSINESS RELATIONSHIPS AND REVENUES FROM THESE CONTRACTS ARE RECOGNIZED DIFFERENTLY FROM OTHER CUSTOMER CONTRACTS We have entered into customer agreements involving the licensing of our products to companies from whom we have purchased products and services under separate arrangements. During the nine months ended October 31, 1999, we derived approximately $1.2 million of our total revenues from these transactions which are categorized as nonmonetary for accounting purposes. In addition, members of our Niku Partners Network are also our customers and we have committed that most of these Niku Partners would receive a minimum dollar value of future professional services work from us. Revenues attributable to these Niku Partners were approximately $574,000 of our total revenues for the nine months ended October 31, 1999 of which $436,000 has been categorized as monetary for accounting purposes. Of our $1.9 million of deferred revenues as of October 31, 1999, $342,000 was attributable to nonmonetary transactions with our customers. Revenue recognized under these types of arrangements may not be indicative of future revenues. We intend to enter into these types of relationships in the future, although we anticipate that revenues related to these relationships will decline as a percentage of total revenues. For an additional discussion of how we recognize revenue and how we calculate the amount of revenue we recognize from these types of arrangements, see note 1 of the notes to our consolidated financial statements. WE EXPECT REVENUES FROM OUR PRODUCTS TO BE CONCENTRATED IN A RELATIVELY SMALL NUMBER OF CUSTOMERS For the nine months ended October 31, 1999, three Niku customers each accounted for more than 10% of Niku's total revenues, and together accounted for approximately 50% of our total revenues for this period. Total revenues from USinternetworking, or USi, and Sybase, each of which had an officer and/or director serving on our board of directors, accounted for approximately 40% of Niku's total revenues during this same period. We expect to derive a significant portion of our revenues from a relatively small number of customers for the foreseeable future. As a result, if we lose a major customer, our quarterly and annual results of operations could be harmed. We cannot be certain that customers that have accounted for significant revenues in past periods, individually or as a group, will continue to purchase products or renew our services in any future period. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." 9 11 THE MARKET FOR OUR PRODUCTS AND SERVICES IS NEWLY EMERGING AND CUSTOMERS MAY NOT ACCEPT OUR PRODUCTS AND SERVICES The market for professional services automation software products and services is newly emerging. Services businesses have not traditionally automated the management of their business processes. We cannot be certain that this market will continue to develop and grow or that companies will elect to utilize our products and services rather than attempt to develop applications internally or through other sources. In addition, the use of the Internet, as well as corporate intranets and extranets, has not been widely adopted for professional services automation. Companies that have already invested substantial resources in other methods may be reluctant to adopt a new approach that may replace, limit or compete with their existing systems or methods. We expect that we will need to continue intensive marketing and sales efforts to educate prospective customers about the uses and benefits of our products and services. Therefore, demand for and market acceptance of our products and services will be subject to a high level of uncertainty. DEFECTS IN OUR PRODUCTS OR SERVICES COULD RESULT IN LOSS OF OR DELAY IN REVENUES, LOSS OF MARKET SHARE, FAILURE TO ACHIEVE MARKET ACCEPTANCE OR INCREASED COSTS Products and services as complex as those we offer or develop frequently contain undetected defects or errors. Despite internal testing and testing by our customers or potential customers, defects or errors may occur in our existing or future products and services, including year 2000 errors. If we are not able to detect and correct errors prior to release, we may experience a loss of or delay in revenues, loss of market share, failure to achieve market acceptance or increased costs to remediate errors, any of which could significantly harm our business. Defects or errors could also result in tort or warranty claims. Although we attempt to reduce the risk of losses resulting from any claims through warranty disclaimers and liability limitation clauses in our customer agreements, these contractual provisions may not be enforceable in every instance. Furthermore, although we maintain errors and omissions insurance, this insurance coverage may not adequately cover us for claims. If a court refused to enforce the liability-limiting provisions of our contracts for any reason, or if liabilities arose that were not contractually limited or adequately covered by insurance, our business could be harmed. THE LATEST VERSION OF OUR INIKU BUSINESS PORTAL WAS ONLY RECENTLY INTRODUCED, IS AT AN EARLY STAGE OF DEVELOPMENT AND MAY NOT ACHIEVE MARKET ACCEPTANCE We launched the latest version of our iNiku business portal in November 1999. Broad and timely acceptance of iNiku, which is an important part of our future success, is subject to a number of significant risks. These risks include: - professional services automation on the Internet, particularly with respect to small businesses and individual professionals, is a new market; - the iNiku web site may not be able to support large numbers of users; - we may not be able to enhance the content, features and services of, and products and services offered on, iNiku; - iNiku may not achieve widespread acceptance; - we may not be able to derive revenue from iNiku; and - we may not be able to expand our internal resources to support the growth of iNiku. iNiku may not be commercially successful and this could seriously harm our business. 10 12 IF WE CANNOT BUILD A CRITICAL MASS OF BUYERS AND SELLERS FOR OUR NIKU SERVICES MARKETPLACE, THE MARKETPLACE WILL NOT BE SUCCESSFUL The success of the Niku Services Marketplace depends in large part on our ability to build a critical mass of buyers and sellers of services for our Niku Services Marketplace. To attract sellers of services, we must build a critical mass of buyers interested in obtaining services. However, buyers must perceive value in the Niku Services Marketplace, which, in part, depends upon the breadth of the offerings from sellers of services. If we are unable to increase the number of buyers and sellers of services, the Niku Services Marketplace will not be successful. WE HAVE FOCUSED ON THE IT CONSULTING INDUSTRY AND OUR EFFORTS TO EXPAND SALES OF OUR PRODUCTS AND SERVICES TO OTHER SERVICE INDUSTRIES MAY NOT SUCCEED To date, our products and services have been targeted for the information technology, or IT, consulting industry and our primary product has been eNiku for IT Consulting. However, we intend to develop and market our products and services in other professional services industries. Businesses may be less likely to use our products and services outside of the IT consulting industry. Even if they do, we may need to develop additional expertise or industry-specific knowledge which we may not be able to do in a timely manner. Therefore, we may not succeed in marketing our products and services for use outside of the IT consulting industry. We may experience difficulties that could delay or prevent the successful development, introduction or marketing of new or enhanced products and services for new professional services industries in the future. In addition, those products and services may not meet the requirements of the marketplace in these new markets and may not achieve market acceptance. SYSTEM FAILURE MAY CAUSE INTERRUPTION OF OUR SERVICES, WHICH COULD IMPAIR OUR REPUTATION AND THE ATTRACTIVENESS OF OUR SERVICES The performance of our web site servers and networking hardware and software infrastructure is critical to iNiku, our hosted professional services automation solutions and our ability to provide high quality customer service. Currently, our infrastructure and systems for iNiku, our hosted applications and our corporate web site are located at one site maintained by USi, at its data center in Milpitas, California. The California hosting site is in an area susceptible to earthquakes. We depend on this single-site infrastructure and any disruption to this infrastructure resulting from a natural disaster or other event could result in an interruption in our services and, if sustained or repeated, could harm our reputation and the attractiveness of our services. Our systems and operations are vulnerable to damage or interruption from human error, natural disasters, power loss, telecommunications failures, break-ins, sabotage, computer viruses, intentional acts of vandalism and similar events. We do not have a formal disaster recovery plan or alternative provider of hosting services. In addition, we do not carry sufficient business interruption insurance to compensate us for losses that could occur. Furthermore, any failure on our part to expand our systems or web site infrastructure to keep up with the demands of our users, or any system failure that causes an interruption in service or a decrease in responsiveness of our Internet-based services, if sustained or repeated, could harm our reputation and the attractiveness of our brand name. WE DEPEND ON DISTRIBUTION, MARKETING AND TECHNOLOGY RELATIONSHIPS AND IF OUR CURRENT AND FUTURE RELATIONSHIPS ARE NOT SUCCESSFUL, OUR BUSINESS MAY BE HARMED We rely on distribution, marketing and technology relationships with a variety of companies. These distribution, marketing and technology relationships include relationships with: - the Niku Partners Network of consulting firms; - operators of high traffic web sites such as CNET; and 11 13 - vendors of e-commerce and Internet software that we incorporate into or integrate with our products, such as development tools, databases and search engines. We depend on these companies to promote our products, provide our direct sales force with customer leads, attract users to iNiku and the Niku Services Marketplace, integrate and implement our products with those of customers or provide enhanced functionality to our products. Some of these relationships are not documented in writing, or are governed by agreements that can be terminated by either party with little or no prior notice or do not provide for minimum payments to us. Our Internet marketing relationships also require us to make significant cash payments. Companies with which we have a distribution, marketing or technology relationship may promote products or services of several different companies, including, in some cases, products or services that compete with ours. These companies may not devote adequate resources to selling or promoting our products and services. We may not be able to maintain these relationships or enter into additional relationships in the future. For example, our agreements with USi have terms of three years, and our agreement with CNET has a term of two years. We cannot assure you that we can renew our agreements with USi and CNET on reasonable terms, or at all. MARKET ACCEPTANCE OF OUR PRODUCTS AND SERVICES MAY SUFFER IF WE ARE UNABLE TO KEEP PACE WITH RAPID TECHNOLOGICAL CHANGES IN OUR INDUSTRY Rapidly changing technology and standards may impede market acceptance of our products and services. Our current products and services have been designed based upon currently prevailing technology. If new technologies emerge that are incompatible with our products, our key products and services may become obsolete and our existing and potential customers may seek alternatives to our products and services. We may not be able to quickly adapt to any new Internet technology. Additionally, we have designed our products to work with databases such as Oracle Enterprise Server and Microsoft SQL Server and operating systems such as Windows NT and Sun Solaris. Any changes to those databases or systems, or increasing popularity of other databases or systems, could require us to modify our products or services and could cause us to delay releasing future products and enhancements. As a result, uncertainties related to the timing and nature of new product announcements, introductions or modifications by vendors or operating systems, databases, web servers and other enterprise and Internet-based applications could delay our product development, increase our product development expenses or cause customers to delay evaluation, purchase and deployment of our products. BECAUSE WE HAVE EXPANDED OUR OPERATIONS, OUR SUCCESS WILL DEPEND ON OUR ABILITY TO MANAGE OUR EXPECTED GROWTH, IMPROVE OUR EXISTING SYSTEMS AND IMPLEMENT NEW SYSTEMS, PROCEDURES AND CONTROLS We have rapidly and significantly expanded our operations and expect to continue to expand our operations. This growth has placed, and is expected to continue to place, a significant strain on our managerial, operational, financial and other resources. For example, we have grown to over 300 employees as of December 15, 1999 from less than 50 employees as of January 31, 1999. Our ability to compete effectively and to manage future expansion of our operations, if any, will require us to continue to improve our financial and management controls, reporting systems and procedures on a timely basis. We expect to hire additional new employees to support our business and to implement and integrate new accounting and control systems. We may not be able to manage our growth efficiently. THE PROAMICS ACQUISITION, AS WELL AS FUTURE ACQUISITIONS, MAY PRESENT RISKS TO OUR BUSINESS As part of our business strategy, we have and in the future may seek to acquire or invest in businesses, products or technologies that we believe could complement or expand our business, 12 14 augment our market coverage, enhance our technical capabilities or otherwise offer growth opportunities. For example, we acquired Proamics in December 1999. The acquisition of Proamics as well as future acquisitions could create risks for us, including: - amortization of expenses related to goodwill and other intangible assets, such as the approximately $47.8 million relating to our acquisition of Proamics; - difficulties in assimilation of acquired personnel, operations, technologies or products; - unanticipated costs associated with the acquisition; - the need to manage geographically-dispersed operations, such as Proamics' operations located in Illinois; - incurrence of debt and contingent liabilities; - diversion of management's attention from other business concerns; - potential loss of employees of an acquired organization; - adverse effects on existing business relationships with suppliers and customers; and - use of substantial portions of our available cash, including the proceeds of this offering, to consummate the acquisition. If we fail to effectively integrate Proamics or fail to do so with acquisitions that we may make in the future, we may face disruptions to our business activities and our business may be seriously harmed. THERE IS INTENSE COMPETITION IN OUR MARKET, WHICH COULD MAKE IT DIFFICULT TO ATTRACT CUSTOMERS, CAUSE US TO REDUCE PRICES AND RESULT IN REDUCED GROSS MARGINS OR LOSS OF MARKET SHARE The market for our products and services is intensely competitive, dynamic and subject to frequent technological changes. The intensity of competition and the pace of change are expected to increase in the future. Our Internet software solutions primarily compete with solutions that have been developed by potential customers' in-house developers and IT departments. In addition, we face competition from a number of competitors offering products and services that vary in functionality. These include: - developers of professional services automation software and related Internet-based applications; - providers of hosted solutions for IT consultants; - operators of Internet-based job boards; - developers of project management software; and - enterprise resource planning software companies that may decide to develop software or applications for the professional services industry. We expect additional competition from other established and emerging companies as the professional services automation market continues to develop. Increased competition is likely to result in price reductions, reduced gross margins and loss of market share, any of which could seriously harm our business. We may not be able to compete successfully against current and future competitors. See "Business -- Competition." WE DEPEND ON THE CONTINUED SERVICES OF OUR EXECUTIVE OFFICERS AND OTHER KEY PERSONNEL Our future success depends upon the continued service of our executive officers and other key personnel, particularly Farzad Dibachi, our chief executive officer, as well as our other executive officers. None of our executive officers or key employees is bound by an employment agreement for any specific term or which prevents them from terminating their employment at any time. Our business would be seriously harmed if we lost the services of one or more of our 13 15 executive officers or key employees, or if one or more of them decide to join a competitor or otherwise compete directly or indirectly with us. IN ORDER TO GROW OUR BUSINESS, WE MUST ATTRACT AND RETAIN QUALIFIED PERSONNEL AT A TIME WHEN COMPETITION FOR PERSONNEL IN OUR INDUSTRY IS INTENSE We may be unable to attract, assimilate or retain highly qualified employees. In particular, we believe that we will need to hire additional engineering personnel. We have from time to time in the past experienced, and we expect in the future to continue to experience, difficulty in hiring highly skilled employees with appropriate qualifications as a result of our rapid growth and expansion. Attracting and retaining qualified personnel with experience in the software and Internet industries is an additional challenge for us. There is a shortage of qualified technical personnel and competition for this personnel is intense in our industry, particularly in the San Francisco Bay Area, where our headquarters is located. We may not be able to attract, assimilate or retain and motivate new personnel. AS WE EXPAND OUR INTERNATIONAL ACTIVITIES, OUR BUSINESS WILL BE SUSCEPTIBLE TO NUMEROUS RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS We only recently expanded our operations into Europe and the Asia-Pacific region. We believe we must expand the sales of our products and services outside the United States and hire additional international personnel. In connection with this expansion, we also will need to develop internationalized versions of our products. Therefore, we expect to commit significant resources to expand our international sales, marketing and development. We may not be successful in marketing our products and services to customers in markets outside the United States, where adoption of the Internet and electronic commerce may evolve slowly or may not evolve at all. Our international operations are subject to a number of risks and uncertainties, including: - currency exchange rate fluctuations; - seasonal fluctuations in purchasing patterns in other countries, particularly declining sales during summer months in European markets; - unexpected changes in regulatory requirements; - tariffs, export controls and other trade barriers; - longer accounts receivable payment cycles and difficulties in collecting accounts receivable; - difficulties in managing and staffing international operations; - potentially adverse tax consequences, including restrictions on the repatriation of earnings; - the burdens of complying with a wide variety of foreign laws; - reduced protection for intellectual property rights in some countries; - the risks related to the recent global economic turbulence and adverse economic circumstances in Asia; and - political instability. We may not be able to adequately address these risks. WE MIGHT NOT BE ABLE TO PROTECT AND ENFORCE OUR INTELLECTUAL PROPERTY RIGHTS We regard substantial elements of our products and services as proprietary and attempt to protect them by relying on patent, trademark, service mark, copyright and trade secret laws and restrictions, as well as confidentiality procedures and contractual provisions. Any steps we take to protect our intellectual property may be inadequate, time consuming and expensive. 14 16 Furthermore, despite our efforts, we may be unable to prevent third parties from infringing upon or misappropriating our intellectual property, which could harm our business. We have applied for four U.S. patents. It is possible that no patents will issue from our currently pending patent applications. Moreover, new patent applications may not result in issued patents and may not provide us with any competitive advantages over, or may be challenged by, third parties. Legal standards relating to the validity, enforceability and scope of protection of intellectual property rights in software or Internet-related industries are uncertain and still evolving, and the future viability or value of any of our intellectual property rights is uncertain. Effective trademark, copyright and trade secret protection may not be available in every country in which our products are distributed or made available. Furthermore, our competitors may independently develop similar technologies that substantially limit the value of our intellectual property or design around patents issued to us. Substantially all of our iNiku users' usage of our services is governed by Internet-based license agreements, rather than by means of a formal, written contract. Users "click" on a dialog box and are deemed to agree to the terms and conditions that are posted on iNiku, and our relationship with these customers is then governed by these terms and conditions. There is a possibility that a court, arbitrator or regulatory body could deem this type of agreement to be invalid or determine that the terms and conditions governing the agreement do not fully protect our intellectual property rights. See "Business -- Intellectual Property." THIRD PARTIES MIGHT BRING INFRINGEMENT CLAIMS AGAINST US OR OUR THIRD-PARTY SUPPLIERS THAT COULD HARM OUR BUSINESS In recent years, there has been significant litigation in the United States involving patents and other intellectual property rights, particularly in our software and Internet industries. We could become subject to intellectual property infringement claims as the number of our competitors grows and our products and services overlap with competitive offerings. These claims, even if not meritorious, could be expensive and divert management's attention from operating our company. If we become liable to third parties for infringing their intellectual property rights, we could be required to pay a substantial damage award and to develop noninfringing technology, obtain a license or cease selling the products that contain the infringing intellectual property. We may be unable to develop noninfringing technology or obtain a license on commercially reasonable terms, if at all. In addition, we have agreed, and may agree in the future, to indemnify certain of our customers against claims that our products infringe upon the intellectual property rights of others. We could incur substantial costs in defending ourselves and our customers against infringement claims. In the event of a claim of infringement, we and our customers may be required to obtain one or more licenses from third parties. We cannot assure you that we or our customers could obtain necessary licenses from third parties at a reasonable cost or at all. See "Business -- Intellectual Property." WE ARE UNCERTAIN OF OUR ABILITY TO OBTAIN ADDITIONAL FINANCING FOR OUR FUTURE CAPITAL NEEDS We may need to raise additional funds in order to fund more rapid expansion, expand our marketing activities, develop new or enhance existing services or products, respond to competitive pressures or acquire complementary businesses, products or technologies. We may also need to raise funds in the future to meet our working capital needs. Additional financing may not be available on terms favorable to us, or at all. If we issue additional equity securities, stockholders may experience additional dilution or the new equity securities may have rights, preferences or privileges senior to those of the then existing holders of our common stock. 15 17 OUR BUSINESS MIGHT BE HARMED IF THE SYSTEMS WE USE ARE NOT YEAR 2000 COMPLIANT OR IF OUR CUSTOMERS OR POTENTIAL CUSTOMERS ALTER THEIR PURCHASING PATTERNS AS A RESULT OF THE YEAR 2000 PROBLEM Our information technology systems could be impaired or cease to operate due to the year 2000 problem. Additionally, we rely on technology supplied by third parties. These third parties may experience year 2000 related problems. Any year 2000 problems experienced by us or any of these third parties could harm our business. Additionally, the Internet could face serious disruption arising from the year 2000 problem. Customers' or potential customers' purchasing plans could be affected by year 2000 issues if they need to expend significant resources to correct their existing systems. This situation could result in reduced funds available for these parties to invest in our products and services. As a result, some customers may defer the purchase or our products and services until after the year 2000. A decrease in the demand for our products and services due to customers' or potential customers' year 2000 issues could harm our business. In addition, any year 2000 problems with respect to our products could lead to claims from our customers asserting liability, including liability for breach of warranties related to our products, which could result in large settlements or judgments against us. RISKS RELATED TO THE INTERNET INDUSTRY THE SUCCESS OF OUR BUSINESS DEPENDS ON THE ADOPTION OF THE INTERNET FOR ELECTRONIC COMMERCE AND COMMUNICATIONS Our business is based on providing software for the sourcing, management and delivery of professional services using the Internet. Therefore, in order for our business to be successful, the Internet must be widely adopted, in a timely manner, as a means of electronic commerce and communication relating to professional services. Because electronic commerce and communication over the Internet are new and evolving, it is difficult to predict the size of this market and its sustainable growth rate. To date, many businesses and consumers have been deterred from utilizing the Internet for a number of reasons, including, but not limited to: - potentially inadequate development of network infrastructure; - security concerns, including the potential for fraud or theft of stored data and information communicated over the Internet; - inconsistent quality of service, including well publicized down times for popular web sites; - lack of availability of cost-effective, high-speed service; - limited numbers of local access points for corporate users; - delay in the development of enabling technologies or adoption of new standards; - inability to integrate business applications with the Internet; - the need to operate with multiple and frequently incompatible products; and - a lack of tools to simplify access to and use of the Internet. INCREASING GOVERNMENTAL REGULATION OF THE INTERNET COULD LIMIT THE MARKET FOR OUR PRODUCTS AND SERVICES A number of legislative and regulatory proposals under consideration by federal, state, local and foreign governmental organizations may lead to laws or regulations concerning various aspects of the Internet, such as user privacy, taxation of goods and services provided over the Internet, pricing, content and quality of products and services. Legislation could dampen the growth in Internet usage and decrease or limit its acceptance as a communications and commercial medium. If enacted, these laws and regulations could limit the market for our products and services. In addition, existing laws could be applied to the Internet, including 16 18 consumer privacy laws. Legislation or application of existing laws could expose companies involved in electronic commerce, to increased liability, which could limit the growth of electronic commerce generally. SECURITY RISKS OF ELECTRONIC COMMERCE MAY DETER FUTURE USE OF OUR PRODUCTS AND SERVICES A fundamental requirement to conduct Internet-based electronic commerce is the secure transmission of confidential information over public networks. Failure to prevent security breaches of our customers' networks, or well publicized security breaches affecting the Internet in general, could significantly harm our business. We cannot be certain that advances in computer capabilities, new discoveries in the field of cryptography, or other developments will not result in a compromise or breach of the security measures of our products and services or our iNiku business portal. Anyone who is able to circumvent our security measures could misappropriate proprietary, confidential customer information or cause interruptions in our operations. We may be required to incur significant costs to protect against security breaches or to alleviate problems caused by breaches. Further, a well-publicized compromise of security could deter people from using the Internet to conduct transactions that involve transmitting confidential information. NEW TAX TREATMENT OF COMPANIES ENGAGED IN INTERNET COMMERCE MAY ADVERSELY AFFECT THE INTERNET INDUSTRY Tax authorities on the international, federal, state and local levels are currently reviewing the appropriate tax treatment of companies engaged in Internet commerce. New state tax regulations may subject companies engaged in electronic commerce to additional state sales, income and other taxes. A recently passed federal law places a temporary moratorium on certain types of taxation on electronic commerce. We cannot predict the effect of current attempts to impose sales, income or other taxes on commerce over the Internet; although, if imposed, these taxes would likely increase our cost of doing business. RISK RELATED TO THIS OFFERING OUR OFFICERS, DIRECTORS AND OTHER EXISTING STOCKHOLDERS WILL OWN A LARGE PERCENTAGE OF OUR VOTING STOCK AND WILL BE ABLE TO CONTROL US As of December 15, 1999, our officers, directors and 5% or greater stockholders beneficially owned or controlled, directly or indirectly, 41,109,497 shares of our capital stock, which in the aggregate represented approximately 68.3% of the outstanding shares of our common stock on an as converted to common stock basis. After this offering and assuming no additional issuances of common stock, our officers, directors and 5% or greater stockholders will beneficially own or control, directly or indirectly, approximately % of the outstanding shares of our common stock. As a result, if these persons act together, they will have the ability to influence all matters submitted to our stockholders for approval, including the election and removal of directors and any merger, consolidation or sale of all or substantially all of our assets. This ability to exercise influence over all matters requiring stockholder approval could prevent or significantly delay another company or person from acquiring or merging with us. See "Principal Stockholders" and "Description of Capital Stock." THE LIQUIDITY OF OUR STOCK IS UNCERTAIN AND INVESTORS MUST BE ABLE TO WITHSTAND A POSSIBLE LOSS OF THEIR INVESTMENT A public market for the trading of our common stock has not existed prior to this offering. Although this offering will result in a trading market for our common stock, we do not know how liquid that market might be. The initial public offering price for our common stock will be determined through negotiations between the underwriters and us. If you purchase shares of our common stock, you may not be able to resell those shares at or above the initial public offering price. 17 19 THE MARKET PRICE FOR OUR COMMON STOCK, LIKE OTHER TECHNOLOGY STOCKS, MIGHT BE VOLATILE AND COULD RESULT IN CLASS-ACTION SECURITIES LITIGATION AGAINST US The market prices of the securities of Internet-related companies have been especially volatile. The value of your investment in our common stock could decline due to the impact of any of the following factors upon the market price of our common stock: - actual or anticipated variations in our quarterly operating results; - announcements of new product or service offerings by our competitors and other competitive developments; - announcements of technological innovations; - changes in financial estimates by securities analysts; - failure in one or more future quarters of our operating results to meet the expectations of securities analysts or investors; - changes in market valuations of Internet-related companies; - additions or departures of key personnel; - conditions and trends in the Internet and electronic commerce industries; and - general economic conditions. Further, the stock markets, particularly the Nasdaq National Market on which we have applied to have our common stock listed, have experienced substantial price and volume fluctuations. These fluctuations have particularly affected the market prices of equity securities of many technology and Internet-related companies and have often been unrelated or disproportionate to the operating performance of those companies. The trading prices of many technology companies' stocks are at or near historical highs. These high trading prices may not be sustained. In the past, following periods of volatility in the market price of a company's securities, securities class action litigation has often been instituted against that company. Litigation, if instituted, could result in substantial costs and a diversion of management's attention and resources. FUTURE SALES OF OUR COMMON STOCK MAY CAUSE OUR STOCK PRICE TO DECLINE Sales of a large number of shares of our common stock in the market after this offering, or the belief that these sales could occur, could cause a drop in the market price of our common stock. Upon completion of this offering, we will have outstanding shares of common stock. All of the shares sold in this offering will be freely tradable without restriction or further registration under the Securities Act of 1933, unless the shares are purchased by our "affiliates," as that term is defined under the Securities Act. The remaining 59,927,553 shares of common stock outstanding upon completion of this offering will be "restricted securities," as that term is defined under Rule 144 of the Securities Act. Of these shares, 41,848,900 shares will become eligible for resale beginning 180 days after the date of this prospectus. The remaining shares will become freely tradable at various times thereafter. See "Shares Eligible For Future Sale." PROVISIONS OF DELAWARE LAW, OUR CERTIFICATE OF INCORPORATION AND BYLAWS COULD DELAY OR PREVENT A TAKEOVER OF US Provisions of Delaware law, our certificate of incorporation and bylaws could have the effect of delaying or preventing a third party from acquiring us, even if a change in control would be beneficial to our stockholders. These provisions include: - authorizing the issuance of preferred stock without stockholder approval; - providing for a classified board of directors with staggered, three year terms; - prohibiting cumulative voting in the election of directors; 18 20 - requiring two-thirds of the outstanding shares to approve amendments to some provisions of our certificate of incorporation and bylaws; - requiring a majority of the stockholders to call stockholders meetings; and - prohibiting stockholder actions by written consent. These provisions and other provisions of Delaware law could make it more difficult for a third party to acquire us, even if doing so would benefit our stockholders. For a further discussion of these provisions, please see "Description of Capital Stock -- Anti-Takeover Provisions." NEW INVESTORS WILL EXPERIENCE IMMEDIATE AND SUBSTANTIAL DILUTION FROM THIS OFFERING We expect that the initial public offering price of our common stock will be substantially higher than the book value per share of the outstanding common stock. As a result, investors purchasing stock in this offering will experience an immediate dilution in the net tangible book value of the common stock of $ per share, based on the number of outstanding shares as of October 31, 1999 assuming conversion of all outstanding shares of our preferred stock into our common stock and an assumed initial public offering price of $ per share. In the past, we issued options to acquire our common stock at prices significantly below the initial offering price. To the extent these outstanding options are ultimately exercised, there will be further dilution to investors in this offering. See "Dilution." MANAGEMENT MIGHT APPLY THE NET PROCEEDS FROM THIS OFFERING TO USES THAT DO NOT INCREASE OUR OPERATING RESULTS OR MARKET VALUE The net proceeds from the sale of our common stock in this offering will be added to our general working capital. We have not reserved or allocated the net proceeds for any specific purpose, and we cannot specify with certainty how we will use these proceeds. Consequently, our management will have broad discretion with respect to the application of proceeds from this offering, and you will not have the opportunity, as part of your investment in our common stock, to assess whether the proceeds are being used appropriately. The net proceeds may be used for corporate purposes that do not increase our operating results or market value. Pending application of the proceeds, they might be placed in investments that do not produce income or that lose value. 19 21 SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS This prospectus contains forward-looking statements that have been made under the provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are not historical facts, but rather are based on current expectations, estimates and projections about our industry, our beliefs and our assumptions. Words such as "anticipates," "expects," "intends," "plans," "believes," "seeks" and "estimates," and variations of these words and similar expressions, are intended to identify forward-looking statements. These statements are not guarantees of future performance and are subject to risks, uncertainties and other factors, some of which are beyond our control and difficult to predict and could cause actual results to differ materially from those expressed or forecasted in the forward-looking statements. These risks and uncertainties include those described in "Risk Factors" and elsewhere in this prospectus. Readers are cautioned not to place undue reliance on these forward-looking statements, which reflect our management's view only as of the date of this prospectus. Except as required by law, we undertake no obligation to update any forward-looking statement, whether as a result of new information, future events or otherwise. 20 22 USE OF PROCEEDS We estimate that our net proceeds from the sale of the shares of common stock that we are offering will be approximately $ million, at an assumed initial public offering price of $ per share and after deducting estimated underwriting discounts and commissions and estimated offering expenses. If the underwriters' over-allotment option is exercised in full, we estimate that our net proceeds will be approximately $ million. The principal purposes of this offering are to obtain additional capital, to create a public market for our common stock, to enhance our ability to acquire other businesses, products or technologies and to facilitate future access to public equity markets. We intend to use the net proceeds for working capital, capital expenditures and other general corporate purposes. We may also use a portion of the net proceeds from this offering to acquire or invest in businesses, products or technologies that are complementary to our business. We currently have no commitments or agreements with respect to any acquisitions or investments. We have not determined the amounts we plan to spend on any of the uses described above or the timing of these expenditures. Pending our use of the net proceeds, we intend to invest them in short-term, interest-bearing, investment-grade securities. DIVIDEND POLICY We have never declared or paid any cash dividends on our capital stock and do not anticipate paying any cash dividends in the foreseeable future. In addition, our loan agreements prohibit us from paying cash dividends without the consent of the lenders. 21 23 CAPITALIZATION The following table sets forth our capitalization as of October 31, 1999: - on an actual basis; - on a pro forma basis to reflect (1) the issuance of 3,501,938 shares of our common stock and 6,491,203 shares of our Series D preferred stock in connection with our acquisition of Proamics in December 1999 and (2) the sale of 7,998,012 shares of our Series D preferred stock in November 1999 for aggregate proceeds of approximately $39.9 million; and - on a pro forma as adjusted basis to reflect the conversion of all outstanding shares of our preferred stock into our common stock upon the closing of this offering and the sale of our common stock in this offering at an assumed initial public offering price of $ per share after deducting estimated underwriting discounts and commissions and our estimated offering expenses.
AS OF OCTOBER 31, 1999 ----------------------------------- PRO PRO FORMA ACTUAL FORMA AS ADJUSTED -------- -------- ----------- (IN THOUSANDS, EXCEPT SHARE DATA) Current portion of long-term obligations.................... $ 5,502 $ 6,388 $ 6,388 ======== ======== ======== Long-term obligations, less current portion................. $ 968 $ 3,334 $ 3,334 -------- -------- -------- Redeemable convertible preferred stock, $0.0001 par value per share, 34,272,843 shares authorized, 33,130,282 shares issued and outstanding, actual; 51,910,282 shares authorized, 47,619,497 shares issued and outstanding, pro forma; no shares authorized, issued or outstanding, pro forma as adjusted......................................... 28,580 100,966 -- -------- -------- -------- Stockholders' equity (deficit): Preferred stock, $0.0001 par value; no shares authorized, issued or outstanding, actual; 10,000,000 shares authorized no shares issued or outstanding, pro forma and pro forma as adjusted............................... -- -- -- Common stock, $0.0001 par value per share; 50,000,000 shares authorized, 7,106,118 shares issued and outstanding, actual; 100,000,000 shares authorized, 10,608,056 shares issued and outstanding, pro forma; 250,000,000 shares authorized, shares issued and outstanding, pro forma as adjusted.................. 1 1 Additional paid-in capital................................ 10,100 27,610 Treasury stock............................................ (30) (30) (30) Deferred stock-based compensation......................... (7,238) (7,238) (7,238) Notes receivable from stockholders........................ (108) (108) (108) Accumulated deficit....................................... (16,553) (16,553) (16,553) -------- -------- -------- Total stockholders' equity (deficit)............... (13,828) 3,682 -------- -------- -------- Total capitalization............................... $ 15,720 $107,982 $ ======== ======== ========
The share numbers above exclude: - 3,629,127 shares of our common stock subject to options outstanding under our 1998 Stock Plan as of October 31, 1999, at a weighted average exercise price of $0.26 per share; - 2,302,250 shares of our common stock available for future grant under our 1998 Stock Plan as of October 31, 1999; 22 24 - 6,000,000 shares of our common stock to be available for future grant under our 2000 Equity Incentive Plan and 1,000,000 shares of our common stock to be available for future grant under our 2000 Employee Stock Purchase Plan; and - 630,000 shares of our Series B preferred stock issuable upon the exercise of outstanding warrants as of October 31, 1999, at a weighted average exercise price of $0.75 per share. Subsequent to October 31, 1999 and through December 15, 1999, we granted options to purchase 1,489,760 shares of our common stock under our 1998 Stock Plan at a weighted average exercise price of $2.91 per share and issued 1,600,000 shares of our common stock to employees under stock purchase agreements at a weighted average purchase price of $1.00 per share. You should read this table together with "Management--Director Compensation," "--Employee Benefit Plans," "Description of Capital Stock," "Certain Transactions" and notes 6 and 9 of the notes to our consolidated financial statements. 23 25 DILUTION Our pro forma net tangible book value as of October 31, 1999 was $13.9 million or approximately $0.36 per share, assuming the conversion of all outstanding shares of our preferred stock into shares of our common stock. Pro forma net tangible book value per share is determined by dividing the pro forma number of outstanding shares of our common stock into our net tangible book value, which is our total tangible assets less total liabilities. After giving effect to the receipt of the estimated net proceeds from this offering, based upon an assumed initial public offering price of $ per share and after deducting the estimated underwriting discounts and commissions and our estimated offering expenses, our pro forma net tangible book value as of October 31, 1999 would have been approximately $ million, or $ per share. This represents an immediate increase in pro forma net tangible book value of $ per share to existing stockholders and an immediate dilution in net tangible book value of $ per share to new investors purchasing shares at the initial public offering price. The following table illustrates the per share dilution: Assumed initial public offering price per share............. $ ------- Pro forma net tangible book value per share as of October 31, 1999.................................................. $ 0.36 ------- Increase per share attributable to new investors............ ------- Pro forma net tangible book value per share after offering.................................................. ------- Dilution per share to new investors......................... $ =======
The following table summarizes as of October 31, 1999, on the pro forma basis described above, the number of shares of common stock purchased from us, the total consideration paid and the average price per share paid by existing stockholders and by investors purchasing shares of our common stock in this offering, before deducting the estimated underwriting discounts and commissions and our estimated offering expenses:
SHARES PURCHASED TOTAL CONSIDERATION --------------------- ---------------------- NUMBER PERCENT AMOUNT PERCENT ---------- ------- ----------- ------- Existing stockholders....................... % $ % New investors............................... ---------- ----- ----------- ----- Total....................................... 100.0% $ 100.0% ========== ===== =========== =====
In November 1999, we sold 7,998,012 shares of our Series D preferred stock for aggregate proceeds of approximately $39.9 million, or a purchase price of approximately $5.00 per share. In December 1999, in connection with our acquisition of Proamics, we issued 3,501,938 shares of our common stock and 6,491,203 shares of our Series D preferred stock in exchange for all of the outstanding capital stock of Proamics. As of October 31, 1999, there were options outstanding to purchase a total of 3,629,127 shares of our common stock at a weighted average exercise price of $0.26 per share, and warrants outstanding to purchase a total of 630,000 shares of our Series B preferred stock at a weighted average exercise price of $0.75 per share. Subsequent to October 31, 1999 and through December 15, 1999, we granted options to purchase 1,489,760 shares of our common stock under our 1998 Stock Plan at a weighted average exercise price of $2.91 per share and issued 1,600,000 shares of our common stock to employees under stock purchase agreements at a weighted average purchase price of $1.00 per share. To the extent that any options or warrants are exercised, there will be further dilution to new public investors. See "Capitalization," "Management--Employee Benefit Plans," "Description of Capital Stock," "Certain Transactions" and notes 6 and 9 of the notes to our financial statements. 24 26 SELECTED CONSOLIDATED FINANCIAL DATA The following selected consolidated financial data should be read in conjunction with, and are qualified by reference to, our consolidated financial statements and related notes to our financial statements and "Management's Discussion and Analysis of Financial Condition and Results of Operations." The consolidated statement of operations data for the year ended January 31, 1999, and the nine months ended October 31, 1999 and the balance sheet data as of January 31, 1999 and October 31, 1999 are derived from, and are qualified by reference to, our audited financial statements included elsewhere in this prospectus, which have been audited by KPMG LLP, independent auditors. The unaudited statement of operations data for the nine months ended October 31, 1998 is derived from unaudited financial statements included elsewhere in this prospectus. We have prepared the unaudited information on the same basis as the audited consolidated financial statements and have included all adjustments, consisting only of normal recurring adjustments, that we consider necessary for a fair presentation of our financial position and operating results for these periods. The historical results are not necessarily indicative of results to be expected in any future period and results for the nine months ended October 31, 1999 are not necessarily indicative of results to be expected for the full fiscal year. The unaudited pro forma combined condensed statement of operations data presents our consolidated statements of operations for the fiscal year ended January 31, 1999 and the nine months ended October 31, 1999, combined with the consolidated statements of operations of Proamics for the year ended December 31, 1998 and the nine months ended September 30, 1999, giving effect to our acquisition of Proamics as if it had occurred as of the beginning of the periods presented. The unaudited pro forma combined condensed balance sheet data gives effect to the merger as if the transaction occurred on October 31, 1999, and combines our consolidated balance sheet as of October 31, 1999 with the consolidated balance sheet of Proamics as of September 30, 1999 and gives effect to the sale of our Series D preferred stock as if the sale had occurred on October 31, 1999. The unaudited pro forma combined condensed information is presented for illustrative purposes only and is not necessarily indicative of the operating results or financial position that would have occurred if the transaction had been consummated at the dates indicated, nor is it necessarily indicative of the future operating results or financial position of the combined companies. The pro forma adjustments are preliminary and based on management's estimates of the value of the tangible and intangible assets acquired. The actual adjustments may differ materially from those presented in these pro forma financial statements. 25 27
PRO FORMA ------------------------- YEAR NINE MONTHS ENDED NINE MONTHS ENDED OCTOBER 31, YEAR ENDED ENDED JANUARY 31, ------------------- JANUARY 31, OCTOBER 31, 1999 1998 1999 1999 1999 ----------- ------- -------- ----------- ----------- (IN THOUSANDS, EXCEPT PER SHARE DATA) Revenues: License........................................... $ -- $ -- $ 1,962 $ 3,165 $ 4,459 Services.......................................... 15 -- 1,014 7,715 7,716 ------- ------- -------- -------- -------- Total revenues.............................. 15 -- 2,976 10,880 12,175 ------- ------- -------- -------- -------- Cost of revenues.................................... 4 -- 603 5,151 6,025 ------- ------- -------- -------- -------- Gross profit........................................ 11 -- 2,373 5,729 6,150 Operating expenses: Research and development.......................... 1,610 849 6,062 2,959 8,072 Sales and marketing............................... 290 75 5,983 2,978 9,051 General and administrative........................ 996 720 1,837 3,345 4,051 Stock-based compensation.......................... 245 77 2,018 245 2,018 Amortization of goodwill and other intangible assets.......................................... 20 -- 184 12,391 9,462 ------- ------- -------- -------- -------- Total operating expenses.................... 3,161 1,721 16,084 21,918 32,654 ------- ------- -------- -------- -------- Operating loss.................................. (3,150) (1,721) (13,711) (16,189) (26,504) Interest and other.................................. 130 56 178 (356) (42) ------- ------- -------- -------- -------- Loss before extraordinary gain...................... $(3,020) $(1,665) $(13,533) $(16,545) $(26,546) ======= ======= ======== ======== ======== Basic and diluted net loss before extraordinary gain per share......................................... $ (0.62) $ (0.35) $ (2.31) $ (1.11) $ (1.67) ======= ======= ======== ======== ======== Shares used in computing basic and diluted net loss before extraordinary gain per share............... 4,882 4,800 5,871 14,875 15,864 ======= ======= ======== ======== ========
PRO FORMA AS OF JANUARY 31, OCTOBER 31, OCTOBER 31, 1999 1999 1999 ----------- -------------- -------------- (IN THOUSANDS) Cash, cash equivalents and short-term investments........... $ 5,147 $ 19,329 $ 62,507 Working capital............................................. 4,786 10,323 53,350 Total assets................................................ 6,555 28,738 125,145 Long-term obligations, less current portion................. -- 968 3,334 Redeemable convertible preferred stock...................... 8,259 28,580 100,966 Accumulated deficit......................................... (3,020) (16,553) (16,553) Total stockholders' equity (deficit)........................ (2,363) (13,828) 3,682
Pro forma net loss for the nine months ended October 31, 1999 excludes an extraordinary gain on early extinguishment of long-term debt of $2.4 million recorded by Proamics. 26 28 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS You should read the following Management's Discussion and Analysis of Financial Condition and Results of Operations together with the consolidated financial statements and related notes included elsewhere in this prospectus. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under "Risk Factors" and elsewhere in this prospectus. OVERVIEW We design, develop and market Internet-based software and a business portal that enables users, as well as individuals, to source, manage and deliver professional services. Our principal products are eNiku, xNiku and iNiku. We commenced operations in January 1998. From January 1998 through November 1998, we were in the development stage, conducting research and developing our initial products. In December 1998, we began offering our software products and related services and currently offer them in the United States and, to a lesser extent, in Europe and the Asia-Pacific region. We currently market our products through our direct sales force. In the future, we also intend to market our products and services through other channels such as resellers. In November 1999, we introduced the most recent version of our iNiku business portal. In December 1999, we acquired Proamics, a provider of project accounting, time-and-expense and billing solutions to the professional services industry. SOURCES OF REVENUES AND REVENUE RECOGNITION POLICY Through October 31, 1999, our revenues were principally derived from the sale of licenses of our Internet software products, the provision of maintenance and support and the delivery of implementation consulting services. In the future we intend to pursue revenues from a third source -- our iNiku business portal and the Niku Services Marketplace. Customers who license eNiku receive a per seat, or user, license and all of the applicable modules and adapters to interface with existing enterprise systems. License fees are generally based upon the number of seats licensed by the customer. Customers may also license eNiku under a server capacity license, the fee for which is based upon the customer's estimated annual volume of users or "billable consultants" requiring access to the applications. Capacity or "site" licensing allows customers to scale the total cost of eNiku to their initial estimated volume requirements and they can purchase additional capacity. Customers who license our Internet software products generally enter into maintenance and support agreements which allow for application version upgrades and technical support for a stated term of generally one year. Customers may purchase implementation services from us or from third-party consulting organizations. In the future, we expect to rely in significant part on third-party consulting organizations to deliver these services. We also offer fee-based training to our customers. Currently, we offer the standard iNiku business portal to users free of charge. We have adopted the provisions of Statement of Position, or SOP, SOP No. 97-2 Software Revenue Recognition, as amended by SOP NO. 98-4, Deferral of the Effective Date of Certain Provisions of SOP 97-2. Under SOP No. 97-2, we recognize license revenues when persuasive evidence of an arrangement exists, delivery of the product has occurred, no significant company obligations with regard to installation or implementation of the software remain, the fee is fixed or determinable and collectibility is probable. Revenues allocated to the software license are generally recognized upon delivery of the products or as payments become due if payment terms allow the customer to pay in a period greater than 90 days from date of delivery. Revenues allocated to maintenance are recognized monthly over the agreement term. Revenues allocated to implementation and other service elements are recognized as services are performed. 27 29 REVENUE RECOGNITION FOR NONMONETARY EXCHANGES AND TRANSACTIONS WITH NIKU PARTNERS We have entered into a number of customer agreements involving the licensing of our products and services to companies from whom we have purchased products under separate agreements. Although these transactions are governed by individual and distinct contracts, some are viewed as "nonmonetary" for accounting purposes. For the nine months ended October 31, 1999, approximately $1.2 million of our total revenues were derived from these types of transactions were considered to be nonmonetary. In addition, members of our Niku Partners Network are also our customers. In most of our Niku Partner alliance arrangements we have committed that these Niku Partners would receive a minimum dollar value of professional services from us. These transactions are classified as either monetary or nonmonetary, depending on the amount of value received by us from the Niku Partner. If the value we receive or pay in the transaction exceeds 25% of the fair value of the exchange with the Niku Partner, the transaction is considered to be monetary, otherwise the transaction is considered to be nonmonetary for accounting purposes. Revenues attributable to monetary transactions with Niku Partners for the nine months ended October 31, 1999, were $436,000 and revenues attributable to nonmonetary transactions with Niku Partners were $138,000. We believe that these arrangements have expanded our presence in key markets and have helped us to ensure that consulting organizations are trained, experienced and available to perform implementation work at our customers' sites and offer our products for resale. We intend to enter into these types of relationships in the future, although we anticipate that revenues related to these relationships will decline as a percentage of our total revenues. Please see note 1 of our notes to our consolidated financial statements for a description of the nature of these contracts and our related revenue recognition accounting policies. DEFERRED REVENUES Deferred revenues include amounts billed to customers for which revenues have not been recognized which generally results from the following: (1) deferred maintenance and support; (2) consulting services not yet rendered; (3) amounts billed to third parties for products not yet sold through to end-user customers; (4) amounts billed to customers with extended payments terms which are not yet due; and (5) amounts billed under monetary Niku Partner customer arrangements in excess of Niku Partner professional services used by us. Of our $1.9 million of deferred revenues as of October 31, 1999, $342,000, was attributable to nonmonetary transactions with our customers within the categories described above. COST OF REVENUES Our cost of revenues includes costs of our license revenues and costs of our services revenues. Our cost of license revenues includes royalties due to third parties for technology products integrated into our software products, the cost of manuals and product documentation, production media and shipping costs. Our cost of service revenues include salaries and related expenses for our customer support, implementation and training organizations, as well as the costs of third parties contracted to provide consulting services to our customers. Because our cost of service revenues is greater than cost of license revenues, cost of revenues may fluctuate based on the mix of products and services sold. OPERATING EXPENSES Our operating expenses are classified into three general operational categories: sales and marketing, research and development and general and administrative. In addition, our operating expenses include two non-cash categories: stock-based compensation and amortization of goodwill and other intangible assets. We classify all charges to the sales and marketing, research and development and general and administrative expense categories based on the nature of the expenditures. Although each of these three categories includes expenses that are unique to the 28 30 category type, there are commonly recurring expenditures that are typically included in these categories, such as salaries, employee benefits, sales commissions, travel and entertainment costs, allocated communication, rent and facilities costs, and third party professional service fees. The sales and marketing category of operating expenses also includes expenditures specific to the marketing group such as public relations and advertising, trade shows and marketing collateral materials. We allocate the total cost of overhead and facilities to each of the functional areas that use overhead and facilities based upon their respective headcount. These allocated charges include facility rent for the corporate office, communications charges and depreciation expense for office furniture and equipment. In connection with the granting of stock options to, and restricted stock purchases by, our employees, we recorded deferred stock-based compensation totaling approximately $7.2 million as of October 31, 1999. This amount represents the difference between the exercise or purchase price, as applicable, and the deemed fair value of our common stock for accounting purposes on the date these stock options were granted or purchase agreements were signed. This amount is included as a component of stockholders' equity and is being amortized on an accelerated basis by charges to operations over the vesting period of the options consistent with the method described in Financial Accounting Standards Board Interpretation No. 28. We expect to record additional substantial stock-based compensation for stock options granted subsequent to October 31, 1999. The amortization of the remaining deferred stock-based compensation will result in additional charges to operations through fiscal 2004. In December 1998, we completed the acquisition of Alyanza, a privately held software company in San Diego, California. We issued 525,000 shares of common stock and paid $135,000 in cash for all of Alyanza's outstanding capital stock. The transaction was accounted for as a purchase. The purchase price of approximately $735,000 is being amortized over a three year period as amortization of goodwill and other intangible assets. ACQUISITION OF PROAMICS In connection with our acquisition of Proamics in December 1999, we acquired all of the outstanding capital stock of Proamics in exchange for 3,501,938 shares of our common stock and 6,491,203 shares of our Series D preferred stock. In addition, subsequent to the transaction, we issued options to purchase 960,380 shares of our common stock to the former employees of Proamics who became our employees. Our acquisition of Proamics will be accounted for as a purchase. Of the approximately $50.4 million purchase price, we expect to record goodwill and other intangible assets of approximately $47.8 million to be amortized over the next three to five years. The acquisition of Proamics may have an adverse effect on our future operating results if we are unable to market our products to Proamics customers or effectively utilize the Proamics professional services consultants. OUR HISTORY OF LOSSES Although revenues have increased from quarter to quarter, we incurred significant costs to develop our technology, our products and business portal and to recruit and train personnel for our engineering, sales, marketing, professional services and administrative organizations. As a result, we incurred significant losses since inception, and, as of October 31, 1999, we had an accumulated deficit of $16.6 million. We believe our success is contingent on increasing our customer base, on continuing to develop our eNiku, xNiku and iNiku solutions and on expanding our market presence into new professional services industries. We intend to continue to invest heavily in sales, marketing and research and development. We also expect to incur substantial non-cash charges relating to the amortization of goodwill and other intangible assets and stock-based compensation. Therefore, we expect to continue to incur substantial operating losses for the foreseeable future. 29 31 We had approximately 180 full-time employees as of October 31, 1999. In addition, we added approximately 120 employees with our acquisition of Proamics. We also intend to hire a significant number of employees in the future. This expansion places significant demands on our management and operational resources. To manage this rapid growth, we must invest in scalable operational systems, procedures and controls. We must also be able to recruit qualified candidates to manage our expanding operations. We expect future expansion to continue to challenge our ability to hire, train, manage and retain our employees. Additional personnel will increase our operating expenses in the foreseeable future. LIMITED OPERATING HISTORY Our limited operating history makes the prediction of future operating results very difficult. We believe that period-to-period comparisons of our operating results should not be relied upon as predictive of future performance. Our prospects must be considered in light of the risks, expenses and difficulties encountered by companies at an early state of development, particularly companies in new and rapidly evolving markets, such as the Internet and Internet software. We may not be successful in addressing these risks and difficulties. Although we have experienced significant growth in revenues in recent periods, we do not believe that prior growth rates are sustainable or indicative of our future operating results. RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED OCTOBER 31, 1998 AND 1999 REVENUES License. Our license revenues increased from no revenues for the period ended October 31, 1998 to $2.0 million for the nine months ended October 31, 1999. This increase is attributable to an increase in sales to new customers resulting from increased headcount in our sales force and, to a lesser extent, the commencement of international operations. Sales to new customers accounted for 100% of the license revenues for the nine months ended October 31, 1999. Pro forma license revenues were $4.5 million for the nine months ended October 31, 1999, which primarily consist of sales to the new Proamics' customers. We do not intend to separately market the Proamics product line in the future. Although we plan to market Niku products to Proamics customers incorporating functionality contained in Proamics products, we do not know whether any of these customers will purchase Niku products. Therefore, prior levels of Proamics software license revenues are not necessarily indicative of our future results. Services. Our services revenues increased from no revenues for the period ended October 31, 1998 to $1.0 million for the nine months ended October 31, 1999. This increase is attributable to the increased activity described above, which resulted in increased revenues from customer implementations and maintenance contracts. Pro forma services revenues were $7.7 million for the nine months ended October 31, 1999, which included Proamics' services revenues derived from installation, implementation and customization work for its license customers. Although we plan to deploy Proamics services personnel on new Niku installations, implementation and customization engagements, we do not know whether we will be able to offset an expected decline in services revenues derived from existing Proamics customers in the future. During the nine months ended October 31, 1999, Sybase accounted for 22%, USi accounted for 18% and SalesLogix accounted for 10% of total revenues. One of our directors is a director of USi and a second director is an officer and director of Sybase. COST OF REVENUES Cost of revenues increased from no cost of revenues for the period ended October 31, 1998 to $603,000 for the nine months ended October 31, 1999. This increase in the cost of revenues is primarily attributable to royalty agreements for technology incorporated into our products and the cost of manuals, media, product documentation and shipping costs related to product sales to new customers as well as the shipment of product updates to existing 30 32 customers. Additionally, included in these costs are costs of services associated with implementation, training and technical support personnel, which increased from two people at January 31, 1999 to 13 people at October 31, 1999. Pro forma cost of revenues was $6.0 million for the nine months ended October 31, 1999 which includes Proamics' costs of packaging, distribution and third-party royalties related to product sales to customers. Additionally, included in the pro forma costs are costs associated with Proamics' implementation, training and technical support personnel, which included 50 people as of October 31, 1999. We anticipate that the cost of revenues will increase in future periods, primarily as a result of the addition of Proamics services personnel. GROSS PROFIT We had no revenues, cost of revenues or gross profit for the period ended October 31, 1998. Our gross profit was $2.4 million for the nine months ended October 31, 1999 primarily due to the incremental amounts of revenues that we recognized in each quarter. Gross profit margin was 79.7% for the nine months ended October 31, 1999. Pro forma gross profit was $6.2 million for the nine months ended October 31, 1999 which includes Proamics' gross margins derived from sales of Proamics software licenses and delivery of services. We expect that our gross margins will decline at least in the near term as a result of the addition of services personnel from Proamics. Pro forma gross profit margin was 50.5%, largely influenced by the relatively high mix of Proamics services. OPERATING EXPENSES Research and development. Research and development expenses increased from $849,000 for the period ended October 31, 1998 to $6.1 million for the nine months ended October 31, 1999. This increase is primarily attributable to an increase in the number of research and development personnel. Headcount increased from 23 as of January 31, 1999 to 71 as of October 31, 1999. To date, all software development costs have been expensed in the period incurred. Pro forma research and development expenses were $8.1 million for the nine months ended October 31, 1999. We believe that continued investment in research and development is critical to attaining our strategic objectives, and we anticipate that research and development expenses will continue to increase in absolute dollars due to our internal product development efforts and the addition of 29 Proamics research and development personnel. We do not anticipate developing separate new or enhanced versions of Proamics products, and therefore, we expect these personnel to be deployed in development activities for Niku products. Sales and marketing. Sales and marketing expenses increased from $75,000 for the period ended October 31, 1998 to $6.0 million for the nine months ended October 31, 1999. This increase primarily resulted from the addition of personnel in our sales and marketing departments, and related costs, such as increased sales commissions. Pro forma sales and marketing expenses were $9.1 million for the nine months ended October 31, 1999. We anticipate that these sales and marketing expenses will increase in absolute dollar amounts in future periods as we continue to expand our sales and marketing efforts. We added approximately 30 Proamics sales and marketing personnel. Other than the costs associated with this increase in personnel and costs associated with marketing Niku products to Proamics customers, we do not expect to incur significant additional sales and marketing expenses as a result of the Proamics acquisition, as we do not intend to market Proamics' product line separately. General and administrative. General and administrative expenses increased from $720,000 for the period ended October 31, 1998 to $1.8 million for the nine months ended October 31, 1999. This increase is attributable to an increase in the number of administrative and professional services fees, and to a lesser extent, communications costs, particularly to our remote offices and facility costs. The number of employees engaged in general and administrative functions increased from 7 as of January 31, 1999 to approximately 30 as of October 31, 1999. Pro forma general and administrative expenses were $4.1 million for the 31 33 nine months ended October 31, 1999. We expect general and administrative expenses to increase in absolute dollars as we add personnel to support the expansion of our operations, incur additional expenses related to the anticipated growth of our business, and assume the responsibilities of a public company. We also added approximately 10 Proamics administrative personnel, which will contribute to our future general and administrative expenses. Stock-based compensation. During the nine months ended October 31, 1999, we recorded $2.0 million of stock-based compensation amortization expense, representing $17,000 cost of revenues, $597,000 research and development, $1.1 million sales and marketing and $264,000 general and administrative expenses. During the nine month period ended October 31, 1998, we recorded $77,000 of stock-based compensation amortization expense. Amortization of goodwill and other intangible assets. Amortization of goodwill and other intangible assets was zero for the period ended October 31, 1998 and $184,000 for the nine months ended October 31, 1999. INTEREST AND OTHER Interest and other consists of interest income, interest expense and other non-operating expenses. Interest and other increased from $56,000 for the period ended October 31, 1998 to $178,000 for the nine months ended October 31, 1999. This increase is attributable primarily to interest income from average invested cash proceeds from financing activities, partially offset by interest expense related to equipment loans and subordinated debt, the proceeds of which were used to purchase computer equipment and office furniture and equipment. 32 34 QUARTERLY RESULTS OF OPERATIONS The following tables set forth consolidated statement of operations data for each of the three quarters in the period ended October 31, 1999. This information has been derived from our unaudited consolidated financial statements that, in the opinion of our management, include all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of this information. In addition, this information does not give effect to our acquisition of Proamics, which is expected to affect our future operating results. You should read this information in conjunction with our annual audited consolidated financial statements and related notes appearing elsewhere in this prospectus. We have experienced and expect to continue to experience fluctuations in operating results from quarter to quarter. We incurred net losses in each of the last three quarters and expect to continue to incur losses in the foreseeable future. You should not draw any conclusions about our future results from the results of operations for any quarter, as quarter results are not indicative of the results for a full fiscal year or any other period.
THREE MONTHS ENDED ------------------------------------ APRIL 30, JULY 31, OCTOBER 31, 1999 1999 1999 --------- -------- ----------- (IN THOUSANDS) Revenues: License.............................................. $ 241 $ 355 $ 1,366 Services............................................. 132 232 650 ------- ------- ------- Total revenues.................................... 373 587 2,016 Cost of revenues....................................... 89 187 327 ------- ------- ------- Gross profit........................................... 284 400 1,689 ------- ------- ------- Operating expense: Research and development............................. 1,088 2,226 2,748 Sales and marketing.................................. 808 2,019 3,156 General and administrative........................... 325 464 1,048 Stock-based compensation............................. 313 596 1,109 Amortization of goodwill and other intangible assets............................................ 61 61 62 ------- ------- ------- Total operating expenses.......................... 2,595 5,366 8,123 ------- ------- ------- Operating loss......................................... (2,311) (4,966) (6,434) Interest and other..................................... (45) 127 96 ------- ------- ------- Net loss............................................... $(2,356) $(4,839) $(6,338) ======= ======= =======
THREE QUARTERS IN THE PERIOD ENDED OCTOBER 31, 1999 REVENUES License. License revenues increased in each of the three quarters in the period ended October 31, 1999. Our sales headcount increased from six at April 30, 1999 to 27 at July 31, 1999, and to 51 at October 31, 1999 which led to the increase in the number of our customers. Services. Services revenues increased in each of the three quarters in the period ended October 31, 1999. During this time, we provided implementation services at most of our customer locations. Our services revenues increased as the number of active implementations increased during this three quarter period. Revenues from nonmonetary exchanges of our products for customer products or services were $282,000 for the three months ended April 30, 1999, $343,000 for the three months ended July 31, 1999 and $746,000 for the three months ended October 31, 1999. 33 35 COST OF REVENUES Cost of revenues increased in each of the three quarters in the period ended October 31, 1999. In the three months ended April 30, 1999, we began to hire implementation and technical support personnel. In each subsequent quarter, we hired additional implementation and technical support employees. In the three months ended October 31, 1999, we began to hire training personnel to provide training services to customers and third-party implementation partners. Our implementation, technical support and training personnel increased from two at April 30, 1999 to 15 at July 31, 1999, and to 21 at October 31, 1999. OPERATING EXPENSES Research and development. Research and development expenses increased in each of the three quarters in the period ended October 31, 1999. Personnel expenses, the largest single component of this expense category, increased from $721,000 for the three months ended April 30, 1999 to $1.2 million for the three months ended July 31, 1999, and to $1.5 million for the three months ended October 31, 1999. During this time, we consistently increased our research and development staff to develop subsequent releases of eNiku and to develop the iNiku business portal. The market for qualified people in the San Francisco Bay Area is competitive and costs associated with hiring and retaining key personnel are high. The increased number of personnel and the increased cost per person have contributed to the increase in research and development expenses. Sales and marketing. Sales and marketing expenses increased in each of the three quarters in the period ended October 31, 1999. This increase is primarily attributable to increased sales compensation, increased marketing expenses, the expansion of regional sales offices and the establishment of international locations. Sales and marketing personnel costs increased from $383,000 for the three months ended April 30, 1999 to $1.3 million for the three months ended July 31, 1999, and to $1.6 million for the three months ended October 31, 1999. Other sales and marketing costs increased primarily from advertising and marketing facilities and travel and entertainment, from $425,000 for the three months ended April 30, 1999 to $719,000 for the three months ended July 31, 1999, and to $1.6 million for the three months ended October 31, 1999. General and administrative. General and administrative expenses increased in each of the three quarters in the period ended October 31, 1999 as a result of additional finance, human resource, legal, information technology and administrative professionals required to create the business infrastructure. During this time, general and administrative costs increased from $325,000 for the three months ended April 30, 1999 to $464,000 for the three months ended July 31, 1999, and to $1.0 million for the three months ended October 31, 1999. Stock-based compensation. Stock-based compensation was $313,000 for the three months ended April 30, 1999, $596,000 for the three months ended July 31, 1999 and $1.1 million for the three months ended October 31, 1999. Amortization of goodwill and other intangible assets. Amortization of goodwill and other intangible assets was $61,000 in each of the three months ended April 30 and July 31, 1999 and $62,000 in the three months ended October 31, 1999. Our results of operations could vary significantly from quarter to quarter. We expect to incur significant sales and marketing expenses to promote our brand and our products and services. Therefore, our quarterly operating results are likely to be particularly affected by the number of customers licensing our products during any quarter as well as sales and marketing, research and development and other expenses for a particular period. If revenues fall below our expectations, we will not be able to reduce our spending rapidly in response to the shortfall. We expect to experience seasonality in the sales of our products and services. Seasonal variations in our sales may lead to fluctuations in our quarterly results. For example, we expect 34 36 that sales may decline during summer months, particularly in European markets. We also anticipate that sales may be lower in our first fiscal quarter due to patterns in the capital budgeting and purchasing cycles of our current and prospective customers as well as due to our sales commission structure. We also anticipate that our sales will have long sales cycles. Therefore, the timing of future customer contracts could be difficult to predict, making it very difficult to predict revenue between quarters and, our operating results may vary significantly. Other factors that could affect our quarterly operating results include those described below and elsewhere in this prospectus: - our ability to attract new customers and retain current customers; - our ability to license additional products to current customers; - our ability to increase levels of usage of our services, including iNiku and the Niku Services Marketplace, and to derive revenues from these services; - the announcement or introduction of new products or services by us or our competitors; - changes in the pricing of our products and services or those of our competitors; - variability in the mix of our products and services revenues in any quarter; - technical difficulties or service interruptions of our computer network systems or the Internet generally; and - the amount and timing of operating costs and capital expenditures relating to expansion of our business. Due to these and other factors, we believe that period-to-period comparisons of our results of operations are not meaningful and should not be relied upon as indicators of our future performance. It is possible that in some future periods, our results of operations may be below the expectations of public market analysts and investors. If this occurs, the price of our common stock may decline. LIQUIDITY AND CAPITAL RESOURCES Since inception, we have financed our operations through private sales of capital stock, with net proceeds of $28.8 million through October 31, 1999, bank loans and equipment leases. As of October 31, 1999, we had $19.3 million in cash, cash equivalents and short-term investments and $10.3 million in working capital. In November 1999, we sold 7,998,012 shares of Series D preferred stock for $5.00 per share for total cash proceeds of approximately $40.0 million. Net cash used in operating activities was $2.8 million in the period ended January 31, 1999 and $8.8 million in the nine months ended October 31, 1999. Net cash flows from operating activities in each period reflect increasing net losses and, to a lesser extent, accounts receivable offset in part by increases in accrued compensation and liabilities. Net cash flows from operating activities in the period ended October 31, 1999 reflects $1.4 million of deferred revenue from customers that were not recognized as revenue. Net cash used in investing activities was $366,000 in the period ended January 31, 1999 and $5.6 million in the nine months ended October 31, 1999. Cash used in investing activities reflects purchases of property and equipment in each period and purchases of short-term investments in the nine months ended October 31, 1999. Capital expenditures were $193,000 in the period ended January 31, 1999 and $2.9 million in the nine months ended October 31, 1999. Our capital expenditures consisted of purchases of operating resources to manage our operations, including computer hardware and software, office furniture and equipment and leasehold improvements. We expect that our capital expenditures will continue to increase in the future. Since inception, we have generally funded capital expenditures either through the use of working capital or with capital leases. 35 37 Net cash from financing activities was $8.3 million in the period ended January 31, 1999 and $26.4 million in the nine months ended October 31, 1999. These cash flows reflect primarily proceeds from private sales of preferred stock. In September 1999, we entered into a loan and security agreement with a bank providing a line of credit of up to $4.0 million. Any borrowings under the line of credit bear interest at the bank's prime lending rate plus 1.0%. As of October 31, 1999, we had borrowed $3.8 million under the line of credit with an interest rate of 8.25% as of October 31, 1999, and $200,000 was available for borrowing. The agreements for these loans contain covenants requiring that we satisfy certain financial ratios and maintain a minimum tangible net worth. As of October 31, 1999, we were in material compliance with these covenants. This loan is secured by our assets. In February 1999, we entered into a term loan with another lender, providing us with a bridge loan of up to $3.0 million. Any borrowings under this term loan bear interest at 12.0%. As of October 31, 1999, we had borrowed $2.7 million under this term loan, and $300,000 was available for borrowing. Also in February 1999, we entered into a lease line with the same institution, providing us with an equipment lease line of credit of up to $500,000. Any drawings under this lease line bear interest at 8.0%. As of October 31, 1999, we had leased $300,000 of equipment under this lease line, and $200,000 was available. We issued warrants to purchase shares of our preferred stock to this institution. Using the Black-Scholes methodology, the warrants were valued at $510,000, increasing our effective interest rate by approximately 5%. These loans are secured by our assets. As of September 30, 1999 Proamics had debt obligations of approximately $3.2 million. In connection with the acquisition of Proamics, $2.5 million was repaid using Proamics' cash on hand. In addition, as of September 30, 1999, Proamics had $349,000 of reserves for doubtful accounts receivable and as of October 31, 1999, Niku had $100,000 of reserves for doubtful accounts receivable. We expect to experience significant growth in our operating expenses, particularly research and development and sales and marketing expenses, for the foreseeable future in order to execute our business plan. As a result, we anticipate that operating expenses, as well as planned capital expenditures, will constitute a material use of our cash resources. In addition, we may utilize cash resources to fund acquisitions or investments in complementary businesses, technologies or product lines. We believe that the net proceeds from this offering, cash from operations and existing cash will be sufficient to meet our working capital and expense requirements for at least the next 12 months. After that time, we may find it necessary to obtain additional equity or debt financing. In the event additional financing is required, we may not be able to raise it on acceptable terms or at all. If we raise additional funds through the issuance of equity securities, the percentage ownership of our stockholders would be reduced. Furthermore, these equity securities may have rights, preferences and privileges senior to our common stock. YEAR 2000 READINESS The "Year 2000 Issue" refers generally to the problems that some software may have in determining the correct century for the year. For example, software with date-sensitive functions that is not Year 2000 compliant may not be able to distinguish whether "00" means 1900 or 2000, which may result in failures or the creation of erroneous results. Some commentators have predicted significant litigation regarding Year 2000 compliance issues, and we are aware of lawsuits against other software vendors. Because of the unprecedented nature of this litigation, it is uncertain whether or to what extent we may be affected by it. We designed all of our products to be Year 2000 compliant when configured and used in accordance with related documentation, and provided that the underlying operating system of the host machine and any other software and hardware used with or in the host machine or our 36 38 products are Year 2000 compliant. Additionally, we have tested Niku products for Year 2000 compliance and determined they are Year 2000 compliant. Prior to the acquisition of Proamics, we determined that Proamics had tested its currently deployed products for Year 2000 compliance. We also obtained representations and warranties from Proamics in the merger agreement relating to the Proamics acquisition. We have defined Year 2000 compliant as the ability to: - Correctly handle date information needed for the December 31, 1999 to January 1, 2000 date change; - Function according to the product documentation provided for this date change, without changes in operation resulting from the advent of a new century, assuming correct configuration; - Respond to two-digit date input in a way that resolves the ambiguity as to century in a disclosed, defined and predetermined manner; - Store and provide output of date information in ways that are unambiguous as to century if that date elements in interfaces and data storage specify the century; and - Recognize year 2000 as leap year; provided that all other products such as hardware, software and firmware, used with our products properly exchange and recognize date data. We have tested software obtained from third parties that is incorporated into our products as to their Year 2000 compliance. Despite testing by us and current and potential customers, and assurances from developers of products incorporated into our products, our products may contain undetected errors or defects associated with Year 2000 date functions. Known or unknown errors of defects in our products could result in delay of loss of revenues, diversion of development resources, damage to our reputation, increased service and warranty costs, or liability from our customers, any of which could seriously harm our business. Furthermore, our software products either interact with or are integrated into customers' computer systems, which often involve sophisticated hardware and complex software that we cannot guarantee for Year 2000 compliance. We could face claims based on Year 2000 problems in other companies' products, or issues arising from integration of multiple products within an overall system, even if our products are otherwise Year 2000 compliant. We have completed an assessment of our material internal information systems and believe them to be Year 2000 compliant. We have not initiated an assessment of our non-information and technology systems, although we have received a favorable assessment of the Year 2000 compliance of our new headquarters in Redwood City, California. We have completed testing of our information technology systems. To the extent that we have not been able to test the technology provided by third-party vendors, we are seeking assurances from these vendors that their systems are Year 2000 compliant. We are not currently aware of any material operational issues or costs associated with preparing our internal information technology and non-informational technology systems for the Year 2000. However, we may experience material unanticipated problems and costs caused by undetected errors or defects in the technology used in our internal information technology and non-information technology systems. We do not currently have any information concerning the Year 2000 compliance status of our customers. Our current or future customers may incur significant expenses to achieve Year 2000 compliance. If our customers are not Year 2000 compliant, they may experience material costs to remedy problems, or they may face litigation costs. In either case, Year 2000 issues could reduce or eliminate the budgets that current or potential customers could have for, or delay purchases of, our products and services. As a result, our business could be seriously harmed. We have funded our Year 2000 plan from operating cash flows and have not separately accounted for these costs in the past. To date, these costs have not been material. We may incur 37 39 additional costs related to the Year 2000 plan for administrative personnel, outside contractor assistance, technical support for our products, product engineering and customer satisfaction if we experience material Year 2000 issues. In addition, we may experience material problems and costs in connection with the Year 2000 compliance that could seriously harm our business. We have not yet fully developed a contingency plan to address situations that may result if we are unable to achieve Year 2000 readiness of our critical operations, and we do not anticipate the need to do so. The cost of developing and implementing such a plan may itself be material. Finally, we are also subject to external forces that might generally affect industry and commerce, such as utility or transportation company Year 2000 compliance failure interruptions. Year 2000 issues affecting our business, if not adequately addressed by us, our third party vendors or suppliers or our customers, could have a number of "worst case" consequences. These include: - the inability of our customers to use our products and services to procure and manage their operating resources; - claims from our customers asserting liability, including liability for breach of warranties related to the failure of our products and services to function properly, and any resulting settlements or judgments; and - our inability to manage our own business. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS In June 1998, the Financial Accounting Standards Board, or FASB, issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," which establishes accounting and reporting standards for derivative securities instruments and hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities in the balance sheet and measure those instruments at fair value. We do not believe this will have a material effect on our operations as we do not engage in hedging activities. Implementation of this standard has recently been delayed by the FASB for a 12-month period. We will now adopt SFAS No. 133 as required for its first quarterly filing of fiscal year 2002. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK We develop products in the United States and market our products in North America, and to a lesser extent, Europe and the Asia-Pacific region. As a result, our financial results could be affected by factor such as changes in foreign currency exchange rates or weak economic conditions in foreign markets. As all sales are currently made in U.S. dollars, a strengthening of the dollar could make our products less competitive in foreign markets. Our interest income is sensitive to changes in the general level of U.S. interest rates, particularly since the majority of our investments are in short-term instruments. Due to the short-term nature of our investments, we believe that there is no material risk exposure. Therefore no quantitative tabular disclosures are required. 38 40 BUSINESS OVERVIEW We are a leading provider of Internet solutions for the sourcing, management and delivery of professional services. Professional services include consulting, financial services, medicine, law, engineering, advertising and other industries in which intellectual capital is an important element of the services. Our Internet software and business portal are designed to automate the core business processes of professional services organizations, professional services providers within enterprises, and small businesses and individual professionals. Our customers include many consulting organizations as well as enterprises such as Business Objects, Comdisco, Computer Associates, EMC, Gateway, Sybase and Xerox. As of December 15, 1999, our iNiku business portal had over 12,000 registered users. Across industries, service businesses have common core requirements, including creation, storage and reuse of intellectual capital, management of resources and projects, tracking of time and expenses and analysis of resource utilization and productivity. We address these requirements through an integrated set of products and services: eNiku, xNiku and iNiku. Because of the unified platform linking users of eNiku, xNiku and iNiku, all can easily participate in the Niku Services Marketplace, a marketplace for buyers and sellers of professional services. While we currently deliver our solutions to the IT consulting industry, we plan to extend these solutions to other service industries, including financial services, medicine, law and advertising. INDUSTRY BACKGROUND THE GLOBAL SERVICES ECONOMY Service businesses generated more than $2 trillion in revenues and employed more workers than any other sector in the United States in 1997, according to the Encyclopedia of American Industries. The professional services industry represents a large part of the service economy. According to the U.S. Department of Commerce, the gross domestic product of the professional services industry, including business, legal, health and educational services, exceeded $900 billion in 1997. We believe the professional services industry will grow rapidly, both in the United States and internationally, due to a number of factors, including: - the increasing importance of intellectual capital to business success; - the growing complexity and pace of business projects; - the increasing need for specialization; and - the growing acceptance of outsourcing, both in the United States and internationally. The professional services industry is undergoing significant change. To succeed, service businesses must increasingly manage their intellectual capital and resources effectively. We believe the need for effective business management in the professional services industry is becoming more intense as a result of a number of key factors, including: - increasing competition; - growing project complexity; - shorter project time frames; - increasing collaboration requirements, particularly for small businesses and individual professionals; - growing use of non-employee consultants; and - globalization of business. 39 41 NEED FOR SOLUTIONS IN THE PROFESSIONAL SERVICES INDUSTRY Unlike product-oriented businesses, which produce finished goods from raw materials and component parts and sell these goods on a per-item basis, professional services businesses create information-based deliverables using human resources that are often billed at time-based rates. As a result, professional services businesses require complex intellectual capital and resource management applications capable of handling substantial amounts of unstructured data. However, service businesses often lack standardized and cost-effective applications for core business processes such as: - INTELLECTUAL CAPITAL MANAGEMENT -- Creation, storage and reuse of complex intellectual capital assets, such as implementation plans, case histories, proposals and contracts; - RESOURCE MANAGEMENT -- Sourcing, hiring and training personnel and allocating them across clients, projects and locations; - PROJECT MANAGEMENT -- Tracking client communications, project status and deliverables; - FINANCE AND OPERATIONS MANAGEMENT -- Management of time and expenses and billing and collections, and integration of these functions with other financial systems; - PRACTICE MANAGEMENT -- Review and analysis of business performance, including resource utilization and individual and group productivity, and - BUSINESS DEVELOPMENT -- Identifying potential customers, making proposals and finalizing contracts. As a result of the need for these applications, the automation of the business processes of professional services businesses represents a large market opportunity. International Data Corporation estimates that the service industries supply-chain automation packaged application market will grow from approximately $600 million in 1999 to approximately $12 billion by 2003, representing a five-year compound annual growth rate of approximately 108%. THE INTERNET AS A PLATFORM FOR PROFESSIONAL SERVICES INDUSTRY SOLUTIONS The advent of the Internet has provided a technology platform for professional services industry solutions using Internet software and business portals. Traditionally, companies seeking to improve their operations have implemented applications based on client-server architecture, which requires a significant portion of an application to be loaded on each user's computer. With the emergence of the Internet, companies are now able to make business applications available to internal and external users without installing client software, allowing significantly broader deployments and constant updating of content. The Internet also enables applications to be accessed by any device with a web browser, making it possible for the many mobile professionals in professional services organizations to benefit from these applications. As a result of these factors, we believe that applications built on an Internet platform offer significant advantages over those based on traditional client-server architecture. In addition to these architectural advantages, the Internet provides a common platform through which organizations and individual professionals can communicate and collaborate. This platform is particularly important in light of the emergence of an economy characterized by a geographically dispersed, mobile and fluid workforce. By enabling increased communication and collaboration, the Internet creates new ways for businesses to source, manage and deliver services, and facilitates an efficient marketplace for services. Forrester Research expects the market for business-to-business electronic commerce for services to increase from approximately $22 billion in 1999 to approximately $220 billion by 2003, representing a compound annual growth rate of approximately 78%. THE NIKU SOLUTION We are a leading provider of Internet solutions for the professional services industry, enabling organizations and individual professionals to efficiently source, manage and deliver 40 42 professional services. Our solutions are designed for deployment on corporate intranets, extranets and the Internet. These platforms connect people inside and outside organizations, enable professional services businesses to operate their businesses more efficiently and facilitate the creation of a marketplace for buyers and sellers of professional services. Our solutions are based on a proprietary "zero-client" architecture that eliminates the need for businesses to install client software. We currently deliver our solutions to the IT consulting industry and plan to extend these solutions to other professional services industries, including financial services, medicine, law and advertising. We believe key benefits of our solutions include the following: SIGNIFICANTLY ENHANCED CLIENT SERVICE. Our Internet software and business portal allow users to manage their intellectual capital and resources effectively. With our solutions, service businesses can capture, share and reuse information and intellectual capital and provide higher-quality work product to customers. Our solutions also enable service businesses to focus the most appropriate resources on projects, allowing them to provide superior customer service. SUBSTANTIALLY EXPANDED REVENUE OPPORTUNITIES. Our solutions are designed to allow users to expand their revenue opportunities. The Niku Services Marketplace is designed to allow service providers to access a central source of projects and customers within their area of expertise. Through our intellectual capital management capabilities, service businesses can create standardized product offerings, allowing them to provide services to additional customers and accommodate additional projects. Using our resource and practice management solutions, service businesses can optimize allocation of resources and increase utilization rates, avoiding downtime and increasing revenues. INCREASED PROFITABILITY. Our solutions are designed to allow users in our target industries to increase their profitability. Service businesses can work more efficiently by reducing the time spent on non-revenue generating tasks. Service providers can also enhance their efficiency by building upon standardized product offerings. We also offer extensive practice management capabilities that leverage an organization's experience, allowing the organization to present accurate cost estimates and timelines to customers and to avoid potential problems. IMPROVED RECRUITMENT AND RETENTION. The Niku Services Marketplace is designed to allow organizations to reach potential new employees and contractors with needed expertise and to allow employees and contractors to find new work opportunities. Additionally, in organizations using our solutions, employees can benefit from an environment in which the amount of time spent on mundane and repetitive tasks is dramatically reduced, existing intellectual capital is leveraged and skills are better matched with projects. THE NIKU GROWTH STRATEGY Our goal is to be the leading provider of Internet solutions for the sourcing, management and delivery of professional services in a number of professional services industries. Key elements of our strategy to achieve this goal are as follows: TARGET LEADING ENTERPRISE CUSTOMERS. We will continue to target leading enterprise customers. We believe that large enterprises will seek to take advantage of Internet solutions to efficiently source, manage and deliver professional services and can provide us with a large and growing source of demand. We also believe that large enterprises can provide valuable sales references and drive product enhancements. We intend to market our extranet solutions to enterprises as we believe these customers can drive usage of our solutions among their partners, customers and suppliers. We also believe that enterprise customers, as large users of professional services, can be large buyers within the Niku Services Marketplace. ENHANCE iNIKU. We will continue to aggressively expand our iNiku business portal by deploying additional content, services and domain-specific functionality. We have entered into agreements with over 40 providers of content and services useful to small businesses and 41 43 individual professionals. In addition, we have entered into agreements with other web sites, such as CNET, to distribute and promote iNiku. We intend to continue to aggressively enhance iNiku and pursue additional distribution and promotion agreements. EXPAND THE NIKU SERVICES MARKETPLACE. The Niku Services Marketplace is designed to provide small businesses and individual professionals with an online marketplace for buying and selling professional services. We plan to populate the Niku Services Marketplace with both enterprise customers and iNiku users. We believe that the benefits of our Internet software solutions and iNiku will create a growth cycle that increases the value of our solutions to both buyers and sellers of professional services over time. As buyers benefit from the efficiencies of our solutions, we believe sellers will be drawn to the Niku Services Marketplace by the aggregated purchasing power of the buyers participating in that marketplace. As more sellers offer services through the marketplace, more buyers will be encouraged to join the marketplace. TARGET ADDITIONAL PROFESSIONAL SERVICES INDUSTRIES. We currently deliver our solutions to the IT consulting industry. However, our underlying product architecture is designed in a flexible, modular format and we plan to leverage this architecture to deliver our solutions to other professional services industries. PURSUE ACQUISITIONS OF COMPLEMENTARY BUSINESSES. We believe that strategic acquisitions can provide us with access to additional customers, domain expertise and technology that will enhance our existing solutions and allow us to enter new markets. We recently acquired Proamics, a provider of finance and operations solutions to the professional services industry. We plan to continue pursuing acquisitions of complementary businesses, products and technologies. EXPAND GLOBAL OPERATIONS. With the global reach of the professional services industry, we believe that there are significant opportunities to deliver our Internet-based solutions internationally. We currently have operations in Europe and the Asia-Pacific region and intend to grow our international presence by expanding our worldwide field sales, marketing and service organizations. We also plan to continue to expand our other operations needed to support us as a global concern, including administration, technology infrastructure, facilities and services. NIKU PRODUCTS AND SERVICES Our products and services enable users to source, manage and deliver professional services. We currently deliver our solutions to the IT consulting industry and plan to extend these solutions to other professional services industries. The core functionality available across our products is divided into the following modules: - INTELLECTUAL CAPITAL MANAGEMENT. Our intellectual capital management module provides extensive functionality for capturing, managing, retrieving and leveraging the intellectual capital of an organization that is contained in documents such as implementation plans, case histories, proposals and contracts. Unlike legacy document management systems, our intellectual capital management solution utilizes a data-tagging feature to capture intellectual capital as it is created. Our solution employs an easy-to-use search engine for information retrieval, allowing users to retrieve and leverage organizational knowledge regardless of where or when they need it. - RESOURCE MANAGEMENT. Our resource management module offers extensive capabilities for ensuring that the right people are working on the right projects at the right time at the right billing rate. This module also allows users to view and manage project and resource schedules and reserve and assign resources in real time through a browser-based interface. More effective resource management offers better business predictability and increased client satisfaction, personnel utilization and employee job satisfaction. - PROJECT MANAGEMENT. Our project management module allows users to manage projects from origination to completion. This module brings the employee and non-employee 42 44 participants, such as consultants or other service providers, together for a project. This module also includes features for managing ongoing client communications, project status and deliverables. The project management module interfaces with the resource management module and allows the sharing of information with third-party project management applications. - FINANCE AND OPERATIONS MANAGEMENT. Our finance and operations management module allows users to capture, manage and report their time spent on projects, as well as ongoing expenses. This module also provides capabilities for project and practice accounting, including functionality for managing project budgets, external contractors, cost estimates, departmental charges and invoicing. This module can also integrate with popular third-party back-office financial packages. - PRACTICE MANAGEMENT. Our practice management module provides users with information and analysis with respect to important issues such as variances between standard and actual costs and the profitability of business units, practice groups and individual personnel. This enables better resource utilization and implementation of best practices across the entire organization. The practice management module helps organizations turn projects into products by capturing detailed information on deliverables, risks, project changes, personnel and costs. Using this module, service providers can supply customers with more accurate project cost estimates and timelines, enhancing customer satisfaction and enabling increased profitability. - BUSINESS DEVELOPMENT. Our business development module automates and manages the business development process, including gathering and analyzing information on potential customers, creating proposals, developing sales presentations and creating and finalizing contracts. We offer three integrated solutions for the sourcing, management and delivery of professional services. These solutions are designed to provide benefits to the entire spectrum of professional services providers using the same core architecture: - eNIKU. eNiku allows organizations to automate core business processes. eNiku is deployed on corporate intranets, internal Internet protocol-based computer networks, allowing the sharing of information, creation of teams and reduction of costs associated with personnel and project management across multiple organizations. eNiku customers pay license fees as well as annual maintenance fees. - xNIKU. xNiku allows businesses to extend the eNiku solution to partners, customers and suppliers using corporate extranets, private Internet protocol-based networks reaching beyond the enterprise. xNiku enables the delivery of information to geographically-dispersed offices and remote users, as well as to users of different computing systems and platforms. xNiku customers will pay a license and implementation fee as well as a monthly subscription fee based on the number of non-employee users. - iNIKU. iNiku is a business portal which allows small businesses and individual professionals to access content and services and operate their businesses online. iNiku allows users to market themselves, find projects, post projects and perform work. iNiku allows larger organizations to share information and content with these smaller businesses and individual professionals, facilitating the creation of a professional services community. iNiku also provides a suite of online services for running small businesses, including Internet-based document and file sharing, project management and collaboration. Pre-packaged templates make it easy to develop standardized business documents, including project proposals, contracts and reports. In addition to services offered directly to iNiku users, we have agreements with over 40 Internet-based content and service providers, offering small businesses and independent professionals a single destination where they can find many of the third-party content and services they require 43 45 to run their businesses. Content available through iNiku includes information resources from leading industry analysts and publishers such as Forrester Research, Gartner Group and Nolo.com. Services available through iNiku include printing, insurance, benefits, travel planning, finance, mail services and electronic commerce. THE NIKU SERVICES MARKETPLACE The Niku Services Marketplace enables users of eNiku, xNiku or iNiku to participate in a marketplace of buyers and sellers of professional services. The common Internet platform linking eNiku, xNiku and iNiku allows users to participate in this marketplace without the need to integrate systems with each participant. Through the Niku Services Marketplace, service providers can find project work in their area of expertise and organizations can find professionals to complete their projects. Buyers of professional services can post detailed descriptions of projects, and sellers of professional services can post personal or business profiles detailing their work experience, preferred project types and locations, as well as availability. As of December 15, 1999, the Niku Services Marketplace had more than 5,000 projects available to its users and more than 12,000 iNiku registered users. We believe that the benefits of our Internet software solutions and iNiku will create a growth cycle that increases the value of our solutions to both buyers and sellers of professional services over time. As buyers benefit from the efficiencies of our solutions, we believe sellers will be drawn to the Niku Services Marketplace by the aggregated purchasing power of the buyers participating in that marketplace. As more sellers offer services through the Niku Services Marketplace, more buyers are encouraged to join the marketplace. PROFESSIONAL SERVICES We offer professional services to assist in the successful implementation and use of our solutions. Our professional services consultants assist customers in all aspects of the implementation process, including requirements assessment, implementation planning and design, content design and creation, data migration, systems integration, deployment and training. As of December 15, 1999, we had approximately 50 full-time professional services consultants. Our professional services consultants also customize and deliver training for systems administrators and end-users. We provide technical instruction for customers on how to run the entire Niku solution, including implementation, deployment and maintenance of the system. We also provide comprehensive end-user training programs to allow professionals to begin using our solutions quickly and easily. We have created the Niku Partners Network to extend our ability to deliver professional services to our customers. This network includes IT consultants with expertise in implementing and customizing our solutions. Current Niku Partners include Bristlecone, DataStudy, Management Share, Neptune Technologies, Net-Centric Consulting Group, SE Technologies, ShaktiSoft, Sierra Atlantic, Softgate Technologies, Sogyo Information Engineering and Technopreneurs. STRATEGIC RELATIONSHIPS We have entered into a number of strategic relationships to expand our business, including the following: USINTERNETWORKING We have entered into a three-year hosting agreement with USi, a leading application service provider which hosts business applications over the Internet for a fee. Under our hosting agreement, entered into in June 1999, USi will host and manage our iNiku business portal and our corporate web site. In addition, in August 1999, we entered into a separate three-year 44 46 agreement with USi under which USi will promote and market our eNiku for IT Consulting solution to potential customers. CNET We have entered into an agreement with CNET, a leading computer information network, to deliver a co-branded edition of our iNiku business portal to CNET users. According to Media Metrix, CNET had over nine million unique Internet users in October 1999. The co-branded site, www.iniku.cnet.com, offers CNET users all the features of iNiku, such as online business applications, content and business services. The agreement, entered into in September 1999, has a two-year term from the date that the co-branded site was made generally available to CNET users but may be terminated on July 5, 2000 if the co-branded web site fails to meet performance standards that are mutually agreed upon. CNET participated in our Series D preferred stock financing in November 1999. CONTENT AND SERVICE PROVIDERS We have agreements with over 40 Internet-based content and service providers for iNiku. These content and service providers promote their offerings on iNiku, and we generally receive a percentage of any revenues generated by these parties from customers directed through iNiku. These content and service providers include: 1-800-Gift Certificate Fatbrain.com Net-Temps Accompany Forrester Research NewsReal Amazon.com Gartner Group NextCard AmeriCom General Magic Nolo.com Beyond.com Goto.com onlineofficesupplies.com Bigstep.com Informative PalmOrganizers.com CNET InsWeb Qspace.com Compubank iPrint.com SmartAgreements Cyberian Outpost JFAX.com SPARC Product Directory Dell LendingTree TimeBills.com Device Driver Guide Maps.com Travelocity.com Economist Mastering Linux TSCentral ELetter Net Earnings Tutorials.com
45 47 CUSTOMERS We target independent professional services organizations, professional services providers within enterprises and small businesses and individual professionals. Our customers, including customers who purchased only the Proamics finance and operations management module and related services, include: IT CONSULTING COMPUTER SOFTWARE COMPUTER HARDWARE Analysts International* Business Objects EMC Bristlecone Computer Associates* Gateway 2000 Comdisco* Geac* DataStudy NetDialog (Kana Communications) DST International* Pixion Information Systems Project Software Development* Management* SalesLogix Inteliant* Sybase Jansen Tibco MI Consultants USinternetworking Management Share Vantive (PeopleSoft) MicroAge Canada* Walker Interactive** Navisys* Net-Centric Consulting SE Technologies Sierra Atlantic Softgate Technologies Sogyo Information Engineering Systems America Tier Technologies* Xerox*
- --------------- * Indicates a customer of Proamics. ** Indicates a customer of both Niku and Proamics. Proamics has additional customers in other industries such as business consulting, medicine and advertising. USi accounted for approximately 18%, Sybase accounted for approximately 22% and SalesLogix accounted for approximately 10% of Niku's total revenues for the nine months ended October 31, 1999. TECHNOLOGY The Niku technology platform is comprised of two key components: the Niku application framework and individual applications that can be tailored to the key business processes for a specific industry. The Niku application framework is an Internet-computing environment that manages unstructured data, including that found in proposals, contracts, presentations, and status reports as well as structured data such as that found in staffing or sales forecasts. It enables intellectual assets to be captured automatically, while enabling accurate measurement, analysis, reporting and reuse of this unstructured information. This framework is open standards-based, enabling Niku and its partners to develop customized Niku-based solutions and extensions of existing Niku applications. These extensions can include additional application modules or interfaces to legacy applications. NIKU APPLICATION FRAMEWORK FEATURES The Niku application framework has the following features: ZERO CLIENT. Our browser-based zero-client design allows easy access and end-user navigation. The familiar web browser interface allows users to access the application from any 46 48 client, computer network or computing device, such as a personal digital assistant, independent of physical location. The Niku application framework also allows updates to software and applications to be made centrally at the server rather than at each client computer. This ensures that each client is using the latest application version and significantly reduces distribution and installation costs. WALK-UP USER INTERFACE. Our user interface is designed to enable users throughout an organization, as well as independent professionals, to easily access the functionality provided by our solutions. Our user interface is automatically customized to a user's requirements because it is driven by user-specific parameters, which are defined based on the user's role, responsibilities and workflow content. OPEN STANDARDS. Our technology platform is designed to support open standards. The software we use for the servers that deliver our applications is written in the Java programming language. We also support electronic commerce protocols such as extensible markup language, or XML, and secure socket layer, or SSL. Our support of open standards allows customers with heterogeneous systems and networks to utilize our applications without the need to upgrade computer systems, software or equipment. REMOTE AND OFF-LINE USERS. Professional services personnel often work at remote locations, and therefore it is important that they be able to access company or industry-specific knowledge and data from any location. Our technology provides support for virtual private networks and connections from the Internet, allowing access to be extended to remote users. Our technology also facilitates work by off-line users who are not connected to an organization's network. MULTI-TIER ARCHITECTURE. The Niku application framework is designed in components, making it easier for customers to implement solutions engineered around customized workflows, user interfaces and content. In addition, the component-based architecture makes it easier to maintain and support the applications. Using these components, a variety of applications can be written quickly by changing only the application modules without modifying the entire system. DISTRIBUTED PROCESSING. Distributed processing allows a user to communicate with a group of servers simultaneously in a coordinated way. A customer can access distributed legacy applications, as well as individual Niku applications, through the Niku application framework, creating a seamless interface for the user. The distributed processing architecture also enables customers to add users, computing devices or locations to an application. This architecture also facilitates the addition of servers and databases to the application, allowing the application to grow and change with the organization. DISTRIBUTED OBJECTS SUPPORT. Distributed objects support allows a variety of functionality, from data storage and access to information content, to be integrated into an application. The use of distributed objects also allows applications to use commonly-used software programs in different parts of one application. This protects investments in existing systems and reduces the need for redundant storage of programs, while significantly increasing overall functionality. NIKU APPLICATION FRAMEWORK COMPONENTS The Niku application framework has the following main components: - Niku Adaptable KnowledgeStore, or NAKS; - Niku FrontWorks; - Niku ImportWorks; - Niku DataLink adapters; and - Industry-specific application modules. 47 49 The following diagram illustrates how these components are related in the Niku application framework. NIKU APPLICATION FRAMEWORK DIAGRAM NIKU ADAPTABLE KNOWLEDGESTORE. The foundation of the Niku application framework is the Niku Adaptable KnowledgeStore, or NAKS. Intellectual assets are created during everyday business interactions at any place, time or level within an organization. For this reason, standard communication protocols are used to ensure that NAKS is easily accessible to all users, regardless of location, and that information is easily captured and delivered. Users can contribute information to NAKS by saving a document, forwarding an e-mail message or leaving a voice message, all without disrupting normal workflow. To store data and provide services for the other software components, NAKS combines a data tagging system with a universal repository to capture data intelligently while managing it flexibly. Data tagging is central to the Niku solution and provides structure and form to otherwise unstructured data, allowing information to be stored, measured, queried and shared. Tags are customized for each set of industry-specific application modules to capture specific data intelligently and provide a valuable store of otherwise disconnected types of information. Data and tags can also be customized for an individual company's needs. Customers can establish document templates, such as a type of contract, defining specific attributes or data within the document template, such as pricing terms. As the template documents are used, the attribute or data is automatically extracted for efficient retrieval and reuse of information. Because an organization can produce a diverse range of information, NAKS supports tags for voice messages, e-mail messages and a wide variety of document file formats. NIKU FRONTWORKS. Niku FrontWorks is a collection of reusable components for building and running end-user applications. FrontWorks supports the unique functionality of each application module set that comprises a vertical application, allowing it to share common functionality like security, searching and user management. In doing so, FrontWorks eliminates duplication of system resources and provides a consistent interface across applications. FrontWorks can also dynamically generate a user interface based on user-specific data. 48 50 NIKU IMPORTWORKS. Niku ImportWorks automates the input of documents, files and other types of data into NAKS. ImportWorks supports several document types and formats. When a user imports a document directly to NAKS, ImportWorks operates in the background to receive the document, process it if requested, and store the document in NAKS with the appropriate tags. NIKU DATALINK ADAPTERS. Niku DataLink adapters provide integration between NAKS and outside data repositories, including relational databases, document management systems and file directories. This integration allows legacy applications to send information directly to NAKS. Data stored in a linked repository can then be seamlessly incorporated into the Niku application interface. Niku DataLink adapters are designed to scale smoothly from a workgroup to an enterprise. Adapters integrate NAKS with existing enterprise resource planning applications, such as SAP or PeopleSoft, or with groupware and collaboration solutions, such as Lotus Notes and Microsoft Exchange, enabling otherwise stand-alone applications to appear as a single application when presented to the user. Custom DataLink adapters can also be created to interface with other applications. SALES AND FIELD OPERATIONS We market our solutions primarily through our worldwide direct sales force. As of December 15, 1999, we had approximately 50 sales professionals. In addition, we have an eight person strategic business development group focused on developing relationships with market-leading organizations and potential development partners. We also have dedicated technical pre-sales professionals who assist with creating customer-tailored business proposals, product demonstrations and presentations that address the specific needs of each prospective customer. As of December 15, 1999, we employed approximately 20 technical pre-sales professionals, deployed regionally across the United States as well as internationally. In addition to the direct sales organization, we have a six person telesales operation, along with external telesales vendors, to develop qualified leads and obtain users for iNiku. CUSTOMER SERVICE AND SUPPORT We offer multiple customer support options, with customer support professionals on call 24 hours a day, seven days a week and available through a toll-free call center. Depending on the support level a customer chooses, we will also assign a single account management point of contact for the customer which will oversee all support issues and drive resolution. Our support options also include proactive account management and new version migration planning. Our iNiku web site is hosted by USi, which provides additional support services. As of December 15, 1999, we had approximately 10 customer service and support personnel. COMPETITION The market for our products and services is intensely competitive, dynamic and subject to frequent technological changes. The intensity of competition and the pace of change are expected to increase in the future. Our Internet software solutions primarily compete with solutions that have been developed by potential customers' in-house developers and IT departments. In addition, we face competition from a number of competitors offering products and services that vary in functionality. These include: - developers of professional services automation software and related Internet-based applications; - providers of hosted solutions for IT consultants; - operators of Internet-based job boards; 49 51 - developers of project management software; and - enterprise resource planning software companies that may decide to develop software or applications for the professional services industry. We expect additional competition from other established and emerging companies as the professional services automation market continues to develop. Increased competition is likely to result in price reductions, reduced gross margins and loss of market share, any of which could seriously harm our business. We believe that the primary competitive factors in our market include: - a significant base of reference customers; - breadth and depth of the solution; - critical mass of individual professionals using the solutions; - product quality and performance; - customer service and support; - core technology; - product features and functionality; - product usability; and - ease of implementation. We believe our current solutions compete favorably with respect to these factors; however, this market is relatively new and changing rapidly. We may not be able to maintain our competitive position against current or potential competitors, especially those with significantly greater financial, marketing, service, support, technical and other resources. Competitors with these greater resources may be able to undertake more extensive marketing campaigns, adopt more aggressive pricing policies and make more attractive offers to potential employees, distributors, resellers or content services or other strategic partners. INTELLECTUAL PROPERTY We regard substantial elements of our products and services as proprietary, and protect them by relying primarily on patent, trademark, service mark, copyright and trade secret laws and restrictions, as well as confidentiality procedures and contractual provisions. We license rather than sell all our solutions and require our customers to enter into license agreements, which impose restrictions on their ability to utilize the software. With respect to iNiku, substantially all of our iNiku users' usage of our services is governed by Internet-based license agreements, rather than by a means of a formal, written contract. Users "click" on a dialog box and are deemed to agree to the terms and conditions posted on iNiku. Because these agreements are not signed, there is a possibility that a court, arbitrator or regulatory body could deem this type of agreement to be invalid or determine that the terms and conditions governing the agreement do not fully protect our intellectual property rights. Therefore, we cannot assure you that this user agreement will afford us significant protection. In addition, we seek to avoid disclosure of our trade secrets through a number of means, including but not limited to requiring those persons with access to our proprietary information to execute confidentiality agreements with us and restricting access to our source code. We seek to protect our software, documentation, templates and other written materials and content under trade secret and copyright laws, which afford only limited protection. We have applied for four U.S. patents. We cannot assure you that these applications will be approved, that any patents that may issue will protect our intellectual property or that any issued patents will not be challenged by third parties. Furthermore, other parties may independently develop similar or competing technologies or design around any patents that may be issued. It is possible that any patent issued to us may not provide any competitive advantages, that we may 50 52 not develop future proprietary products or technologies that are patentable, and that the patents of others may seriously limit our ability to do business. In this regard, we have not performed any comprehensive analysis of patents of others that may limit our ability to do business. We have applied for registration of the trademarks Niku and iNiku with the U.S. Patent and Trademark Office. In addition, we have applied for trademarks in foreign countries. These trademark applications are subject to review by the applicable governmental authority, may be opposed by private parties, and may not be issued. Therefore, we cannot assure you that these registrations would, if issued, provide us with significant protection for our trademarks. We cannot assure you that any of our proprietary rights with respect to our products or services will be viable or be of value in the future since the validity, enforceability and type of protection of proprietary rights in Internet-related industries are uncertain and still evolving. Despite our efforts to protect our proprietary rights, unauthorized parties may attempt to copy aspects of our products or to obtain and use information that we regard as proprietary. Policing unauthorized use of our products is difficult, and while we are unable to determine the extent to which piracy of its software exists, software piracy can be expected to be a persistent problem. In addition, the laws of some foreign countries do not protect proprietary rights to as great an extent as do the laws of the United States. Our means of protecting our proprietary rights may not be adequate. In recent years, there has been significant litigation in the United States involving patents and other intellectual property rights, particularly in our software and Internet industries. We could become subject to intellectual property infringement claims as the number of our competitors grows and our products and services overlap with competitive offerings. These claims, even if not meritorious, could be expensive and divert management's attention from operating our company. If we become liable to third parties for infringing their intellectual property rights, we could be required to pay a substantial damage award and to develop noninfringing technology, obtain a license or cease selling the products that contain the infringing intellectual property. We may be unable to develop noninfringing technology or obtain a license on commercially reasonable terms, if at all. EMPLOYEES As of December 15, 1999, we had a total of approximately 340 employees, including approximately 110 in research and development, approximately 110 in sales and marketing, 9 in customer support, approximately 50 in professional services and training and approximately 50 in administration and finance. Of these employees, approximately 320 were located in the United States and approximately 20 were located outside the United States. None of our employees is represented by a collective bargaining agreement, nor have we experienced any work stoppage. We consider our relations with our employees to be good. Our future success depends on our continuing ability to attract and retain highly qualified technical, sales and senior management personnel. FACILITIES Our principal executive offices occupy 55,870 square feet in Redwood City, California under a lease that expires in June 2005. We also lease an office in the Chicago metropolitan area that occupies approximately 21,630 square feet and have additional facilities in the Atlanta, Amsterdam, Pointe-Claire, Quebec and Sydney metropolitan areas. We believe that our current facilities are adequate to meet our needs for the foreseeable future. 51 53 MANAGEMENT EXECUTIVE OFFICERS AND DIRECTORS Our executive officers and directors and their ages as of December 15, 1999 are as follows:
NAME AGE POSITION ---- --- -------- Farzad Dibachi....................... 35 Chief Executive Officer and Chairman of the Board Joshua Pickus........................ 38 President, Vertical Markets Mark Nelson.......................... 40 Chief Financial Officer Rhonda Dibachi....................... 38 Senior Vice President of Development Kenneth Johnson...................... 42 Senior Vice President of Sales Harold Slawik........................ 39 Senior Vice President of Corporate Development Michael Brooks....................... 54 Director John Chen............................ 44 Director Terence Garnett...................... 42 Director William Raduchel..................... 53 Director Maynard Webb......................... 44 Director
Farzad Dibachi has served as the chief executive officer and chairman of the board of directors of Niku since he co-founded Niku in January 1998. Before co-founding Niku, from October 1995 to August 1997, Mr. Dibachi was a co-founder and the president and chief executive officer of Diba, Inc., an information appliance software company, until it was sold to Sun Microsystems, Inc. in August 1997. From June 1994 to November 1995, he served as senior vice president, new media division for Oracle Corporation, a database company. From June 1993 to June 1994, he was vice president, marketing for Oracle's tools division and senior director of product development in Oracle's desktop products division. Mr. Dibachi holds a B.S. in mechanical engineering and a B.A. in computer science from San Jose State University. Mr. Dibachi is married to Rhonda Dibachi, senior vice president of development of Niku. Joshua Pickus has served as president, vertical markets of Niku since November 1999. Before joining Niku, from April 1999 to November 1999, Mr. Pickus was a general partner of the Spinnaker Crossover Fund of Bowman Capital Management, a technology investment firm. From January 1994 to March 1999, he was a partner at Venture Law Group, a Silicon Valley law firm. Prior to joining Venture Law Group, Mr. Pickus was a partner at Morrison & Foerster, an international law firm. Mr. Pickus holds an A.B. from Princeton University and a J.D. from the University of Chicago Law School. Mark Nelson has served as the chief financial officer of Niku since August 1999. Before joining Niku, from May 1998 to August 1999, Mr. Nelson was the vice president, finance and corporate controller at Synopsys, Inc., a software company. From June 1995 to May 1998, he served as corporate controller and chief accounting officer at Plantronics, Inc., a telecommunications equipment manufacturer. From September 1991 to June 1995, he held several director level positions at Conner Peripherals, Inc., a disk drive manufacturer, most recently serving as group controller from July 1994 to June 1995. Mr. Nelson holds a B.A. in accounting from Michigan State University and is a certified public accountant. Rhonda Dibachi has served as the senior vice president of development of Niku since May 1998. Before joining Niku, from October 1997 to April 1998, Ms. Dibachi was the director of quality assurance at Webvan Group, Inc., an Internet-based retailer of groceries. From July 1996 to October 1997, Ms. Dibachi served as a software testing consultant at Software Development Technologies, a software technology company. From September 1989 to May 1996, she worked at the applications division of Oracle where she held a number of positions, including development manager, architect and director of testing. Ms. Dibachi holds a B.S. in nuclear engineering from Northwestern University and an M.B.A. from Santa Clara University. Ms. Dibachi is married to Farzad Dibachi, chief executive officer and chairman of the board of 52 54 directors of Niku, and is the sister-in-law of Harold Slawik, senior vice president of corporate development of Niku. Kenneth Johnson has served as the senior vice president of sales of Niku since January 1999. Before joining Niku, from May 1995 to December 1998, Mr. Johnson held various positions at Baan Company N.V., a software company, most recently serving as vice president, electronics industry and western region from July 1998 to December 1998. From May 1994 to April 1995, Mr. Johnson was a sales executive at Ramco Systems Corporation, an India-based start-up company. Prior to joining Ramco Systems, Mr. Johnson was a sales executive at SAP America, Inc., a software company. Mr. Johnson holds a B.S. in biochemistry from California Polytechnic State University in San Luis Obispo. Harold Slawik has served as the senior vice president of corporate development of Niku since he co-founded Niku in February 1998. Before co-founding Niku, from August 1997 to February 1998, Mr. Slawik served as associate general counsel at Sun Microsystems, Inc., a software technology company. From June 1996 to August 1997, he was vice president and general counsel at Diba. From July 1995 to April 1996, he served as associate general counsel at Ensodex, Inc., a software development company. From February 1990 to July 1995, Mr. Slawik was an attorney in private practice in St. Paul, Minnesota. Mr. Slawik holds a B.A. in philosophy from the University of St. Thomas and a J.D. from William Mitchell College of Law. Mr. Slawik is the brother-in-law of Rhonda Dibachi, senior vice president of development of Niku. Michael Brooks has been a director of Niku since May 1999. Mr. Brooks has been a partner of J.H. Whitney & Co., a venture capital firm, since January 1985. He also serves as a director of Pegasus Communications Corporation, Media Metrix, Inc., Usinternetworking, Inc., VitaminShoppe.com, Inc. and several other private companies. Mr. Brooks holds a B.A. in history from Yale College and an M.B.A. from Harvard Business School. John Chen has been a director of Niku since March 1998. Mr. Chen has been the president, chief executive officer and the chairman of the board of directors of Sybase, Inc., a database company, since August 1997. From March 1995 to July 1997, he was president and chief executive officer of the open enterprise computing division of Siemens Nixdorf, an electrical engineering and electronics company, as well as president, chief executive officer and chairman of Siemens Pyramid, a subsidiary of Siemens Nixdorf. Mr. Chen also serves as a director of Beyond.com Corporation. Mr. Chen holds a B.S. in electrical engineering from Brown University and a M.S. in electrical engineering from the California Institute of Technology. Terence Garnett has been a director of Niku since February 1998. Mr. Garnett has been a managing director of Garnett Capital since January 2000. Before joining Garnett Capital, from April 1995 to December 1999, Mr. Garnett was a venture partner of Venrock Associates, a venture capital firm. From August 1994 to April 1995, Mr. Garnett was a private investor. From October 1991 to August 1994, he was senior vice president of worldwide marketing and business development and senior vice president of the new media division at Oracle. He also serves as a director of Neoforma.com, Inc., CrossWorlds Software, Inc. and several other private companies. Mr. Garnett holds a B.S. from the University of California, Berkeley and an M.B.A. from Stanford Graduate School of Business. Mr. Garnett is the brother-in-law of Angelina Schutz, our vice president of business development. William Raduchel has been a director of Niku since January 1999. Mr. Raduchel has been the senior vice president and chief technology officer of America Online, Inc. since September 1999. From January 1998 to September 1999, he was the chief strategy officer at Sun Microsystems. From July 1991 to January 1998, he served variously as vice president of corporate planning and development, chief financial officer, acting vice president of human resources and chief information officer at Sun Microsystems. Mr. Raduchel also serves as a director of MIH Limited, OpenTV, Inc. and Chordiant Software Inc. Mr. Raduchel holds a B.A. in economics from Michigan State University and a M.A. and Ph.D. in economics from Harvard University. 53 55 Maynard Webb has been a director of Niku since April 1998. Mr. Webb has been the president of eBay Technology, a division of eBay Inc., an Internet-based auction company, since August 1999. Before joining eBay, he was senior vice president and chief information officer at Gateway 2000 Inc., a computer company, from July 1998 to August 1999. From April 1995 to July 1998, he was vice president and chief information officer at Bay Networks, Inc., a network equipment provider. Mr. Webb also serves as a director of Extensity, Inc. Mr. Webb holds a B.A. in criminal justice from Florida Atlantic University. BOARD COMPOSITION Our bylaws currently provide for a board of directors consisting of six members. The term of each of our current directors will expire at the next annual meeting of stockholders. Following this offering, the board will consist of six directors divided into three classes, Class I, Class II and Class III, with each class serving staggered three-year terms. The Class I directors, initially Messrs. Brooks and Dibachi, will stand for reelection or election at the 2000 annual meeting of stockholders. The Class II directors, initially Messrs. Raduchel and Webb, will stand for reelection at the 2001 annual meeting of stockholders. The Class III directors, initially Messrs. Chen and Garnett, will stand for reelection or election at the 2002 annual meeting of stockholders. Messrs. Garnett and Brooks serve on the board of directors under the terms of a voting agreement among us and some of our principal stockholders. This voting agreement will terminate upon completion of this offering. BOARD COMMITTEES Our board of directors has a compensation committee and an audit committee. Following this offering, our board of directors will also have a transaction committee. Compensation Committee. The current members of our compensation committee are Messrs. Chen and Webb. The compensation committee reviews and makes recommendations to our board concerning salaries and incentive compensation for our officers. The compensation committee also administers our stock plans. Audit Committee. The current members of our audit committee are Messrs. Brooks, Garnett and Raduchel. Our audit committee reviews and monitors our financial statements and accounting practices, makes recommendations to our board regarding the selection of independent auditors and reviews the results and scope of the audit and other services provided by our independent auditors. Transaction Committee. Following this offering, the members of our transaction committee will be Messrs. Dibachi and Garnett. Subject to certain limitations, our transaction committee will review and authorize acquisitions of or mergers with other companies, investments in other companies or businesses, the incurrence of debt, bank financing, or equipment lease financing and other financing transactions. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION None of the members of the compensation committee has at any time since our formation been an officer or employee of ours. None of our executive officers currently serves or in the past has served as a member of the board of directors or compensation committee of any entity that has one or more executive officers serving on our board or compensation committee. Prior to the creation of our compensation committee, all compensation decisions were made by our full board. Mr. Dibachi did not participate in discussions by our board with respect to his compensation. DIRECTOR COMPENSATION Our directors do not receive cash compensation for their services as directors but are reimbursed for their reasonable expenses in attending board and board committee meetings. In March 1998, we granted options to purchase 100,000 shares of our common stock to Mr. Chen 54 56 at an exercise price of $0.10 per share. In April 1998, we granted options to purchase 100,000 shares of our common stock to Maynard Webb at an exercise price of $0.10 per share. In January 1999, we granted options to purchase 100,000 shares of our common stock to William Raduchel at an exercise price of $0.10 per share. Members of the board who are not employees of Niku, or any parent, subsidiary or affiliate of Niku, will be eligible to participate in the 2000 Equity Incentive Plan. The option grants under the plan are automatic and nondiscretionary, and the exercise price of the options is the fair market value of the common stock on the date of grant. Each non-employee director who becomes a member of the board on or after the effective date of the registration statement of which this prospectus forms a part, will be granted an option to purchase 50,000 shares of our common stock. Also, each eligible director who became a member of the board prior to the effective date of the registration statement of which this prospectus forms a part and who did not receive an option grant will receive an option to purchase 50,000 shares of our common stock. Immediately following each annual meeting of our stockholders, each eligible director will automatically be granted an additional option to purchase 25,000 shares of our common stock if the director has served continuously as a member of the board since the date of the prior annual meeting. The board of directors may make discretionary supplemental grants to an eligible director who has served for less than one year from the date of such director's initial grant, provided that no director may receive options to purchase more than 75,000 shares of our common stock in any calendar year. The options have 10 year terms, and will terminate three months following the date the director ceases to be a director or a consultant or 12 months if the termination is due to death or disability. All options granted under the directors plan will become exercisable over a three-year period at a rate of 2.778% per month so long as he or she continues as a member of the board or as a consultant. In the event of our dissolution or liquidation or a "change in control" transaction, options granted under the plan will become 100% vested and exercisable in full. 55 57 EXECUTIVE COMPENSATION The following table presents compensation information for our fiscal year ended January 31, 2000 paid or accrued by our chief executive officer and each of our other executive officers. The compensation table excludes other compensation in the form of perquisites and other personal benefits that constituted less than 10% of the total annual salary and bonus of each of the named executive officers in the fiscal year ended January 31, 2000. Mr. Pickus joined us in November 1999 at an annual base salary of $300,000. Mr. Nelson joined us in August 1999 at an annual base salary of $200,000. SUMMARY COMPENSATION TABLE
LONG TERM ANNUAL COMPENSATION COMPENSATION AWARDS ---------------------------------- ------------------------ ALL OTHER RESTRICTED SECURITIES ANNUAL STOCK UNDERLYING NAME AND PRINCIPAL POSITIONS SALARY BONUS COMPENSATION AWARDS OPTIONS ---------------------------- -------- -------- ------------ ---------- ---------- Farzad Dibachi................ $180,000 $180,000 -- -- -- Chief Executive Officer Joshua Pickus................. 75,000 25,000 -- 1,250,000(1) -- President, Vertical Markets Mark Nelson................... 93,974 45,000 -- 350,000(2) -- Chief Financial Officer Rhonda Dibachi................ 173,333 100,000 -- -- -- Senior Vice President of Development Kenneth Johnson............... 200,000 200,000 -- 250,000(3) -- Senior Vice President of Sales Harold Slawik................. 173,333 100,000 -- -- -- Senior Vice President of Corporate Development
- --------------- (1) In November 1999, Mr. Pickus purchased 1,250,000 shares of our restricted common stock at $1.00 per share. These shares are subject to our right of repurchase that lapses as to 33.33% of the shares upon the first anniversary of the grant date and as to 2.77% of the shares each month after that time. Our right of repurchase lapses as to all of these shares in the event of a change of control. (2) In November 1999, Mr. Nelson purchased 350,000 shares of our restricted common stock at $1.00 per share. These shares are subject to our right of repurchase that lapses as to 25% of the shares upon the first anniversary of the grant date and as to 2.083% of the shares each month after that time. Our right of repurchase lapses as to all of these shares in the event of a change of control. (3) In March 1999, Mr. Johnson purchased 250,000 shares of our restricted common stock at $0.10 per share. These shares are subject to our right of repurchase that lapses as to 25% of the shares upon the first anniversary of the grant date and as to 2.083% of the shares each month after that time. During the fiscal year ended January 31, 2000, we did not grant any stock options to our chief executive officer or our other executive officers. 56 58 AGGREGATED OPTION EXERCISES IN THE FISCAL YEAR ENDED JANUARY 31, 2000 AND OPTION VALUES AT JANUARY 31, 2000 The following table presents the number of shares acquired and the value realized upon exercise of stock options during the fiscal year ended January 31, 2000 and the number of shares of our common stock subject to "exercisable" and "unexercisable" stock options held as of January 31, 2000 by our chief executive officer and each of our other executive officers. Also presented are values of "in-the-money" options, which represent the positive difference between the exercise price of each outstanding stock option and an assumed initial public offering price of $ per share.
NUMBER OF SECURITIES UNDERLYING UNEXERCISED VALUE OF UNEXERCISED NUMBER OF OPTIONS AT IN-THE-MONEY OPTIONS SHARES JANUARY 31, 2000 AT JANUARY 31, 2000 ACQUIRED ON VALUE --------------------------- --------------------------- NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE ---- ----------- -------- ----------- ------------- ----------- ------------- Farzad Dibachi....... -- $ -- -- -- $ -- $ -- Joshua Pickus........ -- -- -- -- -- -- Mark Nelson.......... -- -- -- -- -- -- Rhonda Dibachi....... -- -- -- -- -- -- Kenneth Johnson...... -- -- -- -- -- -- Harold Slawik........ 102,083 24,500 72,917 175,000
EMPLOYEE BENEFIT PLANS 1998 Stock Plan. As of December 15, 1999, options to purchase 5,018,887 shares of our common stock were outstanding under our 1998 Stock Plan and 812,490 shares of our common stock remained available for issuance upon the exercise of options that may be granted in the future. The options outstanding as of December 15, 1999 had a weighted average exercise price of $1.05 per share. Our 1998 Stock Plan will terminate upon this offering, at which time, our 2000 Equity Incentive Plan will become effective. As a result, no options will be granted under our 1998 Stock Plan after this offering. However, termination will not affect outstanding options, all of which will remain outstanding and subject to our 1998 Stock Plan and stock option agreements until exercise or until they terminate or expire by their terms. Options granted under our 1998 Stock Plan are subject to terms substantially similar to those described below with respect to options granted under our 2000 Equity Incentive Plan. 2000 Equity Incentive Plan. Our 2000 Equity Incentive Plan will become effective on the date of this prospectus and will serve as the successor to our 1998 Stock Plan. We have reserved 6,000,000 shares of our common stock to be issued under this plan. In addition, shares available for grant under the 1998 Stock Plan on the date of this prospectus and any shares issued under the 1998 Stock Plan that are forfeited or repurchased by us or that are issuable upon exercise of options that expire or become unexercisable for any reason without having been exercised in full will be available for grant and issuance under our 2000 Equity Incentive Plan. Shares will again be available for grant and issuance under our 2000 Equity Incentive Plan that: - are subject to issuance upon exercise of an option granted under our 2000 Equity Incentive Plan that cease to be subject to the option for any reason other than exercise of the option; - have been issued upon the exercise of an option granted under our 2000 Equity Incentive Plan that are subsequently forfeited or repurchased by us at the original purchase price; - are subject to an award granted pursuant to a restricted stock purchase agreement under our 2000 Equity Incentive Plan that are subsequently forfeited or repurchased by us at the original issue price; or - are subject to stock bonuses granted under our 2000 Equity Incentive Plan that terminate without shares being issued. 57 59 On each January 1, the aggregate number of shares reserved for issuance under our 2000 Equity Incentive Plan will increase automatically by a number of shares equal to 5% of our outstanding shares on December 31 of the preceding year. Our 2000 Equity Incentive Plan will terminate 10 years from the date our board of directors approved the plan, unless it is terminated earlier by our board of directors. The plan will authorize the award of options, restricted stock awards and stock bonuses. No person will be eligible to receive more than 2,000,000 shares in any calendar year under the plan other than a new employee of Niku, who will be eligible to receive up to 2,500,000 shares in the calendar year in which the employee commences employment. Our 2000 Equity Incentive Plan will be administered by our board of directors. The board will have the authority to construe and interpret the plan, grant awards and make all other determinations necessary or advisable for the administration of the plan. Also, our non-employee directors are entitled to receive automatic annual grants of options to purchase shares of our common stock, as described under "Management--Director Compensation." Our 2000 Equity Incentive Plan will provide for the grant of both incentive stock options that qualify under Section 422 of the Internal Revenue Code and nonqualified stock options. Incentive stock options may be granted only to employees of Niku or of a parent or subsidiary of Niku. All other awards other than incentive stock options may be granted to employees, officers, directors and consultants of Niku or any parent or subsidiary of Niku, provided the consultants render bona fide services not in connection with the offer and sale of securities in a capital-raising transaction. The exercise price of incentive stock options must be at least equal to the fair market value of our common stock on the date of grant. The exercise price of incentive stock options granted to 10% stockholders must be at least equal to 110% of that value. The exercise price of nonqualified stock options must be at least equal to 85% of the fair market value of our common stock on the date of grant. Options may be exercisable only as they vest or may be immediately exercisable with the shares issued subject to our right of repurchase that lapses as the shares vest. In general, options will vest over a four-year period. The maximum term of options granted under our 2000 Equity Incentive Plan is 10 years. Awards granted under our 2000 Equity Incentive Plan may not be transferred in any manner other than by will or by the laws of descent and distribution. They may be exercised during the lifetime of the optionee only by the optionee. The compensation committee may determine otherwise and provide for these provisions in the award agreement, but only with respect to awards that are not incentive stock options. Options granted under our 2000 Equity Incentive Plan generally may be exercised for a period of time after the termination of the optionee's service to Niku or a parent or subsidiary of Niku. Options will generally terminate immediately upon termination of employment for cause. The purchase price for restricted stock will be determined by our compensation committee. Stock bonuses may be issued for past services or may be awarded upon the completion of certain services or performance goals. If we dissolve or liquidate or have a "change in control" transaction, the vesting of all outstanding awards will accelerate as to an additional 25% of the shares that are unvested on the date of the change in control, and thereafter all outstanding awards will continue to vest in equal monthly installments over the remaining original vesting term as set forth in the award agreement. In the discretion of the compensation committee, the vesting of these awards may be further accelerated upon one of these transactions. 2000 Employee Stock Purchase Plan. Our 2000 Employee Stock Purchase Plan will become effective on the first day on which price quotations are available for our common stock on the Nasdaq National Market. We have initially reserved 1,000,000 shares of our common stock under this plan. On each January 1, the aggregate number of shares reserved for issuance under our 58 60 2000 Employee Stock Purchase Plan will increase automatically by a number of shares equal to 1% of our outstanding shares on December 31 of the preceding year. Our board of directors or compensation committee may reduce the amount of the increase in any particular year. The aggregate number of shares reserved for issuance under our 2000 Employee Stock Purchase Plan may not exceed 10,000,000 shares. Our 2000 Employee Stock Purchase Plan will be administered by our compensation committee. Our compensation committee will have the authority to construe and interpret the plan, and its decisions will be final and binding. Employees generally will be eligible to participate in our 2000 Employee Stock Purchase Plan if they are employed before the beginning of the applicable offering period, are customarily employed by us, or our parent or any subsidiaries that we designate, for more than 20 hours per week and more than five months in a calendar year and are not, and would not become as a result of being granted an option under the plan, 5% stockholders of us or our parent or designated subsidiaries. Participation in our 2000 Employee Stock Purchase Plan will end automatically upon termination of employment for any reason. Under our 2000 Employee Stock Purchase Plan, eligible employees will be permitted to acquire shares of our common stock through payroll deductions. Eligible employees may select a rate of payroll deduction between 1% and 10% of their compensation and are subject to maximum purchase limitations. Except for the first offering period, each offering period under our 2000 Employee Stock Purchase Plan will be for two years and consist of four six-month purchase periods. The first offering period is expected to begin on the first business day on which price quotations for our common stock are available on the Nasdaq National Market. Offering periods and purchase periods will begin on March 1 and September 1 of each year. However, because the first day on which price quotations for our common stock will be available on the Nasdaq National Market may not be March 1 or September 1, the length of the first offering period may be more or less than two years, and the length of the first purchase period may be more or less than six months. Our 2000 Employee Stock Purchase Plan will provide that, in the event of our proposed dissolution or liquidation, each offering period that commenced prior to the closing of the proposed event will continue for the duration of the offering period, provided that the compensation committee may fix a different date for termination of the plan. The purchase price for our common stock purchased under the plan will be 85% of the lesser of the fair market value of our common stock on the first day of the applicable offering period or the last day of the applicable purchase period. The compensation committee will have the power to change the offering dates, purchase dates and duration of offering periods without stockholder approval, if the change is announced prior to the beginning of the affected date or offering period. Our 2000 Employee Stock Purchase Plan is intended to qualify as an "employee stock purchase plan" under Section 423 of the Internal Revenue Code. The plan will terminate 10 years from the date the plan was adopted by our board, unless it is terminated earlier under the terms of the plan. The board will have the authority to amend, terminate or extend the term of the plan, except that no action may adversely affect any outstanding options previously granted under the plan. Except for the automatic annual increase of shares described above, stockholder approval will be required to increase the number of shares that may be issued or to change the terms of eligibility under Our 2000 Employee Stock Purchase Plan. The board will be able to make amendments to the plan as it determines to be advisable if the financial accounting treatment for the plan is different from the financial accounting treatment in effect on the date the plan was adopted by the board. 401(k) Plan. We sponsor a defined contribution plan intended to qualify under Section 401 of the Internal Revenue Code, or a 401(k) plan. Employees who are at least 21 years old and 59 61 who have been employed with us for at least one year are generally eligible to participate and may enter the plan as of January 1 and July 1 of each year. Participants may make pre-tax contributions to the plan of up to 12% of their eligible earnings, subject to a statutorily prescribed annual limit. Each participant is fully vested in his or her contributions and the investment earnings. There are no matching contributions under the plan. Contributions by the participants to the plan, and the income earned on these contributions, are generally not taxable to the participants until withdrawn. Participant contributions are held in trust as required by law. Individual participants may direct the trustee to invest their accounts in authorized investment alternatives. EMPLOYMENT ARRANGEMENTS All of our employees are at-will employees. We have executed an offer letter with Harold Slawik, our senior vice president of corporate development. This letter, effective January 1998, established Mr. Slawik's initial annual base salary at $144,000. Mr. Slawik also received a sign-on bonus of $50,000. In the fiscal year ended January 31, 2000, Mr. Slawik received a salary of $173,333. As a co-founder of Niku, we granted Mr. Slawik the opportunity to purchase 87,500 shares of our common stock which he bought under a common stock purchase agreement in February 1998 at a purchase price of $0.01 per share. These shares were subject to a right of repurchase upon termination of his employment. Our right of repurchase has now lapsed as to all of these shares. Under an option agreement, in January 1998, we granted to Mr. Slawik an option to purchase 350,000 shares of our common stock at an exercise price of $0.01 per share. This option is exercisable as to 25% of the shares upon the first anniversary of the grant date and as to 2.083% of the shares subject to the option each month thereafter. Mr. Slawik has exercised 102,083 of the shares subject to this option. We have executed an offer letter with Rhonda Dibachi, our senior vice president of development. This letter, effective May 1998, established Ms. Dibachi's initial annual base salary at $144,000. In the fiscal year ended January 31, 2000, Ms. Dibachi received a salary of $173,333. We have executed an offer letter with Kenneth Johnson, our senior vice president of sales. This letter, effective January 1999, established Mr. Johnson's annual base salary at $200,000. Under a restricted stock purchase agreement, in March 1999, Mr. Johnson purchased 250,000 shares of our restricted common stock at a purchase price of $0.10 per share. These shares are subject to our right to repurchase upon termination of his employment. Our right of repurchase lapses as to 25% of the shares upon the first anniversary of the grant date and as to 2.083% of the shares each month thereafter. In March 1999, we loaned Mr. Johnson $24,975, secured by a pledge and security agreement, in connection with his purchase of shares of our restricted common stock. The loan accrues interest at a rate of 4.77% and is due on or before January 4, 2003. We have executed an offer letter with Mark Nelson, our chief financial officer. This letter, effective August 1999, established Mr. Nelson's annual base salary at $200,000. Under a restricted stock purchase agreement, in November 1999, Mr. Nelson purchased 350,000 shares of our restricted common stock at a purchase price of $1.00 per share. These shares are subject to our right to repurchase upon termination of his employment. Our right of repurchase lapses as to 25% of the shares upon the first anniversary of the grant date and as to 2.083% of the shares each month thereafter. Our right of repurchase lapses as to all of the shares in the event of a change of control. In November 1999, we loaned Mr. Nelson $349,965, secured by a stock pledge agreement, in connection with his purchase of shares of our restricted common stock. The loan accrues interest at a rate of 6.08% and is due on or before November 18, 2002. We have executed an offer letter with Joshua Pickus, our president, vertical markets. This letter, effective November 1999, established Mr. Pickus' annual base salary at $300,000. This agreement also provides that we will make Mr. Pickus a separate payment of $25,000 for every 60 62 three months of employment during his first two years of employment with us. Under a restricted stock purchase agreement, in November 1999, Mr. Pickus purchased 1,250,000 shares of our restricted common stock at a purchase price of $1.00 per share. These shares are subject to our right to repurchase upon termination of his employment. Our right of repurchase lapses as to 33.33% of the shares upon the first anniversary of employment and as to 2.77% of the shares each month thereafter. Our right of repurchase lapses as to all of the shares in the event of a change of control. In November 1999, we loaned Mr. Pickus $1,249,875, secured by a stock pledge agreement, in connection with his purchase of shares of our restricted common stock. The loan accrues interest at a rate of 6.08% and is due on or before November 1, 2002. Under a separate loan agreement, we loaned Mr. Pickus $200,000. The loan accrues interest at a rate of 8.0% and is due on or before November 11, 2002. INDEMNIFICATION OF DIRECTORS AND EXECUTIVE OFFICERS AND LIMITATION OF LIABILITY Our certificate of incorporation includes a provision that eliminates the personal liability of a director for monetary damages resulting from breach of his fiduciary duty as a director, except for liability: - for any breach of the director's duty of loyalty to us or our stockholders; - for acts or omissions not in good faith or that involve intentional misconduct or a knowing violation of law; - under section 174 of the Delaware General Corporation Law regarding unlawful dividends and stock purchases; or - for any transaction from which the director derived an improper personal benefit. Our bylaws provide that: - we are required to indemnify our directors and officers to the fullest extent permitted by the Delaware General Corporation Law, subject to very limited exceptions; - we may indemnify our employees and agents to the fullest extent permitted by the Delaware General Corporation Law, subject to very limited exceptions; - we are required to advance expenses, as incurred, to our directors and executive officers in connection with a legal proceeding; - we may advance expenses, as incurred, to our employees and agents in connection with a legal proceeding; and - the rights conferred in the bylaws are not exclusive. In addition to the indemnification required in our certificate of incorporation and bylaws, we have entered into indemnity agreements with each of our current directors and executive officers. These agreements provide for the indemnification of our officers and directors for all expenses and liabilities incurred in connection with any action or proceeding brought against them by reason of the fact that they are or were our agents. We also intend to obtain directors' and officers' insurance to cover our directors, officers and some of our employees for liabilities, including liabilities under securities laws. We believe that these indemnification provisions and agreements and this insurance are necessary to attract and retain qualified directors and officers. The limitation of liability and indemnification provisions in our certificate of incorporation and bylaws may discourage stockholders from bringing a lawsuit against directors for breach of their fiduciary duty. They may also reduce the likelihood of derivative litigation against directors and officers, even though an action, if successful, might benefit us and other stockholders. Furthermore, a stockholder's investment may be adversely affected to the extent we pay the costs of settlement and damage awards against directors and officers as required by these indemnification provisions. At present, there is no pending litigation or proceeding involving any of our directors, officers or employees regarding which indemnification by us is sought, nor are we aware of any threatened litigation that may result in claims for indemnification. 61 63 CERTAIN TRANSACTIONS Other than the employment arrangements described in "Management" and the transactions described below, since we were formed, there has not been nor is there currently proposed any transaction or series of similar transactions to which we were or will be a party: - in which the amount involved exceeds or will exceed $60,000; and - in which any director, executive officer, holder of more than 5% of our common stock or any member of their immediate family had or will have a direct or indirect material interest. COMMON STOCK TRANSACTIONS In January 1998, Farzad Dibachi, our chief executive officer and chairman of the board of directors, purchased 4,000,000 shares of our common stock at a purchase price of $0.01 per share. In January 1998, the Garnett 1996 Children's Trust UTA for the benefit of the children of Terence Garnett, one of our directors, purchased 500,000 shares of our common stock at a purchase price of $0.01 per share. In February 1998, Joshua Pickus, our president, vertical markets, purchased 10,000 shares of our common stock at a purchase price of $0.01 per share and Harold Slawik, our vice president of corporate development, purchased 87,500 shares of our common stock at a purchase price of $0.01 per share. PREFERRED STOCK FINANCINGS In January 1998, we sold a total of 10,000,000 shares of our Series F preferred stock at a purchase price of $0.05 per share. In February, April and May 1998, we sold a total of 5,142,851 shares of our Series A preferred stock at a purchase price of $0.35 per share. In October, November and December 1998, we sold a total of 7,999,992 shares of our Series B preferred stock at a purchase price of $0.75 per share. In May 1999, we sold a total of 9,987,439 shares of our Series C preferred stock at a purchase price of $1.99 per share. In November 1999, we sold a total of 7,998,012 shares of our Series D preferred stock at a purchase price of $5.00 per share. Purchasers of our preferred stock include, among others, the following executive officers, directors and holders of more than 5% of our outstanding stock or entities affiliated with them:
SERIES F SERIES A SERIES B SERIES C SERIES D PREFERRED PREFERRED PREFERRED PREFERRED PREFERRED STOCKHOLDER STOCK STOCK STOCK STOCK STOCK ----------- --------- --------- --------- --------- --------- Farzad and Rhonda Dibachi.............. 7,500,000 291,428 666,666 -- -- Joshua Pickus.......................... -- 28,571 13,333 -- -- Mark Nelson............................ -- -- -- -- 10,000 Harold Slawik.......................... 2,000,000 5,714 -- -- -- John Chen.............................. -- 285,714 -- -- -- Terence Garnett........................ 2,000,000 1,857,142 493,333 577,890 500,000 William Raduchel....................... -- 285,714 66,666 -- -- Maynard Webb........................... -- 285,714 133,333 50,251 -- Vector Capital II, L.P................. -- -- -- -- 6,226,195 Entities associated with Venrock Associates........................... -- -- 5,173,333 2,437,186 388,000 Entities associated with J.H. Whitney.............................. -- -- -- 4,522,613 768,208
Shares for Farzad and Rhonda Dibachi include 1,500,000 shares of our Series F preferred stock and 5,714 shares of our Series A preferred stock held by Florence V, LLC. Mr. Dibachi disclaims beneficial ownership of shares held by Florence V, LLC except to the extent of his percentage interest. Shares for Harold Slawik include 1,500,000 shares of our Series F preferred stock and 5,714 shares of our Series A preferred stock held by Florence V, LLC. Mr. Slawik disclaims 62 64 beneficial ownership of shares held by Florence V, LLC except to the extent of his percentage interest. Also includes 500,000 shares held by the Franklin David Dibachi 1996 Trust, of which Mr. Slawik serves as the trustee. Vector Capital II, L.P. acquired its shares as part of the Proamics acquisition. LOANS TO EXECUTIVE OFFICERS In March 1999, we loaned to Kenneth Johnson, our senior vice president of sales, $24,975, secured by a pledge and security agreement, in connection with his purchase of our restricted common stock. This loan accrues interest at a rate of 4.77% and is due on or before January 4, 2003. In November 1999, we loaned to Mark Nelson, our chief financial officer, $349,965, secured by a stock pledge agreement, in connection with his purchase of our restricted common stock. The loan accrues interest at a rate of 6.08% and is due on or before November 18, 2002. In November 1999, we loaned to Joshua Pickus, our president, vertical markets, $1,249,875, secured by a stock pledge agreement, in connection with his purchase of our restricted common stock. The loan accrues interest at a rate of 6.08% and is due on or before November 1, 2002. We also loaned $200,000 to Mr. Pickus in November 1999 under a separate agreement, and this loan accrues interest at a rate of 8.0% and is due on or before November 11, 2002. ACQUISITION OF PROAMICS In December 1999, we acquired Proamics. In connection with our acquisition of Proamics, Vector Capital II, L.P. received 6,226,195 shares of our Series D preferred stock of which 1,998,628 are held in escrow to secure indemnification obligations of the former stockholders of Proamics. Each share of Series D preferred stock will be converted into one share of our common stock upon the closing of this offering. PERSONS OR ENTITIES RELATED TO OUR DIRECTORS In December 1998, we entered into a software license and services agreement with Sybase pursuant to which we granted Sybase a license to make, install and use copies of our software. We paid Sybase a license fee of $142,500 under this agreement. We paid Sybase an additional $34,644 in support fees. In March 1999, we entered into a software license agreement pursuant to which Sybase granted us a license to use Sybase software. John Chen, one of our directors, is the president, chief executive officer and the chairman of the board of directors of Sybase. We executed an offer letter with Angelina Schutz, our vice president of business development. This letter, effective June 1999, established Ms. Schutz's annual base salary at $150,000 and qualified her to receive $150,000 as commission if she meets her revenue quota and management deliverables, and in excess of this amount if she exceeds her targets. Under an option agreement, in June 1999, we granted to Ms. Schutz an option to purchase 150,000 shares of our common stock at an exercise price of $0.25 per share. This option is exercisable as to 25% of the shares upon the first anniversary of the grant date and as to 2.083% of the shares subject to the option each month thereafter. Ms. Schutz is the sister-in-law of Terence Garnett, one of our directors. 63 65 PRINCIPAL STOCKHOLDERS The following table presents information as to the beneficial ownership of our common stock as of December 15, 1999 and as adjusted to reflect the sale of our common stock in this offering by: - each stockholder known by us to be the beneficial owner of more than 5% of our common stock; - each of our directors; - each of our executive officers; and - all of our directors and executive officers as a group. Beneficial ownership is determined under the rules of the Securities and Exchange Commission and generally includes voting or investment power with respect to securities. Unless indicated below, to our knowledge, the persons and entities named in the table have sole voting and sole investment power with respect to all shares beneficially owned, subject to community property laws where applicable. Shares of common stock subject to options that are currently exercisable or exercisable within 60 days of December 15, 1999 are deemed to be outstanding and to be beneficially owned by the person holding the options for the purpose of computing the percentage ownership of that person but are not treated as outstanding for the purpose of computing the percentage ownership of any other person. Unless indicated below, the address for each listed stockholder is c/o Niku Corporation, 305 Main Street, Redwood City, California 94063. The percentage of common stock outstanding as of December 15, 1999 is based on 59,927,553 shares of common stock outstanding on that date, assuming that all outstanding preferred stock has been converted into common stock.
PERCENTAGE OF OUTSTANDING SHARES BENEFICIALLY OWNED NUMBER OF SHARES -------------------------------- NAME OF BENEFICIAL OWNER BENEFICIALLY OWNED BEFORE OFFERING AFTER OFFERING ------------------------ ------------------ --------------- -------------- Farzad and Rhonda Dibachi(1)............ 11,558,094 19.3% % Entities and individuals associated with Venrock Associates(2)................. 7,998,519 13.3 2499 Sand Hill Road, Suite 200 Menlo Park, CA 94025 Vector Capital II, L.P.(3).............. 6,226,195 10.4 465 Montgomery Street, 19th Floor San Francisco, CA 94104 Terence Garnett(4)...................... 5,908,365 9.9 Entitles and individuals associated with J.H. Whitney(5)....................... 5,290,821 8.8 177 Broad Street Stamford, CT 06901 Michael Brooks(6)....................... 5,290,821 8.8 Harold Slawik(7)........................ 2,502,588 4.2 Joshua Pickus(8)........................ 1,301,904 2.2 Maynard Webb(9)......................... 530,409 * Mark Nelson(10)......................... 360,000 * John Chen(11)........................... 346,825 * William Raduchel(12).................... 341,491 * Kenneth Johnson(13)..................... 250,000 * All directors and executive officers as a group (11 persons)(14).............. 26,884,783 44.6
64 66 - --------------- * Less than 1%. (1) Represents 10,052,380 shares held by The Dibachi Family Trust UDT and 1,505,714 shares held by Florence V, LLC. Mr. Dibachi disclaims beneficial ownership of shares held by Florence V, LLC except to the extent of his percentage interest. (2) Represents 3,478,372 shares held by Venrock Associates, 4,500,747 shares held by Venrock Associates II, L.P. and 19,400 shares held by Venrock Entrepreneurs Fund. (3) Represents 6,226,195 shares held by Vector Capital II, L.P. (4) Represents 1,200,000 shares held by the Garnett Children's Trust UTA, 4,632,988 shares held by the Garnett Family Trust and 75,377 shares held by Mr. Garnett. This number does not include 3,478,372 shares held by Venrock Associates, 4,500,747 shares held by Venrock Associates II, L.P. nor 19,400 shares held by Venrock Entrepreneurs Fund. Mr. Garnett, one of our directors, is a consultant to Venrock Associates, Venrock Associates II, L.P. and Venrock Entrepreneurs Fund but does not share voting or dispositive power over the shares held by these entities. (5) Represents 5,166,333 shares held by J.H. Whitney III, L.P. and 124,488 shares held by Whitney Strategic Partners III, L.P. (6) Represents 5,166,333 shares held by J.H. Whitney III, L.P. and 124,488 shares held by Whitney Strategic Partners III, L.P. Mr. Brooks, one of our directors, is a managing member of the general partner of these entities. Mr. Brooks disclaims beneficial ownership of shares held by these entities except to the extent of his pecuniary interest in them. (7) Represents 239,583 shares held by Harold Slawik, 75,000 shares held as custodian for Alexander, Cecilia and Abigail Slawik, 1,505,714 shares held by Florence V, LLC, 500,000 shares held by the Franklin David Dibachi 1996 Trust and 182,291 shares subject to options exercisable within 60 days of December 15, 1999 held by Mr. Slawik. Mr. Slawik disclaims beneficial ownership of shares held by Florence V, LLC except to the extent of his percentage interest. Mr. Slawik serves as the trustee of the Franklin David Dibachi 1996 Trust. (8) Represents 1,301,904 shares held by the Pickus Family Trust. (9) Represents 469,298 shares held by The Webb Family Trust and 61,111 shares subject to options exercisable within 60 days of December 15, 1999 held by Mr. Webb. (10) Represents 360,000 shares held by Mark Nelson. (11) Represents 285,714 shares held by the John S. and Sherry H. Chen Family Trust and 61,111 shares subject to options exercisable within 60 days of December 15, 1999 held by Mr. Chen. (12) Represents 238,714 shares held by The William J. Raduchel Revocable Trust, 36,111 shares subject to options exercisable within 60 days of December 15, 1999 held by Mr. Raduchel and 66,666 shares held by Mr. Raduchel. (13) Represents 250,000 shares held by Kenneth Johnson. (14) Represents 26,544,159 shares held by all directors and executive officers as a group and 340,624 shares subject to options exercisable within 60 days of December 15, 1999 held by all directors and executive officers as a group. 65 67 DESCRIPTION OF CAPITAL STOCK Immediately following the closing of this offering, our authorized capital stock will consist of 250,000,000 shares of common stock, $0.0001 par value per share, and 10,000,000 shares of preferred stock, $0.0001 par value per share. As of December 15, 1999, and assuming the conversion of all outstanding preferred stock into common stock, there were outstanding 59,927,553 shares of our common stock held by approximately 190 stockholders, of which 2,479,167 shares were subject to our right of repurchase, options to purchase 5,018,887 shares of our common stock and warrants to purchase 630,000 shares of our common stock. COMMON STOCK Dividend rights. Subject to preferences that may apply to shares of preferred stock outstanding at the time, the holders of outstanding shares of our common stock are entitled to receive dividends out of assets legally available at the times and in the amounts as our board of directors may determine. Voting rights. Each holder of our common stock is entitled to one vote for each share of common stock held on all matters submitted to a vote of stockholders. Cumulative voting for the election of directors is not provided for in our certificate of incorporation. In addition, our certificate of incorporation and bylaws require the approval of two-thirds, rather than a majority, of the shares entitled to vote for certain matters. For a description of these matters, see "-- Anti-Takeover Provisions." No preemptive or similar rights. Our common stock is not entitled to preemptive rights and is not subject to conversion or redemption. Right to receive liquidation distributions. Upon a liquidation, dissolution or winding-up of Niku, the holders of our common stock are entitled to share ratably among themselves in all assets remaining after payment of all liabilities and the liquidation preferences of any outstanding preferred stock. Each outstanding share of our common stock is, and all shares of our common stock to be outstanding upon completion of this offering will be, fully paid and nonassessable. PREFERRED STOCK Upon the closing of this offering, each outstanding share of our preferred stock will be converted into shares of our common stock. See Note 6 of notes to financial statements for a description of our preferred stock. Following the offering, we will be authorized, subject to limitations imposed by Delaware law, to issue preferred stock in one or more series, to establish from time to time the number of shares to be included in each series, and to fix the rights, preferences and privileges of the shares of each wholly unissued series and any of its qualifications, limitations or restrictions. The board of directors can also increase or decrease the number of shares of any series, but not below the number of shares of such series then outstanding, without any further vote or action by the stockholders. The board may authorize the issuance of preferred stock with voting or conversion rights that could adversely affect the voting power or other rights of the holders of the common stock. The issuance of preferred stock, while providing flexibility in connection with possible acquisitions and other corporate purposes, could, among other things, have the effect of delaying, deferring or preventing a change in control of Niku and may adversely affect the market price of the our common stock and the voting and other rights of the holders of our common stock. We have no current plan to issue any shares of preferred stock. WARRANTS In February 1999, we issued to Comdisco a warrant to purchase 30,000 shares of our Series B preferred stock at an exercise price of $0.75 per share. If not sooner exercised, this warrant will remain outstanding for three years after the completion of this offering unless the 66 68 underwriters request that Comdisco exercise this warrant, in which case the warrant will expire immediately after the completion of this offering. In February 1999, we also issued to Comdisco a warrant to purchase 600,000 shares of our Series B preferred stock at an exercise price of $0.75 per share. If not sooner exercised, this warrant will remain outstanding for three years after the completion of this offering unless the underwriters request that Comdisco exercise this warrant, in which case the warrant will expire immediately after the completion of this offering. REGISTRATION RIGHTS As a result of an amended and restated investors' rights agreement dated November 17, 1999, as amended December 8, 1999, among us and some of our stockholders, the holders of 51,319,497 shares of our common stock will be entitled to rights with respect to the registration of these shares under the Securities Act, as described below. Demand registration rights. At any time after six months following this offering, the holders of at least 50% of the shares having registration rights can request that we register all or a portion of their shares, so long as such registration covers at least 20% of their shares and the total offering price of the shares to the public is at least $20 million. We will only be required to file two registration statements in response to their demand registration rights. We may postpone the filing of a registration statement for up to 120 days twice in a 12 month period if we determine that the filing would be seriously detrimental to us and our stockholders. Piggyback registration rights. If we register any securities for public sale, the stockholders with registration rights will have the right to include their shares in the registration statement. The managing underwriter of any underwritten offering will have the right to limit the number of shares registered by these holders to be included in the registration statement due to marketing reasons. Form S-3 registration rights. The holders of the shares having registration rights can request that we register their shares if we are eligible to file a registration statement on Form S-3 and if the total price of the shares offered to the public is at least $2 million. We may postpone the filing of a registration statement for up to 120 days twice in a 12 month period if we determine that the filing would be seriously detrimental to us and our stockholders. We will pay all expenses incurred in connection with the registrations described above, except for underwriters' and brokers' discounts and commissions, which will be paid by the selling stockholders. The registration rights described above will expire with respect to a particular stockholder if it can sell all of its shares in a three month period under Rule 144 of the Securities Act. In any event, the registration rights described above will expire five years after this offering is completed. Holders of these registration rights have waived the exercise of these registration rights for 180 days following the date of this prospectus. ANTI-TAKEOVER PROVISIONS The provisions of Delaware law, our certificate of incorporation and our bylaws may have the effect of delaying, deferring or discouraging another person from acquiring control of our company. DELAWARE LAW We will be subject to the provisions of Section 203 of the Delaware General Corporation Law regulating corporate takeovers. This section prevents some Delaware corporations from engaging, under some circumstances, in a "business combination," which includes a merger or sale of more than 10% of the corporation's assets with any "interested stockholder," meaning a 67 69 stockholder who owns 15% or more of the corporation's outstanding voting stock, as well as affiliates and associates of the stockholder, for three years following the date that the stockholder became an "interested stockholder" unless: - the transaction is approved by the board of directors prior to the date the interested stockholder attained that status; - upon consummation of the transaction that resulted in the stockholder's becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced; or - on or subsequent to such date the business combination is approved by the board of directors and authorized at an annual or special meeting of stockholders by at least two-thirds of the outstanding voting stock that is not owned by the interested stockholder. A Delaware corporation may opt out of this provision with an express provision in its original certificate of incorporation or an express provision in its certificate or incorporation or bylaws resulting from a stockholders' amendment approved by at least a majority of the outstanding voting shares. However, we have not opted out of this provision. The statute could prohibit or delay mergers or other takeover or change-in-control attempts and, accordingly, may discourage attempts to acquire us. CHARTER AND BYLAW PROVISIONS Our certificate of incorporation and bylaws provide that: - following the completion of this offering, no action shall be taken by stockholders except at an annual or special meeting of the stockholders called in accordance with our bylaws and that stockholders may not act by written consent; - following the completion of this offering, the approval of holders of two-thirds of the shares entitled to vote at an election of directors shall be required to adopt, amend or repeal our bylaws or amend or repeal the provisions of our certificate of incorporation regarding the election and removal of directors and ability of stockholders to take action; - stockholders may not call special meetings of the stockholders without advance notice and approval of the stockholders holding at least a majority of the outstanding shares of stock; - stockholders may not fill vacancies on the board; - following the completion of this offering, our board of directors will be divided into three classes, each serving staggered three-year terms, which means that only one class of directors will be elected at each annual meeting of stockholders, with the other classes continuing for the remainder of their respective terms, and directors may only be removed for cause by the holders of two-thirds of the shares entitled to vote at an election of directors; and - we will indemnify officers and directors against losses that they may incur in investigations and legal proceedings resulting from their services to us, which may include services in connection with takeover defense measures. These provisions of our certificate of incorporation and bylaws may have the effect of delaying, deferring or discouraging another person from acquiring control of our company. TRANSFER AGENT AND REGISTRAR The transfer agent and registrar for our common stock is Harris Trust & Savings Bank. LISTING We have applied to list our common stock on the Nasdaq National Market under the trading symbol "NIKU." 68 70 SHARES ELIGIBLE FOR FUTURE SALE Prior to this offering, there has been no public market for our common stock, and we cannot predict the effect, if any, that market sales of shares of our common stock or the availability of shares of our common stock for sale will have on the market price of our common stock prevailing from time to time. Nevertheless, sales of substantial amounts of our common stock in the public market could adversely affect the market price of our common stock and could impair our future ability to raise capital through the sale of our equity securities. Upon the completion of this offering, we will have shares of our common stock outstanding, assuming no exercise of the underwriters' over-allotment option and no exercise of outstanding options. Of the outstanding shares, all of the shares sold in this offering will be freely tradable, except that any shares held by our "affiliates," as that term is defined in Rule 144 promulgated under the Securities Act, may only be sold in compliance with the limitations described below. The remaining 59,927,553 shares of our common stock will be deemed "restricted securities" as defined under Rule 144. Restricted shares may be sold in the public market only if registered or if they qualify for an exemption from registration under Rule 144, 144(k) or 701 promulgated under the Securities Act, which rules are summarized below. Subject to the lock-up agreements described below and the provisions of Rules 144, 144(k) and 701, additional shares will be available for sale in the public market as follows:
NUMBER OF SHARES DATE - --------- ---- After the date of this prospectus, freely tradable shares sold in this offering and shares saleable under Rule 144(k) that are not subject to the 180-day lock-up 41,848,900 After 180 days from the date of this prospectus, the 180-day lock-up terminates and these shares are saleable under Rule 144 (subject in some cases to volume limitations) or Rule 144(k) or Rule 701 (subject in some cases to a right of repurchase by Niku) 18,078,653 After 180 days from the date of this prospectus, restricted securities that are held for less than one year and are not yet saleable under Rule 144 7,878,012 After November 17, 2000, the one year anniversary of our Series D preferred stock financing, these shares are saleable under Rule 144 7,994,513 After December 8, 2000, the one year anniversary of our acquisition of Proamics, these shares are saleable under Rule 144
In connection with the purchase of 1,250,000 shares of our restricted common stock by Joshua Pickus, our president, vertical markets, we loaned Mr. Pickus $1,249,875 secured by a stock pledge agreement. In connection with the purchase of 350,000 shares of our restricted common stock by Mark Nelson, our chief financial officer, we loaned Mr. Nelson $349,965 secured by a stock pledge agreement. The 1,250,000 shares of restricted common stock held by Mr. Pickus and the 350,000 shares of restricted common stock held by Mr. Nelson will be freely tradeable one year after each repays his respective loan in full. However, we intend to file a registration statement on Form S-8 for the resale of these shares 180 days from the date of this prospectus. RULE 144 In general, under Rule 144 as currently in effect, a person, or group of persons whose shares are required to be aggregated, including an affiliate of Niku, who has beneficially owned shares for at least one year is entitled to sell within any three-month period commencing 90 days after the date of this prospectus, a number of shares that does not exceed the greater of one percent of the then-outstanding shares of our common stock, which will be approximately shares immediately after this offering, or the average weekly trading volume in our common stock during the four calendar weeks preceding the date on which notice of the sale is 69 71 filed. In addition, a person who is not deemed to have been an affiliate at any time during the 90 days preceding a sale and who has beneficially owned the shares proposed to be sold for at least two years would be entitled to sell these shares under Rule 144(k) without regard to the requirements described above. To the extent that shares were acquired from one of our affiliates, a person's holding period for the purpose of effecting a sale under Rule 144 would commence on the date of transfer from the affiliate. STOCK OPTIONS As of December 15, 1999, options to purchase a total of 5,018,887 shares of our common stock were outstanding, all of which were currently exercisable. We intend to file a registration statement on Form S-8 under the Securities Act to register all shares of our common stock subject to outstanding options and all shares of our common stock issuable under our stock option and employee stock purchase plans. Accordingly, shares of our common stock issued under these plans will be eligible for sale in the public markets, subject to vesting restrictions and the lock-up agreement described below. See "Management--Employee Benefit Plans." LOCK-UP AGREEMENTS We, each of our officers and directors and substantially all of our securityholders have agreed, subject to specified exceptions, not to, without the prior written consent of Goldman, Sachs & Co., offer, sell, contract to sell, grant any option to purchase or otherwise dispose of any shares of our common stock or options to acquire shares of our common stock during the 180-day period following the date of this offering. Goldman, Sachs & Co. may, in its sole discretion and at any time without notice, release all or any portion of the securities subject to lock-up agreements. See "Underwriting." Following this offering, subject to specified blackout periods, holders of 51,319,497 shares of our outstanding common stock will have two demand registration rights with respect to their shares of our common stock, subject to the 180-day lock-up arrangement described above, to require us to register their shares of our common stock under the Securities Act, or rights to participate in any future registration of securities by us. If the holders of these registrable securities request that we register their shares, and if the registration is effected, these shares will become freely tradable without restriction under the Securities Act. Any sales of securities by these stockholders could have a material adverse effect on the trading price of our common stock. See "Description of Capital Stock--Registration Rights". LEGAL MATTERS Fenwick & West LLP, Palo Alto, California, will pass upon the validity of the issuance of the shares of common stock offered by this prospectus. Certain legal matters in connection with this offering will be passed upon for the underwriters by Shearman & Sterling, Menlo Park, California. As of December 15, 1999, three investment partnerships associated with Fenwick & West LLP beneficially owned an aggregate of 55,126 shares of our common stock. CHANGE IN ACCOUNTANTS In August 1999, we engaged Ernst & Young LLP as our principal accountant to commence an audit of our financials. However, on November 22, 1999, prior to the completion of an audit and the issuance of any opinion, we engaged KPMG LLP to audit our financial statements and dismissed Ernst & Young LLP as our principal accountant. The board of directors has approved the appointment of KPMG LLP as our principal accountant. In connection with the services conducted by Ernst & Young LLP for any period there were no disagreements with Ernst & Young LLP on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedures, which, if not resolved to Ernst & 70 72 Young LLP's satisfaction, would have caused them to reference the subject matter of the disagreement in their opinion. EXPERTS The consolidated balance sheets of Niku Corporation and subsidiaries as of January 31, 1999, and October 31, 1999, and the consolidated statements of operations, stockholders' equity, and cash flows for the year ended January 31, 1999, and the nine months ended October 31, 1999, have been included herein and in the registration statement in reliance upon the report of KPMG LLP, independent auditors, and upon the authority of said firm as experts in accounting and auditing. The consolidated balance sheets of Proamics Corporation and subsidiaries as of December 31, 1998 and September 30, 1999, and the consolidated statements of operations, shareholders' deficit, and cash flows for the years ended December 31, 1997 and 1998, and the nine months ended September 30, 1999, have been included herein and in the registration statement in reliance upon the report of KPMG LLP, independent auditors, and upon the authority of said firm as experts in accounting and auditing. WHERE YOU CAN FIND 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. This prospectus does not contain all of the information set forth in the registration statement and the exhibits and schedules to the registration statement. For further information with respect to us and our common stock, we refer you to the registration statement and the exhibits and schedules filed as a part of the registration statement. Statements contained in this prospectus concerning the contents of any contract or any other document are not necessarily complete. If a contract or document has been filed as an exhibit to the registration statement, we refer you to the copy of the contract or document that has been filed. Each statement in this prospectus relating to a contract or document filed as an exhibit is qualified in all respects by the filed exhibit. The registration statement, including exhibits and schedules, may be inspected without charge at the principal office of the Securities and Exchange Commission in Washington, D.C., and copies of all or any part of it may be obtained from that office after payment of fees prescribed by the Securities and Exchange Commission. The Securities and Exchange Commission maintains a web site that contains reports, proxy and information statements and other information regarding registrants that file electronically with the Securities and Exchange Commission at http://www.sec.gov. We intend to provide our stockholders with annual reports containing financial statements audited by an independent public accounting firm and quarterly reports containing unaudited financial data for the first three quarters of each year. 71 73 INDEX TO FINANCIAL STATEMENTS
PAGE ---- NIKU CORPORATION AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS Independent Auditors' Report........................... F-2 Consolidated Balance Sheets............................ F-3 Consolidated Statements of Operations.................. F-4 Consolidated Statements of Stockholders' Equity (Deficit)............................................. F-5 Consolidated Statements of Cash Flows.................. F-6 Notes to Consolidated Financial Statements............. F-7 PROAMICS CORPORATION AND SUBSIDIARIES Independent Auditors' Report........................... F-22 Consolidated Balance Sheets............................ F-23 Consolidated Statements of Operations.................. F-24 Consolidated Statements of Shareholders' Deficit....... F-25 Consolidated Statements of Cash Flows.................. F-26 Notes to Consolidated Financial Statements............. F-27 PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS Introduction to Unaudited Pro Forma Combined Condensed Financial Statements.................................. F-35 Unaudited Pro Forma Combined Condensed Balance Sheet... F-36 Unaudited Pro Forma Combined Condensed Statements of Operations............................................ F-37 Notes to Unaudited Pro Forma Combined Condensed Financial Statements.................................. F-39
F-1 74 INDEPENDENT AUDITORS' REPORT The Board of Directors Niku Corporation: We have audited the accompanying consolidated balance sheets of Niku Corporation and subsidiaries (the Company) as of January 31, 1999 and October 31, 1999, and the related consolidated statements of operations, stockholders' equity (deficit), and cash flows for the year ended January 31, 1999, and for the nine months ended October 31, 1999. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Niku Corporation and subsidiaries as of January 31, 1999 and October 31, 1999, and the results of their operations and their cash flows for the year ended January 31, 1999, and for the nine months ended October 31, 1999, in conformity with generally accepted accounting principles. /s/ KPMG LLP Mountain View, California December 17, 1999 F-2 75 NIKU CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
PRO FORMA JANUARY 31, OCTOBER 31, AS OF 1999 1999 OCTOBER 31, 1999 ----------- ---------------- ---------------- (UNAUDITED) ASSETS Current assets: Cash and cash equivalents................................ $ 5,147 $ 17,154 Short-term investments................................... -- 2,175 Accounts receivable...................................... 165 2,754 Prepaid expenses and other current assets................ 133 1,258 ------- -------- Total current assets................................. 5,445 23,341 Deposits and other assets.................................. -- 160 Property and equipment, net................................ 394 4,406 Goodwill and other intangible assets, net.................. 716 831 ------- -------- $ 6,555 $ 28,738 ======= ======== LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) Current liabilities: Accounts payable......................................... $ 145 $ 3,817 Accrued liabilities...................................... 17 1,753 Current portion of long-term obligations................. -- 5,502 Deferred revenue......................................... 497 1,946 ------- -------- Total current liabilities............................ 659 13,018 Long-term obligations, less current portion................ -- 968 ------- -------- Total liabilities.................................... 659 13,986 ------- -------- Commitments Redeemable convertible preferred stock and warrants, $0.0001 par value; actual -- 23,400,000 and 34,272,843 shares authorized as of January 31, 1999 and October 31, 1999, respectively; 23,142,843 and 33,130,282 shares issued and outstanding as of January 31, 1999 and October 31, 1999, respectively; aggregate liquidation preference of $8,300 and $33,269 as of January 31, 1999 and October 31, 1999, respectively; pro forma -- no shares authorized, issued or outstanding........................ 8,259 28,580 $ -- ------- -------- Stockholders' equity (deficit): Preferred stock, $0.0001 par value; actual -- no shares authorized, issued or outstanding; pro forma -- 10,000,000 shares authorized; no shares issued and outstanding............................................ -- -- -- Common stock, $0.0001 par value; actual -- 50,000,000 shares authorized as of January 31, 1999 and October 31, 1999; 5,959,995 and 7,106,118 shares issued and outstanding as of January 31, 1999 and October 31, 1999, respectively; pro forma -- 250,000,000 shares authorized; 48,234,412 shares issued and outstanding... 1 1 5 Additional paid-in capital............................... 2,277 10,100 38,676 Treasury stock........................................... -- (30) (30) Deferred stock-based compensation........................ (1,576) (7,238) (7,238) Notes receivable from stockholders....................... (45) (108) (108) Accumulated deficit...................................... (3,020) (16,553) (16,553) ------- -------- -------- Total stockholders' equity (deficit)................. (2,363) (13,828) $ 14,752 ------- -------- ======== Total liabilities and stockholders' equity (deficit).................................................. $ 6,555 $ 28,738 ======= ========
See accompanying notes to consolidated financial statements. F-3 76 NIKU CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE DATA)
NINE MONTHS ENDED YEAR ENDED OCTOBER 31, JANUARY 31, ---------------------- 1999 1998 1999 ----------- ----------- -------- (UNAUDITED) Revenues: License............................................. $ -- $ -- $ 1,962 Services............................................ 15 -- 1,014 ------- ------- -------- Total revenues................................... 15 -- 2,976 ------- ------- -------- Cost of revenues: License............................................. -- -- 174 Services............................................ 4 -- 429 ------- ------- -------- Total cost of revenues........................... 4 -- 603 ------- ------- -------- Gross profit..................................... 11 -- 2,373 ------- ------- -------- Operating expenses: Research and development............................ 1,610 849 6,062 Sales and marketing................................. 290 75 5,983 General and administrative.......................... 996 720 1,837 Stock-based compensation............................ 245 77 2,018 Amortization of goodwill and other intangible assets........................................... 20 -- 184 ------- ------- -------- Total operating expenses......................... 3,161 1,721 16,084 ------- ------- -------- Operating loss................................... (3,150) (1,721) (13,711) Interest income....................................... 130 56 519 Interest expense...................................... -- -- (341) ------- ------- -------- Net loss......................................... $(3,020) $(1,665) $(13,533) ======= ======= ======== Basic and diluted net loss per share.................. $ (0.62) $ (0.35) $ (2.31) ======= ======= ======== Shares used in computing basic and diluted net loss per share........................................... 4,882 4,800 5,871 ======= ======= ======== Pro forma basic and diluted net loss per share........ $ (0.14) $ (0.38) ======= ======== Shares used in computing pro forma basic and diluted net loss per share.................................. 20,853 35,306 ======= ========
See accompanying notes to consolidated financial statements. F-4 77 NIKU CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) (IN THOUSANDS, EXCEPT SHARE DATA)
NOTES COMMON STOCK ADDITIONAL DEFERRED RECEIVABLE ------------------ PAID-IN TREASURY STOCK-BASED FROM ACCUMULATED SHARES AMOUNT CAPITAL STOCK COMPENSATION STOCKHOLDERS DEFICIT --------- ------ ---------- -------- ------------ ------------ ----------- Issuance of common stock to founding investors............................... 3,962,500 $ 1 $ 38 $ -- $ -- $ -- $ -- Issuance of common stock................. 850,000 -- 9 -- -- -- -- Issuance of common stock for note receivable.............................. 450,000 -- 45 -- -- (45) -- Issuance of common stock in connection with the exercise of employee stock options................................. 172,500 -- 10 -- -- -- -- Issuance of common stock in connection with the acquisition of Alyanza Corporation............................. 524,995 -- 354 -- -- -- -- Deferred compensation related to stock option grants........................... -- -- 1,733 (1,733) -- -- Amortization of stock-based compensation............................ -- -- -- 157 -- -- Non-employee stock compensation.......... -- -- 88 -- -- -- -- Net loss................................. -- -- -- -- -- -- (3,020) --------- ---- ------- ------- ------- ===== -------- Balances as of January 31, 1999.......... 5,959,995 1 2,277 (1,576) (45) (3,020) Issuance of common stock for notes receivable.............................. 700,000 -- 93 -- -- (93) -- Issuance of common stock in connection with the exercise of employee stock options................................. 746,123 -- 50 -- -- -- -- Repurchase of common stock in settlement of notes receivable from stockholders... (300,000) -- -- (30) -- 30 -- Deferred stock compensation related to stock option grants..................... -- -- 7,554 (7,554) -- -- Amortization of stock-based compensation............................ -- -- -- -- 1,892 -- -- Non-employee stock compensation.......... -- -- 126 -- -- -- -- Net loss................................. -- -- -- -- -- -- (13,533) --------- ---- ------- ------- ------- ----- -------- Balances as of October 31, 1999.......... 7,106,118 $ 1 $10,100 $ (30) $(7,238) $(108) $(16,553) ========= ==== ======= ======= ======= ===== ======== TOTAL STOCKHOLDERS' EQUITY (DEFICIT) ---------------- Issuance of common stock to founding investors............................... $ 39 Issuance of common stock................. 9 Issuance of common stock for note receivable.............................. -- Issuance of common stock in connection with the exercise of employee stock options................................. 10 Issuance of common stock in connection with the acquisition of Alyanza Corporation............................. 354 Deferred compensation related to stock option grants........................... -- Amortization of stock-based compensation............................ 157 Non-employee stock compensation.......... 88 Net loss................................. (3,020) -------- Balances as of January 31, 1999.......... (2,363) Issuance of common stock for notes receivable.............................. -- Issuance of common stock in connection with the exercise of employee stock options................................. 50 Repurchase of common stock in settlement of notes receivable from stockholders... -- Deferred stock compensation related to stock option grants..................... -- Amortization of stock-based compensation............................ 1,892 Non-employee stock compensation.......... 126 Net loss................................. (13,533) -------- Balances as of October 31, 1999.......... $(13,828) ========
See accompanying notes to consolidated financial statements. F-5 78 NIKU CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
YEAR NINE MONTHS ENDED ENDED OCTOBER 31, JANUARY 31, ----------------------- 1999 1998 1999 ----------- ----------- -------- (UNAUDITED) Cash flows from operating activities: Net loss.................................................. $(3,020) $(1,665) $(13,533) Adjustments to reconcile net loss to net cash used for operating activities: Depreciation and amortization....................... 28 16 300 Amortization of stock-based compensation............ 157 77 1,892 Revenue resulting from non-monetary exchange for computer equipment and software.................. -- -- (1,032) Amortization of debt discount....................... -- -- 128 Amortization of goodwill and other intangible assets........................................... 20 -- 184 Non-employee stock-based compensation expense....... 88 -- 126 Changes in operating assets and liabilities: Accounts receivable.............................. (165) (13) (2,590) Prepaid expenses and other current assets........ -- (13) (1,125) Accounts payable................................. -- 2 3,665 Accrued liabilities.............................. -- -- 1,739 Deferred revenue................................. 88 -- 1,449 ------- ------- -------- Net cash used for operating activities......... (2,804) (1,596) (8,797) ------- ------- -------- Cash flows from investing activities: Purchases of property and equipment................... (193) (119) (2,935) Purchases of short-term investments................... -- -- (2,175) Other assets.......................................... -- -- (160) Cash portion of Alyanza acquisition................... (173) -- -- Purchase of intangible asset.......................... -- -- (301) ------- ------- -------- Net cash used for investing activities......... (366) (119) (5,571) ------- ------- -------- Cash flows from financing activities: Net proceeds from sale of redeemable convertible preferred stock..................................... 8,259 7,627 19,811 Issuance of common stock.............................. 58 48 56 Proceeds from debt and detachable warrants............ -- -- 7,643 Repayment of debt and capital lease obligations....... -- -- (1,135) ------- ------- -------- Net cash provided by financing activities...... 8,317 7,675 26,375 ------- ------- -------- Net increase in cash and cash equivalents................. 5,147 5,960 12,007 Cash and cash equivalents at beginning of period.......... -- -- 5,147 ------- ------- -------- Cash and cash equivalents at end of period................ $ 5,147 $ 5,960 $ 17,154 ======= ======= ======== Noncash financing and investing activities: Property and equipment acquired under capital lease obligations......................................... $ -- $ -- $ 345 ======= ======= ======== Common stock issued for notes receivable.............. $ 45 $ 45 $ 93 ======= ======= ======== Common stock issued for acquisition................... $ 354 $ -- $ -- ======= ======= ======== Repurchase of common stock in settlement of notes receivable from stockholders........................ $ -- $ -- $ 30 ======= ======= ======== Deferred stock-based compensation..................... $ 1,821 $ -- $ 7,680 ======= ======= ======== Deferred revenue resulting from non-monetary exchange for computer equipment, software and maintenance.... $ 362 $ -- $ -- ======= ======= ========
See accompanying notes to consolidated financial statements. F-6 79 NIKU CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JANUARY 31, 1999 AND OCTOBER 31, 1999 (INFORMATION FOR THE NINE MONTHS ENDED OCTOBER 31, 1998, IS UNAUDITED.) (1) ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (a) ORGANIZATION AND BASIS OF PRESENTATION Niku Corporation (Niku or the Company) was incorporated in Delaware on January 8, 1999. Niku designs, develops, markets Internet-based software and related services that enable large and small businesses, as well as individuals, to source, manage and deliver professional services. Niku's operations for the period from January 8, 1998, (inception) through January 31, 1998, were not significant and are included in the Company's results of operations for the year ended January 31, 1999. The Company has a fiscal year that ends on the Saturday nearest January 31. Fiscal year 1999 was a 52-week year. For presentation purposes, the consolidated financial statements and notes refer to the calendar month end. (b) BASIS OF CONSOLIDATION The accompanying consolidated financial statements include the accounts of Niku and its wholly-owned subsidiaries, Niku Canada, Niku Europe and Niku Australia. All significant intercompany accounts and transactions have been eliminated in consolidation. (c) REVENUE RECOGNITION The Company has adopted Statement of Position (SOP) 97-2, Software Revenue Recognition, as amended by SOP 98-4 and SOP 98-9, since inception. SOP 97-2, as amended, generally requires revenue earned on software arrangements involving multiple elements to be allocated to each element based on the relative fair value of the elements. To date, the Company has derived its revenue from licenses of its eNiku products, maintenance and support and delivery of implementation consulting services. The Company sells its products primarily through its direct sales force. Revenue recognized from multiple-element software arrangements are allocated to each element of the arrangement based on the fair values of the elements, such as software products, maintenance and support, and consulting services. The determination of fair value is based on objective evidence which is specific to the Company. Revenue from license fees is recognized when persuasive evidence of an agreement exists, delivery of the product has occurred, no significant Niku obligations with regard to implementation remain, the fee is fixed or determinable, and collectibility is probable. In addition, sales to channel partners are recognized upon sell-through to the end-user customer. The Company considers all arrangements with payment terms extending beyond three months and other arrangements with payment terms longer than normal not to be fixed or determinable. If the fee is not fixed or determinable, revenue is recognized as payments become due from the customer. As payments become due from the customer, the initial amounts are first allocated to deferred revenue elements such as maintenance and support and consulting services. If collectibility is not considered probable, revenue is recognized when the fee is collected. Arrangements that include consulting services are evaluated to determine whether those services are essential to the functionality of other elements of the arrangement. When services are considered essential, revenue under the arrangement is recognized using contract accounting. When services are not considered essential, the revenue allocable to the software services is recognized as the services are performed. Maintenance and support revenue is F-7 80 NIKU CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) JANUARY 31, 1999 AND OCTOBER 31, 1999 (INFORMATION FOR THE NINE MONTHS ENDED OCTOBER 31, 1998, IS UNAUDITED.) deferred and recognized on a straight-line basis over the life of the related agreement, which is typically one year. Arrangements involving nonmonetary exchanges of the Company's products for customer products or services are recognized as revenue when the following three conditions have been met: (1) The fair value of the products received is objectively determinable; (2) The product received will not be incorporated into or integrated with Niku products; and (3) The product received with be used internally by Niku in a manner consistent with its fair value. The Company recognizes revenue on a sale to an application service provider customer as this customer either deploys the Company's software internally or as the customer sells through the software to end users. The Company also entered into a three year hosting agreement with this customer that initially rendered the combined arrangement a nonmonetary transaction. A subsequent modification to this hosting agreement enables the Company to account for its revenue with this partner as monetary. The Company also enters into arrangements with consulting organizations considered Niku Partner Network (NPN) customers. NPN arrangements exist when Niku enters into an arrangement with a consulting organization, who has become a customer of Niku, to use the NPN's consultants as preferred third party providers for implementation services to Niku customers or to use the NPN's consultants internally as codevelopment experts in developing future versions of Niku product functionality. In most of the NPN customer arrangements Niku commits to the use of a minimum dollar value of the NPN customer's professional services. NPN customer transactions in which Niku commits to the use of a minimum dollar value of an NPN customer's professional services are considered either monetary or nonmonetary depending on whether the net cash received or paid by Niku (representing the excess of Niku's product sale to the NPN over the fair value of the committed professional services or the excess of the fair value of the committed professional services over the Niku product sale, respectively) exceeds 25% of the fair value of the exchange. If the net cash received or paid by Niku exceeds 25% of the fair value of the exchange, the exchange is considered monetary and the Company will recognize revenue in accordance with Emerging Issues Task Force Issue No. 86-29, Nonmonetary Transactions: Magnitude of Boot and Exceptions to the Use of Fair Value, interpretation of Accounting Principles Board No. 29, Accounting for Nonmonetary Transactions. This revenue to be recognized is limited at any time to the fair value of the NPN's professional services used by Niku. If the net cash received or paid by Niku does not exceed 25% of the fair value of the exchange, the exchange is considered nonmonetary and revenue is only recognized when Niku uses the NPN's professional services time for internal use as codevelopment experts in developing future versions of Niku product functionality. Deferred revenue includes amounts billed to customers for which revenues have not been recognized which generally results from the following: (1) Deferred maintenance and support; (2) Consulting services not yet rendered; (3) Amounts billed to channel partners for Niku products not yet sold through to end-user customers; (4) Amounts billed to customers with extended payments terms which are not yet due; and (5) Amounts billed under monetary NPN arrangements in excess of NPN professional services used by Niku. Revenue recognized during the nine months ended October 31, 1999, from arrangements involving nonmonetary exchanges of the Company's products for customer products and services totaled approximately $1,371,000. Revenue recognized during the nine months ended F-8 81 NIKU CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) JANUARY 31, 1999 AND OCTOBER 31, 1999 (INFORMATION FOR THE NINE MONTHS ENDED OCTOBER 31, 1998, IS UNAUDITED.) October 31, 1999, from monetary NPN customer arrangements and the arrangement with the application service provider totaled approximately $676,000. (d) INITIAL PUBLIC OFFERING AND UNAUDITED PRO FORMA BALANCE SHEET INFORMATION In fiscal 2000, the Board of Directors authorized the filing of a registration statement with the Securities and Exchange Commission (SEC) that would permit the Company to sell shares of the Company's common stock in connection with a proposed initial public offering (IPO). Following the closing of the Company's IPO, the number of authorized shares of preferred stock and common stock will be 10,000,000 and 250,000,000, respectively. If the offering is consummated under the terms presently anticipated, all the then outstanding shares of the Company's redeemable convertible preferred stock will automatically convert into shares of common stock on a one-for-one basis upon the closing of the proposed IPO. The pro forma balance sheet information reflects the conversion of all of the redeemable convertible preferred stock as if it had occurred on October 31, 1999. (e) CASH AND CASH EQUIVALENTS Cash and cash equivalents consist of cash and highly liquid investments with remaining maturities of less than 90 days at the date of purchase. The Company is exposed to credit risk in the event of default by the financial institutions or the issuers of these investments to the extent of the amounts recorded on the balance sheet in excess of amounts that are insured by the FDIC. As of January 31, 1999, and October 31, 1999, cash equivalents consisted principally of a money market account and commercial paper. As defined in a debt agreement with a lender, the Company is required to maintain a cash balance with the lender of $6.0 million. (f) ACCOUNTING FOR CERTAIN INVESTMENTS IN DEBT AND EQUITY SECURITIES The Company classifies its investments in debt securities as available-for-sale. Available-for-sale securities are carried at fair value, with any unrealized gains or losses recorded as a component of other cumulative comprehensive income (loss). (g) FINANCIAL INSTRUMENTS AND CONCENTRATION OF CREDIT RISK The carrying value of the Company's financial instruments, including cash and cash equivalents, short-term investments and accounts receivable approximates fair market value. Financial instruments that subject the Company to concentration of credit risk consist primarily of cash and cash equivalents and trade accounts receivable. The Company sells its products principally to independent professional services organizations, professional service organizations of product companies, internal IT departments and individual professionals. Credit risk is concentrated in North America. The Company performs ongoing credit evaluations of its customers' financial condition and, generally, requires no collateral from its customers. The Company has had no write-offs of accounts receivable and, based on an ongoing evaluation of its accounts receivable collectibility and customer creditworthiness, has recorded a $100,000 allowance for doubtful accounts receivable during the period ended October 31, 1999. F-9 82 NIKU CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) JANUARY 31, 1999 AND OCTOBER 31, 1999 (INFORMATION FOR THE NINE MONTHS ENDED OCTOBER 31, 1998, IS UNAUDITED.) (h) PROPERTY AND EQUIPMENT Property and equipment are recorded at cost less accumulated depreciation and amortization. Depreciation is calculated using the straight-line method over the estimated useful lives of the respective assets, generally three years. Leasehold improvements are amortized over the shorter of the estimated useful lives of the assets or the lease term. (i) GOODWILL AND OTHER INTANGIBLE ASSETS Goodwill and other intangible assets were generated in the acquisition of Alyanza Software Corporation (Alyanza). Such assets are being amortized on a straight-line basis over three years and consist of goodwill, developed technology, and assembled workforce. (j) IMPAIRMENT OF LONG-LIVED ASSETS Niku evaluates its long-lived assets, including goodwill and certain identifiable intangibles, for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of any asset to future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell. (k) RESEARCH AND DEVELOPMENT Research and development costs are expensed as incurred until technological feasibility has been established. To date, the Company's software has been available for general release concurrent with the establishment of technological feasibility and, accordingly, no development costs have been capitalized. (l) ADVERTISING COSTS Niku's policy is to expense advertising costs as incurred. Niku's advertising and promotion expense was $-- and $599,000 for the year ended January 31, 1999, and the nine months ended October 31, 1999, respectively. (m) USE OF ESTIMATES The preparation of consolidated 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 consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. (n) INCOME TAXES Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes F-10 83 NIKU CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) JANUARY 31, 1999 AND OCTOBER 31, 1999 (INFORMATION FOR THE NINE MONTHS ENDED OCTOBER 31, 1998, IS UNAUDITED.) the enactment date. Valuation allowances are established when necessary to reduce deferred tax assets to the amounts to be recovered. (o) STOCK-BASED COMPENSATION The Company uses the intrinsic-value method to account for all of its employee stock-based compensation plans. Expense associated with stock-based compensation is being amortized on an accelerated basis over the vesting period of the individual award consistent with the method described in Financial Accounting Standards Board (FASB) Interpretation No. 28. (p) FOREIGN CURRENCY TRANSACTIONS The functional currency for the Company's foreign subsidiaries is the U.S. dollar. Accordingly, such entities remeasure monetary assets and liabilities at exchange rates in effect as of each reporting date while nonmonetary items are remeasured at historical rates. Income and expense accounts are remeasured at the average rates in effect during each such period, except for depreciation, which is remeasured at historical rates. Remeasurement adjustments and transactions gains and losses are recognized in income in the period of occurrence and have not been significant to date. (q) COMPREHENSIVE LOSS The Company did not have any significant components of other comprehensive loss for the year ended January 31, 1999, and the nine months ended October 31, 1999. (r) UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS The accompanying unaudited interim consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information. In the opinion of management, the accompanying unaudited consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements and include all adjustments, consisting only of normal recurring adjustments, necessary for the fair statement of the Company's results of operations and its cash flows for the nine months ended October 31, 1998. (s) NET LOSS PER SHARE Basic net loss per share is computed using the weighted-average number of outstanding shares of common stock, excluding shares of restricted stock subject to repurchase summarized below. Diluted net loss per share is computed using the weighted-average number of shares of common stock outstanding and, when dilutive, potential common shares from options and warrants to purchase common stock using the treasury stock method and from convertible securities using the if-converted basis. The following potential common shares have been F-11 84 NIKU CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) JANUARY 31, 1999 AND OCTOBER 31, 1999 (INFORMATION FOR THE NINE MONTHS ENDED OCTOBER 31, 1998, IS UNAUDITED.) excluded from the computation of diluted net loss per share for all periods presented because the effect would have been anti-dilutive (in thousands):
NINE MONTHS ENDED YEAR ENDED OCTOBER 31, JANUARY 31, --------------------- 1999 1998 1999 ----------- ----------- ------ (UNAUDITED) Shares issuable under stock options................. 3,474 2,089 3,629 Shares of restricted stock subject to repurchase.... 450 450 959 Shares issuable pursuant to warrants to purchase convertible preferred stock....................... -- -- 630 Shares of redeemable convertible preferred stock on an "as if converted" basis........................ 23,143 22,103 33,130
The weighted-average exercise price of stock options was $0.08 for the years ended January 31, 1999, and $0.06 and $0.26 for the nine months ended October 31, 1998 and 1999, respectively. The weighted-average purchase price of restricted stock was $0.10 for the year ended January 31, 1999, and $0.10 and $0.12 for the nine months ended October 31, 1998 and 1999, respectively. The exercise price of warrants was $0.75 for the nine months ended October 31, 1999. Pro forma basic and diluted net loss per share is presented for the year ended January 31, 1999, and the nine months ended October 31, 1999, to reflect per share data assuming the conversion of all outstanding shares of redeemable convertible preferred stock into common stock on a one-for-one basis, as if the conversion had taken place at the beginning of fiscal 1999 or at the date of issuance if later. This data is unaudited. (t) RECENT ACCOUNTING PRONOUNCEMENTS In June 1998, the FASB issued Statement of Financial Accounting Standards (SFAS) No. 133, Accounting for Derivative Instruments and Hedging Activities. SFAS No. 133 establishes accounting and reporting standards for derivative financial instruments and hedging activities related to those instruments, as well as other hedging activities. Because the Company does not currently hold any derivative instruments and does not engage in hedging activities, the Company expects that the adoption of SFAS No. 133 will not have a material impact on its consolidated financial position, results of operations, or cash flows. The Company will be required to adopt SFAS No. 133 in fiscal 2001. (2) BALANCE SHEET COMPONENTS (a) SHORT-TERM INVESTMENTS All of the Company's investments are considered available-for-sale securities and consisted of corporate bonds and commercial paper as of October 31, 1999. The entire short-term investment balance is due within one year. Investments totaling $6.4 million are included in cash and cash equivalents at October 31, 1999. Realized and unrealized gains and losses for available-for-sale securities were immaterial for all periods presented. F-12 85 NIKU CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) JANUARY 31, 1999 AND OCTOBER 31, 1999 (INFORMATION FOR THE NINE MONTHS ENDED OCTOBER 31, 1998, IS UNAUDITED.) (b) PROPERTY AND EQUIPMENT Property and equipment, net consisted of the following (in thousands):
JANUARY 31, OCTOBER 31, 1999 1999 ----------- ----------- Computer equipment and office equipment..................... $314 $1,179 Software.................................................... 95 1,191 Furniture and fixtures...................................... 13 1,404 Leasehold improvements...................................... -- 960 ---- ------ 422 4,734 Accumulated depreciation and amortization................... 28 328 ---- ------ $394 $4,406 ==== ======
Equipment under capital leases aggregated $345,000 as of October 31, 1999. Accumulated amortization on the assets under capital leases aggregated $35,000 as of October 31, 1999. (3) ACQUISITION OF ALYANZA In December 1998, Niku completed the acquisition of Alyanza, a privately held software company in San Diego, California. Niku issued 525,000 shares of its common stock and paid $135,000 cash for all of Alyanza's outstanding capital stock. In addition, Niku assumed certain liabilities of Alyanza totaling $208,000 and incurred merger-related costs of approximately $38,000. The transaction was accounted for as a purchase. The purchase price of approximately $735,000 was allocated $100,000 to developed technology, $200,000 to assembled workforce, and $435,000 goodwill. (4) DEBT In February 1999, the Company entered into an agreement with a lender for a $3,000,000 loan with an annual interest rate of 12%. The agreement calls for equal monthly payments of principal and interest beginning July 1999 through February 2002. The Company has the option to prepay the loan after 12 months from the loan commencement date with a prepayment penalty of 1% of the then outstanding balance (along with any unpaid accrued interest). The prepayment penalty does not apply if the prepayment is in conjunction with a merger or initial public offering. In connection with the $3,000,000 loan, the Company issued warrants to purchase 600,000 shares of its Series B redeemable convertible preferred stock at an exercisable price of $0.75 per share. The warrant expires the earlier of February 2006, or three years after an initial public offering of the Company's common stock. The fair value of the warrants issued, calculated using the Black-Scholes option pricing model, using $1.10 as the fair value of the underlying redeemable convertible preferred stock and the following weighted-average assumptions: no dividends; contractual life of seven years; risk-free interest rate of 6.00%; expected volatility of 70%, was $510,000. This amount will be amortized on a straight-line basis over the term of the loan. As of October 31, 1999, the aggregate future maturities for the three months ended January 31, 2000, and for fiscal 2001 and 2002 were $350,000, $1,140,000, and $1,284,000, respectively. This loan is secured by our net tangible assets. In September 1999, the Company entered into a revolving line of credit agreement with a lender for a line of credit up to $4,000,000 bearing interest at the prime rate plus 1% (8.25% October 31, 1999). As of October 31, 1999, the Company has an outstanding principal balance of F-13 86 NIKU CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) JANUARY 31, 1999 AND OCTOBER 31, 1999 (INFORMATION FOR THE NINE MONTHS ENDED OCTOBER 31, 1998, IS UNAUDITED.) approximately $3,771,000. Interest payments are due monthly with the outstanding principal balance due October 1, 2000. This debt agreement contains certain financial covenants requiring that the Company maintain a minimum cash balance of $6.0 million and a tangible net worth of $9.0 million. This loan is secured by our tangible assets. (5) LEASES AND COMMITMENTS In February 1999, the Company entered into a master lease agreement for equipment specifically approved by the lessor up to an aggregate price of $500,000. As of October 31, 1999, the Company had drawn down approximately $345,000 related to this agreement. In conjunction with the agreement, the Company granted the lessor warrants to purchase 30,000 shares of its Series B redeemable convertible preferred stock at an exercise price of $0.75 per share. The warrants expire the earlier of February 2006, or three years after an initial public offering of the Company's common stock. The fair value of the warrants issued, calculated using the Black-Scholes option pricing model, using $1.10 as the fair value of the underlying redeemable convertible preferred stock and the following weighted-average assumptions: no dividends; contractual life of seven years; risk-free interest rate of 6.00%; expected volatility of 70%, was not material. In May 1999, Niku entered into a noncancelable operating lease for its facilities expiring in August 2005. Future minimum lease payments as of October 31, 1999, were as follows (in thousands):
CAPITAL OPERATING FISCAL YEAR LEASES LEASES ----------- ------- --------- 2000 (three months)......................................... $ 38 $ 959 2001........................................................ 149 952 2002........................................................ 140 1,985 2003........................................................ 12 2,059 2004........................................................ -- 2,140 Thereafter.................................................. -- 3,748 ---- ------- Total minimum lease payments.............................. 339 $11,843 ======= Less amount representing imputed interest................... 30 ---- Present value of minimum lease payments..................... 309 Less current portion........................................ 132 ---- Capital lease obligation, less current portion.............. $177 ====
The Company's rent expense was $79,000 for the year ended January 31, 1999 and $61,000 and $501,000 for the nine months ended October 31, 1998 and 1999, respectively. The Company has entered into certain strategic relationships with its NPN customers, an application service provider, and CNET. As part of these arrangements the Company has committed to pay these entities for services amounts aggregating $2,450,000 for the period from November 1, 1999 to January 31, 2000, and $4,013,000 and $952,000 for fiscal years 2001 and 2002 respectively. F-14 87 NIKU CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) JANUARY 31, 1999 AND OCTOBER 31, 1999 (INFORMATION FOR THE NINE MONTHS ENDED OCTOBER 31, 1998, IS UNAUDITED.) (6) STOCKHOLDERS' EQUITY (a) REDEEMABLE CONVERTIBLE PREFERRED STOCK AND WARRANTS Redeemable convertible preferred stock outstanding as of October 31, 1999, is as follows:
ISSUED SHARES AND CARRYING DESIGNATED OUTSTANDING VALUE ---------- ----------- ----------- Series: Series F......................................... 10,000,000 10,000,000 $ 493,000 Series A....................................... 5,142,851 5,142,851 1,791,000 Series B....................................... 8,629,992 7,999,992 5,975,000 Series C....................................... 10,500,000 9,987,439 19,811,000 ---------- ---------- ----------- 34,272,843 33,130,282 $28,070,000 ========== ========== ===========
The Company has warrants to purchase 630,000 shares of Series B redeemable convertible preferred stock outstanding as of October 31, 1999, with a carrying value of $510,000. (See Notes 4 and 5) The rights, preferences, and privileges of the holders of Series F, A, B, and C redeemable convertible preferred stock are as follows: - Dividends are noncumulative and payable only upon declaration by the Company's Board of Directors at a rate of $0.0025, $0.0175, $0.0375, and $0.10 per share for Series F, A, B, and C redeemable convertible preferred stock, respectively. - Holders of Series F, A, and B redeemable convertible preferred stock have a liquidation preference of $0.05, $0.35, and $0.75, respectively, plus any declared but unpaid dividends, over holders of common stock. Holders of Series C redeemable convertible preferred stock have a liquidation preference of $2.50 per share through the first anniversary date of the issuance, $3.125 per share through the second anniversary date of the issuance, and $3.91 per share through the third anniversary date of the issuance, plus any declared but unpaid dividends, over holders of common stock. - Each share of Series F, A, B, and C convertible preferred stock is convertible at any time into one share of common stock subject to certain antidilution provisions. - Each holder of convertible preferred stock has voting rights equal to the number of shares of common stock into which such shares could be converted. - At any time after May 13, 2006, upon notification by not less than two-thirds of the holders of the Series C redeemable convertible preferred stock, the Company must redeem all of the outstanding redeemable convertible preferred stock in four equal installments beginning on the first anniversary of the date of redemption by paying in cash a sum per share equal to the original issuance price plus declared but unpaid dividends. (b) STOCK PLANS The Company is authorized to issue up to 8,000,000 shares of common stock in connection with its 1998 stock option plan (the 1998 Plan) to directors, employees, and consultants. The Plans provide for the issuance of stock purchase rights, incentive stock options, or nonstatutory stock options. F-15 88 NIKU CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) JANUARY 31, 1999 AND OCTOBER 31, 1999 (INFORMATION FOR THE NINE MONTHS ENDED OCTOBER 31, 1998, IS UNAUDITED.) The stock purchase rights are subject to a restricted stock purchase agreement whereby the Company has the right to repurchase the stock upon the voluntary or involuntary termination of the purchaser's employment with the Company at the original issuance cost. The Company's repurchase right lapses at a rate determined by the stock plan administrator, but at a minimum rate of 20% per year. Through October 31, 1999, the Company has issued 1,145,750 shares under restricted stock purchase agreements, of which 300,000 shares have been repurchased and 959,000 shares are subject to repurchase at a weighted-average price of $0.12 per share. Certain of these restricted shares were issued to officers of the Company for full recourse promissory notes with interest rates ranging from 4.77% to 6.08% and terms of four years. Under the Plan, the exercise price for incentive stock options is at least 100% of the stock's fair market value on the date of grant for employees owning 10% or less of the voting power of all classes of stock, and at least 110% of the fair market value on the date of grant for employees owning more than 10% of the voting power of all classes of stock. For nonstatutory stock options, the exercise price is also at least 110% of the fair market value on the date of grant for employees owning more than 10% of the voting power of all classes of stock and no less than 85% for employees owning 10% or less of the voting power of all classes of stock. Under the Plan, options generally expire in 10 years. However, the term of the options may be limited to 5 years if the optionee owns stock representing more than 10% of the voting power of all classes of stock. Vesting periods are determined by the Company's Board of Directors and generally provide for shares to vest ratably over a 5-year period. As of October 31, 1999, there were 2,302,250 additional shares available for grant under the 1998 stock option plans. (c) STOCK-BASED COMPENSATION The Company uses the intrinsic-value method in accounting for its employee stock-based compensation plans. Accordingly, no compensation cost has been recognized for any of its stock options granted or restricted stock sold because the exercise price of each option or purchase price of each share of restricted stock equaled or exceeded the fair value of the underlying common stock as of the grant date for each stock option or purchase date of each restricted stock share, except for stock options granted and restricted stock sold from January 31, 1998 through October 31, 1999. With respect to the stock options granted and restricted stock sold from January 31, 1998 to October 31, 1999, the Company recorded deferred stock compensation of $9,287,000 for the difference at the grant or issuance date between the exercise price of each stock option granted or purchase price of each restricted share sold and the fair value of the underlying common stock. This amount is being amortized on an accelerated basis over the vesting period, generally four to five years, consistent with the method described in FASB Interpretation No. 28. The amortization of deferred stock compensation, combined with the F-16 89 NIKU CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) JANUARY 31, 1999 AND OCTOBER 31, 1999 (INFORMATION FOR THE NINE MONTHS ENDED OCTOBER 31, 1998, IS UNAUDITED.) expense associated with stock options granted to non-employees, relates to the following items in the accompanying consolidated statements of operations (in thousands):
NINE MONTHS ENDED YEAR ENDED -------------------------- JANUARY 31, OCTOBER 31, OCTOBER 31, 1999 1998 1999 ----------- ----------- ----------- Cost of revenues.............................. $ -- $-- $ 17 Research and development...................... 90 28 597 Sales and marketing........................... 56 7 1,140 General and administrative.................... 99 42 264 ---- --- ------ Total....................................... $245 $77 $2,018 ==== === ======
Had compensation costs been determined in accordance with SFAS No. 123 for all of the Company's stock-based compensation plans, net loss (in thousands) and basic and diluted net loss per share would have been as follows:
NINE MONTHS YEAR ENDED ENDED JANUARY 31, OCTOBER 31, 1999 1999 ----------- ----------- Net loss: As reported................................................ $(3,020) $(13,533) Pro forma................................................ $(3,031) $(13,607) Basic and diluted net loss per share: As reported.............................................. $ (0.62) $ (2.31) Pro forma................................................ $ (0.62) $ (2.32)
The fair value of each option was estimated on the date of grant using the minimum value method with the following weighted-average assumptions: no dividends; risk-free interest rate of 4.97% and 5.78% for the year ended January 31, 1999, and the nine months ended October 31, 1999, respectively; and expected life of 4 years for the year ended January 31, 1999, and the nine months ended October 31, 1999, respectively. F-17 90 NIKU CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) JANUARY 31, 1999 AND OCTOBER 31, 1999 (INFORMATION FOR THE NINE MONTHS ENDED OCTOBER 31, 1998, IS UNAUDITED.) A summary of the status of the Company's options under the Plans, is as follows:
YEAR ENDED NINE MONTHS ENDED JANUARY 31, 1999 OCTOBER 31, 1999 ---------------------- ---------------------- WEIGHTED- WEIGHTED- AVERAGE AVERAGE NUMBER EXERCISE NUMBER EXERCISE OF SHARES PRICE OF SHARES PRICE ---------- --------- ---------- --------- Outstanding at beginning of year/period............................ -- $ -- 3,473,500 $0.08 Granted.................................. 4,277,000 0.08 2,323,500 0.54 Forfeited................................ (181,000) 0.10 (371,750) 0.10 Exercised................................ (622,500) 0.08 (1,446,123) 0.14 ---------- ---------- Outstanding at end of year/period........ 3,473,500 0.08 3,979,127 0.33 ========== ========== Options exercisable at end of year/period............................ 893,249 0.10 591,678 0.62 ========== ========== Weighted-average fair value of options granted during the period with exercise prices equal to fair value at date of grant.................................. 1,512,500 0.02 -- -- Weighted-average fair value of options granted during the period with exercise prices less than fair value at date of grant.................................. 2,764,500 0.73 2,323,500 3.37
As of October 31, 1999, the range of exercise prices and weighted-average remaining contractual life of outstanding options were as follows:
OPTIONS OUTSTANDING ----------------------------------- WEIGHTED- OPTIONS EXERCISABLE AVERAGE --------------------- REMAINING WEIGHTED- WEIGHTED- RANGE OF NUMBER CONTRACTUAL AVERAGE NUMBER AVERAGE EXERCISE OF LIFE EXERCISE OF EXERCISE PRICES SHARES (YEARS) PRICE SHARES PRICE -------- --------- ----------- --------- --------- --------- $0.01 517,709 8.19 $0.01 85,417 $0.01 $0.10 1,431,668 8.92 0.10 150,011 0.10 $0.25 1,158,000 9.61 0.25 6,250 0.25 $1.00 871,750 10.00 1.00 350,000 1.00 --------- ----- ------- ----- 3,979,127 $0.33 591,678 $0.62 ========= ===== ======= =====
(7) INCOME TAXES The differences between the income tax expense (benefit) computed at the federal statutory rate and the Company's tax provision for all periods presented primarily relate to net operating losses not benefited. F-18 91 NIKU CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) JANUARY 31, 1999 AND OCTOBER 31, 1999 (INFORMATION FOR THE NINE MONTHS ENDED OCTOBER 31, 1998, IS UNAUDITED.) The individual components of the Company's deferred tax assets are as follows (in thousands):
JANUARY 31, OCTOBER 31, 1999 1999 ----------- ----------- Net operating loss carryovers............................... $ 1,071 $ 5,451 Credit carryforward......................................... 129 129 Other....................................................... -- 97 ------- ------- Total deferred tax assets......................... 1,200 5,677 Valuation allowance......................................... (1,200) (5,677) ------- ------- Net deferred tax assets........................... $ -- $ -- ======= =======
The net changes in the valuation allowance for the year ended January 31, 1999 and for the nine months ended October 31, 1999 were increases of $1.2 million and $4.5 million, respectively. We believe sufficient uncertainty exists regarding our ability to realize our deferred tax assets and, accordingly, a valuation allowance has been established against the net deferred tax assets. As of October 31, 1999, the Company had approximately $13.7 million of net operating loss carryforwards for both federal and state purposes available to offset taxable income in future years. The federal net operating loss carryforwards expire if not utilized by 2006. In addition, the company had approximately $61,000 and $47,000 of tax credit carryforwards for increased research expenditures for federal and state purposes, respectively. The federal increased research credits expire if not utilized by 2019 and the state increased research credit can be carried over indefinitely. The Company also had approximately $21,000 of manufacturer's investment credit carryforward for state purpose, which may expire if not utilized by 2001. Federal and state laws impose substantial restrictions on the utilization of net operating loss and tax credit carryforwards in the event of an "ownership change," as defined in Section 382 of the Internal Revenue Code. The Company has not yet determined whether an ownership change occurred due to significant stock transactions in each of the reporting years disclosed. If an ownership change has occurred, utilization of the net operating loss and tax credit carryforwards could be significantly reduced. (8) SIGNIFICANT CUSTOMER INFORMATION AND SEGMENT REPORTING During 1999 the Company adopted the provisions of SFAS No. 131, Disclosure About Segments of an Enterprise and Related Information. SFAS No. 131 establishes standards for the reporting by public business enterprises of information about operating segments, products and services, geographic areas, and major customers. The method for determining what information to report is based on the way that management organizes the operating segments within the Company for making operational decisions and assessments of financial performance. The Company's chief operating decision maker is considered to be the Company's Chief Executive Officer (CEO). The CEO reviews financial information presented on a consolidated basis for purposes of making operating decisions and assessing financial performance. The consolidated financial information reviewed by the CEO is identical to the information presented in the accompanying consolidated statements of operations and the Company has no significant foreign operations. Therefore, the Company operates in a single operating segment: Internet software. The F-19 92 NIKU CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) JANUARY 31, 1999 AND OCTOBER 31, 1999 (INFORMATION FOR THE NINE MONTHS ENDED OCTOBER 31, 1998, IS UNAUDITED.) disaggregated information reviewed on a product basis by the Chief Executive Officer is as follows (in thousands):
NINE MONTHS ENDED OCTOBER 31, YEAR ENDED -------------- JANUARY 31, 1999 1998 1999 ---------------- ---- ------ Revenues: License................................................ $-- $-- $1,962 Services: Consulting........................................ 15 -- 886 Maintenance....................................... -- -- 128 --- --- ------ $15 $-- $2,976 === === ======
Significant customer information is as follows:
PERCENT OF TOTAL REVENUE ---------------------------------- PERCENT NINE MONTHS OF TOTAL ENDED ACCOUNTS YEAR ENDED OCTOBER 31, RECEIVABLE JANUARY 31, ------------------- OCTOBER 31, 1999 1998 1999 1999 ----------- ----------- ---- ----------- (UNAUDITED) Customer A.................................... 100% -- -- -- Customer B.................................... -- -- 22% 24% Customer C.................................... -- -- 18% 6% Customer D.................................... -- -- 10% 12%
For the nine months ended October 31, 1999, 39% of the Company's total revenue was from customers with an officer and/or director serving as a board member of the Company. (9) SUBSEQUENT EVENTS (a) ISSUANCE OF SERIES D REDEEMABLE CONVERTIBLE PREFERRED STOCK In November 1999, the Company issued 7,998,012 shares of Series D redeemable convertible preferred stock at $5.00 per share for net proceeds of approximately $39,930,000. The rights, preferences, and privileges of the Series D redeemable convertible preferred stock are the same as the Series F, A, B and C redeemable convertible preferred stock except that the annual dividend rate is $0.25 per share and the liquidation preference is $6.25 per share. (b) ACQUISITION OF PROAMICS On December 8, 1999, the Company acquired Proamics Corporation (Proamics), a privately held company in Chicago, Illinois. Proamics is a provider of project accounting, time and expense, and billing solutions to professional services organizations. Niku issued 3,501,938 shares of its common stock and 6,491,203 shares of the Company's Series D redeemable convertible preferred stock for all of Proamics's outstanding capital stock. The F-20 93 NIKU CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) JANUARY 31, 1999 AND OCTOBER 31, 1999 (INFORMATION FOR THE NINE MONTHS ENDED OCTOBER 31, 1998, IS UNAUDITED.) transaction is to be accounted for as a purchase. The approximately $50 million purchase price will be allocated to acquired net tangible and intangible assets, including goodwill. (c) STOCK PLANS In December 1999, the Company's Board of Directors approved, subject to shareholder approval, the 2000 Equity Incentive Plan (2000 Plan). The Company has reserved 6,000,000 shares of common stock for issuance under the 2000 Plan. Shares under the 1998 Stock Plan (1998 Plan) that are not issued or subject to outstanding options at the date the 2000 Plan is effective will no longer be available under the 1998 Plan and will become available for grant under the 2000 Plan. On each January 1, the aggregate number of shares reserved for issuance under the 2000 Plan will increase automatically by a number of shares equal to 5% of the outstanding shares on December 31 of the preceding year. The 2000 Plan will terminate 10 years from the date the Company's Board of Directors approved the plan. Under the 2000 Plan, the exercise price for incentive stock options is at least 100% of the stock's fair market value on the date of grant for employees owning 10% or less of the voting power of all classes of stock, and at least 110% of the fair market value on the date of grant for employees owning more than 10% of the voting power of all classes of stock. For nonstatutory stock options, the exercise price is also at least 110% of the fair market value on the date of grant for employees owning more than 10% of the voting power of all classes of stock and no less than 85% for employees owning 10% or less of the voting power of all classes of stock. Under the 2000 Plan, options generally expire in 10 years. However, the term of the options may be limited to 5 years if the optionee owns stock representing more than 10% of the voting power of all classes of stock. Vesting periods are determined by the Company's Board of Directors and generally provide for shares to vest ratably over a 4-year period. In December 1999, the Company's Board of Directors approved, subject to shareholder approval, the 2000 Employee Stock Purchase Plan (the Purchase Plan) and reserved a total of 1,000,000 shares of the Company's common stock for issuance under the Purchase Plan. On each January 1, the aggregate number of shares reserved for issuance under the Purchase Plan will increase automatically by a number of shares equal to 1% of the total outstanding shares on December 31 of the preceding year. The aggregate number of shares reserved for issuance under the Purchase Plan may not exceed 10,000,000 shares. Generally, the offering period is 24 months in length. The Purchase Plan permits eligible employees to purchase common stock through payroll deductions at a purchase price of 85% of the lower of the fair market value of the common stock at the beginning of the applicable offering period or the end of the applicable purchase period. F-21 94 INDEPENDENT AUDITORS' REPORT The Board of Directors Proamics Corporation: We have audited the accompanying consolidated balance sheets of Proamics Corporation and subsidiaries as of December 31, 1998 and September 30, 1999, and the related consolidated statements of operations, shareholders' deficit, and cash flows for each of the years in the two-year period ended December 31, 1998 and for the nine months ended September 30, 1999. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Proamics Corporation and subsidiaries as of December 31, 1998 and September 30, 1999, and the results of their operations and their cash flows for each of the years in the two-year period ended December 31, 1998 and for the nine months ended September 30, 1999 in conformity with generally accepted accounting principles. /s/ KPMG LLP Chicago, Illinois December 20, 1999 F-22 95 PROAMICS CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
DECEMBER 31, SEPTEMBER 30, 1998 1999 ------------ ------------- ASSETS Current assets: Cash and cash equivalents................................. $ 1,340,807 $ 3,247,556 Accounts receivable, net of allowance for doubtful accounts of $694,306 and $348,939, respectively......... 2,564,836 3,864,390 Inventory................................................. 99,410 41,066 Prepaid expenses.......................................... 18,030 61,911 Other current assets...................................... -- 26,568 ----------- ------------ Total current assets............................... 4,023,083 7,241,491 ----------- ------------ Property and equipment...................................... 1,509,176 2,276,764 Less accumulated depreciation and amortization.............. (697,078) (1,035,826) ----------- ------------ Net property and equipment......................... 812,098 1,240,938 ----------- ------------ Other noncurrent assets..................................... 181,928 192,321 ----------- ------------ Total assets....................................... $ 5,017,109 $ 8,674,750 =========== ============ LIABILITIES AND SHAREHOLDERS' DEFICIT: Current liabilities: Notes payable to shareholders............................. $ -- $ 500,000 Current portion of long-term debt......................... 1,050,000 -- Accounts payable.......................................... 1,162,528 871,825 Accrued expenses.......................................... 944,844 1,387,886 Deferred revenue.......................................... 1,552,890 1,498,795 Current portion of capital lease obligations.............. 248,377 386,017 ----------- ------------ Total current liabilities.......................... 4,958,639 4,644,523 Long-term debt, less current portion, net of unamortized discount of $595,382 and $12,099, respectively............ 6,055,800 1,987,901 Deferred rent............................................... 16,869 27,172 Capital lease obligations, less current portion............. 428,382 351,330 ----------- ------------ Total liabilities.................................. 11,459,690 7,010,926 ----------- ------------ Mandatorily redeemable Series A cumulative preferred stock, $0.00001 par value; 117,000 shares authorized; 103,500 shares issued and outstanding at September 30, 1999, redemption at face value including accrued dividends of $781,161.................................................. -- 11,131,161 ------------ Mandatorily redeemable Series C cumulative preferred stock, $0.00001 par value; 24,000 shares authorized; 24,000 shares issued and outstanding at September 30, 1999, redemption at face value including accrued dividends of $58,389................................................... -- 1,258,389 ------------ Shareholders' deficit: Series B convertible preferred stock, $0.00001 par value; 9,833,585 shares authorized; 8,698,941 shares issued and outstanding at September 30, 1999....................... -- 87 Common stock, no par value and $0.00001 par value at December 31, 1998 and September 30, 1999, respectively; 21,000,000 and 40,000,000 shares authorized at December 31, 1998 and September 30, 1999, respectively; 11,290,541 and 11,669,328 shares issued and outstanding at December 31, 1998 and September 30, 1999, respectively............................................ -- 117 Additional paid-in capital................................ 2,019,752 2,929,899 Accumulated deficit....................................... (8,462,333) (13,428,911) Treasury stock, at cost; 2,269,175 shares at September 30, 1999.................................................... -- (226,918) ----------- ------------ Total shareholders' deficit........................ (6,442,581) (10,725,726) ----------- ------------ Total liabilities and shareholders' deficit........ $ 5,017,109 $ 8,674,750 =========== ============
See accompanying notes to consolidated financial statements. F-23 96 PROAMICS CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED NINE MONTHS ENDED DECEMBER 31, SEPTEMBER 30, ------------------------ ------------------------- 1997 1998 1998 1999 ---------- ----------- ----------- ----------- (UNAUDITED) Revenues: License fees........................... $1,867,426 $ 3,164,872 $2,438,790 $ 2,496,671 Service fees........................... 4,705,296 7,038,547 5,036,496 6,084,532 Maintenance and support fees........... 555,181 661,748 479,641 617,662 ---------- ----------- ---------- ----------- Total revenues................. 7,127,903 10,865,167 7,954,927 9,198,865 ---------- ----------- ---------- ----------- Cost of revenues: Cost of license fees................... 410,678 190,307 150,874 118,565 Cost of service fees................... 3,015,046 4,497,043 3,104,520 4,842,221 Cost of maintenance and support fees... 279,295 460,138 323,033 461,546 ---------- ----------- ---------- ----------- Total cost of revenues......... 3,705,019 5,147,488 3,578,427 5,422,332 ---------- ----------- ---------- ----------- Gross profit........................ 3,422,884 5,717,679 4,376,500 3,776,533 ---------- ----------- ---------- ----------- Operating expenses: Sales and marketing.................... 1,582,506 2,687,646 2,093,637 3,067,505 Research and development............... 1,046,225 1,349,341 1,065,315 2,009,534 General and administrative............. 981,980 2,348,726 1,483,439 2,214,751 ---------- ----------- ---------- ----------- Total operating expenses....... 3,610,711 6,385,713 4,642,391 7,291,790 ---------- ----------- ---------- ----------- Loss from operations................ (187,827) (668,034) (265,891) (3,515,257) ---------- ----------- ---------- ----------- Other income (expense): Interest income........................ 18,031 32,330 19,712 93,628 Interest expense....................... (169,299) (311,291) (210,234) (294,532) Amortization of discount on long-term debt................................ (291,051) (202,708) (151,767) (19,593) Other expense.......................... (9,658) (3,799) -- -- ---------- ----------- ---------- ----------- Total other expense............ (451,977) (485,468) (342,289) (220,497) ---------- ----------- ---------- ----------- Net loss before extraordinary gain.............................. (639,804) (1,153,502) (608,180) (3,735,754) Extraordinary gain on early extinguishment of long-term debt....... -- -- -- 2,381,812 ---------- ----------- ---------- ----------- Net loss....................... $ (639,804) $(1,153,502) $ (608,180) $(1,353,942) ========== =========== ========== ===========
See accompanying notes to consolidated financial statements. F-24 97 PROAMICS CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' DEFICIT
SERIES B PREFERRED STOCK COMMON STOCK ADDITIONAL ------------------ ------------------- PAID-IN ACCUMULATED SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT --------- ------ ---------- ------ ---------- ------------ Balance at December 31, 1996........................... -- $-- 10,540,541 $ -- $ 1,188 $(6,669,027) Net loss............................................... -- -- -- -- -- (639,804) Debt and accrued interest contributed to paid-in capital.............................................. -- -- -- -- 1,982,947 -- --------- --- ---------- ---- ---------- ------------ Balance at December 31, 1997........................... -- -- 10,540,541 -- 1,984,135 (7,308,831) Net loss............................................... -- -- -- -- -- (1,153,502) Common stock warrants.................................. -- -- -- -- 15,617 -- Issuance of shares to consultant....................... -- -- 750,000 -- 20,000 -- --------- --- ---------- ---- ---------- ------------ Balance at December 31, 1998........................... -- -- 11,290,541 -- 2,019,752 (8,462,333) Reincorporation of Company............................. -- -- -- 113 (113) -- Distribution to shareholders of affiliated entity...... -- -- -- -- -- (2,773,086) Issuance of Series B convertible preferred stock....... 8,698,941 87 -- -- 1,149,913 -- Dividends on mandatorily redeemable Series A cumulative preferred stock...................................... -- -- -- -- -- (781,161) Dividends on mandatorily redeemable Series C cumulative preferred............................................ -- -- -- -- -- (58,389) Issuance of shares in settlement of long-term debt..... -- -- 378,787 4 37,875 -- Preferred stock issuance costs......................... -- -- -- -- (277,528) -- Net loss............................................... -- -- -- -- -- (1,353,942) Purchase of treasury stock............................. -- -- -- -- -- -- --------- --- ---------- ---- ---------- ------------ Balance at September 30, 1999.......................... 8,698,941 $87 11,669,328 $117 $2,929,899 $(13,428,911) ========= === ========== ==== ========== ============ TREASURY STOCK --------------------- SHARES AMOUNT TOTAL --------- --------- ------------ Balance at December 31, 1996........................... -- $ -- $ (6,667,839) Net loss............................................... -- -- (639,804) Debt and accrued interest contributed to paid-in capital.............................................. -- -- 1,982,947 --------- --------- ------------ Balance at December 31, 1997........................... -- -- (5,324,696) Net loss............................................... -- -- (1,153,502) Common stock warrants.................................. -- -- 15,617 Issuance of shares to consultant....................... -- -- 20,000 --------- --------- ------------ Balance at December 31, 1998........................... -- -- (6,442,581) Reincorporation of Company............................. -- -- -- Distribution to shareholders of affiliated entity...... -- -- (2,773,086) Issuance of Series B convertible preferred stock....... -- -- 1,150,000 Dividends on mandatorily redeemable Series A cumulative preferred stock...................................... -- -- (781,161) Dividends on mandatorily redeemable Series C cumulative preferred............................................ -- -- (58,389) Issuance of shares in settlement of long-term debt..... -- -- 37,879 Preferred stock issuance costs......................... -- -- (277,528) Net loss............................................... -- -- (1,353,942) Purchase of treasury stock............................. 2,269,175 (226,918) (226,918) --------- --------- ------------ Balance at September 30, 1999.......................... 2,269,175 $(226,918) $(10,725,726) ========= ========= ============
See accompanying notes to consolidated financial statements. F-25 98 PROAMICS CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED DECEMBER 31, SEPTEMBER 30, ------------------------- ------------------------- 1997 1998 1998 1999 ----------- ----------- ----------- ----------- (UNAUDITED) Cash flows from operating activities: Net loss............................................. $ (639,804) $(1,153,502) $ (608,180) $(1,353,942) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Depreciation and amortization.................... 120,431 235,070 149,441 338,748 Amortization of discount on long-term debt....... 291,051 202,708 151,767 19,593 Extraordinary gain on early extinguishment of long-term debt................................. -- -- -- (2,381,812) Expense related to issuance of common stock for services....................................... -- 20,000 -- -- Changes in assets and liabilities: Accounts receivable, net....................... (1,799,211) 450,615 355,694 (1,488,674) Inventory...................................... (121,525) 106,815 85,519 58,344 Prepaid expenses............................... -- -- 40 (43,881) Other assets................................... (124,973) (3,050) 7,259 (36,961) Accounts payable............................... 292,037 92,493 98,357 (119,384) Accrued expenses............................... 391,005 94,708 447,750 443,042 Deferred revenue............................... 1,029,781 (184,132) (103,093) (54,095) Deferred rent.................................. -- 16,869 11,808 10,303 Other liabilities.............................. 12,680 (17,315) (17,315) -- ----------- ----------- ---------- ----------- Net cash provided by (used in) operating activities................................... (548,528) (138,721) 579,047 (4,608,719) ----------- ----------- ---------- ----------- Cash flows from investing activities -- purchases of property and equipment............................... (63,623) (167,567) (79,490) (425,398) ----------- ----------- ---------- ----------- Cash flows from financing activities: Payments on capital lease obligations................ (62,901) (126,732) (86,303) (281,602) Payments on long-term debt........................... -- -- -- (1,500,000) Proceeds from issuance of preferred stock, net....... -- -- -- 11,222,472 Distributions to shareholders of affiliated entity... -- -- -- (2,773,086) Purchase of treasury stock........................... -- -- -- (226,918) Proceeds from issuance of notes payable to shareholders....................................... -- -- -- 500,000 Proceeds from issuance of long-term debt............. 1,000,000 1,000,000 -- -- ----------- ----------- ---------- ----------- Net cash provided by (used in) financing activities................................... 937,099 873,268 (86,303) 6,940,866 ----------- ----------- ---------- ----------- Net increase in cash and cash equivalents...... 324,948 566,980 413,254 1,906,749 Cash and cash equivalents at beginning of period....... 448,879 773,827 773,827 1,340,807 ----------- ----------- ---------- ----------- Cash and cash equivalents at end of period............. $ 773,827 $ 1,340,807 $1,187,081 $ 3,247,556 =========== =========== ========== =========== Supplemental disclosures of cash flow information: Cash paid during the period for -- interest.......... $ 178,084 $ 284,470 $ 328,273 $ 318,327 =========== =========== ========== =========== Noncash financing activities: Capital lease obligations.......................... $ 320,256 $ 523,447 $ 182,540 $ 342,190 =========== =========== ========== =========== Debt and accrued interest converted into contributed capital.............................. $ 1,982,947 $ -- $ -- $ -- =========== =========== ========== =========== Accounts receivable reduced with early extinguishment of long-term debt................. $ -- $ -- $ -- $ 189,120 =========== =========== ========== =========== Accounts payable reduced with early extinguishment of long-term debt................................ $ -- $ -- $ -- $ 172,500 =========== =========== ========== =========== Long-term debt converted into mandatorily redeemable Series C cumulative preferred stock... $ -- $ -- $ -- $ 1,200,000 =========== =========== ========== =========== Long-term debt converted into common stock......... $ -- $ -- $ -- $ 37,879 =========== =========== ========== ===========
See accompanying notes to consolidated financial statements. F-26 99 PROAMICS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (a) DESCRIPTION OF BUSINESS Proamics Corporation and subsidiaries (Proamics or the Company) are engaged in the business of developing software applications for resale and in providing consulting services related to the installation of their software. The Company's products are sold to end-users throughout the world directly through its internal sales force as well as third-party distributors. The historical consolidated financial statements of Proamics include the financial position and results of operations of Isthmus Corporation (Isthmus). Proamics and Isthmus were separate legal entities which had substantially the same shareholders. On February 23, 1999, Isthmus merged with and into Proamics with Proamics being the surviving corporation. All of the issued and outstanding shares of common stock of Isthmus were canceled in connection with the merger. The merger was a combination of entities under common control and has been accounted for on an "as if" pooling-of-interests basis with the accompanying financial statements restated for all periods presented. In addition, on March 5, 1999, the Company purchased all outstanding shares of Lotzoff & Associates, Inc. (an affiliated entity). (b) UNAUDITED INTERIM FINANCIAL INFORMATION The financial statements for the nine months ended September 30, 1998 are unaudited. In the opinion of the Company's management, the unaudited interim financial statements include adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of the financial position and results of operations for that period. (c) PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of Proamics Corporation and its wholly owned subsidiaries, Proamics Canada Ltd. and Proamics UK, Ltd. All significant intercompany accounts and transactions have been eliminated in the consolidated financial statements. (d) REVENUE RECOGNITION The Company has adopted Statement of Position (SOP) 97-2, Software Revenue Recognition, as amended by SOP 98-4 and SOP 98-9. Revenue from license fees is recognized when persuasive evidence of an agreement exists, delivery of the product has occurred, no significant Company obligations with regard to implementation remain, the fee is fixed or determinable, and collectibility is probable. Maintenance and support fees are recognized ratably over the term of the maintenance and support period. Service fees are derived from the Company's consulting services and are comprised of both time and expense contracts and fixed-price contracts. Time and expense contract revenues are recognized as the services are performed. Fixed-price contract revenues are recognized based on the percentage-of-completion method. Deferred revenue includes amounts billed to customers for which revenues have not been recognized which generally results from the following: (1) deferred maintenance and support; (2) consulting services not yet rendered; and (3) license fees from distribution agreements with third-party software vendors. F-27 100 PROAMICS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (e) CASH EQUIVALENTS Cash equivalents are comprised of certain highly liquid investments with original maturities of generally three months or less. As of September 30, 1999, cash equivalents consisted principally of a money market account and U.S. government securities. (f) INVENTORIES Inventories of shrink-wrapped software are stated at the lower of cost, determined on a first-in, first-out basis, or market. (g) PROPERTY AND EQUIPMENT Depreciation and amortization of property and equipment is computed using the straight-line method based on the estimated useful lives, ranging from three to five years, of the various classes of property. (h) SOFTWARE DEVELOPMENT COSTS Costs associated with the planning and designing phase of software development, including coding and testing activities necessary to establish technological feasibility, are classified as research and development costs and are charged to costs and expenses as incurred. Once technological feasibility has been determined, significant costs incurred in the construction phase of software development, including coding and testing and product quality assurance, are capitalized. To date, no software development costs have been capitalized as technological feasibility has been achieved substantially concurrent with the general release of the Company's software products. (i) INCOME TAXES Prior to March 8, 1999, the Company was an S Corporation under the provisions of Subchapter S of the Internal Revenue Code, whereby its income was not subject to Federal income taxes and was allocated and taxed to its shareholders by inclusion in the individuals' Federal income tax return. Accordingly, the statements of operations for the years ended December 31, 1997 and 1998 do not include a provision for Federal, foreign and state income taxes. The S Corporation election was terminated on March 7, 1999. The Company has adopted Statement of Financial Accounting Standards (SFAS) No. 109, Accounting for Income Taxes. SFAS No. 109 requires the asset and liability method of accounting for income taxes in which deferred tax assets and liabilities are recognized for future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Under SFAS No. 109, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. (j) 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 F-28 101 PROAMICS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. (2) PROPERTY AND EQUIPMENT Property and equipment at cost, less accumulated depreciation and amortization, are summarized as follows as of December 31, 1998 and September 30, 1999:
DECEMBER 31, SEPTEMBER 30, 1998 1999 ------------ ------------- Computer equipment......................................... $1,265,277 $ 1,652,015 Office furniture and fixtures.............................. 87,793 147,361 Computer software.......................................... 142,629 376,176 Leasehold improvements..................................... 13,477 101,212 ---------- ----------- 1,509,176 2,276,764 Less accumulated depreciation and amortization............. (697,078) (1,035,826) ---------- ----------- $ 812,098 $ 1,240,938 ========== ===========
(3) LONG-TERM DEBT AND NOTES PAYABLE TO SHAREHOLDERS In July 1997, the Company borrowed $1,000,000 from Sirrom Capital Corporation (Sirrom). In connection with this borrowing, the Company issued common stock warrants to Sirrom representing 3.5% of the Company's ownership capital on a fully diluted basis. The common stock warrants issued to Sirrom had a de minimus value at the date of issuance. In November 1998, the Company borrowed an additional $1,000,000 from Sirrom. In connection with this borrowing, Proamics issued common stock warrants to Sirrom representing an additional 1.5% of the Company's ownership capital on a fully diluted basis. Using the Black-Scholes option-pricing model, a value of $15,617 was assigned to the warrants and recorded as additional paid-in capital and discount on long-term debt. The discount is being amortized over the life of the long-term debt. The $2,000,000 of notes payable to Sirrom bear interest at a rate of 13% per annum, are due on July 31, 2002, and are secured by a security interest in corporate assets. (See Note 13) On March 5, 1999, the Company had an outstanding note payable to Platinum Software Corporation (Platinum) for $3,936,310, net of unamortized discount of $563,690. On March 5, 1999, Proamics entered into a payoff and termination agreement with Platinum whereby Proamics paid $1,000,000 and issued 378,787 shares of Proamics common stock with an estimated fair value of $37,879 to Platinum in March 1999 and paid $500,000 to Platinum in June 1999 in complete satisfaction of its note payable to Platinum as well as a contingent $1,000,000 royalty payable to Platinum. Accordingly, the Company recorded an extraordinary gain on early extinguishment of long-term debt of $2,381,812 related to the transaction. On March 3 1999, the Company borrowed a total of $500,000 from two shareholders. Such borrowings are due on demand and bear interest at a rate of 10%. (4) LEASE COMMITMENTS The Company entered into capital leases for property and equipment during 1999 and prior years. Leased property and equipment capitalized and included in the Company's consolidated F-29 102 PROAMICS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) balance sheets at December 31, 1998 and September 30, 1999 was $611,411 and $703,601, respectively. The Company leases office facilities and certain equipment under noncancelable operating leases. Rent expense under operating leases for the years ended December 31, 1997 and 1998 and for the nine months ended September 30, 1999 was $215,067, $319,122, and $345,872 respectively. Future minimum annual rental commitments under noncancelable leases at September 30, 1999 are as follows:
YEAR ENDING DECEMBER 31, CAPITAL OPERATING ------------ -------- ---------- 1999 (3 months)............................................. $128,663 $ 95,485 2000........................................................ 425,875 386,798 2001........................................................ 319,787 350,750 2002........................................................ 19,851 302,446 2003........................................................ -- 53,820 -------- ---------- 894,176 $1,189,299 ========== Less amounts representing interest.......................... 156,829 -------- Present value of minimum lease payments................... 737,347 Less current maturities..................................... 386,017 -------- $351,330 ========
(5) EQUITY TRANSACTIONS AND MANDATORILY REDEEMABLE PREFERRED STOCK On January 1, 1997, the Company, its shareholders, and Cramlo Investments, Ltd. entered into an agreement whereby $1,982,947 of debt and accrued interest were contributed to paid-in capital of the Company. In December 1998, Proamics granted 750,000 shares of common stock to an individual in connection with a consulting agreement. As of December 31, 1998, the consultant had vested in 250,000 shares. In March 1999, the Company repurchased 500,000 unvested shares and 50,000 vested shares of Proamics common stock from the consultant at a purchase price of $0.01 per share. Included in the Company's 1998 consolidated statement of operations is $20,000 of general and administrative expense representing the estimated fair value of the equity granted to the consultant. On March 5, 1999, Proamics entered into a stock purchase agreement with Lotzof & Associates, Inc. (an affiliated entity) whereby Proamics purchased all of the issued and outstanding shares of common stock of Lotzof & Associates, Inc. for $2,773,086. Lotzof & Associates, Inc. became a wholly owned subsidiary of Proamics. The principal asset acquired as a result of this acquisition was a contingent royalty obligation owed by Proamics to Lotzof & Associates, Inc. The purchase price was recorded as a distribution to Proamics shareholders. On March 9, 1999, Proamics entered into stock redemption agreements with certain shareholders to purchase an aggregate 2,269,175 shares of its common stock for an aggregate purchase price of $226,918. F-30 103 PROAMICS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) On March 9, 1999, Proamics changed its state of incorporation from Illinois to Delaware. All of the outstanding shares of Proamics-Illinois common stock were converted, on a one for one basis, into shares of common stock of Proamics-Delaware. Proamics also amended its charter and authorized 9,974,585 shares of preferred stock, $0.00001 par value, of which 117,000 are designated as Series A, 9,833,585 are designated as Series B, and 24,000 are designated as Series C. Proamics also authorized 40,000,000 shares of common stock with a par value of $0.00001. The Series A preferred stock is senior in liquidation to the Series C preferred stock while the Series C preferred stock is senior in liquidation to the Series B preferred stock and common stock. The Series B preferred stock and common stock are pari-passu in liquidation. On March 9, 1999, Vector Capital II, L.P. and certain of its affiliates (collectively, Vector) and Proamics entered into a preferred stock purchase agreement whereby Proamics issued 90,000 shares of its Series A preferred stock and 7,564,297 shares of its Series B preferred stock to Vector for $9,000,000 and $1,000,000, respectively. The preferred stock purchase agreement obligated Vector to purchase an additional 13,500 shares of Series A preferred stock and 1,134,644 shares of Series B preferred stock for $1,350,000 and $150,000, respectively, prior to June 9, 1999. In addition, Vector has the option to purchase an additional 13,500 shares of Series A preferred stock and 1,134,644 shares of Series B preferred stock for $1,350,000 and $150,000, respectively, on or prior to March 9, 2002. (See Note 13) The Series A preferred stock issued to Vector accrues dividends at a rate of 15% per annum for the period from March 1, 1999 to August 1, 2001, 5.45% per annum for the period from August 1, 2001 to March 1, 2003, and 9% for the period from March 1, 2003 until its scheduled redemption. Accrued dividends are payable when and as declared by the Company's board of directors, but if they are not paid quarterly, the accrued dividends will accumulate and further dividends will accrue thereon. Proamics shall redeem, at face value plus accrued dividends, 1/36 of the outstanding shares of Series A preferred stock on March 1, 2004 and an equal number of shares each month thereafter until all Series A shares have been redeemed. Proamics has the right to redeem the Series A preferred stock on and after February 1, 2002. Proamics is required to redeem all shares of Series A preferred stock upon a public offering of its shares. The Series B preferred stock issued to Vector is convertible into shares of common stock on a one for one exchange basis subject to certain dilution adjustments as outlined in the preferred stock purchase agreement. On March 9, 1999, Proamics entered into a preferred stock purchase agreement with members of the Cramlo Group and Cramlo Investments, Ltd. (collectively, Cramlo) whereby Proamics issued 24,000 shares of its Series C preferred stock in settlement of its aggregate $1,200,000 notes payable to Cramlo. The Series C preferred stock accrues dividends at a rate of 8.5% until its scheduled redemption. Accrued dividends are payable when and as declared by the Company's board of directors, but if they are not paid quarterly, the accrued dividends will accumulate and further dividends will accrue thereon. Proamics shall redeem, at face value plus accrued dividends, plus accrued dividends 1/36 of the outstanding shares of Series C preferred stock on March 1, 2004 and an equal number of shares each month thereafter until all Series C shares have been redeemed. Proamics has the right to redeem the Series C preferred stock on and after February 1, 2002. Proamics is required to redeem all shares of Series C preferred stock upon a public offering of its shares. F-31 104 PROAMICS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (6) 401(k) RETIREMENT PLAN The Company has a profit-sharing plan that covers substantially all employees who have satisfied minimum age and service requirements. Employees elect to contribute to the plan through salary deferrals pursuant to Section 401(k) of the Internal Revenue Code. The Company has the right, on a discretionary basis, to match employee contributions. No matching contributions were made in 1997, 1998, and 1999. (7) PHANTOM STOCK AND STOCK OPTION PLANS The Company maintains a plan under which certain employees are awarded stock appreciation rights. Under this nonqualified plan, compensation is payable only when the Company has a positive book value and certain other conditions are met. Compensation may be paid in the form of either cash or Company stock, at the Company's option, to rights holders based upon the difference between book value at date of grant and book value at date of payment. All shares awarded are subject to a five-year vesting schedule. Vesting can be accelerated upon the occurrence of various transactions relating to a change in control of the Company. The Company accrues the value of these rights as compensation expense in the period in which such value arises. No compensation expense was recognized in 1997, 1998, and 1999. During 1997, the Company increased the number of shares authorized for issuance under the plan from 1,000,000 to 2,000,000. On March 9, Proamics adopted a Stock Option Plan and reserved 6,353,522 shares of common stock for issuance under this plan. No options have been issued or granted under the plan. (8) SOFTWARE DEVELOPMENT AND DISTRIBUTION AGREEMENT In July 1997, the Company entered into a software development and distribution agreement with a third-party software vendor. Under the terms of the agreement, each party was granted a worldwide, irrevocable, nonexclusive right and license to sell the other party's software product in exchange for royalties. The agreement also requires the software vendor to pay the Company the greater of a nonrefundable minimum royalty of $1,000,000 or the royalties which would otherwise be calculable based on a prescribed formula and which is due upon the sale of the Company's products. In December 1998, the software development and distribution agreement was amended to reduce the nonrefundable minimum royalty to $800,000 and change the expiration date for the agreement from February 28, 1999 to January 31, 1999. License fees from the nonrefundable minimum royalty have been recognized ratably over the amended term of the minimum royalty period. Beginning in February 1999, the software vendor paid the Company royalties on a quarterly basis based on actual sales of the Company's product. In June 1998, the Company entered into a software development and distribution agreement with a third-party software vendor. Under the terms of the agreement, each party was granted a worldwide, irrevocable, nonexclusive right and license to sell the other party's software product in exchange for royalties. The agreement also requires the software vendor to pay the Company a one-time nonrefundable minimum royalty of $1,000,000 or the royalties which would otherwise be calculable based on a prescribed formula and which is due upon the sale of the Company's products. License fees from the nonrefundable minimum royalty are recognized ratably over the 24-month term of the minimum royalty period. F-32 105 PROAMICS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (9) SIGNIFICANT CUSTOMERS The Company's two largest customers accounted for approximately 24% of revenues for the year ended December 31, 1997 and the Company's largest customer accounted for approximately 24% and 21% of revenues for the year ended December 31, 1998 and for the nine months ended September 30, 1999, respectively. One customer accounted for approximately 12% of accounts receivable at December 31, 1998 and two customers accounted for approximately 31% of accounts receivable at September 30, 1999. (10) COMMITMENTS AND CONTINGENCIES The Company is subject to potential legal actions which arise in the ordinary course of business. In the opinion of management, the disposition of all potential or threatened claims will not have a material impact on the financial position of the Company. (11) INCOME TAXES The Company had no income tax expense for the years ended December 31, 1997 and 1998 and for the nine months ended September 30, 1999. The reconciliation of the Company's income tax expense for the years ended December 31, 1997 and 1998 and for the nine months ended September 30, 1999 to income taxes computed using the Federal statutory rate of 34% is as follows:
YEAR ENDED NINE MONTHS DECEMBER 31, ENDED --------------------- SEPTEMBER 30, 1997 1998 1999 --------- --------- ------------- Federal income tax benefit at the statutory rate... $(217,533) $(392,191) $ (460,340) State income tax benefit, net of Federal tax benefit.......................................... (6,335) (11,419) (161,567) S Corporation earnings not taxed to the Company.... 217,533 392,191 (693,420) Establishment of deferred tax assets on S Corporation termination.......................... -- -- (1,038,684) Research and experimentation credit................ -- -- (97,270) Establishment of valuation allowance............... -- -- 2,437,681 Other.............................................. 6,335 11,419 13,600 --------- --------- ----------- $ -- $ -- $ -- ========= ========= ===========
F-33 106 PROAMICS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) The tax effects of temporary differences that give rise to deferred tax assets at September 30, 1999 are as follows:
SEPTEMBER 30, 1999 ------------- Deferred tax assets: Allowance for doubtful accounts............................. $ 135,451 Depreciation and amortization............................. 4,894 Capitalized software...................................... 1,003,230 Accrued vacation.......................................... 96,011 Net operating loss carryforward........................... 1,100,825 Research and development credit........................... 97,270 ----------- Total deferred tax assets.............................. 2,437,681 Less valuation allowance.................................. (2,437,681) ----------- Net deferred tax assets................................ $ -- ===========
At September 30, 1999, the Company had net operating loss carryforwards for income tax purposes of approximately $2,800,000 expiring in the year ending December 31, 2019. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax asset will not be realized. Management has established a valuation for the full amount of the deferred tax assets at September 30, 1999. The net change in the valuation allowance during the nine months ended September 30, 1999 was an increase of $2,437,681. (13) SUBSEQUENT EVENTS On November 15, 1999, Vector purchased an additional 13,500 shares of the Company's Series A preferred stock and 1,134,644 shares of the Company's Series B preferred stock for $1,350,000 and $150,000, respectively. On December 8, 1999, the Company was acquired by Niku Corporation. Proamics received 3,501,938 shares of Niku common stock and 6,491,203 shares of Niku's preferred stock for all of the Company's outstanding capital stock. On December 8, 1999, the Company repaid $2,000,000 of notes payable to Sirrom. F-34 107 NIKU CORPORATION UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS The following unaudited pro forma combined condensed financial statements are presented for illustrative purposes only and are not necessarily indicative of the combined financial position or results of operations for future periods or the results of operations or financial position that actually would have been realized had Niku and Proamics been a combined company during the specified periods. The unaudited pro forma combined condensed financial statements, including the related notes, are qualified in their entirety by reference to, and should be read in conjunction with, the historical financial statements and related notes thereto of Niku and Proamics, included elsewhere in this filing. The following unaudited pro forma combined condensed financial statements give effect to the acquisition of Proamics by Niku using the purchase method of accounting. The unaudited pro forma combined condensed financial statements are based on the respective historical audited financial statements and related notes of Niku and Proamics. The pro forma adjustments are preliminary and based on management's estimates of the value of the tangible and intangible assets acquired. The actual adjustments may differ materially from those presented in these pro forma financial statements. A change in the pro forma adjustments would result in a reallocation of the purchase price affecting the value assigned to the long-term tangible and intangible assets or, in some circumstances, resulting a charge to the statement of operations. The effect of these changes on the statement of operations will depend on the nature and amounts of the assets and liabilities adjusted. See note 1(b) to the unaudited pro forma combined condensed financial statements. The unaudited pro forma combined condensed balance sheet assumes that the acquisition took place on October 31, 1999, and combines Niku's audited October 31, 1999 consolidated balance sheet with Proamics's audited September 30, 1999 consolidated balance sheet. The unaudited pro forma combined condensed statements of operations assumes the acquisition took place on February 1, 1998, and combines Niku's audited consolidated statements of operations for the year ended January 31, 1999, and nine months ended October 31, 1999, with Proamics's audited consolidated statements of operations for the year ended December 31, 1999, and nine months ended September 30, 1999, respectively. F-35 108 NIKU CORPORATION UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET OCTOBER 31, 1999 (IN THOUSANDS)
HISTORICAL PRO FORMA -------------------- ----------------------- NIKU PROAMICS ADJUSTMENTS COMBINED -------- -------- ----------- -------- ASSETS Current assets: Cash and cash equivalents............ $ 17,154 $ 3,248 $ -- $ 20,402 Short-term investments............... 2,175 -- 2,175 Accounts receivable.................. 2,754 3,864 6,618 Prepaid expenses and other current assets............................ 1,258 130 1,388 -------- -------- -------- -------- Total current assets............ 23,341 7,242 30,583 Deposits and other assets.............. 160 192 47,802(a) 48,154 Property and equipment, net............ 4,406 1,241 5,647 Goodwill and other intangible assets, net.................................. 831 -- 831 -------- -------- -------- -------- $ 28,738 8,675 $ 47,802 $ 85,215 ======== ======== ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) Current liabilities: Accounts payable..................... $ 3,817 $ 872 $ -- $ 4,689 Accrued liabilities.................. 1,753 1,388 500(a) 3,641 Current portion of long-term obligations....................... 5,502 886 6,388 Deferred revenue..................... 1,946 1,499 (1,000)(d) 2,445 -------- -------- -------- -------- Total current liabilities....... 13,018 4,645 (500) 17,163 Long-term obligations, less current portion.............................. 968 2,366 3,334 -------- -------- -------- -------- Total liabilities............... 13,986 7,011 (500) 20,497 -------- -------- -------- -------- Redeemable convertible preferred stock and warrants......................... 28,580 12,390 20,066(a) 61,036 -------- -------- -------- -------- Stockholders' equity (deficit): Preferred stock...................... Common stock......................... 1 -- --(a) 1 Additional paid-in capital........... 10,100 2,930 14,580(a) 27,610 Treasury stock....................... (30) (227) 227(a) (30) Deferred stock compensation.......... (7,238) -- (7,238) Notes receivable from stockholders... (108) -- (108) Accumulated deficit.................. (16,553) (13,429) 13,429(a) (16,553) -------- -------- -------- -------- Total stockholders' equity (deficit).................... (13,828) (10,726) 28,236 3,682 -------- -------- -------- -------- $ 28,738 $ 8,675 $ 47,802 $ 85,215 ======== ======== ======== ========
See accompanying notes to unaudited pro forma combined condensed financial statements. F-36 109 NIKU CORPORATION UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS YEAR ENDED JANUARY 31, 1999 (IN THOUSANDS, EXCEPT PER SHARE DATA)
HISTORICAL PRO FORMA --------------------- ------------------------- NIKU PROAMICS ADJUSTMENTS COMBINED ---------- -------- ----------- ---------- Revenues: License.................................. $ -- $ 3,165 $ -- $ 3,165 Services............................ 15 7,700 7,715 ---------- ------- -------- ---------- Total revenues................. 15 10,865 -- 10,880 ---------- ------- -------- ---------- Cost of revenues: License............................. -- 190 190 Services............................ 4 4,957 4,961 ---------- ------- -------- ---------- Total cost of revenues......... 4 5,147 -- 5,151 ---------- ------- -------- ---------- Gross profit................... 11 5,718 -- 5,729 ---------- ------- -------- ---------- Operating expenses: Research and development............ 1,610 1,349 2,959 Sales and marketing................. 290 2,688 2,978 General and administrative.......... 996 2,349 3,345 Stock-based compensation............ 245 -- -- 245 Amortization of goodwill and other intangible assets................. 20 -- 12,371(b) 12,391 ---------- ------- -------- ---------- Total operating expenses....... 3,161 6,386 12,371 21,918 ---------- ------- -------- ---------- Operating loss................. (3,150) (668) (12,371) (16,189) Interest and other....................... 130 (486) (356) ---------- ------- -------- ---------- Net loss....................... $ (3,020) $(1,154) $(12,371) $ (16,545) ========== ======= ======== ========== Basic and diluted net loss per share..... $ (0.62) $ (1.11) ========== ========== Shares used in computing basic and diluted net loss per share............. 4,882 9,993(c) 14,875 ========== ==========
See accompanying notes to unaudited pro forma combined condensed financial statements. F-37 110 NIKU CORPORATION UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS NINE MONTHS ENDED OCTOBER 31, 1999 (IN THOUSANDS, EXCEPT PER SHARE DATA)
HISTORICAL PRO FORMA -------------------- ----------------------- NIKU PROAMICS ADJUSTMENTS COMBINED --------- -------- ----------- -------- Revenues: License................................... $ 1,962 $ 2,497 $ -- $ 4,459 Services............................. 1,014 6,702 7,716 --------- ------- ------- -------- Total revenues.................. 2,976 9,199 -- 12,175 --------- ------- ------- -------- Cost of revenues: License.............................. 174 119 293 Services............................. 429 5,303 5,732 --------- ------- ------- -------- Total cost of revenues.......... 603 5,422 -- 6,025 --------- ------- ------- -------- Gross profit....................... 2,373 3,777 -- 6,150 --------- ------- ------- -------- Operating expenses: Research and development............. 6,062 2,010 8,072 Sales and marketing.................. 5,983 3,068 9,051 General and administrative........... 1,837 2,214 4,051 Stock-based compensation............. 2,018 -- -- 2,018 Amortization of goodwill and other intangible assets.................. 184 -- 9,278(b) 9,462 --------- ------- ------- -------- Total operating expenses........ 16,084 7,292 9,278 32,654 --------- ------- ------- -------- Operating loss.................. (13,711) (3,515) (9,278) (26,504) Interest and other...................... 178 (220) -- (42) --------- ------- ------- -------- Loss before extraordinary gain.......................... $ (13,533) $(3,735) $(9,278) $(26,546) ========= ======= ======= ======== Basic and diluted net loss before extraordinary gain per share............ $ (2.31) $ (1.67) ========= ======== Shares used in computing basic and diluted net loss before extraordinary gain per share................................... 5,871 9,993(c) 15,864 ========= ========
See accompanying notes to unaudited pro forma combined condensed financial statements. F-38 111 NIKU CORPORATION NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS (1) UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET On December 8, 1999, the Company acquired Proamics Corporation (Proamics), a privately-held company in Chicago, Illinois. Niku issued 3,501,938 shares of its common stock and 6,491,203 shares of the Company's Series D redeemable convertible preferred stock for all of Proamics' outstanding capital stock valued at approximately $49,966,000 for all of Proamics' outstanding capital stock. The transaction is to be accounted for as a purchase. The pro forma combined condensed balance sheet as of October 31, 1999 gives effect to the acquisition as if it had occurred on February 1, 1999. The following adjustment has been reflected in the unaudited pro forma combined condensed balance sheet: (a) To record common stock issued by Niku and record applicable purchase accounting entries. Under purchase accounting, the total purchase price will be allocated to Proamics' assets and liabilities based on their relative fair values. Amounts allocated to current products and technology and assembled workforce will be amortized on a straight-line basis over estimated useful lives of 3 years and customers lists will be amortized on a straight-line basis over estimated useful lives of 4 years. Goodwill will be amortized over an estimated useful life of 5 years. Allocations are subject to valuations as of the date of the consummation of the acquisition. The amounts and components of the estimated purchase price along with the preliminary allocation of the estimated purchase price to assets purchased are as follows (in thousands): Common stock................................................ $17,510 Series D redeemable convertible preferred stock............. 32,456 Estimated transaction costs................................. 500 ------- Total purchase price.............................. $50,466 ======= Cash and cash equivalents................................... $ 3,248 Other current assets........................................ 3,994 Property and equipment and other noncurrent assets.......... 1,433 Liabilities assumed......................................... (6,011) ------- Book value of net tangible assets of Proamics..... 2,664 Assembled workforce......................................... 1,445 Customer lists.............................................. 2,543 Current products and technology............................. 18,672 Goodwill.................................................... 25,142 ------- Net assets acquired.................................... $50,466 =======
The actual allocation of the purchase price will depend upon the composition of Proamics' net assets on the closing date and Niku's evaluation of the fair value of the net assets as of the date indicated. Consequently, the actual allocation of the purchase price could differ from that presented above. (2) UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENTS OF OPERATIONS The pro forma combined condensed statements of operations give effect to the acquisition as if it had occurred at the beginning of the periods presented. F-39 112 The following adjustments have been reflected in the unaudited pro forma combined condensed statement of operations: (b) Adjustment to record the amortization of goodwill and intangible assets resulting from the preliminary allocation of the Proamics purchase price. (c) To reflect the shares of common stock to be issued as consideration for the acquisition and shares of Series D redeemable convertible preferred stock to be issued as consideration for the acquisition on an "as if converted" basis. (d) To reflect the reduction of deferred revenue to its fair value. F-40 113 UNDERWRITING Niku 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., Dain Rauscher Incorporated, Thomas Weisel Partners LLC and U.S. Bancorp Piper Jaffray Inc. are the representatives of the underwriters.
NUMBER OF UNDERWRITERS SHARES ------------ --------- Goldman, Sachs & Co......................................... Dain Rauscher Incorporated.................................. Thomas Weisel Partners LLC.................................. U.S. Bancorp Piper Jaffray Inc.............................. ------- 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 shares from Niku to cover such sales. They may exercise that option for 30 days. If any shares are purchased under this option, the underwriters will severally purchase shares in approximately 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 Niku. These amounts are shown assuming both no exercise and full exercise of the underwriters' option to purchase additional shares.
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 of these securities dealers may resell any shares purchased from the underwriters to 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. Niku and its directors, officers, employees and other stockholders have agreed with the underwriters not to dispose of or hedge any of their common stock or securities convertible into or exchangeable for shares of common stock during the period from the date of this prospectus continuing through the date 180 days after the date of this prospectus, except with the prior written consent of Goldman, Sachs & Co. This restriction does not apply to any issuances under our existing employee benefit plans or, with respect to individuals, transfers by gift, will or intestate succession, or with respect to partnerships, transfers to partners, provided that in each case the transferee agrees to be bound by the restriction for any remaining period, or pursuant to an acquisition or strategic investment transaction, provided that any person who acquires securities in an acquisition or strategic investment transaction agrees to be bound by the restriction for any remaining period. See "Shares Eligible for Future Sale" for a discussion of transfer restrictions. Prior to this offering, there has been no public market for the shares. The initial public offering price for the common stock in this offering will be negotiated among Niku and the representatives. Among the factors to be considered in determining the initial public offering price U-1 114 of the shares in addition to prevailing market conditions, will be Niku's historical performance, estimates of the business potential and earnings prospects of Niku, an assessment of Niku's management and the consideration of the above factors in relation to market valuation of companies in related businesses. Niku has applied for approval for quotation of its common stock on the Nasdaq National Market under the symbol "NIKU." In connection with this 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 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 this underwriter in stabilizing or short-sale covering transactions. These activities by the underwriters may stabilize, maintain or 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 or in the over-the-counter market. The underwriters do not expect sales to discretionary accounts to exceed five percent of the total number of shares offered. Niku has requested the underwriters to reserve for sale, at the initial public offering price, up to shares of common stock offered in this offering for individuals designated by Niku who have expressed an interest in purchasing the shares of common stock in the offering. The number of shares available for sale to the general public will be reduced to the extent these persons purchase the reserved shares. Any reserved shares which are not purchased by these persons will be offered by the underwriters to the general public on the same terms as the other shares offered in this offering. Niku estimates that the total expenses of the offering, excluding underwriting discounts and commissions, will be approximately $ . Niku has agreed to indemnify the underwriters against liabilities, including liabilities under the Securities Act of 1933. In November 1999, an entity affiliated with Thomas Weisel Partners LLC purchased an aggregate of 150,000 shares of our Series D preferred stock for an aggregate purchase price of $750,000. Thomas Weisel Partners LLC, one of the representatives of the underwriters, was organized and registered as a broker-dealer in December 1998. Since December 1998, Thomas Weisel Partners has been named as a lead or co-manager on approximately 78 public offerings of equity securities that have been completed. Thomas Weisel Partners does not have any material relationship with Niku or any of its officers, directors or other controlling person, except with respect to (1) its contractual relationship with Niku pursuant to the underwriting agreement entered into in connection with this offering and (2) the relationship of its affiliate with Niku as the holder of 150,000 shares of our Series D preferred stock. U-2 115 - ------------------------------------------------------ - ------------------------------------------------------ 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 Special Note Regarding Forward- Looking Statements................. 20 Use of Proceeds...................... 21 Dividend Policy...................... 21 Capitalization....................... 22 Dilution............................. 24 Selected Consolidated Financial Data............................... 25 Management's Discussion and Analysis of Financial Condition and Results of Operations...................... 27 Business............................. 39 Management........................... 52 Certain Transactions................. 62 Principal Stockholders............... 64 Description of Capital Stock......... 66 Shares Eligible for Future Sale...... 69 Legal Matters........................ 70 Change in Accountants................ 70 Experts.............................. 71 Where You Can Find Additional Information........................ 71 Index to Financial Statements........ F-1 Underwriting......................... U-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. - ------------------------------------------------------ - ------------------------------------------------------ - ------------------------------------------------------ - ------------------------------------------------------ Shares NIKU CORPORATION Common Stock [NIKU LOGO] GOLDMAN, SACHS & CO. DAIN RAUSCHER WESSELS THOMAS WEISEL PARTNERS LLC U.S. BANCORP PIPER JAFFRAY Representatives of the Underwriters - ------------------------------------------------------ - ------------------------------------------------------ 116 PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION. The following table sets forth the costs and expenses to be paid by the Registrant in connection with the sale of the shares of common stock being registered hereby. All amounts are estimates except for the Securities and Exchange Commission registration fee, the NASD filing fee and the Nasdaq National Market filing fee. Securities and Exchange Commission registration fee......... $30,360 NASD filing fee............................................. 12,000 Nasdaq National Market initial filing fee................... 1,000 Accounting fees and expenses................................ * Legal fees and expenses..................................... * Road show expenses.......................................... * Printing and engraving expenses............................. * Blue sky fees and expenses.................................. * Transfer agent and registrar fees and expenses.............. * Miscellaneous............................................... * ------- Total..................................................... $ * =======
- --------------- * To be filed by amendment ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS. Section 145 of the Delaware General Corporation Law authorizes a court to award, or a corporation's board of directors to grant, indemnity to directors and officers in terms sufficiently broad to permit such indemnification under certain circumstances for liabilities (including reimbursement for expenses incurred) arising under the Securities Act of 1933, as amended (the "Securities Act"). As permitted by the Delaware General Corporation Law, the Registrant's Certificate of Incorporation includes a provision that eliminates the personal liability of its directors for monetary damages for breach of fiduciary duty as a director, except for liability: - for any breach of the director's duty of loyalty to the Registrant or its stockholders; - for acts or omissions not in good faith or that involve intentional misconduct or a knowing violation of law; - under section 174 of the Delaware General Corporation Law regarding unlawful dividends and stock purchases; or - for any transaction from which the director derived an improper personal benefit. As permitted by the Delaware General Corporation Law, the Registrant's Bylaws provide that: - the Registrant is required to indemnify its directors and officers to the fullest extent permitted by the Delaware General Corporation Law, subject to certain very limited exceptions; - the Registrant may indemnify its other employees and agents to the fullest extent permitted by the Delaware General Corporation Law, subject to very limited exceptions; II-1 117 - the Registrant is required to advance expenses, as incurred, to its directors and officers in connection with a legal proceeding; - the Registrant may advance expenses, as incurred, to its employees and agents in connection with a legal proceeding; and - the rights conferred in the Bylaws are not exclusive. The Registrant has entered into Indemnification Agreements with each of its current directors and executive officers to give such directors and officers additional contractual assurances regarding the scope of the indemnification set forth in the Registrant's Certificate of Incorporation and to provide additional procedural protections. At present, there is no pending litigation or proceeding involving a director, officer or employee of the Registrant regarding which indemnification is sought, nor is the Registrant aware of any threatened litigation that may result in claims for indemnification. Reference is also made to Section of the Underwriting Agreement, which provides for the indemnification of officers, directors and controlling persons of the Registrant against certain liabilities. The indemnification provision in the Registrant's Certificate of Incorporation, Bylaws and the Indemnification Agreements entered into between the Registrant and each of its directors and officers may be sufficiently broad to permit indemnification of the Registrant's directors and officers for liabilities arising under the Securities Act. The Registrant maintains directors' and officers' liability insurance and expects to obtain a rider to such coverage for securities matters. See also the undertakings set out in response to Item 17. Reference is made to the following documents filed as exhibits to this Registration Statement regarding relevant indemnification provisions described above and elsewhere herein:
EXHIBIT DOCUMENT NUMBER ---------------- ------ Form of Underwriting Agreement (draft dated , 1999)..... 1.01 Registrant's Certificate of Incorporation................... 3.01 Registrant's Bylaws......................................... 3.03 Form of Indemnification Agreement........................... 10.01
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES. In the three years prior to the effective date of this Registration statement, the Registrant has issued and sold the following unregistered securities: 1. In January 1998, the Registrant issued and sold 10,000,000 shares of Series F preferred stock and 3,962,500 shares of common stock to a group of eight founding investors for an aggregate consideration of $539,625 in cash. 2. In February 1998, the Registrant issued and sold 4,285,709 shares of Series A preferred stock to a group of sixteen investors for an aggregate consideration of $1,499,998.15 in cash. In April and May of 1998, the Registrant issued and sold an additional 857,142 shares of Series A preferred stock to a group of three investors for an aggregate consideration of $299,999.70 in cash. 3. In October 1998, the Registrant issued and sold 6,959,997 shares of Series B preferred stock to a group of eight investors for an aggregate consideration of $5,219,997.75 in cash. In November 1998, the Registrant issued and sold an additional 426,665 shares of Series B preferred stock to a group of four investors for an aggregate consideration of $319,998.75 in cash. In December 1998, the Registrant issued and sold an additional II-2 118 613,330 shares of Series B preferred stock to a group of eight investors for an aggregate consideration of $459,997.50 in cash. 4. In December 1998, in connection with its acquisition of Alyanza Software Corporation, the Registrant issued 524,995 shares of common stock to a group of nine former stockholders of Alyanza. 5. In February 1999, the Registrant issued to Comdisco, Inc. warrants to purchase up to 630,000 shares of Series B Preferred Stock at an exercise price of $0.75 per share which expires, if not earlier exercised, upon the earlier of February 2, 2006 or three years from the effective date of the Registrant's initial public offering. 6. In May 1999, the Registrant issued and sold 9,987,439 shares of Series C preferred stock to a group of twenty-six investors for an aggregate consideration of $19,875,003.61 in cash. 7. In November 1999, the Registrant issued and sold 7,998,012 shares of Series D preferred stock to a group of sixty-one investors for an aggregate consideration of $39,930,060 in cash. 8. In November 1999, in connection with its acquisition of Proamics Corporation, the Registrant issued 3,501,938 shares of common stock and 6,491,203 shares of Series D preferred stock to a group of twenty-nine former stockholders of Proamics. 9. From its inception on January 8, 1998 through December 15, 1999, the Registrant has issued 2,495,750 shares of common stock to its employees, consultants and other service providers through restricted stock purchases or pursuant to stock purchase agreements. 10. From its inception on January 8, 1998 through December 15, 1999, Registrant has issued 510,623 shares of common stock to its employees upon exercise of options, and as of December 15, 1999, 5,018,887 shares of common stock were issuable upon exercise of outstanding options. The sale of the above securities was determined to be exempt from registration under the Securities Act in reliance upon Section 4(2) of the Securities Act or Regulation D promulgated thereunder, or Rule 701 promulgated under Section 3(b) of the Securities Act as transactions by an issuer not involving any public offering or transactions under compensation benefit plans and contracts relating to compensation as provided under Rule 701. The recipients of securities in each transaction represented their intentions to acquire the securities for investment only and not with a view to or for sale in connection with any distribution and appropriate legends were affixed to the share certificates issued in these transactions. All recipients had adequate access, through their relationships with the Registrant, to information about the Registrant. ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES. (a) The following exhibits are filed herewith:
NUMBER EXHIBIT TITLE - ------ ------------- 1.01* Form of Underwriting Agreement. 2.01 Agreement and Plan of Reorganization with Alyanza Software Corporation, dated December 10, 1998. 2.02 Agreement and Plan of Reorganization with Proamics Corporation, dated November 16, 1999. 3.01 Registrant's Amended and Restated Certificate of Incorporation. 3.02* Form of Registrant's Amended and Restated Certificate of Incorporation (to be filed immediately after the closing of this offering).
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NUMBER EXHIBIT TITLE - ------ ------------- 3.03 Registrant's Amended and Restated Bylaws. 3.04* Registrant's Amended and Restated Bylaws (to be filed immediately after the closing of this offering). 4.01 Form of Specimen Certificate for Registrant's common stock. 4.02 Fourth Amended and Restated Investors' Rights Agreement, dated November 18, 1999, as amended December 8, 1999. 4.03 Series F Preferred Stock Purchase Agreement, dated January 23, 1998. 4.04 Series A Preferred Stock Purchase Agreement, dated February 13, 1998. 4.05 Series B Preferred Stock Purchase Agreement, dated October 13, 1998. 4.06 Series C Preferred Stock Purchase Agreement, dated May 13, 1999. 4.07 Series D Preferred Stock Purchase Agreement, dated November 18, 1999. 5.01* Opinion of Fenwick & West LLP regarding legality of the securities being registered. 10.01 Form of Indemnification Agreement entered into between Registrant and its directors and executive officers. 10.02 1998 Stock Plan, as amended. 10.03 Form of 2000 Equity Incentive Plan. 10.04 Form of 2000 Employee Stock Purchase Plan. 10.05 Business Loan Agreement, dated September 23, 1999, by and between Mid-Peninsula and Registrant. 10.06 Subordinated Loan and Security Agreement, dated as of February 2, 1999, by and between Comdisco, Inc. and Registrant. 10.07** iMap Agreement, dated June 30, 1999, by and between USinternetworking, Inc. and Registrant. 10.08** Software License Agreement, dated June 30, 1999, by and between USinternetworking, Inc. and Registrant. 10.09** Managed Services Agreement dated August 19, 1999, by and between USinternetworking, Inc. and Registrant. 10.10** Promotion Agreement dated September 10, 1999 by and between CNET, Inc. and Registrant. 10.11** Software License and Services Agreement, dated December 22, 1998, by and between Registrant and Sybase, Inc. 10.12** Software License Agreement, dated March 19, 1999, by and between Sybase, Inc. and Registrant. 10.13 Offer Letter for Joshua Pickus. 10.14 Offer Letter for Mark Nelson. 10.15 Offer Letter for Rhonda Dibachi. 10.16 Offer Letter for Kenneth Johnson. 10.17 Offer Letter for Harold Slawik. 10.18 Restricted Stock Purchase Agreement, dated November 1, 1999, by and between Joshua Pickus and Registrant. 10.19 Restricted Stock Purchase Agreement, dated November 18, 1999, by and between Mark Nelson and Registrant. 10.20 Full Recourse Promissory Note, dated November 11, 1999, by and between Joshua Pickus and Registrant. 21.01 List of Registrant's Subsidiaries. 23.01* Consent of Fenwick & West LLP (included in Exhibit 5.01). 23.02 Consent of KPMG LLP, independent accountants. 23.03 Consent of KPMG LLP, independent accountants. 24.01 Power of Attorney (see signature page hereto). 27.01 Financial Data Schedule.
- --------------- * To be filed by amendment. II-4 120 ** Confidential treatment has been requested with regard to certain portions of this document. Such portions were filed separately with the Securities and Exchange Commission. (b) The following financial statement schedule is filed herewith: Schedule II -- Valuation and Qualifying Accounts Other financial statement schedules are omitted because the information called for is not required or is shown either in the financial statements or the notes thereto. ITEM 17. UNDERTAKINGS. The undersigned Registrant hereby undertakes to provide to the Underwriters at the closing specified in the Underwriting Agreement certificates in such denominations and registered in such names as required by the Underwriters to permit prompt delivery to each purchaser. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the Registrant pursuant to the provisions described under Item 14 above, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act, and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered hereunder, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. The undersigned Registrant hereby undertakes that: (1) For purposes of determining any liability under the Securities Act, the information omitted from the form of 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; and (2) For the purpose of determining any liability under the Securities Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. II-5 121 SIGNATURES Pursuant to the requirements of the Securities Act, the Registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Redwood City, State of California, on this 22nd day of December, 1999. NIKU CORPORATION By: /s/ FARZAD DIBACHI ------------------------------------ Farzad Dibachi Chief Executive Officer POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS that each individual whose signature appears below constitutes and appoints Farzad Dibachi, Joshua Pickus, Mark Nelson and Harold Slawik and each of them, his true and lawful attorneys-in-fact and agents with full power of substitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments (including post-effective amendments) to this Registration Statement, and to sign any registration statement for the same offering covered by the Registration Statement that is to be effective upon filing pursuant to Rule 462(b) promulgated under the Securities Act, and all post-effective amendments thereto, and to file the same, with all exhibits thereto and all documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or his or their substitute or substitutes, may lawfully do or cause to be done or by virtue hereof. Pursuant to the requirements of the Securities Act, this Registration Statement has been signed by the following persons in the capacities and on the date indicated.
NAME TITLE DATE ---- ----- ---- PRINCIPAL EXECUTIVE OFFICER: /s/ FARZAD DIBACHI Chief Executive Officer and Director December 22, 1999 - ------------------------------------------ Farzad Dibachi PRINCIPAL FINANCIAL OFFICER AND PRINCIPAL ACCOUNTING OFFICER: /s/ MARK NELSON Chief Financial Officer December 22, 1999 - ------------------------------------------ Mark Nelson ADDITIONAL DIRECTORS: /s/ MICHAEL BROOKS Director December 22, 1999 - ------------------------------------------ Michael Brooks /s/ JOHN CHEN Director December 22, 1999 - ------------------------------------------ John Chen
II-6 122
NAME TITLE DATE ---- ----- ---- /s/ TERENCE GARNETT Director December 22, 1999 - ------------------------------------------ Terence Garnett /s/ WILLIAM RADUCHEL Director December 22, 1999 - ------------------------------------------ William Raduchel /s/ MAYNARD WEBB Director December 22, 1999 - ------------------------------------------ Maynard Webb
II-7 123 EXHIBIT INDEX
NUMBER EXHIBIT TITLE - ------ ------------- 1.01* Form of Underwriting Agreement. 2.01 Agreement and Plan of Reorganization with Alyanza Software Corporation, dated December 10, 1998. 2.02 Agreement and Plan of Reorganization with Proamics Corporation, dated November 16, 1999. 3.01 Registrant's Amended and Restated Certificate of Incorporation. 3.02* Form of Registrant's Amended and Restated Certificate of Incorporation (to be filed immediately after the closing of this offering). 3.03 Registrant's Amended and Restated Bylaws. 3.04* Registrant's Amended and Restated Bylaws (to be filed immediately after the closing of this offering). 4.01 Form of Specimen Certificate for Registrant's common stock. 4.02 Fourth Amended and Restated Investors' Rights Agreement, dated November 18, 1999, as amended December 8, 1999. 4.03 Series F Preferred Stock Purchase Agreement, dated January 23, 1998. 4.04 Series A Preferred Stock Purchase Agreement, dated February 13, 1998. 4.05 Series B Preferred Stock Purchase Agreement, dated October 13, 1998. 4.06 Series C Preferred Stock Purchase Agreement, dated May 13, 1999. 4.07 Series D Preferred Stock Purchase Agreement, dated November 18, 1999. 5.01* Opinion of Fenwick & West LLP regarding legality of the securities being registered. 10.01 Form of Indemnification Agreement entered into between Registrant and its directors and executive officers. 10.02 1998 Stock Plan, as amended. 10.03 Form of 2000 Equity Incentive Plan. 10.04 Form of 2000 Employee Stock Purchase Plan. 10.05 Business Loan Agreement, dated September 23, 1999, by and between Mid-Peninsula and Registrant. 10.06 Subordinated Loan and Security Agreement, dated as of February 2, 1999, by and between Comdisco, Inc. and Registrant. 10.07** iMap Agreement, dated June 30, 1999, by and between USinternetworking, Inc. and Registrant. 10.08** Software License Agreement, dated June 30, 1999, by and between USinternetworking, Inc. and Registrant. 10.09** Managed Services Agreement dated August 19, 1999, by and between USinternetworking, Inc. and Registrant. 10.10** Promotion Agreement dated September 10, 1999 by and between CNET, Inc. and Registrant. 10.11** Software License and Services Agreement, dated December 22, 1998, by and between Registrant and Sybase, Inc. 10.12** Software License Agreement, dated March 19, 1999, by and between Sybase, Inc. and Registrant. 10.13 Offer Letter for Joshua Pickus. 10.14 Offer Letter for Mark Nelson. 10.15 Offer Letter for Rhonda Dibachi. 10.16 Offer Letter for Kenneth Johnson. 10.17 Offer Letter for Harold Slawik. 10.18 Restricted Stock Purchase Agreement, dated November 1, 1999, by and between Joshua Pickus and Registrant.
124
NUMBER EXHIBIT TITLE - ------ ------------- 10.19 Restricted Stock Purchase Agreement, dated November 18, 1999, by and between Mark Nelson and Registrant. 10.20 Full Recourse Promissory Note, dated November 11, 1999, by and between Joshua Pickus and Registrant. 21.01 List of Registrant's Subsidiaries. 23.01* Consent of Fenwick & West LLP (included in Exhibit 5.01). 23.02 Consent of KPMG LLP, independent accountants. 23.03 Consent of KPMG LLP, independent accountants. 24.01 Power of Attorney (see signature page hereto). 27.01 Financial Data Schedule.
- --------------- * To be filed by amendment. ** Confidential treatment has been requested with regard to certain portions of this document. Such portions were filed separately with the Securities and Exchange Commission. EX-2.01 2 EX-2.01 1 EXHIBIT 2.01 ================================================================================ AGREEMENT AND PLAN OF REORGANIZATION DATED AS OF DECEMBER 10, 1998 AMONG NIKU CORPORATION, NIKU ACQUISITION CORP., ALYANZA SOFTWARE CORPORATION AND FELIPE LLOREDA, AS AN INDIVIDUAL ================================================================================ 2
PAGE ----- ARTICLE I - THE MERGER................................................................... 1 Section 1.1 Effective Time of the Merge........................................ 1 Section 1.2 Closing............................................................ 2 Section 1.3 Effects of the Merger.............................................. 2 Section 1.4 Directors and Officers............................................. 2 ARTICLE II - CONVERSIONS OF SECURITIES AND OTHER CONSIDERATION........................... 2 Section 2.1 Conversion of Capital Stock........................................ 2 Section 2.2 Payment Terms...................................................... 4 Section 2.3 Escrow Agreement................................................... 4 Section 2.4 Dissenting Shares.................................................. 4 Section 2.5 Exchange of Certificates........................................... 5 Section 2.6 Distributions with Respect to Unexchanged Shares................... 6 Section 2.7 Tax Consequences................................................... 6 ARTICLE III - REPRESENTATIONS AND WARRANTIES OF ALYANZA AND FELIPE LLOREDA............... 6 Section 3.1 Organization of Alyanza............................................ 7 Section 3.2 Alyanza Capital Structure.......................................... 7 Section 3.3 Authority; No Conflict; Required Filings and Consents.............. 8 Section 3.4 Financial Statements; Absence of Undisclosed Liabilities........... 9 Section 3.5 Tax Matters........................................................ 9 Section 3.6 Absence of Certain Changes or Events............................... 11 Section 3.7 Title and Related Matters.......................................... 13 Section 3.8 Proprietary Rights................................................. 13 Section 3.9 Employee Benefit Plans............................................. 15 Section 3.10 Bank Accounts...................................................... 17 Section 3.11 Contracts.......................................................... 17
- i - 3 TABLE OF CONTENTS (CONTINUED)
PAGE ----- Section 3.12 Orders, Commitments and Returns.................................... 18 Section 3.13 Compliance With Law................................................ 19 Section 3.14 Labor Difficulties; No Discrimination.............................. 19 Section 3.15 Trade Regulation................................................... 19 Section 3.16 Insider Transactions............................................... 20 Section 3.17 Employees, Independent Contractors and Consultants................. 20 Section 3.18 Insurance.......................................................... 20 Section 3.19 Accounts Receivable................................................ 20 Section 3.20 Inventory.......................................................... 21 Section 3.21 Product Warranty................................................... 21 Section 3.22 Permits/Product Liability.......................................... 21 Section 3.23 Litigation......................................................... 21 Section 3.24 Governmental Authorizations and Regulations........................ 22 Section 3.25 Subsidiaries....................................................... 22 Section 3.26 Compliance with Environmental Requirements......................... 22 Section 3.27 Corporate Documents................................................ 22 Section 3.29 Offers............................................................. 23 Section 3.30 No Brokers......................................................... 23 Section 3.31 No Commitments Regarding Future Products........................... 23 Section 3.32 Disclosure......................................................... 23 Section 3.33 LLC Conversion..................................................... 23 ARTICLE IV - REPRESENTATIONS AND WARRANTIES OF NIKU AND SUB.............................. 24 Section 4.1 Organization of Niku and Sub....................................... 24 Section 4.2 Niku Capital Structure............................................. 24 Section 4.3 Authority; No Conflict; Required Filings and Consents.............. 25
-ii- 4 TABLE OF CONTENTS (CONTINUED)
PAGE ----- Section 4.4 Interim Operations of Sub.......................................... 26 Section 4.5 Disclosure......................................................... 26 ARTICLE V - PRECLOSING COVENANTS OF ALYANZA.............................................. 26 Section 5.1 Approval of Alyanza Shareholders................................... 26 Section 5.2 Advise of Changes.................................................. 26 Section 5.3 Operation of Business.............................................. 26 Section 5.4 Access to Information.............................................. 29 Section 5.5 Satisfaction of Conditions Precedent............................... 29 Section 5.6 Other Negotiations................................................. 29 ARTICLE VI - PRECLOSING AND OTHER COVENANTS OF NIKU AND SUB.............................. 29 Section 6.1 Advise of Changes.................................................. 30 Section 6.2 Access to Information.............................................. 30 Section 6.3 Satisfaction of Conditions Precedent............................... 30 Section 6.4 Other Consideration................................................ 30 ARTICLE VII - OTHER AGREEMENTS........................................................... 30 Section 7.1 No Public Announcement............................................. 30 Section 7.2 Regulatory Filings; Consents; Reasonable Efforts................... 30 Section 7.3 Further Assurances................................................. 31 Section 7.4 Escrow Agreement................................................... 31 Section 7.5 Blue Sky Laws...................................................... 31 ARTICLE VIII - CONDITIONS TO MERGER...................................................... 31 Section 8.1 Conditions to Each Party's Obligation to Effect the Merger......... 31 Section 8.2 Additional Conditions to Obligations of Niku and Sub............... 32
-iii- 5 TABLE OF CONTENTS (CONTINUED)
PAGE ----- Section 8.3 Additional Conditions to Obligations of Alyanza.................... 33 ARTICLE IX - TERMINATION AND AMENDMENT................................................... 34 Section 9.1 Termination........................................................ 34 Section 9.2 Effect of Termination.............................................. 35 Section 9.3 Fees, Expenses and Other Payments.................................. 35 ARTICLE X - ESCROW AND INDEMNIFICATION................................................... 35 Section 10.1 Indemnification; Limitation on Liability........................... 35 Section 10.2 Escrow Fund........................................................ 35 Section 10.3 Escrow Period...................................................... 36 Section 10.4 Claims Upon Escrow Fund............................................ 37 Section 10.5 Valuation.......................................................... 37 Section 10.6 Objections to Claims............................................... 37 Section 10.7 Resolution of Conflicts............................................ 37 Section 10.8 Shareholders' Agent................................................ 38 Section 10.9 Actions of the Shareholders' Agent................................. 39 Section 10.10 Claims............................................................. 39 ARTICLE XI - MISCELLANEOUS............................................................... 39 Section 11.1 Survival of Representations and Covenants.......................... 39 Section 11.2 Notices............................................................ 40 Section 11.3 Interpretation..................................................... 41 Section 11.4 Counterparts....................................................... 41 Section 11.5 Entire Agreement; No Third Party Beneficiaries..................... 41 Section 11.6 Governing Law...................................................... 41 Section 11.7 Assignment......................................................... 41
-iv- 6 TABLE OF CONTENTS (CONTINUED)
PAGE ----- Section 11.8 Amendment.......................................................... 41 Section 11.9 Extension; Waiver.................................................. 42 Section 11.10 Specific Performance............................................... 42
-v- 7 AGREEMENT AND PLAN OF REORGANIZATION THIS AGREEMENT AND PLAN OF REORGANIZATION dated as of December 10, 1998 (this "AGREEMENT"), is entered into by and among Niku Corporation, a Delaware corporation ("NIKU"), Niku Acquisition Corp., a Delaware corporation and a wholly owned subsidiary of Niku ("SUB"), Alyanza Software Corporation, a California corporation ("ALYANZA") and Felipe Lloreda, as an individual. RECITALS: A. The Boards of Directors of Niku, Sub and Alyanza deem it advisable and in the best interests of each corporation and their respective stockholders that Niku and Alyanza enter into a transaction pursuant to which Niku would acquire all of the outstanding equity interests in Alyanza; B. It is intended that such acquisition of Alyanza by Niku be effected pursuant to the terms of this Agreement through a transaction in which Sub would merge with and into Alyanza (the "MERGER"), and, among other things, the outstanding shares of Preferred Stock of Alyanza ("Alyanza Preferred Stock") shall be converted to Common Stock at the time the transaction is closed, the outstanding shares of Common Stock (including the shares issued upon the conversion of the Preferred Stock), no par value, of Alyanza ("ALYANZA COMMON STOCK"), (and collectively, with Alyanza Preferred Stock, the "ALYANZA CAPITAL STOCK") would be converted into the right to receive certain mixed consideration in the amounts and on the terms set forth herein; NOW, THEREFORE, in consideration of the foregoing and the respective representations, warranties, covenants and agreements set forth below, the parties agree as follows: ARTICLE I THE MERGER Section 1.1 Effective Time of the Merge . Subject to the provisions of this Agreement, an agreement of merger (the "AGREEMENT OF MERGER") in such mutually acceptable form as is required by the relevant provisions of the California Corporations Code ("CALIFORNIA LAW") shall be duly executed and delivered by the parties hereto and thereafter delivered to the Secretary of State of the State of California for filing on the Closing Date (as defined in Section 1.2) and a certificate of merger (the "CERTIFICATE OF MERGER") in such mutually acceptable form as is required by the relevant provisions of the Delaware General Corporation Law ("DELAWARE LAW") shall be duly executed and delivered by the parties hereto and thereafter delivered to the Secretary of State of the State of Delaware for filing on the Closing Date. The Merger shall become effective upon the due and valid filing of the Agreement of Merger with the Secretary of State of the State of California and the filing of the Certificate of Merger with the Secretary of State of the State of Delaware or at such later time as is provided in the Agreement of Merger and the Certificate of Merger (the "EFFECTIVE TIME"). 8 Section 1.2 Closing. Provided that all of the conditions set forth in Article VIII hereof shall have been satisfied, the closing of the Merger (the "CLOSING") shall take place at 2:00 p.m., California time, on December 14, 1998. In the event that such conditions shall not have been satisfied on or prior to such date, the Closing shall take place at 10:00 a.m., California time, on a later date to be specified by Niku and Alyanza, which shall be no later than the second business day after satisfaction or waiver of the latest to occur of the conditions set forth in Article VIII. The Closing shall take place at the offices of Venture Law Group, A Professional Corporation, 2775 Sand Hill Road, Menlo Park, California unless another place is agreed to in writing by Niku and Alyanza. The date on which the Closing shall actually occur is referred to herein as the "CLOSING DATE." Section 1.3 Effects of the Merger. (a) At the Effective Time (i) the separate existence of Sub shall cease and Sub shall be merged with and into Alyanza. (Sub and Alyanza are sometimes referred to herein as the "CONSTITUENT CORPORATIONS" and Alyanza following consummation of the Merger is sometimes referred to herein as the "SURVIVING CORPORATION"), (ii) the Articles of Incorporation of Alyanza shall be the Articles of Incorporation of the Surviving Corporation and (iii) the Bylaws of Alyanza as in effect immediately prior to the Effective Time shall be the Bylaws of the Surviving Corporation. (b) At the Effective Time, the effect of the Merger shall be as provided in the applicable provisions of California Law and Delaware Law. Without limiting the generality of the foregoing, at and after the Effective Time, the Surviving Corporation shall possess all the rights, privileges, powers and franchises of a public as well as of a private nature, and be subject to all the restrictions, disabilities and duties of each of the Constituent Corporations. Section 1.4 Directors and Officers. The directors of Sub immediately prior to the Effective Time shall be the initial directors of the Surviving Corporation, and the officers of Sub immediately prior to the Effective Time shall be the initial officers of the Surviving Corporation, in each case until their respective successors are duly elected or appointed. ARTICLE II CONVERSION OF SECURITIES AND OTHER CONSIDERATION Section 2.1 Conversion of Capital Stock. At the Effective Time, by virtue of the Merger and without any action on the part of the holder of any shares of Alyanza Capital Stock or capital Stock of Sub: (a) Capital Stock of Sub. Each issued and outstanding share of the capital stock of Sub shall be converted into one share of the Common Stock of Alyanza. (b) Cancellation of Niku-Owned and Alyanza-Owned Stock. Any shares of Alyanza Capital Stock that are owned by Niku, Sub, Alyanza or any other direct or indirect wholly-owned Subsidiary (as defined below) of Niku or Alyanza shall be canceled and retired and shall cease to exist and no stock of Niku or other consideration shall be delivered in exchange. As used in this Agreement, the word "SUBSIDIARY" means, with respect to any other 2 9 party, any corporation or other organization, whether incorporated or unincorporated, of which (i) such party or any other Subsidiary of such party is a general partner (excluding partnerships, the general partnership interests of which held by such party or any Subsidiary of such party do not have a majority of the voting interest in such partnership) or (ii) at least a majority of the securities or other interests having by their terms ordinary voting power to elect a majority of the Board of Directors or others performing similar functions with respect to such corporation or other organization or a majority of the profit interests tin such other organization is directly or indirectly owned or controlled by such party or by any one or more of its Subsidiaries, or by such party and one or more of its Subsidiaries. (c) Conversion of Alyanza Capital Stock. (i) Each issued and outstanding share of Alyanza Common Stock, including Alyanza Common Stock that at the time of the Closing is subject to repurchase by Alyanza, (other than shares to be canceled in accordance with Section 2.1(b), if any, and any Dissenting Shares as defined in and to the extent provided in Section 2.4) shall be converted into the right to receive the following consideration (the "MERGER CONSIDERATION"): (x) that fraction of a share of Niku Common Stock as shall equal the Stock Exchange Ratio (as defined below) ("SHARE CONSIDERATION"); and (y) an amount of cash equal to the quotient obtained by dividing (1) $200,000 by (2) the total number of shares of outstanding Alyanza Common Stock ("CASH CONSIDERATION"). All such shares of Alyanza Common Stock, when so converted, shall no longer be outstanding and shall automatically be canceled and retired and shall cease to exist, and each holder of a certificate representing any such shares shall cease to have any rights with respect thereto, except the right to receive the Merger Consideration. (ii) For purposes of this Agreement, the terms set forth below shall be defined as follows: (x) The "STOCK EXCHANGE RATIO" for the conversion of the Alyanza Common Stock shall be determined by dividing (A) 525,000 shares by (B) the total number of shares of outstanding Alyanza Common Stock. (iii) If, between the date of this Agreement and the Effective Time, the outstanding shares of Niku Common Stock shall have been changed into a different number of shares or a different class by reason of any reclassification, split-up, stock dividend or stock combination, then the Stock Exchange Ratio shall be correspondingly adjusted. (iv) No fractional shares of Niku Common Stock shall be issued in connection with the Merger to the holders of Alyanza Common Stock, but instead the aggregate number of shares of Niku Common Stock to be issued to each such holder pursuant this subsection (c) shall be rounded downwards to the nearest whole share. (d) Alyanza Stock Option. At or prior to the Effective Time, all then outstanding options ("ALYANZA OPTIONS"), whether vested or unvested, to purchase Alyanza Common Stock issued under Alyanza's 1998 Stock Option Plan (the "OPTION PLAN") shall have 3 10 been, accelerated to fully vested status and exercised, in accordance with the Option Plan and, no such options shall be outstanding. (e) Alyanza Preferred Stock. At the Effective Time, all issued and outstanding shares of Alyanza Preferred Stock shall be converted into Alyanza Common Stock and thereafter no shares of Alyanza Preferred Stock shall be outstanding. Section 2.2 Payment Terms. (a) Fifty-percent (50%) of the Cash Consideration payable pursuant to Section 2.1(c)(i)(y) shall be payable upon the Closing and the remaining fifty-percent (50%) shall be payable on the six (6) month anniversary of the Closing; and (b) Niku shall pay all of Alyanza's liabilities at the Closing, up to One Hundred Forty-Two Thousand Five Hundred Dollars ($142,500), inclusive of legal fees for all matters and any other Merger-related expenses, up to Forty-Two Thousand Five Hundred Dollars ($42,500). Any amounts in excess of One Hundred Forty-Two Thousand Five Hundred Dollars ($142,500) and any legal fees or Merger-related expenses in excess of Forty-Two Thousand Five Hundred Dollars ($42,500) shall be payable at the closing by Niku but shall be deducted on a dollar-for-dollar basis from the Cash Consideration payable on the six month anniversary of the Closing. Any deduction pursuant to the foregoing sentence that are in dispute shall be held by Niku pending a resolution. Section 2.3 Escrow Agreement. At the Effective Time, Niku will deposit into escrow cash in an aggregate amount of $20,000 (the "ESCROW CASH") and 52,500 shares of Niku Capital Stock (the "ESCROW SHARES"). Such Escrow Cash and Escrow Shares shall be held in escrow on behalf of the persons who are the holders of Alyanza Capital Stock immediately prior to the Effective Time (the "FORMER ALYANZA SHAREHOLDERS"), on a pro rata basis, in accordance with each such Former Alyanza Shareholders' percentage interest ("PRO RATA PORTION") in the aggregate Merger Consideration to be issued to all Former Alyanza Shareholders in the Merger and shall be held as security for the Former Alyanza Shareholders' indemnification obligations under Article X and pursuant to the provisions of the escrow agreement (the "ESCROW AGREEMENT") to be executed pursuant to Section 7.4. Section 2.4 Dissenting Shares. (a) Notwithstanding any provision of this Agreement to the contrary, any shares of Alyanza Capital Stock held by a holder who has exercised such holder's dissenters' rights in accordance with California Law, and who, as of the Effective Time, has not effectively withdrawn or lost such dissenters' rights ("DISSENTING SHARES"), shall not be converted into or represent a right to receive Merger Consideration pursuant to Section 2.1, but the holder of the Dissenting Shares shall only be entitled to such rights as are granted by of California Law. (b) Notwithstanding the provisions of subsection (a) above, if any holder of shares of Alyanza Capital Stock who demands dissenters' rights with respect to such shares shall effectively withdraw or lose (through failure to perfect or otherwise) such holder's dissenters' rights under California Law, then, as of the later of the Effective Time or the occurrence of such event, such holder's shares shall automatically be converted into and represent only the right to 4 11 receive the Merger Consideration upon surrender of the certificate or certificates representing such shares; provided that if such holder effectively withdraws or loses his or her dissenters' rights after the Effective Time, then, at such time Niku will deposit in escrow cash representing such holder's Pro Rata Portion of the Escrow Cash and certificates representing such holder's Pro Rata Portion of the Escrow Shares. (c) Alyanza shall give Niku (i) prompt notice of any written demands for payment with respect to any shares of capital stock of Alyanza pursuant to Chapter 13 of California Law, withdrawals of such demands, and any other instruments served pursuant to California Law and received by the Alyanza and (ii) the opportunity to participate in all negotiations and proceedings with respect to demands for dissenters' rights under California Law. Alyanza shall not, except with the prior written consent of Niku, voluntarily make any payment with respect to any demands for dissenters' rights with respect to Alyanza Capital Stock or offer to settle or settle any such demands. Section 2.5 Exchange of Certificates. (a) From and after the Effective Time, each holder of an outstanding certificate or certificates ("CERTIFICATES") which represented shares of Alyanza Capital Stock immediately prior to the Effective Time shall have the right to surrender each Certificate to Niku (or at Niku's option, an exchange agent to be appointed by Niku), and receive in exchange for all Certificates held by such holder (i) a certificate representing the number of whole shares of Niku Common Stock (other than the Escrow Shares) and (ii) that amount of cash into which the Alyanza Capital Stock, as the case may be, evidenced by the Certificates so surrendered shall have been converted pursuant to the provisions of Article II of this Agreement. The surrender of Certificates shall be accompanied by duly completed and executed Letters of Transmittal in such form as may be reasonably specified by Niku. Until surrendered, each outstanding Certificate which prior to the Effective Time represented shares of Alyanza Capital Stock shall be deemed for all corporate purposes to evidence ownership of the Merger Consideration into which the shares of Alyanza Capital Stock have been converted but shall have no other rights. From and after the Effective Time, there shall be no further registration of transfers on the records of Alyanza of shares of Alyanza Capital Stock outstanding immediately prior to the Effective Time. (b) If any shares of Niku Common Stock to be issued as Merger Consideration are to be issued in the name of a person other than the person in whose name the Certificate(s) surrendered in exchange therefor is registered, it shall be a condition to the issuance of such shares that (i) the Certificate(s) so surrendered shall be transferable, and shall be properly assigned, endorsed or accompanied by appropriate stock powers, (ii) such transfer shall otherwise be proper and (iii) the person requesting such transfer shall pay Niku, or its exchange agent, any transfer or other taxes payable by reason of the foregoing or establish to the satisfaction of Niku that such taxes have been paid or are not required to be paid. Notwithstanding the foregoing, neither Niku nor Alyanza shall be liable to a holder of shares of Alyanza Capital Stock for any Merger Consideration issuable to such holder pursuant to the provisions of Article II of the Agreement that is delivered to a public official pursuant to applicable abandoned property, escheat or similar laws. 5 12 (c) In the event any Certificate shall have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the person claiming such Certificate to be lost, stolen or destroyed, Niku shall issue in exchange for such lost, stolen or destroyed Certificate the Merger Consideration issuable in exchange therefor pursuant to the provisions of Article II of the Agreement. Niku may in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen or destroyed Certificate to provide to Niku a bond or an indemnity agreement against any claim that may be made against Niku with respect to the Certificate alleged to have been lost, stolen or destroyed. Section 2.6 Distributions with Respect to Unexchanged Shares. No dividends or other distributions declared or made after the Effective Time with respect to Niku Common Stock with a record date after the Effective Time shall be paid to the holder of any unsurrendered Certificate with respect to the shares of Niku Common Stock represented thereby until the holder of record of such Certificate shall surrender such Certificate. Subject to the effect of applicable laws, following surrender of any such Certificate, there shall be paid to the record holder of the certificates representing whole shares of Niku Common Stock issued in exchange therefor, without interest, (i) at the time of such surrender, the amount of dividends or other distributions with a record date after the Effective Time previously paid with respect to such whole shares of Niku Common Stock, and (ii) at the appropriate payment date, the amount of dividends or other distributions with a record date after the Effective Time but prior to surrender and a payment date subsequent to surrender payable with respect to such whole shares of Niku Common Stock, as the case may be. Section 2.7 Tax Consequences. It is intended by the parties hereto that the Merger shall not constitute a "reorganization" within the meaning of Section 368 of the Code and that each party (and each Shareholder of Alyanza) shall consult its own tax advisors and is solely responsible for tax consequences to it. ARTICLE III REPRESENTATIONS AND WARRANTIES OF ALYANZA AND FELIPE LLOREDA Alyanza and Felipe Lloreda, jointly and severally, represent and warrant to Niku and Sub that the statements contained in this Article III are true and correct, except as set forth in the disclosure schedule delivered by Alyanza to Niku on or before the date of this Agreement (the "ALYANZA DISCLOSURE SCHEDULE"). All representations and warranties regarding Alyanza pertain to the C Corporation and all predecessors, including the limited liability company. The Alyanza Disclosure Schedule shall be arranged in paragraphs corresponding to the numbered and lettered paragraphs contained in this Article III. As used in this Agreement the term "knowledge of Alyanza" or "to Alyanza's knowledge" means such party's actual knowledge after due and diligent inquiry of officers, directors or other employees of such party. Section 3.1 Organization of Alyanza. Alyanza is a corporation duly organized, validly existing and in good standing under the laws of the State of California, has all requisite corporate power to own, lease and operate its property and to carry on its business as now being conducted, and is duly qualified or licensed to do business and is in good standing as a foreign corporation in each jurisdiction in which the nature of its business or ownership or leasing of properties 6 13 makes such qualification or licensing necessary and where the failure to be so qualified or licensed could result in a material adverse effect on the business, assets (including intangible assets), liabilities, condition (financial or otherwise), results of operations or prospects (a "MATERIAL ADVERSE EFFECT") of Alyanza. The Alyanza Disclosure Schedule contains a true and complete listing of the locations of all sales offices, manufacturing facilities, and any other offices or facilities of Alyanza and a true and complete list of all states in which Alyanza maintains any employees. The Alyanza Disclosure Schedule contains a true and complete list of all states in which Alyanza is duly qualified or licensed to transact business as a foreign corporation. Section 3.2 Alyanza Capital Structure. (a) The authorized capital stock of Alyanza consists of 20,000,000 shares of Alyanza Common Stock and 5,550,000 shares of Alyanza Preferred Stock all of which are designated as Series A Preferred Stock. As of the date of this Agreement, there are (i) 2,107,474 shares of Alyanza Common Stock issued and outstanding, all of which are validly issued, fully paid and nonassessable and 120,363 of which are subject to repurchase rights under the Alyanza Option Plan and the agreements thereunder, (ii) 5,445,956 shares of Series A Preferred Stock are issued and outstanding, all of which are validly issued, fully paid and non-assessable, and (iii) all options granted have terminated or been exercised and no shares of Alyanza Common Stock reserved for future issuance pursuant to outstanding options under the Option Plan. The issued and outstanding shares of Alyanza Capital Stock are held of record by the shareholders of Alyanza as set forth and identified in the shareholder list attached as Schedule 3.2(a) to the Alyanza Disclosure Schedule. Effective upon the Closing, all the holders of Preferred Stock, Felipe Lloreda and Michael Hoefer, have elected to convert their shares of Preferred Stock at the current conversion ratio of one share of Preferred Stock for one share of Common Stock. All outstanding shares of Alyanza Capital Stock, when issued, (collectively "ALYANZA SECURITIES") were issued in compliance with applicable federal and state securities laws. Except as set forth in the Alyanza Disclosure Schedule, there are no obligations, contingent or otherwise, of Alyanza to repurchase, redeem or otherwise acquire any shares of Alyanza Capital Stock or make any investment (in the form of a loan, capital contribution or otherwise) in any other entity. An updated Schedule 3.2(a) reflecting changes permitted by this Agreement in the capitalization of Alyanza between the date hereof and the Effective Time shall be delivered by Alyanza to Niku on the Closing Date. (b) Except as set forth in this Section 3.2, there are no equity securities of any class or series of Alyanza, or any security exchangeable into or exercisable for such equity securities, issued, reserved for issuance or outstanding. Except as set forth in this Section 3.2, there are no options, warrants, equity securities, calls, rights, commitments or agreements of any character to which Alyanza is a party or by which it is bound obligating Alyanza to issue, deliver or sell, or cause to be issued, delivered or sold, additional shares of capital stock of Alyanza or obligating Alyanza to grant, extend, accelerate the vesting of or enter into any such option, warrant, equity security, call, right, commitment or agreement. Alyanza is not in discussion, formal or informal, with any person or entity regarding the issuance of any form of additional Alyanza equity that has not been issued or committed to prior to the date of this Agreement. Except as provided in this Agreement and the other Transaction Documents (as defined in Section 3.3(a)) or Investment Agreements (as defined in 8.2(f)) or any transaction contemplated 7 14 hereby or thereby, there are no voting trusts, proxies or other agreements or understandings with respect to the voting of the shares of capital stock of Alyanza. Section 3.3 Authority; No Conflict; Required Filings and Consents. (a) Alyanza has all requisite corporate power and authority to enter into this Agreement and all Transaction Documents to which it is or will become a party and to consummate the transactions contemplated by this Agreement and such Transaction Documents. The execution and delivery of this Agreement and such Transaction Documents and the consummation of the transactions contemplated by this Agreement and such Transaction Documents have been duly authorized by all necessary corporate action on the part of Alyanza, subject only to the approval of the Merger by Alyanza's shareholders under the provisions of California Law and Alyanza's Amended and Restated Articles of Incorporation. This Agreement has been and such Transaction Documents have been duly executed and delivered by Alyanza. This Agreement and each of the Transaction Documents to which Alyanza is a party constitutes, and each of the Transaction Documents to which Alyanza will become a party when executed and delivered by Alyanza will constitute, assuming the due authorization, execution and delivery by the other parties hereto and thereto, the valid and binding obligation of Alyanza, enforceable against Alyanza in accordance with their respective terms (except to the extent that enforcement is affected by laws pertaining to bankruptcy, reorganization, insolvency and creditors' rights and by the availability of injunctive relief, specific performance and other equitable remedies). For purposes of this Agreement, "TRANSACTION DOCUMENTS" means the Agreement of Merger, the Certificate of Merger, and the Escrow Agreement. (b) The execution and delivery by Alyanza of this Agreement and the Transaction Documents to which it is or will become a party does not, and the consummation of the transactions contemplated by this Agreement and the Transaction Documents to which it is or will become a party will not, (i) conflict with, or result in any violation or breach of any provision of the Articles of Incorporation or Bylaws of Alyanza, (ii) result in any violation or breach of, or constitute (with or without notice or lapse of time, or both) a default (or give rise to a right of termination, cancellation or acceleration of any obligation or loss of any benefit) under any of the terms, conditions or provisions of any note, bond, mortgage, indenture, lease, contract or other agreement, instrument or obligation to which Alyanza is a party or by which it or any of its properties or assets may be bound, or (iii) conflict or violate any permit, concession, franchise, license, judgment, order, decree, statute, law, ordinance, rule or regulation applicable to Alyanza or any of its properties or assets, except in the case of (ii) and (iii) for any such conflicts, violations, breaches, defaults, terminations, cancellations or accelerations which would not have a Material Adverse Effect on Alyanza. (c) No consent, approval, order or authorization of, or registration, declaration or filing with, any court, administrative agency or commission or other governmental authority or instrumentality ("GOVERNMENTAL ENTITY") is required by or with respect to Alyanza in connection with the execution and delivery of this Agreement or of any other Transaction Document to which it is or will become a party or the consummation of the transactions contemplated by this Agreement or such Transaction Document or the continuation of the business activities of Alyanza following consummation of the Merger without a Material Adverse Effect except for (i) the filing of the Agreement of Merger with the California Secretary 8 15 of State, (ii) the filing of the Certificate of Merger with the Delaware Secretary of State, (iii) such consents, approvals, orders, authorizations, registrations, declarations and filings as may be required under applicable federal and state securities laws and (iv) such other consents, authorizations, filings, approvals and registrations which, if not obtained or made, could be expected to have a Material Adverse Effect on Alyanza. Section 3.4 Financial Statements; Absence of Undisclosed Liabilities. (a) Alyanza has delivered to Niku copies of Alyanza's unaudited balance sheet (the "MOST RECENT BALANCE SHEET") and list of liabilities as of November 25, 1998, (the "ALYANZA FINANCIAL STATEMENTS"). (b) The Alyanza Financial Statements are complete and in accordance with the books and records of Alyanza and present fairly in all material respects the financial position, results of operations and cash flows of Alyanza as of their historical dates and for the periods indicated. (c) Alyanza has no material debt, liability, or obligation of any nature, whether accrued, absolute, contingent, or otherwise, and whether due or to become due, that is not reflected or reserved against in the Most Recent Balance Sheet. All debts, liabilities, and obligations incurred after the date of the Most Recent Balance Sheet were incurred in the ordinary course of business, and are usual and normal in amount and not material both individually and in the aggregate to Alyanza or its business. Section 3.5 Tax Matters. (a) For purposes of this Section 3.5 and other provisions of this Agreement relating to Taxes, the following definitions shall apply: (i) The term "TAXES" shall mean all taxes, however denominated, including any interest, penalties or other additions to tax that may become payable in respect thereof, (A) imposed by any federal, territorial, state, local or foreign government or any agency or political subdivision of any such government, which taxes shall include, without limiting the generality of the foregoing, all income or profits taxes (including but not limited to, federal income taxes and state income taxes), payroll and employee withholding taxes, unemployment insurance, social security taxes, sales and use taxes, ad valorem taxes, excise taxes, franchise taxes, gross receipts taxes, business license taxes, occupation taxes, real and personal property taxes, stamp taxes, environmental taxes, ozone depleting chemicals taxes, transfer taxes, workers' compensation, Pension Benefit Guaranty Corporation premiums and other governmental charges, and other obligations of the same or of a similar nature to any of the foregoing, which are required to be paid, withheld or collected, (B) any liability for the payment of amounts referred to in (A) as a result of being a member of any affiliated, consolidated, combined or unitary group, or (C) any liability for amounts referred to in (A) or (B) as a result of any obligations to indemnify another person. (ii) The term "RETURNS" shall mean all reports, estimates, declarations of estimated tax, information statements and returns relating to, or required to be filed in 9 16 connection with, any Taxes, including information returns or reports with respect to backup withholding and other payments to third parties. (b) All Returns required to be filed by or on behalf of Alyanza have been duly filed on a timely basis and such Returns are true, complete and correct in all respects. All Taxes shown to be payable on such Returns or on subsequent assessments with respect thereto, and all payments of estimated Taxes required to be made by or on behalf of Alyanza under Section 6655 of the Code or comparable provisions of state, local or foreign law, have been paid in full on a timely basis or have been accrued on the Most Recent Balance Sheet, and no other Taxes are payable by Alyanza with respect to items or periods covered by such Returns (whether or not shown on or reportable on such Returns). Alyanza has withheld and paid over all Taxes required to have been withheld and paid over, and compiled with all information reporting and backup withholding requirements, including maintenance of required records with respect thereto, in connection with amounts paid or owing to any employee, creditor, independent contractor, or other third party. There are no liens on any of the assets of Alyanza with respect to Taxes, other than liens for Taxes not yet due and payable or for Taxes that Alyanza is contesting in good faith through appropriate proceedings and for which appropriate reserves have been established on the Most Recent Balance Sheet. Alyanza has not at any time been (i) a member of an affiliated group of corporations filing consolidated, combined or unitary income or franchise tax returns, or (ii) a member of any partnership or joint venture for a period for which the statue of limitations for any Tax potentially applicable as a result of such membership has not expired. (c) The amount of Alyanza's liability for unpaid Taxes (whether actual or contingent) for all periods through the date of the Most Recent Balance Sheet does not, in the aggregate, exceed the amount of the current liability accruals for Taxes reflected on the Most Recent Balance Sheet, and the Most Recent Balance Sheet reflects proper accrual in accordance with generally accepted accounting principles applied on a basis consistent with prior periods of all liabilities for Taxes payable after the date of the Most Recent Balance Sheet attributable to transactions and events occurring prior to such date. No liability for Taxes has been incurred (or prior to Closing will be incurred) since such date other than in the ordinary course of business. (d) Niku has been furnished by Alyanza with true and complete copies of (i) relevant portions of income tax audit reports, statements of deficiencies, closing or other agreements received by or on behalf of Alyanza relating to Taxes, and (ii) all federal and state income or franchise tax Returns and state sales and use tax Returns for or including Alyanza for all periods since the inception of Alyanza. Alyanza does not do business in or derive income from any state other than states for which Returns have been duly filed and furnished to Niku. (e) The Returns of or including Alyanza have never been audited by a government or taxing authority, nor is any such audit in process, pending or, to Alyanza's knowledge, threatened (either in writing or verbally, formally or informally). No deficiencies exist or have been asserted (either in writing or verbally, formally or informally), and Alyanza has not received notice (either in writing or verbally, formally or informally) that it has not filed a Return or paid Taxes required to be filed or paid. Alyanza is neither a party to any action or proceeding for assessment or collection of Taxes, nor has such event been asserted or threatened (either in writing or verbally, formally or informally) against Alyanza or any of its assets. No waiver or extension of any statute of limitations is in effect with respect to Taxes or Returns of 10 17 Alyanza. Alyanza has disclosed on its federal and state income and franchise tax Returns all positions taken therein that could give rise to a substantial understatement penalty within the meaning of Code Section 6662 or comparable provisions of applicable state tax laws. (f) Alyanza is not, nor has it ever been, a party to any tax sharing agreement. (g) Alyanza is not, nor has it been, a United States real property holding corporation within the meaning of Section 897(c)(2) of the Code during the applicable period specified Section 897(c)(1)(A)(ii) of the Code, and Niku is not required to withhold tax by reason of Section 1445 of the Code. Alyanza is not a "consenting corporation" under Section 341(f) of the Code. Alyanza has not entered into any compensatory agreements with respect to the performance of services which payment thereunder would result in a nondeductible expense to Alyanza pursuant to Section 28OG of the Code or an excise tax to the recipient of such payment pursuant to Section 4999 of the Code. Alyanza has not agreed to, nor is it required to make any adjustment under Code Section 481(a) by reason of, a change in accounting method. Alyanza is not, nor has it been, a reporting corporation" subject to the information reporting and record maintenance requirements of Section 6038A and the regulations thereunder. Alyanza is in compliance with the terms and conditions of any applicable tax exemptions, agreements or orders of any foreign government to which it may be subject or which it may have claimed, and the transactions contemplated by this Agreement will not have any adverse effect on such compliance. (h) The Alyanza Disclosure Schedule sets forth accurate and complete information regarding Alyanza's net operating losses for federal and each applicable state tax purposes. Alyanza has no net operating losses and credit carryovers or other tax attributes currently subject to limitation under Sections 382, 383, or 384 of the Code. Section 3.6 Absence of Certain Changes or Events. Since November 25, 1998, Alyanza has not: (a) suffered any material adverse effect on its business, assets (including intangible assets), liabilities, condition (financial or otherwise), results of operations or prospects; (b) suffered any damage, destruction or loss, whether covered by insurance or not, that has resulted, or could be reasonably expected to result, in a Material Adverse Effect on Alyanza; (c) granted or agreed to make any increase in the compensation payable or to become payable by Alyanza to its officers or employees except, in the case of non-officer employees, in the ordinary course of business consistent with past practice; (d) declared, set aside or paid any dividend or made any other distribution on or in respect of the shares of the capital stock of Alyanza or declared any direct or indirect redemption, retirement, purchase or other acquisition by Alyanza of such shares; (e) issued any shares of capital stock of Alyanza or any warrants, rights, options or entered into any commitment relating to the shares of Alyanza, except for the issuance 11 18 of shares of Alyanza capital stock pursuant to the exercise of Alyanza Options listed in the Alyanza Disclosure Schedule and the conversion of outstanding Alyanza Preferred Stock; (f) made any change in the accounting methods or practices it follows, whether for general financial or tax purposes, or any change in depreciation or amortization policies or rates adopted therein; (g) except for the sale of products by Alyanza in the ordinary course of its business consistent with its past practice, sold, leased, abandoned or otherwise disposed of any real property or any machinery, equipment or other operating property with a net book value at the time of sale or disposition on an individual basis in excess of $5,000; (h) sold, assigned, transferred, licensed or otherwise disposed of any patent, trademark, trade name, brand name, copyright (or pending application for any patent, trademark or copyright) invention, work of authorship, process, know-how, formula or trade secret or interest thereunder or other intangible asset; (i) permitted or allowed any of its property or assets to be subjected to any mortgage, deed of trust, pledge, lien, security interest or other encumbrance of any kind securing any obligation in excess of $5,000 (except those permitted under Section 3.7); (j) made any capital expenditure or commitment individually in excess of $5,000 or in the aggregate in excess of $15,000; (k) paid, loaned or advanced any amount to, or sold, transferred or leased any properties or assets to, or entered into any agreement or arrangement with, any of its Affiliates (as defined in Section 3.16), officers, directors or shareholders or any affiliate or associate of any of the foregoing; (1) made any amendment to or terminated any agreement which, if not so amended or terminated, would be required to be disclosed on Schedule 3.11 of the Alyanza Disclosure Schedule; or (m) agreed to take any action described in this Section 3.6 or outside of its ordinary course of business or which would constitute a material breach of any of the representations contained in this Agreement. Section 3.7 Title and Related Matters. Alyanza has good and valid title to all the properties, interests in properties and assets, real and personal, used in or necessary for the operation of the business of Alyanza, free and clear of all mortgages, liens, pledges, charges or encumbrances of any kind or character, except the lien of current Taxes not yet due and payable. The equipment of Alyanza used in the operation of its business is, taken as a whole, (i) adequate for the business conducted by Alyanza and (ii) in good operating condition and repair, ordinary wear and tear excepted. All real or personal property leases to which Alyanza is a party are valid, binding, enforceable against Alyanza and effective in accordance with their respective terms. To the knowledge of Alyanza, there is not under any of such leases any existing default or event of default or event which, with notice or lapse of time or both, would constitute a default that would have a Material Adverse Effect on Alyanza. The Alyanza Disclosure Schedule contains a 12 19 description of all personal property with an individual net book value in excess of $5,000 and a description of all real property leased or owned by Alyanza, describing its interest in said property. True and correct copies of Alyanza's real property and personal property leases have been provided to Niku. Section 3.8 Proprietary Rights. (a) Alyanza owns all right, title and interest in and to, or otherwise possesses legally enforceable rights, or is licensed to use, all patents, copyrights, technology, software, software tools, know-how, processes, trade secrets, trademarks, service marks, trade names and other proprietary rights used in or necessary for the conduct of Alyanza's business as conducted to the date of this Agreement and proposed by Alyanza to be conducted, including, without limitation, the technology, information, databases, data lists, data compilations, and all proprietary rights developed or discovered or used in connection with or contained in all versions and implementations of any product which has been or is being distributed or sold by Alyanza or currently is under development by Alyanza or has previously been under development by Alyanza (collectively, the "ALYANZA PRODUCTS"), free and clear of all liens, claims and encumbrances (including without limitation I inking, licensing and distribution rights) (all of which are referred to as "ALYANZA PROPRIETARY RIGHTS"). The Alyanza Disclosure Schedule contains an accurate and complete (i) description of all patents, trademarks (with separate listings of registered and unregistered trademarks), trade names, and registered copyrights in or related to the Alyanza Products or otherwise included in the Alyanza Proprietary Rights and all applications and registration statements therefor, including the jurisdictions in which each such Alyanza Proprietary Right has been issued or registered or in which any such application of such issuance and registration has been filed, (ii) list of all licenses and other agreements with third parties (the "THIRD PARTY LICENSES") relating to any material patents, copyrights, trade secrets, software, inventions, technology, know-how, processes or other proprietary rights that Alyanza is licensed or otherwise authorized by such third parties to use, market, distribute or incorporate in Alyanza Products (other than standard off-the-shelf license) (such patents, copyrights, trade secrets, software, inventions, technology, know-how, processes or other proprietary rights are collectively referred to as the "THIRD PARTY TECHNOLOGY") and (iii) list of all licenses and other agreements with third parties relating to any material information, compilations, data lists or databases that Alyanza is licensed or otherwise authorized by such third parties to use, market, disseminate, distribute or incorporate in Alyanza Products (other than standard off-the-shelf licenses). All of Alyanza's patents, copyrights, trademark or trade name registrations related to or in the Alyanza Products are valid and In full force and effect; and consummation of the transactions contemplated by this Agreement will not alter or impair any such rights. No claims have been asserted or threatened against Alyanza (and Alyanza is not aware of any claims which are likely to be asserted or threatened against Alyanza or which have been asserted or threatened against others relating to Alyanza Proprietary Rights or Alyanza Products) by any person challenging Alyanza's use, possession, development, manufacture, sale or distribution of Alyanza Products under any Alyanza Proprietary Rights (including, without limitation, the Third Party Technology) or challenging or questioning the validity or effectiveness of any material license or agreement relating thereto (including, without limitation, the Third Party Licenses). Alyanza is not aware of any valid basis for any claim of the type specified in the immediately preceding sentence which could in any material way relate to or interfere with the continued enhancement and exploitation by Alyanza of any of the Alyanza Products. To the best of 13 20 Alyanza's knowledge, none of the Alyanza Products nor the use or exploitation of any Alyanza Proprietary Rights in Alyanza's current business infringes on the rights of or constitutes misappropriation of any proprietary information or intangible property right of any third person or entity, including without limitation any patent, trade secret, copyright, trademark or trade name, and Alyanza has not been sued or named in any suit, action or proceeding which involves a claim of such infringement, misappropriation or unfair competition. (b) Except as set forth in the Alyanza Disclosure Schedule, Alyanza has not granted any third party any right to reproduce, distribute, market or exploit any of the Alyanza Products or any adaptations, translations, or derivative works based on the Alyanza Products or any portion thereof Except with respect to the rights of third parties to the Third Party Technology, no third party has any express right to reproduce, distribute, market or exploit any works or materials of which any of the Alyanza Products are a "derivative work" as that term is defined in the United States Copyright Act, Title 17, U.S.C. Section 101. (c) All material designs. drawings, specifications, source code, object code, scripts, documentation, flow charts, diagrams, data lists, databases, compilations and information incorporating, embodying or reflecting any of the Alyanza Products at any stage of their development (the "ALYANZA COMPONENTS") were written, developed and created solely and exclusively by employees of Alyanza without the assistance of any third party or entity or were created by third parties who assigned ownership of their rights to Alyanza by means of valid and enforceable consultant confidentiality and invention assignment agreements, copies of which have been delivered to Niku. Alyanza has at all times used commercially reasonable efforts customary in its industry to treat the Alyanza Proprietary Rights related to Alyanza Products and Alyanza Components as containing trade secrets and has not disclosed or otherwise dealt with such items in such a manner as intended or reasonably likely to cause the loss of such trade secrets by release into the public domain. (d) To Alyanza's knowledge, no employee, contractor or consultant of Alyanza is in violation in any material respect of any term of any written employment contract, patent disclosure agreement or any other written contract or agreement relating to the relationship of any such employee, consultant or contractor with Alyanza or, to Alyanza's knowledge, any other party because of the nature of the business conducted by Alyanza or proposed to be conducted by Alyanza. The Alyanza Disclosure Schedule lists all employee, contractors and consultants who have participated in any way in the development of the Alyanza Products or the Alyanza Proprietary Rights. (e) Each person presently or previously employed by Alyanza (including independent contractors, if any) with access authorized by Alyanza to confidential information has executed a confidentiality and non-disclosure agreement pursuant to the form of agreement previously provided to Niku. Such confidentiality and non-disclosure agreements constitute valid and binding obligations of Alyanza and such person, enforceable in accordance with their respective terms. (f) To Alyanza's knowledge, there is no material unauthorized use, disclosure, infringement or misappropriation of any Alyanza Proprietary Rights, or any Third Party Technology to the extent licensed by or through Alyanza, by any third party, including any 14 21 employee or former employee of Alyanza. Alyanza has not entered into any agreement to indemnify any other person against any charge of infringement of any Alyanza Proprietary Rights. (g) Alyanza has taken all steps customary and reasonable in the industry to protect and preserve the confidentiality and proprietary nature of all Intellectual Property and other confidential information not otherwise protected by patents, patent applications or copyright ("CONFIDENTIAL INFORMATION"). All use, disclosure or appropriation of Confidential Information owned by Alyanza by or to a third party has been pursuant to the terms of a written agreement between Alyanza and such third party. All use, disclosure or appropriation of Confidential Information not owned by Alyanza has been pursuant to the terms of a written agreement between, Alyanza and the owner of such Confidential Information, or is otherwise lawful. Section 3.9 Employee Benefit Plans. (a) The Alyanza Disclosure Schedule lists, with respect to Alyanza and any trade or business (whether or not incorporated) which is treated as a single employer with Alyanza (an "ERISA AFFILIATE") within the meaning of Section 414(b), (c), (m) or (o) of the Code, (i) all material employee benefit plans (as defined in Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), (ii) each loan to a non-officer employee, loans to officers and directors and any stock option, stock purchase, phantom stock, stock appreciation right, supplemental retirement, severance, sabbatical, medical, dental, vision care, disability, employee relocation, cafeteria benefit (Code Section 125) or dependent care (Code Section 129), life insurance or accident insurance plans, programs or arrangements, (iii) all bonus, pension, profit sharing, savings, deferred compensation or incentive plans, programs or arrangements, (iv) other fringe or employee benefit plans, programs or arrangements that apply to senior management of Alyanza and that do not generally apply to all employees, and (v) any current or former employment or executive compensation or severance agreements, written or otherwise, for the benefit of, or relating to, any present or former employee, consultant or director of Alyanza as to which (with respect to any of items (i) through (v) above) any potential liability is borne by Alyanza (together, the "ALYANZA EMPLOYEE PLANS"). (b) Alyanza has delivered to Niku a copy of each of the Alyanza Employee Plans and related plan documents (including trust documents, insurance policies or contracts, employee booklets, summary plan descriptions and other authorizing documents, and, to the extent still in its possession, any material employee communications relating thereto) and has, with respect to each Alyanza Employee Plan which is subject to ERISA reporting requirements, provided copies of any Form 5500 reports filed for the last three plan years. Any Alyanza Employee Plan intended to be qualified under Section 401(a) of the Code has either obtained from the Internal Revenue Service a favorable determination letter as to its qualified status under the Code, including all amendments to the Code effected by the Tax Reform Act of 1986 and subsequent legislation, or has applied to the Internal Revenue Service for such a determination letter prior to the expiration of the requisite period under applicable Treasury Regulations or Internal Revenue Service pronouncements in which to apply for such determination letter and to make any amendments necessary to obtain a favorable determination. Alyanza has also furnished Niku with the most recent Internal Revenue Service determination letter issued with respect to 15 22 each such Alyanza Employee Plan, and nothing has occurred since the issuance of each such letter which could reasonably be expected to cause the loss of the tax-qualified status of any Alyanza Employee Plan subject to Code Section 401(a). (c) (i) None of the Alyanza Employee Plans promises or provides retiree medical or other retiree welfare benefits to any person; (ii) there has been no "prohibited transaction," as such term is defined in Section 406 of ERISA and Section 4975 of the Code, with respect to any Alyanza Employee Plan; (iii) each Alyanza Employee Plan has been administered in accordance with its terms and in compliance with the requirements prescribed by any and all statutes, rules and regulations (including ERISA and the Code), and Alyanza and each subsidiary or ERISA Affiliate have performed all material obligations required to be performed by them under, are not in any material respect in default, under or violation of, and have no knowledge of any material default or violation by any other party to, any of the Alyanza Employee Plans; (iv) neither Alyanza nor any subsidiary or ERISA Affiliate is subject to any liability or penalty under Sections 4976 through 4980 of the Code or Title I of ERISA with respect to any of the Alyanza Employee Plans; (v) all contributions required to be made by Alyanza or any subsidiary or ERISA Affiliate to any Alyanza Employee Plan have been made on or before their due dates and a reasonable amount has been accrued for contributions to each Alyanza Employee Plan for the current plan years; (vi) with respect to each Alyanza Employee Plan, no "reportable event" within the meaning of Section 4043 of ERISA (excluding any such event for which the thirty (30) day notice requirement has been waived under the regulations to Section 4043 of ERISA) nor any event described in Section 4062, 4063 or 4041 of ERISA has occurred; and (vii) no Alyanza Employee Plan is covered by, and neither Alyanza nor any subsidiary or ERISA Affiliate has incurred or expects to incur any material liability under Title IV of ERISA or Section 412 of the Code. With respect to each Alyanza Employee Plan subject to ERISA as either an employee pension plan within the meaning of Section 3(2) of ERISA or an employee welfare benefit plan within the meaning of Section 3(1) of ERISA, Alyanza has prepared in good faith and timely filed all requisite governmental reports (which were true and correct as of the date filed) and has properly and timely filed and distributed or posted all notices and reports to employees required to be filed, distributed or posted with respect to each such Alyanza Employee Plan. No suit, administrative proceeding, action or other litigation has been brought, or to the knowledge of Alyanza is threatened, against or with respect to any such Alyanza Employee Plan, including any audit or inquiry by the IRS or United States Department of Labor. Neither Alyanza nor any ERISA Affiliate is a party to, or has made any contribution to or otherwise incurred any obligation under, any "multi-employer plan" as defined in Section 3(37) of ERISA. (d) With respect to each Alyanza Employee Plan, Alyanza has complied with (i) the applicable health care continuation and notice provisions of the Consolidated Omnibus Budget Reconciliation Act of 1985 ("COBRA") and the proposed regulations thereunder and (ii) the applicable requirements of the Family Leave Act of 1993 and the regulations thereunder. (e) The consummation of the transactions contemplated by this Agreement will not (i) entitle any current or former employee or other service provider of Alyanza or any other ERISA Affiliate to severance benefits or any other payment (including, without limitation, unemployment compensation, golden parachute or bonus), except as expressly provided in this Agreement, or (ii) accelerate the time of payment or vesting of any such benefits, or (iii) increase 16 23 or accelerate any benefits or the amount of compensation due any such employee or service provider. (f) There has been no amendment to, written interpretation or announcement (whether or not written) by Alyanza or other ERISA Affiliate relating to, or change in participation or coverage under, any Alyanza Employee Plan which would materially increase the expense of maintaining such Plan above the level of expense incurred with respect to that Plan for the most recent fiscal year included in the Alyanza Financial Statements. Section 3.10 Bank Accounts. The Alyanza Disclosure Schedule sets forth the names and locations of all banks, trusts, companies, savings and loan associations, and other financial institutions at which Alyanza maintains accounts of any nature and the names of all persons authorized to draw thereon or make withdrawals therefrom. Section 3.11 Contracts. (a) Except as set forth on the Alyanza Disclosure Schedule: (i) Alyanza has no agreements, contracts or commitments that provide for the sale, licensing or distribution by Alyanza of any Alyanza Products or Alyanza Proprietary Rights. Without limiting the foregoing, Alyanza has not granted to any third party any rights to reproduce, manufacture or distribute any of the Alyanza. Products, nor has Alyanza granted to any third party any exclusive rights of any kind, nor has Alyanza granted any third party any right to market any of the Alyanza Products under any private label or "OEM" arrangements, nor has Alyanza granted any license of any Alyanza trademarks or servicemarks. (ii) Alyanza has no agreements, contracts or commitments with any third parties providing for aggregate payments by or to Alyanza in an amounts that exceeds $10,000. (iii) Alyanza has no currently effective collective bargaining or union agreements, contracts or commitments. (iv) Alyanza is not restricted by agreement from competing with any person or from carrying on its business anywhere in the world. (v) Alyanza has not guaranteed any obligations of other persons or made any agreements to acquire or guarantee any obligations of other persons. (vi) Alyanza has no outstanding loan or advance to any person (other than normal travel advances not in excess of $3,000 in total to any one individual); nor is it party to any line of credit, standby financing, revolving credit or other similar financing arrangement of any sort which would permit the borrowing by Alyanza of any sum. (vii) Alyanza has no agreements pursuant to which Alyanza has agreed to manufacture for, supply to or distribute to any third party any Alyanza Products or Alyanza Components. 17 24 True and correct copies of each document or instrument listed on Schedule 3.11 of the Alyanza Disclosure Schedule pursuant to this Section 3.11(a) (the "MATERIAL CONTRACTS") have been provided to Niku or its representatives. (b) All of the Material Contracts listed on the Alyanza Disclosure Schedule are valid, binding, in full force and effect, and enforceable by Alyanza in accordance with their respective terms (except to the extent that enforcement is affected by laws pertaining to bankruptcy, reorganization, insolvency and creditors' rights and by the availability of injunctive relief, specific performance and other equitable remedies). No Material Contract contains any liquidated damages, penalty or similar provision. No party to any such Material Contract has notified Alyanza in writing that such party intends to cancel, withdraw, modify or amend such contract, agreement or arrangement. (c) Alyanza is not in default under or in breach or violation of, nor, to Alyanza's knowledge, is there any valid basis for any claim of default by Alyanza under, or breach or violation by Alyanza of, any Material Contract. To Alyanza's knowledge, no other party is in default under or in breach or violation of, nor, to Alyanza's knowledge, is there any valid basis for any claim of default by any other party under or any breach or violation by any other party of, any Material Contract. (d) Except as specifically indicated on the Alyanza Disclosure Schedule, none of the Material Contracts provides for indemnification by Alyanza of any third party. No claims have been made or threatened in writing to Alyanza that would require indemnification by Alyanza, and Alyanza has not paid any amounts to indemnify any third party as a result of indemnification requirements of any kind. Section 3.12 Orders, Commitments and Returns. All material agreements, contracts, or commitments for the purchase of supplies by Alyanza were made in the ordinary course of business. To the knowledge of Alyanza, no outstanding purchase or outstanding lease commitment of Alyanza is in excess of the normal, ordinary and usual requirements of its business or was made at any price (on both a per unit and aggregate basis) materially in excess of the current market price at the time made, or contains terms and conditions materially more onerous to Alyanza than those usual and customary in the industry. Section 3.13 Compliance With Law. Alyanza and the operation of its business are in compliance in all material respects with all applicable laws and regulations. Neither Alyanza nor, to Alyanza's knowledge, any of its employees has directly or indirectly paid or delivered any fee, commission or other sum of money or item of property, however characterized, to any finder, agent, government official or other party in the United States or any other country, that was or is in violation of any federal, state, or local statute or law or of any statute or law of any other country having jurisdiction. Alyanza has not participated directly or indirectly in any boycotts or other similar practices affecting any of its customers. Alyanza has complied in all material respects at all times with any and all applicable federal, state and foreign laws, rules, regulations, proclamations and orders relating to the importation or exportation of its products. 18 25 Section 3.14 Labor Difficulties; No Discrimination. (a) Alyanza is not engaged in any unfair labor practice and is not in violation of any applicable laws respecting employment and employment practices, terms and conditions of employment, and wages and hours. There is no unfair labor practice complaint against Alyanza actually pending or, to the knowledge of Alyanza, threatened before the National Labor Relations Board. There is no strike, labor dispute, slowdown, or stoppage actually pending or, to the knowledge of Alyanza, threatened against Alyanza. To the knowledge of Alyanza, no union organizing activities are taking place with respect to the business of Alyanza. No grievance, nor any arbitration proceeding arising out of or under any collective bargaining agreement is pending and, to the knowledge of Alyanza, no claims therefor exist. No collective bargaining agreement that is binding on Alyanza restricts it from relocating or closing any of its operations. Alyanza has not experienced any material work stoppage or other material labor difficulty. (b) There is no, and has not been any, claim against Alyanza, or to Alyanza's knowledge, threatened against Alyanza, based on actual or alleged race, age, sex, disability or other harassment or discrimination, or similar tortuous conduct, nor to the knowledge of Alyanza, is there any basis for any such claim. (c) There are no pending claims against Alyanza under any workers' compensation plan or policy or for long term disability. Alyanza has no material obligations under COBRA with respect to any former employees or qualifying beneficiaries thereunder. There are no proceedings pending or, to the knowledge of Alyanza, threatened, between Alyanza and any of their respective employees, which proceedings have or could reasonably be expected to have a Material Adverse Effect on Alyanza. Section 3.15 Trade Regulation. All of the prices charged by Alyanza in connection with the marketing or sale of any products or services have been in compliance with all applicable laws and regulations. No claims have been communicated or threatened in writing against Alyanza with respect to wrongful termination of any dealer, distributor or any other marketing entity, discriminatory pricing, price fixing, unfair competition, false advertising, or any other violation of any laws or regulations relating to anti-competitive practices or unfair trade practices of any kind, and to Alyanza's knowledge, no specific situation, set of facts, or occurrence provides any basis for any such claim. Section 3.16 Insider Transactions. To the knowledge of Alyanza, no affiliate ("AFFILIATE") as defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT"), of Alyanza has any interest in any equipment or other property, real or personal, tangible or intangible, including, without limitation, any Alyanza Proprietary Rights or any creditor, supplier, customer, manufacturer, agent, representative, or distributor of Alyanza Products; provided, however, that no such Affiliate or other person shall be deemed to have such an interest solely by virtue of the ownership of less than 1% of the outstanding stock or debt securities of any publicly-held company, the stock or debt securities of which are traded on a recognized stock exchange or quoted on the Nasdaq National Market. Section 3.17 Employees, Independent Contractors and Consultants. The Alyanza Disclosure Schedule lists and describes all past and all currently effective written or, to 19 26 Alyanza's knowledge, oral, consulting, independent contractor and/or employment agreements and other material agreements concluded with individual employees, independent contractors or consultants to which Alyanza is a party. True and correct copies of all such written agreements have been provided to Niku. All independent contractors have been properly classified as independent contractors for the purposes of federal and applicable state tax laws, laws applicable to employee benefits and other applicable law. All salaries and wages paid by Alyanza are in compliance in all material respects with applicable federal, state and local laws. Also shown on the Alyanza Disclosure Schedule are the names, positions and salaries or rates of pay, including bonuses, of all persons presently employed by Alyanza. Section 3.18 Insurance. The Alyanza Disclosure Schedule contains a list of the principal policies of fire, liability and other forms of insurance currently or previously held by Alyanza, and all claims made by Alyanza under such policies. To the knowledge of Alyanza, Alyanza has not done anything, either by way of action or inaction, that might invalidate such policies in whole or in part. There is no claim pending under any of such policies or bonds as to which coverage has been questioned, denied or disputed by the underwriters of such policies or bonds. All premiums due and payable under all such policies and bonds have been paid and Alyanza is otherwise in compliance with the terms of such policies and bonds in all material respects. Alyanza has no knowledge of any threatened termination of, or material premium increase with respect to, any of such policies. Section 3.19 Accounts Receivable. Subject to any reserves set forth in the Most Recent Balance Sheet, the accounts receivable shown on the Most Recent Balance Sheet represent and will represent bona fide claims against debtors for sales and other charges, and are not subject to discount except for normal cash and immaterial trade discounts. Section 3.20 Inventory. All inventory of Alyanza reflected in the Most Recent Balance Sheet or thereafter acquired by Alyanza prior to the Closing Date is or will be owned by Alyanza free and clear of liens or encumbrances of any kind. The inventory is not stated on the Most Recent Balance Sheet in an amount greater than the estimated net realizable value thereof. Section 3.21 Product Warranty. Each product manufactured, sold, leased, or delivered by Alyanza has been in conformity in all material respects with all applicable contractual commitments and all express and implied warranties, and Alyanza has no liability (and, to Alyanza's knowledge, there is no basis for any present or future claim or demand against any of them giving rise to any liability) for replacement or repair thereof or other damages in connection therewith, subject only to the reserve for product warranty claims set forth in the Most Recent Balance Sheet (if any). No product manufactured, sold, leased, or delivered or service offered by Alyanza is subject to any guaranty, warranty, or other indemnity beyond the applicable standard terms and conditions of sale, lease or license. The Alyanza Disclosure Schedule includes copies of the standard terms and conditions of sale, lease or license for Alyanza (containing applicable guaranty, warranty, repair policy, and indemnity provisions). Section 3.22 Permits/Product Liability. (i) There have been no written notices, citations or decisions by any governmental or regulatory body that any Alyanza Product is defective or fails to meet any 20 27 applicable standards promulgated by any such governmental or regulatory body. There have been no recalls, field notifications or seizures ordered or, to the knowledge of Alyanza, threatened by any such governmental or regulatory body with respect to any of Alyanza Products. (ii) Alyanza has obtained, in all countries where Alyanza is marketing or has marketed its Alyanza Products, all applicable material licenses, registrations, approvals, clearances and authorizations required by local, state or federal agencies in such countries regulating the safety, effectiveness and market clearance of the Products that are currently marketed by Alyanza. Alyanza has identified and made available for examination by Niku all information relating to regulation of Alyanza Products in the United States, including licenses, registrations, approvals, permits, inspections, Alyanza's recalls and product actions. Alyanza has identified to Niku any international locations where regulatory information and documents regarding Alyanza Products are kept. Section 3.23 Litigation. There is no private or governmental action, suit, proceeding, claim, arbitration or investigation pending before any agency, court or tribunal, foreign or domestic, or, to the knowledge of Alyanza, threatened against Alyanza or any of its properties or any of its officers or directors (in their capacities as such). There is no judgment, decree or order against Alyanza or any of its respective directors or officers (in their capacities as such). There is no judgment, decree or order against Alyanza or any of their respective officers or directors (in their capacities as such), that could prevent, enjoin, or materially alter or delay any of the transactions contemplated by this Agreement, or that could reasonably be expected to have a Material Adverse Effect on Alyanza. All litigation to which Alyanza is a party (or, to the knowledge of Alyanza, threatened to become a party) is disclosed in the Alyanza Disclosure Schedule. Section 3.24 Governmental Authorizations and Regulations. Alyanza has obtained each federal, state, county, local or foreign governmental consent, license, permit, grant, or other authorization of a Governmental Entity (i) pursuant to which Alyanza currently operates or holds any interest in any of its properties or (ii) that is required for the operation of Alyanza's business or the holding of any such interest, and all of such authorizations are in full force and effect, in each case such that the absence of such consent, license, permit, grant or other authorization would have a Material Adverse Effect on Alyanza. Section 3.25 Subsidiaries. Alyanza has no Subsidiaries. Alyanza does not own or control (directly or indirectly) any capital stock, bonds or other securities of, and does not have any proprietary interest in, any other corporation, general or limited partnership, firm, association or business organization, entity or enterprise, and Alyanza does not control (directly or indirectly) the management or policies of any other corporation, partnership, firm, association or business organization, entity or enterprise. Section 3.26 Compliance with Environmental Requirements. Alyanza has obtained all permits, licenses and other authorizations which are required under federal, state and local laws applicable to Alyanza and relating to pollution or protection of the environment, including laws or provisions relating to emissions, discharges, releases or threatened releases of pollutants, contaminants, or hazardous or toxic materials, substances, or wastes into air, surface water, 21 28 groundwater, or land, or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport, or handling of pollutants, contaminants or hazardous or toxic materials, substances, or wastes or which are intended to assure the safety of employees, workers or other persons, the absence of which would be reasonably likely to have a Material Adverse Effect on Alyanza. Alyanza is in compliance in all material respects with all terms and conditions of all such permits, licenses and authorizations. To the knowledge of Alyanza, there are no conditions, circumstances, activities, practices, incidents, or actions which may form the basis of any material claim, action, suit, proceeding, hearing, or investigation of, by, against or relating to Alyanza, based on or related to the manufacture, processing, distribution, use, treatment, storage, disposal, transport, or handling, or the emission, discharge, release or threatened release into the environment, of any pollutant, contaminant, or hazardous or toxic substance, material or waste, or relating to the safety of employees, workers or other persons. Section 3.27 Corporate Documents. Alyanza has furnished to Niku or its representatives: (a) copies of its Articles of Incorporation and Bylaws, as amended to date; (b) its minute book containing all records required to be set forth of all proceedings, consents, actions, and meetings of the shareholders, the board of directors and any committees thereof, (c) all material permits, orders, and consents issued by any regulatory agency with respect to Alyanza, or any securities of Alyanza, and all applications for such permits, orders, and consents; and (d) the stock transfer books of Alyanza setting forth all transfers of any capital stock. The corporate minute books, stock certificate books, stock registers and other corporate records of Alyanza are complete and accurate in all material respects, and the signatures appearing on all documents contained therein are the true signatures of the persons purporting to have signed the same. All actions reflected in such books and records were duly and validly taken in compliance with the laws of the applicable jurisdiction. Section 3.28 Alyanza Action. The Board of Directors of Alyanza, by unanimous written consent or at a meeting duly called and held, has by the unanimous vote of all directors (i) determined that the Merger is fair and in the best interests of Alyanza and its shareholders, (ii) approved the Merger and this Agreement in accordance with the provisions of California Law, and (iii) directed that this Agreement and the Merger be submitted to Alyanza shareholders for their approval and resolved to recommend that Alyanza shareholders vote in favor of the approval of this Agreement and the Merger. Section 3.29 Offers. Alyanza has suspended or terminated, and has the legal right to terminate or suspend, all negotiations and discussions of Acquisition Transactions (as defined in Section 5.6) with parties other than Niku. Section 3.30 No Brokers. Neither Alyanza nor any Alyanza shareholder is obligated for the payment of fees or expenses of any broker or finder in connection with the origin, negotiation or execution of this Agreement or the other Transaction Documents or Investment Agreements (as defined in 8.2(f)) or in connection with any transaction contemplated hereby or thereby. Section 3.31 No Commitments Regarding Future Products. Alyanza has made no sales to customers that are contingent upon providing future enhancements of existing products, to add features not presently available on existing products or to otherwise enhance the performance of 22 29 its existing products (other than beta or similar arrangements pursuant to which Alyanza's customers from time to time test or evaluate products). The products Alyanza has delivered to customers substantially comply with published specifications for such products and Alyanza has not received material complaints from customers about its products that remain unresolved. Section 3.32 Disclosure. No statements by Alyanza contained in this Agreement, its exhibits and schedules nor in any of the certificates or documents, including any of the Transaction Documents and Investment Agreements (as defined in 8.2(f)) delivered or required to be delivered by Alyanza to Niku or Sub under this Agreement contains any untrue statement of a material fact or omits to state a material fact necessary in order to make the statements contained herein or therein not misleading in light of the circumstances under which they were made. Alyanza has disclosed to Niku all material information of which it is aware relating specifically to the operations and business of Alyanza as of the date of this Agreement or the transactions contemplated by this Agreement. Section 3.33 LLC Conversion. The Conversion of Alyanza's predecessor, Alyanza Infosystems, LLC, into a Domestic C Corporation, has been completed in accordance with applicable law. ARTICLE IV REPRESENTATIONS AND WARRANTIES OF NIKU AND SUB Niku and Sub represent and warrant to Alyanza that the statements contained in this Article IV are true and correct. Section 4.1 Organization of Niku and Sub. Each of Niku and Sub is a corporation duly organized, validly existing and in good standing under the laws of its respective jurisdiction of incorporation and has all requisite corporate power to own, lease and operate its property and to carry on its business as now being conducted and is duly qualified or licensed to do business and is in good standing in each Jurisdiction in which the failure to be so qualified or licensed would have a Material Adverse Effect on Niku. Sub is a wholly owned subsidiary of Niku and, other than pursuant to this Agreement, has no liabilities and heretofore has conducted no business. Section 4.2 Niku Capital Structure. The authorized capital stock of Niku consists of 50,000,000 shares of Common Stock, par value of $0.0001 per share ("NIKU COMMON STOCK") and 23,400,000 shares of Preferred Stock, par value $0.0001 per share ("NIKU PREFERRED STOCK"), of which there were issued and outstanding as of the close of business on December 10, 1998, 5,282,500 shares of Niku Common Stock and 10,000,000 shares of Niku Series F Preferred Stock, 5,142,851 shares of Niku Series A Preferred Stock and 7,999,992 shares of Niku Series B Preferred Stock. There are no other outstanding shares of capital stock or voting securities of Niku other than shares of Niku Common Stock issued after December 10, 1998 upon the exercise of options ("NIKU OPTIONS") issued under the Niku Corporation 1988 Stock Plan (the "NIKU OPTION PLAN"). The authorized capital stock of Sub consists of 100 shares of Common Stock, all of which are issued and outstanding and are held by Niku. All outstanding shares of Niku and Sub have been duly authorized, validly issued, fully paid and are nonassessable and free of any liens or encumbrances other than any liens or encumbrances 23 30 created by or imposed upon the holders thereof. As of the close of business on December 10, 1998, Niku has reserved an aggregate of 23,142,843 shares of Niku Common Stock for issuance upon conversion of the outstanding Niku Preferred Stock, reserved an aggregate of 2,048,500 shares of Niku Common Stock for issuance to employees, directors and independent contractors upon exercise of outstanding Niku Options to acquire shares of Niku Common Stock issued under the Niku Option Plan and Niku has reserved for issuance 2,481,500 shares of Niku Common Stock for future grants under the Niku Option Plan. Other than as contemplated by this Agreement, and except as described in this Section 4.2, there are no other options, warrants, calls, rights, commitments or agreements to which Niku or Sub is a party or by which either of them is bound obligating Niku or Sub to issue, deliver, sell, repurchase or redeem, or cause to be issued, delivered, sold, repurchased or redeemed, any shares of the capital stock of Niku or Sub or obligating Niku or Sub to grant, extend or enter into any such option, warrant, call, right, commitment or agreement. The shares of Niku Common Stock to be issued pursuant to the Merger will be duly authorized, validly issued, fully paid, and non-assessable and issued in compliance with all applicable federal or state securities laws and will have the rights and references set forth in the Certificate of Incorporation of Niku, and will be free and clear of any liens, encumbrances and adverse claims created by Niku. Section 4.3 Authority; No Conflict; Required Filings and Consents. (a) Each of Niku and Sub has all requisite corporate power and authority to enter into this Agreement and the other Transaction Documents to which it is or will become a party and to consummate the transactions contemplated by this Agreement and such Transaction Documents. The execution and delivery of this Agreement and such Transaction Documents and the consummation of the transactions contemplated by this Agreement and such Transaction Documents have been duly authorized by all necessary corporate action on the part of Niku and Sub. This Agreement has been and such Transaction Documents have been or, to the extent not executed as of the date hereof, will be duly executed and delivered by Niku and Sub. This Agreement and each of the Transaction Documents to which Niku or Sub is a party constitutes, and each of the Transaction Documents to which Niku or Sub will become a party when executed and delivered by Niku or Sub will constitute, the valid and binding obligation of Niku or Sub, enforceable in accordance with its terms (except to the extent that enforcement is affected by laws pertaining to bankruptcy, reorganization, insolvency and creditors' rights and by the availability of injunctive relief, specific performance and other equitable remedies). (b) The execution and delivery by Niku or Sub of this Agreement and the Transaction Documents to which it is or will become a party does not, and consummation of the transactions contemplated by this Agreement or the Transaction Documents to which it is or will become a party will not, (i) conflict with, or result in any violation or breach of any provision of the Certificate of Incorporation or Bylaws of Niku or Sub, (ii) result in any violation or breach of, or constitute (with or without notice or lapse of time, or both) a default (or give rise to a right of termination, cancellation or acceleration of any obligation or loss of any material benefit) under any of the terms, conditions or provisions of any note, bond, mortgage, indenture, lease, contract or other agreement, instrument or obligation to which Niku or Sub is a party or by which either of them or any of their properties or assets may be bound, or (iii) conflict or violate any permit, concession, franchise, license, judgment, order, decree, statute, law, ordinance, rule or regulation applicable to Niku or Sub or any of their properties or assets, except in the case of (ii) 24 31 and (iii) for any such conflicts, violations, defaults, terminations, cancellations or accelerations which would not have a Material Adverse Effect on Niku and its Subsidiaries, taken as a whole. (c) No consent, approval, order or authorization of, or registration, declaration or filing with, any Governmental Entity is required by or with respect to Niku or Sub in connection with the execution and delivery of this Agreement or the Transaction Documents to which it is or will become a party or the consummation of the transactions contemplated hereby or thereby, except for (i) the filing of the Certificate of Merger with the Delaware Secretary of State, (ii) such consents, approvals, orders, authorizations, registrations, declarations and filings as may be required under applicable federal and state securities laws and the laws of any foreign country, and (iii) such other consents, authorizations, filings, approvals and registrations which, if not obtained or made, could be expected to have a Material Adverse Effect on Niku and its Subsidiaries, taken as a whole. Section 4.4 Interim Operations of Sub. Sub was formed solely for the purpose of engaging in the transactions contemplated by this Agreement, has engaged in no other business activities and has conducted its operations only as contemplated by this Agreement. Section 4.5 Disclosure. No statements by Niku or Sub contained in this Agreement, its exhibits and schedules nor in any of the certificates or documents, including any of the Transaction Documents, delivered or required to be delivered by Niku or Sub to Alyanza under this Agreement contains any untrue statement of a material fact or omits to state a material fact necessary in order to make the statements contained herein or therein not misleading in light of the circumstances under which they were made. ARTICLE V PRECLOSING COVENANTS OF ALYANZA Section 5.1 Approval of Alyanza Shareholders. Prior to the Closing Date and at the earliest practicable date following the date hereof, Alyanza will solicit written consents from its shareholders seeking approval of the Merger and related matters. In soliciting such written consent or proxies, unless this Agreement shall have been validly terminated as provided for herein, the Board of Directors of Alyanza will recommend to the shareholders of Alyanza that they approve this Agreement and the Merger and shall use its reasonable efforts to obtain the approval of the shareholders of Alyanza entitled to vote on or consent to this Agreement and the Merger in accordance with California Law and Alyanza's Articles of Incorporation. Section 5.2 Advise of Changes. Alyanza will promptly advise Niku in writing of any event occurring subsequent to the date of this Agreement which, to the knowledge of Alyanza, would render any representation or warranty of Alyanza contained in this Agreement, if made on or as of the date of such event or the Closing Date, untrue or inaccurate in any material respect. Section 5.3 Operation of Business. During the period from the date of this Agreement and continuing until the earlier of the termination of the Agreement or the Effective Time, Alyanza agrees (except to the extent that Niku shall otherwise consent), to carry on its business in the usual, regular and ordinary course in substantially the same manner as previously 25 32 conducted, and, to the extent consistent with such business, use all reasonable efforts consistent with past practices and policies to preserve intact its present business organization, keep available the services of its present officers and key employees and preserve its relationships with customers, suppliers, distributors, licensors, licensees, and others having business dealings with it, to the end that its goodwill and ongoing businesses shall be unimpaired at the Effective Time. Alyanza shall promptly notify Niku of any event or occurrence not in the ordinary course of business of Alyanza. In furtherance of the foregoing, except as expressly contemplated by this Agreement, Alyanza shall not, without the prior written consent of Niku: (a) Accelerate, amend or change the period of exercisability or the vesting schedule of options or restricted stock granted under any employee stock plan or agreements or authorize cash payments in exchange for any Alyanza Option or any options granted under any of such plans except as specifically required by the terms of such plans or any related agreements or any such agreements in effect as of the date of this Agreement and disclosed in the Alyanza Disclosure Schedule; (b) Declare or pay any dividends on or make any other distributions (whether in cash, stock or property) in respect of any of its capital stock, or split, combine or reclassify any of its capital stock or issue or authorize the issuance of any other securities in respect of, in lieu of or in substitution for shares of capital stock of such party, or purchase or otherwise acquire, directly or indirectly, any shares of its capital stock except from former employees, directors and consultants in accordance with agreements providing for the repurchase of shares in connection with any termination of service by such party; (c) Issue, deliver or sell or authorize or propose the issuance, delivery or sale of, or purchase or propose the purchase of, any shares of its capital stock or securities convertible into shares of its capital stock, or subscriptions, rights, warrants or options to acquire, or other agreements or commitments of any character obligating it to issue any such shares or other convertible securities, other than (i) the issuance of (A) shares of Alyanza Common Stock issuable upon exercise of Alyanza Options, which are outstanding on the date of this Agreement or (B) shares of Alyanza Common Stock issuable upon conversion of shares of Alyanza Preferred Stock or (ii) the repurchase of shares of Alyanza Common Stock from terminated employees pursuant to the terms of outstanding stock restriction or similar agreements; (d) Acquire or agree to acquire by merging or consolidating with, or by purchasing a substantial equity interest in or substantial portion of the assets of, or by any other manner, any business or any corporation, partnership or other business organization or division, or otherwise acquire or agree to acquire any assets; (e) Sell, lease, license or otherwise dispose of any of its properties or assets which are material, individually or in the aggregate, to the business of Alyanza; (f) (i) Increase or agree to increase the compensation payable or to become payable to its officers or employees, except for increases in salary or wages of non-officer employees in accordance with past practices, (ii) except as contemplated by this Agreement, grant any additional severance or termination pay to, or enter into any employment or severance agreements with, officers, (iii) except as contemplated by this Agreement, grant any severance or 26 33 termination pay to, or enter into any employment or severance agreement, with any non-officer employee, (iv) enter into any collective bargaining agreement, or (v) establish, adopt, enter into or amend in any material respect any bonus, profit sharing, thrift, compensation, stock option, restricted stock, pension, retirement, deferred compensation, employment, termination, severance or other plan, trust, fund, policy or arrangement for the benefit of any directors, officers or employees; (g) Revalue any of its assets, including writing down the value of inventory or writing off notes or accounts receivable; (h) Incur any indebtedness for borrowed money or guarantee any such indebtedness or issue or sell any debt securities or warrants or rights to acquire any debt securities or guarantee any debt securities of others; (i) Amend or propose to amend its Amended and Restated Articles of Incorporation or Bylaws; (j) incur any liability in excess of $1,000 individually or $5,000 in the aggregate; (k) lease, license, sell, transfer or encumber or permit to be encumbered any asset, Alyanza Proprietary Right or other property associated with the business of Alyanza (including sales or transfers to Affiliates of Alyanza); (l) enter into any lease or contract for the purchase or sale of any property, real or personal, except in the ordinary course of business; (m) fall to maintain its equipment and other assets which are material to the operations of Alyanza's business in good working condition and repair according to the standards it has maintained up to the date of this Agreement, subject only to ordinary wear and tear; (n) change accounting methods; (o) amend or terminate any material contract, agreement or license to which it is a party except in the ordinary course of business; (p) loan any amount to any person or entity (except for normal employee travel advances consistent with past practice), or guaranty or act as a surety for any obligation; (q) waive or release any material right or claim, except in the ordinary course of business; (r) make or change any Tax or accounting election, change any annual accounting period, adopt or change any accounting method, file any amended Return, enter into any closing agreement, settle any Tax claim or assessment relating to Alyanza, surrender any right to claim refund of Taxes, consent to any extension or waiver of the limitation period applicable to any Tax claim or assessment relating to Alyanza, or take any other action or omit to 27 34 take any action, if any such election, adoption, change, amendment, agreement, settlement, surrender, consent or other action or omission would have the effect of increasing the Tax liability of Alyanza or Niku; (s) do anything that Alyanza reasonably believes would cause there to be a Material Adverse Change with respect to Alyanza; (t) enter into any agreement not in the ordinary course of business (including without limitation, any agreements of any kind providing for obligations that would extend beyond six months of the date of this Agreement); or (u) take, or agree in writing or otherwise to take, any of the actions described above, or any action which is reasonably likely to make any of Alyanza's representations or warranties contained in this Agreement untrue or incorrect in any material respect on the date made (to the extent so limited) or as of the Effective Time. Section 5.4 Access to Information. Until the Closing, Alyanza shall allow Niku and its agents reasonable free access during normal business hours upon reasonable notice to its files, books, records, and offices, including, without limitation, any and all information relating to taxes, commitments, contracts, leases, licenses, and personal property and financial condition. Until the Closing, Alyanza shall cause its accountants to cooperate with Niku and its agents in making available all financial information requested, including without limitation the right to examine all working papers pertaining to all financial statements prepared or audited by such accountants. No information or knowledge. obtained in any investigation pursuant to this Section shall effect or be deemed to modify any representation or warranty contained in this Agreement or it's exhibits and schedules. Section 5.5 Satisfaction of Conditions Precedent. Alyanza will use its best efforts to satisfy or cause to be satisfied all the conditions precedent which are set forth in Sections 8.1 and 8.2 and which have not been waived, and Alyanza will use its best efforts to cause the transactions contemplated by this Agreement to be consummated on December 14, 1998, and, without limiting the generality of the foregoing, to obtain all consents and authorizations of third parties and to make all filings with, and give all notices to, third parties which may be necessary or reasonably required on its part in order to effect the transactions contemplated by this Agreement. Section 5.6 Other Negotiations. Alyanza will not (and it will not permit any of its officers, directors, employees, agents and Affiliates on its behalf to) take any action to solicit, initiate, seek, encourage or support any inquiry, proposal or offer from, furnish any information to, or participate in any negotiations with, any corporation, partnership, person or other entity or group (other than Niku) regarding any acquisition of Alyanza, any merger or consolidation with or involving Alyanza, or any acquisition of any material portion of the stock or assets of Alyanza or any material license of Alyanza Proprietary Rights (any of the foregoing being referred to in this Agreement as an "ACQUISITION TRANSACTION") or enter into an agreement concerning any Acquisition Transaction with any party other than Niku. If between the date of this Agreement and the termination of this Agreement pursuant to Section 9.1, Alyanza receives from a third party any offer or indication of interest regarding any Acquisition Transaction, or any request for 28 35 information regarding any Acquisition Transaction, Alyanza shall (i) notify Niku immediately (orally and in writing) of such offer, indication of interest or request, including the identity of such party and the full terms of any proposal therein, and (ii) notify such third party of Alyanza's obligations under this Agreement. ARTICLE VI PRECLOSING AND OTHER COVENANTS OF NIKU AND SUB Section 6.1 Advise of Changes. Niku and Sub will promptly advise Alyanza in writing of any event occurring subsequent to the date of this Agreement which, to the knowledge of Niku, would render any representation or warranty of Niku or Sub contained in this Agreement, if made on or as of the date of such event or the Closing Date, untrue or inaccurate in any material respect. Section 6.2 Access to Information. At reasonable times and at reasonable intervals prior to Closing, Niku shall make itself available to Alyanza and its advisors in order to permit the performance of reasonable financial due diligence by such parties with respect to Niku and its financial position, results of operations and prospects. Such financial due diligence shall be of the type, and have the scope, that would be customary for transactions like that contemplated by this Agreement. No information or knowledge obtained in any investigation pursuant to this Section shall effect or be deemed to modify any representation or warranty contained in this Agreement or its exhibits and schedules. Section 6.3 Satisfaction of Conditions Precedent. Niku and Sub will use their best efforts to satisfy or cause to be satisfied all the conditions precedent which are set forth in Sections 8.1 and 8.3 and which have not been waived, and Niku and Sub will use their best efforts to cause the transactions contemplated by this Agreement to be consummated on December 14, 1998, and, without limiting the generality of the foregoing, to obtain all consents and authorizations of third parties and to make all filings with, and give all notices to, third parties which may be necessary or reasonably required on its part in order to effect the transactions contemplated hereby. Section 6.4 Other Consideration. Niku shall pay up to an aggregate of five thousand dollars ($5,000) to those Alyanza employees who are not offered employment with Niku. Such payments shall be made to such people in such amounts as instructed by Felipe Lloreda, provided that such instructions are received in writing at least one day before the Closing. ARTICLE VII OTHER AGREEMENTS Section 7.1 No Public Announcement. The parties shall make no public announcement concerning this Agreement, their discussions or any other memoranda, letters or agreements between the parties relating to the Merger; provided, however, that either of the parties, but only after reasonable consultation with the other, may make disclosure if required under applicable law. 29 36 Section 7.2 Regulatory Filings; Consents; Reasonable Efforts. Subject to the terms and conditions of this Agreement, Alyanza and Niku shall use their respective best efforts to (i) make all necessary filings with respect to the Merger and this Agreement under the Securities Act of 1933, as amended, and applicable blue sky or similar securities laws and obtain required approvals and clearances with respect thereto and supply all additional information requested in connection therewith; (ii) make merger notification or other appropriate filings with federal, state or local governmental bodies or applicable foreign governmental agencies and obtain required approvals and clearances with respect thereto and supply all additional information requested in connection therewith; (iii) obtain all consents, waivers, approvals, authorizations and orders required in connection with the authorization, execution and delivery of this Agreement and the consummation of the Merger; and (iv) take, or cause to be taken, all appropriate action, and do, or cause to be done, all things necessary, proper or advisable to consummate and make effective the transactions contemplated by this Agreement as promptly as practicable. Section 7.3 Further Assurances. Prior to and following the Closing, each party agrees to cooperate fully with the other parties and to execute such further instruments, documents and agreements and to give such further written assurances, as may be reasonably requested by any other party to better evidence and reflect the transactions described herein and contemplated hereby and to carry into effect the intents and purposes of this Agreement. Section 7.4 Escrow Agreement. On or before the Effective Date, Niku shall, and the parties hereto shall exercise their best efforts to cause the Escrow Agent (as defined in Section 10.2) and the Shareholders' Agent (as defined in Section 10.9) to enter into an Escrow Agreement in the form attached hereto as Exhibit B. Section 7.5 Blue Sky Laws. Niku shall take such steps as may be necessary to comply with the securities and blue sky laws of all jurisdictions which are applicable to the issuance of the Niku Common Stock in connection with the Merger. Alyanza shall use its best efforts to assist Niku as may be necessary to comply with the securities and blue sky laws of all jurisdictions which are applicable in connection with the issuance of Niku Common Stock in connection with the Merger. ARTICLE VIII CONDITIONS TO MERGER Section 8.1 Conditions to Each Party's Obligation to Effect the Merger. The respective obligations of each party to this Agreement to effect the Merger shall be subject to the satisfaction prior to the Closing Date of the following conditions: (a) Board and Shareholder Approval. The Boards of Directors of each of Niku and Alyanza shall have approved the Merger and shareholders of Alyanza entitled to vote on or consent to this Agreement and the Merger in accordance with the California Law and Alyanza's Articles of Incorporation shall have approved this Agreement and the Merger. (b) Approvals. Other than the filing provided for by Section 1.2, all authorizations, consents, orders or approvals of, or declarations or filings with, or expirations of 30 37 waiting periods imposed by, any Governmental Entity shall have been filed, occurred or been obtained. (c) No Injunctions or Restraints, Illegality. No temporary restraining order, preliminary or permanent injunction or other order issued by any court of competent jurisdiction or other legal or regulatory restraint or prohibition preventing the consummation of the Merger or limiting or restricting conduct or operation of the business of Niku after the Merger shall have been issued, nor shall any proceeding brought by a domestic administrative agency or commission or other domestic Governmental Entity or other third party, seeking any of the foregoing be pending; nor shall there be any action taken, or any statute, rule, regulation or order enacted, entered, enforced or deemed applicable to the Merger which makes the consummation of the Merger illegal or materially more costly to Niku. Section 8.2 Additional Conditions to Obligations of Niku and Sub. The obligations of Niku and Sub to effect the Merger are subject to the satisfaction of each of the following conditions, any of which may be waived in writing exclusively by Niku and Sub: (a) Representations and Warranties. The representations and warranties of Alyanza set forth in this Agreement shall be true and correct in all material respects as of the date of this Agreement and (except to the extent such representations and warranties speak as of an earlier date) as of the Closing Date as though made on and as of the Closing Date, except for changes contemplated by this Agreement; and Niku shall have received a certificate signed on behalf of Alyanza by the President of Alyanza to such effect. (b) Performance of Obligations of Alyanza. Alyanza shall have performed in all material respects all obligations required to be performed by it under this Agreement at or prior to the Closing Date; and Niku shall have received a certificate signed on behalf of Alyanza by the chief executive officer of Alyanza to such effect. (c) Blue Sky Laws. Niku shall have received all state securities or "blue sky" permits and other authorizations necessary to issue shares of Niku Common Stock pursuant to the Merger. (d) Dissenting Shareholders. Holders of not more than five percent (5%) of Alyanza's issued and outstanding capital stock as of the Closing shall have elected to exercise dissenters' rights under California Law as to such shares. (e) Escrow Agreement. The Escrow Agent and Shareholders' Agent shall have executed and delivered to Niku the Escrow Agreement and such agreement shall remain in full force and effect. (f) Investment Agreement; Regulation D. Each shareholder of Alyanza who is receiving shares of Niku Common Stock in the Merger shall have executed and delivered to Niku an Investment Agreement, in the form attached hereto as Exhibit C (each an "INVESTMENT AGREEMENT"), and such agreements shall remain in full force and effect, and based upon the information supplied in such Investment Agreements, Niku shall have reasonably concluded that the offer and sale of shares of Niku Common Stock contemplated by this Agreement may be 31 38 effected in compliance with the requirements of Regulation D promulgated under the Securities Act. (g) Opinion of Alyanza's Counsel. Niku shall have received an opinion dated the Closing Date of Wilson Sonsini Goodrich & Rosati, counsel to Alyanza, as to the matters in the form attached hereto as Exhibit D. (h) Approvals. All authorizations, consents, or approvals of, or notifications to any third party, required by Alyanza's contracts, agreements or other obligations in connection with the consummation of the Merger shall have occurred or been obtained. (i) Resignations and Releases. Niku shall have received (i) the resignations, effective as of the Effective Time, of each director and officer of Alyanza other than those whom Niku shall have specified in writing at least one business day prior to the time of Closing and (ii) releases of Alyanza by such officers and directors in form and substance reasonably satisfactory to Niku. (j) Due Diligence. Niku shall have completed its due diligence review of Alyanza, to Niku's sole satisfaction. (k) No Material Adverse Change. Alyanza shall not have suffered any Material Adverse Change since the date of this Agreement. (l) Noncompetition Agreements. Each of Messrs. Lloreda, Abel and Hoefer shall have entered into a Noncompetition Agreement in substantially the form attached hereto as Exhibit A with Niku and such agreement shall remain in full force and effect. (m) Employment Agreements. Each of Messrs. Lloreda, Abel and Hoefer shall have accepted the offers of employment with Niku. (n) Release Agreements. All employees of Alyanza not offered employment by Niku shall each have executed a Release Agreement in form and substance agreed to by Niku and such agreement shall remain in full force and effect. Section 8.3 Additional Conditions to Obligations of Alyanza. The obligation of Alyanza to effect the Merger is subject to the satisfaction of each of the following conditions, any of which may be waived, in writing, exclusively by Alyanza: (a) Representations and Warranties. The representations and warranties of Niku and Sub set forth in this Agreement shall be true and correct in all material respects as of the date of this Agreement and (except to the extent such representations speak as of an earlier date) as of the Closing Date as though made on and as of the Closing Date, and Alyanza shall have received a certificate signed on behalf of Niku by the chief executive officer of Niku to such effect. (b) Performance of Obligations of Niku and Sub. Niku and Sub shall have performed in all material respects all obligations required to be performed by them under this 32 39 Agreement at or prior to the Closing Date; and Alyanza shall have received a certificate signed on behalf of Niku by the chief executive officer of Niku to such effect. (c) Opinion of Niku's Counsel. Alyanza shall have received an opinion dated the Closing Date of Venture Law Group, A Professional Corporation, counsel to Niku, as to the matters attached hereto as Exhibit E. (d) No Material Adverse Change. Niku shall not have suffered any Material Adverse Change since the date of this Agreement. ARTICLE IX TERMINATION AND AMENDMENT Section 9.1 Termination. This Agreement may be terminated at any time prior to the Effective Time: (a) by mutual written consent of Niku and Alyanza; (b) by either Niku or Alyanza, by giving written notice to the other party, if a court of competent jurisdiction or other Governmental Entity shall have issued a nonappealable final order, decree or ruling or taken any other action, in each case having the effect of permanently restraining, enjoining or otherwise prohibiting the Merger, except, if such party relying on such order, decree or ruling or other action shall not have complied with its respective obligations under Sections 5.5 or 6.3 of this Agreement, as the case may be; (c) by Niku or Alyanza, by giving written notice to the other party, if the other party is in material breach of any representation, warranty, or covenant of such other party contained in this Agreement, which breach shall not have been cured, if subject to cure, within 10 business days following receipt by the breaching party of written notice of such breach by the other party; (d) by Niku, by giving written notice to Alyanza, if the Closing shall not have occurred on or before December 14, 1998 by reason of the failure of any condition precedent under Section 8.1 or 8.2 (unless the failure results primarily from a breach by Niku of any representation, warranty, or covenant of Niku contained in this Agreement), provided that such date shall be automatically extended so long as Alyanza shall be expeditiously working to cure any breach of representation, warranty, or covenant identified by Niku pursuant to subsection (c) above; (e) by Alyanza, by giving written notice to Niku, if the Closing shall not have occurred on or before December 14, 1998 by reason of the failure of any condition precedent under Section 8.1 or 8.3 (unless the failure results primarily from a breach by Alyanza of any representation, warranty, or covenant of Alyanza contained in this Agreement), provided that such date shall be automatically extended so long as Niku shall be expeditiously working to cure any breach of representation, warranty, or covenant identified by Alyanza pursuant to subsection (c) above; or 33 40 (f) by Niku, by giving written notice to Alyanza, if the required approvals of the shareholders of Alyanza contemplated by this Agreement shall not have been obtained by reason of the failure to obtain the required consents or votes upon a vote taken by written consent or at a meeting of shareholders, duly convened therefor or at any adjournment thereof. Section 9.2 Effect of Termination. In the event of termination of this Agreement as Section 9.1, this Agreement shall immediately become void and there shall be no liability or obligation on the part of Niku, Alyanza, Sub or their respective officers, directors, shareholders or Affiliates, except as set forth in Section 9.3 and further except to the extent that such termination results from the willful breach by any such party of any of its representations, warranties or covenants set forth in this Agreement. Section 9.3 Fees, Expenses and Other Payments. Except as provided for in this Agreement, all fees and expenses incurred in connection with this Agreement and the transactions contemplated hereby shall be paid by the party incurring such expenses if the Merger is not consummated. ARTICLE X ESCROW AND INDEMNIFICATION Section 10.1 Indemnification; Limitation on Liability. (a) From and after the Effective Time and subject to the limitations contained in Section 10.2, the Former Alyanza Shareholders will, except as otherwise contemplated by the Indemnity Agreement, severally and pro rata, in accordance with their Pro Rata Portion, indemnify and hold Niku harmless against any loss, expense, liability or other damage, including reasonable attorneys' fees, to the extent of the amount of such loss, expense, liability or other damage (collectively "DAMAGES") that Niku has incurred by reason of (i) a breach by Alyanza of any representation, warranty, covenant or agreement of Alyanza contained in this Agreement, (ii) any failure by Alyanza or its shareholders to perform any of their obligations under the Agreement and (iii) any claims brought by employees or consultants of Alyanza who were terminated prior to Closing provided that any such events occur or become known to Niku during the Escrow Period (as defined in Section 10.4 below). (b) Except as provided for in Section 2.2(b) and in the case of fraud, Niku's and Sub's sole remedy for any and all matters arising out of, or related to, this Agreement, shall be limited to the indemnification rights set forth in this Article X and the maximum aggregate amount of damages payable hereunder, shall be limited to the amounts contained in the Escrow Fund (as defined below). Section 10.2 Escrow Fund. (a) As security for the indemnities in Section 10. 1, as soon as practicable after the Effective Date, the Escrow Shares and the Escrow Cash shall be deposited with Chase Manhattan Bank and Trust Company, N.A. (or such other institution selected by Niku as escrow agent (the "ESCROW AGENT"), such deposit to constitute the Escrow Fund (the "ESCROW FUND") and to be governed by the terms set forth in this Article X and in the Escrow Agreement. 34 41 Notwithstanding the foregoing, except in the case of fraud and non-payment of taxes (including without limitation breach of the representations and warranties contained in Article III hereof) which shall not be limited to claims against the Escrow Fund, the indemnification obligations of the Former Alyanza Shareholders pursuant to this Article X shall be limited to the amount and assets deposited and present in the Escrow Fund and Niku shall not be entitled to pursue any claims for indemnification under this Article X against the Former Alyanza Shareholders directly or personally and the sole recourse of Niku shall be to make claims against the Escrow Fund in accordance with the terms of the Escrow Agreement. (b) In addition to the indemnity contemplated by subsection (a) above, Niku shall be entitled to be reimbursed out of the Escrow Fund for any damages (of whatever nature, punitive, treble or compensatory) it or the Surviving Corporation may be required to pay in satisfaction of any judgment or other order entered in any state or federal court or arbitration proceeding prior to the end of the Escrow Period based upon an Infringement Claim against Niku or the Surviving Corporation, whether or not the basis of such claim shall have been known to Alyanza as of the date hereof or as of the Effective Time. Payments required to be made by Niku or the Surviving Corporation in the form of cross-licensing or royalty payment or settlements with respect to any such claims shall not be considered reimbursable amounts under this subsection (b). For purposes hereof, an "INFRINGEMENT CLAIM" shall mean a claim in writing alleging, in whole or in part, that any of the Alyanza Products or the use or exploitation of any Alyanza Proprietary Rights in Alyanza's business at or prior to the Effective Time infringes upon on the rights of or constitutes misappropriation of any proprietary information or intangible property right of any third person or entity, including, without limitation, any patent, trade secret, copyright, trademark or trade name. (c) Notwithstanding the foregoing, the, Former Alyanza Shareholders shall have no liability under Section 10.1 and Niku may not receive any distributions from the Escrow Fund unless and until an Officer's Certificate or Certificates (as defined in Section 10.4 below) has been delivered to the Shareholders' Agent and to the Escrow Agent. (d) The Escrow Cash shall be invested by the Escrow Agent at the direction of the Shareholders' Agent while any such amount shall be held in the Escrow Fund, provided that such investments shall be limited to (i) direct obligations of the United States or any agency thereof with maturities of one year or less from the date of acquisition, (ii) certificates of deposit issued by any bank or trust company organized under the laws of the United States or any state thereof and having capital and surplus in excess of $50,000,000 and having a rating of "A" or better by a nationally recognized rating agency (a "QUALIFIED BANK"), with maturities of one year or less from the date of acquisition, (iii) shares of "money market funds," each having net assets in excess $50,000,000, or (iv) time deposits or demand deposits with any Qualified Bank. Section 10.3 Escrow Period. The Escrow Fund shall terminate 12 months after the Closing Date (the period from the Closing to such date referred to as the "ESCROW PERIOD"), provided, however, that that portion of the Escrow Fund, which, in the reasonable judgment of Niku, subject to the objection of the Shareholders' Agent and the subsequent resolution of the matter in the manner provided in Section 10.7 and except to the extent contemplated by Section 10.2(b), are necessary to satisfy any unsatisfied claims made prior to termination of the 35 42 Escrow Period with respect to Damages incurred or litigation pending prior to expiration of the Escrow Period, shall remain in the Escrow Fund until such claims have been finally resolved. Section 10.4 Claims Upon Escrow Fund. Upon receipt by the Escrow Agent on or before the last day of the Escrow Period of a certificate signed by any appropriately authorized officer of Niku (an "OFFICER'S CERTIFICATE"): (i) Stating the aggregate amount of Niku's Damages or an estimate thereof, in each case to the extent known or determinable at such time, and, (ii) Specifying in reasonable detail the individual items of such Damages included in the amount so stated, the date each such item was paid or properly accrued or arose, and the nature of the misrepresentation, breach or claim to which such item is related, the Escrow Agent shall, subject to the provisions of Section 10.7 hereof, deliver to Niku out of the Escrow Fund, as promptly as practicable, Escrow Cash and Escrow Shares having a value equal to such Damages all in accordance with the Escrow Agreement and Section 10.5 below. All claims for Damages to be paid hereunder shall be paid 50% in Escrow Cash and 50% in shares of Niku Common Stock, and following total depletion of the Escrow Cash shall be paid 100% in Escrow Shares. Amounts paid or distributed from the Escrow Fund shall be paid or distributed pro rata among the Holders (as defined in the Escrow Agreement) based upon their respective percentage interests therein at the time. Section 10.5 Valuation. For the purpose of compensating Niku for its Damages pursuant to this Agreement, the value per share of the Escrow Shares shall be the Fair Market Value per share of Common Stock of Niku (as determined by its Board of Directors). Section 10.6 Objections to Claims. At the time of delivery of any Officer's Certificate to the Escrow Agent, a duplicate copy of such Officer's Certificate shall be delivered to the Shareholders' Agent (as defined in Section 10.8 below) and for a period of thirty (30) days after such delivery, the Escrow Agent shall make no delivery of Escrow Cash and Escrow Shares pursuant to Section 10.3 unless the Escrow Agent shall have received written authorization from the Shareholders' Agent to make such delivery. After the expiration of such thirty (30) day period, the Escrow Agent shall make delivery of the Escrow Cash and Escrow Shares in the Escrow Fund in accordance with Section 10.3, provided that no such delivery may be made if the Shareholders' Agent shall object in a written statement to the claim made in the Officer's Certificate, and such statement shall have been delivered to the Escrow Agent and to Niku prior to the expiration of such thirty (30) day period. Section 10.7 Resolution of Conflicts. (a) In case the Shareholders' Agent shall so object in writing to any claim or claims by Niku made in any Officer's Certificate, Niku shall have thirty (30) days to respond in a written statement to the objection of the Shareholders' Agent. If after such thirty (30) day period there remains a dispute as to any claims, the Shareholders' Agent and Niku shall attempt in good faith for thirty (30) days to agree upon the rights of the respective parties with respect to each of such claims. If the Shareholders' Agent and Niku should so agree, a memorandum setting forth such agreement shall be prepared and signed by both parties and shall be furnished to the Escrow 36 43 Agent. The Escrow Agent shall be entitled to rely on any such memorandum and shall distribute the Escrow Fund in accordance with the terms of the memorandum. (b) If no such agreement can be reached after good faith negotiation, either Niku or the Shareholders' Agent appropriate portion of may, by written notice to the other, demand arbitration of the matter unless the amount of the damage or loss is at issue in pending litigation with a third party, in which event arbitration shall not be commenced until such amount is ascertained or both parties agree to arbitration; and in either such event the matter shall be settled by arbitration conducted by three arbitrators. Within fifteen (15) days after such written notice is sent, Niku (on the one hand) and the Shareholders' Agent (on the other hand) shall each select one arbitrator, and the two arbitrators so selected shall select a third arbitrator. The decision of the arbitrators as to the validity and amount of any claim in such Officer's Certificate shall be binding and conclusive upon the parties to this Agreement, and notwithstanding anything in Section 10.3, the Escrow Agent shall be entitled to act in accordance with such decision and make or withhold payments out of the Escrow Fund in accordance with such decision. (c) Judgment upon any award rendered by the arbitrators may be entered in any court having Jurisdiction. Any such arbitration shall be held in Santa Clara or San Mateo County, California under the commercial rules then in effect of the American Arbitration Association. The non-prevailing party to an arbitration shall pay its own expenses, the fees of each arbitrator, the administrative fee of the American Arbitration Association, and the expenses, including, without limitation, the reasonable attorneys' fees and costs, incurred by the prevailing party to the arbitration. Section 10.8 Shareholders' Agent. (a) Felipe Lloreda shall be constituted and appointed as agent (the "SHAREHOLDERS' AGENT") for and on behalf of the Former Alyanza Shareholders to give and receive notices and communications, to authorize delivery to Niku of the Escrow Shares or Escrow Cash or other property from the Escrow Fund in satisfaction of claims by Niku, to object to such deliveries, to agree to, negotiate, enter into settlements and compromises of, and demand arbitration and comply with orders of courts and awards of arbitrators with respect to such claims, and to take all actions necessary or appropriate in the judgment of the Shareholders' Agent for the accomplishment of the foregoing. All actions of the Shareholders' Agent shall be taken jointly, not individually. Such agency may be changed by the holders of a majority in interest of the Escrow Shares from time to time upon not less than ten (10) days' prior written notice to Niku. No bond shall be required of the Shareholders' Agent, and the Shareholders' Agent shall receive no compensation for services. Notices or communications to or from the Shareholders' Agent shall constitute notice to or from each of the Former Alyanza Shareholders. (b) The Shareholders' Agent shall not be liable for any act done or omitted hereunder as Shareholders' Agent, as the case may be, while acting in good faith and in the exercise of reasonable judgment, and any act done or omitted pursuant to the advice of counsel shall be conclusive evidence of such good faith. The Former Alyanza Shareholders shall severally and pro rata, in accordance with their Pro Rata Portion, indemnify the Shareholders' Agent and hold him harmless against any loss, liability or expense incurred without gross 37 44 negligence or bad faith on the part of the Shareholders' Agent arising out of or in connection with the acceptance or administration of his duties hereunder under this Agreement or the Escrow Agreement. (c) The Shareholders' Agent shall have reasonable access to information about Alyanza and Niku and the reasonable assistance of Alyanza's and Niku's officers and employees for purposes of performing their duties and exercising their rights under this Article X, provided that the Shareholders' Agent shall treat confidentially and not disclose any nonpublic information from or about Alyanza or Niku to anyone (except on a need to know basis to individuals who agree to treat such information confidentially). Section 10.9 Actions of the Shareholders' Agent. A decision, act, consent or instruction of the Shareholders' Agent shall constitute a decision of all of the Former Alyanza Shareholders for whom shares of Niku Common Stock otherwise issuable to them are deposited in the Escrow Fund and shall be final, binding and conclusive upon each such Former Alyanza Shareholder, and the Escrow Agent and Niku may rely upon any decision, act, consent or instruction of the Shareholders' Agent as being the decision, act, consent or instruction of each and every such Former Alyanza Shareholder. The Escrow Agent and Niku are hereby relieved from any liability to any person for any acts done by them in accordance with such decision, act, consent or instruction of the Shareholders' Agent. Section 10.10 Claims. In the event Niku becomes aware of a third-party claim which Niku believes may result in a demand against the Escrow Fund, Niku shall notify the Shareholders' Agent of such claim, and the Shareholders' Agent and the Former Alyanza Shareholders for whom shares of Niku Common Stock otherwise issuable to them are deposited in the Escrow Fund shall be entitled, at their expense, to participate in any defense of such claim. Niku shall have the right in its sole discretion to settle any such claim; provided, however, that Niku may not affect the settlement of any such claim without the consent of the Shareholders' Agent, which consent shall not be unreasonably withheld. In the event that the Shareholders' Agent have consented to any such settlement, the Shareholders' Agent shall have no power or authority to object to the amount of any claim by Niku against the Escrow Fund for indemnity with respect to such settlement. ARTICLE XI MISCELLANEOUS Section 11.1 Survival of Representations and Covenants. All representations, warranties, covenants and agreements of Alyanza contained in this Agreement shall survive the Closing and any investigation at any time made by or on behalf of Niku until the end of the Escrow Period. If Escrow Shares or other assets are retained in the Escrow Fund beyond expiration of the period specified in the Escrow Agreement, then (notwithstanding the expiration of such time period) the representation, warranty, covenant or agreement applicable to such claim shall survive until, but only for purposes of, the resolution of the claim to which such retained Escrow Shares or other assets relate. All representations, warranties, covenants and agreements of Niku contained in this Agreement shall terminate as of the Effective Time, 38 45 provided that the covenants and agreements contained in Section 9.3 shall survive the Closing and shall continue in full force and effect. Section 11.2 Notices. All notices and other communications hereunder shall be in writing and shall be deemed given if delivered personally, telecopied (which is confirmed) or two business days after being mailed by registered or certified mail (return receipt requested) to the parties at the following addresses (or at such other address for a party as shall be specified by like notice): (a) if to Niku or Sub: Niku Corporation 955-A Charter Street Redwood City, CA 94022 Attention: Chief Executive Officer Fax No: (650) 369-9298 Telephone No: (650) 369-9290 with a copy to: Venture Law Group A Professional Corporation 2800 Sand Hill Road Menlo Park, California 94025 Attention: Joshua Pickus Fax No: (650) 233-8386 Telephone No: (650) 854-4488 (b) if to Alyanza: Alyanza Software Corporation 1101 San Antonio Road Suite 309 Mountain View, CA 94043 Attention: President Fax No: (650) 965-1701 Telephone No: (650) 965-1721 with a copy to: Wilson Sonsini Goodrich & Rosati 650 Page Mill Road Palo Alto, CA 94304 Attention: John Goodrich Fax No: (650) 493-6811 Telephone No: (650) 493-9300 39 46 Section 11.3 Interpretation. When a reference made this Agreement to Sections, such reference shall be to a Section of this Agreement unless otherwise indicated. The table of contents and headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. Whenever the words "INCLUDE," "INCLUDES" or "INCLUDING" are used in this Agreement they shall be deemed to be followed by the words "WITHOUT LIMITATION." Section 11.4 Counterparts. This Agreement may be executed in two or more counterparts, all of which shall be considered one and the same agreement and shall become effective when two or more counterparts have been signed by each of the parties and delivered to the other parties, it being understood that all parties need not sign the same counterpart. Section 11.5 Entire Agreement; No Third Party Beneficiaries. This Agreement (including the documents and the instruments referred to herein) the Transaction Documents and the Investment Agreements (a) constitute the entire agreement and supersedes all prior agreements and understandings, both written and oral, among the parties with respect to the subject matter hereof, including the letter agreement previously entered into by the parties relating to exclusivity, and (b) are not intended to confer upon any person other than the parties hereto (including without limitation any Alyanza employees) any rights or remedies hereunder. Section 11.6 Governing Law. This Agreement shall be governed and construed in accordance with the laws of the State of California without regard to any applicable conflicts of law. Section 11.7 Assignment. Neither this Agreement nor any of the rights, interests or obligations hereunder shall be assigned by any of the parties hereto (whether by operation of law or otherwise) without the prior written consent of the other parties. Subject to the preceding sentence, this Agreement will be binding upon, inure to the benefit of and be enforceable by the parties and their respective successors and assigns. Section 11.8 Amendment. This Agreement may be amended by the parties hereto, at any time before or after approval of matters presented in connection with the Merger by the shareholders of Alyanza, but after any such shareholder approval, no amendment shall be made which by law requires the further approval of shareholders without obtaining such further approval. This Agreement may not be amended except by an instrument in writing signed on behalf of each of the parties hereto. Section 11.9 Extension; Waiver. At any time prior to the Effective Time, the parties hereto may, to the extent legally allowed, (i) extend the time for the performance of any of the obligations or the other acts of the other parties hereto, (ii) waive any inaccuracies in the representations or warranties contained herein or in any document delivered pursuant hereto and (iii) waive compliance with any of the agreements or conditions contained herein. Any agreement on the part of a party hereto to any such extension or waiver shall be valid only if set forth in a written instrument signed on behalf of such party. Section 11.10 Specific Performance. The parties hereto agree that irreparable damage would occur in the event that any of the provisions of this Agreement were not performed in 40 47 accordance with their specific terms or were otherwise breached. It is accordingly agreed that the parties shall be entitled to injunctive relief to prevent breaches of this Agreement and to enforce specifically the terms and provisions hereof in any court of the United States or any state having jurisdiction, this being in addition to any other remedy to which they are entitled at law or in equity. [Signature Page Follows] 41 48 IN WITNESS WHEREOF, Niku, Sub and Alyanza have caused this Agreement and Plan of Reorganization to be signed by their respective officers thereunto duly authorized as of the date first written above. NIKU CORPORATION By: ---------------------------------------- Title: ------------------------------------- NIKU ACQUISITION CORP. By: ---------------------------------------- Title: ------------------------------------- ALYANZA SOFTWARE CORPORATION By: ---------------------------------------- Title: ------------------------------------- FELIPE LLOREDA, AS AN INDIVIDUAL ------------------------------------------- [SIGNATURE PAGE TO AGREEMENT AND PLAN OF REORGANIZATION] 42 49 EXHIBIT A NIKU CORPORATION NON-COMPETITION AGREEMENT This Non-Competition Agreement (the "Agreement") is made and entered into as of December ___, 1998, between Niku Corporation, a Delaware corporation (the "Company"), and ____________________ ("Covenantor"). RECITALS This Agreement is entered into in connection with that certain Agreement and Plan of Reorganization dated as of December 10, 1998 (the "Agreement"), by and among the Company, Alyanza Software Corporation, a California corporation ("Target") and Niku Acquisition Corp., a Delaware corporation and a wholly owned subsidiary of the Company ("Sub"). Pursuant to the terms of the Agreement, Sub will be merged (the "Merge") with and into Target, with Target as the surviving entity. In order to induce the Company to consummate the Merger and as additional consideration for the consideration to be received by Covenantor in exchange for Covenantor's shares of Target's capital stock upon the consummation of the Merger, Covenantor is willing to enter into this Agreement. AGREEMENT The parties hereby agree as follows: 1. EXPERIENCE AND SKILL OF COVENANTOR. As [an officer of Target, Covenantor has been actively involved in the management of Target's business and the development of Target's products] [since Target's inception] and has thereby acquired considerable experience and skill. The Company wishes to protect its investment in the business acquired pursuant to the Merger by restricting the activities of Covenantor which might compete with or otherwise harm such business, and, as part of the consideration and inducement to the Company for acquiring the business, Covenantor is willing to agree to and abide by such restrictions as hereinafter provided. 2. COVENANT NOT TO COMPETE. (a) GENERAL. Covenantor acknowledges that Covenantor holds a substantial number of shares and/or options to acquire shares of the Common Stock of Target. Covenantor further acknowledges that the value of the consideration paid by the Company in connection with the Merger is substantial and that preservation of the goodwill associated with Target is a part of the consideration which the Company is receiving in the Merger in exchange for the Merger consideration. The Company desires that Covenantor enter into a non-competition agreement with the Company as set forth in this section and Covenantor is willing to agree to such non-competition provisions as set forth below. Target and Covenantor agree that such non-competition provisions are separately bargained-for consideration and are material inducements A-1 50 to the Company to enter into the Agreement. Accordingly, Covenantor and Target agree to the non-competition provisions set forth in this section. (b) NON-COMPETE. In connection with the Merger, Covenantor agrees that for a period of one (1) year following the closing of the Merger, Covenantor will not own, operate, manage, or provide consulting services to, or be an employee of, or own an interest or be a proprietor, owner, partner, stockholder, director, officer, employee, consultant, agent or representative of, a person, corporation, partnership or other entity, including, without limitation, a family member, which owns, operates, manages, or provides consulting services to, or in any other way provides services to, either directly or indirectly, any business or businesses engaged in the Restricted Business in a Restricted Territory (as such terms are defined below). Notwithstanding the foregoing, nothing contained in this Section 2 shall prohibit Covenantor from making investments in any corporation whose securities are regularly and publicly traded on a national stock exchange or the Nasdaq National Market, provided that such investments shall not result in his or her owning beneficially at any time more than 1% of the equity securities of any corporation (other than the Company) which is engaged in the Restricted Business. (c) CERTAIN DEFINITIONS. For purposes of this Section 2: (i) "Restricted Business" shall mean the business engaged in by Target immediately prior to the Merger including, without limitation the development, distribution, and licensing of software application products for managing professional services organizations, specifically including applications for managing employee time records, resources, client projects and expenses. (ii) "Restricted Territory" shall mean the counties, cities and states of the United States of America and each political subdivision. (d) SOLICITATION. For a period of two (2) years from the date of this Agreement, Covenantor shall not (i) engage or participate in any effort or act to solicit Target's associates, employees or consultants to cease doing business, or their association or employment with Target or (ii) interfere in any manner in the contractual or employment relationship between the Company or Target and any such associate, employee or consultant of the Company or Target. (e) SEVERABILITY. The parties intend that the covenants contained in the preceding paragraphs shall be construed as a series of separate covenants, one for each county, city, state, nation, and other political subdivision of the Restricted Territory. Except for geographic coverage, each such separate covenant shall be deemed identical in terms to the covenant contained in the preceding paragraphs. If, in any judicial proceeding, a court shall refuse to enforce any of the separate covenants (or any part thereof) deemed included in said paragraphs, then such unenforceable covenant (or such part) shall be deemed eliminated from this Agreement for the purpose of those proceedings to the extent necessary to permit the remaining separate covenants (or portions thereof) to be enforced by such court. It is the intent of the parties that the covenants set forth in this Agreement be enforced to the maximum degree permitted by applicable law. A-2 51 (f) REFORMATION. In the event that the provisions of this Section 2 should ever be deemed to exceed the scope, time or geographic limitations of applicable law regarding covenants not to compete, then such provisions shall be automatically reformed to the maximum scope, time or geographic limitations, as the case may be, permitted by applicable laws. 3. CONFIDENTIALITY. Covenantor has not at any time prior to the date of this Agreement disclosed in any manner, or used for any purpose whatsoever, any Confidential Information (as defined below) except in the fulfillment of any of Covenantor's employment, fiduciary or similar obligations to Target. Covenantor will treat and hold as confidential (and not disclose or provide access to any person or entity) and refrain from using for any purpose whatsoever any information, regardless of format, relating to intellectual property of Target or to any product development, price, customer and supplier lists, pricing and marketing plans, policies and strategies, details of client or consultant contracts, operations methods, product development techniques, business acquisition plans, new personnel acquisition plans of Target or any other confidential or proprietary information with respect to Target (collectively, "Confidential Information"); provided that Covenantor shall not be liable hereunder for disclosure or use of any Confidential Information if such Confidential Information: (i) is within the public domain at the time it is disclosed or used or comes within the public domain as a result of a permissive disclosure or use by an unrelated third party without any responsibility or involvement of the Covenantor; or (ii) is disclosed pursuant to the written instructions of the Company. 4. REPRESENTATIONS OF COVENANTOR. Covenantor represents that: (i) he or she is familiar with the covenants not to compete and not to solicit set forth in this Agreement, (ii) he or she is fully aware of his or her obligations under this Agreement, including, without limitation, the length of time, scope and geographic coverage of these covenants, and (iii) execution of this Agreement, and performance of Covenantor's obligations under this Agreement, will not conflict with, or result in a violation or breach of, any other agreement to which Covenantor is a party or any judgment, order or decree to which Covenantor is subject. 5. BREACH. Covenantor acknowledges that in the event of a material or non-curable breach of any of the provisions of this Agreement by Covenantor, the Company or Target would sustain irreparable harm, and, therefore, Covenantor agrees that in addition to any other remedies which the Company or Target may have under this Agreement or otherwise, the Company shall be entitled to obtain equitable relief, including specific performance and injunctions restraining the Covenantor from committing or continuing any such violation of this Agreement. 6. REASONABLENESS OF TERMS. The Covenantor acknowledges that the length, scope and geographic coverage to which the restrictions imposed in Section 2 above shall apply are fair and reasonable and are reasonably required for the protection of the Company and Target and that the definition of Restricted Business used in this Agreement conforms to the business in which Target is engaged at the date of this Agreement. If any provision of this Agreement is held to be invalid or unenforceable by Judicial order for any reason, such action shall not affect the enforceability of the remaining provisions of this Agreement and, without limiting the foregoing, any such holdings shall in no event preclude the Company or Target from enforcing the provisions of this Agreement for such term, in such territory and to such extent not inconsistent with or prohibited by such judicial order. If the provisions of this Agreement should ever be A-3 52 deemed to exceed the time, scope or geographic limitations permitted by applicable law, then such provisions shall be reformed to the maximum time, scope or geographic limitations, as the case may be, permitted by applicable laws. The parties acknowledge that the Covenantor is receiving no consideration for entering into this Agreement in addition to the consideration being received by stockholders of Target who are not executing an Agreement similar to this Agreement. Accordingly, no amount shall be considered to be allocated to this Agreement for federal and state income tax purposes. 7. USE OF NAME. From and after the date of this Agreement the Covenantor will not without the consent of the Company use or consent to or cooperate in the use of the name "Alyanza," or any similar names thereto in any business other than that of the Company. 8. ADVICE OF LEGAL COUNSEL. Covenantor acknowledges and represents that, in executing this Agreement, he or she has consulted with counsel (or has affirmatively chosen not to do so) and is fully aware of his or her rights and obligations under this Agreement. This Agreement shall not be construed against any party by reason of its drafting or preparation. 9. MISCELLANEOUS. (a) AMENDMENTS AND WAIVERS. Any term of this Agreement may be amended or waived with the written consent of the parties or their respective successors and assigns. Any amendment or waiver effected in accordance with this section shall be binding upon the parties and their respective successors and assigns. (b) SUCCESSORS AND ASSIGNS. The terms and conditions of this Agreement shall inure to the benefit of and be binding upon the respective successors and assigns of the parties. Nothing in this Agreement, express or implied, is intended to confer upon any party other than the parties hereto or their respective successors and assigns any rights, remedies, obligations, or liabilities under or by reason of this Agreement, except as expressly provided in this Agreement. (c) GOVERNING LAW; JURISDICTION. This Agreement and all acts and transactions pursuant hereto and the rights and obligations of the parties hereto shall be governed, construed and interpreted in accordance with the laws of the State of California, without giving effect to principles of conflicts of law. Each of the parties to this Agreement consents to the exclusive Jurisdiction and venue of the state and federal courts of Santa Clara County, California. (d) COUNTERPARTS. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original and all of which together shall constitute one instrument. (e) TITLES AND SUBTITLES. The titles and subtitles used in this Agreement are used for convenience only and are not to be considered in construing or interpreting this Agreement. (f) NOTICES. Any notice required or permitted by this Agreement shall be in writing and shall be deemed sufficient upon receipt, when delivered personally or by courier, A-4 53 overnight delivery service or confirmed facsimile, or forty-eight (48) hours after being deposited in the regular mail as certified or registered mail (airmail if sent internationally) with postage prepaid, if such notice is addressed to the party to be notified at such party's address or facsimile number as set forth below, or as subsequently modified by written notice. (g) SEVERABILITY. If one or more provisions of this Agreement are held to be unenforceable under applicable law, the parties agree to renegotiate such provision in good faith, in order to maintain the economic position enjoyed by each party as close as possible to that under the provision rendered unenforceable. In the event that the parties cannot reach a mutually agreeable and enforceable replacement for such provision, then (i) such provision shall be excluded from this Agreement, (ii) the balance of the Agreement shall be interpreted as if such provision were so excluded and (iii) the balance of the Agreement shall be enforceable in accordance with its terms. (h) ENTIRE AGREEMENT. This Agreement and the documents referred to herein are the product of both of the parties hereto, and constitutes the entire agreement between such parties pertaining to the subject matter hereof and thereof, and merges all prior negotiations and drafts of the parties with regard to the transactions contemplated herein and therein. Any and all other written or oral agreements existing between the parties hereto regarding such transactions are expressly canceled. (i) ATTORNEY'S FEES. If any action at law or in equity (including arbitration) is necessary to enforce or interpret the terms of this Agreement, the prevailing party shall be entitled to reasonable attorney's fees, costs and necessary disbursements in addition to any other relief to which such party may be entitled. (j) WAIVER OF JURY TRIAL. TO THE FULLEST EXTENT PERMITTED BY LAW, EACH OF THE PARTIES WAIVES ANY RIGHT TO TRIAL BY JURY THAT THE PARTIES MAY HAVE IN ANY ACTION OR PROCEEDING IN CONNECTION WITH THIS AGREEMENT OR THE TRANSACTIONS RELATED HERETO. (k) THIRD-PARTY RELIANCE. The parties hereto do not intend to create any third-party beneficiaries of their agreement hereunder, and no person or entity other than such parties and their respective successors, heirs and permitted assigns shall have any rights under this Agreement. (l) OTHER REMEDIES. Except as otherwise provided herein, any and all remedies herein expressly conferred upon a party will be deemed cumulative with and not exclusive of any other remedy conferred hereby or by law or equity on such party, and the exercise of any one remedy will not preclude the exercise of any other. (m) FURTHER ASSURANCES. Each party agrees to cooperate fully with the other parties and to execute such further instruments, documents and agreements and to give such further written assurances as may be reasonably requested by any other party to evidence and reflect the transactions described herein and contemplated hereby and to carry into effect the intents and purposes of this Agreement. A-5 54 (n) DISPUTE RESOLUTION. Any dispute or claim arising out of or in connection with this Agreement will be finally settled by binding arbitration in accordance with the then-current Commercial Arbitration Rules of the American Arbitration Association by 3 arbitrators appointed in accordance with said rules. Each party shall select one such arbitrator, and the two arbitrators so chosen shall select the third arbitrator. The arbitrators shall apply California law, without reference to rules of conflicts of law or rules of statutory arbitration, to the resolution of any dispute. For any claims brought hereunder, the location of the arbitration shall be San Jose, California. Judgment on the award rendered by the arbitrator may be entered in any court having jurisdiction thereof Notwithstanding the foregoing, the parties may apply to any court of competent jurisdiction for preliminary or interim equitable relief, or to compel arbitration in accordance with this paragraph, without breach of this arbitration provision. A-6 55 The parties have caused this Agreement to be executed as of the date first written above. NIKU CORPORATION By: ------------------------------------ Title: --------------------------------- Address: 955 - A Charter Street Redwood City, CA 94022 Fax No: 650-369-9298 COVENANTOR By: ------------------------------------ Title: --------------------------------- (print) Address: ------------------------------- --------------------------------------- --------------------------------------- Fax No: -------------------------------- 56 EXHIBIT B ESCROW AGREEMENT THIS ESCROW AGREEMENT (this "AGREEMENT") is entered into as of December ___, 1998, by and among Niku Corporation, a Delaware corporation ("NIKU"), Alyanza Software Corporation, a California corporation ("ALYANZA"), Chase Manhattan Bank and Trust Company, N.A., as Escrow Agent ("ESCROW AGENT") and Felipe Lloreda, as Shareholders' Agent ("SHAREHOLDERS' AGENT") with respect to the shares of Niku capital stock and cash to be issued to the shareholders (collectively, the "HOLDERS") of Alyanza in the Merger (as defined below). RECITALS A. Niku, Alyanza and Niku Acquisition Corp., a Delaware corporation and a wholly-owned subsidiary of Niku ("SUB"), have entered into a Agreement and Plan of Reorganization dated as of December 10, 1998 (the "MERGER AGREEMENT") pursuant to which Sub will merge with and into Alyanza (the "MERGER"), with Alyanza surviving the Merger as the surviving corporation. Capitalized terms used in this Agreement and not otherwise defined in this Agreement shall have the meanings given them in the Merger Agreement. B. Section 2.2 of the Merger Agreement provides that at the Effective Time, the Niku will deposit in escrow (such deposit constituting the "ESCROW FUND") cash in the amount of $20,000 together with certificates representing 52,500 shares of Niku Common Stock issuable by Niku in the Merger, on a pro rata basis, in accordance with each Holder's percentage ownership of Alyanza Capital Stock immediately prior to the Merger. Such cash (the "ESCROW CASH") and such shares (the "ESCROW SHARES") shall be held as security for the Holders' indemnification obligations under Article X of the Merger Agreement. The Escrow Cash and the Escrow Shares are sometimes collectively referred to herein as the "ESCROW CONSIDERATION." C. The parties to this Agreement desire to establish the terms and conditions pursuant to which the Escrow Consideration will be deposited, held in, and disbursed from the Escrow Fund. NOW, THEREFORE, the parties to this Agreement agree as follows: 1. Escrow Fund. The Escrow Agent agrees to: (a) accept delivery of the Escrow Consideration; and (b) hold such Escrow Consideration in escrow as part of the Escrow Fund, all subject to the terms and conditions of this Agreement and Article X of the Merger Agreement (which Article X is attached to this Agreement as Appendix I and incorporated by reference into this Agreement) (collectively, the "ESCROW PROVISIONS"). The Escrow Shares will include "ADDITIONAL ESCROW SHARES" as that term is defined in Section 2(c) of this Agreement. 2. Deposit of Escrow Deposit: Release from Escrow. (a) Delivery of Escrow Consideration. As soon as practicable after the Effective Date, the Escrow Cash and the Escrow Shares will be delivered by Niku to the Escrow Agent. The Escrow Shares will be delivered in the form of one duly authorized stock certificate or certificates issued in the name of the Escrow Agent or its nominee. In the event Niku issues B-1 57 any Additional Escrow Shares, such shares will be issued in the name of the Escrow Agent and delivered to the Escrow Agent in the same manner as the Escrow Shares. (b) Holders' Accounts. The Escrow Agent will maintain for each Holder an accounting record (each Holder's "ACCOUNT") specifying the Escrow Consideration held for the record of each Holder pursuant to the Escrow Provisions. All Escrow Consideration received under Section 2(a) will be allocated to each Holder's Account in accordance with such Holder's percentage interest in the Escrow Fund as set forth on Appendix I. Distributions in cash on account of the Escrow consideration will be held in a demand deposit or time deposit account with the Escrow Agent. Such investment shall earn interest at a rate tied to the average one month LIBOR less fifty (50) basis points. Such interest will be computed daily and credited to the account monthly. Any interest accrued thereon will be allocated and paid together with the Escrow consideration to which such distributions pertain. (c) Dividends, Voting and Rights of Ownership. Except for tax-free dividends paid in stock declared with respect to the Escrow Shares pursuant to Section 305(a) of the Internal Revenue Code of 1986, as amended (the "CODE") ("ADDITIONAL ESCROW SHARES"), there will be distributed promptly to the Holders any cash dividends or dividends payable in securities or other distributions of any kind made in respect of the Escrow Shares. Each Holder will have voting rights with respect to the Escrow Shares deposited in the Escrow Fund with respect to such Holder so long as such Escrow Shares are held in escrow, and Niku will take all reasonable steps necessary to allow the exercise of such rights. While the Escrow Shares remain in the Escrow Agent's possession pursuant to this Agreement and the Merger Agreement, the Holders will retain and will be able to exercise all other incidents of ownership of said Escrow Shares which are not inconsistent with the terms and conditions of this Agreement and the Merger Agreement. (d) Release. The Escrow Shares will be held by the Escrow Agent until required to be released to the Holders pursuant to Section 10.3 of the Merger Agreement, unless previously delivered to Niku pursuant to Section 10.4 of the Merger Agreement. Within five (5) business days after the applicable release condition is met, the Escrow Agent will deliver to each Holder the Escrow Consideration to be released on such date as identified by Niku and the Shareholders' Agent to the Escrow Agent in writing (which amount to be released shall have been reduced by any expenses incurred by the Shareholders' Agent in connection with services performed hereunder and under the Merger Agreement). Escrow Shares that are released will be in the form of stock certificate(s) issued in the name of such Holder. Escrow Consideration will be released to the respective Holders in accordance with their respective Accounts. Certificates representing Escrow Shares so issued will bear the legend contained in the Investment Agreement of each Holder. Cash will be paid in lieu of fractions of Escrow Shares in an amount equal to the product determined by multiplying such fraction by the Fair Market Value per share of Common Stock of Niku (as determined by its Board of Directors). Within five (5) business days after written request from the Shareholders' Agent, Niku will deposit with the Escrow Agent sufficient funds to pay such cash amounts for fractional shares. (1) In the event funds transfer instructions are given (other than in writing at the time of execution of the Agreement), whether in writing, by telecopier or otherwise, the Escrow Agent is authorized to seek confirmation of such instructions by telephone B-2 58 call-back to the person or persons designated on Schedule 2 hereto, and the Escrow Agent may rely upon the confirmations of anyone purporting to be the person or persons so designated. The persons and telephone numbers for call-backs may be changed only in writing actually received and acknowledged by the Escrow Agent. The parties to this Agreement acknowledge that such security procedure is commercially reasonable. (2) It is understood that the Escrow Agent and the beneficiary's bank in any funds transfer may rely solely upon any account numbers or similar identifying number provided by either of the other parties hereto to identify (i) the beneficiary, (ii) the beneficiary's bank, or (iii) an order it executes using any such identifying number, even where its use may result in a person other than the beneficiary being paid, or the transfer of funds to a bank other than the beneficiary's bank, or an intermediary bank designated. (e) No Encumbrance. Except as provided in this Agreement, none of the Escrow Consideration or any beneficial interest in the Escrow Consideration may be pledged, sold, assigned or transferred, including by operation of law, by a Holder or be taken or reached by any legal or equitable process in satisfaction of any debt or other liability of a Holder, prior to the delivery to such Holder of the Escrow Consideration by the Escrow Agent. (f) Power to Transfer Escrow Consideration. The Escrow Agent is granted the power to effect any transfer of Escrow Consideration contemplated by the Escrow Provisions. Niku will cooperate with the Escrow Agent in promptly issuing stock certificates to effect such transfers. (g) Reporting. Each Holder will provide the Escrow Agent with his/her/its Taxpayer Identification Number at or prior to Closing. On or before January 31 of each year under this Agreement, the Escrow Agent will prepare and mail to each Holder, other than Holders who demonstrate their status as non-resident aliens in accordance with the United States Treasury Regulations, a Form 1099-B reporting any cash payments, in accordance with such Treasury Regulations. If the Escrow Agent has not received notice from a Holder of such Holder's certified Taxpayer Identification Number, the Escrow Agent shall deduct and withhold backup withholding tax from any cash payment made pursuant to the Code and applicable regulations thereunder. Should any issue arise regarding federal income tax reporting or withholding, the Escrow Agent shall act in accordance with the joint written instructions of the Shareholders' Agent and Niku. 3. Limitation of the Escrow Agent's Liability. (a) The Escrow Agent will incur no liability with respect to any action taken or suffered by it in reliance upon any notice, direction, instruction, consent, statement or other document believed by it to be genuine and duly authorized, nor for any other action or inaction, except its own willful misconduct, bad faith or gross negligence. The Escrow Agent will not be responsible for the validity or sufficiency of the Escrow Provisions. In all questions arising under the Escrow Provisions, the Escrow Agent may rely on the advice of counsel, and for anything done, omitted or suffered in good faith by the Escrow Agent based on such advice, the Escrow Agent will not be liable to anyone. The Escrow Agent will not be required to take any action under the Escrow Provisions involving any expense unless the payment of such expense is made B-3 59 or provided for in a manner satisfactory to it. Anything in this Agreement to the contrary not withstanding, in no event shall the Escrow Agent be liable for special. indirect or consequential loss or damage of any kind whatsoever (including but not limited to lost profits), even if the Escrow Agent has been advised of the likelihood of such loss or damage and regardless of the form of action. (b) In the event conflicting demands are made or notices are served upon the Escrow Agent with respect to the Escrow Fund, the Escrow Agent will have the absolute right, at the Escrow Agent's election, to do either or both of the following: resign so a successor can be appointed pursuant to Section 5 or file a suit in interpleader and obtain an order from a court of competent jurisdiction requiring the parties to interplead and litigate in such court their several claims and rights among themselves. In the event such interpleader suit is brought, the Escrow Agent will thereby be fully released and discharged from all further obligations imposed upon it under the Escrow Provisions, and Niku will pay the Escrow Agent (subject to reimbursement from the Holders pursuant to Section 4) all costs, expenses and reasonable attorney's fees expended or incurred by the Escrow Agent pursuant to the exercise of the Escrow Agent's rights under this Section 3 (such costs, fees and expenses will be treated as extraordinary fees and expenses for the purposes of Section 4). 4. Expenses. (a) Escrow Agent. All fees and expenses of the Escrow Agent incurred in the ordinary course of performing its responsibilities hereunder will be paid by Niku upon receipt of a written invoice by the Escrow Agent. Any extraordinary fees and expenses, including without limitation any fees or expenses incurred by the Escrow Agent in connection with a dispute over the distribution of Escrow Shares or the validity of a claim or claims by Niku made in an Officer's Certificate, will be paid 50% by Niku and 50% by the Holders. The Holders' liability for the extraordinary fees and expenses of the Escrow Agent may be paid by Niku and recovered as a claim hereunder out of the Escrow Fund. If Niku has paid the Holders' portion of such fees and expenses as permitted under this Section 4(a) then the Escrow Agent will, upon demand by Niku, transfer to Niku Escrow Consideration having a value equal to such portion of fees and expenses, with Escrow Shares being valued at for this purpose at the Fair Market Value per share of Common Stock of Niku (as determined by its Board of Directors). In the event the balance in the Escrow Fund is not sufficient to pay the extraordinary fees and expenses of the Escrow Agent, as described in the prior paragraph, or in the event the Escrow Agent incurs any liability to any person, firm or corporation by reason of its acceptance or administration of this Escrow Agreement, the other parties hereto, jointly and severally, agree to indemnify the Escrow Agent for its extraordinary fees and expenses or costs and expenses, including, without limitation, counsel fees and expenses, as the case may be. Notwithstanding the foregoing, no indemnity need be paid in the event of the Escrow Agent's gross negligence, bad faith or willful misconduct. (b) Shareholders' Agent and the Shareholders Committee. The Shareholders' Agent will not be entitled to receive any compensation in connection with the performance of their duties under this Agreement and the Merger Agreement. Any fees and expenses incurred by the Shareholders' Agent in connection with actions taken pursuant to the terms of the Escrow Provisions may be paid out of the Escrow Fund to the Shareholders' Agent after the satisfaction B-4 60 of all claims by Niku against such fund, with the Escrow Shares being valued for this purpose at the Fair Market Value per share of Common Stock of Niku (as determined by its Board of Directors). The Shareholders' Agent shall be required to submit to the Escrow Agent and Niku a notice containing the appropriate supporting documentation for any fees or expenses to be paid in connection with the performance of their duties hereunder. It is further understood that any corporation into which the Escrow Agent in its individual capacity may be merger or converted or with which it may be consolidated, or any corporation resulting from any merger, conversion or consolidation to which the Escrow Agent in its individual capacity shall be a party, or any corporation to which substantially all the corporate trust business of the Escrow Agent in its individual capacity may be transferred, shall be the Escrow Agent under this Escrow Agreement without further act. 5. Successor Escrow Agent. In the event the Escrow Agent becomes unavailable or unwilling to continue in its capacity as such, the Escrow Agent may resign and be discharged from its duties or obligations hereunder by giving resignation to the parties to this Agreement, specifying not less than thirty (30) days' prior written notice of such a date when such resignation will take effect. Niku will designate a successor Escrow Agent prior to the expiration of such 30 day period by giving written notice to the Escrow Agent and the Shareholders' Agent. Niku may appoint a successor Escrow Agent with the consent of the Shareholders' Agent, which will not be unreasonably withheld. The Escrow Agent will promptly transfer the Escrow Fund to such designated successor. In the event no successor Escrow Agent is appointed as described in this Section 5, the Escrow Agent may apply to a court of competent jurisdiction for the appointment of a successor Escrow Agent. 6. Limitation of Responsibility. The Escrow Agent's duties are limited to those set forth in the Escrow Provisions and the Escrow Agent may rely upon the written notices delivered to the Escrow Agent under the Escrow Provisions. 7. Incorporation by Reference of Article X. The parties agree that the terms of Article X of the Merger Agreement shall be deemed to be incorporated by reference in this Agreement as if such Article had been set forth in its entirety herein. The parties acknowledge that the administration of the Escrow Fund by the Escrow Agent will require reference to both the terms of this Agreement as well as the terms of such Article X. 8. Notices. All notices and other communications hereunder shall be in writing and shall be deemed given if delivered personally, telecopied (which is confirmed) or two business days after being mailed by registered or certified mail (return receipt requested) to the parties at the following addresses (or at such other address for a party as shall be specified by like notice): (a) if to Niku: Niku Corporation 955-A Charter Street Redwood City, CA 94022 Attention: Chief Executive Officer Fax No: (650) 369-9298 Telephone No: (650) 369-9290 B-5 61 with a copy to: Venture Law Group A Professional Corporation 2800 Sand Hill Road Menlo Park, California 94025 Attention: Joshua Pickus Fax No: (650) 233-8386 Telephone No: (650) 854-4488 (b) if to Alyanza: Alyanza Software Corporation 110 1 San Antonio Road Suite 309 Mountain View, CA 94043 Attention: President Fax No: (650) 965-1701 Telephone No: (650) 965-1721 (c) if to the Escrow Agent: Chase Manhattan Bank and Trust Company, N.A. 101 California Street, Suite 2725 Attn: Corporate Trust Department San Francisco, CA 94111 Fax No: (415) 693-8850 Telephone No: (415) 954-9561 (d) if to the Shareholders' Agent: Felipe Lloreda 4217 Malkay Drive Palo Alto, CA 94306 with a copy to: Wilson Sonsini Goodrich & Rosati 650 Page Mill Road Palo Alto, CA 94304 Attention: John Goodrich. Fax No.: (650)493-6811 Telephone No.: (650) 493-9300 9. General. (a) Governing Laws. It is the intention of the parties hereto that the internal laws of the State of California (irrespective of its choice of law principles) shall govern the B-6 62 validity of this Agreement, the construction of its terms, and the interpretation and enforcement of the rights and duties of the parties to this Agreement (b) Binding upon Successors and Assigns. Subject to, and unless otherwise provided in, this Agreement, each and all of the covenants, terms, provisions, and agreements contained in this Agreement shall be binding upon, and inure to the benefit of, the permitted successors, executors, heirs, representatives, administrators and assigns of the parties to this Agreement. (c) Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be an original as against any party whose signature appears on such counterpart and all of which together shall constitute one and the same instrument. This Agreement shall become binding when one or more counterparts of this Agreement, individually or taken together, shall bear the signatures of all of the parties reflected in this Agreement as signatories. (d) Entire Agreement. Except as set forth in the Merger Agreement, this Agreement, the documents referenced in this Agreement and the exhibits to such documents, constitute the entire understanding and agreement of the parties to this Agreement with respect to the subject matter of this Agreement and of such documents and exhibits and supersede all prior and contemporaneous agreements or understandings, inducements or conditions, express or implied, written or oral, between the parties with respect to this Agreement. The express terms of this Agreement control and supersede any course of performance or usage of the trade inconsistent with any of the terms of this Agreement. (e) Waivers. No waiver by any party to this Agreement of any condition or of any breach of any provision of this Agreement will be effective unless in writing. No waiver by any party of any such condition or breach, in any one instance, will be deemed to be a further or continuing waiver of any such condition or breach or a waiver of any other condition or breach of any other provision contained in this Agreement. (f) Amendment. This Agreement may be amended with the written consent of Niku, the Escrow Agent and the Shareholders' Agent, provided, however, that if the Escrow Agent does not agree to an amendment agreed upon by Niku and the Shareholders' Agent, Niku will appoint a successor Escrow Agent in accordance with Section 5. [Signature Page Follows] B-7 63 IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the day and year first above written and will be effective as to all the Holders when executed by Niku, Alyanza, the Escrow Agent and the Shareholders' Agent. NIKU CORPORATION By: --------------------------------- Its: -------------------------------- ALYANZA SOFTWARE CORPORATION By: --------------------------------- Its: -------------------------------- ESCROW AGENT: CHASE MANHATTAN BANK AND TRUST COMPANY, N.A. By: --------------------------------- Its: -------------------------------- SHAREHOLDERS' AGENT: ------------------------------------ ------------------------------------ 64 APPENDIX I ARTICLE X OF MERGER AGREEMENT ESCROW AND INDEMNIFICATION Section 10.1 Indemnification; Limitation on Liability. (c) From and after the Effective Time and subject to the limitations contained in Section 10.2, the Former Alyanza Shareholders will, except as otherwise contemplated by the Indemnity Agreement, severally and pro rata, in accordance with their Pro Rata Portion, indemnify and hold Niku harmless against any loss, expense, liability or other damage, including reasonable attorneys' fees, to the extent of the amount of such loss, expense, liability or other damage (collectively "DAMAGES") that Niku has incurred by reason of (i) a breach by Alyanza of any representation, warranty, covenant or agreement of Alyanza contained in this Agreement, (ii) any failure by Alyanza or its shareholders to perform any of their obligations under the Agreement and (iii) any claims brought by employees or consultants of Alyanza who were terminated prior to Closing provided that any such events occur or become known to Niku during the Escrow Period (as defined in Section 10.4 below). (d) Except as provided for in Section 2.2(b) and in the case of fraud, Niku's and Sub's sole remedy for any and all matters arising out of, or related to, this Agreement, shall be limited to the indemnification rights set forth in this Article X and the maximum aggregate amount of damages payable hereunder, shall be limited to the amounts contained in the Escrow Fund (as defined below). Section 10.2 Escrow Fund. (a) As security for the indemnities in Section 10.1, as soon as practicable after the Effective Date, the Escrow Shares and the Escrow Cash shall be deposited with Chase Manhattan Bank and Trust Company, N.A. (or such other institution selected by Niku as escrow agent (the "ESCROW AGENT"), such deposit to constitute the Escrow Fund (the "ESCROW FUND") and to be governed by the terms set forth in this Article X and in the Escrow Agreement. Notwithstanding the foregoing, except in the case of fraud and non-payment of taxes (including without limitation breach of the representations and warranties contained in Article III hereof) which shall not be limited to claims against the Escrow Fund, the indemnification obligations of the Former Alyanza Shareholders pursuant to this Article X shall be limited to the amount and assets deposited and present in the Escrow Fund and Niku shall not be entitled to pursue any claims for indemnification under this Article X against the Fortner Alyanza Shareholders directly or personally and the sole recourse of Niku shall be to make claims against the Escrow Fund in accordance with the terms of the Escrow Agreement. (b) In addition to the indemnity contemplated by subsection (a) above, Niku shall be entitled to be reimbursed out of the Escrow Fund for any damages (of whatever nature, punitive, treble or compensatory) it or the Surviving Corporation may be required to pay in satisfaction of any judgment or other order entered in any state or federal court or arbitration proceeding prior to the end of the Escrow Period based upon an Infringement Claim against Niku or the Surviving Corporation, whether or not the basis of such claim shall have been known to 2 65 Alyanza as of the date hereof or as of the Effective Time. Payments required to be made by Niku or the Surviving Corporation in the form of cross-licensing or royalty payment or settlements with respect to any such claims shall not be considered reimbursable amounts under this subsection (b). For purposes hereof, an "INFRINGEMENT CLAIM" shall mean a claim in writing alleging, in whole or in part, that any of the Alyanza Products or the use or exploitation of any Alyanza Proprietary Rights in Alyanza's business at or prior to the Effective Time infringes upon on the rights of or constitutes misappropriation of any proprietary information or intangible property right of any third person or entity, including, without limitation, any patent, trade secret, copyright, trademark or trade name. (c) Notwithstanding the foregoing, the Former Alyanza Stockholders shall have no liability under Section 10.1 and Niku may not receive any distributions from the Escrow Fund unless and until an Officer's Certificate or Certificates (as defined in Section 10.4 below) has been delivered to the Shareholders' Agent and to the Escrow Agent. (d) The Escrow Cash shall be invested by the Escrow Agent at the direction of the Shareholders' Agent while any such amount shall be held in the Escrow Fund, provided that such investments shall be limited to (i) direct obligations of the United States or any agency thereof with maturities of one year or less from the date of acquisition, (ii) certificates of deposit issued by any bank or trust company organized under the laws of the United States or any state thereof and having capital and surplus in excess of $50,000,000 and having a rating of "A" or better by a nationally recognized rating agency (a "QUALIFIED BANK"), with maturities of one year or less from the date of acquisition, (iii) shares of "money market funds," each having net assets in excess $50,000,000, or (iv) time deposits or demand deposits with any Qualified Bank. Section 10.3 Escrow Period. The Escrow Fund shall terminate 12 months after the Closing Date (the period from the Closing to such date referred to as the "ESCROW PERIOD"), provided, however, that that portion of the Escrow Fund, which, in the reasonable judgment of Niku, subject to the objection of the Shareholders' Agent and the subsequent resolution of the matter in the manner provided in Section 10.7 and except to the extent contemplated by Section 10.2(b), are necessary to satisfy any unsatisfied claims made prior to termination of the Escrow Period with respect to Damages incurred or litigation pending prior to expiration of the Escrow Period, shall remain in the Escrow Fund until such claims have been finally resolved. Section 10.4 Claims Upon Escrow Fund. Upon receipt by the Escrow Agent on or before the last day of the Escrow Period of a certificate signed by any appropriately authorized officer of Niku (an "OFFICER'S CERTIFICATE"): (i) Stating the aggregate amount of Niku's Damages or an estimate thereof, in each case to the extent known or determinable at such time, and, (ii) Specifying in reasonable detail the individual items of such Damages included in the amount so stated, the date each such item was paid or properly accrued or arose, and the nature of the misrepresentation, breach or claim to which such item is related, the Escrow Agent shall, subject to the provisions of Section 10.7 hereof, deliver to Niku out of the Escrow Fund, as promptly as practicable, Escrow Cash and Escrow Shares having a value equal to such Damages all in accordance with the Escrow Agreement and Section 10.5 below. 3 66 All claims for Damages to be paid hereunder shall be paid 50% in Escrow Cash and 50% in shares of Niku Common Stock, and following total depletion of the Escrow Cash shall be paid 100% in Escrow Shares. Amounts paid or distributed from the Escrow Fund shall be paid or distributed pro rata among the Holders (as defined in the Escrow Agreement) based upon their respective percentage interests therein at the time. Section 10.5 Valuation. For the purpose of compensating Niku for its Damages pursuant to this Agreement, the value per share of the Escrow Shares shall be the Fair Market Value per share of Common Stock of Niku (as determined by its Board of Directors). Section 10.6 Objections to Claims. At the time of delivery of any Officer's Certificate to the Escrow Agent, a duplicate copy of such Officer's Certificate shall be delivered to the Shareholders' Agent (as defined in Section 10.8 below) and for a period of thirty (30) days after such delivery, the Escrow Agent shall make no delivery of Escrow Cash and Escrow Shares pursuant to Section 10.3 unless the Escrow Agent shall have received written authorization from the Shareholders' Agent to make such delivery. After the expiration of such thirty (30) day period, the Escrow Agent shall make delivery of the Escrow Cash and Escrow Shares in the Escrow Fund in accordance with Section 10.3, provided that no such delivery may be made if the Shareholders' Agent shall object in a written statement to the claim made in the Officer's Certificate, and such statement shall have been delivered to the Escrow Agent and to Niku prior to the expiration of such thirty (30) day period. Section 10.7 Resolution of Conflicts. (a) In case the Shareholders' Agent shall so object in writing to any claim or claims by Niku made in any Officer's Certificate, Niku shall have thirty (30) days to respond in a written statement to the objection of the Shareholders' Agent. If after such thirty (30) day period there remains a dispute as to any claims, the Shareholders' Agent and Niku shall attempt in good faith for thirty (30) days to agree upon the rights of the respective parties with respect to each of such claims. If the Shareholders' Agent and Niku should so agree, a memorandum setting forth such agreement shall be prepared and signed by both parties and shall be furnished to the Escrow Agent. The Escrow Agent shall be entitled to rely on any such memorandum and shall distribute the Escrow Fund in accordance with the terms of the memorandum. (b) If no such agreement can be reached after good faith negotiation, either Niku or the Shareholders' Agent appropriate portion of may, by written notice to the other, demand arbitration of the matter unless the amount of the damage or loss is at issue in pending litigation with a third party, in which event arbitration shall not be commenced until such amount is ascertained or both parties agree to arbitration; and in either such event the matter shall be settled by arbitration conducted by three arbitrators. Within fifteen (15) days after such written notice is sent, Niku (on the one hand) and the Shareholders' Agent (on the other hand) shall each select one arbitrator, and the two arbitrators so selected shall select a third arbitrator. The decision of the arbitrators as to the validity and amount of any claim in such Officer's Certificate shall be binding and conclusive upon the parties to this Agreement, and notwithstanding anything in Section 10.3, the Escrow Agent shall be entitled to act in accordance with such decision and make or withhold payments out of the Escrow Fund in accordance with such decision. 4 67 (c) Judgment upon any award rendered by the arbitrators may be entered in any court having jurisdiction. Any such arbitration shall be held in Santa Clara or San Mateo County, California under the commercial rules then in effect of the American Arbitration Association. The non-prevailing party to an arbitration shall pay its own expenses, the fees of each arbitrator, the administrative fee of the American Arbitration Association, and the expenses, including, without limitation, the reasonable attorneys' fees and costs, incurred by the prevailing party to the arbitration. Section 10.8 Shareholders' Agent. (a) Felipe Lloreda shall be constituted and appointed as agent (the "SHAREHOLDERS' AGENT") for and on behalf of the Former Alyanza Shareholders to give and receive notices and communications, to authorize delivery to Niku of the Escrow Shares or Escrow Cash or other property from the Escrow Fund in satisfaction of claims by Niku, to object to such deliveries, to agree to, negotiate, enter into settlements and compromises of, and demand arbitration and comply with orders of courts and awards of arbitrators with respect to such claims, and to take all actions necessary or appropriate in the judgment of the Shareholders' Agent for the accomplishment of the foregoing. All actions of the Shareholders' Agent shall be taken jointly, not individually. Such agency may be changed by the holders of a majority in interest of the Escrow Shares from time to time upon not less than ten (10) days' prior written notice to Niku. No bond shall be required of the Shareholders' Agent, and the Shareholders' Agent shall receive no compensation for services. Notices or communications to or from the Shareholders' Agent shall constitute notice to or from each of the Former Alyanza Shareholders. (b) The Shareholders' Agent shall not be liable for any act done or omitted hereunder as Shareholders' Agent, as the case may be, while acting in good faith and in the exercise of reasonable judgment, and any act done or omitted pursuant to the advice of counsel shall be conclusive evidence of such good faith. The Former Alyanza Shareholders shall severally and pro rata, in accordance with their Pro Rata Portion, indemnify the Shareholders' Agent and hold him harmless against any loss, liability or expense incurred without gross negligence or bad faith on the part of the Shareholders' Agent arising out of or in connection with the acceptance or administration of his duties hereunder under this Agreement or the Escrow Agreement. (c) The Shareholders' Agent shall have reasonable access to information about Alyanza and Niku and the reasonable assistance of Alyanza's and Niku's officers and employees for purposes of performing their duties and exercising their rights under this Article X, provided that the Shareholders' Agent shall treat confidentially and not disclose any nonpublic information from or about Alyanza or Niku to anyone (except on a need to know basis to individuals who agree to treat such information confidentially). Section 10.9 Actions of the Shareholders' Agent. A decision, act, consent or instruction of the Shareholders' Agent shall constitute a decision of all of the Former Alyanza Shareholders for whom shares of Niku Common Stock otherwise issuable to them are deposited in the Escrow Fund and shall be final, binding and conclusive upon each such Former Alyanza Shareholder, and the Escrow Agent and Niku may rely upon any decision, act, consent or instruction of the Shareholders' Agent as being the decision, act, consent or instruction of each 5 68 and every such Former Alyanza Shareholder. The Escrow Agent and Niku are hereby relieved from any liability to any person for any acts done by them in accordance with such decision, act, consent or instruction of the Shareholders' Agent. Section 10.10 Claims. In the event Niku becomes aware of a third-party claim which Niku believes may result in a demand against the Escrow Fund, Niku shall notify the Shareholders' Agent of such claim, and the Shareholders' Agent and the Former Alyanza Shareholders for whom shares of Niku Common Stock otherwise issuable to them are deposited in the Escrow Fund shall be entitled, at their expense, to participate in any defense of such claim. Niku shall have the right in its sole discretion to settle any such claim; provided, however, that Niku may not affect the settlement of any such claim without the consent of the Shareholders' Agent, which consent shall not be unreasonably withheld. In the event that the Shareholders' Agent have consented to any such settlement, the Shareholders' Agent shall have no power or authority to object to the amount of any claim by Niku against the Escrow Fund for indemnity with respect to such settlement. 6 69 EXHIBIT C INVESTMENT AGREEMENT THIS INVESTMENT AGREEMENT (this "AGREEMENT") is entered into as of December 1998, among Niku Corporation, a Delaware corporation ("NIKU"), and the undersigned shareholder ("SHAREHOLDER") of Alyanza Software Corporation, a California corporation ("ALYANZA"). RECITALS A. Niku, Alyanza and Niku Acquisition Corp., a Delaware corporation and a wholly-owned subsidiary of Niku ("MERGER SUB"), have entered into an Agreement and Plan of Reorganization dated as of December 10, 1998 (the "MERGER AGREEMENT") pursuant to which Alyanza and Niku intend to enter into a business combination transaction in which Alyanza would be merged with and into Merger Sub (the "MERGER") (capitalized terms used and not otherwise defined herein shall have the respective meanings ascribed to them in the Merger Agreement). B. In the Merger, outstanding shares of Alyanza capital stock, including any such shares owned by Shareholder, will be converted into the right to receive shares of Niku Common Stock (the "SHARES"), together with cash, subject to the terms of, and as set forth in, the Merger Agreement. C. The Shares to be received by Shareholder in the Merger will have not been registered under the Securities Act of 1933, as amended (the "SECURITIES ACT"), in reliance upon the exemption from registration contained in Regulation D and/or Section 4(2) of the Securities Act. NOW, THEREFORE, the parties, intending to be legally bound, agree as follows: 1. Acknowledgments by Shareholder. Shareholder acknowledges and understands that the representations, warranties and covenants by Shareholder set forth herein shall be relied upon by Niku, Alyanza, and their respective affiliates, counsel and accounting firms, and that substantial losses and damages may be incurred by such persons if Shareholder's representations, warranties or covenants are breached. Shareholder has carefully read this Agreement and the Merger Agreement (including the Escrow Agreement attached thereto as Exhibit D) and has discussed the requirements of this Agreement with Shareholder's professional advisors to the extent Shareholder has deemed necessary, 2. Shareholder's Representations. Shareholder represents, warrants and covenants that: (a) Acquire Solely for Own Account. The Shares to be received by Shareholder in the Merger will be acquired for investment for Shareholder's own account, not as a nominee or agent, and not with a view to the resale or distribution of any part thereof. Shareholder does not presently have any contract, understanding, agreement or arrangement with C-1 70 any person to sell, transfer or grant participations to such person or to any third party with respect to any of the Shares. (b) Restricted Securities. Shareholder understands that the Shares will be "restricted securities" under applicable federal and state securities laws. Accordingly Shareholder will not make any sale, transfer, or other disposition of Shares unless (i) such sale, transfer, or other disposition is within the limitations of and in compliance with Rule 144 promulgated by the Securities and Exchange Commission (the "COMMISSION") under the Securities Act, or (ii) some other exemption from registration under the Securities Act is available with respect to any such proposed sale, transfer or other disposition of Shares, or (iii) such distribution of Shares has been registered under the Securities Act. Shareholder has no present intention to sell or otherwise dispose of the Shares and is acquiring such Shares for investment and not with a view to resale or distribution. (c) Information Concerning Niku and Alyanza. (i) Shareholder, either alone or together with his or its purchaser representative (the "PURCHASER REPRESENTATIVE"), has had the opportunity to ask questions of, and obtain any additional information reasonably available to Niku and Alyanza with respect to their respective plans, results of operations, financial conditions, businesses, properties, assets or business prospects, and Shareholder, either alone or together with the Purchaser Representative, has received all such information as Shareholder or the Purchaser Representative deems necessary and appropriate to enable Shareholder, either alone or together with the Purchaser Representative, to evaluate the risks and merits of the Merger and the Shares. (ii) If Shareholder has retained a Purchaser Representative, Shareholder has been informed in writing by the Purchaser Representative of any material relationship between the Purchaser Representative and its affiliates and Niku and its affiliates that currently exists, that is understood to be contemplated or has existed at any time during the previous two years, and any compensation received or to be received as a result of such relationship, and has, to the extent necessary to evaluate the risks and merits of the Merger, relied upon the advice of the Purchaser Representative in connection with the Merger; (iii) Shareholder acknowledges he or she has previously received (A) a copy of the Merger Agreement (together with all exhibits thereto), (B) a copy of Niku's latest Balance Sheet and Income Statement, each dated November 30, 1998. (d) Economic Risk. Shareholder, either alone or together with the Purchaser Representative, can look after Shareholder's financial interests in connection with the Merger; has such knowledge and experience in financial or business matters as to be able to evaluate the merits and risks of the Merger; and is able to acquire the Shares without impairing Shareholder's financial condition, to hold the Shares for an indefinite period of time and to suffer a complete loss on Shareholder's investment. Shareholder has not been organized solely for the purpose of acquiring the Shares. (e) Accredited Investor Status. Shareholder is _____/is not _____ [please check one of the two choices] an "accredited investor" within the meaning of Rule 501(a) C-2 71 promulgated under the Securities Act. A copy of the definition of "accredited investor" for this purpose is attached to this Agreement as Annex A. 3. Restrictions on and Procedure for Sales. (a) Legend. Shareholder understands that all certificates representing Shares deliverable to Shareholder pursuant to the Merger shall, until the occurrence of one of the events referred to below, bear a legend substantially as follows: "THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE OFFERED, SOLD, PLEDGED, TRANSFERRED OR OTHERWISE DISPOSED OF EXCEPT IN ACCORDANCE WITH THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, AND THE OTHER CONDITIONS SPECIFIED IN THE INVESTMENT AGREEMENT DATED AS OF DECEMBER , 1998 BETWEEN THE HOLDER OF THIS CERTIFICATE AND NIKU CORPORATION, A COPY OF WHICH AGREEMENT WILL BE FURNISHED BY NIKU CORPORATION TO THE HOLDER OF THIS CERTIFICATE UPON WRITTEN REQUEST AND WITHOUT CHARGE." Niku, in its discretion, may cause stop transfer orders to be placed with its transfer agent with respect to the certificates for the Shares that are required to bear such legend. 4. Access to Information. Shareholder acknowledges that Niku has made available all such information as the shareholder has requested. 5. Additional Provisions Regarding Indemnification, Escrow and Termination of Agreements. Shareholder approves and agrees to be bound by all provisions of Section 2.2 and Article X of the Merger Agreement and the Escrow Agreement attached as Exhibit D to the Merger Agreement. Without limiting the generality of the foregoing, Shareholder consents and agrees to the appointment of Shareholders' Agent pursuant to Article X of the Merger Agreement and to the indemnification obligations provided for in Section 10.8(b) of the Merger Agreement. 6. Miscellaneous. (a) This Agreement constitutes the entire agreement between the parties pertaining to the subject matter hereof. No waiver of any of the provisions of this Agreement shall be deemed, or shall constitute, a waiver of any other provision, whether or not similar, nor shall any waiver constitute a continuing waiver. No waiver shall be binding unless executed in writing by the party making the waiver. (b) For the convenience of the parties hereto, this Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same document. (c) This Agreement shall be enforceable by, and shall inure to the benefit of and be binding upon, the parties hereto and their respective successors and assigns. As used C-3 72 herein, the term "successors and assigns" shall mean, where the context so permits, heirs, executors, administrators, trustees and successor trustees, and personal and other representatives. (d) This Agreement shall be governed by and construed, interpreted and enforced in accordance with the internal laws of the State of California (without regard to the principles of conflict of laws thereof). (e) If a court of competent jurisdiction determines that any provision of this Agreement is not enforceable or enforceable only if limited in time and/or scope, this Agreement shall continue in full force and effect with such provision stricken or so limited. C-4 73 Executed as of the date shown on the first page of this Agreement. NIKU CORPORATION By: ------------------------------------- Name: -------------------------------- Title: ------------------------------- SHAREHOLDER By: ------------------------------------- Name of Shareholder: -------------------- Name of Signatory (if different from name of Shareholder): --------------------------- Title of Signatory (if applicable): ------------------------ Number of shares beneficially owned by Shareholder: Common Stock ---------------- Preferred Stock ---------------- 74 ANNEX A DEFINITION OF ACCREDITED INVESTOR ACCREDITED INVESTOR. "Accredited investor" shall mean any person who comes within any of the following categories, or who the issuer reasonably believes comes within any of the following categories, at the time of the sale of the securities to that person: (1) Any bank as defined in section 3(a)(2) of the Act or any savings and loan association or other institution as defined in Section 3(a)(5)(A) of the Act whether acting in its individual or fiduciary capacity; any broker dealer registered pursuant to Section 15 of the Securities Exchange Act of 1934; insurance company as defined in Section 2(13) of the Act; investment company registered under the Investment Company Act of 1940 or a business development company as defined in Section 2(a)(48) of that Act; Small Business Investment Company licensed by the U.S. Small Business Administration under Section 301(c) or (d) of the Small Business Investment Act of 1958; employee benefit plan within the meaning of Title I of the Employee Retirement Income Security Act of 1974, if the investment decision is made by a plan fiduciary, as defined in Section 3(21) of such Act, which is either a bank, savings and loan association, insurance company, or registered investment adviser, or if the employee benefit plan has total assets in excess of $5,000,000; or, if a self-directed plan, with investment decisions made solely by persons that are accredited investors; (2) Any private business development company as defined in Section 202(a)(22) of the Investment Advisers Act of 1940; (3) Any organization described in Section 501(c)(3) of the Internal Revenue Code, corporation, Massachusetts or similar business trust, or partnership, not formed for the specific purpose of acquiring the securities offered, with total assets in excess of $5,000,000; (4) Any director, executive officer, or general partner of the issuer of the securities being offered or sold, or any director, executive officer, or general partner of a general partner of that issuer; (5) Any natural person whose individual net worth, or joint net worth with that person's spouse, at the time of his purchase exceeds $1,0000,000; (6) Any natural person who had an individual income in excess of $200,000 in each of the two most recent years or joint income with that person's spouse in excess of $300,000 in each of those years and has a reasonable expectation of reaching the same income level in the current year; 75 (7) Any trust with total assets in excess of S5,000,000, not formed for the specific purpose of acquiring the securities offered, whose purchase is directed by a sophisticated person as described in Rule 506(b)(2)(ii); and (8) Any entity in which all of the equity owners are accredited investors. 76 EXHIBIT D SUBJECT MATTER OF OPINION OF COUNSEL TO ALYANZA [Intentionally Omitted] 77 EXHIBIT E SUBJECT MATTER OF OPINION OF COUNSEL TO NIKU [Intentionally Omitted] EX-2.02 3 EX-2.02 1 EXHIBIT 2.02 AGREEMENT AND PLAN OF REORGANIZATION BY AND AMONG NIKU CORPORATION, NIKU ACQUISITION CORPORATION AND PROAMICS CORPORATION DATED AS OF NOVEMBER 16, 1999 2 AGREEMENT AND PLAN OF REORGANIZATION This AGREEMENT AND PLAN OF REORGANIZATION (this "AGREEMENT") is made and entered into as of November 16, 1999 among Niku Corporation, a Delaware corporation ("PARENT"), Niku Acquisition Corporation, a Delaware corporation and a wholly-owned subsidiary of Parent ("MERGER SUB"), and Proamics Corporation, a Delaware corporation (the "COMPANY"). RECITALS A. Parent, Merger Sub and the Company intend to effect a merger (the "MERGER") of the Company with and into Merger Sub in accordance with this Agreement and the Delaware General Corporation Law ("DELAWARE LAW"). Upon consummation of the Merger, the Company will cease to exist. B. It is intended that the Merger qualify as a tax-free reorganization within the meaning of Section 368(a)(1)(A) of the Internal Revenue Code of 1986, as amended (the "CODE"). C. The Board of Directors of the Company has (i) determined that the Merger is consistent with and in furtherance of the long-term strategy of the Company and fair to, and in the best interests of, the Company and its shareholders, (ii) approved this Agreement, the Merger and the other transactions contemplated by this Agreement and (iii) determined to unanimously recommend that the shareholders of the Company adopt and approve the principal terms of this Agreement and approve the Merger. D. The respective Boards of Directors of Parent and Merger Sub have approved this Agreement and the Merger. E. Concurrently with the execution of this Agreement, and as a condition and inducement to Parent's willingness to enter into this Agreement, each of the shareholders of the Company is entering into a Voting Agreement substantially in the form attached hereto as Exhibit A (the "VOTING AGREEMENT"). F. Concurrently with the execution of this Agreement, and as a condition and inducement to Parent's willingness to enter into this Agreement, each Founder (as defined below) of the Company is entering into a Non-Competition Agreement substantially in the form attached hereto as Exhibit B (the "NON-COMPETITION AGREEMENT"). NOW, THEREFORE, in consideration of the covenants, promises and representations set forth herein, and for other good and valuable consideration, intending to be legally bound hereby the parties agree as follows: 3 ARTICLE I THE MERGER 1.1 The Merger. At the Effective Time (as defined in Section 1.2) and subject to and upon the terms and conditions of this Agreement and Delaware Law, the Company shall be merged with and into Merger Sub, the separate corporate existence of the Company shall cease and Merger Sub shall continue as the surviving corporation and as a wholly-owned subsidiary of Parent. Merger Sub as the surviving corporation after the Merger is hereinafter sometimes referred to as the "SURVIVING CORPORATION." 1.2 Effective Time. Unless this Agreement is earlier terminated pursuant to Section 9.1, the closing of the Merger (the "CLOSING") will take place as promptly as practicable, but no later than three business days, following satisfaction or waiver of the conditions set forth in Article VII, at the offices of Fenwick & West LLP, Two Palo Alto Square, Palo Alto, California, unless another place or time is agreed to by Parent and the Company. The date upon which the Closing actually occurs is herein referred to as the "CLOSING DATE." On the Closing Date, the parties hereto shall cause the Merger to be consummated by filing a Certificate of Merger, in substantially the form attached hereto as Exhibit C (the "CERTIFICATE OF MERGER"), with the Secretary of State of the State of Delaware, in accordance with the relevant provisions of Delaware Law (the time of acceptance by the Secretary of State of Delaware of such filing being referred to herein as the "EFFECTIVE TIME"). The parties currently intend that the Closing Date will occur on or prior to December 14, 1999. 1.3 Effect of the Merger. At the Effective Time, the effect of the Merger shall be as provided in the applicable provisions of Delaware Law. Without limiting the generality of the foregoing, and subject thereto, at the Effective Time, all the rights and property of the Company and Merger Sub shall vest in the Surviving Corporation, and all debts and liabilities of the Company and Merger Sub shall become the debts, liabilities and duties of the Surviving Corporation. 1.4 Certificate of Incorporation; Bylaws. (a) Unless otherwise determined by Parent prior to the Effective Time, at the Effective Time, the Certificate of Incorporation of the Surviving Corporation shall be the Certificate of Incorporation of Merger Sub substantially in the form attached hereto as Exhibit D until thereafter amended as provided by law and such Certificate of Incorporation. (b) The Bylaws of Merger Sub, as in effect immediately prior to the Effective Time, shall be the Bylaws of the Surviving Corporation until thereafter amended. 1.5 Directors and Officers. The director(s) of Merger Sub immediately prior to the Effective Time shall be the initial director(s) of the Surviving Corporation, each to hold office in accordance with the Certificate of Incorporation and Bylaws of the Surviving Corporation. The officers of Merger Sub immediately prior to the Effective Time shall be the initial officers of the Surviving Corporation, each to hold office in accordance with the Bylaws of the Surviving Corporation. 2 4 1.6 Maximum Aggregate Merger Consideration; Effect on Capital Stock. (a) The aggregate maximum number of shares of capital stock of Parent ("PARENT CAPITAL STOCK") to be issued in exchange for the acquisition by Parent of all outstanding capital stock of the Company ("COMPANY CAPITAL STOCK") and all outstanding unexpired and unexercised options and warrants to acquire Company Capital Stock shall be 9,722,000, subject to adjustment as provided in subsection (b) below (the "AGGREGATE SHARE NUMBER"). Subject to the terms and conditions of this Agreement, as of the Effective Time, by virtue of the Merger and without any action on the part of Merger Sub, the Company or the holder of any shares of Company Capital Stock, the holder of any options, warrants or other rights to acquire or receive shares of Company Capital Stock, the following shall occur (which is intended to comply fully with the liquidation preference provisions set forth in Article IV, Section 2 of the Certificate of Incorporation of the Company, as amended through the date hereof). (b) The Aggregate Share Number shall be subject to adjustment following the Closing in the following manner: The Company, under the direction and control of the Securityholder Agent (as defined in Section 8.2 (g)), shall prepare and deliver to Parent, as promptly as practicable following the date hereof ("AGREEMENT DATE"), a balance sheet of the Company as of the Agreement Date (such balance sheet, the "EXECUTION BALANCE SHEET") that shall be prepared in conformity with generally accepted accounting principles consistently applied ("GAAP") and in a manner consistent with the Company Financials (as defined in Section 2.7). Based on the Execution Balance Sheet the net book value of the Company as of the Agreement Date (the "EXECUTION NET BOOK VALUE") shall be determined and set forth in explanatory footnotes describing the determination of the Execution Net Book Value. Within twenty (20) days of the delivery of the Execution Balance Sheet to Parent, Parent shall deliver to the Securityholder Agent a notice stating either that it accepts the determination of the Execution Net Book Value or that it disputes such determination. If Parent and the Securityholder Agent dispute the determination of the Execution Net Book Value, Parent and the Securityholder Agent shall engage a mutually acceptable accounting firm at Parent's sole expense to conclusively determine the Execution Net Book Value. If the Execution Net Book Value, as agreed or as determined as described above, is below $1,079,866, Parent will make a claim against the Escrow Amount in accordance with Article VIII below for the difference between $1,079,866 and the Execution Net Book Value. If the Execution Net Book Value is greater than $1,079,866, the Aggregate Share Number shall be increased by that number of shares equal to the quotient computed by dividing (A) the amount by which the Execution Net Book Value exceeds $1,079,866 by (B) five (5), which shares shall be distributed (subject to Section 1.6(g) below) pro rata to the stockholders of the Company as promptly as reasonably practicable. The parties acknowledge and agree that the Company's Series A Preferred (as defined below) shall be treated as equity and not as debt for purposes of determining Execution Net Book Value. (c) Conversion of Company Redeemable Preferred Stock. (i) Series A Preferred Stock. Each share of Series A Preferred Stock of the Company ("SERIES A PREFERRED") issued and outstanding immediately prior to the Effective Time (other than any shares of Series A Preferred to be canceled pursuant to Section 1.6(h) and any Dissenting Shares (as defined and to the extent provided in Section 1.7(a))) will be canceled and 3 5 extinguished and be converted automatically into the right to receive that number of shares of Series D Preferred Stock of Parent having the rights, preferences, privileges and restrictions set forth in the Amended and Restated Certificate of Incorporation of Parent attached as Exhibit E hereto ("PARENT PREFERRED STOCK") equal to the quotient computed by dividing (A) the per share Series A Liquidation Amount (as defined in the Company's Certificate of Incorporation, as amended to date) as of the Closing Date by (B) five (5) (the "SERIES A EXCHANGE RATIO") upon surrender of the certificate representing such share of Series A Preferred in the manner provided in Section 1.8. The aggregate number of shares of Parent Preferred Stock to be issued to holders of Series A Preferred is hereinafter referred to as the "PARENT PREFERRED STOCK NUMBER (SERIES A PREFERRED)." (ii) Series C Preferred Stock. Each share of Series C Preferred Stock of the Company ("SERIES C PREFERRED") issued and outstanding immediately prior to the Effective Time (other than any shares of Series C Preferred to be canceled pursuant to Section 1.6(h) and any Dissenting Shares (as defined and to the extent provided in Section 1.7(a))) will be canceled and extinguished and be converted automatically into the right to receive that number of shares of Parent Preferred Stock equal to the quotient computed by dividing (A) the per share Series C Liquidation Amount (as defined in the Company's Certificate of Incorporation, as amended to date) by (B) five (5) (the "SERIES C EXCHANGE RATIO") upon surrender of the certificate representing such share of Series C Preferred in the manner provided in Section 1.8. The aggregate number of shares of Parent Preferred Stock to be issued to holders of Series C Preferred is hereinafter referred to as the "PARENT PREFERRED STOCK NUMBER (SERIES C PREFERRED)." The sum of the Parent Preferred Stock Number (Series A Preferred) and Parent Preferred Stock Number (Series C Preferred) is referred to hereinafter as the "REDEEMABLE STOCK NUMBER." The difference between the Aggregate Share Number and the Redeemable Stock Number is hereinafter referred to as the "NONREDEEMABLE STOCK NUMBER." (d) Conversion of Company Series B Preferred Stock. Each share of Series B Preferred Stock of the Company ("SERIES B PREFERRED") issued and outstanding immediately prior to the Effective Time (other than any shares of Series B Preferred to be canceled pursuant to Section 1.6(h) and any Dissenting Shares (as defined and to the extent provided in Section 1.7(a))) will be canceled and extinguished and be converted automatically into the right to receive that number of shares of Parent Preferred Stock equal to the product of (A) one share of Series B Preferred multiplied by (B) the Common Factor (as defined in Section 1.6(f) below) (the "SERIES B EXCHANGE RATIO") upon surrender of the certificate representing such share of Series B Preferred in the manner provided in Section 1.8. (e) Conversion of Company Common Stock. Each share of common stock of the Company ("COMPANY COMMON STOCK") issued and outstanding immediately prior to the Effective Time (other than any shares of Company Common Stock to be canceled pursuant to Section 1.6(h) and any "DISSENTING SHARES" (as defined and to the extent provided in Section 1.7(a))) will be canceled and extinguished and be converted automatically into the right to receive that number of shares of common stock of Parent ("PARENT COMMON STOCK") equal to the product of (i) one share of Company Common Stock multiplied by (ii) the Common Factor (as defined in Section 1.6(f) below) (the "COMMON EXCHANGE RATIO") upon surrender of the certificate representing such share of Company Common Stock in the manner provided in Section 1.8. 4 6 (f) Definitions. (i) Common Factor. The "COMMON FACTOR" shall be equal to the number (rounded to the sixth decimal place) computed using the following formula: X = N --- D Where X = the Common Factor N = the Nonredeemable Stock Number D = the Diluted Common Shares (as defined below) (ii) Diluted Common Shares. The "DILUTED COMMON SHARES" shall mean that number equal to the sum of (A) the number of shares of Company Common Stock issued and outstanding immediately prior to the Effective Time (regardless of whether such shares are unvested, subject to any right of repurchase, risk of forfeiture or other condition in favor of the Company at such time); plus (B) the number of shares of Company Common Stock issuable upon exercise of any options to purchase Company Common Stock ("COMPANY OPTIONS") outstanding at the Effective Time (regardless of whether such Company Options are vested); plus (C) the number of shares of Company Common Stock issuable in connection with any other options, warrants, calls, rights, exchangeable or convertible securities (including Series B Preferred), commitments or agreements of any character, written or oral, to which the Company is a party or by which it is bound obligating the Company to issue, deliver, sell or cause to be issued, delivered or sold any Company Capital Stock immediately prior to the Effective Time. (g) Escrow. Twenty percent (20%) of the number of shares of Parent Capital Stock to be issued at the Effective Time pursuant to Section 1.6(c), (d) and (e) hereof and thereafter pursuant to Section 1.6(b) (none of which shares of Parent Capital Stock shall be unvested, subject to any right of repurchase, risk of forfeiture or other condition in favor of the Surviving Corporation) shall be held in escrow (the "ESCROW AMOUNT") pursuant to Article VIII of this Agreement to compensate Parent and its affiliates (including the Surviving Corporation) for any "LOSSES" (as defined in Section 8.2 hereof) incurred in connection with this Agreement and the transactions contemplated hereby. (h) Cancellation of Parent-Owned and Company-Owned Stock. Each share of Company Capital Stock owned by Merger Sub, Parent, the Company or any direct or indirect wholly-owned subsidiary of Parent or of the Company immediately prior to the Effective Time shall be canceled and extinguished without any conversion thereof. (i) Warrant. To the extent the Stock Purchase Warrant dated July 31, 1997 by and between Proamics Corporation, an Illinois corporation that has merged with and into the Company, and Finova Mezzanine Capital ("FINOVA"), as successor in interest to Sirrom Capital Corporation, to purchase shares of Company Common Stock (the "FINOVA WARRANT") remains exercisable immediately prior to the Effective Time, the Finova Warrant shall, in connection with the 5 7 Merger, be terminated and shall not be assumed by Parent. After the Effective Time, any unexercised portion of the Finova Warrant shall not represent any right to purchase any Company Capital Stock or any Parent Capital Stock and shall be terminated. (j) Capital Stock of Merger Sub. Each stock certificate of Merger Sub evidencing ownership of any such shares shall continue to evidence ownership of such shares of common stock of the Surviving Corporation. (k) Adjustments to Exchange Ratios. The exchange ratios set forth above shall be adjusted to reflect fully the effect of any stock split, reverse split, stock dividend (including any dividend or distribution of securities convertible into Parent Capital Stock or Company Capital Stock), reorganization, recapitalization or other like change with respect to Parent Capital Stock or Company Capital Stock occurring after the date hereof and prior to the Effective Time. (l) Fractional Shares. No fraction of a share of Parent Common Stock will be issued at the Effective Time, but in lieu thereof, each holder of shares of Company Capital Stock who would otherwise be entitled to a fraction of a share of Parent Capital Stock (after aggregating all fractional shares of Parent Capital Stock to be received by such holder) shall be entitled to receive from Parent an amount of cash (rounded to the nearest whole cent) equal to the product of (i) such fraction, multiplied by (ii) $5.00. 1.7 Appraisal Rights. (a) Notwithstanding any provision of this Agreement to the contrary (other than Section 1.7(b)), any shares of Company Capital Stock held by a holder who has demanded and perfected appraisal rights for such shares in accordance with Section 262 of Delaware Law and who, as of the Effective Time, has not effectively withdrawn or lost such appraisal or dissenters; rights ("DISSENTING SHARES"), shall not be converted into or represent a right to receive Parent Capital Stock pursuant to Section 1.6, but the holder thereof shall only be entitled to such rights as are granted by Delaware Law. From and after the Effective Time, a holder of Dissenting Shares shall not be entitled to exercise any of the voting rights or other rights of a shareholder of the Surviving Corporation. (b) Notwithstanding the provisions of Sections 1.6(c), (d) and (e) hereof, if any holder of shares of Company Capital Stock who demands appraisal of such shares under Delaware Law shall effectively withdraw or lose (through failure to perfect or otherwise) the right to appraisal, then, as of the later of the Effective Time and the occurrence of such event, such holder's shares shall automatically be converted into and represent only the right to receive Parent Capital Stock and fractional shares as provided in Section 1.6(c), (d) or (e) as the case may be, without interest thereon, upon surrender of the certificate representing such shares. (c) The Company shall give Parent (i) prompt notice of any written demands for appraisal of any shares of Company Capital Stock, withdrawals of such demands, and any other instruments served pursuant to Delaware Law and received by the Company and (ii) the opportunity to participate in all negotiations and proceedings with respect to demands for appraisal under Delaware Law. The Company shall not, except with the prior written consent of Parent, voluntarily 6 8 make any payment with respect to any demands for appraisal of capital stock of the Company or offer to settle or settle any such demands. 1.8 Surrender of Certificates. (a) Parent to Provide Common Stock. Promptly after the Effective Time, Parent shall make available to stockholders of the Company the shares of Parent Common Stock and Parent Preferred Stock issuable pursuant to Section 1.6 in exchange for outstanding shares of Company Capital Stock; provided, however, that, on behalf of the holders of Company Capital Stock, and pursuant to Article VIII hereof, Parent shall deposit into an escrow account a number of shares of Parent Common Stock and Parent Preferred Stock equal to the Escrow Amount out of the aggregate number of shares of Parent Common Stock and Parent Preferred Stock otherwise issuable pursuant to Section 1.6. The portion of the Escrow Amount contributed on behalf of each holder of Company Capital Stock shall be equal to twenty percent (20%) of the number of shares of Parent Common Stock and twenty percent (20%) of the number of shares of Parent Preferred Stock which, in each case, such holder would otherwise be entitled to receive under Section 1.6 by virtue of ownership of outstanding shares of Company Capital Stock. (b) Exchange Procedures. Promptly after the Effective Time, the Surviving Corporation shall cause to be mailed to each holder of record of a certificate or certificates (the "CERTIFICATES") which immediately prior to the Effective Time represented outstanding shares of Company Capital Stock whose shares were converted into the right to receive shares of Parent Common Stock and Parent Preferred Stock pursuant to Section 1.6, (i) a letter of transmittal (which shall specify that delivery shall be effected, and risk of loss and title to the Certificates shall pass, only upon delivery of the Certificates to Parent and shall be in such form and have such other provisions as Parent may reasonably specify) and (ii) instructions for use in effecting the surrender of the Certificates in exchange for certificates representing shares of Parent Common Stock and Parent Preferred Stock. Upon surrender of a Certificate for cancellation to Parent or to such other agent or agents as may be appointed by Parent, together with such letter of transmittal, duly completed and validly executed in accordance with the instructions thereto, the holder of such Certificate shall be entitled to receive in exchange therefor a certificate representing the number of whole shares of Parent Common Stock (less the number of shares of Parent Common Stock, if any, to be deposited in the Escrow Fund on such holder's behalf pursuant to Article VIII hereof) and Parent Preferred Stock (less the number of shares of Parent Preferred Stock, if any, to be deposited in the Escrow Fund on such holder's behalf pursuant to Article VIII hereof), plus cash in lieu of fractional shares in accordance with Section 1.6, to which such holder is entitled pursuant to Section 1.6, and the Certificate so surrendered shall forthwith be canceled. As soon as practicable after the Effective Time, and subject to and in accordance with the provisions of Article VIII hereof, Parent shall cause to be distributed to the Escrow Agent (as defined in Article VIII) a certificate or certificates representing that number of shares of Parent Common Stock and Parent Preferred Stock which in the aggregate equal the Escrow Amount, which shall be registered in the name of the Escrow Agent. As set forth in Section 8.2(c)(iii), such shares shall be beneficially owned by the holders on whose behalf such shares were deposited in the Escrow Fund and such shares shall be available to compensate Parent as provided in Article VIII. Until so surrendered, each outstanding Certificate that, prior to the Effective Time, represented shares of Company Capital Stock will be deemed from 7 9 and after the Effective Time, for all corporate purposes, other than the payment of dividends, to evidence the ownership of the number of full shares of Parent Capital Stock into which such shares of Company Capital Stock shall have been so converted and the right to receive an amount in cash in lieu of the issuance of any fractional shares in accordance with Section 1.6. (c) Distributions With Respect to Unexchanged Shares. No dividends or other distributions declared or made after the Effective Time with respect to Parent Common Stock or Parent Preferred Stock with a record date after the Effective Time will be paid to the holder of any unsurrendered Certificate with respect to the shares of Parent Common Stock or Parent Preferred Stock represented thereby until the holder of record of such Certificate shall surrender such Certificate. Subject to applicable law, following surrender of any such Certificate, there shall be paid to the record holder of the certificates representing whole shares of Parent Common Stock or Parent Preferred Stock issued in exchange therefor, without interest, at the time of such surrender, the amount of dividends or other distributions with a record date after the Effective Time theretofore paid with respect to such whole shares of Parent Common Stock or Parent Preferred Stock. (d) Transfers of Ownership. If any certificate for shares of Parent Common Stock or Parent Preferred Stock is to be issued in a name other than that in which the certificate surrendered in exchange therefor is registered, it will be a condition of the issuance thereof that the certificate so surrendered will be properly endorsed and otherwise in proper form for transfer and that the person requesting such exchange will have paid to Parent or any agent designated by it any transfer or other taxes required by reason of the issuance of a certificate for shares of Parent Common Stock or Parent Preferred Stock in any name other than that of the registered holder of the certificate surrendered, or established to the satisfaction of Parent or any agent designated by it that such tax has been paid or is not payable. (e) No Liability. Notwithstanding anything to the contrary in this Section 1.8, none of Parent, the Surviving Corporation or any party hereto shall be liable to a holder of shares of Parent Capital Stock or Company Capital Stock for any amount properly paid to a public official pursuant to any applicable abandoned property, escheat or similar law. 1.9 No Further Ownership Rights in Company Capital Stock. All shares of Parent Capital Stock issued upon the surrender for exchange of shares of Company Capital Stock in accordance with the terms hereof (including any cash paid in respect thereof) shall be deemed to have been issued in full satisfaction of all rights pertaining to such shares of Company Capital Stock, and there shall be no further registration of transfers on the records of the Surviving Corporation of shares of Company Capital Stock that were outstanding immediately prior to the Effective Time. If, after the Effective Time, Certificates are presented to the Surviving Corporation for any reason, they shall be canceled and exchanged as provided in this Article I. 1.10 Lost, Stolen or Destroyed Certificates. In the event any certificates evidencing shares of Company Capital Stock shall have been lost, stolen or destroyed, Parent shall issue in exchange for such lost, stolen or destroyed certificates, upon the making of an affidavit of that fact by the holder thereof, such shares of Parent Common Stock and Parent Preferred Stock and cash for fractional shares, if any, as may be required pursuant to Section 1.6; provided, however, that Parent 8 10 may, in its reasonable and good faith discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen or destroyed certificates to deliver a bond in such customary sum as it may reasonably direct as indemnity against any claim that may be made against Parent with respect to the certificates alleged to have been lost, stolen or destroyed. 1.11 Tax and Accounting Consequences. It is intended by the parties hereto that the Merger shall constitute a reorganization within the meaning of Section 368 of the Code (and this Agreement is intended to constitute a plan of reorganization for purposes of Section 368 of the Code). 1.12 Taking of Necessary Action; Further Action. If, at any time after the Effective Time, any such further action is necessary or desirable to carry out the purposes of this Agreement and to vest the Surviving Corporation with full right, title and possession to all assets, property, rights, privileges, powers and franchises of the Company and Merger Sub, the officers and directors of the Company and Merger Sub are fully authorized in the name of their respective corporations or otherwise to take, and will take, all such lawful and necessary action. ARTICLE II REPRESENTATIONS AND WARRANTIES OF THE COMPANY The Company (including its subsidiaries) hereby represents and warrants to Parent and Merger Sub, subject to the exceptions specifically disclosed in writing in the disclosure letter dated as of the date hereof (the "COMPANY SCHEDULES"), as follows. Any item disclosed in any section of the Company Schedules with respect to a specific section of the Agreement is deemed to be disclosed on all other sections of the Company Schedules with respect to all other sections of this Agreement to which such item relates: 2.1 Organization and Qualification. The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware. The Company has the corporate power and authority to own, lease and operate its properties and to carry on its business as now being conducted and as proposed to be conducted and to perform its obligations under any Contracts (as such term is defined in Section 2.16 hereof) by which it is bound. The Company is duly qualified or licensed to do business and is in good standing as a foreign corporation in each jurisdiction (each of which is listed on Schedule 2.1) in which the failure to be so qualified or licensed would have a material adverse effect on the business, assets (including intangible assets), financial condition, results of operations or sales prospects of the Company identified by the Company on or prior to the date hereof in connection with Parent's investigation of the Company (hereinafter referred to as a "MATERIAL ADVERSE EFFECT"). The Company has delivered a true and correct copy of its Certificate of Incorporation and Bylaws, each as amended to date, to Parent. Such Certificate of Incorporation and Bylaws are in full force and effect. The Company is not in violation of any of the provisions of its Certificate of Incorporation or Bylaws. 9 11 2.2 Subsidiaries. Except as set forth in Schedule 2.2, the Company does not have any subsidiaries or affiliated companies and does not otherwise own, directly or indirectly, any shares of capital stock or any equity, debt or similar interest in or any interest convertible, exchangeable or exercisable for any equity, debt or similar interest in, or control, directly or indirectly, any other corporation, partnership, association, joint venture or other business entity. Each subsidiary listed on Schedule 2.2 is duly organized, validly existing and in good standing under the laws of the state or country in which it is domiciled. The Company has not agreed nor is the Company obligated to make or be bound by any written, oral or other agreement, contract, sub-contract, lease, binding understanding, instrument, note, option, warranty, purchase order, license, sub-license, insurance policy, benefit plan, commitment or undertaking of any nature, as of the date hereof or as may hereafter be in effect under which it may become obligated to make, any future investment in or capital contribution to any other entity. 2.3 Company Capital Structure. (a) The authorized capital stock of the Company consists of 40,000,000 shares of authorized Common Stock, of which 8,850,192.66 shares are issued and outstanding, and 9,974,585 shares of authorized Preferred Stock (the "PREFERRED STOCK"). The authorized Preferred Stock consists of 117,000 shares of authorized Series A Preferred, all of which shares are issued and outstanding, 9,833,585 shares of authorized Series B Preferred, all of which shares are issued and outstanding, and 24,000 shares of authorized Series C Preferred, all of which shares are issued and outstanding. The aggregate of the Series A Liquidation Amounts is $12,870,000 as of November 15, 1999. The aggregate of the Series C Liquidation Amounts is $1,271,869 as of November 15, 1999. The Series B Preferred is and will at the Closing Date be convertible into Company Common Stock on a one-for-one basis. The Company Capital Stock, including all shares subject to the Company's right of repurchase, is held of record by the persons, with the addresses of record and in the amounts set forth on Schedule 2.3(a). No shares of Company Capital Stock held by any shareholder are subject to a repurchase right in favor of the Company. All outstanding shares of Company Capital Stock are duly authorized, validly issued, fully paid and non-assessable and not subject to preemptive rights created by statute, the Certificate of Incorporation or Bylaws of the Company or any agreement to which the Company is a party or by which it is bound. All preferential rights of the Preferred Stock in connection with the sale of substantially all of the assets of the Company or a merger involving the Company are set forth in the Certificate of Incorporation of the Company. All issued and outstanding shares of Company Capital Stock have been offered, sold and delivered by the Company in compliance with applicable federal and state securities laws. (b) The Company has reserved 6,353,522 shares of Common Stock for issuance to employees and consultants pursuant to the Company's 1999 Stock Option Plan (the "OPTION PLAN"). The Company has not issued any Company Options under the Option Plan and will not have issued any Company Options under the Option Plan or otherwise as of the Closing Date. The Finova Warrant is exercisable for 554,765 shares of Company Common Stock. Schedule 2.3(b) sets forth the name of the holder of the Finova Warrant and any other warrants issued by the Company and exercise prices of such warrants (collectively, the "WARRANTS"). The Warrants have been offered, issued and delivered in compliance with applicable federal and state securities laws and all requirements set forth in applicable contracts, agreements and instruments. The holders of the 10 12 Warrants have been or will be given, or shall have properly waived, any required notice prior to the Merger. As a result of the Merger, Parent will be the record and sole beneficial owner of all Company Capital Stock and rights to acquire or receive Company Capital Stock. (c) Except for the Warrants described in Schedule 2.3(c), there are no subscriptions, options, warrants, equity securities, partnership interests or similar ownership interests, calls, rights (including preemptive rights), commitments or agreements of any character to which the Company is a party or by which it is bound obligating the Company to issue, deliver or sell, or cause to be issued, delivered or sold, or repurchase, redeem or otherwise acquire, or cause the repurchase, redemption or acquisition of, any shares of capital stock, partnership interests or similar ownership interests of the Company or obligating the Company to grant, extend, accelerate the vesting of or enter into any such subscription, option, warrant, equity security, call, right, commitment or agreement. (d) As of the Closing Date, all Warrants (including, without limitation, the Finova Warrant) and the Proamics Corporation Phantom Stock Plan (as amended, the "PHANTOM STOCK PLAN") and phantom shares and other rights thereunder ("PHANTOM STOCK") shall have been validly terminated and the Company shall have no further liabilities or obligations thereunder. The number of shares of Phantom Stock awarded to each participant in the Phantom Stock Plan, the number of shares of Phantom Stock in which each Participant will vest as of the Closing, and the amount payable (if any) to each participant at or before Closing is set forth in Schedule 2.3(d). As of the Closing Date, there will be no outstanding options, rights or obligations of the Company pursuant to the Phantom Stock Plan or any similar plan. (e) As of the date of this Agreement, except as contemplated by this Agreement and as described in Schedule 2.3(d), there are no registration rights agreements, no voting trust, proxy or other similar agreement or understanding to which the Company is a party or by which it is bound with respect to any equity security of any class of the Company. 2.4 Authority. Subject only to the requisite approval of the Merger and the principal terms of this Agreement by the Company's shareholders, the Company has all requisite corporate power and authority to enter into this Agreement and to consummate the transactions contemplated hereby. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby have been duly authorized by all necessary corporate action on the part of the Company, subject only to the approval of the principal terms of this Agreement and the Merger by the Company's shareholders. The Company's Board of Directors has unanimously approved the Merger and this Agreement. This Agreement has been duly executed and delivered by the Company and constitutes the valid and binding obligation of the Company, enforceable in accordance with its terms (except for the terms set forth in Section 1.6(i) above). 2.5 No Conflict. Except as set forth on Schedule 2.5, subject only to the approval of the principal terms of this Agreement and the Merger by the Company's shareholders, the execution and delivery of this Agreement by the Company does not, and, as of the Effective Time, the consummation of the transactions contemplated hereby will not, conflict with, or result in any violation of, or default under (with or without notice or lapse of time, or both), or give rise to a right 11 13 of termination, cancellation or acceleration of any obligation or loss of any benefit under (any such event, a "CONFLICT") (a) any provision of the Certificate of Incorporation or Bylaws of the Company or (b) any material mortgage, indenture, lease, contract or other agreement or instrument, permit, concession, franchise, license, judgment, order, decree, statute, law, ordinance, rule or regulation applicable to the Company or its properties or assets. 2.6 Consents. No consent, waiver, approval, order or authorization of, or registration, declaration or filing with, any court, administrative agency or commission or other federal, state, county, local or foreign governmental authority, instrumentality, agency or commission ("GOVERNMENTAL ENTITY") or any third party (so as not to trigger any Conflict), is required by or with respect to the Company in connection with the execution and delivery of this Agreement or the consummation of the transactions contemplated hereby, except for (a) the filing of the Certificate of Merger with the Delaware Secretary of State, (b) such consents, waivers, approvals, orders, authorizations, registrations, declarations and filings as may be required under applicable federal and state securities laws and (c) such other consents, waivers, authorizations, filings, approvals and registrations that are set forth on Schedule 2.6. 2.7 Company Financial Statements. Schedule 2.7 sets forth true and correct copies of the Company's audited balance sheets as of December 31, 1998 and as of December 31, 1997 and the related audited statement of income for the respective twelve-month periods then ended (the "COMPANY YEAR-END FINANCIALS") and the Company's unaudited balance sheet as of September 30, 1999 and the related unaudited statement of income for the nine-month period then ended (the "COMPANY INTERIM FINANCIALS," and collectively with the Company Year-End Financials, the "COMPANY FINANCIALS"). The Company Year-End Financials and the Company Interim Financials are complete and correct in all material respects and have been prepared in accordance with generally accepted accounting principles ("GAAP") applied on a consistent basis throughout the periods indicated and consistent with each other, except for the absence of footnotes and normal year-end accruals in the case of the Company Interim Financials. The Company Year-End Financials and Company Interim Financials present fairly in all material respects the financial condition and operating results of the Company as of the dates and during the periods indicated therein. The Company's unaudited Balance Sheet as of September 30, 1999 shall be referred to herein as the "CURRENT COMPANY BALANCE SHEET." 2.8 No Undisclosed Liabilities. Except as set forth in Schedule 2.8, the Company does not have, as of the date hereof, any material liability, indebtedness or obligation of any type, whether accrued, absolute, contingent, matured, unmatured or other (whether or not required to be reflected in financial statements in accordance with GAAP), which individually or in the aggregate, (a) has not been reflected in the Current Company Balance Sheet and (b) has not arisen in the ordinary course of the Company's business since September 30, 1999, consistent with past practices, or (c) has not been set forth in the Company Schedules. 2.9 No Changes. Except as set forth in Schedule 2.9, since September 30, 1999 and through the date of this Agreement, there has not been, occurred or arisen any: 12 14 (a) material transaction by the Company except in the ordinary course of business as conducted on that date and consistent with past practices; (b) amendments or changes to the Certificate of Incorporation or Bylaws of the Company; (c) capital expenditure or capital commitment by the Company of $10,000 in any individual case or $25,000 in the aggregate (other than commitments to pay expenses incurred in connection with this transaction); (d) destruction of, damage to or loss of any material assets, business or customer of the Company (whether or not covered by insurance); (e) change in accounting methods, principals or practices (including any change in depreciation or amortization policies or rates) by the Company; (f) revaluation by the Company of any of its material assets, including, without limitation, writing down the value of capitalized inventory or writing off material notes or material accounts receivable; (g) declaration, setting aside or payment of a dividend or other distribution with respect to any Company Capital Stock, or any direct or indirect redemption, purchase or other acquisition by the Company of any Company Capital Stock, other than dividends accruing under the terms of the Company's Series A and Series C Preferred Stock; (h) split, combination or reclassification of any Company Capital Stock; (i) agreement, contract, covenant, instrument, lease, license or commitment to which the Company is a party or by which it or any of its assets is bound or any termination, extension, amendment or modification of the terms of any agreement, contract, covenant, instrument, lease, license or commitment to which the Company is a party or by which it or any of its assets is bound, except as set forth in Schedule 2.16(a); (j) sale, lease, license or other disposition of any of the assets or properties of the Company, or creation of any lien or security interest in such assets or properties except in the ordinary course of business and consistent with past practices; (k) loan by the Company to any person or entity, incurring by the Company of any indebtedness, guaranteeing by the Company of any indebtedness, issuance or sale of any debt securities of the Company or guaranteeing of any debt securities of others except for advances to employees for travel and business expenses in the ordinary course of business, consistent with past practices; (l) waiver or release of any material right or claim of the Company, including any write-off or other compromise of any material amount of any account receivable of the Company; 13 15 (m) except as set forth in Schedule 2.14, (i) sale by the Company of any "COMPANY INTELLECTUAL PROPERTY" (as defined in Section 2.14 below) or the entering into of any license agreement (other than end-user license agreements entered into by the Company in the ordinary course of business consistent with past practice), distribution agreement, reseller agreement, security agreement, assignment or other conveyance or option for the foregoing, with respect to the Company Intellectual Property with any person or entity, (ii) the purchase or other acquisition of any Intellectual Property (as defined in Section 2.14 below) or the entering into of any license agreement, distribution agreement, reseller agreement, security agreement, assignment or other conveyance or option for the foregoing, with respect to the Intellectual Property of any person or entity or (iii) the change in pricing or royalties set or charged by the Company to its customers or licensees or in pricing or royalties set or charged by persons who have licensed Intellectual Property to Company; (n) except as set forth on Schedule 2.3(b), issuance or sale by the Company of any Company Capital Stock, or securities exchangeable, convertible or exercisable therefor, or any securities, warrants, options or rights to purchase any of the foregoing or any amendment of any existing equity arrangement; or (o) agreement by the Company or any officer or employees thereof to do any of the things described in the preceding clauses (a) through (n) (other than negotiations with Parent and its representatives regarding the transactions contemplated by this Agreement). 2.10 Tax and Other Returns and Reports. (a) Definition of Taxes. For the purposes of this Agreement, "TAX" or, collectively, "TAXES", means any and all federal, state, local and foreign taxes, assessments and other governmental charges, duties, impositions and liabilities, including taxes based upon or measured by gross receipts, income, profits, sales, use and occupation, and value added, ad valorem, transfer, franchise, withholding, payroll, recapture, employment, excise and property taxes, together with all interest, penalties and additions imposed with respect to such amounts and any obligations under any agreements or arrangements with any other person with respect to such amounts and including any liability for taxes of a predecessor entity. (b) Tax Returns and Audits. Except as set forth in Schedule 2.10: (i) The Company has prepared and filed all required federal, state, local and foreign returns, estimates, information statements and reports ("RETURNS") relating to any and all Taxes concerning or attributable to the Company or its operations and such Returns are true and correct in all material respects and have been completed in accordance with applicable law. (ii) The Company: (A) has paid or accrued all Taxes it is required to pay or accrue and (B) has withheld with respect to its employees all federal and state income taxes, FICA, FUTA and other Taxes required to be withheld. (iii) The Company has not been delinquent in the payment of any Tax nor is there any Tax deficiency outstanding, proposed or assessed against the Company, nor has the 14 16 Company executed any waiver of any statute of limitations on or extended the period for the assessment or collection of any Tax. (iv) No audit or other examination of any Return of the Company is presently in progress, nor has the Company been notified of any request for such an audit or other examination. (v) The Company has no liabilities for unpaid federal, state, local and foreign Taxes which have not been accrued or reserved against in the Company Financials, whether asserted or unasserted, contingent or otherwise, and the Company has not incurred any liability for Taxes since the date of the Current Company Balance Sheet other than in the ordinary course of business consistent with past practice. (vi) The Company has provided to Parent copies of all federal and state income and all state sales and use Returns for all periods since January 1, 1997. (vii) There are (and as of immediately following the Closing there will be) no liens, pledges, charges, claims, restrictions on transfer, mortgages, security interests or other encumbrances of any sort (collectively, "LIENS") on the assets of the Company relating to or attributable to Taxes, other than Liens for Taxes not yet due and payable as of such time. (viii) To the Company's knowledge, there is no basis for the assertion of any claim relating or attributable to Taxes which, if adversely determined, would result in any Lien on the assets of the Company. (ix) None of the Company's assets are treated as "tax-exempt use property" within the meaning of Section 168(h) of the Code. (x) There is no contract, agreement, plan or arrangement to which the Company is a party, including but not limited to the provisions of this Agreement, covering any employee or former employee of the Company that, individually or collectively, could give rise to the payment of any amount that would not be deductible pursuant to Section 280G, 404 or 162(m) of the Code. (xi) The Company has not filed any consent agreement under Section 341(f) of the Code or agreed to have Section 341(f)(2) of the Code apply to any disposition of a subsection (f) asset (as defined in Section 341(f)(4) of the Code) owned by the Company. (xii) The Company is not a party to a tax sharing or allocation agreement nor does the Company owe any amount under any such agreement. The Company has not been a member of an affiliated group (within the meaning of Section 1504(a) of the Code) filing a consolidated income tax return. (xiii) The Company is not, and has not been at any time, a "United States real property holding corporation" within the meaning of Section 897(c)(2) of the Code. 15 17 (xiv) No adjustment or deficiency relating to any Return filed or required to be filed by the Company has been proposed formally or informally by any tax authority to the Company or any representative thereof. (xv) The Company utilizes the accrual method of accounting for U.S. federal income tax purposes. (xvi) The Company has not distributed the stock of any corporation in a transaction satisfying the requirements of Section 355 of the Code. No Company stock has been distributed in a transaction satisfying the requirements of Section 355 of the Code. 2.11 Restrictions on Business Activities. There is no agreement (noncompete or otherwise), judgment, injunction, order or decree to which the Company is a party or otherwise binding upon the Company that has or reasonably would be expected to have the effect of prohibiting or impairing any business practice of the Company, any acquisition of property (tangible or intangible) by the Company or the conduct of business by the Company. Without limiting the foregoing, the Company has not entered into any agreement under which the Company is restricted from selling, licensing or otherwise distributing any of its products or services to any class of customers, in any geographic area, during any period of time or in any segment of the market. 2.12 Title to Properties; Absence of Liens and Encumbrances. (a) The Company does not own any real property, nor has it ever owned any real property. Schedule 2.12(a) sets forth a list of all real property currently leased by the Company and the name of the lessor. The Company has provided true and complete copies of all real property leases and amendments thereto to Parent. All such current leases are in full force and effect, are valid and effective in accordance with their respective terms, and there is not, under any of such leases, any existing default or event of default, or to the Company's knowledge, any event which with notice or lapse of time, or both, would constitute a default. To the Company's knowledge, neither the operations of the Company on such real property nor such real property, including improvements thereon, violate any applicable building code, zoning requirement, or classification or pollution control ordinance or statute relating to the particular property or such operations, and such non-violation is not dependent, in any instance, on so-called non-conforming use exceptions. (b) The Company has good and marketable title to, or, in the case of leased properties and assets, valid leasehold interests in, all of its material tangible properties and assets, real, personal and mixed, used or held for use in its business, free and clear of any Liens (as defined in Section 2.10(b)(vii)), except as reflected in the Company Financials or in Schedule 2.12(b) and except for liens for taxes not yet due and payable and such imperfections of title and encumbrances, if any, which are not material in character, amount or extent, and which do not materially detract from the value, or materially interfere with the present use, of the property subject thereto or affected thereby. (c) Schedule 2.12(c) lists all items of material equipment (the "EQUIPMENT") owned or leased by the Company. All facilities, machinery, equipment, fixtures, vehicles, and other 16 18 properties owned, leased or used by the Company are (i) adequate for the conduct of the business of the Company as currently conducted and (ii) in good operating condition, regularly and properly maintained, subject to normal wear and tear and reasonably fit and usable for the purposes for which they are being used, except where a failure to be in such condition would not have a Material Adverse Effect on the Company. (d) The Company has not sold or otherwise released for distribution any of its customer files and other proprietary customer information relating to the Company's current and former customers (the "COMPANY CUSTOMER INFORMATION"). 2.13 Governmental Authorization. Schedule 2.13 accurately lists each material consent, license, permit, grant or other authorization issued to the Company by a Governmental Entity (a) pursuant to which the Company currently operates or holds any interest in any of its properties or (b) which is required for the operation of its business or the holding of any such interest (herein collectively called "COMPANY AUTHORIZATIONS"). The Company Authorizations are in full force and effect and constitute all Company Authorizations required to permit the Company to operate or conduct its business or hold any interest in its properties or assets. To the Company's knowledge, the Company is in compliance in all material respects with the terms of the Company Authorizations. 2.14 Intellectual Property. (a) Definitions. For all purposes of this Agreement, the following terms shall have the following respective meanings: (i) "TECHNOLOGY" shall mean any or all of the following: (A) works of authorship including, without limitation, computer programs, source code and executable code, whether embodied in software, firmware or otherwise, documentation, designs, files, net lists, records, data and mask works; (B) inventions (whether or not patentable), improvements and technology; (C) proprietary and confidential information, including technical data and customer and supplier lists, trade secrets and know how; (D) databases, data compilations and collections and technical data; (E) logos, trade names, trade dress, trademarks and service marks; (F) World Wide Web addresses, domain names and sites; (G) tools, methods and processes; and (H) all instantiations of the foregoing in any form and embodied in any media. (ii) "INTELLECTUAL PROPERTY RIGHTS" shall mean any or all of the following and all rights in, arising out of, or associated therewith: (A) all United States and foreign patents and utility models and applications therefor and all reissues, divisions, re-examinations, renewals, extensions, provisionals, continuations and continuations-in-part thereof and equivalent or similar rights anywhere in the world in inventions and discoveries, including, without limitation, invention disclosures ("PATENTS"); (B) all trade secrets and other rights in know-how and confidential or proprietary information; (C) all copyrights, copyrights registrations and applications therefor and all other rights corresponding thereto throughout the world ("COPYRIGHTS"); (D) all mask works, mask work registrations and applications therefor, and any equivalent or similar rights in semiconductor masks, layouts, architectures or topology ("MASKWORKS"); (E) all industrial designs and any 17 19 registrations and applications therefor throughout the world; (F) all rights in World Wide Web addresses and domain names and applications and registrations therefor; (G) all trade names, logos, common law trademarks and service marks, trademark and service mark registrations and applications therefor and all goodwill associated therewith throughout the world ("TRADEMARKS"); and (H) any similar, corresponding or equivalent rights to any of the foregoing anywhere in the world. (iii) "COMPANY INTELLECTUAL PROPERTY" shall mean any Technology and Intellectual Property Rights including the Company Registered Intellectual Property Rights (as defined below) that are owned (in whole or in part) by or exclusively licensed to the Company. (iv) "REGISTERED INTELLECTUAL PROPERTY RIGHTS" shall mean all United States, international and foreign: (A) Patents, including applications therefor; (B) registered Trademarks, applications to register Trademarks, including intent-to-use applications, or other registrations or applications related to Trademarks; (C) Copyrights registrations and applications to register Copyrights; (D) Mask Work registrations and applications to register Mask Works; and (E) any other Technology that is the subject of an application, certificate, filing, registration or other document issued by, filed with, or recorded by, any state, government or other public or private legal authority at any time. (v) For all purposes in this Section 2.14, the term "COMPANY" shall be deemed to refer to both Company and any of its subsidiaries. (vi) Section 2.14(b)-(n) are qualified in their entirety by the items set forth on Schedule 2.14. (b) Schedule 2.14 lists all Registered Intellectual Property Rights owned by, filed in the name of, or applied for, by the Company (the "COMPANY REGISTERED INTELLECTUAL PROPERTY RIGHTS") and lists any proceedings or actions before any court, tribunal (including the United States Patent and Trademark Office (the "PTO") or equivalent authority anywhere in the world) related to any of the Company Registered Intellectual Property Rights or Company Intellectual Property. (c) Each item of Company Registered Intellectual Property Rights is valid and subsisting, and all necessary registration, maintenance and renewal fees in connection with such Company Registered Intellectual Property Rights have been paid and all necessary documents and certificates in connection with such Company Registered Intellectual Property Rights have been filed with the relevant patent, copyright, trademark or other authorities in the United States or foreign jurisdictions, as the case may be, for the purposes of maintaining such Registered Intellectual Property Rights. Except as set forth on Schedule 2.14, there are no actions that must be taken by the Company within one hundred twenty (120) days of the Closing Date, including the payment of any registration, maintenance or renewal fees or the filing of any responses to PTO office actions, documents, applications or certificates for the purposes of obtaining, maintaining, perfecting or preserving or renewing any Registered Intellectual Property Rights. In each case in which the Company has acquired all rights, title and interest in, as opposed to the right to use, any Technology or Intellectual Property Right from any person, the Company or such Subsidiary has obtained a valid 18 20 and enforceable assignment sufficient to irrevocably transfer all rights in such Technology and the associated Intellectual Property Rights to the Company. Except as set forth on Schedule 2.14, the Company has not claimed a particular status, including "SMALL BUSINESS STATUS," in the application for any Intellectual Property Rights, which claim of status was not at the time made, or which has since become, inaccurate or false or that will no longer be true and accurate as a result of the Closing. (d) The Company has no knowledge of any facts or circumstances that would render any Company Intellectual Property invalid or unenforceable. Except as set forth on Schedule 2.14, without limiting the foregoing, the Company knows of no information, materials, facts or circumstances, including any information or fact that would constitute prior art, that would render any of the Company Registered Intellectual Property Rights invalid or unenforceable, or would adversely effect any pending application for any Company Registered Intellectual Property Right and the Company has not misrepresented, or failed to disclose, and has no knowledge of any misrepresentation or failure to disclose, any fact or circumstances in any application for any Company Registered Intellectual Property Right that would constitute fraud or a misrepresentation with respect to such application or that would otherwise affect the validity or enforceability of any Company Registered Intellectual Property Right. (e) Each item of Company Intellectual Property is free and clear of any Liens except for non-exclusive licenses granted to end-user customers in the ordinary course of business. The Company is the exclusive owner or exclusive licensee of all Company Intellectual Property subject only to non-exclusive licenses granted to distributors, resellers and end-users. Without limiting the foregoing: (i) the Company is the exclusive owner of all Trademarks used in connection with the operation or conduct of the business of the Company, including the sale, licensing, distribution or provision of any products or services by the Company; and (ii) the Company owns exclusively, and has good title to, all Copyrighted Works that are products of the Company or which the Company otherwise purports to own. (f) Except as set forth in Schedule 2.14, all Company Intellectual Property will be fully transferable, alienable or licensable by Surviving Corporation and/or Parent without restriction and without payment of any kind to any third party other than royalties and fees payable in the ordinary course of the Company's business prior to the Merger. (g) To the extent that any Company Technology has been developed or created by a third party for the Company, the Company has a written agreement with such third party with respect thereto and the Company thereby either (i) has obtained ownership of, and is the exclusive owner of, or (ii) has obtained a license (sufficient for the conduct of its business as currently conducted and as proposed to be conducted) to all such third party's Intellectual Property Rights in such Technology by operation of law or by valid assignment, to the fullest extent it is legally possible to do so. (h) Except as set forth on Schedule 2.14 and with the exception of "shrink-wrap" or similar widely-available commercial end-user licenses, all Technology used in or necessary to the conduct of Company's business as presently conducted or currently contemplated to be conducted by 19 21 the Company was written and created solely by either (i) employees of the Company acting within the scope of their employment or (ii) by third parties who have validly and irrevocably assigned all of their rights, including Intellectual Property Rights therein, to the Company, and no third party owns or has any rights to any of the Company Intellectual Property. (i) All current and former software development personnel of the Company and current and former consultants and contractors engaged in software development for the Company have entered into a valid and binding written proprietary information confidentiality and assignment agreement with the Company sufficient to vest title in the Company of all Technology, including all accompanying Intellectual Property Rights, created by such employee in the scope of his or her employment with the Company. (j) Except as set forth on Schedule 2.14, no person who has licensed Technology or Intellectual Property Rights to the Company has ownership rights or license rights to improvements made by the Company in such Technology or Intellectual Property Rights. (k) The Company has not transferred ownership of, or granted any exclusive license of or right to use, or authorized the retention of any exclusive rights to use or joint ownership of, any Technology or Intellectual Property Right that is or was Company Intellectual Property, to any other person. (l) Other than inbound "shrink-wrap" and similar publicly available commercial binary code end-user licenses and outbound "shrink-wrap" licenses in the form set forth on Schedule 2.14, Schedule 2.14 lists all contracts, licenses and agreements to which the Company is a party with respect to any Technology or Intellectual Property Rights. The Company is not in breach of nor has the Company failed to perform under, any of the foregoing contracts, licenses or agreements and, to the Company's knowledge, no other party to any such contract, license or agreement is in breach thereof or has failed to perform thereunder. (m) Schedule 2.14 lists all material contracts, licenses and agreements between the Company and any other person wherein or whereby the Company has agreed to, or assumed, any obligation or duty to warrant, indemnify, reimburse, hold harmless, guaranty or otherwise assume or incur any obligation or liability or provide a right of rescission with respect to the infringement or misappropriation by the Company or such other person of the Intellectual Property Rights of any person other than the Company. (n) To the knowledge of the Company, there are no contracts, licenses or agreements between the Company and any other person with respect to Company Intellectual Property under which there is any dispute regarding the scope of such agreement, or performance under such agreement, including with respect to any payments to be made or received by the Company thereunder. (o) To the knowledge of the Company, the operation of the business of the Company as it currently is conducted or is contemplated to be conducted by the Company, including but not limited to the design, development, use, import, branding, advertising, promotion, marketing, 20 22 manufacture and sale of the products, technology or services (including products, technology or services currently under development) of the Company does not and will not and will not when conducted by Parent and/or Surviving Corporation in substantially the same manner following the Closing, infringe or misappropriate any Intellectual Property Right of any person, violate any right of any person (including any right to privacy or publicity) or constitute unfair competition or trade practices under the laws of any jurisdiction, and the Company has not received notice from any person claiming that such operation or any act, product, technology or service (including products, technology or services currently under development) of the Company infringes or misappropriates any Intellectual Property Right of any person or constitutes unfair competition or trade practices under the laws of any jurisdiction (nor does the Company have knowledge of any basis therefor). (p) To the Company's knowledge, no person is infringing or misappropriating any Company Intellectual Property Right. (q) No Company Intellectual Property or service of the Company is subject to any proceeding or outstanding decree, order, judgment or settlement agreement or stipulation that restricts in any manner the use, transfer or licensing thereof by the Company or may affect the validity, use or enforceability of such Company Intellectual Property. (r) No (i) product, technology, service or publication of the Company, (ii) material published or distributed by the Company or (iii) conduct or statement of the Company constitutes obscene material, a defamatory statement or material, false advertising or, to the Company's knowledge, otherwise violates in any material respect any law or regulation. (s) To the Company's knowledge, except as set forth on Schedule 2.14, the Company Intellectual Property constitutes all the Technology and Intellectual Property Rights used in and/or necessary to the conduct of the business of the Company as it currently is conducted, and, to the knowledge of the Company, as it is currently planned or contemplated to be conducted by the Company, including, without limitation, the design, development, manufacture, use, import and sale of products, technology and performance of services (including products, technology or services currently under development). (t) Except to the extent resulting from the continuation of contracts and licenses of the Company following the Closing on the terms applicable prior to the Closing, neither this Agreement nor the transactions contemplated by this Agreement, including the assignment to Parent or Surviving Corporation, by operation of law or otherwise, of any contracts or agreements to which the Company is a party, will result in (i) either Parent's or the Surviving Corporation's granting to any third party any right to or with respect to any Technology or Intellectual Property Right owned by, or licensed to, either of them, (ii) either the Parent's or the Surviving Corporation's being obligated to pay any royalties or other amounts to any third party in excess of those payable by the Company, Parent or Surviving Corporation, respectively, prior to the Closing. (u) The Company's products and services shall not fail to perform any function specified in the product specifications therefor, or otherwise be adversely affected in any material respect, solely as a result of the date change from December 31, 1999 to January 1, 2000, including 21 23 without limitation, date data century recognition, calculations which accommodate same century and multi-century formulas and date values, and date data interface values which reflect the correct century. In addition, to the best of the Company's knowledge, all of the products and services upon which the Company is materially reliant, either individually or in the aggregate, including, without limitation, information technology systems such as financial and order entry systems, non-information technology systems such as phones and facilities, third party licensed software and the products and services of the Company's customers, vendors and suppliers are designed to be used prior to, during, and after calendar year 2000 A.D., and such products and services will operate during each such time period without error relating to date data, including without limitation any error relating to, or the product of, date data that represents or references different centuries or more than one century. 2.15 Product Warranties; Defects; Liabilities. Each Company Product has been in all material respects in conformity with all applicable contractual commitments and all applicable express and implied warranties. The Company does not have any liability or obligation (and to the Company's knowledge, there is no current reasonable basis for any present or future action, suit, proceeding, hearing, investigation, charge, complaint, claim or demand against the Company giving rise to any liability or obligation) for replacement or repair thereof or other damages in connection therewith except liabilities or obligations incurred in the ordinary course of business consistent with past practice which do not have a Material Adverse Effect on the Company. No Company Product is subject to any guaranty, warranty or other indemnity beyond the applicable standard terms and conditions of sale, license or lease or beyond that implied or imposed by applicable law. The Company has provided to Parent a copy of the standard terms and conditions of sale, license or lease for each of the Company Products and copies of the Company's standard forms of merchant agreements, portal agreements and professional services agreements. 2.16 Agreements, Contracts and Commitments. As of the date hereof, except as set forth on Schedule 2.16(a), the Company does not have, is not a party to nor is it bound by: (a) any collective bargaining agreements; (b) any employment or consulting agreement, contract or commitment with any officer, director, employee or member of the Company's Board of Directors, other than those that are terminable by the Company without liability of financial obligation of the Company; (c) any employment or consulting agreement with an employee or individual consultant or salesperson or consulting or sales agreement, under which a firm or other organization provides services to the Company; (d) any agreement or plan, including, without limitation, any stock option plan, stock appreciation rights plan or stock purchase plan, any of the benefits of which will be increased, or the vesting of benefits of which will be accelerated, by the occurrence of any of the transactions contemplated by this Agreement or the value of any of the benefits of which will be calculated on the basis of any of the transactions contemplated by this Agreement; 22 24 (e) any fidelity or surety bond or completion bond; (f) any lease of personal property having a value individually in excess of $25,000; (g) any agreement of indemnification or guaranty other than standard indemnification terms contained in contracts with resellers and distributors and licensees of the Company's products; (h) any agreement, contract or commitment containing any covenant limiting in any respect the right of Company to engage in any line of business or to compete with any person or granting any exclusive distribution rights; (i) any agreement relating to capital expenditures and involving future payments in excess of $25,000; (j) any agreement, contract or commitment currently in force relating to the disposition or acquisition by the Company after the date of this Agreement of a material amount of assets not in the ordinary course of business or pursuant to which the Company has any material ownership interest in any corporation, partnership, joint venture or other business enterprise; (k) any mortgages, indentures, loans or credit agreements, security agreements or other agreements or instruments relating to the borrowing of money or extension of credit, including guaranties referred to in clause (h) hereof; (l) any purchase order or contract involving $25,000 or more; (m) any construction contracts; (n) any dealer, distribution, joint marketing (including any pilot program), development, content provider, destination site or merchant agreement; (o) any agreement pursuant to which the Company has granted or may be obligated to grant in the future, to any party a source-code license or option or other right to use or acquire source-code, including any agreements which provide for source code escrow arrangements; (p) any sales representative, original equipment manufacturer, value added, remarketer or other agreement for distribution of the Company's products or services or the products or services of any other person or entity; (q) any agreement pursuant to which the Company has advanced or loaned any amount to any shareholder of the Company or any director, officer, employee or consultant other than business travel advances in the ordinary course of business consistent with past practice; (r) any settlement agreement entered into since January 1, 1996 that provides for continuing obligations of the Company; or 23 25 (s) any other agreement that involves $25,000 or more or is not cancelable without penalty within thirty (30) days. Except as set forth on Schedule 2.16(b), the Company has not breached, violated or defaulted under, or received notice that it has breached, violated or defaulted under, any of the terms or conditions of any agreement, contract or commitment required to be set forth on Schedule 2.16(a) or Schedule 2.14 (any such agreement, contract or commitment, a "CONTRACT"). Each Contract is in full force and effect and, except as otherwise disclosed in Schedule 2.16(b), is not subject to any default thereunder of which the Company has knowledge by any party obligated to the Company pursuant thereto. 2.17 [INTENTIONALLY OMITTED.] 2.18 Interested Party Transactions. Except as set forth on Schedule 2.18, to the Company's knowledge, no officer, director or affiliate (as defined under Regulation C under the Securities Act) of the Company (nor any ancestor, sibling, descendant or spouse of any of such persons, or any trust, partnership or corporation in which any of such persons has or has had an economic interest), has or has had, directly or indirectly, (a) an economic interest in any entity that furnished or sold, or furnishes or sells, services or products that the Company furnishes or sells, or proposes to furnish or sell, or (b) an economic interest in any entity that purchases from or sells or furnishes to, the Company, any goods or services or (c) a beneficial interest in any contract or agreement set forth in Schedule 2.16(a) or Schedule 2.14; provided, that ownership of no more than one percent of the outstanding voting stock of a publicly traded corporation shall not be deemed an "economic interest in any entity" for purposes of this Section 2.18. There are no receivables of the Company owing by any director, officer, employee or consultant to the Company (or any ancestor, sibling, descendant, or spouse of any such persons, or any trust, partnership, or corporation in which any of such persons has an economic interest), other than advances in the ordinary and usual course of business for reimbursable business expenses (as determined in accordance with the Company's established employee reimbursement policies and consistent with past practice). None of the Company shareholders has agreed to, or assumed, any obligation or duty to guaranty or otherwise assume or incur any obligation or liability of the Company. 2.19 Compliance with Laws. The Company is not in conflict with, or in default or violation of any order, judgment or decree, or to its knowledge, any law, rule, or regulation, applicable to the Company or by which its properties are bound or affected. To the knowledge of the Company, no investigation or review by any governmental or regulatory body or authority is pending or threatened against the Company, nor has any governmental or regulatory body or authority indicated an intention to conduct the same, other than, in each such case, those the outcome of which could not, individually or in the aggregate, reasonably be expected to have the effect of prohibiting or materially impairing any business practice of the Company, any acquisition of material property by the Company or the conduct of business by the Company. 2.20 Litigation. Except as set forth on Schedule 2.20, there is no action, suit or proceeding of any nature pending or to the Company's knowledge threatened against the Company, its properties or any of its officers, directors or employees (in their capacities as officers, directors or 24 26 employees, as the case may be), nor, to the knowledge of the Company, is there any reasonable basis therefor. There is no investigation pending or, to the Company's knowledge, threatened against the Company, its properties or any of its officers, directors or employees (in their capacities as officers, directors or employees, as the case may be) by or before any Governmental Entity. No Governmental Entity has at any time challenged or questioned the legal right of the Company to conduct its operations as presently or previously conducted. 2.21 Insurance. With respect to the insurance policies and fidelity bonds covering the assets, business, equipment, properties, operations, employees, officers and directors of the Company, there is no claim by the Company pending under any of such policies or bonds as to which coverage has been denied or disputed by the underwriters of such policies or bonds. All premiums due and payable under all such policies and bonds have been paid and the Company is otherwise in material compliance with the terms of such policies and bonds (or other policies and bonds providing substantially similar insurance coverage). The Company has no knowledge of any threatened termination of, or material premium increase with respect to, any of such policies. 2.22 Minute Books. The minute books of the Company made available to Parent are the only minute books of the Company and contain an accurate summary of all meetings of directors (or committees thereof) and shareholders or actions by written consent since the time of incorporation of the Company through the date hereof. 2.23 Environmental Matters. The Company (a) has obtained all applicable and material permits, licenses and other authorizations that are required under Environmental Laws; (b) to the Company's knowledge, is in compliance with all material terms and conditions of such required permits, licenses and authorizations, and also is in compliance with all other material limitations, restrictions, conditions, standards, prohibitions, requirements, obligations, schedules and timetables contained in such laws or contained in any regulation, code, plan, order, decree, judgment, notice or demand letter issued, entered, promulgated or approved thereunder; (c) is not aware of and has not received notice of any event, condition, circumstance, activity, practice, incident, action or plan that is reasonably likely to interfere with or prevent continued compliance or that would give rise to any common law or statutory liability, or otherwise form the basis of any Environmental Claim with respect to the Company or any person or entity whose liability for any Environmental Claim the Company has retained or assumed either contractually or by operation of law; (d) has not disposed of, released, discharged or emitted any Hazardous Materials into the soil or groundwater at any properties owned or leased at any time by the Company, or at any other property, or exposed any employee or other individual to any Hazardous Materials or condition in such a manner as would result in any material liability or result in any corrective or remedial action obligation; and (e) has taken all actions necessary under Environmental Laws to register any products or materials required to be registered by the Company (or any of its agents) thereunder. To the Company's knowledge, no Hazardous Materials are present in, on, or under (or, to the knowledge of the Company, in the vicinity of) any properties owned, leased or used at any time (including both land and improvements thereon) by the Company so as to give rise to any material liability or corrective or remedial obligation of the Company under any Environmental Laws. For the purposes of this Section 2.23, "ENVIRONMENTAL CLAIM" means any notice, claim, act, cause of action or investigation by any person alleging potential liability (including potential liability for investigatory costs, cleanup costs, 25 27 governmental response costs, natural resources damages, property damages, personal injuries or penalties) arising out of, based on or resulting from (a) the presence, or release into the environment, of any Hazardous Materials or (b) any violation, or alleged violation, of any Environmental Laws. "ENVIRONMENTAL LAWS" means all federal, state, local and foreign laws and regulations relating to pollution or the environment (including ambient air, surface water, ground water, land surface or subsurface strata) or the protection of human health and worker safety, including, without limitation, laws and regulations relating to emissions, discharges, releases or threatened releases of Hazardous Materials, or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of Hazardous Materials. "HAZARDOUS MATERIALS" means chemicals, pollutants, contaminants, wastes, toxic substances, radioactive and biological materials, asbestos-containing materials (ACM), hazardous substances, petroleum and petroleum products or any fraction thereof, excluding, however, Hazardous Materials contained in products typically used for office and janitorial purposes properly and safely maintained in accordance with Environmental Laws. 2.24 Brokers' and Finders' Fees. The Company has not incurred, nor will it incur, directly or indirectly, any liability for brokerage or finders' fees or agents' commissions or any similar charges in connection with this Agreement or any transaction contemplated hereby. 2.25 Employee Matters and Benefit Plans. (a) Definitions. With the exception of the definition of "AFFILIATE" set forth in Section 2.25(a)(i) below (such definition shall only apply to this Section 2.25), for purposes of this Agreement, the following terms shall have the meanings set forth below: (i) "AFFILIATE" shall mean any other person or entity under common control with the Company within the meaning of Section 414(b), (c), (m) or (o) of the Code and the regulations thereunder; (ii) "COBRA" shall mean the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended; (iii) "COMPANY EMPLOYEE PLAN" shall refer to any plan, program, policy, practice, contract, agreement or other arrangement providing for compensation, severance, termination pay, deferred compensation, performance awards, stock or stock-related awards, fringe benefits or other employee benefits or remuneration of any kind, whether written or otherwise, funded or unfunded, including without limitation, each "employee benefit plan", within the meaning of Section 3(3) of ERISA which is or has been maintained, contributed to, or required to be contributed to, by the Company or any Affiliate for the benefit of any Employee (as defined below), or with respect to whether the Company has or may have any liability or obligation; (iv) "DOL" shall mean the United States Department of Labor. (v) "EMPLOYEE" shall mean any current, former, or retired employee, officer, director or consultant of the Company or any Affiliate; 26 28 (vi) "EMPLOYEE AGREEMENT" shall refer to each management, employment, indemnification, severance, termination, consulting, relocation, repatriation, expatriation, visa, work permit or other agreement, contract or understanding between the Company or any Affiliate and any Employee; (vii) "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended; (viii) "FMLA" shall mean the Family Medical Leave Act of 1993, as amended; (ix) "IRS" shall mean the Internal Revenue Service; (x) "MULTIEMPLOYER PLAN" shall mean any "Pension Plan" (as defined below) which is a "multiemployer plan", as defined in Section 3(37) of ERISA; and (xi) "PENSION PLAN" shall refer to each Company Employee Plan which is an "employee pension benefit plan", within the meaning of Section 3(2) of ERISA. (b) Schedule. Schedule 2.25(b) contains an accurate and complete list of each Company Employee Plan and each Employee Agreement. The Company does not have any plan or commitment to establish any new Company Employee Plan or Employee Agreement, to modify any Company Employee Plan or Employee Agreement (except to the extent required by law or to conform any such Company Employee Plan or Employee Agreement to the requirements of any applicable law, in each case as previously disclosed to Parent in writing, or as required by this Agreement), or to enter into any Company Employee Plan or Employee Agreement nor does it have any intention or commitment to do any of the foregoing. (c) Documents. The Company has provided or made available to Parent (i) correct and complete copies of all documents embodying or relating to each Company Employee Plan and each Employee Agreement including, without limitation, all amendments thereto, all related trust documents and written interpretations thereof; (ii) the most recent annual actuarial valuations, if any, prepared for each Company Employee Plan; (iii) the three most recent annual reports (Series 5500 and all schedules and financial statements attached thereto), if any, required under ERISA or the Code in connection with each Company Employee Plan or related trust; (iv) if the Company Employee Plan is funded, the most recent annual and periodic accounting of Company Employee Plan assets; (v) the most recent summary plan description together with the most recent summary(ies) of material modifications thereto, if any, required under ERISA with respect to each Company Employee Plan; (vi) all IRS determination, opinion, notification and advisory letters and rulings relating to Company Employee Plans and copies of all applications and correspondence to or from the IRS, DOL or any other governmental agency with respect to any Company Employee Plan; (vii) all material written agreements and contracts relating to each Company Employee Plan, including, but not limited to, administrative service agreements, group annuity contracts and group insurance contracts; (viii) all communications material to any Employee or Employees relating to any Company Employee Plan and any proposed Company Employee Plans, in each case, relating to 27 29 any amendments, terminations, establishments, increases or decreases in benefits, acceleration of payments or vesting schedules or other events which would result in any material liability to the Company; (ix) all correspondence to or from any governmental agency relating to any Company Employee Plan; (x) all COBRA forms and related notices; (xi) all policies pertaining to fiduciary liability insurance covering the fiduciaries of for each Company Employee Plan; (xii) all discrimination tests for each Company Employee Plan for the most recent plan year; and (xiii) all registration statements, annual reports (Form 11-K and all attachments thereto) and prospectuses prepared in connection with each Company Employee Plan. (d) Employee Plan Compliance. Except as set forth on Schedule 2.25(d), (i) the Company has performed in all material respects all obligations required to be performed by it under, is not in default or violation of, and has no knowledge of any default or violation of any other party to, each Company Employee Plan, and each Company Employee Plan has been established and maintained in all material respects in accordance with its terms and in compliance with all applicable laws, statutes, orders, rules and regulations, including but not limited to ERISA or the Code; (ii) each Company Employee Plan intended to qualify under Section 401(a) of the Code and each trust intended to qualify under Section 501(a) of the Code has either received a favorable determination, opinion, notification or advisory letter from the IRS with respect to each such Company Employee Plan as to its qualified status under the Code, including all amendments to the Code effected by the Tax Reform Act of 1986 and subsequent legislation, or has a period of time remaining under applicable Treasury regulations or IRS pronouncements in which to apply for such a letter and make any amendments necessary to obtain a favorable determination as to the qualified status of each such Company Employee Plan; (iii) no "prohibited transaction", within the meaning of Section 4975 of the Code or Sections 406 and 407 of ERISA, and not otherwise exempt under Section 408 of ERISA, has occurred with respect to any Company Employee Plan; (iv) there are no actions, suits or claims pending, or, to the knowledge of the Company, threatened (other than routine claims for benefits) against any Company Employee Plan or against the assets of any Company Employee Plan; and (v) each Company Employee Plan can be amended, terminated or otherwise discontinued after the Effective Time in accordance with its terms, without liability to the Company, Parent or any of its Affiliates (other than ordinary administration expenses typically incurred in a termination event); (vi) there are no audits, inquiries or proceedings pending or, to the knowledge of the Company or any Affiliates, threatened by the IRS or DOL with respect to any Company Employee Plan; and (vii) neither the Company nor any Affiliate is subject to any penalty or tax with respect to any Company Employee Plan under Section 501(i) of ERISA or Section 4975 through 4980 of the Code. (e) Pension Plans. Neither the Company nor any Affiliate has ever maintained, established, sponsored, participated in, or contributed to, any Pension Plan which is subject to Part 3 of Subtitle B of Title I of ERISA, Title IV of ERISA or Section 412 of the Code. (f) Multiemployer Plans. At no time has the Company or any Affiliate contributed to or been requested to contribute to any Multiemployer Plan. (g) No Post-Employment Obligations. Except as set forth in Schedule 2.25(g), no Company Employee Plan provides, or reflects or represents any liability to provide, life insurance, health or other employee benefits to any person upon his or her retirement or termination of 28 30 employment for any reason, except as may be required by statute, and the Company has never represented, promised or contracted (whether in oral or written form) to any Employee (either individually or to Employees as a group) that such Employee(s) or any other person would be provided with life insurance, health or other employee welfare benefits upon their retirement or termination of employment, except to the extent required by statute. (h) COBRA. Neither the Company nor any Affiliate has, prior to the Effective Time, violated any of the health care continuation requirements of COBRA, the requirements of FMLA, the requirements of the Women's Healthcare Cancer Rights Act, the requirements of the Newborns' and Mothers' Health Protection Act of 1996 or any similar provisions of state law applicable to its Employees. (i) Effect of Transaction. (i) Except as provided in Section 1.6 of this Agreement or as set forth on Schedule 2.25(i)(i), the execution of this Agreement and the consummation of the transactions contemplated hereby will not (either alone or upon the occurrence of any additional or subsequent events) constitute an event under any Company Employee Plan, Employee Agreement, trust or loan that will or may result in any current or future payment (whether of severance or termination pay or otherwise), acceleration, forgiveness of indebtedness, vesting, distribution, indemnification, increase in benefits or obligation to fund benefits with respect to any Employee. (ii) Except as set forth on Schedule 2.25(i)(ii), no payment or benefit which will or may be made by the Company or Parent or any of their respective affiliates with respect to any Employee resulting from the transactions contemplated by this Agreement or otherwise will be characterized as a "parachute payment", within the meaning of Section 280G(b)(2) of the Code. (j) Employment Matters. Schedule 2.25(j) lists all current officers, directors and employees of the Company as of the date hereof. The Company (i) to its knowledge, is in compliance in all material respects with all applicable foreign, federal, state and local laws, rules and regulations respecting employment, employment practices, terms and conditions of employment and wages and hours, in each case, with respect to Employees (including any immigration laws with respect to the same); (ii) is not liable for any arrears of wages or any taxes or any penalty for failure to comply with any of the foregoing; and (iii) is not liable for any payment to any trust or other fund or to any governmental or administrative authority, with respect to unemployment compensation benefits, social security or other benefits or obligations for Employees (other than routine payments to be made in the normal course of business and consistent with past practice). Schedule 2.25(j) also sets forth all outstanding offers of employment, whether written or oral, made to any employee or prospective employee, which offer has not been rejected by the offeree. (k) Labor. No work stoppage or labor strike against the Company is pending, or to the Company's knowledge, threatened. The Company does not know of any activities or proceedings of any labor union to organize any Employees. Except as set forth in Schedule 2.25(k), there are no actions, suits, claims, labor disputes or grievances pending, or, to the knowledge of the 29 31 Company, threatened relating to any labor, safety or discrimination matters involving any Employee, including, without limitation, charges of unfair labor practices or discrimination complaints, which, if adversely determined, would, individually or in the aggregate, result in any material liability to the Company. Neither the Company nor any of its subsidiaries has engaged in any unfair labor practices within the meaning of the National Labor Relations Act. Except as set forth in Schedule 2.25(k), the Company is not presently, nor has it been in the past, a party to, or bound by, any collective bargaining agreement or union contract with respect to Employees and no collective bargaining agreement is being negotiated by the Company. (l) No Interference or Conflict. To the knowledge of the Company, no shareholder, officer, employee or consultant of the Company is obligated under any contract or agreement subject to any judgment, decree or order of any court or administrative agency that would interfere with such person's efforts to promote the interests of the Company or that would interfere with the Company's business. Neither the execution nor delivery of this Agreement, nor the carrying on of the Company's business as presently conducted nor any activity of such officers, directors, employees or consultants in connection with the carrying on of the Company's business as presently conducted, will conflict with or result in a breach of the terms, conditions or provisions of, or constitute a default under, any contract or agreement under which any of such officers, directors, employees or consultants is now bound. 2.26 Bank Accounts. Schedule 2.26 constitutes a full and complete list of all the bank accounts and safe deposit boxes of the Company, the number of each such account or box, and the names of the persons authorized to draw on such accounts or to access such boxes. All cash in such accounts is held in demand deposits and is not subject to any restriction or documentation as to withdrawal. 2.27 Indemnification Obligations. The Company has no knowledge of any action, proceeding or other event pending or threatened against any officer or director of the Company that would give rise to any indemnification obligation of the Company to its officers and directors under its Certificate of Incorporation, Bylaws or any agreement between the Company and any of its officers or directors. 2.28 Stock Redemption Agreements. (a) The Stock Redemption Agreement dated March 9, 1999 by and among the Company and the Stockholders was and is duly authorized, validly executed and in compliance with all applicable laws, constitutes a legal, valid and binding obligation of the parties thereto enforceable in accordance with its terms, and the Company has no further liabilities or obligations in respect thereto. (b) The Stock Redemption Agreement dated March 9, 1999 by and among the Company and Steven Weiner, Caryn Weiner, Aldo Marchetti, Jr., Dennis Marchetti, Kenneth Marchetti and Sharon Marchetti Specht is duly authorized, validly executed and in compliance with all applicable laws, constitutes a legal, valid and binding obligation of the parties thereto enforceable 30 32 in accordance with its terms, and the Company has no further liabilities or obligations in respect thereto. 2.29 Transaction with Lotzof & Associates, Inc. The Stock Purchase Agreement dated March 5, 1999 by and between the Company and Lotzof & Associates ("LOTZOF") and all of the shareholders of Lotzof was and is duly authorized, validly executed and in compliance with all applicable laws, constitutes a legal, valid and binding obligation of the parties thereto enforceable in accordance with its terms, and the Company has no further liabilities or obligations in respect thereto. 2.30 Transaction with Isthmus Corporation. The Agreement and Plan of Merger dated February 22, 1999 by and between the Company and Isthmus Corporation ("ISTHMUS") is duly authorized, validly executed and in compliance with all applicable laws, constitutes a legal, valid and binding obligation of the parties thereto enforceable in accordance with its terms, and the Company has no further liabilities or obligations in respect thereto. The merger contemplated thereby was effected in compliance with all applicable laws. 2.31 Warrant Cancellation Agreement. The Warrant Cancellation Agreement dated March 5, 1999 by and between Sirrom Capital Corporation and Isthmus was and is duly authorized, validly executed and in compliance with all applicable laws, constitutes a legal, valid and binding obligation of the parties thereto enforceable in accordance with its terms, and the Company has no further liabilities or obligations in respect thereto. 2.32 Merger between Proamics-Illinois and Proamics-Delaware. The merger of Proamics Corporation, an Illinois corporation, with and into Proamics Corporation, a Delaware corporation, as evidenced by that certain Certificate of Merger dated March 5, 1999 was effected in compliance with all applicable laws and the Company has no further liabilities or obligations in respect thereto. 2.33 No Royalty Obligations to Platinum. The Company has no royalty obligations to Platinum Software Corporation ("PLATINUM"). The Payoff and Termination Agreement dated March 5, 1999 by and between the Company, Proamics Corporation, an Illinois corporation and Platinum was and is duly authorized, validly executed and in compliance with all applicable laws, constitutes a legal, valid and binding obligation of the parties therein enforceable in accordance with its terms, and the Company has no further liabilities or obligations in respect thereto. 2.34 Representations Complete. None of the representations or warranties made by the Company (as modified by the Company Schedules), nor any statement made in any Schedule or certificate furnished by the Company pursuant to this Agreement, or furnished in or in connection with documents mailed or delivered to the shareholders of the Company in connection with soliciting their consent to the principal terms of this Agreement and the Merger (to the extent that such documents were prepared by or include information provided by the Company), contains or will contain at the Effective Time, any untrue statement of a material fact, or omits or will omit at the Effective Time to state any material fact necessary in order to make the statements contained herein or therein, in the light of the circumstances under which made, not misleading. None of the information supplied or to be supplied by or on behalf of the Company or the Stockholders for 31 33 inclusion or incorporation by reference in the Information Statement or any other any statement, recommendation, proposal or document provided to the stockholders of the Company, at the time of any stockholders' meeting or as of the Effective Time, contain any untrue statement of a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they are made, not misleading. ARTICLE III REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB Parent and Merger Sub hereby represent and warrant to the Company, subject to the exceptions specifically disclosed in writing in the disclosure letter dated as of the date hereof (the "PARENT SCHEDULES"), as follows. Any item disclosed in any section of the Parent Schedules with respect to a specific section of the Agreement is deemed to be disclosed on all other sections of the Parent Schedules with respect to all other sections of this Agreement to which such item relates: 3.1 Organization, Good Standing and Qualification. Parent has been duly incorporated and organized, and is validly existing in good standing, under the laws of the State of Delaware. Merger Sub has been duly incorporated and organized, and is validly existing in good standing, under the laws of the State of Delaware. Each of Parent and Merger Sub has the corporate power and authority to own and operate its properties and assets and to carry on its business as currently conducted. Parent is duly qualified to transact business and is in good standing in the State of California. 3.2 Capitalization and Voting Rights. (a) The authorized capital of Parent consists, or will consist immediately prior to the Closing, of: (i) Preferred Stock. 51,910,282 shares of Preferred Stock (the "PREFERRED STOCK") will be authorized prior to the Closing, 10,000,000 of which have been designated Series F Preferred Stock (the "SERIES F PREFERRED STOCK"), all of which are outstanding prior to the Closing, 5,142,851 shares of which have been designated Series A Preferred Stock (the "SERIES A PREFERRED STOCK"), all of which are issued and outstanding prior to the Closing, 8,629,992 shares of which have been designated Series B Preferred Stock (the "SERIES B PREFERRED STOCK"), 7,999,992 of which are issued and outstanding prior to the Closing, 9,987,439 shares of which will be designated Series C Preferred Stock (the "SERIES C PREFERRED STOCK"), 9,987,439 of which are issued and outstanding prior to the Closing, and 18,150,000 shares of which will be designated Series D Preferred Stock (the "SERIES D PREFERRED STOCK"), none of which are issued and outstanding. The outstanding shares of Preferred Stock are all duly and validly authorized and issued, fully paid and nonassessable and were issued in compliance with applicable federal and state securities laws and have been approved by all requisite corporate and shareholder action. The rights, privileges and preferences of the Preferred Stock will be as stated in Exhibit E. 32 34 (ii) Common Stock. 100,000,000 shares of Parent Common Stock will be authorized prior to the Closing, of which 8,368,818 shares are issued and outstanding. The outstanding shares of Parent Common Stock are all duly and validly authorized, issued, fully paid and nonassessable and, were issued in compliance with applicable federal and state securities laws and have been approved by all requisite corporate and stockholder action. (iii) Options, Warrants, Reserved Shares. Except for (i) the conversion privileges of the Preferred Stock, (ii) the 8,000,000 shares of Parent Common Stock reserved for issuance under Parent's 1998 Stock Plan under which options to purchase 4,306,427 shares are outstanding, and (iii) warrants to purchase 630,000 shares of Series B Preferred Stock, there is no outstanding option, warrant, right (including conversion or preemptive rights) or agreement for the purchase or acquisition from Parent of any shares of its capital stock or any securities convertible into or ultimately exchangeable or exercisable for any shares of Parent's capital stock. Apart from the exceptions noted in this Section 3.2(a), and except for rights of first refusal held by Parent to purchase shares of its stock issued under Parent's 1998 Stock Plan, no shares of Parent's outstanding capital stock, or stock issuable upon exercise or exchange of any outstanding options, warrants or rights, or other stock issuable by Parent, are subject to any preemptive rights, rights of first refusal or other rights to purchase such stock (whether in favor of Parent or any other person), pursuant to any agreement or commitment of Parent. (iv) Issuance of Parent Capital Stock. Upon the Closing and the issuance and delivery of the certificates representing the Parent Capital Stock to the shareholders of the Company, the Parent Capital Stock will be validly issued, fully paid and non-assessable, and subject to no Liens. 3.3 Subsidiaries. Parent does not presently own or control, directly or indirectly, any interest in any other corporation, partnership, trust, joint venture, association, or other entity. 3.4 Authorization. Parent and Merger Sub have all requisite corporate power and authority to enter into this Agreement and to consummate the transactions contemplated hereby. All corporate action on the part of Parent and Merger Sub and their respective officers, directors and stockholders necessary for the authorization, execution and delivery of this Agreement, the performance of all obligations of Parent and Merger Sub hereunder, and the authorization, issuance (or reservation for issuance), sale and delivery of the Parent Capital Stock to be issued hereunder has been taken or will be taken prior to the Closing, and the Agreement, when executed and delivered, will constitute valid and legally binding obligations of Parent and Merger Sub, enforceable in accordance with its terms, except (i) as limited by applicable bankruptcy, insolvency, reorganization, moratorium, and other laws of general application affecting or relating to the enforcement of creditors' rights generally and (ii) as limited by laws relating to the availability of and/or other equitable remedies. The Parent Capital Stock to be issued hereunder, when issued, paid for and delivered in accordance with the terms of this Agreement for the consideration expressed herein, (when issued in accordance with Exhibit E), will be duly authorized and validly issued, fully paid and nonassessable. 33 35 3.5 Consents and Agreements. No consent, approval, order or authorization of, or registration, qualification, designation, declaration or filing with, any third party not already a party to this Agreement or any federal, state or local governmental authority on the part of Parent or Merger Sub is required in order to enable Parent or Merger Sub to execute, deliver and perform its obligations under this Agreement, except for such qualifications or filings under applicable securities laws as may be required in connection with the transactions contemplated by this Agreement. All such qualifications and filings will, in the case of qualifications, be effective on the Closing and will, in the case of filings, be made within the time prescribed by law. 3.6 Litigation. There is no action, suit or proceeding of any nature pending or to Parent's knowledge threatened against Parent, its properties or any of its officers, directors or employees (in their capacities as officers, directors or employees, as the case may be), nor, to the knowledge of Parent, is there any reasonable basis therefor. There is no investigation pending or, to Parent's knowledge, threatened against Parent, its properties or any of its officers, directors or employees (in their capacities as officers, directors or employees, as the case may be) by or before any Governmental Entity. No Governmental Entity has at any time challenged or questioned the legal right of the Parent to conduct its operations as presently or previously conducted. 3.7 Proprietary Information and Inventions Agreements. Each present and former employee, officer and consultant of Parent has executed a Confidential Information and Inventions Assignment. Parent after reasonable investigation is not aware that any of its employees, officers or consultants are in violation thereof, and Parent will use its best efforts to prevent any such violation. Parent is not aware that any officer or key employee intends to terminate employment with Parent, nor does Parent have a present intention to terminate the employment of any of the foregoing. Subject to general principles relating to wrongful termination of employees, the employment of each officer and employee of Parent is terminable at the will of Parent. 3.8 Title to Property and Assets. Parent owns its property and assets free and clear of all mortgages, liens, loans and encumbrances, except such encumbrances and liens that arise in the ordinary course of business and do not materially impair Parent's ownership or use of such property or assets. With respect to the property and assets it leases, Parent is in compliance with such leases and, to its knowledge, holds a valid leasehold interest free of any liens, claims or encumbrances. 3.9 Financial Statements. Prior to the Closing, Parent has made available to the Company its unaudited balance sheet and income statement at and for the year ended December 31, 1998 and the nine months ended September 30, 1999 (collectively, the "FINANCIAL STATEMENTS"). The Financial Statements have been prepared in accordance with generally accepted accounting principles ("GAAP") applied on a consistent basis throughout the periods indicated, except that the Financial Statements may not contain all footnotes required by GAAP. The Financial Statements fairly present the financial condition and operating results of Parent as of the dates, and for the periods, indicated therein, subject to normal year-end audit adjustments which Parent does not expect to be material. Except as set forth in the Financial Statements, Parent has no material liabilities, contingent or otherwise, other than (i) liabilities incurred in the ordinary course of business subsequent to the date of the Financial Statements and (ii) obligations under contracts and 34 36 commitments incurred in the ordinary course of business, which, in both cases, individually or in the aggregate are not material to the financial condition or operating results of Parent. Except as disclosed in the Financial Statements, Parent is not a guarantor or indemnitor of any indebtedness of any other person, firm, corporation or other entity. 3.10 Books and Records. The minute books of Parent contain accurate summary records of all meetings and written consents to action of Parent's stockholders, Parent's Board of Directors and all committees, if any, appointed by the Board of Directors. Parent's stock ledger is complete and reflects all issuances, transfers, repurchases and cancellations of shares of capital stock of Parent. 3.11 Rights of Registration. Except as contemplated in the Third Amended and Restated Investor Rights Agreement, Parent has not granted or agreed to grant any registration rights, including piggyback rights, to any person or entity. 3.12 Proprietary Rights. Parent owns, has licensed or otherwise possesses all trademarks, trade names, copyrights and other intellectual property rights necessary to conduct its business as now being conducted without any known conflict with or infringement upon any intellectual property rights of others. Parent has not received any notice alleging that Parent has infringed upon or is conflict with the asserted rights of others, nor is Parent aware of any reasonable basis for any such allegation. Parent has certain trade secrets, including know-how, computer software programs and other proprietary data (the "PROPRIETARY INFORMATION") used, or proposed to be used, in the development, manufacture and sale of its products. Parent has the right to use the Proprietary Information, except that the possibility exists that other persons may have independently developed trade secrets or technical information similar or identical to those of Parent. Parent is not aware of any rights to any patents, trademarks, service marks, tradenames, copyrights, trade secrets and proprietary rights and processes held by third parties that it will be required to obtain in order to conduct its business as proposed to be conducted that cannot be obtained on commercially reasonable terms from such parties. There are no outstanding options, licenses, or agreements of any kind relating to Parent's patents or trademarks. 3.13 No Conflict of Interest. Parent is not indebted, directly or indirectly, to any of its officers or directors or to their respective spouses or children, in any amount whatsoever other than in connection with expenses or advances of expenses incurred in the ordinary course of business or relocation expenses of employees. To Parent's knowledge, none of Parent's officers or directors, or any members of their immediate families, are, directly or indirectly, indebted to Parent (other than in connection with purchases of Parent's stock). To Parent's knowledge, none of Parent's officers or directors or any members of their immediate families have, directly or indirectly, any economic interest in any contract material to Parent other than with respect to equity held in Parent. 3.14 Tax Returns. All tax returns, declarations, statements, reports, schedules, forms and information returns ("RETURNS") required by all U.S. federal, state and local and foreign jurisdictions (in each case, including all political subdivisions thereof) relating to all U.S. federal, state, local and foreign taxes and other assessments of a similar nature (whether imposed directly or through withholding), including any interest, additions to tax, or penalties applicable thereto 35 37 ("TAXES"), if any, required to be filed by Parent prior to the Closing have been (or will be) timely filed and such Returns are (or will be) true, complete and correct in all material respects. All Taxes shown on any such Returns to be due from Parent that are due and payable have been paid, other than those being contested in good faith and for which an adequate reserve or accrual has been established in accordance with GAAP. Parent does not know of any actual or proposed material addition Tax assessments against Parent. 3.15 Compliance with Laws. Parent has obtained and maintained in good standing all of its licenses, permits, consents and authorizations required to be obtained by it or them under federal, state and local laws (collectively, "LAWS"), except for those which, individually or in the aggregate, would not have a material adverse effect on the assets, condition, affairs or prospects of Parent, financially or otherwise, and all such licenses, permits, consents and authorizations remain in full force and effect. Parent is in material compliance with such Laws, and there is no pending or, to Parent's knowledge, threatened, action or proceeding against Parent under any of such Laws, other than any such actions or proceedings which, individually or in the aggregate, if adversely determined, would not have a material adverse effect on the assets, condition, affairs or prospects of Parent, financially or otherwise. 3.16 Year 2000 Compliance. Parent's products and services shall not fail to perform any function specified in the product specifications therefor, or otherwise be adversely affected in any material respect, solely as a result of the date change from December 31, 1999 to January 1, 2000, including without limitation, date data century recognition, calculations which accommodate same century and multi-century formulas and date values, and date data interface values which reflect the correct century. In addition, to the best of Parent's knowledge, all of the products and services upon which Parent is materially reliant, either individually or in the aggregate, including, without limitation, information technology systems such as financial and order entry systems, non-information technology systems such as phones and facilities, third party licensed software and the products and services of Parent's customers, vendors and suppliers are designed to be used prior to, during, and after calendar year 2000 A.D., and such products and services will operate during each such time period without error relating to date data, including without limitation any error relating to, or the product of, date data that represents or references different centuries or more than one century. 3.17 No Contravention. Neither Parent nor Merger Sub is in violation or default of any provision of its Certificate of Incorporation or Bylaws or of any instrument, judgment, order, writ, decree, or contract to which it is a party or by which it is bound or of any provision of federal or state statute, rule or regulation applicable to Parent or Merger Sub. The execution, delivery and performance by Parent and Merger Sub of this Agreement, including, without limitation, the issuance of the Parent Capital Stock: (a) do not and will not contravene the terms of the Certificate of Incorporation, as amended, or By-Laws, as amended, of the Parent or Merger Sub or any law, rule, regulation or similar requirement applicable to Parent or Merger Sub or its assets, business or properties; (b) do not and will not (i) conflict with, contravene, result in any violation or breach of or default under (with or without the giving of notice or the lapse of time or both), (ii) create in any other person or entity a right or claim of termination or amendment, or (iii) require modification, acceleration or cancellation of any agreement, contract, or other instrument or contractual obligation 36 38 of Parent or Merger Sub; and (c) do not and will not result in the creation of any lien, charge or encumbrance (or obligation to create a lien, charge or encumbrance) against any property, asset or business of Parent or Merger Sub. 3.18 Disclosure. Parent has fully provided the Company with all the information which such party has reasonably requested for deciding whether to enter into this Agreement. Neither this Agreement not any other statements, exhibits or certificates made or delivered in connection herewith, when taken as a whole, contains any untrue statement of a material fact or omits to state a material fact necessary to make the statements herein or therein not misleading in light of the circumstances under which they were made. ARTICLE IV SECURITIES ACT COMPLIANCE; REGISTRATION 4.1 Securities Act Exemption. The Parent Common Stock and Parent Preferred Stock to be issued pursuant to this Agreement initially will not be registered under the Securities Act in reliance on the exemptions from the registration requirements of Section 5 of the Securities Act set forth in Section 4(2) thereof. Prior to the Closing Date, each of the Company's shareholders shall have provided Parent such representations, warranties, certifications and additional information as Parent may reasonably request to ensure the availability of such exemptions from the registration requirements of the Securities Act. 4.2 Stock Restrictions. In addition to any legend imposed by applicable state securities laws or by any contract that continues in effect after the Effective Time, the certificates representing the shares of Parent Common Stock and Parent Preferred Stock issued pursuant to this Agreement shall bear a restrictive legend (and stop transfer orders shall be placed against the transfer thereof with Parent's transfer agent), stating substantially as follows: THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"). THEY MAY NOT BE SOLD, TRANSFERRED, ASSIGNED, OR HYPOTHECATED EXCEPT IN COMPLIANCE WITH RULE 144 IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO, OR AN OPINION OF COUNSEL, SATISFACTORY TO THE COMPANY, THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE ACT, OR A NO-ACTION LETTER FROM THE SECURITIES AND EXCHANGE COMMISSION. 4.3 The Company Shareholders' Restrictions Regarding Securities Law Matters. Each shareholder of the Company, by virtue of the Merger and the conversion into Parent Common Stock 37 39 and Parent Preferred Stock of the Company Capital Stock held by such shareholder, shall be bound by the following provisions: (a) Such shareholder will not offer, sell, or otherwise dispose of any shares of Parent Common Stock or Parent Preferred Stock except in compliance with the Securities Act and the rules and regulations thereunder. (b) Such shareholder will not sell, transfer or otherwise dispose of any shares of Parent Common Stock or Parent Preferred Stock unless (i) such sale, transfer or other disposition is within the limitations of and in compliance with Rule 144 promulgated by the SEC under the Securities Act and the Shareholder furnishes Parent with reasonable proof of compliance with such Rule, (ii) in the opinion of counsel, reasonably satisfactory to Parent and its counsel, some other exemption from registration under the Securities Act is available with respect to any such proposed sale, transfer, or other disposition of Parent Common Stock or Parent Preferred Stock or (iii) the offer and sale of Parent Common Stock or Parent Preferred Stock is registered under the Securities Act. ARTICLE V CONDUCT PRIOR TO THE EFFECTIVE TIME 5.1 Conduct of Business of the Company. During the period from the date of this Agreement and continuing until the earlier of the termination of this Agreement pursuant to its terms or the Effective Time, the Company agrees (except to the extent that Parent shall otherwise consent in writing) to carry on its business in the usual, regular and ordinary course in substantially the same manner as heretofore conducted. The Company shall promptly notify Parent of any materially negative event involving or adversely affecting the Company or its business. In addition, except as permitted by the terms of this Agreement, without the prior written consent of Parent, which consent shall not be unnecessarily withheld, during the period from the date of this Agreement and continuing until the earlier of the termination of this Agreement pursuant to its terms or the Effective Time, the Company shall not do any of the following: (a) Waive any stock repurchase rights, accelerate, amend, or change the period of exercisability of any outstanding Company Options or Company Common Stock subject to vesting, or reprice Company Options granted under the Option Plan (or otherwise) or authorize cash payments in exchange for any such options; (b) Make any payments or enter into any commitment or transaction outside of the ordinary course of business in excess of $10,000 in any one case or $25,000 in the aggregate; (c) Except in the ordinary course of business, modify, amend or terminate any material contract or agreement to which the Company is a party or waive, release or assign any material rights or claims thereunder; 38 40 (d) Transfer or license to any person or entity or otherwise extend, amend or modify any rights to the Company Intellectual Property Rights (other than pursuant to end-user licenses granted to customers of the Company in the ordinary course of business, provided that no such license shall (i) contain any right of refusal to the license or (ii) involve the transfer of product(s) to any person or entity in violation of applicable U.S. export laws and regulations) or enter into grants to future patent rights; (e) Enter into or amend any agreements pursuant to which any other party is granted marketing, distribution or similar rights of any type or scope with respect to any products of the Company; (f) Amend or otherwise modify (or agree to do so), except in the ordinary course of business, or violate the terms of, any of the Contracts; (g) Declare, set aside or pay any dividends on or make any other distributions (whether in cash, stock or property) in respect of any Company Capital Stock, or split, combine or reclassify any Company Capital Stock or issue or authorize the issuance of any other securities in respect of, in lieu of or in substitution for any Company Capital Stock; (h) Purchase, redeem or otherwise acquire, directly or indirectly, any Company Capital Stock, except repurchases of unvested shares at cost in connection with the termination of the employment relationship with any employee or consultant pursuant to stock option or purchase agreements in effect on the date hereof and the satisfaction of any obligations in connection with termination of the Phantom Stock Plan and Phantom Stock; (i) Issue, grant, deliver, sell, pledge or authorize, any Company Capital Stock or securities convertible into, or subscriptions, rights, warrants or options to acquire, or other agreements or commitments of any character obligating it to issue any such shares or other convertible securities (except for the issuance of any Company Capital Stock upon exercise or conversion of presently outstanding Company Options, warrants or Preferred Stock, or the grant of stock options to new employees pursuant to outstanding written offers of employment); (j) Cause or permit any amendments to its Certificate of Incorporation or Bylaws; (k) Acquire or agree to acquire by merging or consolidating with, or by purchasing any assets or equity securities of, or by any other manner, any business or any corporation, partnership, association, joint venture or other business organization or division thereof, or otherwise acquire or agree to acquire outside of the ordinary course of business any assets in any amount, or in the ordinary course of business in an amount in excess of $10,000 in the case of a single transaction or in excess of $25,000 in the aggregate; (l) Sell, lease, license, encumber or otherwise dispose of any properties or assets except sales of inventory in the ordinary course of business consistent with past practice and except for the sale, lease or disposition (other than through licensing) of a property or assets that are not material, individually or in the aggregate, to the business of the Company; 39 41 (m) Incur individual liabilities in excess of $10,000 (in any one case) or $25,000 (in the aggregate) or incur any indebtedness for borrowed money or guarantee any such indebtedness of another person, issue or sell any debt securities or options, warrants, calls or other rights to acquire any debt securities of the Company, enter into any "keep well" or other agreement to maintain any financial statement condition or enter into any arrangement having the economic effect of any of the foregoing other than in connection with the financing of ordinary course trade payables consistent with past practice; (n) Grant any severance or termination pay (i) to any director or officer or (ii) to any other employee except payments made pursuant to written agreements outstanding on the date hereof and as disclosed in the Company Schedules, or adopt any new severance plan; (o) Adopt or amend any employee benefit plan, or enter into any employment contract, extend employment offers, pay or agree to pay any bonus or special or extraordinary remuneration to any director or employee, or increase the salaries or wage rates of its employees, except as consistent with the ordinary course of the Company consistent with past practice with employees who are terminable "at will," pay any special bonus or special remuneration to any director or employee, or increase the salaries or wage rates or fringe benefits (including rights to severance or indemnification) of its directors, officers, employees or consultants; (p) Effect or agree to effect, including by way of hiring or involuntary termination, any change in the Company's directors, officers or key employees; (q) Revalue any of its assets, including without limitation writing down the value of inventory or writing off notes or accounts receivable other than in the ordinary course of business, or except as required by GAAP, make any change in accounting methods, principles or practices; (r) Pay, discharge or satisfy, in an amount in excess of $10,000 (in any one case) or $25,000 (in the aggregate), any claim, liability or obligation (absolute, accrued, asserted or unasserted, contingent or otherwise), other than the payment, discharge or satisfaction in the ordinary course of business of liabilities reflected or reserved against in the Company Financials (or the notes thereto) or that arose in the ordinary course of business subsequent to September 30, 1999 or expenses consistent with the provisions of this Agreement incurred in connection with any transaction contemplated hereby; (s) Make or change any material election in respect of Taxes, adopt or change any accounting method in respect of Taxes, enter into any closing agreement, settle any claim or assessment in respect of Taxes, or consent to any extension or waiver of the limitation period applicable to any claim or assessment in respect of Taxes; (t) Enter into any strategic alliance, joint development or joint marketing agreement; (u) Commence a lawsuit other than (i) for the routine collection of bills, (ii) in such cases where it, in good faith, determines that failure to commence suit would result in the 40 42 material impairment of a valuable aspect of its business, provided that it consults with Parent prior to the filing of such a suit or (iii) for a breach of this Agreement; (v) Materially reduce the amount of any insurance coverage provided by or fail to renew any existing insurance policies; (w) Engage in any action with the intent and purpose to directly or indirectly adversely impact any of the transactions contemplated by this Agreement; (x) Engage in any action that could reasonably be expected to (i) cause the Merger to fail to qualify as a "reorganization" under Section 368(a) of the Code or (ii) interfere with Parent's ability to account for the Merger as a "pooling of interests," whether or not (in each case) otherwise permitted by the provisions of this Article V; or (y) Take, or agree in writing or otherwise to take, any of the actions described in Sections 5.1(a) through (x) above, or any other action that would prevent the Company from performing or cause the Company not to perform its covenants hereunder. 5.2 Notices. The Company shall give all notices and other information required to be given to the employees of the Company, any collective bargaining unit representing any group of employees of the Company and any applicable government authority under the WARN Act, the National Labor Relations Act, the Code, the Consolidated Omnibus Budget Reconciliation Act and any other applicable law in connection with the transaction provided for in this Agreement. ARTICLE VI ADDITIONAL AGREEMENTS 6.1 Preparation of Information Statement. As soon as practicable after the execution of this Agreement, the Company shall prepare, with the cooperation of Parent, an Information Statement for the shareholders of the Company to approve the principal terms of this Agreement and the Merger. The Information Statement shall constitute a disclosure document for the offer and issuance of the shares of Parent Common Stock and Parent Preferred Stock to be received by the holders of Company Capital Stock in the Merger. Parent and the Company shall each use its best efforts to cause the Information Statement to comply in all material respects with applicable federal and state securities laws requirements. Each of Parent and the Company agrees to provide promptly to the other such information concerning its business and financial statements and affairs as, in the reasonable judgment of the providing party or its counsel, may be required or appropriate for inclusion in the Information Statement, or in any amendments or supplements thereto, and to cause its counsel and auditors to cooperate with the other's counsel and auditors in the preparation of the Information Statement. The Company will promptly advise Parent and Parent will promptly advise the Company, in writing if at any time prior to the Effective Time either the Company or Parent shall obtain knowledge of any facts that might make it necessary or appropriate to amend or supplement the Information Statement in order to make the statements contained or incorporated by reference 41 43 therein not misleading or to comply with applicable law. The Information Statement shall contain the unanimous recommendation of the Board of Directors of the Company that the Company shareholders approve the principal terms of this Agreement and the Merger and the conclusion of the Board of Directors that the terms and conditions of the Merger are fair and reasonable to the shareholders of the Company. Anything to the contrary contained herein notwithstanding, the Company shall not include in the Information Statement any information with respect to Parent or its affiliates or associates, the form and content of which information shall not have been approved by Parent prior to such inclusion. 6.2 Shareholder Approval. The Company shall, promptly after the date hereof and in accordance with Delaware Law and the Company's Certificate of Incorporation and Bylaws, obtain the approval of the Company's shareholders of the principal terms of this Agreement and the Merger. The Company shall ensure that the shareholder approval is solicited in compliance with Delaware Law, the Certificate of Incorporation and Bylaws of the Company and all other applicable legal requirements. The Company agrees to use its reasonable best efforts to secure the necessary votes required by Delaware Law to effect the Merger. Parent will make a representative available to shareholders to answer any questions Company shareholders may have regarding the Parent's business, management and financial affairs. 6.3 Access to Information. Each of the Company and the Parent shall afford the other and their respective accountants, legal counsel and other representatives reasonable access during normal business hours during the period prior to the Effective Time to (a) all of its properties, books, contracts, commitments and records and (b) all other information concerning its business, properties, and personnel as Parent or the Company may reasonably request. Each of Parent and the Company agrees to provide the other and its accountants, legal counsel and other representatives copies of internal financial statements promptly upon request. No information or knowledge obtained in any investigation pursuant to this Section 6.3 shall affect or be deemed to modify any representation or warranty contained herein or the conditions to the obligations of the parties to consummate the Merger. 6.4 Confidentiality. The parties acknowledge that the Company and Parent have previously executed a Confidentiality Agreement, dated as of October 7, 1999 (the "CONFIDENTIALITY AGREEMENT"), which Confidentiality Agreement will continue in full force and effect in accordance with its terms. 6.5 Public Disclosure. Unless otherwise required by law (including, without limitation, securities laws), prior to the Effective Time, no disclosure (whether or not in response to an inquiry) of the subject matter of this Agreement shall be made by any party hereto (other than disclosures to Company shareholders pursuant to Section 6.2) unless approved by Parent and the Company (which consent by the Company shall be binding on its shareholders) prior to release, provided that such approval shall not be unreasonably withheld. The parties have agreed to the text of the joint press release announcing the signing of this Agreement. 6.6 Consents. The Company shall promptly apply for or otherwise seek and use its best efforts to obtain all consents and approvals required to be obtained by it for the consummation of the 42 44 Merger, including all consents, waivers or approvals under any of the Contracts in order to preserve the benefits thereunder for the Surviving Corporation and otherwise in connection with the Merger. All of such consents and approvals are set forth in Schedule 2.6. 6.7 Legal Conditions to the Merger. Each of Parent, Merger Sub and the Company will take all reasonable actions necessary to comply promptly with all legal requirements that may be imposed on such party with respect to the Merger and will promptly cooperate with and furnish information to any other party hereto in connection with any such requirements imposed upon such other party in connection with the Merger. Each party will take all reasonable actions to obtain (and will cooperate with the other parties in obtaining) any consent, authorization, order or approval of or any registration, declaration or filing with, or an exemption by, any Governmental Entity, or other third party, required to be obtained or made by such party or its subsidiaries in connection with the Merger or the taking of any action contemplated thereby or by this Agreement. 6.8 Best Efforts; Additional Documents and Further Assurances. Each of the parties agrees to use its reasonable best efforts to take, or cause to be taken, all actions, and to do, or cause to be done, and to assist and cooperate with the other parties in doing, all things necessary, proper or advisable to consummate and make effective, in the most expeditious manner practicable, the Merger and the other transactions contemplated by this Agreement, including using reasonable best efforts to accomplish the following: (a) the taking of all acts necessary to cause the conditions precedent set forth in Article VII to be satisfied, (b) the obtaining of all necessary actions or nonactions, waivers, consents, approvals, orders and authorizations from Governmental Entities and the making of all necessary registrations, declarations and filings (including registrations, declarations and filings with Governmental Entities, if any) and the taking of all reasonable steps as may be necessary to avoid any suit, claim, action, investigation or proceeding by any Governmental Entity, (c) the obtaining of all necessary consents, approvals or waivers from third parties, (d) the defending of any suits, claims, actions, investigations or proceedings, whether judicial or administrative, challenging this Agreement or the consummation of the transactions contemplated hereby, including seeking to have any stay or temporary restraining order entered by any court or other Governmental Entity vacated or reversed and (e) the execution or delivery of any additional instruments necessary to consummate the transactions contemplated by, and to fully carry out the purposes of, this Agreement. 6.9 Notification of Certain Matters. The Company shall give prompt notice to Parent, and Parent shall give prompt notice to the Company, of (a) the occurrence or non-occurrence of any event that is likely to cause any representation or warranty of the Company and Parent or Merger Sub, respectively, contained in this Agreement to be untrue or inaccurate in any material respect at or prior to the Effective Time except as contemplated by this Agreement (including the Company Schedules) and (b) any failure of the Company or Parent, as the case may be, to comply with or satisfy in any material respect any covenant, condition or agreement to be complied with or satisfied by it hereunder; provided, however, that the delivery of any notice pursuant to this Section 6.9 shall not limit or otherwise affect any remedies available to the party receiving such notice or affect the representations, warranties, covenants or agreements of the parties or conditions to the obligation of the parties under this Agreement. 43 45 6.10 Reorganization. It is the intent of the Company, Parent, Merger Sub and the Surviving Corporation that this Merger qualifies as a tax-free reorganization under Section 368(a) of the Code, and the Company, Parent, Merger Sub and the Surviving Corporation covenant and agree not to take any actions inconsistent with such intent. 6.11 Voting Agreements. Concurrently with the execution of this Agreement, the Company will cause each stockholder of the Company to execute a Voting Agreement, agreeing, among other things, to vote in favor of the Merger and against any competing proposals. 6.12 Non-Competition Agreements. On or before the Closing, the Company will use its reasonable best efforts to cause each of the Founders (as defined in Section 6.14(d)) to execute a Non-Competition Agreement. 6.13 Blue Sky Laws. Parent shall take such steps as may be necessary to comply with the securities and blue sky laws of all jurisdictions which are applicable to the issuance of the Parent Capital Stock pursuant hereto. The Company shall use its best efforts to assist Parent as may be necessary to comply with the securities and blue sky laws of all jurisdictions which are applicable in connection with the issuance of Parent Capital Stock pursuant hereto. 6.14 Benefit Arrangements. (a) Parent will consult with the Founders (as defined herein) with respect to determining the Company employees to be retained by Parent following the Closing; provided, however, that Parent shall make employment offers only to those Company employees as Parent determines in its business discretion and shall not have any obligation to make an offer to any particular employee or employees of the Company. Such employees of the Company who have continued as employees of Parent or the Surviving Corporation following the Closing Date are referred to hereinafter as "CONTINUING EMPLOYEES." Terms of employment offered to Continuing Employees will include compensation and options to purchase Parent Common Stock commensurate with each person's education and experience levels relative to Parent's current employees, and shall be contingent upon the Closing. Employment of any Company employees by Parent or the Surviving Corporation following the Closing shall be subject to Parent's established policies generally applicable to new employees. The Company will use its best efforts to cooperate with Parent to ensure that Company employees that Parent wishes to retain become employees of Parent. (b) Upon the Closing, certain Continuing Employees will be eligible for grants of options to purchase an aggregate of 500,000 shares of Parent Common Stock at a price per share of at least eighty-five percent (85%) of the fair market value per share of Parent Common Stock as established by the Board of Directors of Parent as of the Closing. As a condition to such a grant, each Continuing Employee shall execute a release of any and all claims against the Company, the Surviving Corporation and Parent arising out of such employee's employment by the Company prior to the Effective Time. Subject to continuous employment with Parent, thirty-three and one-third percent (33-1/3%) of such options of a Continuing Employee will vest on each one-year anniversary of the applicable grant date, so that all of such options of a Continuing Employee will be vested on the third anniversary of the grant date (subject to continuous employment). Such options will cease 44 46 vesting upon termination of a Continuing Employee's employment with Parent; provided, however, that if a Continuing Employee is involuntarily terminated by Parent without cause, thirty-three and one-third percent (33-1/3%) of such options shall automatically vest as of the termination date, in addition to any shares that may have already vested. Such options shall be allocated among the Continuing Employees of the Company (other than the Founders) as Parent and the Founders mutually determine prior to the Closing. (c) Upon the Closing, certain Continuing Employees identified by the Founders will be eligible for grants of options to purchase an aggregate of 278,000 shares of Parent Common Stock, which options shall be allocated among such Continuing Employees as the Founders and Parent shall mutually determine prior to the Closing. Such options shall be fully vested and immediately exercisable and have an exercise price per share of at least eighty-five percent (85%) of the fair market value per share of Parent Common Stock as established by the Board of Directors of Parent as of the Closing, but shall not in any case be exercisable by tender of a promissory note. As a condition to such a grant, each Continuing Employee shall execute a release of any and all claims against the Company, the Parent and the Surviving Corporation arising out of such employee's employment by the Company prior to the Effective Time. (d) Parent shall make a $500,000 bonus pool available to be distributed among the Continuing Employees of the Company who remain employees of Parent on the six-month anniversary of the Closing Date. The bonus amounts shall be determined in the discretion of the Founders prior to the Closing Date. The payments shall be made by Parent on the first regularly scheduled payroll date after the six-month anniversary of the Closing, subject to Parent's standard payroll practices. (e) On or prior to the Closing Date, Parent and each of Malcolm Lotzof, Richard Hawkinson and Robert Van Vooren (the "FOUNDERS") shall negotiate mutually acceptable employment agreements for each of the Founders contingent upon the Closing, which agreements will contain the principal terms set forth on Schedule 6.14. (f) As soon as practicable after the execution of this Agreement, Parent and the Company shall confer and work together in good faith to agree upon mutually acceptable employee benefit and compensation arrangements (and terminate Company Employee Plans if appropriate). 6.15 Termination of Company Investor Rights and Warrants. The Company shall take such steps as may be necessary to provide for the termination as of the Closing of (i) all Company investor rights granted by the Company to its shareholders and in effect prior to the Closing, including but not limited to dividend rights and rights of co-sale, first refusal, voting, registration, redemption, conversion, board observation or information or operational covenants and (ii) all warrants with respect to Company Capital Stock and Phantom Stock. 6.16 No Solicitation. From and after the date of this Agreement until the earlier to occur of the Effective Time or termination of this Agreement pursuant to its terms, the Company and Stockholders will not, and the Company will instruct its directors, officers, employees, representatives, investment bankers, agents and affiliates not to, directly or indirectly (a) solicit, 45 47 initiate, entertain or encourage submission of any "ACQUISITION PROPOSAL" (as defined herein) by any person, entity or group (other than Parent and its affiliates, agents, and representatives) or (b) participate in any discussions or negotiations with, or disclose any non-public information concerning the Company to, or afford access to the properties, books or records of the Company, or otherwise assist or facilitate, or enter into any agreement or understanding with, any person, entity or group (other than Parent and its affiliates, agents, and representatives) in connection with any Acquisition Proposal with respect to the Company. For purposes of this Agreement, an "ACQUISITION PROPOSAL" means any proposal or offer relating to (a) any merger, consolidation, sale or license of substantial assets or similar transactions involving the Company (other than sales or licenses of assets or inventory in the ordinary course of business or as permitted by this Agreement), (b) dissolution of the Company, (c) sales by the Company of any Company Capital Stock (including, without limitation, by way of a tender offer or an exchange offer) or (d) sales or transfers by the Founders of any Company Capital Stock or rights thereto or debt instruments of the Company. The Company and Stockholders will immediately cease any and all existing activities, discussion or negotiations with any parties conducted heretofore with respect to any of the foregoing. The Company and Stockholders will promptly (a) notify Parent if, after the date of this Agreement, it receives any proposal or written inquiry or written request for information in connection with an Acquisition Proposal or potential Acquisition Proposal and (b) notify Parent of the significant terms and conditions of any such Acquisition Proposal including the identity of the party making an Acquisition Proposal. In addition, from and after the date of this Agreement, until the earlier to occur of the Effective Time or termination of this Agreement pursuant to its terms, the Company and Stockholders will not, and will instruct its directors, officers, employees, representatives, investment bankers, agents and affiliates not to, directly or indirectly, make or authorize any public statement, recommendation or solicitation in support of any Acquisition Proposal made by any person, entity or group (other than Parent). 6.17 Loan to the Company. Parent shall, in its business discretion, loan funds to the Company prior to the Closing to assist the Company in satisfying reasonable business expenses. Such loans shall be subject to the execution of promissory notes, security agreements and other customary lending documentation in form and substance, and on terms and conditions acceptable to Parent and the Company. 6.18 Observer Seat. For the period from the Effective Time until the earlier of (i) the Expiration Date (as defined herein) or (ii) the closing of an initial public offering of common stock of Parent, the Securityholder Agent (as defined herein) shall have the right to attend and observe (but not vote at) each annual, regular and special meeting of the Parent's Board of Directors. The Parent shall give the Securityholder Agent appropriate notice of each annual, regular and special meeting of the Parent's Board of Directors and shall reimburse Securityholder Agent for his expenses incurred in connection with his attendance, in each case to the extent and in the manner the Parent gives such notice and reimburses such expenses for its directors. 46 48 ARTICLE VII CONDITIONS TO THE MERGER 7.1 Conditions to Obligations of Each Party to Effect the Merger. The respective obligations of each party to this Agreement to effect the Merger shall be subject to the satisfaction at or prior to the Closing of the following conditions: (a) Shareholder Approval. The principal terms of this Agreement, the Merger and the transactions contemplated hereby shall have been approved and adopted by the shareholders of the Company by the requisite vote under applicable law and the Company's Certificate of Incorporation. (b) No Injunctions or Restraints; Illegality. No temporary restraining order, preliminary or permanent injunction or other order issued by any court of competent jurisdiction or other legal or regulatory restraint or prohibition preventing the consummation of the Merger shall be in effect. (c) Closing Date Payment Schedule. Parent and the Company shall each have reviewed and approved a schedule (the "CLOSING DATE PAYMENT SCHEDULE") reflecting, as of the Effective Time (i) for each holder of Company Capital Stock, the number of shares of Company Capital Stock held, the aggregate number of shares of Parent Common Stock and/or Parent Preferred Stock payable to such holder in the Merger, the number of such shares payable promptly after the Effective Time (in accordance with Section 1.6) and payable into the Escrow Fund (as defined in Section 8.2(a)), and the amount of cash payable to such holder for any fractional shares. (d) Restated Certificate. An Amended and Restated Certificate of Incorporation of Parent in substantially the form attached as Exhibit E shall have been filed with the Delaware Secretary of State authorizing the issuance of the Parent Capital Stock contemplated by Section 1.6. 7.2 Additional Conditions to Obligations of the Company. The obligations of the Company to consummate the Merger and the transactions contemplated by this Agreement shall be subject to the satisfaction at or prior to the Closing of each of the following conditions, any of which may be waived, in writing, exclusively by the Company: (a) Representations and Warranties. The representations and warranties of Parent and Merger Sub contained in this Agreement shall be true and correct in all material respects on and as of the Closing Date, except for changes contemplated by this Agreement and except for those representations and warranties that address matters only as of a particular date (which shall remain true and correct as of such date), with the same force and effect as if made on and as of the Closing Date, and the Company shall have received a certificate to such effect signed on behalf of Parent by a duly authorized officer of Parent. (b) Agreements and Covenants. Parent and Merger Sub shall have performed or complied (which performance or compliance shall be subject to Parent's or Merger Sub's ability to 47 49 cure as provided in Section 9.1(e) below) in all material respects with all covenants, obligations and conditions of this Agreement required to be performed or complied with by them on or prior to the Closing Date, and the Company shall have received a certificate to such effect signed by a duly authorized officer of Parent. (c) Legal Opinion. The Company shall have received a legal opinion from Fenwick & West LLP, counsel to Parent, in substantially the form attached hereto as Exhibit F. (d) Parent Preferred Stock. Parent Preferred Stock having the rights, preferences, privileges and restrictions set forth in Exhibit E shall be authorized and issuable to holders of Preferred Stock of the Company as provided in Article I. (e) Founders' Employment. Each Founder and Parent shall have entered into an employment agreement providing for Parent's continued employment of such Founder after the Effective Time. (f) Investor Rights. The Proamics Preferred Holders (as defined below) shall have been added as parties to the Fourth Amended and Restated Investor Rights Agreement and such other agreements identified in the Series D Preferred Stock Purchase Agreement as are entered into by other investors in Series D Preferred Stock of Parent. 7.3 Additional Conditions to the Obligations of Parent and Merger Sub. The obligations of Parent and Merger Sub to consummate the Merger and the transactions contemplated by this Agreement shall be subject to the satisfaction at or prior to the Closing of each of the following conditions, any of which may be waived, in writing, exclusively by Parent: (a) Representations and Warranties. The representations and warranties of the Company contained in this Agreement (including the Company Schedules) shall be true and correct on and as of the Effective Time, except for changes contemplated by this Agreement and except for those representations and warranties which address matters only as of a particular date (which shall remain true and correct as of such date), with the same force and effect as if made on and as of the Closing Date and except where the failure of such representations and warranties to be true and correct would not have a Material Adverse Effect; and Parent and Merger Sub shall have received a certificate to such effect signed on behalf of the Company by the President and Chief Financial Officer of the Company; (b) Agreements and Covenants. The Company shall have performed or complied (which performance or compliance shall be subject to the Company's ability to cure as provided in Section 9.1(d) below) in all material respects with all agreements and covenants required by this Agreement to be performed or complied with by it on or prior to the Closing Date, and Parent and Merger Sub shall have received a certificate to such effect signed by the President and Chief Financial Officer of the Company; (c) No Material Adverse Change. There shall not have occurred since the date hereof any material adverse change in the business, assets (including intangible assets) financial 48 50 condition, results of operations or sales prospects of the Company identified by the Company on or prior to the date hereof in connection with Parent's investigation of the Company, and Parent and Merger Sub shall have received a certificate to such effect signed by the President and Chief Financial Officer of the Company. (d) Third Party Consents. Parent shall have been furnished with evidence satisfactory to it that the Company has obtained the consents, approvals and waivers set forth in Schedule 2.6. (e) Legal Opinion. Parent shall have received a legal opinion from legal counsel to the Company, in substantially the form attached hereto as Exhibit G. (f) Appraisal Rights. Holders of not more than 9% of the outstanding shares of Company Capital Stock shall have exercised, nor shall they have any rights or continued right to exercise, appraisal rights under Delaware Law with respect to the transactions contemplated by this Agreement. (g) Termination of Company Investor Rights and Warrants. Parent shall have been furnished evidence satisfactory to it that (i) all investor rights granted by the Company to its shareholders and in effect prior to the Closing, including but not limited to dividend rights and rights of co-sale, first refusal, voting, registration, redemption, conversion, board observation or information or operational covenants and (ii) all warrants (including, without limitation, the Finova Warrant) with respect to Company Capital Stock and the Phantom Stock, shall have terminated as of the Closing. (h) Escrow Schedule. The Company shall have executed and delivered to Parent the Escrow Schedule (as defined in Section 8.2 hereof). (i) Non-Competition Agreements. The Non-Competition Agreements as required by Section 6.14 hereof shall have been duly executed and delivered to Parent. (j) Founder's Employment. Each Founder and Parent shall have entered into an employment agreement providing for Parent's continued employment of such Founder after the Effective Time. (k) Release Agreements. Each employee of the Company not offered employment by Parent following the Closing shall have executed a release agreement on terms and conditions acceptable to Parent. (l) Investor Representations. Each of the Company's shareholders shall have executed and delivered an Investment Representation Letter in the form provided by Parent and have otherwise fully complied with Section 4.1 above. The availability of exemptions from registration as described in Section 4.1 shall have been ensured to the satisfaction of Parent and its counsel. (m) Vector's Right to Purchase. Vector Capital II, L.P., a Delaware limited partnership, shall have fully exercised or waived its one-time right to cause the Company to sell to 49 51 Vector and/or entities designated by Vector shares of the Company's Preferred Stock pursuant to Section 2.4 of that certain Series A and Series B Preferred Stock Purchase Agreement dated March 9, 1999 by and among the Company and the purchasers listed therein. (n) Liquidation Amounts. The Chief Financial Officer of the Company shall have executed and delivered to Parent a certificate setting forth the Series A Liquidation Amount and Series C Liquidation Amount as of the Closing Date. (o) Series D Voting Agreement. All holders of the Company's Series A Preferred Stock, Series B Preferred Stock and Series C Preferred Stock (the "PROAMICS PREFERRED HOLDERS") shall have entered into a voting agreement providing that they shall vote their Parent Preferred Stock in the same proportion as the votes cast by other holders of Series D Preferred Stock of Parent, with respect to matters as to which holders of Series D Preferred Stock of Parent are required or permitted to vote as a series; provided, however, the Proamics Preferred Holders shall not be subject to the foregoing voting requirement with respect to any vote by the holders of Series D Preferred Stock that would result in the rights, preferences or privileges of the Series D Preferred Stock held by the Proamics Preferred Holders being affected in a manner different from all other holders of Series D Preferred Stock of Parent. (p) Termination of Investor Rights for Finova. Finova shall have duly and validly terminated all investor rights, including but not limited to any and all dividend rights and rights of co-sale, first refusal, voting, registration, redemption, conversion, board observation or information or operational covenants in the Company or with respect to the Company's equity securities. (q) Approval Regarding Investor Rights. The holders of a majority of the Registerable Securities (as defined in the Fourth Amended and Restated Investor Rights Agreement) shall have approved the addition of the Proamics Preferred Holders as parties to the Fourth Amended and Restated Investor Rights Agreement and any other agreements identified in the Series D Preferred Stock Purchase Agreement entered into by the Proamics Preferred Holders as holders of Series D Preferred Stock of Parent. ARTICLE VIII SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ESCROW 8.1 Survival of Representations and Warranties. All of the Company's representations and warranties in this Agreement or in any instrument delivered pursuant to this Agreement (each as modified by the Company Schedules) shall survive the Merger and continue until 5:00 p.m., California time, on the date which is eighteen (18) months following the Closing Date (the "EXPIRATION DATE"). 50 52 8.2 Escrow Arrangements. (a) Escrow Fund. At the Effective Time the Company's shareholders will be deemed to have received and deposited with the Escrow Agent (as defined below) the Escrow Amount (plus any additional shares as may be issued upon any stock split, stock dividend or recapitalization effected by Parent after the Effective Time) without any act of any shareholder. As soon as practicable after the Effective Time, the Escrow Amount, without any act of any Company shareholder, will be deposited with Chase Manhattan Bank and Trust Company, N.A. (or other institution acceptable to Parent and the Securityholder Agent (as defined in Section 8.2(h) below)) as Escrow Agent (the "ESCROW AGENT"), such deposit to constitute an escrow fund (the "ESCROW FUND") to be governed by the terms set forth herein. The portion of the Escrow Amount contributed on behalf of each shareholder of the Company shall be in proportion to the aggregate Parent Common Stock and Parent Preferred Stock to which such holder would otherwise be entitled under Sections 1.6(c), (d) and (e) and shall be in the respective share amounts and percentages listed opposite each Company's shareholder's names listed in a schedule to be executed by the Company and delivered to Parent at Closing (the "ESCROW SCHEDULE"). All shares of Parent Common Stock and Parent Preferred Stock contributed to the Escrow Fund shall be vested and not subject to any right of repurchase, risk of forfeiture or other condition in favor of the Surviving Corporation. The Escrow Fund shall be available to compensate Parent and its affiliates (including the Surviving Corporation) for any claims, losses, liabilities, damages, deficiencies, costs and expenses, including reasonable attorneys' fees and expenses, and expenses of investigation and defense, as well as adjustments relating to Execution Net Book Value pursuant to Section 1.6(b) (hereinafter individually a "LOSS" and collectively "LOSSES") incurred by Parent, its officers, directors, or affiliates (including the Surviving Corporation) directly or indirectly as a result of (i) any inaccuracy or breach of a representation or warranty of the Company contained herein (or in any certificate, instrument, schedule or document attached to this Agreement and delivered by the Company in connection with the Merger), or (ii) any failure by the Company to perform or comply with any covenant or obligation contained herein; provided that such claims must be asserted on or before 5:00 p.m. (California Time) on the Expiration Date. Except as otherwise provided herein, Parent may not receive any shares from the Escrow Fund unless and until Officer's Certificates (as defined in Section 8.2(d) below) identifying Losses, the aggregate amount of which exceed $500,000 (except in the case of Losses arising from any breach or inaccuracy of Section 2.3, as to which such threshold shall not apply), have been delivered to the Escrow Agent as provided in paragraph (f) and such amount is determined pursuant to this Article VIII to be payable; in such case, Parent may recover shares from the Escrow Fund equal in value to all indemnified Losses (including any Losses within the $500,000 threshold) for which there is no objection or any objection had been resolved in accordance with the provisions of this Article VIII; provided, however, that to the extent third-party expenses, including, without limitation, legal and accounting fees incurred by the Company in connection with this Agreement and the Merger exceed $50,000 in the aggregate, such excess shall be deemed a Loss for purposes of Article VIII and shall be immediately reimbursable to Parent in accordance with this Article VIII (without regard to the $500,000 minimum threshold for Losses and without counting toward the $500,000 threshold). For purposes of this Article VIII, the phrases "Company shareholders" and "shareholders of the Company" shall refer to the shareholders of the Company immediately prior to the Effective Time. 51 53 (b) Escrow Period; Distribution upon Termination of Escrow Periods. Subject to the following requirements, the Escrow Fund shall be in existence immediately following the Effective Time and shall terminate at 5:00 p.m., California time, on the Expiration Date (the "ESCROW PERIOD"); provided, however, that the Escrow Period shall not terminate with respect to such amount (or some portion thereof), that together with the aggregate amount remaining in the Escrow Fund is necessary in the reasonable judgment of Parent, subject to the objection of the Securityholder Agent and the subsequent arbitration of the matter in the manner provided in Section 8.2(g) hereof, to satisfy any unsatisfied claims concerning facts and circumstances existing prior to the termination of such Escrow Period specified in any Officer's Certificate delivered to the Escrow Agent prior to termination of such Escrow Period. As soon as all such claims have been resolved, as evidenced by written memorandum of the Securityholder Agent and Parent, the Escrow Agent shall deliver to the shareholders of the Company the remaining portion of the Escrow Fund not required to satisfy such claims; provided, however, the Escrow Agent shall release to the shareholders of the Company on the Expiration Date such portion of the Escrow Fund that is in excess of the amount in dispute of any unsatisfied claims. Deliveries of Escrow Amounts to the shareholders of the Company pursuant to this Section 8.2(b) shall be made in proportion to their respective original contributions to the Escrow Fund (as set forth on the Escrow Schedule). At all times during the Escrow Period, the Company shareholders shall be deemed to be the record holders of their respective amounts of the Parent Common Stock and Parent Preferred Stock comprising the Escrow Amount. Securityholder Agent (as defined below) shall provide to the Escrow Agent a current schedule of Company shareholders' names and addresses and pro rata share of the Escrow Amount prior to the date of distribution of the Escrow Amount. (c) Protection of Escrow Fund. (i) The Escrow Agent shall hold and safeguard the Escrow Fund during the Escrow Period, shall treat such fund as a trust fund in accordance with the terms of this Agreement and not as the property of Parent and shall hold and dispose of the Escrow Fund only in accordance with the terms hereof. (ii) Any shares of Parent Common Stock, Parent Preferred Stock or other equity securities issued or distributed by Parent (including shares issued upon a stock split or stock dividend) ("NEW SHARES") in respect of Parent Common Stock or Parent Preferred Stock in the Escrow Fund which have not been released from the Escrow Fund shall be added to the Escrow Fund and become a part thereof. New Shares issued in respect of shares of Parent Common Stock or Parent Preferred Stock which have been released from the Escrow Fund shall not be added to the Escrow Fund but shall be distributed to the recordholders thereof. Cash dividends on Parent Common Stock or Parent Preferred Stock shall not be added to the Escrow Fund but shall be distributed to the recordholders thereof. (iii) Each Company shareholder shall be deemed the record holder of, and shall have voting, dividend, distribution and all other rights with respect to the shares of Parent Common Stock or Parent Preferred Stock contributed to the Escrow Fund by such shareholder (and on any voting securities and other equity securities added to the Escrow Fund in respect of such shares of Parent Common Stock). 52 54 (d) Claims Upon Escrow Fund. (i) Upon receipt by the Escrow Agent at any time on or before the Expiration Date of a certificate signed by any officer of Parent (an "OFFICER'S CERTIFICATE"): (A) stating that Parent has paid or properly accrued (in accordance with GAAP) Losses, and (B) specifying in reasonable detail the individual items of Losses included in the amount so stated, the date each such item was paid or properly accrued, and the nature of the misrepresentation, breach of warranty, covenant, obligation or claim to which such item is related, the Escrow Agent shall, subject to the provisions of Section 8.2(f) hereof, deliver to Parent out of the Escrow Fund, as promptly as practicable, shares of Parent Common Stock and Parent Preferred Stock held in the Escrow Fund in an amount equal to such Losses. (ii) For the purposes of determining the number of shares of Parent Common Stock and Parent Preferred Stock to be delivered to Parent out of the Escrow Fund pursuant to Section 8.2(d)(i) hereof, the shares of Parent Common Stock and Parent Preferred Stock shall be valued at $5.00 per share, regardless of class. Notwithstanding the foregoing, the Securityholder Agent shall have the right to pay any indemnifiable Losses owed to Parent hereunder in cash, in lieu of having the Escrow Agent release the number of Shares of Parent Capital Stock in satisfaction of such claim, and upon the Escrow Agent receiving cash in an amount of the indemnifiable Losses, the Escrow Agent shall release to the shareholders that number of shares as it would have released to Parent hereunder in satisfaction of such claim. (e) Transfers. (i) In the event funds transfer instructions are given (other than in writing at the time of execution of this Agreement), whether in writing, by telecopier or otherwise, the Escrow Agent is authorized to seek confirmation of such instructions by telephone call-back to the person or persons designated on Exhibit H hereto, and the Escrow Agent may rely upon the confirmations of anyone purporting to be the person or persons so designated. The persons and telephone numbers for call-backs may be changed only in a writing actually received and acknowledged by the Escrow Agent. The parties to this Agreement acknowledge that such security procedure is commercially reasonable. (ii) It is understood that the Escrow Agent and the beneficiary's bank in any funds transfer may rely solely upon any account numbers or similar identifying number provided by either of the other parties hereto to identify (i) the beneficiary, (ii) the beneficiary's bank, or (iii) an order it executes using any such identifying number, even where its use may result in a person other than the beneficiary being paid, or the transfer of funds to a bank other than the beneficiary's bank, or an intermediary bank designated. (iii) Tax Identification Number. Each party hereto and Company shareholder, except the Escrow Agent, shall provide the Escrow Agent with their Tax Identification Number (TIN) as assigned by the Internal Revenue Service. All interest or other income earned under the Escrow Agreement shall be allocated and paid as provided herein and reported by the recipient to the Internal Revenue Service as having been so allocated and paid. 53 55 (f) Objections to Claims. At the time of delivery of any Officer's Certificate to the Escrow Agent, Parent shall deliver a duplicate copy of such certificate to the Securityholder Agent and for a period of thirty (30) days after such delivery, the Escrow Agent shall not deliver to Parent any Escrow Amounts pursuant to Section 8.2(d) hereof unless the Escrow Agent shall have received written authorization from the Securityholder Agent to make such delivery. After the expiration of such thirty (30) day period, the Escrow Agent shall make delivery of shares of Parent Common Stock and Parent Preferred Stock from the Escrow Fund in accordance with Section 8.2(d) hereof, provided that no such payment or delivery may be made if the Securityholder Agent shall object in a written statement to the claim made in the Officer's Certificate, and such statement shall have been delivered to the Escrow Agent prior to the expiration of such thirty (30) day period. (g) Resolution of Conflicts; Arbitration. (i) In case the Securityholder Agent shall so object in writing to any claim or claims made in any Officer's Certificate, the Securityholder Agent and Parent shall attempt in good faith to agree upon the rights of the respective parties with respect to each of such claims. If the Securityholder Agent and Parent should so agree, a memorandum setting forth such agreement shall be prepared and signed by both parties and shall be furnished to the Escrow Agent. The Escrow Agent shall be entitled to rely on any such memorandum and distribute shares of Parent Common Stock and Parent Preferred Stock from the Escrow Fund in accordance with the terms thereof. (ii) If no such agreement can be reached after good faith negotiation, and in any event not later than sixty (60) days after receipt of the written objection of the Securityholder Agent, either Parent or the Securityholder Agent may demand arbitration of the matter unless the amount of the damage or loss is at issue in pending litigation with a third party, in which event arbitration shall not be commenced until such amount is ascertained or both parties agree to arbitration; and in either such event the matter shall be settled by arbitration conducted by three arbitrators. Parent and the Securityholder Agent shall each select one arbitrator, and the two arbitrators so selected shall select a third arbitrator, each of which arbitrators shall be independent and have at least ten years relevant experience. The arbitrators shall set a limited time period and establish procedures designed to reduce the cost and time for discovery while allowing the parties an opportunity, adequate in the sole judgment of the arbitrators, to discover relevant information from the opposing parties about the subject matter of the dispute. The arbitrators shall rule upon motions to compel or limit discovery and shall have the authority to impose sanctions, including attorneys fees and costs, to the extent as a court of competent law or equity, should the arbitrators determine that discovery was sought without substantial justification or that discovery was refused or objected to without substantial justification. The decision of a majority of the three arbitrators as to the validity and amount of any claim in such Officer's Certificate shall be binding and conclusive upon the parties to this Agreement, and notwithstanding anything in Section 8.2(f) hereof, the Escrow Agent shall be entitled to act in accordance with such decision and make or withhold payments out of the Escrow Fund in accordance therewith. Such decision shall be written and shall be supported by written findings of fact and conclusions which shall set forth the award, judgment, decree or order awarded by the arbitrators. 54 56 (iii) Judgment upon any award rendered by the arbitrators may be entered in any court having jurisdiction. Any such arbitration shall be held in Chicago, Illinois under the rules then in effect of the Judicial Arbitration and Mediation Services, Inc. For purposes of this Section 8.2(g), in any arbitration hereunder in which any claim or the amount thereof stated in the Officer's Certificate is at issue, Parent shall be deemed to be the Non-Prevailing Party in the event that the arbitrators award Parent the sum of one-half (1/2) or less of the disputed amount plus any amounts not in dispute; otherwise, the shareholders of the Company as represented by the Securityholder Agent shall be deemed to be the Non-Prevailing Party. The Non-Prevailing Party to an arbitration shall pay its own expenses, the fees of each arbitrator, the administrative costs of the arbitration, and the expenses, including without limitation, reasonable attorneys' fees and costs, incurred by the other party to the arbitration, independent of the escrow fund. (h) Securityholder Agent of the Shareholders; Power of Attorney. (i) In the event that the Merger is approved, effective upon such vote, and without further act of any shareholder, Malcolm Lotzof shall be appointed as agent and attorney-in-fact (the "SECURITYHOLDER AGENT") for each shareholder of the Company (except such shareholders, if any, as shall have perfected their appraisal rights under Delaware Law), for and on behalf of shareholders of the Company, to give and receive notices and communications, to authorize delivery to Parent of shares of Parent Common Stock and Parent Preferred Stock from the Escrow Fund in satisfaction of claims by Parent, to object to such deliveries, to agree to, negotiate, enter into settlements and compromises of, and demand arbitration and comply with orders of courts and awards of arbitrators with respect to such claims, and to take all actions necessary or appropriate in the judgment of Securityholder Agent for the accomplishment of the foregoing. Such agency may be changed by the shareholders of the Company from time to time upon not less than thirty (30) days prior written notice to Parent; provided that the Securityholder Agent may not be removed unless holders of a two-thirds interest of the Escrow Fund agree to such removal and to the identity of the substituted agent. Any vacancy in the position of Securityholder Agent may be filled by approval of the holders of a majority in interest of the Escrow Fund. No bond shall be required of the Securityholder Agent, and the Securityholder Agent shall not receive compensation for his or her services. Notices or communications to or from the Securityholder Agent shall constitute notice to or from each of the shareholders of the Company. (ii) The Securityholder Agent shall not be liable for any act done or omitted hereunder as Securityholder Agent while acting in good faith and in the exercise of reasonable judgment. The shareholders of the Company on whose behalf the Escrow Amount was contributed to the Escrow Fund shall jointly and severally indemnify the Securityholder Agent and hold the Securityholder Agent harmless against any loss, liability or expense incurred without negligence or bad faith on the part of the Securityholder Agent and arising out of or in connection with the acceptance or administration of the Securityholder Agent's duties hereunder, including the reasonable fees and expenses of any legal counsel retained by the Securityholder Agent. (i) Actions of the Securityholder Agent. A decision, act, consent or instruction of the Securityholder Agent shall constitute a decision of all the shareholders for whom a portion of the Escrow Amount otherwise issuable to them are deposited in the Escrow Fund and shall be final, 55 57 binding and conclusive upon each of such shareholders, and the Escrow Agent and Parent may rely upon any such written decision, consent or instruction of the Securityholder Agent as being the decision, consent or instruction of each every such shareholder of the Company. The Escrow Agent and Parent are hereby relieved from any liability to any person for any acts done by them in accordance with such decision, consent or instruction of the Securityholder Agent. (j) Third-Party Claims. (i) If any third party shall notify Parent or its affiliates hereto with respect to any matter (hereinafter referred to as a "THIRD PARTY CLAIM"), which may give rise to a claim by Parent against the Escrow Fund, then Parent shall give notice to the Securityholder Agent within 30 days of Parent becoming aware of any such Third Party Claim or of facts upon which any such Third Party Claim will be based setting forth such material information with respect to the Third party Claim as is reasonably available to Parent; provided, however, that no delay or failure on the part of Parent in notifying the Securityholder Agent shall relieve the Securityholder Agent and the Company shareholders from any obligation hereunder unless the Securityholder Agent and the Company shareholders are thereby materially prejudiced (and then solely to the extent of such prejudice). The Securityholder Agent and the Company shareholders shall not be liable for any attorneys fees and expenses incurred by Parent prior to Parent's giving notice to the Securityholder Agent of a Third Party Claim. The notice from Parent to the Securityholder Agent shall set forth such material information with respect to the Third Party Claim as is then reasonably available to Parent. (ii) In case any Third Party Claim is asserted against Parent or its affiliates, and Parent notifies the Securityholder Agent thereof pursuant to Section 8.2(j)(i) hereinabove, the Securityholder Agent and the Company shareholders will be entitled, if the Securityholder Agent so elects by written notice delivered to Parent within 30 days after receiving Parent's notice, to assume the defense thereof, at the expense of the Company shareholders independent of the Escrow Fund, with counsel reasonably satisfactory to Parent so long as: (A) Parent has reasonably determined that Losses which may be incurred as a result of the Third Party Claim do not exceed either individually, or when aggregated with all other Third Party Claims, the total dollar value of the Escrow Fund determined in accordance with Section 8.2(d)(ii) hereof; (B) the Third Party Claim involves only money damages and does not seek an injunction or other equitable relief; (C) settlement of, or an adverse judgment with respect to, the Third Party Claim is not, in the good faith judgment of Parent, likely to establish a precedential custom or practice materially adverse to the continuing business interests of Parent; and (D) counsel selected by the Securityholder Agent is reasonably acceptable to Parent. 56 58 If the Securityholder Agent and the Company shareholders so assume any such defense, the Securityholder Agent and the Company shareholders shall conduct the defense of the Third Party Claim actively and diligently. The Securityholder Agent and the Company shareholders shall not compromise or settle such Third Party Claim or consent to entry of any judgment in respect thereof without the prior written consent of Parent and/or its affiliates, as applicable, which shall not be unreasonably withheld. (iii) In the event that the Securityholder Agent assumes the defense of the Third Party Claim in accordance with Section 8.2(j)(ii) above, Parent or its affiliates may retain separate counsel and participate in the defense of the Third Party Claim, but the fees and expenses of such counsel shall be at the expense of Parent. Parent or its affiliates will not consent to the entry of any judgment or enter into any settlement with respect to the Third Party Claim without the prior written consent of the Securityholder Agent. Parent will cooperate in the defense of the Third Party Claim and will provide full access to documents, assets, properties, books and records reasonably requested by Securityholder Agent and material to the claim and will make available all officers, directors and employees reasonably requested by Securityholder Agent for investigation, depositions and trial. (iv) In the event that the Securityholder Agent fails or elects not to assume the defense of Parent or its affiliates against such Third Party Claim, which Securityholder Agent had the right to assume under Section 8.2(j)(ii) above, Parent or its affiliates shall have the right to undertake the defense and Parent shall not compromise or settle such Third Party Claim or consent to entry of any judgment in respect thereof without the prior written consent of Securityholder Agent. In the event that the Securityholder Agent is not entitled to assume the defense of Parent or its affiliates against such Third Party Claim pursuant to Section 8.2(j)(ii) above, Parent or its affiliates shall have the right to undertake the defense, consent to the entry of any judgment or enter into any settlement with respect to the Third Party Claim in any manner it may deem appropriate (and Parent or its affiliates need not consult with, or obtain any consent from, the Securityholder Agent in connection therewith); provided, however, that except with the written consent of the Securityholder Agent, no settlement of any such claim or consent to the entry of any judgment with respect to such Third Party Claim shall alone be determinative of the validity of the claim against the Escrow Fund. In each case, Parent or its affiliates shall conduct the defense of the Third Party Claim actively and diligently, and the Securityholder Agent and the Company shareholders will cooperate with Parent or its affiliates in the defense of that claim and will provide full access to documents, assets, properties, books and records reasonably requested by Parent and material to the claim and will make available all individuals reasonably requested by Parent for investigation, depositions and trial. (k) Escrow Agent's Duties. (i) The Escrow Agent shall be obligated only for the performance of such duties as are specifically set forth herein, and as set forth in any additional written escrow instructions which the Escrow Agent may receive after the date of this Agreement which are signed by an officer of Parent and the Securityholder Agent and agreed to and signed by the Escrow Agent, and may rely and shall be protected in relying or refraining from acting on any instrument reasonably believed to be genuine and to have been signed or presented by the proper party or parties. The 57 59 Escrow Agent shall not be liable for any act done or omitted hereunder as Escrow Agent while acting in good faith and in the exercise of reasonable judgment, and any act done or omitted pursuant to the advice of counsel shall be conclusive evidence of such good faith. (ii) The Escrow Agent is hereby expressly authorized to disregard any and all warnings given by any of the parties hereto or by any other person, excepting only orders or process of courts of law, and is hereby expressly authorized to comply with and obey orders, judgments or decrees of any court. In case the Escrow Agent obeys or complies with any such order, judgment or decree of any court, the Escrow Agent shall not be liable to any of the parties hereto or to any other person by reason of such compliance, notwithstanding any such order, judgment or decree being subsequently reversed, modified, annulled, set aside, vacated or found to have been entered without jurisdiction. (iii) The Escrow Agent shall not be liable in any respect on account of the identity, authority or rights of the parties executing or delivering or purporting to execute or deliver this Agreement or any documents or papers deposited or called for hereunder. (iv) The Escrow Agent shall not be liable for the expiration of any rights under any statute of limitations with respect to this Agreement or any documents deposited with the Escrow Agent. (v) In performing any duties under the Agreement, the Escrow Agent shall not be liable to any party for damages, losses, or expenses, except for gross negligence or willful misconduct on the part of the Escrow Agent. The Escrow Agent shall not incur any such liability for (A) any act or failure to act made or omitted in good faith, or (B) any action taken or omitted in reliance upon any written instrument, including any written statement or affidavit provided for in this Agreement that the Escrow Agent shall in good faith believe to be genuine, nor will the Escrow Agent be liable or responsible for forgeries, fraud, impersonations, or determining the scope of any representative authority. In addition, the Escrow Agent may consult with the legal counsel in connection with Escrow Agent's duties under this Agreement and shall be fully protected in any act taken, suffered, or permitted by him/her in good faith in accordance with the advice of counsel. The Escrow Agent is not responsible for determining and verifying the authority of any person acting or purporting to act on behalf of any party to this Agreement. (vi) If any controversy arises between the parties to this Agreement, or with any other party, concerning the subject matter of this Agreement, its terms or conditions, the Escrow Agent will not be required to determine the controversy or to take any action regarding it. The Escrow Agent may hold all documents and shares of Parent Common Stock and Parent Preferred Stock and may wait for settlement of any such controversy by final appropriate legal proceedings or other means as, in the Escrow Agent's discretion, the Escrow Agent may be required, despite what may be set forth elsewhere in this Agreement. In such event, the Escrow Agent will not be liable for damage. Furthermore, the Escrow Agent may at its option, file an action of interpleader requiring the parties to answer and litigate any claims and rights among themselves. The Escrow Agent is authorized to deposit with the clerk of the court all documents and shares of Parent Common Stock and Parent Preferred Stock held in escrow, except all cost, expenses, charges and 58 60 reasonable attorney fees incurred by the Escrow Agent due to the interpleader action and which the parties jointly and severally agree to pay. Upon initiating such action, the Escrow Agent shall be fully released and discharged of and from all obligations and liability imposed by the terms of this Agreement. (vii) Parent and the Surviving Corporation agree jointly and severally to indemnify and hold Escrow Agent harmless against any and all losses, claims, damages, liabilities, and expenses, including reasonable costs of investigation, counsel fees, and disbursements that may be imposed on Escrow Agent or incurred by Escrow Agent in connection with the performance of his/her duties under this Agreement, including but not limited to any litigation arising from this Agreement or involving its subject matter; provided, however, that in the event the Securityholder Agent shall be the Non-Prevailing Party in connection with any claim or action initiated by a Company shareholder or Company shareholders, then such Company shareholder or Company shareholders shall be responsible for the indemnification of the Escrow Agent to the full extent provided by this paragraph. (viii) The Escrow Agent may resign at any time upon giving at least thirty (30) days written notice to the parties; provided, however, that no such resignation shall become effective until the appointment of a successor escrow agent which shall be accomplished as follows: the parties shall use their best efforts to mutually agree on a successor escrow agent within thirty (30) days after receiving such notice. If the parties fail to agree upon a successor escrow agent within such time, the Escrow Agent shall have the right to appoint a successor escrow agent authorized to do business in the state of California. The successor escrow agent shall execute and deliver an instrument accepting such appointment and it shall, without further acts, be vested with all the estates, properties, rights, powers, and duties of the predecessor escrow agent as if originally named as escrow agent. The Escrow Agent shall be discharged from any further duties and liability under this Agreement. (ix) Anything in this Agreement to the contrary notwithstanding, in no event shall the Escrow Agent be liable for special, indirect or consequential loss or damage of any kind whatsoever (including but not limited to lost profits), even if the Escrow Agent has been advised of the likelihood of such loss or damage and regardless of the form of action. (x) It is further understood that any corporation into which the Escrow Agent is its individual capacity may be merged or converted or with which it may be consolidated, or any corporation resulting from any merger, conversion or consolidation to which the Escrow Agent in its individual capacity shall be a party, or any corporation to which substantially all the corporate trust business of the Escrow Agent in its individual capacity my be transferred, shall be the Escrow Agent under this Escrow Agreement without further act. (l) Fees. All fees of the Escrow Agent for performance of its duties hereunder shall be paid by Parent. It is understood that the fees and usual charges agreed upon for services of the Escrow Agent shall be considered compensation for ordinary services as contemplated by this Agreement. In the event that the conditions of this Agreement are not promptly fulfilled, or if the Escrow Agent renders any service not provided for in this Agreement, or if the parties request a 59 61 substantial modification of its terms, or if any controversy arises, or if the Escrow Agent is made a party to, or intervenes in, any litigation pertaining to this escrow or its subject matter, the Escrow Agent shall be reasonably compensated for such extraordinary services and reimbursed for all costs, attorneys' fees, and expenses occasioned by such default, delay, controversy or litigation. Parent promises to pay these sums upon demand. (m) Maximum Liability and Remedies. Except for fraud and willful misconduct and Losses arising from any breach or inaccuracy of Section 2.3, the rights of Parent to make claims upon the Escrow Fund in accordance with this Article VIII shall be the sole and exclusive remedy of Parent and the Surviving Corporation after the Closing with respect to any representation, warranty, covenant, or obligation or agreement made by the Company under this Agreement and no former shareholder, option holder, warrant holder, director, officer, employee or agent of the Company shall have any personal liability to Parent or the Surviving Corporation after the Closing in connection with the Merger. 8.3 Indemnification by Parent. Parent shall indemnify and hold the Company shareholders, free and harmless from and against any and all Losses (excluding any adjustments to Execution Net Book Value) incurred by the Company shareholders as a result of (i) any inaccuracy or breach of a representation or warranty of Parent contained herein (or in any certificate, instrument, schedule or document attached to this Agreement and delivered by Parent in connection with the Merger) or (ii) any failure by Parent to perform or comply with any covenant or obligation contained herein; provided that such claim must be asserted on or before 5:00 p.m. (California time) on the Expiration Date. Notwithstanding the foregoing, (i) except for Losses arising from any breach or inaccuracy of Section 3.2, Parent shall have no obligation to indemnify a Company shareholder (if at all) until such shareholder has incurred aggregate Losses in excess of that portion of $500,000 that the aggregate number of shares received by such shareholder under Section 1.6 bears to 9,722,000 (in which case such shareholder may seek indemnity for all Losses subject to (ii) below) and (ii) the maximum aggregate liability of Parent under this Section 8.3 for Losses (except for Losses arising from any inaccuracy or breach of Section 3.2) incurred by Company shareholders is $10,000,000. Any and all claims by Company shareholders against Parent shall be resolved in a manner consistent with Section 8.2(g). Any amounts paid by Parent under this Section 8.3 may, in the discretion of Parent, be paid wholly or partially in publicly traded and listed common stock of Parent, based on the market price of such stock at the time of payment. ARTICLE IX TERMINATION, AMENDMENT AND WAIVER 9.1 Termination. Except as provided in Section 9.2 below, this Agreement may be terminated and the Merger abandoned at any time prior to the Closing Date: (a) by mutual written consent duly authorized by the Board of Directors of the Company and Parent; 60 62 (b) by either Parent or the Company if: (i) the Closing Date has not occurred by December 31, 1999 (provided that the right to terminate this Agreement under this clause 9.1(b)(i) shall not be available to any party whose willful failure to fulfill any obligation hereunder has been the cause of, or resulted in, the failure of the Effective Time to occur on or before such date and such action or failure constitutes a breach of this Agreement); (ii) there shall be a final nonappealable order of a federal or state court in effect preventing consummation of the Merger; or (iii) there shall be any statute, rule, regulation or order enacted, promulgated or issued or deemed applicable to the Merger by any Governmental Entity that would make consummation of the Merger illegal; (c) by Parent if there shall be any action taken, or any statute, rule, regulation or order enacted, promulgated or issued or deemed applicable to the Merger, by any Governmental Entity, which would: (i) prohibit Parent's or the Company's ownership or operation of any portion of the business of the Company or (ii) compel Parent or the Company to dispose of or hold separate, as a result of the Merger, any portion of the business or assets of the Company or Parent; (d) by Parent if it is not in material breach of its obligations under this Agreement and there has been a breach of any representation, warranty, covenant or agreement contained in this Agreement on the part of the Company and as a result of such breach the conditions set forth in Section 7.3(a) or 7.3(b), as the case may be, would not then be satisfied; provided, however, that if such breach is curable by the Company prior to December 31, 1999 through the exercise of its reasonable best efforts, then for so long as the Company continues to exercise such reasonable best efforts Parent may not terminate this Agreement under this Section 9.1(d) unless such breach is not cured prior to December 31, 1999 (but no cure period shall be required for a breach which by its nature cannot be cured); (e) by the Company if it is not in material breach of its obligations under this Agreement and there has been a breach of any representation, warranty, covenant or agreement contained in this Agreement on the part of Parent or Merger Sub and as a result of such breach the conditions set forth in Section 7.2(a) or 7.2(b), as the case may be, would not then be satisfied; provided, however, that if such breach is curable by Parent or Merger Sub prior to December 31, 1999 through the exercise of its reasonable best efforts, then for so long as Parent or Merger Sub continues to exercise such reasonable best efforts the Company may not terminate this Agreement under this Section 9.1(e) unless such breach is not cured prior to December 31, 1999 (but no cure period shall be required for a breach which by its nature cannot be cured). Where action is taken to terminate this Agreement pursuant to Section 9.1, it shall be sufficient for such action to be authorized by the Board of Directors (as applicable) of the party taking such action. 9.2 Effect of Termination. Except as set forth in Section 10.2, any termination of this Agreement under Section 9.1 above will be effective immediately upon the delivery of written notice of the terminating party to the other parties hereto. In the event of the termination of this Agreement as provided in Section 9.1, this Agreement shall be of no further force or effect, except (a) as set forth in this Section 9.2 and Article X (general provisions, including expenses), each of which shall 61 63 survive the termination of this Agreement, and (b) nothing herein shall relieve any party from liability for any breach of this Agreement. Notwithstanding the foregoing, upon termination of this Agreement, neither Parent nor the Company shall be liable for the breach or inaccuracy of any representation or warranty resulting from the occurrence of any event after the date hereof. No termination of this Agreement shall affect the obligations of the parties contained in the Confidentiality Agreement, all of which obligations shall survive termination of this Agreement. 9.3 Amendment. Except as is otherwise required by applicable law, prior to the Closing, this Agreement may be amended by the parties hereto at any time by execution of an instrument in writing signed by Parent and the Company. Except as is otherwise required by applicable law, after the Closing, this Agreement may be amended by the parties hereto at any time by execution of an instrument in writing signed by Parent and by Company shareholders who receive more than 50% of the Parent Capital Stock issued or to be issued pursuant to Section 1.6, or by all of the Company shareholders in the case of an amendment to Articles VIII. 9.4 Extension; Waiver. At any time prior to the Effective Time, Parent and Merger Sub, on the one hand, and the Company, on the other, may, to the extent legally allowed, (a) extend the time for the performance of any of the obligations of the other party hereto, (b) waive any inaccuracies in the representations and warranties made to such party contained herein or in any document delivered pursuant hereto and (c) waive compliance with any of the agreements or conditions for the benefit of such party contained herein. Any agreement on the part of a party hereto to any such extension or waiver shall be valid only if set forth in an instrument in writing signed on behalf of such party. ARTICLE X GENERAL PROVISIONS 10.1 Notices. All notices and other communications hereunder shall be in writing and shall be deemed given if delivered personally or by commercial delivery service, or mailed by registered or certified mail (return receipt requested) or sent via facsimile (with acknowledgment of complete transmission) to the parties at the following addresses (or at such other address for a party as shall be specified by like notice): (a) if to Parent or Merger Sub, to: Niku Corporation 305 Main Street Redwood City, California 94063 Attention: Telephone: (650) 298-4600 Facsimile: (650) 298-5934 62 64 with a copy to: Fenwick & West LLP Two Palo Alto Square Palo Alto, California 94303 Attention: Dennis R. DeBroeck, Esq. Telephone: (650) 494-0600 Facsimile: (650) 494-1417 (b) if to the Company, to: Proamics Corporation 300 Tri State International, No. 100 Lincolnshire, Illinois 60059 Attention: Malcolm L. Lotzof Chief Executive Officer Telephone: (847) 945-8100 Facsimile: (847) 945-8253 with a copy to: Shefsky & Froelich Ltd. 444 North Michigan Avenue Chicago, Illinois 60611 Attention: Mitchell D. Goldsmith Telephone: (312) 836-4006 Facsimile: (312) 527-5921 (c) if to the Securityholder Agent: Malcolm Lotzof 300 Tri-State International, No. 100 Lincolnshire, Illinois 60059 Telephone: (847) 945-8100 Facsimile: (847) 945-8250 (d) if to the Escrow Agent: Chase Manhattan Bank and Trust Company, N.A. 101 California Street, Suite 2725 San Francisco, California 94111 Attention: Mitch Gardner Telephone: (415) 282-0844 Facsimile: (415) 954-9561 63 65 10.2 Expenses. (a) In the event the Merger is not consummated, all fees and expenses incurred in connection with the Merger including, without limitation, all legal, accounting, financial advisory, consulting and all other fees and expenses of third parties ("THIRD PARTY EXPENSES") incurred by a party in connection with the negotiation and effectuation of the terms and conditions of this Agreement and the transactions contemplated hereby, shall be the obligation of the respective party incurring such fees and expenses. (b) Subject to the provisions of Section 8.2, in the event the Merger is consummated, the Surviving Corporation shall be responsible for the payment of all Third Party Expenses, including Third Party Expenses incurred by the Company. 10.3 Interpretation. The words "include," "includes" and "including" when used herein shall be deemed in each case to be followed by the words "without limitation." The word "AGREEMENT" when used herein shall be deemed in each case to mean any contract, commitment or other agreement, whether oral or written, that is legally binding. The table of contents and headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. 10.4 Counterparts. This Agreement may be executed in one or more counterparts, all of which shall be considered one and the same agreement and shall become effective when one or more counterparts have been signed by each of the parties and delivered to the other party, it being understood that all parties need not sign the same counterpart. 10.5 Entire Agreement; Assignment. Except for the Confidentiality Agreement, this Agreement, the schedules and Exhibits hereto, and the documents and instruments and other agreements among the parties hereto referenced herein: (a) constitute the entire agreement among the parties with respect to the subject matter hereof and supersede all prior agreements and understandings, both written and oral, among the parties with respect to the subject matter hereof; (b) are not intended to confer upon any other person any rights or remedies hereunder; and (c) shall not be assigned by operation of law or otherwise except as otherwise specifically provided, except that Parent and Merger Sub may assign their respective rights and delegate their respective obligations hereunder to their respective affiliates. 10.6 Severability. In the event that any provision of this Agreement or the application thereof, becomes or is declared by a court of competent jurisdiction to be illegal, void or unenforceable, the remainder of this Agreement will continue in full force and effect and the application of such provision to other persons or circumstances will be interpreted so as reasonably to effect the intent of the parties hereto. The parties further agree to replace such void or unenforceable provision of this Agreement with a valid and enforceable provision that will achieve, to the extent possible, the economic, business and other purposes of such void or unenforceable provision. 64 66 10.7 Other Remedies. Except as otherwise provided herein (including as set forth in Section 8.2(l)), any and all remedies herein expressly conferred upon a party will be deemed exclusive, and no party hereto shall have any other remedy conferred by law or equity upon such party, where a remedy or remedies have been expressly conferred upon such party herein. No party shall be able to avoid the limitations expressly set forth in Article VIII. 10.8 Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware, regardless of the laws that might otherwise govern under applicable principles of conflicts of laws thereof. Each of the parties hereto agrees that process may be served upon them in any manner authorized by the laws of the State of California or Illinois, as applicable, for such persons and waives and covenants not to assert or plead any objection which they might otherwise have to such jurisdiction and such process. 10.9 Rules of Construction. The parties hereto agree that they have been represented by counsel during the negotiation and execution of this Agreement and, therefore, waive the application of any law, regulation, holding or rule of construction providing that ambiguities in an agreement or other document will be construed against the party drafting such agreement or document. 10.10 Specific Performance. The parties hereto agree that irreparable damage would occur in the event that any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached. It is accordingly agreed that the parties shall be entitled to an injunction or injunctions to prevent breaches of this Agreement and to enforce specifically the terms and provisions hereof in any court of the United States or any state having jurisdiction, this being in addition to any other remedy to which they are entitled at law or in equity. [REMAINDER OF PAGE LEFT BLANK INTENTIONALLY] 65 67 IN WITNESS WHEREOF, Parent, Merger Sub, the Company, the Securityholder Agent (as to Article VIII only) and the Escrow Agent (as to matters set forth in Article VIII only) have caused this Agreement to be signed by their duly authorized respective officers, all as of the date first written above. PROAMICS CORPORATION NIKU CORPORATION a Delaware corporation a Delaware corporation By: By: ----------------------------- ---------------------------------- Malcolm Lotzof Farzad Dibachi Chief Executive Officer Chief Executive Officer NIKU ACQUISITION CORPORATION a Delaware corporation By: ---------------------------------- Farzad Dibachi President SECURITYHOLDER AGENT: - -------------------------------- Name: Malcolm Lotzof ESCROW AGENT CHASE MANHATTAN BANK AND TRUST COMPANY, N.A. By: ---------------------------------- Name: -------------------------------- Title: ------------------------------- [SIGNATURE PAGE TO AGREEMENT AND PLAN OF REORGANIZATION] 68 TABLE OF CONTENTS
PAGE ---- ARTICLE I THE MERGER........................................................................2 1.1 The Merger..........................................................................2 1.2 Effective Time......................................................................2 1.3 Effect of the Merger................................................................2 1.4 Certificate of Incorporation; Bylaws................................................2 1.5 Directors and Officers..............................................................2 1.6 Maximum Aggregate Merger Consideration; Effect on Capital Stock.....................3 1.7 Appraisal Rights....................................................................6 1.8 Surrender of Certificates...........................................................7 1.9 No Further Ownership Rights in Company Capital Stock................................8 1.10 Lost, Stolen or Destroyed Certificates..............................................8 1.11 Tax and Accounting Consequences.....................................................9 1.12 Taking of Necessary Action; Further Action..........................................9 ARTICLE II REPRESENTATIONS AND WARRANTIES OF THE COMPANY.....................................9 2.1 Organization and Qualification......................................................9 2.2 Subsidiaries.......................................................................10 2.3 Company Capital Structure..........................................................10 2.4 Authority..........................................................................11 2.5 No Conflict........................................................................11 2.6 Consents...........................................................................12 2.7 Company Financial Statements.......................................................12 2.8 No Undisclosed Liabilities.........................................................12 2.9 No Changes.........................................................................12 2.10 Tax and Other Returns and Reports..................................................14 2.11 Restrictions on Business Activities................................................16 2.12 Title to Properties; Absence of Liens and Encumbrances.............................16 2.13 Governmental Authorization.........................................................17 2.14 Intellectual Property..............................................................17 2.15 Product Warranties; Defects; Liabilities...........................................22 2.16 Agreements, Contracts and Commitments..............................................22 2.17 [INTENTIONALLY OMITTED.]...........................................................24 2.18 Interested Party Transactions......................................................24 2.19 Compliance with Laws...............................................................24 2.20 Litigation.........................................................................24 2.21 Insurance..........................................................................25 2.22 Minute Books.......................................................................25 2.23 Environmental Matters..............................................................25 2.24 Brokers' and Finders' Fees.........................................................26 2.25 Employee Matters and Benefit Plans.................................................26 2.26 Bank Accounts......................................................................30
69 2.27 Indemnification Obligations........................................................30 2.28 Stock Redemption Agreements........................................................30 2.29 Transaction with Lotzof & Associates, Inc..........................................31 2.30 Transaction with Isthmus Corporation...............................................31 2.31 Warrant Cancellation Agreement.....................................................31 2.32 Merger between Proamics-Illinois and Proamics-Delaware.............................31 2.33 No Royalty Obligations to Platinum.................................................31 2.34 Representations Complete...........................................................31 ARTICLE III REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB..........................32 3.1 Organization, Good Standing and Qualification......................................32 3.2 Capitalization and Voting Rights...................................................32 3.3 Subsidiaries.......................................................................33 3.4 Authorization......................................................................33 3.5 Consents and Agreements............................................................34 3.6 Litigation.........................................................................34 3.7 Proprietary Information and Inventions Agreements..................................34 3.8 Title to Property and Assets.......................................................34 3.9 Financial Statements...............................................................34 3.10 Books and Records..................................................................35 3.11 Rights of Registration.............................................................35 3.12 Proprietary Rights.................................................................35 3.13 No Conflict of Interest............................................................35 3.14 Tax Returns........................................................................35 3.15 Compliance with Laws...............................................................36 3.16 Year 2000 Compliance...............................................................36 3.17 No Contravention...................................................................36 3.18 Disclosure.........................................................................37 ARTICLE IV SECURITIES ACT COMPLIANCE; REGISTRATION..........................................37 4.1 Securities Act Exemption...........................................................37 4.2 Stock Restrictions.................................................................37 4.3 The Company Shareholders' Restrictions Regarding Securities Law Matters............37 ARTICLE V CONDUCT PRIOR TO THE EFFECTIVE TIME..............................................38 5.1 Conduct of Business of the Company.................................................38 5.2 Notices............................................................................41 ARTICLE VI ADDITIONAL AGREEMENTS............................................................41 6.1 Preparation of Information Statement...............................................41
70 6.2 Shareholder Approval...............................................................42 6.3 Access to Information..............................................................42 6.4 Confidentiality....................................................................42 6.5 Public Disclosure..................................................................42 6.6 Consents...........................................................................42 6.7 Legal Conditions to the Merger.....................................................43 6.8 Best Efforts; Additional Documents and Further Assurances..........................43 6.9 Notification of Certain Matters....................................................43 6.10 Reorganization.....................................................................44 6.11 Voting Agreements..................................................................44 6.12 Non-Competition Agreements.........................................................44 6.13 Blue Sky Laws......................................................................44 6.14 Benefit Arrangements...............................................................44 6.15 Termination of Company Investor Rights and Warrants................................45 6.16 No Solicitation....................................................................45 6.17 Loan to the Company................................................................46 6.18 Observer Seat......................................................................46 ARTICLE VII CONDITIONS TO THE MERGER.........................................................47 7.1 Conditions to Obligations of Each Party to Effect the Merger.......................47 7.2 Additional Conditions to Obligations of the Company................................47 ARTICLE VIII SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ESCROW...............................50 8.1 Survival of Representations and Warranties.........................................50 8.2 Escrow Arrangements................................................................51 8.3 Indemnification by Parent..........................................................60 ARTICLE IX TERMINATION, AMENDMENT AND WAIVER................................................60 9.1 Termination........................................................................60 9.2 Effect of Termination..............................................................61 9.3 Amendment..........................................................................62 9.4 Extension; Waiver..................................................................62 ARTICLE X GENERAL PROVISIONS...............................................................62 10.1 Notices............................................................................62 10.2 Expenses...........................................................................64 10.3 Interpretation.....................................................................64 10.4 Counterparts.......................................................................64 10.5 Entire Agreement; Assignment.......................................................64 10.6 Severability.......................................................................64
71 10.7 Other Remedies.....................................................................64 10.8 Governing Law......................................................................65 10.9 Rules of Construction..............................................................65 10.10 Specific Performance..............................................................65
72 EXHIBIT A VOTING AGREEMENT This VOTING AGREEMENT (this "AGREEMENT") is entered into as of November 16, 1999 (the "AGREEMENT DATE") by and between Niku Corporation, a Delaware corporation ("PARENT") and [Proamics Stockholder] ("STOCKHOLDER"). RECITALS A. Parent, Niku Acquisition Corporation, a Delaware corporation and a wholly-owned subsidiary of Parent ("MERGER SUB") and Proamics Corporation, a Delaware corporation (the "COMPANY") are entering into an Agreement and Plan of Reorganization dated as of November 16, 1999, as such may be hereafter amended from time to time (the "PLAN") that provides (subject to the conditions set forth therein) for the merger of the Company with and into Merger Sub (the "MERGER") with the Merger Sub to survive the Merger. Upon the effectiveness of the Merger, the outstanding shares of the Company's Capital Stock will be converted into shares of Parent Capital Stock, all as more particularly set forth in the Plan. Capitalized terms used but not otherwise defined in this Agreement will have the same meanings ascribed to such terms in the Plan. B. As of the Agreement Date, Stockholder owns in the aggregate (including shares held both beneficially and of record and other shares held either beneficially or of record) the number of shares of Company Capital Stock set forth below Stockholder's name on the signature page of this Agreement (all such shares, together with any shares of Company Capital Stock or any other shares of capital stock of the Company that may hereafter be acquired by Stockholder, being collectively referred to herein as the "SUBJECT SHARES"). If, between the Agreement Date and the Expiration Date (as defined herein), the outstanding shares of Company Capital Stock are changed into a different number or class of shares by reason of any stock split, stock dividend, reverse stock split, reclassification, recapitalization or other similar transaction, then the shares constituting the Subject Shares shall be appropriately adjusted, and shall include any shares or other securities of the Company issued on, or with respect to, the Subject Shares in such a transaction. C. As a condition to the willingness of Parent and Merger Sub to enter into the Plan, Parent and Merger Sub have required that Stockholder agree, and in order to induce Parent and Merger Sub to enter into the Plan, Stockholder has agreed to enter into this Agreement. The parties to this Agreement, intending to be legally bound by this Agreement, hereby agree as follows: 73 SECTION 1. TRANSFER OF SUBJECT SHARES 1.1 NO DISPOSITION OR ENCUMBRANCE OF SUBJECT SHARES. (a) Stockholder hereby covenants and agrees with Parent and Merger Sub that, prior to the Expiration Date (as defined below), Stockholder will not, directly or indirectly, (i) offer, sell, offer to sell, or contract or agree to sell any of the Subject Shares, (ii) grant any option to purchase or otherwise dispose of any Subject Shares, (iii) pledge, encumber or transfer any Subject Shares or (iv) announce any offer, sale, offer of sale, contract of sale or grant of any option to purchase or otherwise dispose of, or any pledge, encumbrance or transfer of, any of the Subject Shares, to any person or entity other than Parent. (b) As used in this Agreement, the term "EXPIRATION DATE" shall mean the earlier of (i) the date upon which the Plan is validly terminated in accordance with its terms or (ii) the Effective Time of the Merger. 1.2 TRANSFER OF VOTING RIGHTS. Stockholder covenants and agrees that, prior to the Expiration Date, Stockholder will not deposit any of the Subject Shares into a voting trust or grant a proxy or enter into an agreement of any kind with respect to any of the Subject Shares, except for the Proxy called for by Section 2.2 of this Agreement. SECTION 2. VOTING OF SUBJECT SHARES 2.1 AGREEMENT. Stockholder hereby agrees that, prior to the Expiration Date, at any meeting of the stockholders of the Company, however called, and in any action taken by the written consent of stockholders of the Company without a meeting, unless otherwise directed in writing by Parent, Stockholder shall vote the Subject Shares: (i) in favor of the Merger, the execution and delivery by the Company of the Plan and the adoption and approval of the terms thereof and in favor of each of the other actions contemplated by the Plan and any action required in furtherance hereof and thereof; (ii) against any action or agreement that would result in a breach of any representation, warranty, covenant or obligation of the Company in the Plan or that would preclude fulfillment of a condition precedent under the Plan to the Company's, Parent's or Merger Sub's obligation to consummate the Merger; and (iii) in favor of the termination (by amendment of any such agreement or otherwise), effective immediately prior to the effectiveness of the Merger, of any rights of first refusal, rights of notice, rights of co-sale, information rights, registration rights, preemptive rights or similar rights of Stockholder under any agreement, arrangement or understanding applicable to the Subject Shares. 74 Prior to the Expiration Date, Stockholder shall not enter into any agreement or understanding with any Person to vote or give instructions in any manner inconsistent with clause "(i)", "(ii)" or "(iii)" of this Section 2.1. 2.2 PROXY. Contemporaneously with the execution of this Agreement, Stockholder shall deliver to Parent a proxy with respect to the Subject Shares in the form attached hereto as Exhibit 1, which proxy shall be irrevocable to the fullest extent permitted by law (the "PROXY"). SECTION 3. WAIVERS 3.1 APPRAISAL RIGHTS. Stockholder hereby agrees not to exercise any rights of appraisal and any dissenters' rights that Stockholder may have (whether under applicable law or otherwise) or could potentially have or acquire in connection with the Merger. 3.2 RIGHTS OF FIRST REFUSAL, ETC. Stockholder hereby waives any rights of first refusal, rights of co-sale, registration rights, preemptive rights, rights of redemption or repurchase, rights to notice and similar rights of Stockholder under any agreement, arrangement of understanding applicable to the Subject Shares or any other shares of Company Capital Stock, in each case as the same may apply to the execution and delivery of the Plan and the consummation of the Merger and the other transactions contemplated by the Plan. Effective immediately prior to the effectiveness of the Merger, Stockholder hereby agrees and consents to the termination of any such rights and agreements. Stockholder agrees to take such actions, and execute and deliver such agreements and documents, as may reasonably be requested by Parent in order to effect, confirm or evidence the foregoing waivers and terminations. SECTION 4. NO SOLICITATION Stockholder covenants and agrees that, during the period commencing on the date of this Agreement and ending on the Expiration Date, Stockholder shall not, directly or indirectly, and shall not authorize or permit any agent or representative of Stockholder, directly or indirectly, to: (i) solicit, initiate, cooperate with, facilitate, encourage or induce the making, submission or announcement of, any offer, or any effort or attempt concerning any Acquisition Proposal (as defined in the Plan) or take any action that could reasonably be expected to lead to an Acquisition Proposal; (ii) furnish any information regarding the Company to any person or entity in connection with or in response to any Acquisition Proposal or potential Acquisition Proposal or any proposal for an Acquisition Proposal; (iii) consider any inquiries or proposals received from any party concerning any Acquisition Proposal; (iv) participate or engage in any discussions or negotiations with any person or entity with respect to any Acquisition Proposal; (v) approve, endorse or recommend any Acquisition Proposal; or (vi) enter into any letter of intent or other similar document or any written, oral or other agreement, contract or legally binding commitment contemplating or otherwise relating to any Acquisition Proposal. Stockholder shall immediately cease any existing discussions with any person or entity that relate to any potential Acquisition Proposal, provided, however, that the foregoing agreements and covenants are made by Stockholder solely in such Stockholder's capacity as a stockholder of the Company and not as a director of the Company, it being understood and agreed that nothing in 75 this Section 4 shall prevent any Stockholder from discharging any fiduciary obligations that such Stockholder may have as a director of the Company. SECTION 5. REPRESENTATIONS AND WARRANTIES OF STOCKHOLDER Stockholder hereby represents and warrants to Parent as follows: 5.1 DUE ORGANIZATION, AUTHORIZATION, ETC. Stockholder has all requisite power and capacity to execute and deliver this Agreement and to perform Stockholder's obligations hereunder. This Agreement has been duly executed and delivered by Stockholder and constitutes a legal, valid and binding obligation of Stockholder, enforceable against Stockholder in accordance with its terms, subject to (i) laws of general application relating to bankruptcy, insolvency and the relief of debtors, and (ii) rules of law governing specific performance, injunctive relief and other equitable remedies. 5.2 NO CONFLICTS OR CONSENTS. (a) The execution and delivery of this Agreement by Stockholder do not, and the performance of this Agreement by Stockholder will not: (i) conflict with or violate any Order applicable to Stockholder or by which Stockholder or any of Stockholder's properties or Subject Shares is bound or affected; or (ii) result in any breach of or constitute a default (with notice or lapse of time, or both) under, or give to others any rights of termination, amendment, acceleration or cancellation of, or result in the creation of any lien, restriction, adverse claim, encumbrance or security interest in or to any of the Subject Shares pursuant to, any written, oral or other agreement, contract or legally binding commitment to which Stockholder is a party or by which Stockholder or any of Stockholder's properties (including but not limited to the Subject Shares) is bound or affected. (b) The execution and delivery of this Agreement by Stockholder do not, and the performance of this Agreement by Stockholder will not, require any written, oral or other agreement, contract or legally binding commitment of any third party. 5.3 TITLE TO SUBJECT SHARES. As of the Agreement Date, Stockholder owns of record and beneficially the Subject Shares set forth under Stockholder's name on the signature page hereof free and clear of any restrictions (other than restrictions under applicable federal and state securities laws), liens, encumbrances, security interests or adverse claims, and does not directly or indirectly own, either beneficially or of record, any shares of capital stock of the Company, or rights to acquire any shares of capital stock of the Company, other than the Subject Shares set forth below Stockholder's name on the signature page hereof. 5.4 ACCURACY OF REPRESENTATIONS. The representations and warranties contained in this Agreement are accurate in all respects as of the date of this Agreement, will be accurate in all respects at all times through the Expiration Date and will be accurate in all respects as of the date of the consummation of the Merger as if made on that date. 76 SECTION 6. COVENANTS OF STOCKHOLDER 6.1 FURTHER ASSURANCES. From time to time and without additional consideration, Stockholder will execute and deliver, or cause to be executed and delivered, such additional or further transfers, assignments, endorsements, proxies, consents and other instruments, and perform such further acts, as Parent may reasonably request for the purpose of effectively carrying out and furthering the intent of this Agreement and the Proxy. 6.2 LEGEND. Upon the request of Parent, Stockholder shall instruct the Company to cause each certificate of Stockholder evidencing the Subject Shares to bear a legend in the following form: THE SHARES REPRESENTED BY THIS CERTIFICATE AND THE RIGHT TO VOTE THESE SHARES ARE SUBJECT TO THE TERMS OF A VOTING AGREEMENT, DATED NOVEMBER 16, 1999 (THE "VOTING AGREEMENT"), BETWEEN PARENT AND THE REGISTERED HOLDER OF THIS CERTIFICATE. THESE SHARES MAY NOT BE VOTED, SOLD, EXCHANGED OR OTHERWISE TRANSFERRED OR DISPOSED OF EXCEPT IN COMPLIANCE WITH THE TERMS AND CONDITIONS OF THE VOTING AGREEMENT, AS IT MAY BE AMENDED. A COPY OF THE VOTING AGREEMENT IS ON FILE AT THE PRINCIPAL EXECUTIVE OFFICES OF THE ISSUER. SUCH AGREEMENT IS BINDING ON ALL TRANSFEREES OF THESE SHARES. SECTION 7. MISCELLANEOUS 7.1 EXPENSES. All costs and expenses incurred in connection with the transactions contemplated by this Agreement shall be paid as provided in the Plan. 7.2 GOVERNING LAW. The internal laws of the State of Delaware (irrespective of its choice of law principles) will govern the validity of this Agreement, the construction of its terms, and the interpretation and enforcement of the rights and duties of the parties hereto. 7.3 ASSIGNMENT, BINDING EFFECT, THIRD PARTIES. Except as provided herein, neither this Agreement nor any of the rights, interests or obligations hereunder shall be assigned by either of the parties hereto (whether by operation of law or otherwise) without the prior written consent of the other party, except that Parent may assign all or any of its rights hereunder to any wholly-owned subsidiary of Parent. Subject to the preceding sentence, this Agreement shall be binding upon and shall inure to the benefit of (i) Stockholder and Stockholder's heirs, successors and assigns and (ii) Parent and its successors and assigns. Notwithstanding anything contained in this Agreement to the contrary, nothing in this Agreement, expressed or implied, is intended to confer on any person or entity other than the parties hereto or their respective heirs, successors and assigns, any rights, remedies, obligations or liabilities under or by reason of this Agreement. 7.4 SEVERABILITY. If any provision of this Agreement, or the application thereof, will for any reason and to any extent be invalid or unenforceable, then the remainder of this Agreement and application of such provision to other persons or circumstances will be interpreted so as reasonably to effect the intent of the parties hereto. 77 7.5 COUNTERPARTS. This Agreement may be executed by the parties hereto in separate counterparts, each of which when so executed and delivered shall be an original, but all such counterparts shall together constitute one and the same instrument. 7.6 AMENDMENT; WAIVER. This Agreement may be amended by the written agreement of the parties hereto. No waiver by any party hereto of any condition or of any breach of any provision of this Agreement will be effective unless such waiver is set forth in a writing signed by such party. No waiver by any party of any such condition or breach, in any one instance, will be deemed to be a further or continuing waiver of any such condition or breach or a waiver of any other condition or breach of any other provision contained herein. 7.7 NOTICES. All notices and other communications required or permitted under this Agreement will be in writing and will be either hand delivered in person, sent by telecopier, sent by certified or registered first class mail, postage pre-paid, or sent by nationally recognized express courier service. Such notices and other communications will be effective upon receipt if hand delivered or sent by telecopier, four (4) days after mailing if sent by mail, and one (l) business day after dispatch if sent by express courier, to the following addresses, or such other addresses as any party may notify the other parties in accordance with this Section: if to Stockholder: at the address set forth below Stockholder's signature on the signature page hereto; if to Parent: Niku Corporation 305 Main Street Redwood City, CA 94063 Attn: Chief Financial Officer Facsimile: (650) 298-5934 or to such other address as a party designates in a writing delivered to each of the other parties hereto. 7.8 ENTIRE AGREEMENT. This Agreement and any documents delivered by the parties in connection herewith constitute the entire agreement and understanding between the parties with respect to the subject matter hereof and thereof and supersede all prior agreements and understandings between the parties with respect thereto. No addition to or modification of any provision of this Agreement shall be binding upon either party hereto unless made in writing and signed by both parties hereto. The parties hereto waive trial by jury in any action at law or suit in equity based upon, or arising out of, this Agreement or the subject matter hereof. 7.9 SPECIFIC PERFORMANCE. The parties hereto agree that irreparable damage would occur in the event that any of the provisions of this Agreement was not performed in accordance with its specific terms or was otherwise breached. It is accordingly agreed that, in addition to 78 any other remedy to which Parent is entitled at law or in equity, Parent shall be entitled to injunctive relief to prevent breaches of this Agreement and to enforce specifically the terms and provisions hereof in any California court or in any other court of competent jurisdiction. 7.10 OTHER AGREEMENTS. Nothing in this Agreement shall limit any of the rights or remedies of Parent or any of the obligations of Stockholder under any other agreement. 7.11 CONSTRUCTION. This Agreement has been negotiated by the respective parties hereto and their attorneys and the language hereof will not be construed for or against either party. Unless otherwise indicated herein, all references in this Agreement to "Sections" refer to sections of this Agreement. The titles and headings herein are for reference purposes only and will not in any manner limit the construction of this Agreement which will be considered as a whole. [THE REMAINDER OF THIS PAGE HAS INTENTIONALLY BEEN LEFT BLANK.] 79 IN WITNESS WHEREOF, Parent and Stockholder have caused this Agreement to be executed as of the Agreement Date first written above. NIKU CORPORATION STOCKHOLDER By:_______________________________ Name:_______________________________ (Please Print) Title:____________________________ By:_________________________________ (Signature) Title:______________________________ Address:____________________________ Facsimile: ( )___________________ Number of Shares of Company Common Stock owned by Stockholder as of the Agreement Date: ________________ Number of Shares of Company Capital Stock owned by Stockholder as of the Agreement Date: Series A: ________________ Series B: ________________ Series C: ________________ [SIGNATURE PAGE TO VOTING AGREEMENT] 80 EXHIBIT 1 IRREVOCABLE PROXY The undersigned stockholder of Proamics Corporation, a Delaware corporation (the "COMPANY"), hereby irrevocably (to the fullest extent permitted by law) appoints and constitutes the members of the Board of Directors of Niku Corporation, a Delaware corporation ("PARENT"), and each of them, the attorneys and proxies of the undersigned, with full power of substitution and resubstitution, to the fullest extent of the undersigned's rights with respect to (i) the shares of capital stock of the Company owned by the undersigned as of the date of this proxy, which shares are specified on the final page of this proxy and (ii) any and all other shares of capital stock of the Company which the undersigned may acquire after the date hereof. (The shares of the capital stock of the Company referred to in clauses (i) and (ii) of the immediately preceding sentence are collectively referred to as the "SHARES.") Upon the execution hereof, all prior proxies given by the undersigned with respect to any of the Shares are hereby revoked, and no subsequent proxies will be given with respect to any of the Shares. This proxy is irrevocable, is coupled with an interest and is granted in connection with that certain Voting Agreement, dated as of the date hereof, between Parent and the undersigned (the "VOTING AGREEMENT"), and is granted in consideration of Parent entering into the Agreement and Plan of Reorganization, dated as of November 16, 1999, among Parent, Niku Acquisition Corporation, a Delaware corporation and wholly-owned subsidiary of Parent ("MERGER SUB") and the Company (the "PLAN"). Capitalized terms used but not otherwise defined in this proxy have the meanings ascribed to such terms in the Plan. The attorneys and proxies named above will be empowered, and may exercise this proxy, to vote the Shares at any time until the Expiration Date (as defined in the Plan) at any meeting of the stockholders of the Company, however called, or in any action by written consent of stockholders of the Company: (i) in favor of the Merger, the execution and delivery by the Company of the Plan, the adoption and approval of the terms thereof and in favor of each of the other actions contemplated by the Plan, and any action required in furtherance hereof and thereof; (ii) against any action or agreement that would result in a breach of any representation, warranty, covenant or obligation of the Company in the Plan or that would preclude fulfillment of a condition precedent under the Plan to the Company's, Parent's or Merger Sub's obligation to consummate the Merger; and (iii) in favor of the termination (by amendment of any such agreement or otherwise), effective immediately prior to the effectiveness of the Merger, of any rights of first refusal, rights of co-sale, information rights, registration rights, preemptive rights or similar rights of Stockholder under any agreement, arrangement or understanding applicable to the Subject Shares. 81 Prior to the Expiration Date (as such term is defined in the Voting Agreement), at any meeting of the stockholders of the Company without a meeting, however called, and in any action by written consent of stockholders of the Company, the attorneys and proxies named above may, in their sole discretion, elect to abstain from voting on any matter covered by the foregoing subparagraphs (i) through (iv) above. The undersigned stockholder may vote the Shares on all other matters. This proxy shall be binding upon the heirs, successors and assigns of the undersigned (including any transferee of any of the Shares). Any obligation of the undersigned hereunder shall be binding upon the heirs, successors and assigns of the undersigned (including any transferee of any of the Shares). [THE REMAINDER OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK.] 82 This proxy shall terminate upon the Expiration Date. Dated: November __, 1999 Stockholder Name:___________________ Signature:__________________________ Title (If Applicable):______________ Number of Shares of Company Common Stock Owned: ______________ Number of Shares of Company Capital Stock Owned: Series A: ________________ Series B: ________________ Series C: ________________ 83 EXHIBIT B NON-COMPETITION AGREEMENT This Non-Competition Agreement (this "AGREEMENT") is made and entered into as of November 16, 1999 (the "EXECUTION DATE") by and among Niku Corporation, a Delaware corporation ("PARENT") and Proamics Corporation, a Delaware corporation (the "COMPANY"), on the one hand, and [Employee] ("EMPLOYEE"), on the other hand. R E C I T A L S A. Concurrently with the execution of this Agreement, Parent, Niku Acquisition Corporation, a Delaware corporation that is a wholly-owned subsidiary of Parent ("MERGER Sub") and the Company have entered into an Agreement and Plan of Reorganization dated as of November 16, 1999 (the "PLAN"), which provides for the merger (the "MERGER") of the Company with and into Merger Sub, with Merger Sub to be the surviving corporation of the Merger. Upon the effectiveness of the Merger, the outstanding capital stock of the Company will be converted into shares of Parent Capital Stock in the manner and on the basis set forth in the Plan. Capitalized terms that are used in this Agreement and that are not defined herein shall have the same respective meanings that are given to such terms in the Plan. B. Employee owns Company Capital Stock and is an officer and key employee of the Company, and upon the effectiveness of the Merger, will receive shares of Parent Capital Stock having substantial value by virtue of the conversion of Employee's Company Capital Stock in the Merger. Employee's talents and abilities are critical to the Company's ability to continue to successfully carry on its business. C. One of the material conditions precedent to the obligation of Parent to consummate the Merger under the Plan is that Employee has executed, entered into and is bound by this Agreement with Parent and the Company. Employee is therefore entering into this Agreement as a material inducement and consideration to Parent to enter into the Plan, to issue the consideration payable to Employee and the other Company stockholders in the Merger and to consummate the Merger, and to ensure that Parent effectively acquires the goodwill of the Company through the Merger. NOW, THEREFORE, in consideration of the facts stated in the foregoing recitals and the promises made herein, Parent, the Company and Employee hereby agree as follows: 1. EFFECTIVENESS OF OBLIGATIONS. This Agreement shall become effective if and only if the Merger is consummated, and shall become effective upon the date and time that the Merger is consummated and becomes legally effective (such date and time being hereinafter referred to as the "EFFECTIVE TIME"). 84 2. CERTAIN DEFINITIONS. (a) Affiliate. As used herein, the term "AFFILIATE" will have the meaning given to such term in Rule 405 of Regulation C promulgated under the Securities Act of 1933, as amended, and refers both to a present and future Affiliate. (b) Competing Business. As used herein, the term "COMPETING BUSINESS" means (i) the business of developing, marketing, licensing, or distributing any PSA Products (as defined below), including any product, suite of products, subset of products, or module used therein, and (ii) the business of providing training, support and consulting services to users of PSA Products with respect to such users' installation, implementation or use of such PSA Products, provided, however, that the Employee may provide such consulting services to any third party upon Parent's prior written consent. As used herein "PSA Products" means software applications for managing professional services organizations and/or professional services departments, including, without limitation, applications for managing employee records and resources, client projects, expenses, billing and accounts management. (c) Covenant Period. As used herein, the term "COVENANT PERIOD" means that period of time commencing on the Effective Time and ending on the second (2nd) anniversary of the Effective Time. (d) Engaging in Business. As used in Section 3 of this Agreement, each of the following activities, without limitation, shall be deemed to constitute "ENGAGING IN A BUSINESS": to engage in, carry on, work with, be employed by, consult for, invest in, solicit customers for, own stock or any other equity or ownership interest in, advise, lend money to, guarantee the debts or obligations of, contribute, sell or license intellectual property to, or permit one's name or any part thereof to be used in connection with, any enterprise or endeavor, either individually, in partnership or in conjunction with any person, firm, association, partnership, joint venture, limited liability company, corporation or other business, whether as principal, agent, stockholder, lender, partner, joint venturer, member, director, officer, employee or consultant. However, nothing contained in this Agreement shall prohibit Employee from: (i) being employed by or serving as a consultant to Parent (or any other Affiliate of Parent); (ii) acquiring or holding at any one time less than five percent (5%) of the outstanding securities of any publicly traded company (other than any publicly traded company with respect to which Employee is engaged in any business (as defined in this Section) in violation of Employee's covenants in Section 3 hereof); (iii) holding stock of Parent; or (iv) acquiring or holding an interest in a mutual fund, limited partnership, venture capital fund or similar investment entity of which Employee is not an employee, officer or general partner and has no power to make, participate in or directly influence the investment decisions of such mutual fund, limited partnership, venture capital fund or investment entity. (e) Surviving Corporation. As used herein, the term "SURVIVING Corporation" means Merger Sub, the surviving corporation of the Merger. 85 3. NON-COMPETITION AND NON-SOLICITATION COVENANTS. (a) Non-Competition. Employee hereby covenants and agrees with Parent and the Company that, at all times during the Covenant Period, Employee shall not, either directly or indirectly, engage in any Competing Business (i) in any state of the United States of America or (ii) in any country in which the Company has conducted business on or before the Effective Time (including, without limitation, any county, state, territory, possession or country in which any customer of the Company who utilizes the Company's products or services is located or in which the Company has solicited business as of the Effective Time). Employee acknowledges and agrees with Parent and the Company that the Company shall be deemed for the purpose of this Section 3 to have engaged in business at a national level in the United States of America in each state of the United States of America and in the countries of the United Kingdom and Canada. (b) Non-Solicitation of Customers. In addition to, and not in limitation of, the non-competition covenants of Employee in Section 3(a) above, Employee agrees with Parent and the Company that, at all times during the Covenant Period, Employee will not, either for Employee or for any other person or entity, directly or indirectly (other than for Parent and any of its Affiliates), solicit business relating to the Competing Business from, or attempt to market, sell, distribute, license or otherwise provide PSA Products to, or attempt to market or provide training, support, consulting and other services with respect to the installation, implementation or use of PSA Products to, any customer of the Company, Parent or any of their respective Affiliates. (c) Non-Solicitation of Employees or Consultants. In addition to, and not in limitation of, the non-competition covenants of Employee in Section 3(a) above, Employee agrees with Parent and the Company that, at all times during the Covenant Period, Employee will not, either for Employee or for any other person or entity, directly or indirectly, solicit, induce or attempt to induce any director, employee, consultant or contractor of Parent, the Surviving Corporation or any of their Affiliates to terminate his or her employment or his, her or its services with, Parent, the Surviving Corporation or any of their respective Affiliates or to take employment with any other party. 4. SEVERABILITY. Should a court or other body of competent jurisdiction determine that any term or provision of this Agreement is excessive in scope or duration or is unenforceable, then the parties agree that such term or provision shall not be voided or made unenforceable, but rather shall be modified to the extent necessary to be enforceable, in accordance with the purposes stated in this Agreement and with applicable law, and all other terms and provisions of this Agreement shall remain valid and fully enforceable. 5. SPECIFIC PERFORMANCE. Employee agrees that, in the event of any breach or threatened breach by Employee of any covenant or obligation contained in this Agreement, each of Parent and the Company shall be entitled (in addition to any other remedy that may be available to it, including monetary damages) to seek and obtain (a) a decree or order of specific performance to enforce the observance and performance of such covenant or obligation, and (b) 86 an injunction restraining such breach or threatened breach. Employee further agrees that neither Parent nor the Company shall be required to obtain, furnish or post any bond or similar instrument in connection with or as a condition to obtaining any remedy referred to in this Section 5, and employee irrevocably waives any right he may have to require Parent or the Company to obtain, furnish or post any such bond or similarly instrument. 6. NON-EXCLUSIVITY. The rights and remedies of Parent and the Company under this Agreement are not exclusive of or limited by any other rights or remedies which they may have, whether at law, in equity, by contract or otherwise, all of which shall be cumulative (and not alternative). Without limiting the generality of the foregoing, the rights and remedies of Parent and the Company under this Agreement, and the obligations and liabilities of Employee under this Agreement, are in addition to their respective rights, remedies, obligations and liabilities under the law of unfair competition, under laws relating to misappropriation of trade secrets, under other laws and common law requirements and under all applicable rules and regulations. Nothing in this Agreement shall limit any of Employee's obligations, or the rights or remedies of Parent or the Company, under the Plan or any other agreement delivered in connection therewith or shall limit any of Employee's obligations, or any of the rights or remedies of Parent or the Company, under this Agreement. No breach on the part of Parent, the Company or any other party of any covenant or obligation contained in the Plan or any other agreement shall limit or otherwise affect any right or remedy of Parent or the Company under this Agreement. 7. GOVERNING LAW. The internal laws of the State of Illinois (irrespective of its choice of law principles) will govern the validity of this Agreement, the construction of its terms, and the interpretation and enforcement of the rights and duties of the parties hereto. 8. SUCCESSORS AND ASSIGNS. This Agreement and the rights and obligations of Employee hereunder are personal to Employee and shall not be assignable, delegable or transferable by Employee in any respect. This Agreement shall inure to the benefit of the permitted successors and assigns of Parent and the Company, including any successor to or assignee of all or substantially all of the business and assets of Parent or the Company or any other part of the business or assets of Parent and/or the Company. 9. COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which will be an original as regards any party whose signature appears thereon and all of which together will constitute one and the same instrument. This Agreement will become binding when one or more counterparts hereof, individually or taken together, bear the signatures of all parties reflected hereon as signatories. 10. AMENDMENT; WAIVER. This Agreement may be amended only by the written agreement of Parent and Employee. No waiver by any party hereto of any condition or of any breach of any provision of this Agreement will be effective unless such waiver is set forth in a writing signed by such party. No waiver by any party of any such condition or breach, in any one instance, will be deemed to be a further or continuing waiver of any such condition or breach or a waiver of any other condition or breach of any other provision contained herein. 87 11. NOTICES. All notices and other communications required or permitted under this Agreement will be in writing and will be either hand delivered in person, sent by telecopier, sent by certified or registered first class mail, postage pre-paid, or sent by nationally recognized express courier service. Such notices and other communications will be effective upon receipt if hand delivered or sent by telecopier, four (4) days after mailing if sent by mail, and one (l) business day after dispatch if sent by express courier, to the following addresses, or such other addresses as any party may notify the other parties in accordance with this Section: If to Parent or the Company: With a copy to: Niku Corporation Fenwick & West LLP 305 Main Street Two Palo Alto Square, Suite 800 Redwood City, CA Palo Alto, CA 94306 Attention: President Attention: Dennis R. DeBroeck, Esq. Fax Number: (650) 298-4600 Fax Number: (650) 494-1417 If to Employee: With a copy to: [Name] Shefsky & Froelich Ltd. [Address] 444 North Michigan Avenue [Address] Suite 2500 Chicago, IL 60611 Attention: Mitchell D. Goldsmith, Esq. Fax Number: (312) 527-5921 or to such other address as Parent, the Company or the Employee, as the case may be, designates in a writing delivered to the other parties hereto. 12. COSTS OF ENFORCEMENT. If any party to this Agreement seeks to enforce its rights under this Agreement by legal proceedings or otherwise, the non-prevailing party shall pay all costs and expenses incurred by the prevailing party, including, without limitation, all reasonable attorneys' and experts' fees. 13. ENTIRE AGREEMENT. This Agreement contains all of the terms and conditions agreed upon by the parties relating to the subject matter of this Agreement and, effective upon the Effective Time of the Merger, shall supersede any and all prior and contemporaneous agreements, negotiations, correspondence, understandings and communications of the parties, whether oral or written, with respect to such subject matter; provided, however, that notwithstanding the foregoing, any non-competition, non-solicitation or other covenants of the type set forth in Section 3 of this Agreement that are contained in (a) any agreement entered into between the Company and Employee prior to the date of this Agreement, or (b) any employment agreement or in any employee invention assignment and/or confidentiality agreement executed by Employee with Parent or the Surviving Corporation that is in effect at any time during the Covenant Period, shall each be construed to be a separate, independent and concurrent covenant and obligation of Employee that is cumulative and in addition to, and not in lieu of or in conflict 88 with, any of the covenants in Section 3 of this Agreement, and the existence of any such separate, independent and concurrent covenant or covenants shall have no effect on the covenants contained in Section 3 of this Agreement. 14. RULES OF CONSTRUCTION. This Agreement has been negotiated by the respective parties hereto and their attorneys and the language hereof will not be construed for or against either party. Unless otherwise indicated herein, all references in this Agreement to "Sections" refer to sections of this Agreement. The titles and headings herein are for reference purposes only and will not in any manner limit the construction of this Agreement which will be considered as a whole. IN WITNESS WHEREOF, Employee, Parent and the Company have executed and entered into this Agreement effective as of the Execution Date. NIKU CORPORATION EMPLOYEE By: ______________________________ ______________________________ Title: ___________________________ PROAMICS CORPORATION By: ______________________________ Title: ___________________________ [SIGNATURE PAGE TO NON-COMPETITION AGREEMENT] 89 EXHIBIT C CERTIFICATE OF MERGER OF PROAMICS CORPORATION WITH AND INTO NIKU ACQUISITION CORPORATION --------------------------------------------------------------- PURSUANT TO SECTION 251 OF THE GENERAL CORPORATION LAW OF THE STATE OF DELAWARE --------------------------------------------------------------- Niku Acquisition Corporation, a Delaware corporation ("Niku"), does hereby certify to the following facts relating to the merger (the "Merger") of Proamics Corporation, a Delaware corporation ("Proamics"), with and into Niku, with Niku remaining as the surviving corporation of the Merger (the "Surviving Corporation"): FIRST: Niku is incorporated pursuant to the General Corporation Law of the State of Delaware ("DGCL"). Proamics is incorporated pursuant to the DGCL. Niku and Proamics are the constituent corporations in the Merger. SECOND: An Agreement and Plan of Reorganization has been approved, adopted, certified, executed and acknowledged by Niku and by Proamics in accordance with the provisions of subsection (c) of Section 251 of the DGCL. THIRD: The surviving corporation of the Merger shall be Niku. FOURTH: The Certificate of Incorporation of Niku shall be the Certificate of Incorporation of the Surviving Corporation. FIFTH: The executed Agreement and Plan of Reorganization is on file at the principal place of business of Niku, the Surviving Corporation, at 305 Main Street, Redwood City, California 94063. SIXTH: A copy of the executed Agreement and Plan of Reorganization will be furnished by Niku, the Surviving Corporation, on request and without cost, to any stockholder of any constituent corporation of the Merger. 90 This Certificate of Merger shall become effective on December 8, 1999. IN WITNESS WHEREOF, Niku Acquisition Corporation has caused this Certificate of Merger to be executed by its duly authorized Chief Executive Officer as of December 8, 1999. NIKU ACQUISITION CORPORATION By:_________________________________ Farzad Dibachi, Chief Executive Officer 91 EXHIBIT D CERTIFICATE OF INCORPORATION OF NIKU ACQUISITION CORPORATION ARTICLE I The name of the corporation is Niku Acquisition Corporation. ARTICLE II The address of the registered office of the corporation in the State of Delaware is 1013 Centre Road, City of Wilmington, County of New Castle, Delaware 19805. The name of its registered agent at that address is Corporation Service Company. ARTICLE III The purpose of the corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of the State of Delaware. ARTICLE IV The total number of shares of stock which the corporation has authority to issue is One Thousand (1,000) shares, all of which shall be Common Stock, $0.001 par value per share. ARTICLE V The Board of Directors of the corporation shall have the power to adopt, amend or repeal Bylaws of the corporation. ARTICLE VI Election of directors need not be by written ballot unless the Bylaws of the corporation shall so provide. ARTICLE VII To the fullest extent permitted by law, no director of the corporation shall be personally liable for monetary damages for breach of fiduciary duty as a director. Without limiting the effect of the preceding sentence, if the Delaware General Corporation Law is hereafter amended to authorize the further elimination or limitation of the liability of a director, then the liability of 92 a director of the corporation shall be eliminated or limited to the fullest extent permitted by the Delaware General Corporation Law, as so amended. Neither any amendment nor repeal of this Article VII, nor the adoption of any provision of this Certificate of Incorporation inconsistent with this Article VII, shall eliminate, reduce or otherwise adversely affect any limitation on the personal liability of a director of the corporation existing at the time of such amendment, repeal or adoption of such an inconsistent provision. ARTICLE VIII The name and mailing address of the incorporator is Kevin S. Chou, c/o Fenwick & West LLP, Two Palo Alto Square, Palo Alto, California 94306. The undersigned incorporator hereby acknowledges that the foregoing certificate is his act and deed and that the facts stated herein are true. Dated: November 12, 1999 --------------------------------- Kevin S. Chou, Incorporator 93 EXHIBIT E AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF NIKU CORPORATION a Delaware corporation (Originally incorporated on January 8, 1998 as Niku Corporation) ARTICLE I The name of this corporation is Niku Corporation (the "Corporation"). ARTICLE II The address of the registered office of the Corporation in the State of Delaware is 1013 Centre Road, in the City of Wilmington, County of New Castle. The name of its registered agent at such address is the Corporation Service Company. ARTICLE III The nature of the business or purposes to be conducted or promoted is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of Delaware. ARTICLE IV A. Classes of Stock. This Corporation is authorized to issue two classes of stock, to be designated, respectively, "Common Stock" and "Preferred Stock." The total number of shares which the corporation is authorized to issue is One Hundred Fifty-One Million Nine Hundred Ten Thousand Two Hundred Eighty-Two (151,910,282) shares. One Hundred Million (100,000,000) shares shall be Common Stock, par value $0.0001 per share, and Fifty-One Million Nine Hundred Ten Thousand Two Hundred Eighty-Two (51,910,282) shares shall be Preferred Stock, par value $0.0001 per share. Ten Million (10,000,000) shares of Preferred Stock shall be designated "Series F Preferred Stock," Five Million One Hundred Forty-Two Thousand Eight Hundred Fifty-One (5,142,851) shares of Preferred Stock shall be designated "Series A Preferred Stock", Eight Million Six Hundred Twenty-Nine Thousand Nine Hundred Ninety-Two (8,629,992) shares of Preferred Stock shall be designated "Series B Preferred Stock", Nine Million Nine Hundred Eighty-Seven Thousand Four Hundred and Thirty-Nine (9,987,439) shares shall be designated "Series C Preferred Stock" and Eighteen Million One Hundred Fifty Thousand (18,150,000) shares shall be designated "Series D Preferred Stock." B. Rights, Preferences, Privileges and Restrictions of Preferred Stock. The rights, preferences, privileges and restrictions granted to and imposed on the Series F Preferred Stock, 94 Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock (collectively, the "Preferred Stock") are as set forth below in this Article IV(B). 1. Dividend Provisions. The holders of shares of Preferred Stock shall be entitled to receive dividends, out of any assets legally available therefor, prior and in preference to any declaration or payment of any dividend (payable other than in Common Stock) on the Common Stock of this Corporation, at the rate of (a) $0.0025 per share per annum in the case of Series F Preferred Stock (as adjusted for any stock dividends, combinations or splits with respect to such shares), (b) $0.0175 per share per annum in the case of Series A Preferred Stock (as adjusted for any stock dividends, combinations or splits with respect to such shares (c) $0.0375 per share per annum in the case of Series B Preferred Stock (as adjusted for any stock dividends, combinations or splits with respect to such shares), (d) $0.10 per share per annum in the case of Series C Preferred Stock (as adjusted for any stock dividends, combinations or splits with respect to such shares) and $0.25 per share per annum in the case of Series D Preferred Stock (as adjusted for any stock dividends, combinations or splits with respect to such shares), when, as and if declared by the Board of Directors of the Corporation. Such dividends shall not be cumulative. No dividend shall be paid on shares of Common Stock in any fiscal year unless the aforementioned preferential dividends of the Preferred Stock shall have been paid in full and the aggregate dividends paid on each share of Preferred Stock during such fiscal year equals or exceeds the dividends per share (computed on an as-converted basis) paid during such fiscal year on the Common Stock. 2. Liquidation Preference. a. Primary Distribution. In the event of any liquidation, dissolution or winding up of this Corporation, either voluntary or involuntary (a "Liquidation"), (i) each holder of Series C Preferred Stock shall be entitled to receive, prior and in preference to any distribution of any of the assets of this Corporation to the holders of other series of Series A Preferred Stock, Series B Preferred Stock, and Series F Preferred Stock or Common Stock by reason of their ownership thereof an amount equal to: (A) if the effective date of the Liquidation occurs within one year of the Series C Original Issue Date (as defined below), the sum of (x) $2.50 per share (as adjusted for any stock dividends, combinations or splits with respect to such shares) and (y) all declared but unpaid dividends on such shares, for each share of Series C Preferred Stock held by such holder; (B) if the effective date of the Liquidation occurs after one year from the Series C Original Issue Date but within two years of the Series C Original Issue Date, the sum of (x) $3.125 per share (as adjusted for any stock dividends, combinations or splits with respect to such shares) and (y) all declared but unpaid dividends on such shares, for each share of Series C Preferred Stock held by such holder; and (C) if the effective date of the Liquidation occurs at any time after two years of the Series C Original Issue Date, the sum of (x) $3.91 per share (as adjusted for any stock dividends, combinations or splits with respect to such shares) and (y) all declared but unpaid dividends on such shares, for each share of Series C Preferred Stock held by such holder; 95 (ii) each holder of Series D Preferred Stock shall be entitled to receive, prior and in preference to any distribution of any of the assets of this Corporation to the holders of the Series A Preferred Stock, Series B Preferred Stock and Series F Preferred Stock, or Common Stock by reason of their ownership thereof an amount equal to: (A) if the effective date of the Liquidation occurs within one year of the Series D Original Issue Date (as defined below), the sum of (x) $6.25 per share (as adjusted for any stock dividends, combinations or splits with respect to such shares) and (y) all declared but unpaid dividends on such shares, for each share of Series D Preferred Stock held by such holder; (B) if the effective date of the Liquidation occurs after one year from the Series D Original Issue Date but within two years of the Series D Original Issue Date, the sum of (x) $7.8125 per share (as adjusted for any stock dividends, combinations or splits with respect to such shares) and (y) all declared but unpaid dividends on such shares, for each share of Series D Preferred Stock held by such holder; and (C) if the effective date of the Liquidation occurs at any time after two years of the Series D Original Issue Date, the sum of (x) $9.80 per share (as adjusted for any stock dividends, combinations or splits with respect to such shares) and (y) all declared but unpaid dividends on such shares, for each share of Series D Preferred Stock held by such holder; (iii) each holder of the Series F Preferred Stock shall be entitled to receive an amount equal to the sum of (x) five cents ($0.05) (the "Original Series F Issue Price") for each share of Series F Preferred Stock held of record by such holder (as adjusted for any stock dividends, combinations or splits with respect to such shares) and (y) all declared but unpaid dividends on such shares; (iv) each holder of the Series A Preferred Stock shall be entitled to receive an amount equal to the sum of (x) thirty-five cents ($0.35) (the "Original Series A Issue Price") for each share of Series A Preferred Stock held of record by such holder (as adjusted for any stock dividends, combinations or splits with respect to such shares) and (y) all declared but unpaid dividends on such shares; and (v) each holder of the Series B Preferred Stock shall be entitled to receive an amount equal to the sum of (x) seventy-five cents ($0.75) ("Original Series B Issue Price") for each share of Series B Preferred Stock held of record by such holder (as adjusted for any stock dividends, combinations or splits with respect to such shares) and (y) all declared but unpaid dividends on such shares. If upon the occurrence of such event, the assets and funds of the Corporation legally available for distribution shall be insufficient to permit the payment to such holders of the full aforesaid preferential amounts, then the entire assets and funds of the Corporation legally available for distribution shall be distributed ratably first among the holders of the Series C Preferred Stock and Series D Preferred Stock in proportion to the preferential amount each such holder is otherwise entitled to receive and then among the holders of the Series F, Series A, and Series B Preferred Stock in proportion to the preferential amount each such holder is otherwise entitled to receive. 96 b. Secondary Distribution. Upon the completion of the distribution required by Section 2(a), the remaining assets of the Corporation available for distribution to stockholders shall be distributed of record among the holders of Common Stock pro rata in proportion to the number of shares of Common Stock held of record by each. c. Definition of Liquidation Event; Notice. (i) For purposes of this Section 2, a "Liquidation" of this Corporation shall be deemed to be occasioned by, and to include, without limitation, (A) the acquisition of the Corporation by another entity by means of any transaction or series of related transactions (including, without limitation, any reorganization, merger or consolidation); or (B) a sale of all or substantially all of the assets of the Corporation (including, for purposes of this section, intellectual property rights which, in the aggregate, constitute substantially all of the Corporation's material assets); unless in each case, the Corporation's stockholders of record as constituted immediately prior to such acquisition or sale will, immediately after such acquisition or sale (by virtue of securities issued as consideration for the Corporation's acquisition or sale or otherwise) hold at least fifty percent (50%) of the voting power of the surviving or acquiring entity. (ii) In any of such events, if the consideration received by the Corporation is other than cash, its value will be deemed its fair market value as determined in good faith by the Board of Directors. Any securities received as consideration shall be valued as follows: (A) Securities not subject to investment letter or other similar restrictions on free marketability shall be valued as follows: (1) if traded on a securities exchange or through The Nasdaq National Market, the value shall be deemed to be the average of the closing prices of the securities on such exchange over the thirty day period ending three days prior to the closing; (2) if actively traded over-the-counter, the value shall be deemed to be the average of the closing bid or sale prices (whichever is applicable) over the thirty day period ending three days prior to the closing; and (3) if there is no active public market, the value shall be the fair market value thereof, as determined in good faith by the Board of Directors of the Corporation. (B) Securities subject to investment letter or other restrictions on free marketability (other than restrictions arising solely by virtue of a stockholder's status as an affiliate or former affiliate) shall be valued in such a manner as to make an appropriate discount from the market value determined as above in (A) (1), (2) or (3) to reflect the approximate fair market value thereof, as determined in good faith by the Board of Directors of the Corporation. (iii) The Corporation shall give each holder of record of Preferred Stock written notice of any such impending transaction not later than ten (10) days prior to the stockholder meeting called to approve such transaction, or twenty (20) days prior to 97 the closing of such transaction whichever notice date is earlier, and shall also notify such holders in writing of the final approval of such transaction. The first of such notices shall describe the material terms and conditions of the impending transaction, the provisions of this Section 2, and the amounts anticipated to be distributed to holders of each outstanding class of capital stock of the Corporation pursuant to this Section 2, and the Corporation shall thereafter give such holders prompt notice of any material changes. The transaction shall in no event take place sooner than twenty (20) days after the Corporation has given the first notice provided for herein or sooner than ten (10) days after the Corporation has given notice of any material changes provided for herein; provided, however, that such periods may be shortened upon the written consent of the holders of Preferred Stock that are entitled to such notice rights or similar notice rights and that represent at least a majority of the voting power of the then outstanding shares of Preferred Stock (computed on an as-converted basis). (iv) In the event the requirements of subsection 2(c)(iii) are not complied with, this Corporation shall forthwith either: (A) cause such closing to be postponed until such time as the requirements of subsection 2(c)(iii) have been complied with; or (B) cancel such transaction, in which event the rights, preferences and privileges of the holders of the Preferred Stock shall continue to be the same as such rights, preferences and privileges existing immediately prior to the date of the first notice referred to in subsection 2(c)(iii). 3. Conversion. The holders of Preferred Stock shall have conversion rights as follows (the "Conversion Rights"): a. Right to Convert. Each share of Preferred Stock shall be convertible, at the option of the holder thereof, at any time after the date of issuance of such share at the office of this Corporation or any transfer agent for such stock, into such number of fully paid and nonassessable shares of Common Stock as is determined by dividing the applicable Original Issue Price of such share by the Conversion Price applicable to such share in effect for such Preferred Stock on the date the certificate is surrendered for conversion. The Original Issue Price for the Series D Preferred Stock (the "Original Series D Issue Price") is $5.00 per share. The Original Issue Price for the Series C Preferred Stock (the "Original Series C Issue Price") is $1.99 per share. The initial Conversion Price per share for shares of Preferred Stock shall be the Original Series F Issue Price for the Series F Preferred Stock, the Original Series A Issue Price for the Series A Preferred Stock, the Original Series B Issue Price for the Series B Preferred Stock, the Original Series C Issue Price for the Series C Preferred Stock and the Original Series D Issue Price for the Series D Preferred Stock; provided, however, that such Conversion Prices shall be subject to adjustment as set forth in subsection 3(d). b. Automatic Conversion. Each share of Preferred Stock shall automatically be converted into shares of Common Stock by dividing the applicable Original Issue Price of such share by the Conversion Price applicable to such share at the time in effect for 98 such Preferred Stock immediately upon the earlier of (i) except as provided below in subsection 3(c), the Corporation's sale of its Common Stock in an underwritten public offering on form S-1 or SB-2 under the Securities Act of 1933, as amended (the "Securities Act"), yielding gross proceeds (before deduction of underwriter's discounts, commissions, or other costs and fees associated with the offering) to the Corporation in excess of Twenty Million Dollars ($20,000,000) if the Valuation (computed in accordance with Section 3(d)(i)(A)(IV)(7) herein) of the Corporation is greater than or equal to Three Hundred Fifty Million Dollars ($350,000,000) immediately before such offering, and (ii) the date specified by written consent or agreement of the holders of at least a majority of the voting power of the then outstanding shares of Preferred Stock (computed on an as-converted basis) which majority must include at least two-thirds (66 2/3%) of the voting power of each of the then outstanding shares of Series C Preferred Stock and Series D Preferred Stock (computed on an as-converted basis). c. Mechanics of Conversion. Before any holder of Preferred Stock shall be entitled to convert the same into shares of Common Stock, such holder shall surrender the certificate or certificates therefor, duly endorsed, at the office of this Corporation or of any transfer agent for the Preferred Stock, and shall give written notice to this Corporation at its principal corporate office, of the election to convert the same and shall state therein the name or names in which the certificate or certificates for shares of Common Stock are to be issued. This Corporation shall, as soon as practicable thereafter, issue and deliver at such office to such holder of Preferred Stock, or to the nominee or nominees of such holder, a certificate or certificates for the number of shares of Common Stock to which such holder shall be entitled as aforesaid. Such conversion shall be deemed to have been made immediately prior to the close of business on the date of such surrender of the shares of Preferred Stock to be converted, and the person or persons entitled to receive the shares of Common Stock issuable upon such conversion shall be treated for all purposes as the record holder or holders of such shares of Common Stock as of such date. If the conversion is in connection with an underwritten offering of securities registered pursuant to the Securities Act, the conversion, unless otherwise designated by the holder, will be conditioned upon the closing with the underwriters of the sale of securities pursuant to such offering, in which event the person(s) entitled to receive the Common Stock upon conversion of the Preferred Stock shall not be deemed to have converted such Preferred Stock until immediately prior to the closing of such sale of securities. d. Conversion Price Adjustments of Preferred Stock for Certain Dilutive Issuances, Splits, Dividends and Combinations. The Conversion Prices of the Preferred Stock shall be subject to adjustment from time to time as follows: (i)(A)(I) Adjustment Formula for Series F, Series A and Series B Preferred Stock. If at any time or from time to time after the Series D Original Issue Date the Corporation issues or sells Additional Stock (as hereinafter defined), for an Effective Price (as hereinafter defined) that is less than the applicable Conversion Price for a series of Preferred Stock (other than the Series C Preferred Stock and Series D Preferred Stock) in effect immediately prior to such issue or sale (or deemed issue or sale), then, and in each such case, the applicable Conversion Price for such series of Preferred Stock (other than the Series C Preferred 99 Stock and Series D Preferred Stock) shall be reduced, as of the close of business on the date of such issue or sale, to the price obtained by multiplying such Conversion Price by a fraction: (x) The numerator of which shall be the sum of (A) the number of shares of Common Stock issued and outstanding immediately prior to such issue or sale of Additional Stock plus (B) the quotient obtained by dividing the aggregate consideration received by the Corporation for the total number of Additional Stock so issued or sold (or deemed so issued and sold) by the Conversion Price for such series of Preferred Stock in effect immediately prior to such issue or sale; and (y) The denominator of which shall be the sum of (A) the number of shares of Common Stock issued and outstanding immediately prior to such issue or sale plus (B) the number of Additional Stock so issued or sold (or deemed so issued and sold). The foregoing calculation of Common Stock outstanding shall take into account shares deemed issued pursuant to Section 3(d)(i)(D) on account of options, rights, convertible or, exchangeable securities (or actual or deemed consideration therefor). (II) Adjustment Formula for Series C Preferred Stock. If at any time or from time to time after the Series D Original Issue Date the Corporation issues or sells Additional Stock for an Effective Price that is less than the Conversion Price for Series C Preferred Stock in effect immediately prior to such issue or sale (or deemed issue or sale), then, and in each such case, the Conversion Price for the Series C Preferred Stock shall be adjusted as follows: (1) If the Valuation (as hereinafter defined), is greater than or equal to Fifty Million Dollars ($50,000,000) immediately prior to the issuance of Additional Stock, then the Conversion Price for the Series C Preferred Stock shall be reduced, as of the close of business on the date of such issuance or sale, to the Effective Price at which such Additional Stock are so issued or sold (or deemed issued or sold). (2) If the Valuation is less than Fifty Million Dollars ($50,000,000) immediately prior to the issuance of Additional Stock, then the Conversion Price for the Series C Preferred Stock shall be reduced, first, to a price per share that would yield a Valuation, computed in accordance with Section 3(d)(i)(A)(IV)(7) herein, of Fifty Million Dollars ($50,000,000) immediately prior to the issuance of the Additional Stock (the "Adjusted Conversion Price"), and then, the Adjusted Conversion Price for Series C Preferred Stock shall be further reduced, as of the close of business on the date of such issue or sale, to the price obtained by multiplying such Adjusted Conversion Price by a fraction: (x) The numerator of which shall be the sum of (1) the number of shares of Common Stock issued and outstanding immediately prior to such issue or sale of Additional Stock plus (2) the quotient obtained by dividing the aggregate consideration received by the Corporation for the total number of Additional Stock so issued or sold (or deemed so issued and sold) by the Conversion Price for such series of Preferred Stock in effect immediately prior to such issue or sale; and 100 (y) The denominator of which shall be the sum of (1) the number of shares of Common Stock issued and outstanding immediately prior to such issue or sale plus (2) the number of Additional Stock so issued or sold (or deemed so issued and sold). The foregoing calculation of Common Stock outstanding shall take into account shares deemed issued pursuant to Section 3(d)(i)(D) on account of options, rights, or convertible or exchangeable securities (or actual or deemed consideration therefor). (III) Adjustment Formula for Series D Preferred Stock. If at any time or from time to time after the Series D Original Issue Date the Corporation issues or sells Additional Stock for an Effective Price that is less than the Conversion Price for Series D Preferred Stock in effect immediately prior to such issue or sale (or deemed issue or sale), then, and in each such case, the Conversion Price for the Series D Preferred Stock shall be adjusted as follows: (1) If the Valuation (as hereinafter defined), is greater than or equal to One Hundred Twenty Million Dollars ($120,000,000) immediately prior to the issuance of Additional Stock, then the Conversion Price for the Series D Preferred Stock shall be reduced, as of the close of business on the date of such issuance or sale, to the Effective Price at which such Additional Stock are so issued or sold (or deemed issued or sold). (2) If the Valuation is less than One Hundred Twenty Million Dollars ($120,000,000) immediately prior to the issuance of Additional Stock, then the Conversion Price for the Series D Preferred Stock shall be reduced, first, to a price per share that would yield a Valuation, computed in accordance with Section 3(d)(i)(A)(IV)(7) herein, of One Hundred Twenty Million Dollars ($120,000,000) immediately prior to the issuance of the Additional Stock (the "Adjusted Conversion Price"), and then, the Adjusted Conversion Price for Series D Preferred Stock shall be further reduced, as of the close of business on the date of such issue or sale, to the price obtained by multiplying such Adjusted Conversion Price by a fraction: (x) The numerator of which shall be the sum of (1) the number of shares of Common Stock issued and outstanding immediately prior to such issue or sale of Additional Stock plus (2) the quotient obtained by dividing the aggregate consideration received by the Corporation for the total number of Additional Stock so issued or sold (or deemed so issued and sold) by the Conversion Price for such series of Preferred Stock in effect immediately prior to such issue or sale; and (y) The denominator of which shall be the sum of (1) the number of shares of Common Stock issued and outstanding immediately prior to such issue or sale plus (2) the number of Additional Stock so issued or sold (or deemed so issued and sold). The foregoing calculation of Common Stock outstanding shall take into account shares deemed issued pursuant to Section 3(d)(i)(D) on account of options, rights, or convertible or exchangeable securities (or actual or deemed consideration therefor). (IV) Certain Definitions. For the purpose of this Section 3(d) the following terms have the following meanings: 101 (1) The "AGGREGATE CONSIDERATION RECEIVED" by the Corporation for any issue or sale (or deemed issue or sale) of securities shall (a) to the extent it consists of cash, be computed at the gross amount of cash received by the Corporation before deduction of any underwriting or similar commissions, compensation or concessions paid or allowed by the Corporation in connection with such issue or sale and without deduction of any expenses payable by the Corporation; (b) to the extent it consists of property other than cash, be computed at the fair value of that property as determined in good faith by the Board; and (c) if Additional Stock, Convertible Securities or Options or Rights to purchase either Additional 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 to be allocable to such Additional Stock, Convertible Securities or Options or Rights. (2) The "EFFECTIVE PRICE" of Additional Stock shall mean the quotient determined by dividing the total number of Additional Stock issued or sold, or deemed to have been issued or sold, by the Corporation under this subsection 3(d), into the Aggregate Consideration Received, or deemed to have been received, by the Corporation under this subsection 3(d), for the issuance (or deemed issuance) of such Additional Stock. (3) "SERIES C ORIGINAL ISSUE DATE" shall mean the date on which the first share of Series C Preferred Stock is issued by the Corporation. (4) "SERIES D ORIGINAL ISSUE DATE" shall mean the date on which the first share of Series D Preferred Stock is issued by the Corporation. (5) The "OPTIONS OR RIGHTS" shall mean warrants, options or other rights to purchase or acquire shares of Common Stock or Convertible Securities. (6) The "CONVERTIBLE SECURITIES" shall mean securities convertible into or exchangeable into Additional Stock. (7) The "VALUATION" of the Company prior to an issuance of Additional Stock shall mean the Effective Price of the Additional Stock multiplied by the sum of (x) the total number of shares of Common Stock of the Corporation outstanding immediately prior to the issuance of Additional Stock plus (y) the total number of shares of Common Stock of the Corporation into which all then outstanding shares of Convertible Securities and Options or Rights of the Corporation are then convertible or exercisable immediately prior to the issuance of such Additional Stock. (V) No adjustment of the Conversion Price for a series of Preferred Stock shall be made in an amount less than one cent per share, provided that any adjustments which are not required to be made by reason of this sentence shall be carried forward and shall be either taken into account in any subsequent adjustment made prior to three years from the date of the event giving rise to the adjustment being carried forward, or shall be made at the end of three years from the date of the event giving rise to the adjustment being carried forward. Except to the limited extent provided for in Sections 3(d)(i)(D)(3) and 3(d)(i)(D)(4), no adjustment of such 102 Conversion Price pursuant to this Section 3(d)(i) shall have the effect of increasing the Conversion Price for a series of Preferred Stock above the Conversion Price for such shares in effect immediately prior to such adjustment. (B) In the case of the issuance of Common Stock for cash, the consideration shall be deemed to be the amount of cash paid therefor before deducting any reasonable discounts, commissions or other expenses allowed, paid or incurred by the Corporation for any underwriting or otherwise in connection with the issuance and sale thereof. (C) In the case of the issuance of the Common Stock for a consideration in whole or in part other than cash, the consideration other than cash shall be deemed to be the fair value thereof as determined by the Corporation's Board of Directors irrespective of any accounting treatment. (D) In the case of the issuance (whether before, on or after the Series D Original Issue Date) of Options or Rights or Convertible Securities, the following provisions shall apply for all purposes of this Section 3(d)(i) and Section 3(d)(ii): (1) The aggregate maximum number of shares of Common Stock deliverable upon exercise (assuming the satisfaction of any conditions to exercisability, including without limitation, the passage of time, but without taking into account potential antidilution adjustments) of such Options or Rights shall be deemed to have been issued at the time such Options or Rights were issued and for a consideration equal to the consideration (determined in the manner provided in Sections 3(d)(i)(B) and 3(d)(i)(C)), if any, received by the Corporation upon the issuance of such Options or Rights plus the minimum exercise price provided for such Options or Rights (without taking into account potential antidilution adjustments) for the Common Stock covered thereby. (2) The aggregate maximum number of shares of Common Stock deliverable upon conversion of or in exchange (assuming the satisfaction of any conditions to convertibility or exchangeability, including, without limitation, the passage of time, but without taking into account potential antidilution adjustments) for any such Convertible Securities or upon the exercise of Options or Rights to subscribe for Convertible Securities and subsequent conversion or exchange thereof shall be deemed to have been issued at the time such Convertible Securities were issued or such Options or Rights were issued and for a consideration equal to the consideration, if any, received by the Corporation for any such Convertible Securities and related Convertible Options or Rights (excluding any cash received on account of accrued interest or accrued dividends), plus the minimum additional consideration, if any, to be received by the Corporation (without taking into account potential antidilution adjustments) upon the conversion or exchange of such securities or the exercise of any related Options or Rights (the consideration in each case to be determined in the manner provided in Sections 3(d)(i)(B) and 3(d)(i)(C)). (3) In the event of any change in the number of shares of Common Stock deliverable or in the consideration payable to the Corporation upon 103 exercise of such Options or Rights or upon conversion of or in exchange for such Convertible Securities, including, but not limited to, a change resulting from the antidilution provisions thereof, the applicable Conversion Price of the affected series of Preferred Stock, to the extent in any way affected by or computed using such Convertible Options or Rights or Convertible Securities, shall be recomputed to reflect such change, but no further adjustment shall be made for the actual issuance of Common Stock or any payment of such consideration upon the exercise of any such Options or Rights or the conversion or exchange of such Convertible Securities. (4) Upon the expiration of any such Options or Rights, the termination of any such rights to convert or exchange or the expiration of any Options or Rights related to such Convertible Securities, the Conversion Price of the affected series of Preferred Stock, to the extent in any way affected by or computed using such Options, Rights or Convertible Securities or Options or Rights related to such Convertible Securities, shall be recomputed to reflect the issuance of only the number of shares of Common Stock (and Convertible Securities which remain in effect) actually issued upon the exercise of such Options or Rights, upon the conversion or exchange of such Convertible Securities or upon the exercise of the Options or Rights related to such Convertible Securities. Notwithstanding the foregoing sentence, in the event that the issuance of such Options or Rights or Convertible Securities caused an adjustment to the Conversion Price for Series C Preferred Stock or Series D Preferred Stock pursuant to Section 3(d)(i)(A)(II)(1) or Section 3(d)(i)(A)(III)(1), respectively, (i.e., a "full-ratchet" adjustment), then upon the expiration of any such Options or Rights or Convertible Securities or the termination of any such rights to convert or exchange or the expiration of any Options or Rights related to such Convertible Securities, without any of such Rights, Options or Convertible Securities, as the case may be, having been exercised and no shares of Common Stock issued pursuant thereto, then the Conversion Price for the Series C Preferred Stock and Series D Preferred stock, as appropriate, shall be adjusted, to the Conversion Price for the Series C Preferred Stock or Series D Preferred Stock, as appropriate, that was in effect immediately prior to such issuance (the "Prior Series C Conversion Price" or "Prior Series D Conversion Price", as appropriate), subject, however, to such other adjustments as may have been made or which would have been made pursuant to this Section 3(d)(i) had the Prior Series C Conversion Price or Prior Series D Conversion Price, as appropriate, been in effect immediately prior to such sale or issuance of such Options, Rights or Convertible Securities. (5) The number of shares of Common Stock deemed issued and the consideration deemed paid therefor pursuant to Sections 3(d)(i)(D)(1) and (2) shall be appropriately adjusted to reflect any change, termination or expiration of the type described in either Section 3(d)(i)(D)(3) or (4). (ii) "Additional Stock" shall mean any shares of Common Stock issued (or deemed to have been issued pursuant to Section 3(d)(i)(D)) by the Corporation after the Series D Original Issue Date other than: (A) Common Stock issued pursuant to a transaction described in Section 3(d)(iii) hereof, 104 (B) Up to an aggregate of 10,000,000 shares (such number of shares of Common Stock to be calculated net of any repurchases of such shares by the Corporation and net of any expired or terminated options, warrants or rights and to be proportionately adjusted for subsequent events described in Section 3(d)(iii) and (iv) herein) issued as: (i) Common Stock issuable or issued to employees, consultants or directors of the Corporation following the Series D Original Issue Date directly or pursuant to a stock option plan or agreement or restricted stock plan or agreement approved by the Board of Directors of the Corporation, (ii) Capital stock, or options or warrants to purchase capital stock, issued to financial institutions, equipment lessors or landlords in connection with commercial credit arrangements, equipment financing, real estate leases or similar transactions approved by the Board of Directors of the Corporation, (iii) Capital stock or options or warrants to purchase capital stock, issued to providers of products or technologies (or rights thereto) to the Corporation, if such issuance is approved by the Board of Directors of the Corporation, or (iv) Capital stock or options or warrants to purchase capital stock, issued in connection with bona fide acquisitions, mergers or similar transactions, the terms of which are approved by the Board of Directors of the Corporation, (C) Common Stock issued or issuable upon conversion of the Preferred Stock, (D) Capital stock issued or issuable upon exercise of any outstanding options or warrants to purchase Series A Preferred Stock, Series F Preferred Stock, Series B Preferred Stock or Series C Preferred Stock which are outstanding as of the Series D Original Issue Date, or (E) Common Stock issued or issuable in a public offering in connection with which all outstanding shares of Preferred Stock will be converted to Common Stock. (iii) In the event the Corporation should at any time or from time to time after the Series D Original Issue Date fix a record date for the effectuation of a split or subdivision of the outstanding shares of Common Stock or for the determination of the outstanding shares of Common Stock entitled to receive a dividend or other distribution payable in additional shares of Common Stock without payment of any consideration by such holder for the additional shares of Common Stock, then, as of such record date (or the date of such 105 dividend, distribution, split or subdivision if no record date is fixed), the Conversion Price of each applicable series of Preferred Stock shall be appropriately decreased so that the number of shares of Common Stock issuable on conversion of each share of such series shall be increased in proportion to such increase of the aggregate of shares of Common Stock outstanding. (iv) If the number of shares of Common Stock outstanding at any time after the Series D Original Issue Date is decreased by a combination of the outstanding shares of Common Stock or reverse stock split, then, following the record date of such combination or reverse stock split, the Conversion Price for each applicable series of Preferred Stock shall be appropriately increased so that the number of shares of Common Stock issuable on conversion of each share of such series shall be decreased in proportion to such decrease in outstanding shares. e. Other Distributions. In the event the Corporation at any time after the Series D Original Issue Date shall declare a distribution payable in securities of other persons, evidences of indebtedness issued by this Corporation or other persons, assets (excluding cash dividends) or Options or Rights not referred to in Section 3(d)(i), then, in each such case for the purpose of this Section 3(e), the holders of the Preferred Stock shall be entitled to a proportionate share of any such distribution as though they were the holders of the number of shares of Common Stock of the Corporation into which their shares of Preferred Stock are convertible as of the record date fixed for the determination of the holders of Common Stock of the Corporation entitled to receive such distribution. f. Recapitalizations. If at any time or from time to time after the Series D Original Issue Date there shall be a recapitalization of the Common Stock (other than a subdivision, combination or merger or sale of assets transaction provided for elsewhere in this Section 3 or Section 2) provision shall be made so that the holders of the Preferred Stock shall thereafter be entitled to receive upon conversion of the Preferred Stock the number of shares of stock or other securities or property of the Corporation or otherwise, which a holder of Common Stock deliverable upon conversion of such series of Preferred Stock immediately prior to such recapitalization would have been entitled to receive on such recapitalization. In any such case, appropriate adjustment shall be made in the application of the provisions of this Section 3 with respect to the rights of the holders of the Preferred Stock after the recapitalization to the extent that the provisions of this Section 3 (including adjustment of the Conversion Prices then in effect and the number of shares purchasable upon conversion of the Preferred Stock) shall be applicable after that event as nearly equivalently as may be practicable. g. No Impairment. The Corporation will not, by amendment of its Certificate of Incorporation or through any reorganization, recapitalization, 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 to be observed or performed hereunder by the Corporation, but will at all times in good faith assist in the carrying out of all the provisions of this Section 3 and in the taking of all such action as may be necessary or appropriate in order to protect the Conversion Rights of the holders of the Preferred Stock against impairment. 106 h. No Fractional Shares and Certificate as to Adjustment. (i) No fractional shares shall be issued upon the conversion of any share or shares of the Preferred Stock, and the number of shares of Common Stock to be issued shall be rounded to the nearest whole share (with one-half being rounded downward). Whether or not fractional shares are issuable upon such conversion shall be determined on the basis of the total number of shares of Preferred Stock the holder is at the time converting into Common Stock and the number of shares of Common Stock issuable upon such aggregate conversion. (ii) Upon the occurrence of each adjustment or readjustment of the Conversion Price of a series of Preferred Stock pursuant to this Section 3, the Corporation, at its expense, shall promptly compute such adjustment or readjustment in accordance with the terms hereof and prepare and furnish to each holder of such series of Preferred Stock a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based. The Corporation shall, upon the reasonable written request at any time of any holder of Preferred Stock, furnish or cause to be furnished to such holder a like certificate setting forth (A) such adjustment and readjustment, (B) the Conversion Price for each series of Preferred Stock at the time in effect, and (C) the number of shares of Common Stock and the amount, if any, of other property which at the time would be received upon the conversion of a share of each series of Preferred Stock held by such holder. i. Notices of Record Date. In the event of any taking by the Corporation of a record date for determining the holders of any class of securities who are entitled to receive any dividend (other than a cash dividend) or other distribution, any right to subscribe for, purchase or otherwise acquire any shares of stock of any class or any other securities or property, or to receive any other right, this Corporation shall mail to each holder of Preferred Stock, at least ten (10) days prior to the record date specified therein, a notice specifying the record date for the purpose of such dividend, distribution or right, and the amount and character of such dividend, distribution or right. j. Reservation of Stock Issuable Upon Conversion. This Corporation shall at all times reserve and keep available out of its authorized but unissued shares of Common Stock, solely for the purpose of effecting the conversion of the then outstanding shares of the Preferred Stock, such number of its shares of Common Stock as shall from time to time be sufficient to effect the conversion of all outstanding shares of the Preferred Stock; and if at any time the number of authorized but unissued shares of Common Stock shall not be sufficient to effect the conversion of all then outstanding shares of the Preferred Stock, in addition to such other remedies as shall be available to the holder of such Preferred Stock, 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 to such number of shares as shall be sufficient for such purposes, including, without limitation, engaging in best efforts to obtain the requisite Board of Directors and stockholder approval of any necessary amendment to its Certificate of Incorporation. 107 k. Notices. Any notice required by the provisions of this Section 3 to be given to the holders of shares of Preferred Stock shall be deemed given if deposited in the United States mail, postage prepaid, and addressed to each holder of record at his address appearing on the books of the Corporation. 4. Redemption. a. If requested in writing at any time after the seventh anniversary of the Series C Original Issue Date by the holders of at least two-thirds (66 2/3%) of the outstanding Series C Preferred Stock and Series D Preferred Stock (determined together on an as converted basis), the Corporation shall redeem, on the terms and conditions stated herein, out of funds legally available therefor, all of the outstanding Preferred Stock in four equal annual installments beginning on the first anniversary of the date redemption is requested by the requisite number of holders (the "Initial Redemption Date") and continuing thereafter on the first, second and third anniversaries of the Initial Redemption Date (each a "Preferred Stock Redemption Date"), by paying in cash therefor (i) in the case of the Series F Preferred Stock, an amount equal to the sum of (x) the Original Series F Issue Price for each share of Series F Preferred Stock held of record by such holder (as adjusted for any stock dividends, combinations or splits with respect to such shares) and (y) all declared but unpaid dividends thereon, (ii) in the case of the Series A Preferred Stock, an amount equal to the sum of (x) the Original Series A Issue Price for each share of Series A Preferred Stock held of record by such holder (as adjusted for any stock dividends, combinations, splits, recapitalizations and the like with respect to such shares) and (y) all declared but unpaid dividends thereon, (iii) in the case of the Series B Preferred Stock, an amount equal to the sum of (x) the Original Series B Issue Price for each share of Series B Preferred Stock held of record by such holder (as adjusted for any stock dividends, combinations, splits, recapitalizations and the like with respect to such shares) and (y) all declared but unpaid dividends thereon, (iv) in the case of the Series C Preferred Stock, an amount equal to the sum of (x) the Original Series C Issue Price for each share of Series C Preferred Stock, held of record by such holder (as adjusted for any stock dividends, combinations, splits, recapitalizations and the like with respect to such shares) and (y) all declared but unpaid dividends thereon and (v) in the case of the Series D Preferred Stock, an amount equal to the sum of (x) the Original Series D Issue Price for each share of Series D Preferred Stock held of record by such holder (as adjusted for any stock dividends, combinations, splits, recapitalizations and the like with respect to such shares) and (y) all declared but unpaid dividends thereon (the "Series F Redemption Price," "Series A Redemption Price," "Series B Redemption Price," "Series C Redemption Price," and "Series D Redemption Price," respectively). The number of shares of Preferred Stock that the Corporation shall be required to redeem under this subsection (a) on any one Preferred Stock Redemption Date shall be equal to the amount determined by dividing (x) the aggregate number of shares of shares of Preferred Stock outstanding immediately prior to that Preferred Stock Redemption Date by (y) the number of remaining Preferred Stock Redemption Dates (including the Preferred Stock Redemption Date to which such calculation applies). In the event that the Corporation is unable to redeem the full number of shares of Preferred Stock to be redeemed on any Preferred Stock Redemption Date, the shares not redeemed shall be redeemed by this Corporation as provided in this Section 4 as soon as practicable after funds are legally available therefor. Any redemption effected pursuant to this subsection 4 (a) shall be made ratably among 108 the holders of the Preferred Stock in proportion to the redemption payment amount each such holder is otherwise entitled to receive on such Preferred Stock Redemption Date. b. At least thirty (30) but no more than sixty (60) days prior to each Preferred Stock Redemption Date, the Corporation shall give written notice by certified or registered mail, postage prepaid, to all holders of outstanding Preferred Stock, at the address last shown on the records of the Corporation for such holder, stating such Preferred Stock Redemption Date, the Series F, the Series A, Series B, Series C Redemption Price and Series D Redemption Price, as the case may be, and shall call upon such holder to surrender to the Corporation on such Preferred Stock Redemption Date at the place designated in the notice such holder's certificate or certificates representing the shares to be redeemed. On or after the Preferred Stock Redemption Date stated in such notice, the holder of each share of Preferred Stock called for redemption shall surrender the certificate or certificates evidencing such shares to the Corporation at the place designated in such notice and shall thereupon be entitled to receive payment of the Series F, Series A, Series B, Series C Redemption Price or Series D Redemption Price, as the case may be, for the shares surrendered. If less than all the shares represented by any such surrendered certificate are redeemed, a new certificate shall be issued representing the unredeemed shares. If such notice of redemption shall have been duly given, and if on such Preferred Stock Redemption Date funds necessary for the redemption shall be available therefor, then, as to any certificates evidencing any Preferred Stock so called for redemption and not surrendered, all rights of the holders of such shares shall cease as the close of business on the day immediately preceding the Preferred Stock Redemption Date with respect to such shares, except only the right of the holders to receive the Series F, Series A, Series B, Series C Redemption Price or Series D Redemption Price, as the case may be, for the Preferred Stock which they hold, without interest, upon surrender of their certificate or certificates therefor. 5. Voting Rights. Each holder of shares of Preferred Stock shall be entitled to a number of votes equal to the number of shares of Common Stock into which the shares of Preferred Stock held by such holder could be converted, shall have voting rights and powers equal to the voting rights and powers of the holders of Common Stock (except as required by law), shall be entitled to notice of any stockholder meeting in accordance with the Bylaws of the Corporation, and shall vote together as a single class with holders of Common Stock and all series of Preferred Stock on all matters except as required by law or as otherwise specifically provided herein. Fractional votes shall not be permitted and any fractional voting rights resulting from the above formula (after aggregating all shares into which shares of Preferred Stock held by each holder could be converted) shall be rounded to the nearest whole number (with one-half being rounded upward). 6. Status of Converted Preferred Stock. In the event any shares of Preferred Stock shall be converted pursuant to Section 3, the shares so converted shall be canceled and shall not thereafter be issuable by the Corporation. The Certificate of Incorporation of the Corporation shall be appropriately amended to effect the corresponding reduction in the Corporation's authorized capital stock. 109 7. Protective Provisions. a. Class Vote. The Corporation shall not, without first obtaining the approval (by vote or written consent, as provided by law) of the holders of at least (1) a majority of the then outstanding shares of Preferred Stock, voting together as a single class, (2) two-thirds (66 2/3%) of the then outstanding Series C Preferred Stock, voting as a separate series, and (3) two-thirds (66 2/3%) of the then outstanding Series D Preferred Stock, voting as a separate series, authorize or effect the winding up or cessation of business of the Corporation. b. Series Vote. The Corporation shall not, without first obtaining the approval (by vote or written consent, as provided by law) of the holders of at least a majority of each series of Preferred Stock so affected, amend, alter, or change in any adverse manner the rights of such series of Preferred Stock. c. Series C Vote. The Corporation shall not, without the approval, by vote or written consent, of the holders of at least two-thirds (66 2/3%) of the then outstanding shares of Series C Preferred Stock, voting as a separate series: (1) amend its Certificate of Incorporation or Bylaws in any manner that would alter or change the rights, preferences, privileges or restrictions of the Series C Preferred Stock so as to materially adversely affect such Series C Preferred Stock; (2) reclassify any outstanding shares of securities of the Corporation into shares having rights, preferences or privileges senior to or on a parity with the Series C Preferred Stock; or (3) authorize any other equity security, including any other security convertible into or exercisable for any equity security, having rights or preferences senior to or on a parity with the Series C Preferred Stock as to dividend rights, liquidation, redemption or voting preferences, including without limitation, shares of Series C Preferred Stock. d. Series D Vote. The Corporation shall not, without the approval, by vote or written consent, of the holders of at least two-thirds (66 2/3%) of the then outstanding shares of Series D Preferred Stock, voting as a separate series: (1) amend its Certificate of Incorporation or Bylaws in any manner that would alter or change the rights, preferences, privileges or restrictions of the Series D Preferred Stock so as to materially adversely affect such Series D Preferred Stock; (2) reclassify any outstanding shares of securities of the Corporation into shares having rights, preferences or privileges senior to or on a parity with the Series D Preferred Stock; or (3) authorize any other equity security, including any other security convertible into or exercisable for any equity security, having rights or preferences senior to or 110 on a parity with the Series D Preferred Stock as to dividend rights, liquidation, redemption or voting preferences, including without limitation, shares of Series D Preferred Stock. e. Series C and D Vote. The Corporation shall not, without first obtaining the approval (by vote or written consent, as provided by law) of the holders of at least two-thirds (66 2/3%) of each of the then outstanding shares of Series C Preferred Stock and Series D Preferred Stock, each voting as a separate series: (1) reorganize, consolidate or merge with or into any corporation or effect any transaction or series of related transactions if such transaction or series of related transactions would result in the stockholders of the Corporation immediately prior to such transaction or series of related transactions holding less than a majority of the voting power of the surviving corporation (or its parent corporation if the surviving corporation is wholly owned by the parent corporation); (2) sell, convey or otherwise dispose of all or substantially all the Corporation's assets in a single transaction or series of related transactions; (3) declare or pay any dividends (other than dividends payable solely in shares of its own Common Stock) on or declare or make any other distribution, purchase, redemption or acquisition, directly or indirectly, on account of any shares of Preferred Stock junior to the Series C Preferred Stock or Series D Preferred Stock as to dividend rights, liquidation, redemption or voting privileges or any shares of Common Stock now or hereafter outstanding other than those distributions, purchases, redemptions, or acquisitions expressly permitted in this Certificate; or (4) incur any indebtedness to a bank, financial institution or lender in excess of ten million dollars ($10,000,000) unless otherwise approved by the Board of Directors. C. Common Stock. 1. 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 shall be entitled to receive, when and as declared by the Board of Directors, out of any assets of the Corporation legally available therefor, such dividends as may be declared from time to time by the Board of Directors. 2. Liquidation Rights. Upon the liquidation, dissolution or winding up of the Corporation, the assets of the Corporation shall be distributed as provided in Section 2 of Article IV(B) hereof. 3. Redemption. The Common Stock is not redeemable. 4. Voting Rights. Each holder of Common Stock shall be entitled to one (1) vote for each share of Common Stock held, shall be entitled to notice of any stockholder meeting 111 in accordance with the Bylaws of the Corporation, and shall be entitled to vote upon such matters and in such manner as is otherwise provided herein or as may be provided by law. ARTICLE V Except as otherwise provided in this Amended and Restated Certificate of Incorporation, in furtherance and not in limitation of the powers conferred by statute, the Board of Directors is expressly authorized to make, repeal, alter, amend and rescind any or all of the Bylaws of the Corporation. ARTICLE VI The number of directors of the Corporation shall be fixed from time to time by, or in the manner provided in, the Bylaws or amendment thereof duly adopted by the Board of Directors or by the stockholders. ARTICLE VII Elections of directors need not be by written ballot unless the Bylaws of the Corporation shall so provide. ARTICLE VIII Meetings of stockholders may be held within or without the State of Delaware, as the Bylaws may provide. The books of the Corporation may be kept (subject to any provision contained in the statutes) outside the State of Delaware at such place or places as may be designated from time to time by the Board of Directors or in the Bylaws of the Corporation. ARTICLE IX To the fullest extent permitted by the General Corporation Law of Delaware, as the same may be amended from time to time, a director of the Corporation shall not be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director. If the General Corporation Law of Delaware is hereafter amended to authorize, with or without the approval of a corporation's stockholders, further reductions in the liability of the corporation's directors for breach of fiduciary duty, then a director of the Corporation shall not be liable for any such breach to the fullest extent permitted by the General Corporation Law of Delaware, as so amended. Any repeal or modification of the foregoing provisions of this Article IX, by amendment of this Article IX or by operation of law, shall not adversely affect any right or protection of a director of the Corporation with respect to any acts or omissions of such director occurring prior, to such repeal or modification. ARTICLE X 112 To the fullest extent permitted by applicable law, the Corporation is authorized to provide indemnification of (and advancement of expenses to) directors, officers, employees and other agents of the Corporation (and any other persons to which Delaware law permits the Corporation to provide indemnification) through Bylaw provisions, agreements with any such person, vote of stockholders or disinterested directors or otherwise, in excess of the indemnification and advancement otherwise permitted by Section 145 of the Delaware General Corporation Law, subject only to limits created by applicable Delaware law (statutory or nonstatutory), with respect to actions for breach of duty to a corporation, its stockholders, and others. Any repeal or modification of any of the foregoing provisions of this Article X, by amendment of this Article X or by operation of law, shall not adversely affect any right or protection of a director, officer, employee or agent or other person existing at the time of, or increase the liability of any. director of the Corporation with respect to any acts or omissions of such director, officer or agent occurring prior to, such repeal or modification. ARTICLE XI 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, and all rights conferred upon stockholders herein are granted subject to this reservation. ARTICLE XII The Corporation shall have perpetual existence. * * * The foregoing Amended and Restated Certificate of Incorporation has been adopted by the Corporation's directors and stockholders in accordance with the applicable provisions of Sections 228, 242 and 245 of the General Corporation Law of the State of Delaware. 113 IN WITNESS WHEREOF, the undersigned has executed this certificate on November ___, 1999. NIKU CORPORATION By: --------------------------------- Farzad Dibachi President and Chief Executive Officer 114 EXHIBIT F MATTERS TO BE COVERED IN THE OPINION OF FENWICK & WEST LLP, COUNSEL TO NIKU CORPORATION AND NIKU ACQUISITION CORPORATION NOTE: Except as otherwise defined below, all capitalized terms used below shall have the same meanings given to such terms in this Agreement and Plan or Reorganization. l. Parent has been duly incorporated and organized, and is validly existing and in good standing, under the laws of the State of Delaware. Merger Sub has been duly incorporated and organized, and is validly existing and in good standing, under the laws of the State of Delaware. Parent has the corporate power and authority to enter into and perform the Plan and each agreement to be entered into by Parent in connection therewith (the "PARENT ANCILLARY AGREEMENTS"), to own and operate its properties and to carry on its business as currently conducted. Merger Sub has the corporate power and authority to enter into and perform the Plan and each agreement to be entered into by Merger Sub in connection therewith (the "MERGER SUB ANCILLARY AGREEMENTS"), to own and operate its properties and to carry on its business as currently conducted. To our knowledge, neither Parent nor Merger Sub is in violation of any of the provisions of its Certificate of Incorporation or Bylaws. 2. Parent is qualified to do business as a foreign corporation in good standing in the State of California. 3. The capitalization of Parent immediately prior to the Closing consists of the following: (a) Preferred Stock: A total of 51,910,282 authorized shares of Preferred Stock, of which 10,000,000 shares have been designated Series F Preferred Stock, 5,142,851 shares have been designated Series A Preferred Stock, 8,629,992 shares have been designated Series B Preferred Stock, 9,987,439 shares have been designated Series C Preferred Stock and 18,150,000 shares have been designated Series D Preferred Stock. To our knowledge, there are issued and outstanding 10,000,000 shares of Series F Preferred Stock, 5,142,851 shares of Series A Preferred Stock, 7,999,992 shares of Series B Preferred Stock, 9,987,439 Shares of Series C Preferred Stock and _______ shares of Series D Preferred Stock. All of such issued and outstanding shares are duly authorized, validly issued, fully paid and nonassessable. The Common Stock issuable upon the conversion of the Series F Preferred Stock, Series A Preferred Stock, Series B Preferred Stock and Series C Preferred Stock has been duly and validly reserved for issuance and, assuming no change in the Restated Certificate or applicable law, when issued upon such conversion in accordance with the Restated Certificate, will be validly issued, fully paid and nonassessable. (b) Common Stock. A total of 100,000,000 authorized shares of Common Stock. To our knowledge, 8,368,618 shares of such Common Stock are issued and 115 outstanding as of the Agreement Date. All of such issued and outstanding shares are duly authorized, validly issued, fully paid and nonassessable. (c) Options, Etc. To our knowledge, there, there are no preemptive rights or any options, warrants, conversion privileges or other rights (or agreements for any such rights) outstanding to acquire any of Parent's securities from the Parent, except for (i) the conversion privileges of the Preferred Stock of Parent, (ii) outstanding warrants to purchase 630,000 shares of Series B Preferred Stock, (iii) options to purchase an aggregate of 8,000,000 shares of Common Stock as of the Agreement Date reserved for issuance pursuant to Parent's 1998 Stock Plan of which options to purchase 4,306,427 shares are outstanding as of the Agreement Date, and (iv) rights of first refusal pursuant to the Rights Agreement. 4. The authorized capital stock of Merger Sub consists entirely of 1,000 shares of Merger Sub Common Stock, $.001 per value, all of which are validly issued and outstanding and, non-assessable, owned of record by Parent and, to such counsel's knowledge, fully paid. 5. The Restated Certificate, the Plan and the Parent Ancillary Agreements have been duly adopted and authorized, respectively, by all necessary corporate action on the part of Parent's Board of Directors. Each of the Plan and the Parent Ancillary Agreements constitutes the valid and binding obligation of Parent enforceable against Parent in accordance with its terms [THIS OPINION MAY BE GIVEN SUBJECT TO LEGAL OPINION EXCEPTIONS AS TO ENFORCEABILITY THAT ARE MUTUALLY AGREEABLE TO COUNSEL TO PARENT AND COUNSEL TO THE COMPANY]. 6. The Plan and the Merger Sub Ancillary Agreements have been duly authorized by all necessary corporate action on the part of Merger Sub's Board of Directors and sole stockholder. Each of the Plan and the Merger Sub Ancillary Agreements constitutes the valid and binding obligation of Merger Sub enforceable against Merger Sub in accordance with its terms [THIS OPINION MAY BE GIVEN SUBJECT TO LEGAL OPINION EXCEPTIONS AS TO ENFORCEABILITY THAT ARE MUTUALLY AGREEABLE TO COUNSEL TO MERGER SUB AND COUNSEL TO THE COMPANY]. 7. The execution and delivery of the Plan by Parent and Merger Sub and the performance by Parent and Merger Sub of their respective obligations under the Plan do not conflict with, or result in a violation of: (a) the Certificate or Bylaws of Parent and Merger Sub, as amended and currently in effect; (b) to such counsel's knowledge, any statute, law, ordinance, rule, regulation, or any judgment, order or decree of any Court or arbitration to which Parent or Merger Sub is a party or subject, as to which any assets or properties of Parent or Merger Sub are bound or subject; (c) to such counsel's knowledge, the material contracts identified in the appendix attached hereto. 8. The Parent Common Stock and Parent Preferred Stock, when issued and paid for as provided in the Plan, will be duly authorized and validly issued, fully paid and nonassessable. The shares of common stock into which the Parent Preferred Stock are convertible (the "CONVERSION SHARES") have been duly and validly reserved for issuance upon conversion of the Parent Preferred Stock and, when issued upon such conversion in accordance with the Restated 116 Certificate (assuming no change in applicable law or the Restated Certificate), the Conversion Shares will be duly authorized and validly issued, fully paid and nonassessable. 9. The offer and sale of the Parent Common Stock and Parent Preferred Stock to the Company stockholders in accordance with the Plan, and (assuming no change in currently applicable law or the Restated Certificate and assuming no unlawful resale of Parent Common Stock and Parent Preferred Stock by any holder thereof) the issuance of the Conversion Shares solely to Company stockholders pursuant to the Restated Certificate for no additional consideration other than the surrender of the Parent Preferred Stock, are, and in the case of such issuance of Conversion Shares will be, exempt from the registration and prospectus delivery requirements of Section 5 of the Securities Act and the qualification requirements of the California Corporate Securities Law of 1968, as amended. 10. To our knowledge, all approvals, consents or authorizations of, and filings with, any U.S. Federal, California State or Delaware State governmental authority required on the part of Parent in order to enable Parent to execute, deliver and perform its obligations under the Agreements have been made, except for (a) such as may be required under applicable federal securities laws and (b) the filing of the Certificate of Merger with the Delaware Secretary of State. 11. To our knowledge, Parent is not a party to any pending or threatened, action, suit, proceeding, arbitration, investigation, or claim in or by any court arbitrator or governmental authority. To our knowledge, Parent is not subject to any currently effective order, writ, judgment, or decree or injunction. 117 EXHIBIT G MATTERS TO BE COVERED IN THE OPINION OF COUNSEL FOR PROAMICS CORPORATION NOTE: Except as otherwise defined below, all capitalized terms used below shall have the same meanings give to such terms in this Agreement and Plan of Reorganization. 1. The Company is a corporation duly incorporated, validly existing and in good standing under the laws of the State of Delaware. The Company is duly qualified or licensed to do business as a foreign corporation and is in good standing as a foreign corporation in the States of Illinois and Georgia. [If requested, to be provided by foreign counsel: Each subsidiary listed on Schedule 2.2 is duly organized, validly existing and in good standing under the laws of the country in which it is domiciled.] 2. The Company has the requisite corporate power and authority to own, lease and operate its properties and to carry on its business as presently conducted, and to execute and enter into the Agreement and Plan of Reorganization dated as of November 16, 1999 among the Company, Parent and Merger Sub (the "PLAN") and each agreement to be entered into by the Company in connection therewith (the "COMPANY ANCILLARY AGREEMENTS"), and to perform its obligations under the Plan and under each Company Ancillary Agreement. To our knowledge, the Company is not in violation of any of the provisions of its Certificate of Incorporation or Bylaws. 3. To our knowledge, all consents, approvals or authorizations of and filings with any U.S. Federal, Illinois State or Delaware State governmental authority required on the part of the Company for, or in connection with, the execution, delivery or performance by the Company of the Plan or any of the Company Ancillary Agreements have been made, except for (a) such as may be required under applicable securities laws and (b) the filing of the Certificate of Merger with the Delaware Secretary of State. 4. The Plan and each of the Company Ancillary Agreements have each been duly authorized, executed and delivered by the Company, and are valid and binding obligations of the Company, enforceable against the Company in accordance with their respective terms [THIS OPINION MAY BE GIVEN SUBJECT TO LEGAL OPINION EXCEPTIONS AS TO ENFORCEABILITY THAT ARE MUTUALLY AGREEABLE TO COUNSEL TO THE COMPANY AND COUNSEL TO PARENT AND WITH AN EXCEPTION FOR SECTION 1.6(i)]. 5. The authorized capital stock of the Company consists entirely of: (i) 40,000,000 shares of Common Stock, of which, to our knowledge, a total of 8,850,192.66 shares are issued and outstanding and (ii) 9,974,585 shares of Preferred Stock, of which (a) 117,000 shares have been designated Series A Preferred Stock, all of which, to our knowledge, are issued and outstanding, (b) 9,833,585 shares have been designated Series B Preferred Stock, all of which, to our knowledge, are issued and outstanding, and (c) 24,000 shares have been designated Series C Preferred Stock, all of which, to our knowledge, are issued and outstanding; and, no other shares of any capital stock of the Company are authorized, issued or outstanding. 118 6. The outstanding shares of the Company's capital stock have been duly authorized, validly issued and are fully paid and non-assessable. To our knowledge, the outstanding shares of the Company's capital stock are not subject to any preemptive right, right of first refusal, right of first offer or right of rescission created by law or arising from the Company's Certificate of Incorporation or Bylaws or to any agreements to which the Company is a party or by which it is bound. 7. To our knowledge, none of the outstanding shares of the Company's capital stock has been issued under the Company's 1999 Option Plan. 8. To such counsel's knowledge, as of immediately prior to the Effective Time of the Merger there are (a) no outstanding subscriptions, warrants, options, calls, rights, equity securities, partnership interests, claims, commitments, convertible securities or other agreements or arrangements under which the Company is or may be obligated to issue any shares of its capital stock, and (b) no preemptive rights to subscribe for or to purchase capital stock of the Company. 9. Neither the execution and delivery of the Plan or any Company Ancillary Agreement, nor the consummation of any of the Merger or any of the other transactions provided for therein or contemplated thereby, are in conflict with any provision of: (a) the Certificate of Incorporation or the Bylaws of the Company, both as amended and currently in effect; (b) to such counsel's knowledge, any statute, law, ordinance, rule or regulation or, any judgment, order, or decree of any court or arbitrator to which the Company or any Company stockholder is a party or subject, or to which any assets or properties of the Company are bound or subject; or (c) to such counsel's knowledge, the Contracts listed on Schedule 2.16(a). 10. To such counsel's knowledge, the Company is not a party to any pending or threatened, action, suit, proceeding, arbitration, investigation, or claim in or by any court, arbitrator or governmental authority. To such counsel's knowledge, the Company is not subject to any currently effective order, writ, judgment, decree or injunction. 119 EXHIBIT H Telephone Number(s) for Call-Backs and Person(s) Designated to Confirm Stock or Funds Transfer and Investment Instructions If to Company/Securityholder Agent:
Name Telephone Number 1. __________________________________ __________________________________ 2. __________________________________ __________________________________ 3. __________________________________ __________________________________
If to Parent:
Name Telephone Number 1. __________________________________ __________________________________ 2. __________________________________ __________________________________ 3. __________________________________ __________________________________
Telephone call-backs shall be made to each of the Company or Securityholder Agent and Parent if joint instructions are required pursuant to the Agreement. EX-3.01 4 EX-3.01 1 EXHIBIT 3.01 AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF NIKU CORPORATION a Delaware corporation (Originally incorporated on January 8, 1998 as Niku Corporation) ARTICLE I The name of this corporation is Niku Corporation (the "Corporation"). ARTICLE II The address of the registered office of the Corporation in the State of Delaware is 1013 Centre Road, in the City of Wilmington, County of New Castle. The name of its registered agent at such address is the Corporation Service Company. ARTICLE III The nature of the business or purposes to be conducted or promoted is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of Delaware. ARTICLE IV A. Classes of Stock. This Corporation is authorized to issue two classes of stock, to be designated, respectively, "Common Stock" and "Preferred Stock." The total number of shares which the corporation is authorized to issue is One Hundred Fifty-One Million Nine Hundred Ten Thousand Two Hundred Eighty-Two (151,910,282) shares. One Hundred Million (100,000,000) shares shall be Common Stock, par value $0.0001 per share, and Fifty-One Million Nine Hundred Ten Thousand Two Hundred Eighty-Two (51,910,282) shares shall be Preferred Stock, par value $0.0001 per share. Ten Million (10,000,000) shares of Preferred Stock shall be designated "Series F Preferred Stock," Five Million One Hundred Forty-Two Thousand Eight Hundred Fifty-One (5,142,851) shares of Preferred Stock shall be designated "Series A Preferred Stock", Eight Million Six Hundred Twenty-Nine Thousand Nine Hundred Ninety-Two (8,629,992) shares of Preferred Stock shall be designated "Series B Preferred Stock", Nine Million Nine Hundred Eighty-Seven Thousand Four Hundred and Thirty-Nine (9,987,439) shares shall be designated "Series C Preferred Stock" and Eighteen Million One Hundred Fifty Thousand (18,150,000) shares shall be designated "Series D Preferred Stock." B. Rights, Preferences, Privileges and Restrictions of Preferred Stock. The rights, preferences, privileges and restrictions granted to and imposed on the Series F Preferred Stock, 2 Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock (collectively, the "Preferred Stock") are as set forth below in this Article IV(B). 1. Dividend Provisions. The holders of shares of Preferred Stock shall be entitled to receive dividends, out of any assets legally available therefor, prior and in preference to any declaration or payment of any dividend (payable other than in Common Stock) on the Common Stock of this Corporation, at the rate of (a) $0.0025 per share per annum in the case of Series F Preferred Stock (as adjusted for any stock dividends, combinations or splits with respect to such shares), (b) $0.0175 per share per annum in the case of Series A Preferred Stock (as adjusted for any stock dividends, combinations or splits with respect to such shares (c) $0.0375 per share per annum in the case of Series B Preferred Stock (as adjusted for any stock dividends, combinations or splits with respect to such shares), (d) $0.10 per share per annum in the case of Series C Preferred Stock (as adjusted for any stock dividends, combinations or splits with respect to such shares) and $0.25 per share per annum in the case of Series D Preferred Stock (as adjusted for any stock dividends, combinations or splits with respect to such shares), when, as and if declared by the Board of Directors of the Corporation. Such dividends shall not be cumulative. No dividend shall be paid on shares of Common Stock in any fiscal year unless the aforementioned preferential dividends of the Preferred Stock shall have been paid in full and the aggregate dividends paid on each share of Preferred Stock during such fiscal year equals or exceeds the dividends per share (computed on an as-converted basis) paid during such fiscal year on the Common Stock. 2. Liquidation Preference. a. Primary Distribution. In the event of any liquidation, dissolution or winding up of this Corporation, either voluntary or involuntary (a "Liquidation"), (i) each holder of Series C Preferred Stock shall be entitled to receive, prior and in preference to any distribution of any of the assets of this Corporation to the holders of other series of Series A Preferred Stock, Series B Preferred Stock, and Series F Preferred Stock or Common Stock by reason of their ownership thereof an amount equal to: (A) if the effective date of the Liquidation occurs within one year of the Series C Original Issue Date (as defined below), the sum of (x) $2.50 per share (as adjusted for any stock dividends, combinations or splits with respect to such shares) and (y) all declared but unpaid dividends on such shares, for each share of Series C Preferred Stock held by such holder; (B) if the effective date of the Liquidation occurs after one year from the Series C Original Issue Date but within two years of the Series C Original Issue Date, the sum of (x) $3.125 per share (as adjusted for any stock dividends, combinations or splits with respect to such shares) and (y) all declared but unpaid dividends on such shares, for each share of Series C Preferred Stock held by such holder; and (C) if the effective date of the Liquidation occurs at any time after two years of the Series C Original Issue Date, the sum of (x) $3.91 per share (as adjusted for any stock dividends, combinations or splits with respect to such shares) and (y) all declared but unpaid dividends on such shares, for each share of Series C Preferred Stock held by such holder; 2 3 (ii) each holder of Series D Preferred Stock shall be entitled to receive, prior and in preference to any distribution of any of the assets of this Corporation to the holders of the Series A Preferred Stock, Series B Preferred Stock and Series F Preferred Stock, or Common Stock by reason of their ownership thereof an amount equal to: (A) if the effective date of the Liquidation occurs within one year of the Series D Original Issue Date (as defined below), the sum of (x) $6.25 per share (as adjusted for any stock dividends, combinations or splits with respect to such shares) and (y) all declared but unpaid dividends on such shares, for each share of Series D Preferred Stock held by such holder; (B) if the effective date of the Liquidation occurs after one year from the Series D Original Issue Date but within two years of the Series D Original Issue Date, the sum of (x) $7.8125 per share (as adjusted for any stock dividends, combinations or splits with respect to such shares) and (y) all declared but unpaid dividends on such shares, for each share of Series D Preferred Stock held by such holder; and (C) if the effective date of the Liquidation occurs at any time after two years of the Series D Original Issue Date, the sum of (x) $9.80 per share (as adjusted for any stock dividends, combinations or splits with respect to such shares) and (y) all declared but unpaid dividends on such shares, for each share of Series D Preferred Stock held by such holder; (iii) each holder of the Series F Preferred Stock shall be entitled to receive an amount equal to the sum of (x) five cents ($0.05) (the "Original Series F Issue Price") for each share of Series F Preferred Stock held of record by such holder (as adjusted for any stock dividends, combinations or splits with respect to such shares) and (y) all declared but unpaid dividends on such shares; (iv) each holder of the Series A Preferred Stock shall be entitled to receive an amount equal to the sum of (x) thirty-five cents ($0.35) (the "Original Series A Issue Price") for each share of Series A Preferred Stock held of record by such holder (as adjusted for any stock dividends, combinations or splits with respect to such shares) and (y) all declared but unpaid dividends on such shares; and (v) each holder of the Series B Preferred Stock shall be entitled to receive an amount equal to the sum of (x) seventy-five cents ($0.75) ("Original Series B Issue Price") for each share of Series B Preferred Stock held of record by such holder (as adjusted for any stock dividends, combinations or splits with respect to such shares) and (y) all declared but unpaid dividends on such shares. If upon the occurrence of such event, the assets and funds of the Corporation legally available for distribution shall be insufficient to permit the payment to such holders of the full aforesaid preferential amounts, then the entire assets and funds of the Corporation legally available for distribution shall be distributed ratably first among the holders of the Series C Preferred Stock and Series D Preferred Stock in proportion to the preferential amount each such holder is otherwise entitled to receive and then among the holders of the Series F, Series A, and Series B Preferred Stock in proportion to the preferential amount each such holder is otherwise entitled to receive. 3 4 b. Secondary Distribution. Upon the completion of the distribution required by Section 2(a), the remaining assets of the Corporation available for distribution to stockholders shall be distributed of record among the holders of Common Stock pro rata in proportion to the number of shares of Common Stock held of record by each. c. Definition of Liquidation Event; Notice. (i) For purposes of this Section 2, a "Liquidation" of this Corporation shall be deemed to be occasioned by, and to include, without limitation, (A) the acquisition of the Corporation by another entity by means of any transaction or series of related transactions (including, without limitation, any reorganization, merger or consolidation); or (B) a sale of all or substantially all of the assets of the Corporation (including, for purposes of this section, intellectual property rights which, in the aggregate, constitute substantially all of the Corporation's material assets); unless in each case, the Corporation's stockholders of record as constituted immediately prior to such acquisition or sale will, immediately after such acquisition or sale (by virtue of securities issued as consideration for the Corporation's acquisition or sale or otherwise) hold at least fifty percent (50%) of the voting power of the surviving or acquiring entity. (ii) In any of such events, if the consideration received by the Corporation is other than cash, its value will be deemed its fair market value as determined in good faith by the Board of Directors. Any securities received as consideration shall be valued as follows: (A) Securities not subject to investment letter or other similar restrictions on free marketability shall be valued as follows: (1) if traded on a securities exchange or through The Nasdaq National Market, the value shall be deemed to be the average of the closing prices of the securities on such exchange over the thirty day period ending three days prior to the closing; (2) if actively traded over-the-counter, the value shall be deemed to be the average of the closing bid or sale prices (whichever is applicable) over the thirty day period ending three days prior to the closing; and (3) if there is no active public market, the value shall be the fair market value thereof, as determined in good faith by the Board of Directors of the Corporation. (B) Securities subject to investment letter or other restrictions on free marketability (other than restrictions arising solely by virtue of a stockholder's status as an affiliate or former affiliate) shall be valued in such a manner as to make an appropriate discount from the market value determined as above in (A) (1), (2) or (3) to reflect the approximate fair market value thereof, as determined in good faith by the Board of Directors of the Corporation. (iii) The Corporation shall give each holder of record of Preferred Stock written notice of any such impending transaction not later than ten (10) days prior to the stockholder meeting called to approve such transaction, or twenty (20) days prior to 4 5 the closing of such transaction whichever notice date is earlier, and shall also notify such holders in writing of the final approval of such transaction. The first of such notices shall describe the material terms and conditions of the impending transaction, the provisions of this Section 2, and the amounts anticipated to be distributed to holders of each outstanding class of capital stock of the Corporation pursuant to this Section 2, and the Corporation shall thereafter give such holders prompt notice of any material changes. The transaction shall in no event take place sooner than twenty (20) days after the Corporation has given the first notice provided for herein or sooner than ten (10) days after the Corporation has given notice of any material changes provided for herein; provided, however, that such periods may be shortened upon the written consent of the holders of Preferred Stock that are entitled to such notice rights or similar notice rights and that represent at least a majority of the voting power of the then outstanding shares of Preferred Stock (computed on an as-converted basis). (iv) In the event the requirements of subsection 2(c)(iii) are not complied with, this Corporation shall forthwith either: (A) cause such closing to be postponed until such time as the requirements of subsection 2(c)(iii) have been complied with; or (B) cancel such transaction, in which event the rights, preferences and privileges of the holders of the Preferred Stock shall continue to be the same as such rights, preferences and privileges existing immediately prior to the date of the first notice referred to in subsection 2(c)(iii). 3. Conversion. The holders of Preferred Stock shall have conversion rights as follows (the "Conversion Rights"): a. Right to Convert. Each share of Preferred Stock shall be convertible, at the option of the holder thereof, at any time after the date of issuance of such share at the office of this Corporation or any transfer agent for such stock, into such number of fully paid and nonassessable shares of Common Stock as is determined by dividing the applicable Original Issue Price of such share by the Conversion Price applicable to such share in effect for such Preferred Stock on the date the certificate is surrendered for conversion. The Original Issue Price for the Series D Preferred Stock (the "Original Series D Issue Price") is $5.00 per share. The Original Issue Price for the Series C Preferred Stock (the "Original Series C Issue Price") is $1.99 per share. The initial Conversion Price per share for shares of Preferred Stock shall be the Original Series F Issue Price for the Series F Preferred Stock, the Original Series A Issue Price for the Series A Preferred Stock, the Original Series B Issue Price for the Series B Preferred Stock, the Original Series C Issue Price for the Series C Preferred Stock and the Original Series D Issue Price for the Series D Preferred Stock; provided, however, that such Conversion Prices shall be subject to adjustment as set forth in subsection 3(d). b. Automatic Conversion. Each share of Preferred Stock shall automatically be converted into shares of Common Stock by dividing the applicable Original Issue Price of such share by the Conversion Price applicable to such share at the time in effect for 5 6 such Preferred Stock immediately upon the earlier of (i) except as provided below in subsection 3(c), the Corporation's sale of its Common Stock in an underwritten public offering on form S-1 or SB-2 under the Securities Act of 1933, as amended (the "Securities Act"), yielding gross proceeds (before deduction of underwriter's discounts, commissions, or other costs and fees associated with the offering) to the Corporation in excess of Twenty Million Dollars ($20,000,000) if the Valuation (computed in accordance with Section 3(d)(i)(A)(IV)(7) herein) of the Corporation is greater than or equal to Three Hundred Fifty Million Dollars ($350,000,000) immediately before such offering, and (ii) the date specified by written consent or agreement of the holders of at least a majority of the voting power of the then outstanding shares of Preferred Stock (computed on an as-converted basis) which majority must include at least two-thirds (66 2/3%) of the voting power of each of the then outstanding shares of Series C Preferred Stock and Series D Preferred Stock (computed on an as-converted basis). c. Mechanics of Conversion. Before any holder of Preferred Stock shall be entitled to convert the same into shares of Common Stock, such holder shall surrender the certificate or certificates therefor, duly endorsed, at the office of this Corporation or of any transfer agent for the Preferred Stock, and shall give written notice to this Corporation at its principal corporate office, of the election to convert the same and shall state therein the name or names in which the certificate or certificates for shares of Common Stock are to be issued. This Corporation shall, as soon as practicable thereafter, issue and deliver at such office to such holder of Preferred Stock, or to the nominee or nominees of such holder, a certificate or certificates for the number of shares of Common Stock to which such holder shall be entitled as aforesaid. Such conversion shall be deemed to have been made immediately prior to the close of business on the date of such surrender of the shares of Preferred Stock to be converted, and the person or persons entitled to receive the shares of Common Stock issuable upon such conversion shall be treated for all purposes as the record holder or holders of such shares of Common Stock as of such date. If the conversion is in connection with an underwritten offering of securities registered pursuant to the Securities Act, the conversion, unless otherwise designated by the holder, will be conditioned upon the closing with the underwriters of the sale of securities pursuant to such offering, in which event the person(s) entitled to receive the Common Stock upon conversion of the Preferred Stock shall not be deemed to have converted such Preferred Stock until immediately prior to the closing of such sale of securities. d. Conversion Price Adjustments of Preferred Stock for Certain Dilutive Issuances, Splits, Dividends and Combinations. The Conversion Prices of the Preferred Stock shall be subject to adjustment from time to time as follows: (i)(A)(I) Adjustment Formula for Series F, Series A and Series B Preferred Stock. If at any time or from time to time after the Series D Original Issue Date the Corporation issues or sells Additional Stock (as hereinafter defined), for an Effective Price (as hereinafter defined) that is less than the applicable Conversion Price for a series of Preferred Stock (other than the Series C Preferred Stock and Series D Preferred Stock) in effect immediately prior to such issue or sale (or deemed issue or sale), then, and in each such case, the applicable Conversion Price for such series of Preferred Stock (other than the Series C Preferred 6 7 Stock and Series D Preferred Stock) shall be reduced, as of the close of business on the date of such issue or sale, to the price obtained by multiplying such Conversion Price by a fraction: (x) The numerator of which shall be the sum of (A) the number of shares of Common Stock issued and outstanding immediately prior to such issue or sale of Additional Stock plus (B) the quotient obtained by dividing the aggregate consideration received by the Corporation for the total number of Additional Stock so issued or sold (or deemed so issued and sold) by the Conversion Price for such series of Preferred Stock in effect immediately prior to such issue or sale; and (y) The denominator of which shall be the sum of (A) the number of shares of Common Stock issued and outstanding immediately prior to such issue or sale plus (B) the number of Additional Stock so issued or sold (or deemed so issued and sold). The foregoing calculation of Common Stock outstanding shall take into account shares deemed issued pursuant to Section 3(d)(i)(D) on account of options, rights, convertible or, exchangeable securities (or actual or deemed consideration therefor). (II) Adjustment Formula for Series C Preferred Stock. If at any time or from time to time after the Series D Original Issue Date the Corporation issues or sells Additional Stock for an Effective Price that is less than the Conversion Price for Series C Preferred Stock in effect immediately prior to such issue or sale (or deemed issue or sale), then, and in each such case, the Conversion Price for the Series C Preferred Stock shall be adjusted as follows: (1) If the Valuation (as hereinafter defined), is greater than or equal to Fifty Million Dollars ($50,000,000) immediately prior to the issuance of Additional Stock, then the Conversion Price for the Series C Preferred Stock shall be reduced, as of the close of business on the date of such issuance or sale, to the Effective Price at which such Additional Stock are so issued or sold (or deemed issued or sold). (2) If the Valuation is less than Fifty Million Dollars ($50,000,000) immediately prior to the issuance of Additional Stock, then the Conversion Price for the Series C Preferred Stock shall be reduced, first, to a price per share that would yield a Valuation, computed in accordance with Section 3(d)(i)(A)(IV)(7) herein, of Fifty Million Dollars ($50,000,000) immediately prior to the issuance of the Additional Stock (the "Adjusted Conversion Price"), and then, the Adjusted Conversion Price for Series C Preferred Stock shall be further reduced, as of the close of business on the date of such issue or sale, to the price obtained by multiplying such Adjusted Conversion Price by a fraction: (x) The numerator of which shall be the sum of (1) the number of shares of Common Stock issued and outstanding immediately prior to such issue or sale of Additional Stock plus (2) the quotient obtained by dividing the aggregate consideration received by the Corporation for the total number of Additional Stock so issued or sold (or deemed so issued and sold) by the Conversion Price for such series of Preferred Stock in effect immediately prior to such issue or sale; and 7 8 (y) The denominator of which shall be the sum of (1) the number of shares of Common Stock issued and outstanding immediately prior to such issue or sale plus (2) the number of Additional Stock so issued or sold (or deemed so issued and sold). The foregoing calculation of Common Stock outstanding shall take into account shares deemed issued pursuant to Section 3(d)(i)(D) on account of options, rights, or convertible or exchangeable securities (or actual or deemed consideration therefor). (III) Adjustment Formula for Series D Preferred Stock. If at any time or from time to time after the Series D Original Issue Date the Corporation issues or sells Additional Stock for an Effective Price that is less than the Conversion Price for Series D Preferred Stock in effect immediately prior to such issue or sale (or deemed issue or sale), then, and in each such case, the Conversion Price for the Series D Preferred Stock shall be adjusted as follows: (1) If the Valuation (as hereinafter defined), is greater than or equal to One Hundred Twenty Million Dollars ($120,000,000) immediately prior to the issuance of Additional Stock, then the Conversion Price for the Series D Preferred Stock shall be reduced, as of the close of business on the date of such issuance or sale, to the Effective Price at which such Additional Stock are so issued or sold (or deemed issued or sold). (2) If the Valuation is less than One Hundred Twenty Million Dollars ($120,000,000) immediately prior to the issuance of Additional Stock, then the Conversion Price for the Series D Preferred Stock shall be reduced, first, to a price per share that would yield a Valuation, computed in accordance with Section 3(d)(i)(A)(IV)(7) herein, of One Hundred Twenty Million Dollars ($120,000,000) immediately prior to the issuance of the Additional Stock (the "Adjusted Conversion Price"), and then, the Adjusted Conversion Price for Series D Preferred Stock shall be further reduced, as of the close of business on the date of such issue or sale, to the price obtained by multiplying such Adjusted Conversion Price by a fraction: (x) The numerator of which shall be the sum of (1) the number of shares of Common Stock issued and outstanding immediately prior to such issue or sale of Additional Stock plus (2) the quotient obtained by dividing the aggregate consideration received by the Corporation for the total number of Additional Stock so issued or sold (or deemed so issued and sold) by the Conversion Price for such series of Preferred Stock in effect immediately prior to such issue or sale; and (y) The denominator of which shall be the sum of (1) the number of shares of Common Stock issued and outstanding immediately prior to such issue or sale plus (2) the number of Additional Stock so issued or sold (or deemed so issued and sold). The foregoing calculation of Common Stock outstanding shall take into account shares deemed issued pursuant to Section 3(d)(i)(D) on account of options, rights, or convertible or exchangeable securities (or actual or deemed consideration therefor). (IV) Certain Definitions. For the purpose of this Section 3(d) the following terms have the following meanings: 8 9 (1) The "AGGREGATE CONSIDERATION RECEIVED" by the Corporation for any issue or sale (or deemed issue or sale) of securities shall (a) to the extent it consists of cash, be computed at the gross amount of cash received by the Corporation before deduction of any underwriting or similar commissions, compensation or concessions paid or allowed by the Corporation in connection with such issue or sale and without deduction of any expenses payable by the Corporation; (b) to the extent it consists of property other than cash, be computed at the fair value of that property as determined in good faith by the Board; and (c) if Additional Stock, Convertible Securities or Options or Rights to purchase either Additional 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 to be allocable to such Additional Stock, Convertible Securities or Options or Rights. (2) The "EFFECTIVE PRICE" of Additional Stock shall mean the quotient determined by dividing the total number of Additional Stock issued or sold, or deemed to have been issued or sold, by the Corporation under this subsection 3(d), into the Aggregate Consideration Received, or deemed to have been received, by the Corporation under this subsection 3(d), for the issuance (or deemed issuance) of such Additional Stock. (3) "SERIES C ORIGINAL ISSUE DATE" shall mean the date on which the first share of Series C Preferred Stock is issued by the Corporation. (4) "SERIES D ORIGINAL ISSUE DATE" shall mean the date on which the first share of Series D Preferred Stock is issued by the Corporation. (5) The "OPTIONS OR RIGHTS" shall mean warrants, options or other rights to purchase or acquire shares of Common Stock or Convertible Securities. (6) The "CONVERTIBLE SECURITIES" shall mean securities convertible into or exchangeable into Additional Stock. (7) The "VALUATION" of the Company prior to an issuance of Additional Stock shall mean the Effective Price of the Additional Stock multiplied by the sum of (x) the total number of shares of Common Stock of the Corporation outstanding immediately prior to the issuance of Additional Stock plus (y) the total number of shares of Common Stock of the Corporation into which all then outstanding shares of Convertible Securities and Options or Rights of the Corporation are then convertible or exercisable immediately prior to the issuance of such Additional Stock. (V) No adjustment of the Conversion Price for a series of Preferred Stock shall be made in an amount less than one cent per share, provided that any adjustments which are not required to be made by reason of this sentence shall be carried forward and shall be either taken into account in any subsequent adjustment made prior to three years from the date of the event giving rise to the adjustment being carried forward, or shall be made at the end of three years from the date of the event giving rise to the adjustment being carried forward. Except to the limited extent provided for in Sections 3(d)(i)(D)(3) and 3(d)(i)(D)(4), no adjustment of such 9 10 Conversion Price pursuant to this Section 3(d)(i) shall have the effect of increasing the Conversion Price for a series of Preferred Stock above the Conversion Price for such shares in effect immediately prior to such adjustment. (B) In the case of the issuance of Common Stock for cash, the consideration shall be deemed to be the amount of cash paid therefor before deducting any reasonable discounts, commissions or other expenses allowed, paid or incurred by the Corporation for any underwriting or otherwise in connection with the issuance and sale thereof. (C) In the case of the issuance of the Common Stock for a consideration in whole or in part other than cash, the consideration other than cash shall be deemed to be the fair value thereof as determined by the Corporation's Board of Directors irrespective of any accounting treatment. (D) In the case of the issuance (whether before, on or after the Series D Original Issue Date) of Options or Rights or Convertible Securities, the following provisions shall apply for all purposes of this Section 3(d)(i) and Section 3(d)(ii): (1) The aggregate maximum number of shares of Common Stock deliverable upon exercise (assuming the satisfaction of any conditions to exercisability, including without limitation, the passage of time, but without taking into account potential antidilution adjustments) of such Options or Rights shall be deemed to have been issued at the time such Options or Rights were issued and for a consideration equal to the consideration (determined in the manner provided in Sections 3(d)(i)(B) and 3(d)(i)(C)), if any, received by the Corporation upon the issuance of such Options or Rights plus the minimum exercise price provided for such Options or Rights (without taking into account potential antidilution adjustments) for the Common Stock covered thereby. (2) The aggregate maximum number of shares of Common Stock deliverable upon conversion of or in exchange (assuming the satisfaction of any conditions to convertibility or exchangeability, including, without limitation, the passage of time, but without taking into account potential antidilution adjustments) for any such Convertible Securities or upon the exercise of Options or Rights to subscribe for Convertible Securities and subsequent conversion or exchange thereof shall be deemed to have been issued at the time such Convertible Securities were issued or such Options or Rights were issued and for a consideration equal to the consideration, if any, received by the Corporation for any such Convertible Securities and related Convertible Options or Rights (excluding any cash received on account of accrued interest or accrued dividends), plus the minimum additional consideration, if any, to be received by the Corporation (without taking into account potential antidilution adjustments) upon the conversion or exchange of such securities or the exercise of any related Options or Rights (the consideration in each case to be determined in the manner provided in Sections 3(d)(i)(B) and 3(d)(i)(C)). (3) In the event of any change in the number of shares of Common Stock deliverable or in the consideration payable to the Corporation upon 10 11 exercise of such Options or Rights or upon conversion of or in exchange for such Convertible Securities, including, but not limited to, a change resulting from the antidilution provisions thereof, the applicable Conversion Price of the affected series of Preferred Stock, to the extent in any way affected by or computed using such Convertible Options or Rights or Convertible Securities, shall be recomputed to reflect such change, but no further adjustment shall be made for the actual issuance of Common Stock or any payment of such consideration upon the exercise of any such Options or Rights or the conversion or exchange of such Convertible Securities. (4) Upon the expiration of any such Options or Rights, the termination of any such rights to convert or exchange or the expiration of any Options or Rights related to such Convertible Securities, the Conversion Price of the affected series of Preferred Stock, to the extent in any way affected by or computed using such Options, Rights or Convertible Securities or Options or Rights related to such Convertible Securities, shall be recomputed to reflect the issuance of only the number of shares of Common Stock (and Convertible Securities which remain in effect) actually issued upon the exercise of such Options or Rights, upon the conversion or exchange of such Convertible Securities or upon the exercise of the Options or Rights related to such Convertible Securities. Notwithstanding the foregoing sentence, in the event that the issuance of such Options or Rights or Convertible Securities caused an adjustment to the Conversion Price for Series C Preferred Stock or Series D Preferred Stock pursuant to Section 3(d)(i)(A)(II)(1) or Section 3(d)(i)(A)(III)(1), respectively, (i.e., a "full-ratchet" adjustment), then upon the expiration of any such Options or Rights or Convertible Securities or the termination of any such rights to convert or exchange or the expiration of any Options or Rights related to such Convertible Securities, without any of such Rights, Options or Convertible Securities, as the case may be, having been exercised and no shares of Common Stock issued pursuant thereto, then the Conversion Price for the Series C Preferred Stock and Series D Preferred stock, as appropriate, shall be adjusted, to the Conversion Price for the Series C Preferred Stock or Series D Preferred Stock, as appropriate, that was in effect immediately prior to such issuance (the "Prior Series C Conversion Price" or "Prior Series D Conversion Price", as appropriate), subject, however, to such other adjustments as may have been made or which would have been made pursuant to this Section 3(d)(i) had the Prior Series C Conversion Price or Prior Series D Conversion Price, as appropriate, been in effect immediately prior to such sale or issuance of such Options, Rights or Convertible Securities. (5) The number of shares of Common Stock deemed issued and the consideration deemed paid therefor pursuant to Sections 3(d)(i)(D)(1) and (2) shall be appropriately adjusted to reflect any change, termination or expiration of the type described in either Section 3(d)(i)(D)(3) or (4). (ii) "Additional Stock" shall mean any shares of Common Stock issued (or deemed to have been issued pursuant to Section 3(d)(i)(D)) by the Corporation after the Series D Original Issue Date other than: (A) Common Stock issued pursuant to a transaction described in Section 3(d)(iii) hereof, 11 12 (B) Up to an aggregate of 10,000,000 shares (such number of shares of Common Stock to be calculated net of any repurchases of such shares by the Corporation and net of any expired or terminated options, warrants or rights and to be proportionately adjusted for subsequent events described in Section 3(d)(iii) and (iv) herein) issued as: (i) Common Stock issuable or issued to employees, consultants or directors of the Corporation following the Series D Original Issue Date directly or pursuant to a stock option plan or agreement or restricted stock plan or agreement approved by the Board of Directors of the Corporation, (ii) Capital stock, or options or warrants to purchase capital stock, issued to financial institutions, equipment lessors or landlords in connection with commercial credit arrangements, equipment financing, real estate leases or similar transactions approved by the Board of Directors of the Corporation, (iii) Capital stock or options or warrants to purchase capital stock, issued to providers of products or technologies (or rights thereto) to the Corporation, if such issuance is approved by the Board of Directors of the Corporation, or (iv) Capital stock or options or warrants to purchase capital stock, issued in connection with bona fide acquisitions, mergers or similar transactions, the terms of which are approved by the Board of Directors of the Corporation, (C) Common Stock issued or issuable upon conversion of the Preferred Stock, (D) Capital stock issued or issuable upon exercise of any outstanding options or warrants to purchase Series A Preferred Stock, Series F Preferred Stock, Series B Preferred Stock or Series C Preferred Stock which are outstanding as of the Series D Original Issue Date, or (E) Common Stock issued or issuable in a public offering in connection with which all outstanding shares of Preferred Stock will be converted to Common Stock. (iii) In the event the Corporation should at any time or from time to time after the Series D Original Issue Date fix a record date for the effectuation of a split or subdivision of the outstanding shares of Common Stock or for the determination of the outstanding shares of Common Stock entitled to receive a dividend or other distribution payable in additional shares of Common Stock without payment of any consideration by such holder for the additional shares of Common Stock, then, as of such record date (or the date of such 12 13 dividend, distribution, split or subdivision if no record date is fixed), the Conversion Price of each applicable series of Preferred Stock shall be appropriately decreased so that the number of shares of Common Stock issuable on conversion of each share of such series shall be increased in proportion to such increase of the aggregate of shares of Common Stock outstanding. (iv) If the number of shares of Common Stock outstanding at any time after the Series D Original Issue Date is decreased by a combination of the outstanding shares of Common Stock or reverse stock split, then, following the record date of such combination or reverse stock split, the Conversion Price for each applicable series of Preferred Stock shall be appropriately increased so that the number of shares of Common Stock issuable on conversion of each share of such series shall be decreased in proportion to such decrease in outstanding shares. e. Other Distributions. In the event the Corporation at any time after the Series D Original Issue Date shall declare a distribution payable in securities of other persons, evidences of indebtedness issued by this Corporation or other persons, assets (excluding cash dividends) or Options or Rights not referred to in Section 3(d)(i), then, in each such case for the purpose of this Section 3(e), the holders of the Preferred Stock shall be entitled to a proportionate share of any such distribution as though they were the holders of the number of shares of Common Stock of the Corporation into which their shares of Preferred Stock are convertible as of the record date fixed for the determination of the holders of Common Stock of the Corporation entitled to receive such distribution. f. Recapitalizations. If at any time or from time to time after the Series D Original Issue Date there shall be a recapitalization of the Common Stock (other than a subdivision, combination or merger or sale of assets transaction provided for elsewhere in this Section 3 or Section 2) provision shall be made so that the holders of the Preferred Stock shall thereafter be entitled to receive upon conversion of the Preferred Stock the number of shares of stock or other securities or property of the Corporation or otherwise, which a holder of Common Stock deliverable upon conversion of such series of Preferred Stock immediately prior to such recapitalization would have been entitled to receive on such recapitalization. In any such case, appropriate adjustment shall be made in the application of the provisions of this Section 3 with respect to the rights of the holders of the Preferred Stock after the recapitalization to the extent that the provisions of this Section 3 (including adjustment of the Conversion Prices then in effect and the number of shares purchasable upon conversion of the Preferred Stock) shall be applicable after that event as nearly equivalently as may be practicable. g. No Impairment. The Corporation will not, by amendment of its Certificate of Incorporation or through any reorganization, recapitalization, 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 to be observed or performed hereunder by the Corporation, but will at all times in good faith assist in the carrying out of all the provisions of this Section 3 and in the taking of all such action as may be necessary or appropriate in order to protect the Conversion Rights of the holders of the Preferred Stock against impairment. 13 14 h. No Fractional Shares and Certificate as to Adjustment. (i) No fractional shares shall be issued upon the conversion of any share or shares of the Preferred Stock, and the number of shares of Common Stock to be issued shall be rounded to the nearest whole share (with one-half being rounded downward). Whether or not fractional shares are issuable upon such conversion shall be determined on the basis of the total number of shares of Preferred Stock the holder is at the time converting into Common Stock and the number of shares of Common Stock issuable upon such aggregate conversion. (ii) Upon the occurrence of each adjustment or readjustment of the Conversion Price of a series of Preferred Stock pursuant to this Section 3, the Corporation, at its expense, shall promptly compute such adjustment or readjustment in accordance with the terms hereof and prepare and furnish to each holder of such series of Preferred Stock a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based. The Corporation shall, upon the reasonable written request at any time of any holder of Preferred Stock, furnish or cause to be furnished to such holder a like certificate setting forth (A) such adjustment and readjustment, (B) the Conversion Price for each series of Preferred Stock at the time in effect, and (C) the number of shares of Common Stock and the amount, if any, of other property which at the time would be received upon the conversion of a share of each series of Preferred Stock held by such holder. i. Notices of Record Date. In the event of any taking by the Corporation of a record date for determining the holders of any class of securities who are entitled to receive any dividend (other than a cash dividend) or other distribution, any right to subscribe for, purchase or otherwise acquire any shares of stock of any class or any other securities or property, or to receive any other right, this Corporation shall mail to each holder of Preferred Stock, at least ten (10) days prior to the record date specified therein, a notice specifying the record date for the purpose of such dividend, distribution or right, and the amount and character of such dividend, distribution or right. j. Reservation of Stock Issuable Upon Conversion. This Corporation shall at all times reserve and keep available out of its authorized but unissued shares of Common Stock, solely for the purpose of effecting the conversion of the then outstanding shares of the Preferred Stock, such number of its shares of Common Stock as shall from time to time be sufficient to effect the conversion of all outstanding shares of the Preferred Stock; and if at any time the number of authorized but unissued shares of Common Stock shall not be sufficient to effect the conversion of all then outstanding shares of the Preferred Stock, in addition to such other remedies as shall be available to the holder of such Preferred Stock, 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 to such number of shares as shall be sufficient for such purposes, including, without limitation, engaging in best efforts to obtain the requisite Board of Directors and stockholder approval of any necessary amendment to its Certificate of Incorporation. 14 15 k. Notices. Any notice required by the provisions of this Section 3 to be given to the holders of shares of Preferred Stock shall be deemed given if deposited in the United States mail, postage prepaid, and addressed to each holder of record at his address appearing on the books of the Corporation. 4. Redemption. a. If requested in writing at any time after the seventh anniversary of the Series C Original Issue Date by the holders of at least two-thirds (66 2/3%) of the outstanding Series C Preferred Stock and Series D Preferred Stock (determined together on an as converted basis), the Corporation shall redeem, on the terms and conditions stated herein, out of funds legally available therefor, all of the outstanding Preferred Stock in four equal annual installments beginning on the first anniversary of the date redemption is requested by the requisite number of holders (the "Initial Redemption Date") and continuing thereafter on the first, second and third anniversaries of the Initial Redemption Date (each a "Preferred Stock Redemption Date"), by paying in cash therefor (i) in the case of the Series F Preferred Stock, an amount equal to the sum of (x) the Original Series F Issue Price for each share of Series F Preferred Stock held of record by such holder (as adjusted for any stock dividends, combinations or splits with respect to such shares) and (y) all declared but unpaid dividends thereon, (ii) in the case of the Series A Preferred Stock, an amount equal to the sum of (x) the Original Series A Issue Price for each share of Series A Preferred Stock held of record by such holder (as adjusted for any stock dividends, combinations, splits, recapitalizations and the like with respect to such shares) and (y) all declared but unpaid dividends thereon, (iii) in the case of the Series B Preferred Stock, an amount equal to the sum of (x) the Original Series B Issue Price for each share of Series B Preferred Stock held of record by such holder (as adjusted for any stock dividends, combinations, splits, recapitalizations and the like with respect to such shares) and (y) all declared but unpaid dividends thereon, (iv) in the case of the Series C Preferred Stock, an amount equal to the sum of (x) the Original Series C Issue Price for each share of Series C Preferred Stock, held of record by such holder (as adjusted for any stock dividends, combinations, splits, recapitalizations and the like with respect to such shares) and (y) all declared but unpaid dividends thereon and (v) in the case of the Series D Preferred Stock, an amount equal to the sum of (x) the Original Series D Issue Price for each share of Series D Preferred Stock held of record by such holder (as adjusted for any stock dividends, combinations, splits, recapitalizations and the like with respect to such shares) and (y) all declared but unpaid dividends thereon (the "Series F Redemption Price," "Series A Redemption Price," "Series B Redemption Price," "Series C Redemption Price," and "Series D Redemption Price," respectively). The number of shares of Preferred Stock that the Corporation shall be required to redeem under this subsection (a) on any one Preferred Stock Redemption Date shall be equal to the amount determined by dividing (x) the aggregate number of shares of shares of Preferred Stock outstanding immediately prior to that Preferred Stock Redemption Date by (y) the number of remaining Preferred Stock Redemption Dates (including the Preferred Stock Redemption Date to which such calculation applies). In the event that the Corporation is unable to redeem the full number of shares of Preferred Stock to be redeemed on any Preferred Stock Redemption Date, the shares not redeemed shall be redeemed by this Corporation as provided in this Section 4 as soon as practicable after funds are legally available therefor. Any redemption effected pursuant to this subsection 4 (a) shall be made ratably among 15 16 the holders of the Preferred Stock in proportion to the redemption payment amount each such holder is otherwise entitled to receive on such Preferred Stock Redemption Date. b. At least thirty (30) but no more than sixty (60) days prior to each Preferred Stock Redemption Date, the Corporation shall give written notice by certified or registered mail, postage prepaid, to all holders of outstanding Preferred Stock, at the address last shown on the records of the Corporation for such holder, stating such Preferred Stock Redemption Date, the Series F, the Series A, Series B, Series C Redemption Price and Series D Redemption Price, as the case may be, and shall call upon such holder to surrender to the Corporation on such Preferred Stock Redemption Date at the place designated in the notice such holder's certificate or certificates representing the shares to be redeemed. On or after the Preferred Stock Redemption Date stated in such notice, the holder of each share of Preferred Stock called for redemption shall surrender the certificate or certificates evidencing such shares to the Corporation at the place designated in such notice and shall thereupon be entitled to receive payment of the Series F, Series A, Series B, Series C Redemption Price or Series D Redemption Price, as the case may be, for the shares surrendered. If less than all the shares represented by any such surrendered certificate are redeemed, a new certificate shall be issued representing the unredeemed shares. If such notice of redemption shall have been duly given, and if on such Preferred Stock Redemption Date funds necessary for the redemption shall be available therefor, then, as to any certificates evidencing any Preferred Stock so called for redemption and not surrendered, all rights of the holders of such shares shall cease as the close of business on the day immediately preceding the Preferred Stock Redemption Date with respect to such shares, except only the right of the holders to receive the Series F, Series A, Series B, Series C Redemption Price or Series D Redemption Price, as the case may be, for the Preferred Stock which they hold, without interest, upon surrender of their certificate or certificates therefor. 5. Voting Rights. Each holder of shares of Preferred Stock shall be entitled to a number of votes equal to the number of shares of Common Stock into which the shares of Preferred Stock held by such holder could be converted, shall have voting rights and powers equal to the voting rights and powers of the holders of Common Stock (except as required by law), shall be entitled to notice of any stockholder meeting in accordance with the Bylaws of the Corporation, and shall vote together as a single class with holders of Common Stock and all series of Preferred Stock on all matters except as required by law or as otherwise specifically provided herein. Fractional votes shall not be permitted and any fractional voting rights resulting from the above formula (after aggregating all shares into which shares of Preferred Stock held by each holder could be converted) shall be rounded to the nearest whole number (with one-half being rounded upward). 6. Status of Converted Preferred Stock. In the event any shares of Preferred Stock shall be converted pursuant to Section 3, the shares so converted shall be canceled and shall not thereafter be issuable by the Corporation. The Certificate of Incorporation of the Corporation shall be appropriately amended to effect the corresponding reduction in the Corporation's authorized capital stock. 16 17 7. Protective Provisions. a. Class Vote. The Corporation shall not, without first obtaining the approval (by vote or written consent, as provided by law) of the holders of at least (1) a majority of the then outstanding shares of Preferred Stock, voting together as a single class, (2) two-thirds (66 2/3%) of the then outstanding Series C Preferred Stock, voting as a separate series, and (3) two-thirds (66 2/3%) of the then outstanding Series D Preferred Stock, voting as a separate series, authorize or effect the winding up or cessation of business of the Corporation. b. Series Vote. The Corporation shall not, without first obtaining the approval (by vote or written consent, as provided by law) of the holders of at least a majority of each series of Preferred Stock so affected, amend, alter, or change in any adverse manner the rights of such series of Preferred Stock. c. Series C Vote. The Corporation shall not, without the approval, by vote or written consent, of the holders of at least two-thirds (66 2/3%) of the then outstanding shares of Series C Preferred Stock, voting as a separate series: (1) amend its Certificate of Incorporation or Bylaws in any manner that would alter or change the rights, preferences, privileges or restrictions of the Series C Preferred Stock so as to materially adversely affect such Series C Preferred Stock; (2) reclassify any outstanding shares of securities of the Corporation into shares having rights, preferences or privileges senior to or on a parity with the Series C Preferred Stock; or (3) authorize any other equity security, including any other security convertible into or exercisable for any equity security, having rights or preferences senior to or on a parity with the Series C Preferred Stock as to dividend rights, liquidation, redemption or voting preferences, including without limitation, shares of Series C Preferred Stock. d. Series D Vote. The Corporation shall not, without the approval, by vote or written consent, of the holders of at least two-thirds (66 2/3%) of the then outstanding shares of Series D Preferred Stock, voting as a separate series: (1) amend its Certificate of Incorporation or Bylaws in any manner that would alter or change the rights, preferences, privileges or restrictions of the Series D Preferred Stock so as to materially adversely affect such Series D Preferred Stock; (2) reclassify any outstanding shares of securities of the Corporation into shares having rights, preferences or privileges senior to or on a parity with the Series D Preferred Stock; or (3) authorize any other equity security, including any other security convertible into or exercisable for any equity security, having rights or preferences senior to or 17 18 on a parity with the Series D Preferred Stock as to dividend rights, liquidation, redemption or voting preferences, including without limitation, shares of Series D Preferred Stock. e. Series C and D Vote. The Corporation shall not, without first obtaining the approval (by vote or written consent, as provided by law) of the holders of at least two-thirds (66 2/3%) of each of the then outstanding shares of Series C Preferred Stock and Series D Preferred Stock, each voting as a separate series: (1) reorganize, consolidate or merge with or into any corporation or effect any transaction or series of related transactions if such transaction or series of related transactions would result in the stockholders of the Corporation immediately prior to such transaction or series of related transactions holding less than a majority of the voting power of the surviving corporation (or its parent corporation if the surviving corporation is wholly owned by the parent corporation); (2) sell, convey or otherwise dispose of all or substantially all the Corporation's assets in a single transaction or series of related transactions; (3) declare or pay any dividends (other than dividends payable solely in shares of its own Common Stock) on or declare or make any other distribution, purchase, redemption or acquisition, directly or indirectly, on account of any shares of Preferred Stock junior to the Series C Preferred Stock or Series D Preferred Stock as to dividend rights, liquidation, redemption or voting privileges or any shares of Common Stock now or hereafter outstanding other than those distributions, purchases, redemptions, or acquisitions expressly permitted in this Certificate; or (4) incur any indebtedness to a bank, financial institution or lender in excess of ten million dollars ($10,000,000) unless otherwise approved by the Board of Directors. C. Common Stock. 1. 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 shall be entitled to receive, when and as declared by the Board of Directors, out of any assets of the Corporation legally available therefor, such dividends as may be declared from time to time by the Board of Directors. 2. Liquidation Rights. Upon the liquidation, dissolution or winding up of the Corporation, the assets of the Corporation shall be distributed as provided in Section 2 of Article IV(B) hereof. 3. Redemption. The Common Stock is not redeemable. 4. Voting Rights. Each holder of Common Stock shall be entitled to one (1) vote for each share of Common Stock held, shall be entitled to notice of any stockholder meeting 18 19 in accordance with the Bylaws of the Corporation, and shall be entitled to vote upon such matters and in such manner as is otherwise provided herein or as may be provided by law. ARTICLE V Except as otherwise provided in this Amended and Restated Certificate of Incorporation, in furtherance and not in limitation of the powers conferred by statute, the Board of Directors is expressly authorized to make, repeal, alter, amend and rescind any or all of the Bylaws of the Corporation. ARTICLE VI The number of directors of the Corporation shall be fixed from time to time by, or in the manner provided in, the Bylaws or amendment thereof duly adopted by the Board of Directors or by the stockholders. ARTICLE VII Elections of directors need not be by written ballot unless the Bylaws of the Corporation shall so provide. ARTICLE VIII Meetings of stockholders may be held within or without the State of Delaware, as the Bylaws may provide. The books of the Corporation may be kept (subject to any provision contained in the statutes) outside the State of Delaware at such place or places as may be designated from time to time by the Board of Directors or in the Bylaws of the Corporation. ARTICLE IX To the fullest extent permitted by the General Corporation Law of Delaware, as the same may be amended from time to time, a director of the Corporation shall not be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director. If the General Corporation Law of Delaware is hereafter amended to authorize, with or without the approval of a corporation's stockholders, further reductions in the liability of the corporation's directors for breach of fiduciary duty, then a director of the Corporation shall not be liable for any such breach to the fullest extent permitted by the General Corporation Law of Delaware, as so amended. Any repeal or modification of the foregoing provisions of this Article IX, by amendment of this Article IX or by operation of law, shall not adversely affect any right or protection of a director of the Corporation with respect to any acts or omissions of such director occurring prior, to such repeal or modification. ARTICLE X 19 20 To the fullest extent permitted by applicable law, the Corporation is authorized to provide indemnification of (and advancement of expenses to) directors, officers, employees and other agents of the Corporation (and any other persons to which Delaware law permits the Corporation to provide indemnification) through Bylaw provisions, agreements with any such person, vote of stockholders or disinterested directors or otherwise, in excess of the indemnification and advancement otherwise permitted by Section 145 of the Delaware General Corporation Law, subject only to limits created by applicable Delaware law (statutory or nonstatutory), with respect to actions for breach of duty to a corporation, its stockholders, and others. Any repeal or modification of any of the foregoing provisions of this Article X, by amendment of this Article X or by operation of law, shall not adversely affect any right or protection of a director, officer, employee or agent or other person existing at the time of, or increase the liability of any. director of the Corporation with respect to any acts or omissions of such director, officer or agent occurring prior to, such repeal or modification. ARTICLE XI 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, and all rights conferred upon stockholders herein are granted subject to this reservation. ARTICLE XII The Corporation shall have perpetual existence. * * * The foregoing Amended and Restated Certificate of Incorporation has been adopted by the Corporation's directors and stockholders in accordance with the applicable provisions of Sections 228, 242 and 245 of the General Corporation Law of the State of Delaware. 20 21 IN WITNESS WHEREOF, the undersigned has executed this certificate on November ___, 1999. NIKU CORPORATION By: ------------------------------------- Farzad Dibachi President and Chief Executive Officer 21 EX-3.03 5 EX-3.03 1 EXHIBIT 3.03 BYLAWS OF NIKU CORPORATION 2 TABLE OF CONTENTS
PAGE ---- ARTICLE I -- CORPORATE OFFICES.............................................................1 1.1 Registered Office........................................................1 1.2 Other Offices............................................................1 ARTICLE II -- MEETINGS OF STOCKHOLDERS.....................................................1 2.1 Place Of Meetings........................................................1 2.2 Annual Meeting...........................................................1 2.3 Special Meeting..........................................................1 2.4 Notice Of Stockholders' Meetings.........................................2 2.5 Manner Of Giving Notice; Affidavit Of Notice.............................2 2.6 Quorum...................................................................2 2.7 Adjourned Meeting; Notice................................................2 2.8 Conduct Of Business......................................................3 2.9 Voting...................................................................3 2.10 Waiver Of Notice.........................................................3 2.11 Stockholder Action By Written Consent Without A Meeting..................3 2.12 Record Date For Stockholder Notice; Voting; Giving Consents..............4 2.13 Proxies..................................................................4 ARTICLE III -- DIRECTORS...................................................................5 3.1 Powers...................................................................5 3.2 Number Of Directors......................................................5 3.3 Election, Qualification And Term Of Office Of Directors..................5 3.4 Resignation And Vacancies................................................5 3.5 Place Of Meetings; Meetings By Telephone.................................6 3.6 Regular Meetings.........................................................6 3.7 Special Meetings, Notice.................................................6 3.8 Quorum...................................................................7 3.9 Waiver Of Notice.........................................................7 3.10 Board Action By Written Consent Without A Meeting........................7 3.11 Fees And Compensation Of Directors.......................................8 3.12 Approval Of Loans To Officers............................................8 3.13 Removal Of Directors.....................................................8 3.14 Chairman Of The Board Of Directors.......................................8 ARTICLE IV -- COMMITTEES...................................................................8 4.1 Committees Of Directors..................................................8
i 3 4.2 Committee Minutes........................................................9 4.3 Meetings And Action Of Committees........................................9 ARTICLE V -- OFFICERS......................................................................9 5.1 Officers.................................................................9 5.2 Appointment Of Officers.................................................10 5.3 Subordinate Officers....................................................10 5.4 Removal And Resignation Of Officers.....................................10 5.5 Vacancies In Offices....................................................10 5.6 Chief Executive Officer.................................................10 5.7 President...............................................................11 5.8 Vice Presidents.........................................................11 5.10 Chief Financial Officer.................................................11 5.11 Representation Of Shares Of Other Corporations..........................12 5.12 Authority And Duties Of Officers........................................12 ARTICLE VI -- INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES, AND OTHER AGENTS.........12 6.1 Indemnification Of Directors And Officers...............................12 6.2 Indemnification Of Others...............................................13 6.3 Payment Of Expenses In Advance..........................................13 6.4 Indemnity Not Exclusive.................................................13 6.5 Insurance...............................................................13 6.6 Conflicts...............................................................14 ARTICLE VII - RECORDS AND REPORTS.........................................................14 7.1 Maintenance And Inspection Of Records...................................14 7.2 Inspection By Directors.................................................14 7.3 Annual Statement To Stockholders........................................15 ARTICLE VIII -- GENERAL MATTERS...........................................................15 8.1 Checks..................................................................15 8.2 Execution Of Corporate Contracts And Instruments........................15 8.3 Stock Certificates; Partly Paid Shares..................................15 8.4 Special Designation On Certificates.....................................16 8.5 Lost Certificates.......................................................16 8.6 Construction; Definitions...............................................16 8.7 Dividends...............................................................16 8.8 Fiscal Year.............................................................17 8.9 Seal....................................................................17 8.10 Transfer Of Stock.......................................................17
ii 4 8.11 Stock Transfer Agreements...............................................17 8.12 Registered Stockholders.................................................17 ARTICLE IX -- AMENDMENTS..................................................................17
iii 5 BYLAWS OF NIKU CORPORATION ARTICLE I CORPORATE OFFICES 1.1 REGISTERED OFFICE. The registered office of the corporation shall be in the City of Wilmington, County of New Castle, State of Delaware. The name of the registered agent of the corporation at such location is Corporation Service Company. 1.2 OTHER OFFICES. The Board of Directors may at any time establish other offices at any place or places where the corporation is qualified to do business. ARTICLE II MEETINGS OF STOCKHOLDERS 2.1 PLACE OF MEETINGS. Meetings of stockholders shall be held at any place, within or outside the State of Delaware, designated by the Board of Directors. In the absence of any such designation, stockholders' meetings shall be held at the registered office of the corporation. 2.2 ANNUAL MEETING. The annual meeting of stockholders shall be held on such date, time and place, either within or without the State of Delaware, as may be designated by resolution of the Board of Directors each year. At the meeting, directors shall be elected and any other proper business may be transacted. 2.3 SPECIAL MEETING. A special meeting of the stockholders may be called at any time by the Board of Directors, the chairman of the board, the president or by one or more stockholders holding shares in the aggregate entitled to cast not less than ten percent of the votes at that meeting. If a special meeting is called by any person or persons other than the Board of Directors, the president or the chairman of the board, the request shall be in writing, specifying the time of such meeting and the general nature of the business proposed to be transacted, and 6 shall be delivered personally or sent by registered mail or by telegraphic or other facsimile transmission to the chairman of the board, the president, any vice president, or the secretary of the corporation. No business may be transacted at such special meeting otherwise than specified in such notice. The officer receiving the request shall cause notice to be promptly given to the stockholders entitled to vote, in accordance with the provisions of Sections 2.4 and 2.5 of this Article II, that a meeting will be held at the time requested by the person or persons calling the meeting, not less than thirty-five (35) nor more than sixty (60) days after the receipt of the request. If the notice is not given within twenty (20) days after the receipt of the request, the person or persons requesting the meeting may give the notice. Nothing contained in this paragraph of this Section 2.3 shall be construed as limiting, fixing, or affecting the time when a meeting of stockholders called by action of the Board of Directors may be held. 2.4 NOTICE OF STOCKHOLDERS' MEETINGS. All notices of meetings with stockholders shall be in writing and shall be sent or otherwise given in accordance with Section 2.5 of these Bylaws not less than ten (10) nor more than sixty (60) days before the date of the meeting to each stockholder entitled to vote at such meeting. The notice shall specify the place, date, and hour of the meeting, and, in the case of a special meeting, the purpose or purposes for which the meeting is called. 2.5 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE. Written notice of any meeting of stockholders, if mailed, is given when deposited in the United States mail, postage prepaid, directed to the stockholder at his address as it appears on the records of the corporation. An affidavit of the secretary or an assistant secretary or of the transfer agent of the corporation that the notice has been given shall, in the absence of fraud, be prima facie evidence of the facts stated therein. 2.6 QUORUM. The holders of a majority of the stock issued and outstanding and entitled to vote thereat, present in person or represented by proxy, shall constitute a quorum at all meetings of the stockholders for the transaction of business except as otherwise provided by statute or by the certificate of incorporation. If, however, such quorum is not present or represented at any meeting of the stockholders, then either (a) the chairman of the meeting or (b) the stockholders entitled to vote thereat, present in person or represented by proxy, shall have power to adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum is present or represented. At such adjourned meeting at which a quorum is present or represented, any business may be transacted that might have been transacted at the meeting as originally noticed. 2.7 ADJOURNED MEETING; NOTICE. When a meeting is adjourned to another time or place, unless these Bylaws otherwise require, notice need not be given of the adjourned meeting if the time and place thereof are announced at the meeting at which the adjournment is taken. At the adjourned meeting the corporation may transact any business that might have been transacted at the original meeting. If the adjournment is for more than thirty (30) days, or if after the adjournment a new 2 7 record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. 2.8 CONDUCT OF BUSINESS. The chairman of any meeting of stockholders shall determine the order of business and the procedure at the meeting, including the manner of voting and the conduct of business. 2.9 VOTING. The stockholders entitled to vote at any meeting of stockholders shall be determined in accordance with the provisions of Section 2.12 of these Bylaws, subject to the provisions of Sections 217 and 218 of the General Corporation Law of Delaware (relating to voting rights of fiduciaries, pledgors and joint owners of stock and to voting trusts and other voting agreements). Except as may be otherwise provided in the certificate of incorporation, each stockholder shall be entitled to one vote for each share of capital stock held by such stockholder. 2.10 WAIVER OF NOTICE. Whenever notice is required to be given under any provision of the General Corporation Law of Delaware or of the certificate of incorporation or these Bylaws, a written waiver thereof, signed by the person entitled to notice, whether before or after the time stated therein, shall be deemed equivalent to notice. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the stockholders need be specified in any written waiver of notice unless so required by the certificate of incorporation or these Bylaws. 2.11 STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING. Unless otherwise provided in the certificate of incorporation, any action required to be taken at any annual or special meeting of stockholders of the corporation, or any action that may be taken at any annual or special meeting of such stockholders, may be taken without a meeting, without prior notice, and without a vote if a consent in writing, setting forth the action so taken, is signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted. Prompt notice of the taking of the corporate action without a meeting by less than unanimous written consent shall be given to those stockholders who have not consented in writing. If the action which is consented to is such as would have required the filing of a certificate under any section of the General Corporation Law of Delaware such action had been voted on by stockholders at a meeting thereof, then the certificate filed under such section shall state, in lieu of any statement required by such section concerning any vote of stockholders, that 3 8 written notice and written consent have been given as provided in Section 228 of the General Corporation Law of Delaware. 2.12 RECORD DATE FOR STOCKHOLDER NOTICE; VOTING; GIVING CONSENTS. In order that the corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or entitled to express consent to corporate action in writing without a meeting, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board of Directors may fix, in advance, a record date, which shall not be more than sixty (60) nor less than ten (10) days before the date of such meeting, nor more than sixty (60) days prior to any other action. If the Board of Directors does not so fix a record date: (a) The record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held. (b) The record date for determining stockholders entitled to consent to corporate action in writing without a meeting, when no prior action by the Board of Directors is necessary, shall be the day on which the first written consent is delivered to the corporation. (c) The record date for determining stockholders for any other purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting. 2.13 PROXIES. Each stockholder entitled to vote at a meeting of stockholders or to express consent or dissent to corporate action in writing without a meeting may authorize another person or persons to act for such stockholder by a written proxy, signed by the stockholder and filed with the secretary of the corporation, but no such proxy shall be voted or acted upon after three (3) years from its date, unless the proxy provides for a longer period. A proxy shall be deemed signed if the stockholder's name is placed on the proxy (whether by manual signature, typewriting, telegraphic transmission or otherwise) by the stockholder or the stockholder's attorney-in- fact. The revocability of a proxy that states on its face that it is irrevocable shall be governed by the provisions of Section 212(e) of the General Corporation Law of Delaware. 4 9 ARTICLE III DIRECTORS 3.1 POWERS. Subject to the provisions of the General Corporation Law of Delaware and any limitations in the certificate of incorporation or these Bylaws relating to action required to be approved by the stockholders or by the outstanding shares, the business and affairs of the corporation shall be managed and all corporate powers shall be exercised by or under the direction of the Board of Directors. 3.2 NUMBER OF DIRECTORS. Upon the adoption of these bylaws, the number of directors constituting the entire Board of Directors shall be one. Thereafter, this number may be changed by a resolution of the Board of Directors or of the stockholders, subject to Section 3.4 of these Bylaws. No reduction of the authorized number of directors shall have the effect of removing any director before such director's term of office expires. 3.3 ELECTION, QUALIFICATION AND TERM OF OFFICE OF DIRECTORS. Except as provided in Section 3.4 of these Bylaws, directors shall be elected at each annual meeting of stockholders to hold office until the next annual meeting. Directors need not be stockholders unless so required by the certificate of incorporation or these Bylaws, wherein other qualifications for directors may be prescribed. Each director, including a director elected to fill a vacancy, shall hold office until his or her successor is elected and qualified or until his or her earlier resignation or removal. Elections of directors need not be by written ballot. 3.4 RESIGNATION AND VACANCIES. Any director may resign at any time upon written notice to the attention of the Secretary of the corporation. When one or more directors so resigns and the resignation is effective at a future date, a majority of the directors then in office, including those who have so resigned, shall have power to fill such vacancy or vacancies, the vote thereon to take effect when such resignation or resignations shall become effective, and each director so chosen shall hold office as provided in this section in the filling of other vacancies. Unless otherwise provided in the certificate of incorporation or these Bylaws: (a) Vacancies and newly created directorships resulting from any increase in the authorized number of directors elected by all of the stockholders having the right to vote as a single class may be filled by a majority of the directors then in office, although less than a quorum, or by a sole remaining director. 5 10 (b) Whenever the holders of any class or classes of stock or series thereof are entitled to elect one or more directors by the provisions of the certificate of incorporation, vacancies and newly created directorships of such class or classes or series may be filled by a majority of the directors elected by such class or classes or series thereof then in office, or by a sole remaining director so elected. If at any time, by reason of death or resignation or other cause, the corporation should have no directors in office, then any officer or any stockholder or an executor, administrator, trustee or guardian of a stockholder, or other fiduciary entrusted with like responsibility for the person or estate of a stockholder, may call a special meeting of stockholders in accordance with the provisions of the certificate of incorporation or these Bylaws, or may apply to the Court of Chancery for a decree summarily ordering an election as provided in Section 211 of the General Corporation Law of Delaware. If, at the time of filling any vacancy or any newly created directorship, the directors then in office constitute less than a majority of the whole board (as constituted immediately prior to any such increase), then the Court of Chancery may, upon application of any stockholder or stockholders holding at least ten (10) percent of the total number of the shares at the time outstanding having the right to vote for such directors, summarily order an election to be held to fill any such vacancies or newly created directorships, or to replace the directors chosen by the directors then in office as aforesaid, which election shall be governed by the provisions of Section 211 of the General Corporation Law of Delaware as far as applicable. 3.5 PLACE OF MEETINGS; MEETINGS BY TELEPHONE. The Board of Directors of the corporation may hold meetings, both regular and special~ either within or outside the State of Delaware. Unless otherwise restricted by the certificate of incorporation or these Bylaws, members of the Board of Directors, or any committee designated by the Board of Directors, may participate in a meeting of the Board of Directors, or any committee, by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and such participation in a meeting shall constitute presence in person at the meeting. 3.6 REGULAR MEETINGS. Regular meetings of the Board of Directors may be held without notice at such time and at such place as shall from time to time be determined by the board. 3.7 SPECIAL MEETINGS, NOTICE. Special meetings of the Board of Directors for any purpose or purposes may be called at any time by the chairman of the board, the president, any vice president, the secretary or any two directors. Notice of the time and place of special meetings shall be delivered personally or by telephone to each director or sent by first-class mail or telegram, charges prepaid, addressed 6 11 to each director at that director's address as it is shown on the records of the corporation. If the notice is mailed, it shall be deposited in the United States mail at least four (4) days before the time of the holding of the meeting. If the notice is delivered personally or by telephone or by telegram, it shall be delivered personally or by telephone or to the telegraph company at least forty-eight (48) hours before the time of the holding of the meeting. Any oral notice given personally or by telephone may be communicated either to the director or to a person at the office of the director who the person giving the notice has reason to believe will promptly communicate it to the director. The notice need not specify the purpose or the place of the meeting, if the meeting is to be held at the principal executive office of the corporation. 3.8 QUORUM. At all meetings of the Board of Directors, a majority of the authorized number of directors shall constitute a quorum for the transaction of business and the act of a majority of the directors present at any meeting at which there is a quorum shall be the act of the Board of Directors, except as may be otherwise specifically provided by statute or by the certificate of incorporation. If a quorum is not present at any meeting of the Board of Directors, then the directors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum is present. A meeting at which a quorum is initially present may continue to transact business notwithstanding the withdrawal of directors, if any action taken is approved by at least a majority of the required quorum for that meeting. 3.9 WAIVER OF NOTICE. Whenever notice is required to be given under any provision of the General Corporation Law of Delaware or of the certificate of incorporation or these Bylaws, a written waiver thereof, signed by the person entitled to notice, whether before or after the time stated therein, shall be deemed equivalent to notice. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the directors, or members of a committee of directors, need be specified in any written waiver of notice unless so required by the certificate of incorporation or these Bylaws. 3.10 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING. Unless otherwise restricted by the certificate of incorporation or these Bylaws, any action required or permitted to be taken at any meeting of the Board of Directors, or of any committee thereof, may be taken without a meeting if all members of the board or committee, as the case may be, consent thereto in writing and the writing or writings are filed with the minutes of proceedings of the board or committee. Written consents representing actions taken by the board or committee may be executed by telex, telecopy or other facsimile transmission, and such facsimile shall be valid and binding to the same extent as if it were an original. 7 12 3.11 FEES AND COMPENSATION OF DIRECTORS. Unless otherwise restricted by the certificate of incorporation or these Bylaws, the Board of Directors shall have the authority to fix the compensation of directors. No such compensation shall preclude any director from serving the corporation in any other capacity and receiving compensation therefor. 3.12 APPROVAL OF LOANS TO OFFICERS. The corporation may lend money to, or guarantee any obligation of, or otherwise assist any officer or other employee of the corporation or of its subsidiary, including any officer or employee who is a director of the corporation or its subsidiary, whenever, in the judgment of the directors, such loan, guaranty or assistance may reasonably be expected to benefit the corporation. The loan, guaranty or other assistance may be with or without interest and may be unsecured, or secured in such manner as the Board of Directors shall approve, including, without limitation, a pledge of shares of stock of the corporation. Nothing in this section contained shall be deemed to deny, limit or restrict the powers of guaranty or warranty of the corporation at common law or under any statute. 3.13 REMOVAL OF DIRECTORS. Unless otherwise restricted by statute, by the certificate of incorporation or by these Bylaws, any director or the entire Board of Directors may be removed, with or without cause, by the holders of a majority of the shares then entitled to vote at an election of directors; provided, however, that if the stockholders of the corporation are entitled to cumulative voting, if less than the entire Board of Directors is to be removed, no director may be removed without cause if the votes cast against his removal would be sufficient to elect him if then cumulatively voted at an election of the entire Board of Directors. No reduction of the authorized number of directors shall have the effect of removing any director prior to the expiration of such director's term of office. 3.14 CHAIRMAN OF THE BOARD OF DIRECTORS. The corporation may also have, at the discretion of the Board of Directors, a chairman of the Board of Directors who shall not be considered an officer of the corporation. ARTICLE IV COMMITTEES 4.1 COMMITTEES OF DIRECTORS. The Board of Directors may designate one or more committees, each committee to consist of one or more of the directors of the corporation. The Board may designate I or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. In the absence or disqualification of a member of a committee, the member or members present at any meeting and not disqualified from voting, 8 13 whether or not such member or members constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any such absent or disqualified member. Any such committee, to the extent provided in the resolution of the Board of Directors, or in these Bylaws, shall have and may exercise all the powers and authority of the Board of Directors in the management of the business and affairs of the corporation, and may authorize the seal of the corporation to be affixed to all papers which may require it; but no such committee shall have the power or authority in reference to the following matters: (i) approving or adopting, or recommending to the stockholders, any action or matter expressly required by this chapter to be submitted to stockholders for approval or (ii) adopting, amending or repealing any Bylaw of the corporation. 4.2 COMMITTEE MINUTES. Each committee shall keep regular minutes of its meetings and report the same to the Board of Directors when required. 4.3 MEETINGS AND ACTION OF COMMITTEES. Meetings and actions of committees shall be governed by, and held and taken in accordance with, the provisions of Section 3.5 (place of meetings and meetings by telephone), Section 3.6 (regular meetings), Section 3.7 (special meetings and notice), Section 3.8 (quorum), Section 3.9 (waiver of notice), and Section 3. 10 (action without a meeting) of these Bylaws, with such changes in the context of such provisions as are necessary to substitute the committee and its members for the Board of Directors and its members; provided, however, that the time of regular meetings of committees may be determined either by resolution of the Board of Directors or by resolution of the committee, that special meetings of committees may also be called by resolution of the Board of Directors and that notice of special meetings of committees shall also be given to all alternate members, who shall have the right to attend all meetings of the committee. The Board of Directors may adopt rules for the government of any committee not inconsistent with the provisions of these Bylaws. ARTICLE V OFFICERS 5.1 OFFICERS. The officers of the corporation shall be a chief executive officer, a president, a secretary, and a chief financial officer. The corporation may also have, at the discretion of the Board of Directors, one or more vice presidents, one or more assistant secretaries, one or more assistant treasurers, and any such other officers as may be appointed in accordance with the provisions of Section 5.3 of these Bylaws. Any number of offices may be held by the same person. 9 14 5.2 APPOINTMENT OF OFFICERS. The officers of the corporation, except such officers as may be appointed in accordance with the provisions of Sections 5.3 or 5.5 of these Bylaws, shall be appointed by the Board of Directors, subject to the rights, if any, of an officer under any contract of employment. 5.3 SUBORDINATE OFFICERS. The Board of Directors may appoint, or empower the chief executive officer or the president to appoint, such other officers and agents as the business of the corporation may require, each of whom shall hold office for such period, have such authority, and perform such duties as are provided in these Bylaws or as the Board of Directors may from time to time determine. 5.4 REMOVAL AND RESIGNATION OF OFFICERS. Subject to the rights, if any, of an officer under any contract of employment, any officer may be removed, either with or without cause, by an affirmative vote of the majority of the Board of Directors at any regular or special meeting of the board or, except in the case of an officer chosen by the Board of Directors, by any officer upon whom such power of removal may be conferred by the Board of Directors. Any officer may resign at any time by giving written notice to the attention of the Secretary of the corporation. Any resignation shall take effect at the date of the receipt of that notice or at any later time specified in that notice; and, unless otherwise specified in that notice, the acceptance of the resignation shall not be necessary to make it effective. Any resignation is without prejudice to the rights, if any, of the corporation under any contract to which the officer is a party. 5.5 VACANCIES IN OFFICES. Any vacancy occurring in any office of the corporation shall be filled by the Board of Directors. 5.6 CHIEF EXECUTIVE OFFICER. Subject to such supervisory powers, if any, as may be given by the Board of Directors to the chairman of the board, if any, the chief executive officer of the corporation shall, subject to the control of the Board of Directors, have general supervision, direction, and control of the business and the officers of the corporation. He or she shall preside at all meetings of the stockholders and, in the absence or nonexistence of a chairman of the board, at all meetings of the Board of Directors and shall have the general powers and duties of management usually vested in the office of chief executive officer of a corporation and shall have such other powers and duties as may be prescribed by the Board of Directors or these bylaws. 10 15 5.7 PRESIDENT. Subject to such supervisory powers, if any, as may be given by the Board of Directors to the chairman of the board (if any) or the chief executive officer, the president shall have general supervision, direction, and control of the business and other officers of the corporation. He or she shall have the general powers and duties of management usually vested in the office of president of a corporation and such other powers and duties as may be prescribed by the Board of Directors or these Bylaws. 5.8 VICE PRESIDENTS. In the absence or disability of the chief executive officer and president, the vice presidents, if any, in order of their rank as fixed by the Board of Directors or, if not ranked, a vice president designated by the Board of Directors, shall perform all the duties of the president and when so acting shall have all the powers of, and be subject to all the restrictions upon, the president. The vice presidents shall have such other powers and perform such other duties as from time to time may be prescribed for them respectively by the Board of Directors, these Bylaws, the president or the chairman of the board. 5.9 SECRETARY. The secretary shall keep or cause to be kept, at the principal executive office of the corporation or such other place as the Board of Directors may direct, a book of minutes of all meetings and actions of directors, committees of directors, and stockholders. The minutes shall show the time and place of each meeting, the names of those present at directors' meetings or committee meetings, the number of shares present or represented at stockholders' meetings, and the proceedings thereof. The secretary shall keep, or cause to be kept, at the principal executive office of the corporation or at the office of the corporation's transfer agent or registrar, as determined by resolution of the Board of Directors, a share register, or a duplicate share register, showing the names of all stockholders and their addresses, the number and classes of shares held by each, the number and date of certificates evidencing such shares, and the number and date of cancellation of every certificate surrendered for cancellation. The secretary shall give, or cause to be given, notice of all meetings of the stockholders and of the Board of Directors required to be given by law or by these Bylaws. He or she shall keep the seal of the corporation, if one be adopted, in safe custody and shall have such other powers and perform such other duties as may be prescribed by the Board of Directors or by these Bylaws. 5.10 CHIEF FINANCIAL OFFICER. The chief financial officer shall keep and maintain, or cause to be kept and maintained, adequate and correct books and records of accounts of the properties and business transactions of the corporation, including accounts of its assets, liabilities, receipts, disbursements, gains, losses, capital retained earnings, and shares. The books of account shall at all reasonable times be open to inspection by any director. 11 16 The chief financial officer shall deposit all moneys and other valuables in the name and to the credit of the corporation with such depositories as may be designated by the Board of Directors. He or she shall disburse the funds of the corporation as may be ordered by the Board of Directors, shall render to the president, the chief executive officer, or the directors, upon request, an account of all his or her transactions as chief financial officer and of the financial condition of the corporation, and shall have other powers and perform such other duties as may be prescribed by the Board of Directors or the bylaws. 5.11 REPRESENTATION OF SHARES OF OTHER CORPORATIONS. The chairman of the board, the chief executive officer, the president, any vice president, the chief financial officer, the secretary or assistant secretary of this corporation, or any other person authorized by the Board of Directors or the chief executive officer or the president or a vice president, is authorized to vote, represent, and exercise on behalf of this corporation all rights incident to any and all shares of any other corporation or corporations standing in the name of this corporation. The authority granted herein may be exercised either by such person directly or by any other person authorized to do so by proxy or power of attorney duly executed by the person having such authority. 5.12 AUTHORITY AND DUTIES OF OFFICERS. In addition to the foregoing authority and duties, all officers of the corporation shall respectively have such authority and perform such duties in the management of the business of the corporation as may be designated from time to time by the Board of Directors or the stockholders. ARTICLE VI INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES, AND OTHER AGENTS 6.1 INDEMNIFICATION OF DIRECTORS AND OFFICERS. The corporation shall, to the maximum extent and in the manner permitted by the General Corporation Law of Delaware, indemnify each of its directors and officers against expenses (including attorneys' fees), judgments, fines, settlements and other amounts actually and reasonably incurred in connection with any proceeding, arising by reason of the fact that such person is or was an agent of the corporation. For purposes of this Section 6.1, a "director" or "officer" of the corporation includes any person (a) who is or was a director or officer of the corporation, (b) who is or was serving at the request of the corporation as a director or officer of another corporation, partnership, joint venture, trust or other enterprise, or (c) who was a director or officer of a corporation which was a predecessor corporation of the corporation or of another enterprise at the request of such predecessor corporation. 12 17 6.2 INDEMNIFICATION OF OTHERS. The corporation shall have the power, to the maximum extent and in the manner permitted by the General Corporation Law of Delaware, to indemnify each of its employees and agents (other than directors and officers) against expenses (including attorneys' fees), judgments, fines, settlements and other amounts actually and reasonably incurred in connection with any proceeding, arising by reason of the fact that such person is or was an agent of the corporation. For purposes of this Section 6.2, an "employee" or "agent" of the corporation (other than a director or officer) includes any person (a) who is or was an employee or agent of the corporation, (b) who is or was serving at the request of the corporation as an employee or agent of another corporation, partnership, joint venture, trust or other enterprise, or (c) who was an employee or agent of a corporation which was a predecessor corporation of the corporation or of another enterprise at the request of such predecessor corporation. 6.3 PAYMENT OF EXPENSES IN ADVANCE. Expenses incurred in defending any action or proceeding for which indemnification is required pursuant to Section 6.1 or for which indemnification is permitted pursuant to Section 6.2 following authorization thereof by the Board of Directors shall be paid by the corporation in advance of the final disposition of such action or proceeding upon receipt of an undertaking by or on behalf of the indemnified party to repay such amount if it shall ultimately be determined that the indemnified party is not entitled to be indemnified as authorized in this Article VI. 6.4 INDEMNITY NOT EXCLUSIVE. The indemnification provided by this Article VI shall not be deemed exclusive of any other rights to which those seeking indemnification may be entitled under any bylaw, agreement, vote of shareholders or disinterested directors or otherwise, both as to action in an official capacity and as to action in another capacity while holding such office, to the extent that such additional rights to indemnification are authorized in the certificate of incorporation 6.5 INSURANCE. The corporation may purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against him or her and incurred by him or her in any such capacity, or arising out of his or her status as such, whether or not the corporation would have the power to indemnify him or her against such liability under the provisions of the General Corporation Law of Delaware. 13 18 6.6 CONFLICTS. No indemnification or advance shall be made under this Article VI, except where such indemnification or advance is mandated by law or the order, judgment or decree of any court of competent jurisdiction, in any circumstance where it appears: (a) That it would be inconsistent with a provision of the certificate of incorporation, these Bylaws, a resolution of the stockholders or an agreement in effect at the time of the accrual of the alleged cause of the action asserted in the proceeding in which the expenses were incurred or other amounts were paid, which prohibits or otherwise limits indemnification; or (b) That it would be inconsistent with any condition expressly imposed by a court in approving a settlement. ARTICLE VII RECORDS AND REPORTS 7.1 MAINTENANCE AND INSPECTION OF RECORDS. The corporation shall, either at its principal executive offices or at such place or places as designated by the Board of Directors, keep a record of its stockholders listing their names and addresses and the number and class of shares held by each stockholder, a copy of these Bylaws as amended to date, accounting books, and other records. Any stockholder of record, in person or by attorney or other agent, shall, upon written demand under oath stating the purpose thereof, have the right during the usual hours for business to inspect for any proper purpose the corporation's stock ledger, a list of its stockholders, and its other books and records and to make copies or extracts therefrom. A proper purpose shall mean a purpose reasonably related to such person's interest as a stockholder. In every instance where an attorney or other agent is the person who seeks the right to inspection, the demand under oath shall be accompanied by a power of attorney or such other writing that authorizes the attorney or other agent to so act on behalf of the stockholder. The demand under oath shall be directed to the corporation at its registered office in Delaware or at its principal place of business. 7.2 INSPECTION BY DIRECTORS. Any director shall have the night to examine the corporation's stock ledger, a list of its stockholders, and its other books and records for a purpose reasonably related to his or her position as a director. The Court of Chancery is hereby vested with the exclusive jurisdiction to determine whether a director is entitled to the inspection sought. The Court may summarily order the corporation to permit the director to inspect any and all books and records, the stock ledger, and the stock list and to make copies or extracts therefrom. The Court may, in its discretion, prescribe any limitations or conditions with reference to the inspection, or award such other and further relief as the Court may deem just and proper. 14 19 7.3 ANNUAL STATEMENT TO STOCKHOLDERS. The Board of Directors shall present at each annual meeting, and at any special meeting of the stockholders when called for by vote of the stockholders, a full and clear statement of the business and condition of the corporation. ARTICLE VIII GENERAL MATTERS 8.1 CHECKS. From time to time, the Board of Directors shall determine by resolution which person or persons may sign or endorse all checks, drafts, other orders for payment of money, notes or other evidences of indebtedness that are issued in the name of or payable to the corporation, and only the persons so authorized shall sign or endorse those instruments. 8.2 EXECUTION OF CORPORATE CONTRACTS AND INSTRUMENTS. The Board of Directors, except as other-wise provided in these Bylaws, may authorize any officer or officers, or agent or agents, to enter into any contract or execute any instrument in the name of and on behalf of the corporation; such authority may be general or confined to specific instances. Unless so authorized or ratified by the Board of Directors or within the agency power of an officer, no officer, agent or employee shall have any power or authority to bind the corporation by any contract or engagement or to pledge its credit or to render it liable for any purpose or for any amount. 8.3 STOCK CERTIFICATES; PARTLY PAID SHARES. The shares of a corporation shall be represented by certificates, provided that the Board of Directors of the corporation may provide by resolution or resolutions that some or all of any or all classes or series of its stock shall be uncertificated shares. Any such resolution shall not apply to shares represented by a certificate until such certificate is surrendered to the corporation. Notwithstanding the adoption of such a resolution by the Board of Directors, every holder of stock represented by certificates and upon request every holder of uncertificated shares shall be entitled to have a certificate signed by, or in the name of the corporation by the chairman or vice-chairman of the Board of Directors, or the president or vice-president, and by the chief financial officer or an assistant treasurer, or the secretary or an assistant secretary of such corporation representing the number of shares registered in certificate form. Any or all of the signatures on the certificate may be a facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate has ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the corporation with the same effect as if he or she were such officer, transfer agent or registrar at the date of issue. The corporation may issue the whole or any part of its shares as partly paid and subject to call for the remainder of the consideration to be paid therefor. Upon the face or back of each stock certificate issued to represent any such partly paid shares, upon the books and 15 20 records of the corporation in the case of uncertificated partly paid shares, the total amount of the consideration to be paid therefor and the amount paid thereon shall be stated. Upon the declaration of any dividend on fully paid shares, the corporation shall declare a dividend upon partly paid shares of the same class, but only upon the basis of the percentage of the consideration actually paid thereon. 8.4 SPECIAL DESIGNATION ON CERTIFICATES. If the corporation is authorized to issue more than one class of stock or more than one series of any class, then the powers, the designations, the preferences, and the relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights shall be set forth in full or summarized on the face or back of the certificate that the corporation shall issue to represent such class or series of stock; provided, however, that, except as otherwise provided in Section 202 of the General Corporation Law of Delaware, in lieu of the foregoing requirements there may be set forth on the face or back of the certificate that the corporation shall issue to represent such class or series of stock a statement that the corporation will famish without charge to each stockholder who so requests the powers, the designations, the preferences, and the relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights. 8.5 LOST CERTIFICATES. Except as provided in this Section 8.5, no new certificates for shares shall be issued to replace a previously issued certificate unless the latter is surrendered to the corporation and cancelled at the same time. The corporation may issue a new certificate of stock or uncertificated shares in the place of any certificate previously issued by it, alleged to have been lost, stolen or destroyed, and the corporation may require the owner of the lost, stolen or destroyed certificate, or the owner's legal representative, to give the corporation a bond sufficient to indemnify it against any claim that may be made against it on account of the alleged loss, theft or destruction of any such certificate or the issuance of such new certificate or uncertificated shares. 8.6 CONSTRUCTION; DEFINITIONS. Unless the context requires otherwise, the general provisions, rules of construction, and definitions in the Delaware General Corporation Law shall govern the construction of these Bylaws. Without limiting the generality of this provision, the singular number includes the plural, the plural number includes the singular, and the term "person" includes both a corporation and a natural person. 8.7 DIVIDENDS. The directors of the corporation, subject to any restrictions contained in (a) the General Corporation Law of Delaware or (b) the certificate of incorporation, may declare and pay dividends upon the shares of its capital stock. Dividends may be paid in cash, in property, or in shares of the corporation's capital stock. 16 21 The directors of the corporation may set apart out of any of the funds of the corporation available for dividends a reserve or reserves for any proper purpose and may abolish any such reserve. Such purposes shall include but not be limited to equalizing dividends, repairing or maintaining any property of the corporation, land meeting contingencies. 8.8 FISCAL YEAR. The fiscal year of the corporation shall be fixed by resolution of the Board of Directors and may be changed by the Board of Directors. 8.9 SEAL. The corporation may adopt a corporate seal, which may be altered at pleasure, and may use the same by causing it or a facsimile thereof, to be impressed or affixed or in any other manner reproduced. 8.10 TRANSFER OF STOCK. Upon surrender to the corporation or the transfer agent of the corporation of a certificate for shares duly endorsed or accompanied by proper evidence of succession, assignation or authority to transfer, it shall be the duty of the corporation to issue a new certificate to the person entitled thereto, cancel the old certificate, and record the transaction in its books. 8.11 STOCK TRANSFER AGREEMENTS. The corporation shall have power to enter into and perform any agreement with any number of stockholders of any one or more classes of stock of the corporation to restrict the transfer of shares of stock of the corporation of any one or more classes owned by such stockholders in any manner not prohibited by the General Corporation Law of Delaware. 8.12 REGISTERED STOCKHOLDERS. The corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends and to vote as such owner, shall be entitled to hold liable for calls and assessments the person registered on its books as the owner of shares, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of another person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of Delaware. ARTICLE IX AMENDMENTS The Bylaws of the corporation may be adopted, amended or repealed by the stockholders entitled to vote; provided, however, that the corporation may, in its certificate of incorporation, confer the power to adopt, amend or repeal Bylaws upon the directors. The fact 17 22 that such power has been so conferred upon the directors shall not divest the stockholders of the power, nor limit their power to adopt, amend or repeal Bylaws. 18 23 CERTIFICATE OF ADOPTION OF BYLAWS OF NIKU CORPORATION ADOPTION BY INCORPORATOR The undersigned person appointed in the certificate of incorporation to act as the Incorporator of Niku Corporation hereby adopts the foregoing bylaws as the Bylaws of the corporation. Executed this ____ day of _______________________. ------------------------------------ Joshua Pickus, Incorporator CERTIFICATE BY SECRETARY OF ADOPTION BY INCORPORATOR The undersigned hereby certifies that the undersigned is the duly elected, qualified, and acting Secretary of Niku Corporation, and that the foregoing Bylaws were adopted as the Bylaws of the corporation on , 1998, by the person appointed in the certificate of incorporation to act as the Incorporator of the corporation. Executed this ____ day of _______________________. ------------------------------------ Joshua Pickus, Secretary 24 CERTIFICATE OF AMENDMENT OF BYLAWS The undersigned, Joshua Pickus, hereby certifies that: 1 He is the duly elected and incumbent Secretary of Niku Corporation (the "Company"). 2. By an action by unanimous written consent of the Board of Directors dated February 3, 1998, Article III, Section 3.2 of the Bylaws of the Company was amended to read in its entirety as follows: The number of directors constituting the entire Board of Directors shall be two. This number may be changed by a resolution of the Board of Directors or of the stockholders, subject to Section 3.4 of these Bylaws. No reduction of the authorized number of directors shall have the effect of removing any director before such director's term of office expires 3. The matters set forth in this certificate are true and correct of my own knowledge. Date: February 3, 1998 ------------------------------------ Joshua Pickus, Secretary 25 CERTIFICATE OF AMENDMENT OF BYLAWS The undersigned, Joshua Pickus, hereby certifies that: 1. He is the duly elected and incumbent Secretary of Niku Corporation (the "Company"). 2. By an action by unanimous written consent of the Board of Directors dated March 31, 1998, Article III, Section 3.2 of the Bylaws of the Company was amended to read in its entirety as follows: The number of directors constituting the entire Board of Directors shall be three. This number may be changed by a resolution of the Board of Directors or of the stockholders, subject to Section 3.4 of these Bylaws. No reduction of the authorized number of directors shall have the effect of removing any director before such director's term of office expires. 3. The matters set forth in this certificate are true and correct of my own knowledge. Date: March 31, 1998 ------------------------------------ Joshua Pickus, Secretary 26 CERTIFICATE OF AMENDMENT OF BYLAWS The undersigned, Joshua Pickus, hereby certifies that: 1. He is the duly elected and incumbent Secretary of Niku Corporation (the "Company"). 2. By an action by unanimous written consent of the Board of Directors dated April 8, 1998, Article III, Section 3.2 of the Bylaws of the Company was amended to read in its entirety as follows: The number of directors constituting the entire Board of Directors shall be four. This number may be changed by a resolution of the Board of Directors or of the stockholders, subject to Section 3.4 of these Bylaws. No reduction of the authorized number of directors shall have the effect of removing any director before such director's term of office expires. 3. The matters set forth in this certificate are true and correct of my own knowledge. Date: April 8, 1998 ---------------------------------------- Joshua Pickus, Secretary 27 CERTIFICATE OF AMENDMENT OF BYLAWS The undersigned, Joshua Pickus, hereby certifies that: 1. He is the duly elected and incumbent Secretary of Niku Corporation (the "Company"). 2. By a resolution of the Board of Directors at a meeting held on January 13, 1999, Article III, Section 3.2 of the Bylaws of the Company was amended to read in its entirety as follows: The number of directors constituting the entire Board of Directors shall be five. This number may be changed by a resolution of the Board of Directors or of the stockholders, subject to Section 3.4 of these Bylaws. No reduction of the authorized number of directors shall have the effect of removing any director before such director's term of office expires. 3. The matters set forth in this certificate are true and correct of my own knowledge. Date: January 13, 1999 ---------------------------------------- Joshua Pickus, Secretary 28 CERTIFICATE OF AMENDMENT OF BYLAWS The undersigned, Harold Slawik, hereby certifies that: 1. He is the duly elected and incumbent Secretary of Niku Corporation (the "Company"). 2. By a resolution of the Board of Directors at a meeting held on May 6, 1999, Article III, Section 3.2 of the Bylaws of the Company was amended to read in its entirety as follows: The number of directors constituting the entire Board of Directors shall be six. This number may be changed by a resolution of the Board of Directors or of the stockholders, subject to Section 3.4 of these Bylaws. No reduction of the authorized number of directors shall have the effect of removing any director before such director's term of office expires. 3. The matters set forth in this certificate are true and correct of my own knowledge. Date: May 12, 1999 ---------------------------------------- Harold Slawik, Secretary EX-4.01 6 EX-4.01 1 EXHIBIT 4.01 SHARES NUMBER SHARES KEY [NIKU LOGO] INCORPORATED UNDER THE LAWS OF SEE REVERSE FOR STATEMENTS RELATING TO RIGHTS THE STATE OF DELAWARE PREFERENCES, PRIVILEGES AND RESTRICTIONS, IF ANY This Certifies that CUSIP is the record holder of FULLY PAID AND NONASSESSABLE SHARES OF COMMON STOCK, PAR VALUE $0.0001 PER SHARE OF NIKU CORPORATION transferable only on the books of the Corporation by the holder hereof in person or by duly authorized Attorney upon surrender of this certificate properly endorsed. This certificate is not valid until countersigned by the Transfer Agent and registered by the Registrar. WITNESS the facsimile seal of the Corporation and the facsimile signatures of its duly authorized officers. Dated [corporate seal] /s/ /s/ Farzad Dibachi SECRETARY CHAIRMAN AND CHIEF EXECUTIVE OFFICER COUNTERSIGNED AND REGISTERED: AMERICAN STOCK TRANSFER & TRUST COMPANY (NEW YORK, N.Y.) TRANSFER AGENT AND REGISTRAR BY AUTHORIZED SIGNATURE 2 NIKU CORPORATION A statement of the rights, preferences, privileges and restrictions granted to or imposed upon the respective classes or series of shares of stock of the Corporation and upon the holders hereof as established, from time to time, by the Certificate of Incorporation of the Corporation or by any certificate of determination of preferences, and the number of shares constituting each class or series and the designations thereof, may be obtained by any shareholder of the Corporation upon request and without charge from the Secretary of the Corporation at the corporation headquarters. The following abbreviations, when used in the inscription on the face of this certificate, shall be construed as through they were written out in full according to applicable laws or regulations: TEN COM - as tenants in common UNIF GIFT MIN ACT -- ______________ Custodian _______________ TEN ENT - as tenants by the (Cust) (Minor) JT TEN - entireties under Uniform Gifts to Minors as joint tenants with Act ________________________________ right of survivorship (State) and not as tenants in UNIF TRF MIN ACT -- _________ Custodian (until age_________) common (Cust) ________________ under Uniform Transfers (Minor) to Minors and _______________________ (State)
Additional abbreviations may also be used though not in the above list. FOR VALUE RECEIVED, ______________________ hereby sell, assign and transfer unto PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE - ----------------------------------------------------------------- - ----------------------------------------------------------------- - -------------------------------------------------------------------------------- (PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE) Shares - -------------------------------------------------------------------------- of the capital stock represented by the within Certificate, and do hereby irrevocably constitute and appoint Attorney - ----------------------------------------------------------------------- to transfer the said stock on the books of the within named Corporation with full power of substitution in the premises. DATED ---------------------------------- X --------------------------------------- X --------------------------------------- NOTICE: THE SIGNATURE(S) TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME(S) AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER. Signature(s) Guaranteed BY ----------------------------------- THE SIGNATURE(S) MUST BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION (BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM), PURSUANT TO S.E.C. RULE 17Ad-15. EX-4.02 7 EX-4.02 1 EXHIBIT 4.02 NIKU CORPORATION FOURTH AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT THIS FOURTH AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT (this "Agreement") is made as of the 18th day of November 1999 by and between Niku Corporation, a Delaware corporation (the "Company") and those holders of the Company's securities whose names are set forth on Exhibit A hereto (collectively the "Existing Investors") and those holders of the Company's securities whose names are set forth on Exhibit B hereto (collectively the "New Investors"). The New Investors and the Existing Investors are referred to collectively herein as the "Investors." THE PARTIES HEREBY AGREE AS FOLLOWS: 1. Registration Rights. The Company covenants and agrees as follows: 1.1 Definitions. For purposes of this Section 1 (unless specifically stated elsewhere): (a) The term "Securities Act" means the Securities Act of 1933, as amended. (b) The term "Holder" means any person owning or having the right to acquire Registrable Securities or any assignee thereof. (c) The term "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended. (d) The terms "register," "registered" and "registration" refer to a registration effected by preparing and filing a registration statement or similar document in compliance with the Securities Act, and the declaration or ordering of effectiveness of such registration statement or document. (e) The term "Registrable Securities" means (i) Common Stock issuable or issued upon conversion of the Shares; (ii) Common Stock now owned by each of Farzad and Rhonda L. Dibachi, Trustees of the Dibachi Family Trust UDT dated 2/11/98 and the Garnett 1996 Children's Trust UTA dtd 3-11-96, Howard S. Zeprun, Trustee; (iii) Common Stock issued or issuable upon conversion of Preferred Stock of the Company issued or issuable upon exercise of warrants to purchase Preferred Stock of the Company issued after the date hereof to financial institutions or lessors in connection with commercial credit arrangements, equipment financings or similar transactions, the terms of which are approved by the Board of Directors of the Company, provided that any 1 2 such additional parties to this Agreement execute a counterpart signature page hereto and agree to be bound by the terms hereof, and (iv) 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 the foregoing, excluding in all cases, however, any shares sold or transferred by a person in a transaction in which the rights under this Section 1 are not assigned. (f) The number of shares of "Registrable Securities then outstanding" shall be determined by the number of shares of Common Stock outstanding which are, and the number of shares of Common Stock issuable pursuant to then exercisable or convertible securities which are Registrable Securities. (g) The term "Shares" shall mean shares of the Company's Series F Preferred Stock, Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock. (h) The term "SEC" shall mean the Securities and Exchange Commission. 1.2 Demand Registration. (a) Registration Rights. If the Company shall receive at any time after six (6) months after the effective date of the first registration statement for a public offering of securities of the Company (other than a registration statement relating either to the sale of securities to employees of the Company pursuant to a stock option, stock purchase or similar plan or a SEC Rule 145 transaction), a written request from holders of at least 50% of the Registrable Securities then outstanding ("Initiating Holders"), requesting that the Company file a registration statement under the Securities Act covering the registration of at least twenty percent (20%) of the Registrable Securities then outstanding, then the Company shall: (i) within ten (10) days of the receipt thereof, give written notice of such request to all Holders; and (ii) effect as soon as practicable, and in any event within ninety (90) days of the receipt of such request, the registration under the Securities Act of all Registrable Securities which the Holders request to be registered, subject to the limitations of subsection 1.2(b), within fifteen (15) days of the mailing of such notice by the Company in accordance with Section 4.6. (b) Underwriting. 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 subsection 1.2(a) and the Company shall include such information in the written notice referred to in subsection 1.2(a). The underwriter 2 3 will be selected by the Company and shall be reasonably acceptable to a majority in interest of the Initiating Holders. In such event, the right of any Holder to include Registrable Securities in such registration shall be conditioned upon such Holder's participation in such underwriting and the inclusion of such Holder's Registrable Securities in the underwriting (unless otherwise mutually agreed by a majority in interest of the Initiating Holders and such Holder) to the extent provided herein. All Holders proposing to distribute Registrable Securities through such underwriting shall, together with the Company, enter into an underwriting agreement in customary form with the managing underwriter selected for such underwriting by the Company. Notwithstanding any other provision of this Section 1.2, if the Company and the underwriter advise the Initiating Holders in writing that marketing factors require a limitation of the number of shares to be underwritten, then the Initiating Holders shall so advise all Holders of Registrable Securities, and the number of Registrable Securities that may be included in the underwriting on behalf of each selling Holder shall be allocated pro-rata amongst all selling Holders according to the total number of Registrable Securities held by each such selling Holder. For purposes of the foregoing allocation and any other similar allocations required by this Section 1, for any selling Holder which is a partnership or corporation, the partners, retired partners and stockholders of such Holder (and in the case of a partnership, any affiliated partnerships), or the estates and family members of any such partners and retired partners and any trusts for the benefit of any of the foregoing persons shall be deemed to be a single "selling Holder," and any pro-rata reduction with respect to such "selling Holder" shall be based upon the aggregate number of Registrable Securities owned by all entities and individuals included in such "selling Holder," as defined in this sentence. To facilitate the allocation of shares in accordance with the above provisions, the Company may round the number of shares allocated to any Holder to the nearest 100 shares. (c) Deferral of Registration. Notwithstanding the foregoing, if the Company shall furnish to the Holders requesting a registration statement pursuant to this Section 1.2 a certificate signed by the Chief Executive Officer 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 for such registration statement to be filed and it is therefore essential to defer the filing of such registration statement, the Company shall have the right to defer taking action with respect to such filing for a period of not more than one hundred twenty (120) days after receipt of the request of the Initiating Holders; provided, however that the Company may not utilize this right more than twice in any twelve-month period and the Company shall not utilize this right (or the similar right to defer in Section 1.4(b)) for two consecutive one hundred twenty (120) day periods. (d) Number of Registrations. The Company shall not be obligated to effect, or to take any action to effect, any registration pursuant to this Section 1.2 after the Company has effected two (2) registrations pursuant to this Section 1.2 and such registrations have been declared or ordered effective. For the purposes of this Section 1.2, a proposed registration that is withdrawn due to a material adverse change in the Company's business or financial condition shall not count as a registration. 3 4 1.3 Piggyback Registration Rights. (a) Registration Rights. If the Company proposes to register any of its stock or other securities under the Securities Act in connection with the public offering of such securities solely for cash (other than a registration relating solely to the sale of securities to participants in a Company stock plan, a registration effected pursuant to Rule 145 under the Securities Act or a registration on any form which does not include substantially the same information as would be required to be included in a registration statement covering the sale of the Registrable Securities) the Company shall, at such time, promptly give each Holder written notice of such registration. Upon the written request of each Holder given within fifteen (15) days after mailing of such notice by the Company in accordance with Section 4.6, the Company shall, subject to the provisions of paragraph (b) below, cause to be registered under the Securities Act all of the Registrable Securities that each such Holder has requested to be registered. (b) Underwriting. If the registration of which the Company gives notice is for a registered public offering involving an underwriting, the Company shall so advise the Holders as part of the written notice given pursuant to Section 1.3(a). In such event, the right of any Holder to registration pursuant to this Section 1.3 shall be conditioned upon such Holder's participation in such underwriting and the inclusion of Registrable Securities in the underwriting to the extent provided herein. All Holders proposing to distribute Registrable Securities through such underwriting shall (together with the Company and the other holders distributing their securities through such underwriting) enter into an underwriting agreement in customary form with the managing underwriter selected for such underwriting by the Company. Notwithstanding any other provision of this Section 1.3, if the Company and the managing underwriter determine that marketing factors require a limitation of the number of shares to be underwritten, the managing underwriter may limit or exclude entirely the Registrable Securities to be included in such registration. The Company shall so advise all Holders distributing Registrable Securities through such underwriting, and the number of Registrable Securities that may be included in the underwriting on behalf of each selling Holder and each other person distributing securities in such underwriting shall be allocated pro-rata amongst all selling Holders and all such other persons according to the respective amounts of Registrable Securities or other securities entitled to registration rights held by such selling Holders and other persons at the time of filing the registration statement. To facilitate the allocation of shares in accordance with the above provisions, the Company may round the number of shares allocated to any Holder or other person to the nearest 100 shares. 1.4 Form S-3 Registration. If at any time, and from time to time, that the Company shall be eligible to effect a registration and offering pursuant to Form S-3 under the Securities Act or any successor form ("Form S-3"), the Company shall receive from one or more of the Holders a written request or requests that the Company effect a registration on Form S-3 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: 4 5 (a) promptly give written notice of the proposed registration, and any related qualification or compliance, to all other Holders; and (b) as soon as practicable, effect such registration and all such qualifications and compliances as may be so requested and as would permit or facilitate the sale and distribution of all or such portion of such Holder's or Holders' Registrable Securities as are specified in such request, together with all or such portion of the Registrable Securities of any other Holder or Holders joining in such request as are specified in a written request given within fifteen (15) days after receipt of such written notice from the Company; provided, however, that the Company shall not be obligated to effect any such registration, qualification or compliance, pursuant to this Section 1.4: (1) if Form S-3 is not available for such offering by the Holders; (2) 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 a gross aggregate price to the public of less than two million dollars ($2,000,000); (3) if the Company shall furnish to the Holders a certificate signed by the President 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 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 one hundred twenty (120) days after receipt of the request of the Holder or Holders under this Section 1.4; provided, however, that the Company shall not utilize this right more than twice in any twelve month period, and the Company shall not utilize this right (or the similar right to defer in Section 1.2(c)) for two consecutive one hundred twenty (120) day periods; (4) if the Company has, within the twelve (12) month period preceding the date of such request, previously effected a registration on Form S-3 pursuant to this Section 1.4; or (5) 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 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 1.4 shall not be counted as demands for registration or registrations effected pursuant to Sections 1.2 or 1.3, respectively. 1.5 Furnish Information. It shall be a condition precedent to the obligations of the Company to take any action pursuant to this Section 1 with respect to the Registrable Securities of any selling Holder that such Holder shall furnish to the Company such information regarding itself, the Registrable Securities held by it, and the intended method of disposition of such securities as shall be required to effect the registration of such Holder's Registrable Securities. 1.6 Expenses of Registration. The Company shall bear and pay all expenses incurred in connection with any registration, filing or qualification of Registrable Securities with respect to the registrations pursuant to this Section I for each Holder (which right may be assigned as provided in Section 1.10), including (without limitation) all registration, filing, and 5 6 qualification fees, printers and accounting fees relating or apportionable thereto and the fees and disbursements of counsel for the Company and no more than one counsel for all the selling Holders, but excluding underwriting discounts and commissions relating to Registrable Securities; provided, however, that the Company shall not be required to pay for any expenses of any registration proceeding begun pursuant to Section 1.2 or 1.4 if the registration request is subsequently withdrawn at the request of a majority of the Holders of the Registrable Securities electing to be registered (in which case all participating Holders shall bear such expenses), unless (i) the registration is withdrawn following any deferral of the registration by the Company pursuant to Section 1.2(c) or 1.4(b); (ii) the registration is withdrawn due to a material adverse change in the Company's business or financial condition; or (iii) in the case of a demand registration pursuant to Section 1.2, the Holders of a majority of the Registrable Securities proposed to be registered by such Holders requesting withdrawal agree that the Holders shall forfeit their right to one registration pursuant to Section 1.2. 1.7 No Delay of Registration. No Holder shall have any right to obtain or seek an injunction restraining or otherwise delaying any such registration as the result of any controversy that might arise with respect to the interpretation or implementation of this Section 1. 1.8 Indemnification. In the event any Registrable Securities are included in a registration statement under this Section 1: (a) To the extent permitted by law, the Company will indemnify and hold harmless 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"): (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; and the Company will pay to each such Holder, underwriter or controlling person any legal or other expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, damage, liability, or action, as such expenses are incurred; provided, however, that the indemnity agreement contained in this subsection 1.8(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 to any Holder, any underwriter (as defined in the Securities Act) for such Holder or any person who controls such Holder or underwriter within the meaning of the Securities Act or Exchange Act, for any such loss, claim, damage, liability, or action to the extent 6 7 that it arises out of or is based upon a Violation which occurs in reliance upon and in conformity with written information furnished by such Holder, underwriter or controlling person. (b) To the extent permitted by law, each Holder will indemnify and hold harmless the Company, each of its directors, each of its officers who has signed the registration statement, each person, if any, who controls the Company within the meaning of the Securities Act, any underwriter, any other Holder selling securities in such registration statement and any controlling person of any such underwriter or other Holder, severally but not jointly, against any losses, claims, damages, or liabilities (joint or several) to which any of the foregoing persons 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 specified for use in such registration statement; and each such Holder will pay any legal or other expenses reasonably incurred by any person intended to be indemnified pursuant to this subsection 1.8(b), in connection with investigating or defending any such loss, claim, damage, liability, or action; provided, however, that the indemnity agreement contained in this subsection 1.8(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, that, in no event shall any indemnity by any Holder under this subsection 1.8(b) exceed the net proceeds from the offering received by such Holder. (c) Promptly after receipt by an indemnified party under this Section 1.8 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 1.8, 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 one counsel mutually satisfactory to the parties; provided, however, that an indemnified party (together with all other indemnified parties which may be represented without conflict by one counsel) shall have the right to retain one separate 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 shall not relieve such indemnifying party of any liability to the indemnified party under this Section 1.8 unless the failure to deliver notice is materially prejudicial to its ability to defend such action. Any omission to so 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 1.8. (d) If the indemnification provided for in this Section 1.8 is held by a court of competent jurisdiction to be unavailable to an indemnified party with respect to any loss, liability, claim, damage, or expense referred to therein, then the indemnifying party, in lieu of indemnifying such indemnified party hereunder, shall contribute to the amount paid or payable 7 8 by such indemnified party as a result of such loss, liability, claim, damage, or expense in such proportion as is appropriate to reflect the relative fault of the indemnifying party on the one hand and of the indemnified party on the other in connection with the statements or omissions that resulted in such loss, liability, claim, damage, or expense as well as any other relevant equitable considerations; provided that in no event shall any Holder be required to contribute under this subsection 1.8(d) an aggregate amount in excess of the gross proceeds from the offering received by such Holder less any amounts paid by the Holder pursuant to subsection 1.8(b). The relative fault of the indemnifying party and of the indemnified party shall be determined 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. (e) Notwithstanding the foregoing, to the extent that the provisions on indemnification and contribution contained in the underwriting agreement entered into in connection with the underwritten public offering are in conflict with the foregoing provisions, the provisions in the underwriting agreement shall control as to the parties to the underwriters agreement and any stockholders of the Company selling shares of the Company in such offering. (f) The obligations of the Company and Holders under this Section 1.8 shall survive the completion of any offering of Registrable Securities in a registration statement under this Section 1, and otherwise. 1.9 Reports under the Exchange Act. With a view to making available to the Holders the benefits of Rule 144 promulgated under the Act and any other rule or regulation of the SEC that may at any time permit a Holder to sell securities of the Company to the public without registration or pursuant to a registration on Form S-3, the Company agrees to: (a) make and keep public information available, as those terms are understood and defined in SEC Rule 144, at all times after ninety (90) days after the effective date of the first registration statement filed by the Company for the 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 Securities Act and the Exchange Act; and (c) furnish to any Holder, so long as the Holder owns any Registrable Securities, forthwith upon request (i) a written statement by the Company that it has complied with the reporting requirements of SEC Rule 144 (at any time after ninety (90) days after the effective date of the first registration statement filed by the Company), the Securities Act and the Exchange Act (at any time after it has become subject to such reporting requirements), (ii) a copy of the most recent annual or quarterly report of the Company and such other reports and documents so filed by the Company, and (iii) such other information as may be reasonably requested in availing any Holder of any rule or regulation of the SEC which permits the selling of any such securities without registration. 8 9 1.10 Assignment of Registration Rights. The rights to cause the Company to register Registrable Securities pursuant to this Section 1 may be assigned (but only with all related obligations) by a Holder to a transferee or assignee of such securities who, after such assignment or transfer, holds at least five hundred thousand (500,000) shares of Registrable Securities (subject to appropriate adjustment for stock splits, dividends, combinations and other recapitalizations), provided: (a) the Company is, within a reasonable time before such transfer, furnished with 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; (b) such transferee or assignee agrees in writing to be bound by and subject to the terms and conditions of this Agreement, including without limitation the provisions of Section 1.11 and (c) such assignment shall be effective only if immediately following such transfer the further disposition of such securities by the transferee or assignee is restricted under the Securities Act. For the purposes of determining the number of shares of Registrable Securities held by a transferee or assignee of a holder of Registrable Securities, (i) the holdings of affiliated partnerships and other entities, constituent or retired partners or members (collectively, "Affiliated Members") and (ii) the holdings of spouses and ancestors, lineal descendants and siblings who acquire Registrable Securities by gift, will or intestate succession (collectively, "Family Members") shall in each case be aggregated together; provided that all assignees and transferees who would not qualify individually for assignment of registration rights shall designate in writing to the Company on behalf of the entire group of Affiliated Persons or Family Members, as the case may be, a single attorney-in-fact for the purpose of exercising any rights, receiving notices or taking any action under this Section 1. 1.11 "Market Stand-Off" Agreement. Each Holder hereby agrees that, during the period of duration specified by the Company and an underwriter of common stock or other securities of the Company, following the effective date of a registration statement of the Company filed under the Securities Act, it shall not, to the extent requested by the Company and such underwriter, directly or indirectly sell, offer to sell, contract to sell (including, without limitation, any short sale), grant any option to purchase or otherwise transfer or dispose of (other than to donees who agree to be similarly bound) any securities of the Company held by it as of the effective date except Registrable Securities included in such registration; provided, however, that: (a) all officers and directors of the Company enter into substantially similar agreements; and (b) such market stand-off time period shall not exceed one hundred eighty (180) days except as may be agreed to by holders of a majority of the then outstanding Registrable Securities. Each Investor agrees to provide to the underwriters of any public offering such further agreement as such underwriter may require in connection with this market stand-off agreement. In order to enforce the foregoing covenant, the Company may impose stop-transfer instructions with respect to the Registrable Securities of each Investor (and the shares or securities of every other person subject to the foregoing restriction) until the end of such period. 9 10 1.12 Termination of Registration Rights. No Holder shall be entitled to exercise any right provided for in this Section 1 after the earlier of (a) five (5) years following the consummation of an underwritten public offering by the Company of shares of its Common Stock pursuant to a registration statement on form S-1 or SB-2 under the Securities Act yielding gross proceeds to the Company in excess of twenty million dollars $20,000,000 (a "Qualified IPO"), and (b) such time as Rule 144 or another similar exemption under the Securities Act is available for the sale of all of such Holder's shares during a three (3)-month period without registration. 2. Right of First Refusal. 2.1 General. Each Holder (as defined in Section 1.1(b)) and any party to whom such Holder's rights under this Section 2 have been duly assigned in accordance with Section 2.6 (each such Holder or assignee being hereinafter referred to as a "Rights Holder") has the right of first refusal to purchase such Rights Holder's Pro Rata Share (as defined below), of all (or any part) of any "New Securities" (as defined in Section 2.2) that the Company may from time to time issue after the date of this Agreement. A Rights Holder's "Pro Rata Share" for purposes of this right of first refusal is the ratio of (a) the number of Registrable Securities as to which such Rights Holder is the Holder (and/or is deemed to be the Holder under Section 1.1(b)), to (b) a number of shares of Common Stock of the Company equal to the sum of (1) the total number of shares of Common Stock of the Company then outstanding plus (2) the total number of shares of Common Stock of the Company into which all then outstanding shares of Preferred Stock of the Company are then convertible plus (3) the number of shares of Common Stock of the Company reserved for issuance under stock purchase and stock option plans of the Company and outstanding warrants. 2.2 New Securities. "New Securities" shall mean any Common Stock or Preferred Stock of the Company, whether now authorized or not, and rights, options or warrants to purchase such Common Stock or Preferred Stock, and securities of any type whatsoever that are, or may become, convertible or exchangeable into such Common Stock or Preferred Stock; provided, however, that the term "New Securities" does not include: (a) shares of Common Stock issued or issuable upon conversion of the outstanding shares of the Preferred Stock; (b) up to an aggregate of 10,568,210 shares (such number to be calculated net of any repurchases of such shares by the Company and net of any expired or terminated options, warrants or rights and to be proportionately adjusted to reflect any subsequent split, subdivision, combination or reverse stock split of the outstanding shares of Common Stock of the Company) issued as (i) shares of Common Stock (or options, warrants or rights therefor) granted or issued hereafter to employees, officers, directors, contractors, consultants or advisers to, the Company or any Subsidiary pursuant to incentive agreements, stock purchase or stock option plans, stock bonuses or awards, 10 11 warrants, contracts or other arrangements that are approved by the Board of Directors; (ii) shares of the Company's Common Stock or Preferred Stock (and/or options or warrants therefor) issued or issuable to parties providing the Company with equipment leases, real property leases, loans, credit lines, guaranties of indebtedness, cash price reductions or similar financing, under arrangements approved by the Board of Directors; (c) shares of Common Stock or Preferred Stock issued pursuant to the acquisition of another corporation or entity by the Company by consolidation, merger, purchase of all or substantially all of the assets, or other reorganization in which the Company acquires, in a single transaction or series of related transactions, all or substantially all of the assets of such other corporation or entity or fifty percent (50%) or more of the voting power of such other corporation or entity or fifty percent (50%) or more of the equity ownership of such other entity; (d) any shares of Series C Preferred Stock issued under the Series C Preferred Stock Purchase Agreement of even date herewith; (e) any securities issuable upon exercise of any options, warrants or rights to purchase any securities of the Company outstanding on the date of this Agreement ("Warrant Securities") and any securities issuable upon the conversion of any Warrant Securities or upon the exercise or conversion of any securities, if such securities were first offered to the Rights Holders hereunder; (f) shares of the Company's Common Stock or Preferred Stock issued in connection with any stock split or stock dividend; and (g) securities offered by the Company to the public pursuant to a registration statement filed under the Securities Act. 2.3 Procedures. In the event that the Company proposes to undertake an issuance of New Securities, it shall give to each Rights Holder written notice of its intention to issue New Securities (the "Notice"), describing the type of New Securities and the price and the general terms upon which the Company proposes to issue such New Securities. Each Rights Holder shall have ten (10) business days from the date of mailing of any such Notice to agree in writing to purchase such Rights Holder's Pro Rata Share of such New Securities for the price and upon the general terms specified in the Notice by giving written notice to the Company and stating therein the quantity of New Securities to be purchased (not to exceed such Rights Holder's Pro Rata Share). If any Rights Holder fails to so agree in writing within such ten (10) business day period to purchase such Rights Holder's full Pro Rata Share of an offering of New Securities (a "Nonpurchasing Holder"), then such Nonpurchasing Holder shall forfeit the right hereunder to purchase that part of his Pro Rata Share of such New Securities that he did not so agree to purchase and the Company shall promptly give each Rights Holder who has timely agreed to purchase his full Pro Rata Share of such offering of New Securities (a "Purchasing Holder") written notice of the failure of any Nonpurchasing Holder to purchase such 11 12 Nonpurchasing Rights Holder's full Pro Rata Share of such offering of New Securities (the "Overallotment Notice"). Each Purchasing Holder shall have a right of overallotment such that such Purchasing Holder may agree to purchase a portion of the Nonpurchasing Holders' unpurchased Pro Rata Shares of such offering on a pro rata basis according to the relative Pro Rata Shares of the Purchasing Rights Holders, at any time within five (5) business days after receiving the Overallotment Notice. 2.4 Failure to Exercise. In the event that the Rights Holders fail to exercise in full the right of first refusal within such ten (10) plus five (5) business day period, then the Company shall have 120 days thereafter to sell the New Securities with respect to which the Rights Holders' rights of first refusal hereunder were not exercised, at a price and upon general terms not materially more favorable to the purchasers thereof than specified in the Company's Notice to the Rights Holders. In the event that the Company has not issued and sold the New Securities within such 120 day period, then the Company shall not thereafter issue or sell any New Securities without again first offering such New Securities to the Rights Holders pursuant to this Section 2. 2.5 Termination. This right of first refusal shall terminate (a) immediately before the closing of the first underwritten sale of Common Stock of the Company to the public pursuant to a registration statement filed with, and declared effective by, the SEC under the Securities Act, covering the offer and sale of Common Stock to the public at an aggregate gross public offering price (calculated before deduction of underwriters' discounts and commissions) of at least twenty million dollars ($20,000,000) or (b) upon 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 immediately prior to such transaction (x) own, immediately after such transaction, securities representing less than a majority of the voting power of the corporation or other entity surviving such transaction and (y) receive cash, securities registered under Section 12 of the Exchange Act, or a combination thereof in exchange for all shares of Common Stock of the Company owned by such holders immediately before such transaction. 2.6 Assignment of Right of First Refusal. The right to purchase the Pro Rata Shares pursuant to this Section 2 may be assigned (but only with all related obligations) by a Holder to a transferee or assignee of such securities who, after such assignment or transfer, holds at least five hundred thousand (500,000) shares of Registrable Securities (subject to appropriate adjustment for stock splits, dividends, combinations and other recapitalizations), provided: (a) the Company is, within a reasonable time before such transfer, furnished with written notice of the name and address of such transferee or assignee and the securities with respect to which such right of first refusal are being assigned; (b) such transferee or assignee agrees in writing to be bound by and subject to the terms and conditions of this Agreement, including without limitation the provisions of Section 1.11 and (c) such assignment shall be effective only if immediately following such transfer the further disposition of such securities by the transferee or assignee is restricted under the Securities Act. For the purposes of determining the number of shares of Registrable Securities held by a transferee or assignee of a holder of Registrable Securities, (i) the holdings of Affiliated Members and (ii) the holdings of Family Members shall in each case 12 13 be aggregated together; provided that all assignees and transferees who would not qualify individually for assignment of the right of first refusal shall designate in writing to the Company on behalf of the entire group of Affiliated Persons or Family Members, as the case may be, a single attorney-in-fact for the purpose of exercising any rights, receiving notices or taking any action under this Section 2. 3. Covenants of the Company. 3.1 Delivery of Financial Statements. The Company shall deliver to each Investor, so long as such Investor shall be a Holder of at least five hundred thousand (500,000) Shares (subject to appropriate adjustment for stock splits, dividends, combinations and other recapitalizations): (a) as soon as practicable, but in any event within one hundred twenty (120) days after the end of each fiscal year of the Company, an income statement for such fiscal year, a balance sheet of the Company and statement of stockholders' equity as of the end of such year, and a statement of cash flows for such year, such year-end financial reports to be in reasonable detail, prepared in accordance with generally accepted accounting principles ("GAAP"), and audited and certified by independent public accountants of nationally recognized standing selected by the Company; (b) as soon as practicable, but in any event within sixty (60) days after the end of each of the first three (3) quarters of each fiscal year of the Company, an unaudited profit or loss statement, a statement of cash flows for such fiscal quarter and an unaudited balance sheet as of the end of such fiscal quarter. 3.2 Inspection. The Company shall permit each Investor, so long as such Investor shall be a Holder of at least five hundred thousand (500,000) Shares (subject to appropriate adjustment for stock splits, dividends, combinations and other recapitalizations), at such Holder's expense, to visit and inspect the Company's properties, to examine its books of account and records and to discuss the Company's affairs, finances and accounts with its officers, all at such reasonable times as may be requested by the Holder; provided, however, that the Company shall not be obligated pursuant to this Section 3.2 to provide access to any information which it reasonably considers to be a trade secret or similar confidential information unless the recipient is not deemed by the Board of Directors to be a competitor or potential competitor of the Company and such Holder signs an appropriate nondisclosure agreement. The Company hereby acknowledges that CNET, Inc. is not and will not be deemed a competitor or potential competitor for purposes of this Section 3.2. 3.3 Termination of Covenants. The covenants set forth in this Section 3 shall terminate and be of no further force or effect (a) upon a Qualified IPO or when the Company first becomes subject to the periodic reporting requirements of Sections 12(g) or 15(d) of the Exchange Act, whichever event shall first occur, or (b) with respect to the covenants set forth in Section 3.2, as to any Holder, or transferee or assignee of such Holder, who is deemed by the Board of Directors of the Company to be a competitor or potential competitor of the Company. 13 14 4. Miscellaneous. 4.1 Additional Parties. "Purchaser" under that certain Series D Preferred Stock Purchase Agreement made as of October __, 1999 by and between the Company and such Purchasers shall become a "New Investor" hereunder, when such Purchaser executes a counterpart signature page hereof and without the need for an amendment hereto except to add such Purchaser's name to Exhibit B hereto. In the event of the issuance of warrants to purchase Preferred Stock to financial institutions or lessors in connection with commercial credit arrangements, equipment financings or similar transactions, the terms of which are approved by the Board of Directors of the Company, upon execution of a counterpart signature page by any such entity and without need for an amendment hereto except to add such entity's name to Exhibit B hereto, any such entity shall become a party to this Agreement and shall be deemed an "Investor" for purposes of Sections 1, 2 and 4 of this Agreement as of the date of execution of such counterpart signature page. 4.2 Successors and Assigns. Except as otherwise provided herein, the terms and conditions of this Agreement shall inure to the benefit of and be binding upon the respective successors and permitted assigns of the parties (including transferees of any shares of Registrable Securities). Nothing in this Agreement, express or implied, is intended to confer upon any party other than the parties hereto or their respective successors and assigns any rights, remedies, obligations, or liabilities under or by reason of this Agreement, except as expressly provided in this Agreement. 4.3 Governing Law. This Agreement shall be governed by and construed under the laws of the State of California as such laws apply to agreements entered into by residents of California and to be performed entirely within such state. 4.4 Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 4.5 Titles and Subtitles. The titles and subtitles used in this Agreement are used for convenience only and are not to be considered in construing or interpreting this Agreement. 4.6 Notices. All notices and other communications required or permitted hereunder shall be in writing, shall be effective when given, and shall in any event be deemed to be given upon receipt or, if earlier, (a) five (5) days after deposit with the U.S. Postal Service or other applicable postal service, if delivered by first class mail, postage prepaid, (b) upon delivery, if delivered by hand, (c) one (1) business day after the business day of deposit with Federal Express or similar overnight courier, freight prepaid or (d) one (1) business day after the business day of facsimile transmission, if delivered by facsimile transmission with copy by first class mail, postage prepaid, and shall be addressed (i) if to the Investors, at the Investors' respective addresses as set forth on Exhibit A or Exhibit B hereto and (ii) if to the Company, at the address of its principal corporate offices (attention: Secretary), or in any such case at such other address 14 15 as a party may designate by ten (10) days' advance written notice to the other party pursuant to the provisions above. 4.7 Expenses. If any action at law or in equity is necessary to enforce or interpret the terms of this Agreement, the prevailing party shall be entitled to reasonable attorneys' fees, costs and necessary disbursements in addition to any other relief to which such party may be entitled. 4.8 Amendments and Waivers. Any term of this Agreement may be amended and the observance of any term of this Agreement 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 a majority of the Registrable Securities then outstanding. Any amendment or waiver effected in accordance with this paragraph shall be binding upon each holder of any Registrable Securities then outstanding, each future holder of all such Registrable Securities, and the Company. 4.9 Aggregation of Stock. All shares of the Series F, Series A, Series B, Series C and Series D Preferred Stock of the Company held or acquired (or Common Stock issuable upon conversion thereof) by affiliated entities or persons shall be aggregated together for the purpose of determining the availability or discharge of any rights under this Agreement. 4.10 Severability. If one or more provisions of this Agreement are held to be unenforceable under applicable law, such provision shall be excluded from this Agreement and the balance of the Agreement shall be interpreted as if such provision were so excluded and shall be enforceable in accordance with its terms. 4.11 Entire Agreement; Amendment; Waiver. This Agreement (including the Exhibits hereto) constitutes the full and entire understanding and agreement between the parties with regard to the subjects hereof and thereof. [Signature Page Follows] 15 16 COMPANY: INVESTOR: NIKU CORPORATION By: By: ------------------------------- ------------------------------ Farzad Dibachi, President Name: ---------------------------- Title: --------------------------- 16 17 LIST OF EXHIBITS Exhibit A - Existing Investors Exhibit B - New Investors 17 18 Exhibit A Existing Investors
COMMON STOCK NAME SHARES - ----------------------------------------------------------- Garnett 1996 Children's Trust 500,000 UTA dtd 3-11-96, Howard S. Zeprun, Trustee Dibachi, Farzad and Rhonda L., 3,200,000 Trustees of the Dibachi Family Trust UDT dated 2-11-98
SERIES F NAME SHARES - ----------------------------------------------------------- Garnett 1996 Children's Trust 700,000 UTA dtd 3-11-96, Howard S. Zeprun, Trustee Garnett, Terence J. and Katrina A., 1,300,000 Trustees of the Garnett Family Trust U/D/T dated 4-2-97 Florence V, LLC, Harold Slawik, 1,500,000 Managing Member Dibachi, Franklin David 500,000 Trust, Harold Slawik, Trustee Dibachi, Farzad and Rhonda L., 5,900,000 Trustees of the Dibachi Family Trust UDT dated 2-11-98 SILICON VALLEY COMMUNITIES VENTURES NOT A PARTY TO THIS AGREEMENT (100,000 SHARES)
18 19
SERIES A NAME SHARES - ----------------------------------------------------------- Chen, John S. and Sherry H. Chen 285,714 Family Trust 1994 Delivanis, Constantin and Alison 142,857 Kibrick as co-trustees of the Delivanis-Kibrick Family Trust dtd 12-13-90 Farid Dibachi 714,285 Dibachi, Farzad and Rhonda L., 285,714 Trustees of the Dibachi Family Trust UDT dated 2-11-98 John Dunning 142,857 Florence V, LLC, Harold Slawik, 5,714 Managing Member Garnett, Terence J. and Katrina 1,857,142 A., Trustees of the Garnett Family Trust U/D/T dated 4-2-97 GCA Investments 1998 30,000 Joe Gillach 142,857 Vinay Goel 150,000 Haque Family Partners 285,714 Soroush and Niloofar Farhad 142,857
19 20 Kaboli, JTWROS Mark Moore 71,428 Charles Phillips 71,428 Morgan Stanley & Co. Joshua Pickus 28,571 The William J. Raduchel Revocable Trust 285,714 Madhavan Rangaswami 142,857 VLG Investments 1998 71,428 Attn: Linda Glisson Maynard G. Webb, Jr. And 285,714 Irene C. Webb, Trustees of the Webb Family Trust, dated June 3, 1995
SERIES B NAME SHARES - ----------------------------------------------------------- Comdisco, Inc. 146,666 Jim and Caroline Labe, Trustees of 6,666 the Labe 1998 Revocable Trust, dated 10/5/98 Manuel Henriquez 6,666 The Phoenix Partners 333,333 Joshua Pickus 13,333
20 21 VLG Investments 1998 13,333 Shanmugam Chinnasamy 60,000 Anant V. Prabhudesai 33,333 William J. Raduchel 66,666 Roger Smith 66,666 Martin and Diana Neiman JTWROS 133,333 Ramsey Beirne Partners, LLC 160,000 Venrock Associates 2,328,000 Venrock Associates II, L.P. 2,845,333 Farzad and Rhonda L. Dibachi, Trustees of 666,666 the Dibachi Family Trust UDT dated 2/11/98 Terence J. and Katrina A. Garnett, 333,333 Trustees of the Garnett Family Trust UDT dated 4/27/97 Terence J. and Katrina A. Garnett, 160,000 Trustees of the Garnett Family Trust UDT dated 4/27/97 Maynard G. Webb, Jr. and Irene C. Webb, 133,333 Trustees of the Webb Family Trust, dated 6/3/95 Peter Mooney as nominee for the Broadview 293,333 Partners Group
21 22 Haque Family Partners 133,333 Jack Acosta 66,666
SERIES C NAME SHARES - ----------------------------------------------------------- J. H. Whitney III, L.P. 4,416,199 Whitney Strategic Partners III, L.P. 106,414 Peter O. Crisp 25,126 F & W Investments 1998 25,126 Kip Fern 25,126 Terence J. Garnett and Katrina A. 502,513 Garnett, Trustees of the Garnett Family Trust U/D/T dated 4/2/97 Terence J. Garnett 75,377 Hambrecht & Quist California 49,121 Hambrecht & Quist Employee Venture 28,391 Fund, L.P. II Access Technology Partners, L.P. 396,985 Access Technology Partners Brokers 4,397 Fund, L.P. Cristina Morgan 12,563 A.G. Edwards & Sons C/F Douglas P. 5,025 Smith IRA Account Kenneth Hao 2,513 Donald Fornes 3,518 Phoenix Partners IIIB 251,256 Phoenix Partners IV 251,256
22 23 TCW/ICICI India Private Equity Fund, 705,944 L.L.C. TCW/ICICI India Private Equity Amp 299,081 Fund, L.L.C. Michael Tyrrell 25,126 Venrock Associates 999,246 Venrock Associates II, L.P. 1,437,940 Maynard and Irene Webb, 50,251 Trustees of the Webb Family Trust Dated June, 1995 Henricus J. Stander III 25,126 Mark A. Moore 12,563 Comdisco, Inc. 251,256
23 24 Exhibit B New Investors
PURCHASE NO. OF PRICE PER AGGREGATE NAME SHARES SHARE PURCHASE PRICE - ---- ------ --------- -------------- Amerindo entities (total is $10 million) Amerindo Technology Growth Fund II 798,500 $5.00 $3,992,500.00 399 Park Avenue, Floor 18 New York, NY 10022 Attn: Jessica Caruso James Stableford 5,000 $5.00 $25,000.00 43 Upper Grosvenor Street, London, UK W1X 9PG Anthony Ciulla 10,000 $5.00 $50,000.00 c/o Amerindo Investment Advisors, Inc. 1 Embarcadero Center, Ste 2300 San Francisco, CA 94111 Joaquin Garcia-Larrieu 2,000 $5.00 $10,000.00 c/o Amerindo Investment Advisors, Inc. 399 Park Avenue, Floor 18 New York, NY 10022 Pivotal Partners L.P. 320,000 $5.00 $1,600,000.00 Attention: Diana Mah One Embarcadero Center, Ste 2300 San Francisco, CA 94111 California Bank & Trust Agent for 60,000 $5.00 $300,000.00 Ralph Cechettini IRA #1 Attention: Diana Mah One Embarcadero Center, Ste 2300 San Francisco, CA 94111 William Slattery 1,000 $5.00 $5,000.00 c/o Amerindo Investment Advisors, Inc. 399 Park Avenue, Floor 18 New York, NY 10022 Vertex Capital II LLC 80,000 $5.00 $400,000.00 130 West Lake Street Wayzata, MN 55391 Attn: Matthew Fitzmaurice
25
PURCHASE NO. OF PRICE PER AGGREGATE NAME SHARES SHARE PURCHASE PRICE - ---- ------ --------- -------------- Matthew Fitzmaurice 20,000 $5.00 $100,000.00 130 West Lake Street Wayzata, MN 55391 Dana Smith 3,000 $5.00 $15,000.00 c/o Amerindo Investment Advisors, Inc. 399 Park Avenue, Floor 18 New York, NY 10022 Daniel Chapey 500 $5.00 $2,500.00 c/o Amerindo Investment Advisors, Inc. 1 Embarcadero Center, Ste 2300 San Francisco, CA 94111 Emeric McDonald 400,000 $5.00 $2,000,000.00 c/o Amerindo Investment Advisors, Inc. 1 Embarcadero Center, Ste 2300 San Francisco, CA 94111 Litton Master Trust 300,000 $5.00 $1,500,000.00 c/o Amerindo Investment Advisors, Inc. 399 Park Avenue, Floor 18 New York, NY 10022 Attn: Amy Caruso Jonathan Art 20,000 $5.00 $100,000.00 80 East End Avenue New York, NY 10028 Peter Mooney as Nominee for the Broadview 57,500 $5.00 $287,500.00 Partners Group David Elias c/o Broadview International One Bridge Plaza Fort Lee, NJ 07024 Richard L. Chang 5,000 $5.00 $25,000.00 c/o Bowman Capital Management, L.L.C. 1875 South Grant Street, Suite 600 San Mateo, CA 94402
26
PURCHASE NO. OF PRICE PER AGGREGATE NAME SHARES SHARE PURCHASE PRICE - ---- ------ --------- -------------- Charter Growth Capital, L.P. 480,000 $5.00 $2,400,000.00 c/o Charter Growth Capital 525 University Avenue, Suite 1400 Palo Alto, CA 94301 Attn: A. Barr Dolan Charter Growth Capital Co-Investment Fund, L.P. 90,000 $5.00 $450,000.00 c/o Charter Growth Capital 525 University Avenue, Suite 1400 Palo Alto, CA 94301 Attn: A. Barr Dolan CGC Investors, L.P. 30,000 $5.00 $150,000.00 c/o Charter Growth Capital 525 University Avenue, Suite 1400 Palo Alto, CA 94301 Attn: A. Barr Dolan Shanmugam Chinnasamy 10,191 $5.00 $50,955.00 7176 Josslyn Drive San Jose, CA 95120 CNET Investments, Inc. 1,000,000 $5.00 $5,000,000.00 150 Chestnut Street San Francisco, CA 94111 Attn: Brandyn Criswell Comdisco, Inc. 400,000 $5.00 $2,000,000.00 3000 Sand Hill Road Building One, Suite 155 Menlo Park, CA 94025 Attn: Grace Gillen Matthew T. Cowan 7,000 $5.00 $35,000.00 c/o Bowman Capital Management, L.L.C. 1875 South Grant Street, Suite 600 San Mateo, CA 94402
27
PURCHASE NO. OF PRICE PER AGGREGATE NAME SHARES SHARE PURCHASE PRICE - ---- ------ --------- -------------- Peter O. Crisp 4,268 $5.00 $21,340.00 103 Horseshoe Road Mill Neck, NY 11765 CrossFire Ventures, LLC 100,000 $5.00 $500,000.00 6541 Crown Blvd., Suite E San Jose, CA 95120 Attn: John Dunning Constantin Delivanis & Alison Kibrick as 30,000 $5.00 $150,000.00 Co-trustees of the Delivanis-Kibrick Family Trust dated 12/30/90 12440 Hilltop Drive Los Altos Hills, CA 94024 Farid Dibachi 70,000 $5.00 $350,000.00 12424 Skyline Blvd. Woodside, CA 94062 Essex Private Placement Fund II 400,000 $5.00 $2,000,000.00 Limited Partnership 125 High Street, 29th Floor Boston, MA 02110-2702 Attn: Susan Stickells F&W Investments 1999 10,000 $5.00 $50,000.00 2 Palo Alto Square Palo Alto, CA 94306 Attn: Laird Simons, Esq. F&W Investments 2000 20,000 $5.00 $100,000.00 2 Palo Alto Square Palo Alto, CA 94306 Attn: Laird Simons, Esq. Terrence J. Garnett and Katrina A. Garnett, 500,000 $5.00 $2,500,000.00 Trustees of the Garnett Family Trust U/D/T dated 4/2/97 c/o Venrock Associates 2494 Sand Hill Road, Suite 200 Menlo Park, CA 94025
28
PURCHASE NO. OF PRICE PER AGGREGATE NAME SHARES SHARE PURCHASE PRICE - ---- ------ --------- -------------- Hambrecht & Quist entities (total is $1 million) Attn: Isaac Ruiz One Bush Street San Francisco, CA 94104 (total is $1 million) Hambrecht & Quist California 10,000 $5.00 $50,000.00 Hambrecht & Quist Employee Venture 10,000 $5.00 $50,000.00 Fund, L.P. II Access Technology Partners, L.P. 160,000 $5.00 $800,000.00 Access Technology Partners Brokers 3,200 $5.00 $16,000.00 Fund, L.P. H&Q Niku Investors, LLC 16,800 $5.00 $84,000.00 Manuel A. Henriquez 1,132 $5.00 $5,660.00 170 Hanna Way Menlo Park, CA 94025 Soroush Kaboli 20,000 $5.00 $100,000.00 2042 Barbara Drive Palo Alto, CA 94303 David Lietzke 5,000 $5.00 $25,000.00 c/o Bowman Capital Management, L.L.C. 1875 South Grant Street, Suite 600 San Mateo, CA 94402 Mark A. Moore 14,267 $5.00 $71,335.00 708 Laurel Avenue Burlingame, CA 94010 Morris Ventures 286,000 $5.00 $1,430,000.00 2500 Sand Hill Road, Suite 240 Menlo Park, CA 94025 Attn: Jeffrey A. Morris David Mullin 5,000 $5.00 $25,000.00 c/o SMART Modular Technologies, Inc. 4305 Cushing Parkway Fremont, CA 94538
29
PURCHASE NO. OF PRICE PER AGGREGATE NAME SHARES SHARE PURCHASE PRICE - ---- ------ --------- -------------- Mark Nelson 5,000 $5.00 $25,000.00 c/o Niku Corporation 305 Main Street Redwood City, CA 94063 Mark and Dianne Nelson 5,000 $5.00 $25,000.00 c/o Niku Corporation 305 Main Street Redwood City, CA 94063 The Phoenix Partners IV Limited Partnership 100,000 $5.00 $500,000.00 1000 Second Avenue, Suite 3600 Seattle, WA 98104 Attn: David Johnston Ramsey Beirne Partners, LLC 27,178 $5.00 $135,890.00 500 Executive Blvd. Ossining, NY 10562 Attn: James Chung M. Rangaswami 30,000 $5.00 $150,000.00 3404 Clay Street San Francisco, CA 94108 Balasubramanian Ravishanker 20,000 $5.00 $100,000.00 3336 Americus Drive San Jose, CA 95148 Richard F. Scocozza 20,000 $5.00 $100,000.00 166 Duane Street New York, NY 10013 Soros entities (total is $3 million) Attn: Michael C. Neus Soros Fund Management LLC 888 Seventh Avenue New York, NY 10106 Quantum Industrial Partners LDC 540,000 $5.00 $2,700,000.00
30
PURCHASE NO. OF PRICE PER AGGREGATE NAME SHARES SHARE PURCHASE PRICE - ---- ------ --------- -------------- SFM Domestic Investments LLC 60,000 $5.00 $300,000.00 Henricus J. Stander III 4,268 $5.00 $21,340.00 c/o Trust Company of the West 865 South Figueroa Street Los Angeles, CA 90017 Tailwind Capital Partners, L.P. 150,000 $5.00 $750,000.00 Attn: Andrew Sessions One Montgomery Street San Francisco, CA 94104 TCS-America 100,000 $5.00 $500,000.00 Attn: Arup Gupta 101 Park Avenue New York, NY 10178 Venrock entities (total is $1,940,000) Venrock Associates 151,126 $5.00 $755,630.00 Kim Rummelsburg, CFO 2494 Sand Hill Road, Suite 200 Menlo Park, CA 94025 Venrock Associates II, L.P. 217,474 $5.00 $1,087,370.00 Kim Rummelsburg, CFO 2494 Sand Hill Road, Suite 200 Menlo Park, CA 94025 Venrock Entrepreneurs Fund, L.P. 19,400 $5.00 $97,000.00 Kim Rummelsburg, CFO 2494 Sand Hill Road, Suite 200 Menlo Park, CA 94025 Walnut Ventures, LLC 5,000 $5.00 $25,000.00 Attn: Krishnan Ramaswami c/o Trust Company of the West 865 South Figueroa, 15th Floor Los Angeles, CA 90017
31
PURCHASE NO. OF PRICE PER AGGREGATE NAME SHARES SHARE PURCHASE PRICE - ---- ------ --------- -------------- J. H. Whitney III, L.P. 750,134 $5.00 $3,750,670.00 177 Broad Street Stamford, CT 06901 Attn: Rob Logan Whitney Strategic Partners III, L.P. 18,074 $5.00 $90,370.00 177 Broad Street Stamford, CT 06901 Attn: Rob Logan TOTALS: 7,998,012 $39,990,060.00 ========= ==============
32 FIRST AMENDMENT TO NIKU CORPORATION FOURTH AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT THIS FIRST AMENDMENT TO FOURTH AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT (this "First Amendment") is made as of the 8th day of December, 1999 by and between Niku Corporation, a Delaware corporation (the "Company") and those holders of the Company's securities whose names are set forth on the signature pages hereto (each an "Investor" and collectively the "Investors"). RECITALS A. The Company, the Investors and other holders of the Company's securities entered into the Fourth Amended and Restated Investor Rights Agreement (the "Rights Agreement") dated as of November 17, 1999. Capitalized terms used herein without definition shall have the meanings set forth in the Rights Agreement. Capitalized terms defined herein (except for the term "Investors") shall be deemed incorporated in the Rights Agreement. B. The Company, its wholly-owned subsidiary Niku Acquisition Corporation ("Merger Sub") and Proamics Corporation ("Proamics") have entered into an Agreement and Plan of Reorganization dated as of November 16, 1999 (the "Plan") with respect to the Company's acquisition of Proamics and the merger of Proamics with and into Merger Sub (the "Merger"). The Plan provides that the holders of preferred stock of Proamics immediately prior to the effective time of the Merger (each a "Proamics Preferred Holder" and collectively the "Proamics Preferred Holders") will be entitled to receive Series D Preferred Stock of the Company in exchange for their Proamics preferred stock. C. The closing of the transactions contemplated under the Plan is conditioned on the Proamics Preferred Holders becoming parties to the Rights Agreement. AGREEMENT THE PARTIES AGREE AS FOLLOWS: 1. Consent by Investors. Each Investor hereby consents to the amendment of the Rights Agreement set forth in Section 2 below. 2. Amendment. Section 4.1 of the Rights Agreement shall be amended by inserting the following immediately after the first sentence thereof: Each Proamics Preferred Holder receiving Series D Preferred Stock under the Plan shall become a "New Investor" hereunder, when such Proamics Preferred Holder executes a counterpart signature page hereof and without the need for an amendment hereto except to add such Proamics Preferred Holder's name to Exhibit B hereto. 33 The parties hereto have executed this First Amendment to Fourth Amended and Restated Investor Rights Agreement as of the date first written above. NIKU CORPORATION By: ----------------------------------------- Farzad Dibachi, President INVESTORS: Farzad and Rhonda L. Dibachi, Trustees of the Dibachi Family Trust UDT Dated 2-11-98 By: ----------------------------------------- Name: --------------------------------------- Title: -------------------------------------- Garnett 1996 Children's Trust UTA Dated 3-11-96, Howard Zeprun, Trustee By: ----------------------------------------- Name: --------------------------------------- Title: -------------------------------------- Terence J. Garnett and Katrina A. Garnett, Trustees of the Garnett Family Trust U/D/T Dated 4-2-97 By: ----------------------------------------- Name: --------------------------------------- Title: -------------------------------------- Venrock Associates By: ----------------------------------------- Name: --------------------------------------- Title: -------------------------------------- [SIGNATURE PAGE TO FIRST AMENDMENT TO FOURTH AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT] 34 Venrock Associates II By: ----------------------------------------- Name: --------------------------------------- Title: -------------------------------------- Venrock Entrepreneurs By: ----------------------------------------- Name: --------------------------------------- Title: -------------------------------------- J.H. Whitney III, L.P. By: ----------------------------------------- Name: --------------------------------------- Title: -------------------------------------- Whitney Strategic Partners III, L.P. By: ----------------------------------------- Name: --------------------------------------- Title: -------------------------------------- Amerindo Technology Growth Fund II By: ----------------------------------------- Name: --------------------------------------- Title: -------------------------------------- Charter Growth Capital, L.P. By: ----------------------------------------- Name: --------------------------------------- Title: -------------------------------------- [SIGNATURE PAGE TO FIRST AMENDMENT TO FOURTH AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT] 35 Charter Growth Co-Investment Fund, L.P. By: ----------------------------------------- Name: --------------------------------------- Title: -------------------------------------- CGC Investors, L.P. By: ----------------------------------------- Name: --------------------------------------- Title: -------------------------------------- CNET Investments, Inc. By: ----------------------------------------- Name: --------------------------------------- Title: -------------------------------------- Comdisco, Inc. By: ----------------------------------------- Name: --------------------------------------- Title: -------------------------------------- Essex Private Placement Fund II By: ----------------------------------------- Name: --------------------------------------- Title: -------------------------------------- Quantum Industrial Partners LDC (Soros) By: ----------------------------------------- Name: --------------------------------------- Title: -------------------------------------- [SIGNATURE PAGE TO FIRST AMENDMENT TO FOURTH AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT] EX-4.03 8 EX-4.03 1 EXHIBIT 4.03 NIKU CORPORATION SERIES F PREFERRED STOCK PURCHASE AGREEMENT THIS SERIES F PREFERRED STOCK PURCHASE AGREEMENT (this "Agreement") is made as of the 23rd day of January, 1998, by and among Niku Corporation, a Delaware corporation (the "Company"), and the Purchasers listed on Exhibit A hereto (the "Purchasers"). THE PARTIES HEREBY AGREE AS FOLLOWS: 1. Purchase and Sale of Stock. 1.1 Sale and Issuance of Series F Preferred Stock. Subject to the terms and conditions of this Agreement, Purchaser agrees to purchase at the Closing, and the Company agrees to sell and issue to Purchaser at the Closing, that number of shares of the Company's Series F Preferred Stock set forth opposite Purchaser's name on Exhibit A hereto (the "Shares") for the purchase price set forth thereon (the "Purchase Price"). 1.2 Filing of Restated Certificate. The Company shall adopt and file with the Secretary of State of Delaware on or before the Closing (as defined below) an Amended and Restated Certificate of Incorporation (the "Restated Certificate"). 1.3 Closing Date. The closing of the purchase and sale of the Shares hereunder shall be held at the offices of Venture Law Group, 2775 Sand Hill Road, Menlo Park, California at 5:00 p.m., local time, on January 23, 1998 (the "Closing") or at such other time and place as shall be mutually agreed upon by the Company and Purchaser. 2. Representations and Warranties of the Company. Except as set forth on the Schedule of Exceptions attached as Exhibit C hereto (the "Schedule of Exceptions"), the Company hereby represents and warrants to Purchaser as follows: 2.1 Organization, Good Standing and Qualification. The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and has all requisite corporate power and authority to carry on its business as now conducted and as proposed to be conducted. The Company is duly qualified to transact business and is in good standing in the State of California. 2.2 Capitalization and Voting Rights. (a) The authorized capital of the Company consists, or will consist immediately prior to the Closing, of: (i) Preferred Stock. Ten million (10,000,000) shares of Preferred Stock (the "Preferred Stock"), all of which have been designated Series F Preferred Stock (the "Series F Preferred Stock"), none of which is outstanding prior to the Closing, and all 2 of which will be sold pursuant to this Agreement. The rights, privileges and preferences of the Series F Preferred Stock will be as stated in the Restated Certificate. (ii) Common Stock. Fifty million (50,000,000) shares of Common Stock (the "Common Stock"), of which four million (4,500,000) shares are issued and outstanding (and an additional 450,000 shares which have been approved but not issued). The outstanding shares of Common Stock are all duly and validly authorized and issued, fully paid and nonassessable. In addition, the Company has reserved five million (5,000,000) shares of its Common Stock for issuance pursuant to the Company's 1998 Stock Plan, of which options to purchase a total of 1,800,000 shares have been granted. (b) Except for (i) the conversion privileges of the Series F Preferred Stock to be issued under this Agreement and (ii) the options described in Section 2.2(a)(ii) above and (iii) there are no outstanding options, warrants, rights (including conversion or preemptive rights) or obligations for the purchase or acquisition from the Company of any shares of its capital stock. The Company is not a party or subject to any agreement or understanding and, to the best of the Company's knowledge, there is no agreement or understanding between any other persons or entities which affects or relates to the voting or giving of written consents with respect to any security or by a director of the Company. 2.3 Subsidiaries. The Company does not presently own or control, directly or indirectly, any interest in any other corporation, association, or other business entity. The Company is not a participant in any joint venture, partnership, or similar arrangement. 2.4 Authorization. All corporate action on the part of the Company, its officers, directors and stockholders necessary for the authorization, execution and delivery of this Agreement and the Investor Rights Agreement in substantially the form attached hereto as Exhibit D (the "Investor Rights Agreement"), the performance of all obligations of the Company hereunder and thereunder, and the authorization, issuance (or reservation for issuance), sale and delivery of the Series F Preferred Stock being sold hereunder and the Common Stock issuable upon conversion of the Series F Preferred Stock has been taken or will be taken prior to the Closing, and this Agreement and the Investor Rights Agreement constitute valid and legally binding obligations of the Company, enforceable in accordance with their respective terms, except (i) as limited by applicable bankruptcy, insolvency, reorganization, moratorium, and other laws of general application affecting enforcement of creditors' rights generally, (ii) as limited by laws relating to the availability of specific performance, injunctive relief, or other equitable remedies, and (iii) to the extent the indemnification provisions contained in the Investor Rights Agreement may be limited by applicable federal or state securities laws. The Series F Preferred Stock being purchased by Purchasers hereunder, when issued, sold and delivered in accordance with the terms of this Agreement for the consideration expressed herein, and the Common Stock issuable upon conversion thereof (when issued in accordance with the Restated Certificate), will be duly and validly issued, fully paid and nonassessable. 2.5 Governmental Consents. No consent, approval, order or authorization of, or registration, qualification, designation, declaration or filing with, any federal, state or local 2 3 governmental authority on the part of the Company is required in connection with the consummation of the transactions contemplated by this Agreement, except for the filing pursuant to Section 25102(f) of the California Corporate Securities Law of 1968, as amended, and the rules thereunder. 2.6 Litigation. There is no action, suit, proceeding or investigation pending or currently threatened against the Company that questions the validity of this Agreement or the Investor Rights Agreement, or the right of the Company to enter into any such agreement, or to consummate the transactions contemplated hereby or thereby, or that might result, either individually or in the aggregate, in any material adverse changes in the assets, condition, affairs or prospects of the Company, financially or otherwise, or any change in the current equity ownership of the Company. The Company is not a party or subject to the provisions of any order, writ, injunction, judgment or decree of any court or government agency or instrumentality. There is no action, suit, proceeding or investigation by the Company currently pending or that the Company intends to initiate. 2.7 Proprietary Information and Inventions Agreements. Each employee, officer and consultant of the Company has executed a Proprietary Information and Inventions Assignment. The Company is not aware that any of its employees, officers or consultants are in violation thereof, and the Company will use its best efforts to prevent any such violation. The Company is not aware that any officer or key employee intends to terminate employment with the Company, nor does the Company have a present intention to terminate the employment of any of the foregoing. Subject to general principles relating to wrongful termination of employees, the employment of each officer and employee of the Company is terminable at the will of the Company. 2.8 Title to Property and Assets. The Company owns its property and assets free and clear of all mortgages, liens, loans and encumbrances, except such encumbrances and liens that arise in the ordinary course of business and do not materially impair the Company's ownership or use of such property or assets. With respect to the property and assets it leases, the Company is in compliance with such leases and, to the best of its knowledge, holds a valid leasehold interest free of any liens, claims or encumbrances. 2.9 Financial Statements. The Company has not prepared any balance sheet, income statement, statement of operations, statement of cash flow and stockholders' equity or other financial statement. The Company has not engaged in any business, generated any revenues, entered into or become bound by any contracts, agreements or commitments of any kind involving obligations of the Company in excess of ten thousand dollars ($10,000). The Company does not have any obligations or liabilities (whether accrued, absolute, contingent, liquidated, unliquidated or otherwise, whether due or to become due) in excess of an aggregate of ten thousand dollars ($10,000) arising out of transactions entered into at or prior to the Closing, or arising out of any statement of facts existing at or prior to the Closing. 2.10 Books and Records. The minute books of the Company contain accurate summary records of all meetings and written consents to action of the Company's stockholders, 3 4 the Company's Board of Directors and all committees, if any, appointed by the Board of Directors. The Company's stock ledger is complete and reflects all issuances, transfers, repurchases and cancellations of shares of capital stock of the Company. 2.11 Rights of Registration and Voting Rights. Except as contemplated in the Investor Rights Agreement, the Company has not granted or agreed to grant any registration rights, including piggyback rights, to any person or entity. To the Company's knowledge, no shareholders of the Company have entered into any agreements with respect to the voting of capital shares of the Company. 3. Representations and Warranties of Purchaser. Each Purchaser hereby represents and warrants that: 3.1 Authorization. Such Purchaser has full power and authority to enter into this Agreement and the Investor Rights Agreement and each such agreement constitutes a valid and legally binding obligation of such Purchaser, enforceable in accordance with its terms. 3.2 Purchase Entirely for Own Account. This Agreement is made with such Purchaser in reliance upon Purchaser's representation to the Company, which by such Purchaser's execution of this Agreement such Purchaser hereby confirms, that the Series F Preferred Stock to be received by such Purchaser and the Common Stock issuable upon conversion thereof (collectively, the "Securities") will be acquired for investment for such Purchaser's own account, not as a nominee or agent, and not with a view to the resale or distribution of any part thereof, and that such Purchaser has no present intention of selling, granting any participation in, or otherwise distributing the same. By executing this Agreement, such Purchaser further represents that such Purchaser does not have any contract, undertaking, agreement or arrangement with any person to sell, transfer or grant participations to such person or to any third person, with respect to any of the Securities. 3.3 Disclosure of Information. Such Purchaser believes it has received all the information it considers necessary or appropriate for deciding whether to purchase the Series F Preferred Stock. Such Purchaser further represents that it has had an opportunity to ask questions and receive answers from the Company regarding the terms and conditions of the offering of the Series F Preferred Stock and the business, properties, prospects and financial condition of the Company. The foregoing, however, does not limit or modify the representations and warranties of the Company in Section 2 of this Agreement or the right of such Purchaser to rely thereon. 3.4 Investment Experience. Such Purchaser is an investor in securities of companies in the development stage and acknowledges that it is able to fend for itself, can bear the economic risk of its investment, and has such knowledge and experience in financial or business matters that it is capable of evaluating the merits and risks of the investment in the Series F Preferred Stock. If other than an individual, such Purchaser also represents it has not been organized solely for the purpose of acquiring the Series F Preferred Stock. 4 5 3.5 Accredited Investor. Such Purchaser is an "accredited investor" within the meaning of Securities and Exchange Commission ("SEC") Rule 501 of Regulation D, as presently in effect. 3.6 Restricted Securities. Such Purchaser understands that the Securities it is purchasing are characterized as "restricted securities" under the federal securities laws inasmuch as they are being acquired from the Company in a transaction not involving a public offering and that under such laws and applicable regulations such securities may be resold without registration under the Securities Act of 1933, as amended (the "Securities Act"), only in certain limited circumstances. In addition, such Purchaser represents that it is familiar with SEC Rule 144, as presently in effect, and understands the resale limitations imposed thereby and by the Securities Act. Each Purchaser understands that no public market presently exists for the Series F Preferred Stock or Common Stock of the Company, and that there are no assurances that any such market will be created. 3.7 Further Limitations on Disposition. Without in any way limiting the above, such Purchaser further agrees not to make any disposition of all or any portion of the Securities unless, and until the transferee has agreed in writing for the benefit of the Company to be bound by this Section 3 and Section 6 of this Agreement and Section 1.9 of the Investor Rights Agreement, and: (a) 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 (b) (i) Such Purchaser 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 (ii) if reasonably requested by the Company, such Purchaser 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. 3.8 Legends. It is understood that the certificate(s) evidencing the Shares shall bear the following legends: "The shares represented by this certificate have been acquired for investment and have not been registered under the Securities Act of 1933, as amended. Such shares may not be sold or transferred in the absence of such registration or unless the Corporation receives an opinion of counsel reasonably acceptable to it stating that such sale or transfer is exempt from the registration and prospectus delivery requirements of said act. Copies of the agreements covering the purchase of these shares and restricting their transfer may be obtained at no cost by written request made by the holder of record of this certificate to the Secretary of the Corporation at the principal executive offices of the Corporation." 5 6 "The shares represented by this certificate are subject to the market stand-off provisions contained in the Corporation's Investor Rights Agreement, dated January 23, 1998. A copy of such agreement may be obtained without charge upon written request to the Corporation at its principal place of business." 4. Conditions of Purchasers' Obligations at Closing. The obligations of Purchaser to purchase Shares at the Closing are subject to the fulfillment of each of the following conditions. 4.1 Representations and Warranties. The representations and warranties of the Company contained in Section 2 shall be true in all material respects on and as of the Closing with the same effect as though such representations and warranties had been made on and as of the Closing. 4.2 Performance. The Company shall have performed and complied with all agreements, obligations and conditions contained in this Agreement that are required to be performed or complied with by it on or before the Closing. 4.3 Qualifications. All authorizations, approvals, or permits, if any, of any governmental authority or regulatory body of the United States or of any state that are required in connection with the lawful issuance and sale of the Securities will have been obtained by the Company as of the Closing. 4.4 Proceedings and Documents. All corporate and other proceedings in connection with the transactions contemplated at the Closing and all documents incident thereto shall be reasonably satisfactory in form and substance to Purchaser. 4.5 Investor Rights Agreement. The Company and Purchaser shall have entered into the Investor Rights Agreement. 4.6 Restated Certificate. The Restated Certificate shall have been filed with the Delaware Secretary of State. 5. Conditions of the Company's Obligations at Closing. The obligations of the Company to sell and issue the Shares at the Closing are subject to the fulfillment of each of the following conditions: 5.1 Representations and Warranties. The representations and warranties of each Purchaser contained in Section 3 shall be true in all material respects on and as of the Closing with the same effect as though such representations and warranties had been made on and as of the Closing. 5.2 Qualifications. All authorizations, approvals, or permits, if any, of any governmental authority or regulatory body of the United States or of any state that are required in connection with the lawful issuance and sale of the Securities pursuant to this Agreement shall be duly obtained and effective as of the Closing. 6 7 5.3 Investor Rights Agreement. The Company and Purchaser shall have entered into the Investor Rights Agreement. 5.4 Restated Certificate. The Restated Certificate shall have been filed with the Delaware Secretary of State. 6. Miscellaneous. 6.1 Successors and Assigns. Except as otherwise provided herein, the terms and conditions of this Agreement shall inure to the benefit of and be binding upon the respective successors and assigns of the parties (including transferees of any Securities). Nothing in this Agreement, express or implied, is intended to confer upon any party other than the parties hereto or their respective successors and assigns any rights, remedies, obligations, or liabilities under or by reason of this Agreement, except as expressly provided in this Agreement. 6.2 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. 6.3 Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 6.4 Titles and Subtitles. The titles and subtitles used in this Agreement are used for convenience only and are not to be considered in construing or interpreting this Agreement. 6.5 Notices. All notices and other communications required or permitted hereunder shall be in writing, shall be effective when given, and shall in any event be deemed to be given upon receipt or, if earlier, (a) five (5) days after deposit with the U.S. Postal Service or other applicable postal service, if delivered by first class mail, postage prepaid, (b) upon delivery, if delivered by hand, (c) one (1) business day after the business day of deposit with Federal Express or similar overnight courier, freight prepaid or (d) one (1) business day after the business day of facsimile transmission, if delivered by facsimile transmission with copy by first class mail, postage prepaid, and shall be addressed (i) if to Purchaser, at Purchaser's address as set forth on Exhibit A, and (ii) if to the Company, at the address of its principal corporate offices (attention: Secretary), or at such other address as a party may designate by ten days' advance written notice to the other party pursuant to the provisions above. 6.6 Finder's Fee. Each party represents that it neither is nor will be obligated for any finders' fee or commission in connection with this transaction. Purchaser agrees to indemnify and hold harmless the Company from any liability for any commission or compensation in the nature of a finders' fee (and the costs and expenses of defending against such liability or asserted liability) for which Purchaser or any of its officers, partners, employees, or representative is responsible. The Company agrees to indemnify and hold harmless Purchaser from any liability for any commission or compensation in the nature of a finders' fee (and the 7 8 costs and expenses of defending against such liability or asserted liability) for which the Company or any of its officers, employees or representatives is responsible. 6.7 Expenses. Purchaser shall pay all costs and expenses that they incur with respect to the negotiation, execution, delivery and performance of this Agreement. 6.8 Amendment and Waivers. Any term of this Agreement may be amended and the severance of any term of this Agreement 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 a majority of the Common Stock issued or issuable upon conversion of the Series F Preferred Stock sold hereunder. Any amendment or waiver effected in accordance with this paragraph shall be binding upon each holder of any securities purchased under this Agreement at the time outstanding (including securities into which such securities are convertible), each future holder of all such securities and the Company. 6.9 Severability. If one or more provisions of this Agreement are held to be unenforceable under applicable law, such provision shall be excluded from this Agreement and the balance of the Agreement shall be interpreted as if such provision were so excluded and shall be enforceable in accordance with its terms. 6.10 Aggregation of Stock. All shares of the Series F Preferred Stock held or acquired (or Common Stock issued upon conversion thereof) by affiliated entities or persons shall be aggregated for the purpose of determining the availability of or discharge of any rights under this Agreement. 6.11 Entire Agreement. This Agreement and the documents referred to herein constitute the entire agreement among the parties and no party shall be liable or bound to any other party in any manner by any warranties, representations, or covenants except as specifically set forth herein or therein. 8 9 The parties have executed this Series F Preferred Stock Purchase Agreement as of the date first above written. NIKU CORPORATION By: ------------------------------------- Farzad Dibachi President and Chief Executive Officer Address: 1755 East BayShore Road, Suite 25B Redwood City, CA 94063 PURCHASERS TERENCE J. GARNETT and KATRINA A. GARNETT, TRUSTEES OF THE GARNETT FAMILY TRUST U/D/T DATED 4-2-97 By: ------------------------------------- Terence J. Garnett, Trustee THE GARNETT 1996 CHILDREN'S TRUST UTA DATED 3-1-96, HOWARD S. ZEPRUN, TRUSTEE By: ------------------------------------- Howard S. Zeprun, Trustee FRANKLIN DAVID DIBACHI 1996 TRUST, HAROLD SLAWIK, TRUSTEE By: ------------------------------------- Harold Slawik, Trustee FLORENCE V LLC, HAROLD SLAWIK, MANAGING MEMBER By: ------------------------------------- Title: Managing Member FARZAD DIBACHI By: ------------------------------------- SIGNATURE PAGE TO NIKU CORPORATION SERIES F PREFERRED STOCK PURCHASE AGREEMENT 9 10 EXHIBIT A SCHEDULE OF PURCHASERS
NAME NO. OF SHARES AGGREGATE PRICE ---- ------------- --------------- Garnett 1996 Children's Trust UTA dtd 3-11-96, 700,000 $ 35,000 Howard S. Zeprun, Trustee Terence J. Garnett and Katrina A. Garnett, Trustees of the 1,300,000 $ 65,000 Garnett Family Trust U/D/T dated 4-2-97 Farzad Dibachi 6,000,000 $ 300,000 Florence V LLC, Harold Slawik, Managing Member 1,500,000 $ 75,000 Franklin David Dibachi 1996 Trust, Harold Slawik, Trustee 500,000 $ 25,000 TOTAL 10,000,000 $ 500,000
10 EX-4.04 9 EX-4.04 1 EXHIBIT 4.04 NIKU CORPORATION SERIES A PREFERRED STOCK PURCHASE AGREEMENT THIS SERIES A PREFERRED STOCK PURCHASE AGREEMENT (this "Agreement") is made as of the 13th day of February, 1998, by and between Niku Corporation, a Delaware corporation (the "Company"), and the Purchasers listed on Exhibit A hereto (the "Purchasers"). THE PARTIES HEREBY AGREE AS FOLLOWS: 1. Purchase and Sale of Stock. 1.1 Sale and Issuance of Series A Preferred Stock. Subject to the terms and conditions of this Agreement, each Purchaser agrees to purchase at the Initial Closing (as defined below), and the Company agrees to sell and issue to such Purchaser at the Initial Closing, that number of shares of the Company's Series A Preferred Stock set forth opposite such Purchaser's name on Exhibit A hereto (the "Shares") for the purchase price set forth thereon (the "Purchase Price"). The Company's agreement with each Purchaser is a separate agreement, and the sale of the Shares to each Purchaser is a separate sale. 1.2 Filing of Restated Certificate. The Company shall adopt and file with the Secretary of State of Delaware on or before the Initial Closing an Amended and Restated Certificate of Incorporation (the "Restated Certificate"). 1.3 Closing. The initial purchase and sale of the Shares hereunder shall take place at the offices of Venture Law Group, A Professional Corporation, 2775 Sand Hill Road, Menlo Park, California, concurrently with the execution and delivery of this Agreement or at such other time and place as the Company and the Purchasers acquiring a majority of the total number of Shares to be purchased at such time mutually agree upon orally or in writing (which time and place are designated the ("Initial Closing"). At the Initial Closing, the Company shall deliver to each Purchaser a certificate representing the Shares that such Purchaser is purchasing against payment of the purchase price therefor by check or wire transfer to an account designated by the Company. 1.4 Subsequent Closing(s). The Company may sell up to the balance of the authorized shares of the Series A Preferred Stock not sold at the Initial Closing to such purchasers as it shall select, on the terms contained herein and in the exhibits hereto, at one or more subsequent closings (each, a "Subsequent Closing") provided that all Subsequent Closings shall take place not later than February 28, 1998. Upon execution of a signature page counterpart by any such purchaser and without need for an amendment hereto except to add such purchaser's name to Exhibit A, any such purchaser shall become a party to this Agreement, and shall be deemed a "Purchaser" for purposes of this Agreement, in each case as of the date of the applicable Subsequent Closing. The Initial Closing and each Subsequent Closing shall be deemed a "Closing" under this Agreement. 2 2. Representations and Warranties of the Company. Except as set forth on the Schedule of Exceptions (the "Schedule of Exceptions"), the Company hereby represents and warrants to each Purchaser as follows: 2.1 Organization, Good Standing and Qualification. The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and has all requisite corporate power and authority to carry on its business as now conducted and as proposed to be conducted. The Company is duly qualified to transact business and is in good standing in the State of California. 2.2 Capitalization and Voting Rights. (a) The authorized capital of the Company consists, or will consist immediately prior to the Initial Closing, of: (i) Preferred Stock. Fourteen million two hundred eighty five thousand seven hundred fourteen (14,285,714) shares of Preferred Stock (the "Preferred Stock") have been authorized, 10,000,000 of which have been designated Series F Preferred Stock (the "Series F Preferred Stock"), all of which are outstanding prior to the Initial Closing, and Four million two hundred eighty five thousand seven hundred fourteen (4,285,714) shares of which has been designed Series A Preferred Stock, none of which is issued and outstanding prior to the Initial Closing. The rights, privileges and preferences of the Series A Preferred Stock will be as stated in the Restated Certificate. (ii) Common Stock. Fifty million (50,000,000) shares of Common Stock (the "Common Stock"), of which four million eight hundred twenty seven thousand five hundred (4,827,500) shares are issued and outstanding. The outstanding shares of Common Stock are all duly and validly authorized and issued, fully paid and nonassessable. In addition, the Company has reserved five million (5,000,000) shares of its Common Stock for issuance pursuant to the Company's 1998 Stock Plan, of which options to purchase a total of one million six hundred twelve thousand five hundred (1,612,500) shares have been granted and fifteen thousand (15,000) shares of Restricted Stock are outstanding thereunder (which shares of Restricted Stock are included in the total number of issued and outstanding shares of Common Stock set forth above). (b) Except for (i) the conversion privileges of the Preferred Stock, and (ii) the options described in Section 2.2(a)(ii) above, there are no outstanding options, warrants, rights (including conversion or preemptive rights) or obligations for the purchase or acquisition from the Company of any shares of its capital stock. The Company is not a party or subject to any agreement or understanding and, to the Company's knowledge, there is no agreement or understanding between any other persons or entities which affects or relates to the voting or giving of written consents with respect to any security or by a director of the Company. 2.3 Subsidiaries. The Company does not presently own or control, directly or indirectly, any interest in any other corporation, association, or other business entity. The Company is not a participant in any joint venture, partnership, or similar arrangement. 2 3 2.4 Authorization. All corporate action on the part of the Company, its officers, directors and stockholders necessary for the authorization, execution and delivery of this Agreement and the Amended and Restated Investor Rights Agreement (the "Amended Rights Agreement"), the performance of all obligations of the Company hereunder and thereunder, and the authorization, issuance (or reservation for issuance), sale and delivery of the Series A Preferred Stock being sold hereunder and the Common Stock issuable upon conversion of the Series A Preferred Stock has been taken or will be taken prior to the applicable Closing, and this Agreement and the Amended Rights Agreement constitute valid and legally binding obligations of the Company, enforceable in accordance with their respective terms, except (i) as limited by applicable bankruptcy, insolvency, reorganization, moratorium, and other laws of general application affecting enforcement of creditors' rights generally, (ii) as limited by laws relating to the availability of specific performance, injunctive relief, or other equitable remedies, and (iii) to the extent the indemnification provisions contained in the Amended Rights Agreement may be limited by applicable federal or state securities laws. The Series A Preferred Stock being purchased by Purchasers hereunder, when issued, sold and delivered in accordance with the terms of this Agreement for the consideration expressed herein, and the Common Stock issuable upon conversion thereof (when issued in accordance with the Restated Certificate), will be duly and validly issued, fully paid and nonassessable. 2.5 Governmental Consents. No consent, approval, order or authorization of, or registration, qualification, designation, declaration or filing with, any federal, state or local governmental authority on the part of the Company is required in connection with the consummation of the transactions contemplated by this Agreement, except for the filing pursuant to Section 25102(f) of the California Corporate Securities Law of 1968, as amended, and the rules thereunder. 2.6 Litigation. There is no action, suit, proceeding or investigation pending or currently threatened against the Company that questions the validity of this Agreement or the Amended Rights Agreement, or the right of the Company to enter into any such agreement, or to consummate the transactions contemplated hereby or thereby, or that might result, either individually or in the aggregate, in any material adverse changes in the assets, condition, affairs or prospects of the Company, financially or otherwise, or any change in the current equity ownership of the Company. The Company is not a party or subject to the provisions of any order, writ, injunction, judgment or decree of any court or government agency or instrumentality. There is no action, suit, proceeding or investigation by the Company currently pending or that the Company intends to initiate. 2.7 Proprietary Information and Inventions Agreements. Each employee, officer and consultant of the Company has executed a Proprietary Information and Inventions Assignment. The Company is not aware that any of its employees, officers or consultants are in violation thereof, and the Company will use its best efforts to prevent any such violation. The Company is not aware that any officer or key employee intends to terminate employment with the Company, nor does the Company have a present intention to terminate the employment of any of the foregoing. Subject to general principles relating to wrongful termination of 3 4 employees, the employment of each officer and employee of the Company is terminable at the will of the Company. 2.8 Title to Property and Assets. The Company owns its property and assets free and clear of all mortgages, liens, loans and encumbrances, except such encumbrances and liens that arise in the ordinary course of business and do not materially impair the Company's ownership or use of such property or assets. With respect to the property and assets it leases, the Company is in compliance with such leases and, to its knowledge, holds a valid leasehold interest free of any liens, claims or encumbrances. 2.9 Financial Statements. The Company has not prepared any balance sheet, income statement, statement of operations, statement of cash flow and stockholders' equity or other financial statement. As of the Initial Closing, the Company has not engaged in any business, generated any revenues, entered into or become bound by any contracts, agreements or commitments of any kind involving obligations of the Company in excess of ten thousand dollars ($10,000). As of the Initial Closing, the Company does not have any obligations or liabilities (whether accrued, absolute, contingent, liquidated, unliquidated or otherwise, whether due or to become due) in excess of an aggregate of ten thousand dollars ($10,000) arising out of transactions entered into at or prior to the Initial Closing, or arising out of any statement of facts existing at or prior to the Initial Closing. 2.10 Books and Records. The minute books of the Company contain accurate summary records of all meetings and written consents to action of the Company's stockholders, the Company's Board of Directors and all committees, if any, appointed by the Board of Directors. The Company's stock ledger is complete and reflects all issuances, transfers, repurchases and cancellations of shares of capital stock of the Company. 2.11 Rights of Registration. Except as contemplated in the Amended Rights Agreement, the Company has not granted or agreed to grant any registration rights, including piggyback rights, to any person or entity. 2.12 Propriety Rights. To its knowledge, the Company owns, has licensed or otherwise possesses all trademarks, trade names, copyrights and other intellectual property rights necessary to conduct its business as now being conducted without any known conflict with or infringement upon any intellectual property rights of others. The Company has not received any notice alleging that the Company has infringed upon or is conflict with the asserted rights of others. The Company has certain trade secrets, including know-how, computer software programs and other proprietary data (the "Proprietary Information") used, or proposed to be used, in the development, manufacture and sale of its products. To its knowledge, the Company has the right to use the Proprietary Information, except that the possibility exists that other persons may have independently developed trade secrets or technical information similar or identical to those of the Company. 2.13 No Conflict of Interest. The Company is not indebted, directly or indirectly, to any of its officers or directors or to their respective spouses or children, in any amount whatsoever other than in connection with expenses or advances of expenses incurred in 4 5 the ordinary course of business or relocation expenses of employees. To the Company's knowledge, none of the Company's officers or directors, or any members of their immediate families, are, directly or indirectly, indebted to the Company (other than in connection with purchases of the Company's stock). To the Company's knowledge, none of the Company's officers or directors or any members of their immediate families have, directly or indirectly, any economic interest in any contract material to the Company other than with respect to equity held in the Company. 2.14 Tax Returns. All tax returns, declarations, statements, reports, schedules, forms and information returns ("Returns") required by all U.S. federal, state and local and foreign jurisdictions (in each case, including all political subdivisions thereof) relating to all U.S. federal, state, local and foreign taxes and other assessments of a similar nature (whether imposed directly or through withholding), including any interest, additions to tax, or penalties applicable thereto ("Taxes"), if any, required to be filed by the Company prior to the applicable Closing have been (or will be) timely filed and such Returns are (or will be) true, complete and correct in all material respects. All Taxes shown on any such Returns to be due from the Company that are due and payable have been paid, other than those being contested in good faith and for which an adequate reserve or accrual has been established in accordance with GAAP. The Company does not know of any actual or proposed material addition Tax assessments against the Company. 2.15 Compliance with Laws. The Company has obtained and maintained in good standing all of its licenses, permits, consents and authorizations required to be obtained by it or them under federal, state and local laws (collectively, "Laws"), except for those which, individually or in the aggregate, would have a material adverse effect on the assets, condition, affairs or proceeds of the Company, financially or otherwise, and all such licenses, permits, consents and authorizations remain in full force and effect. The Company is in material compliance with such Laws, and there is no pending or, to the Company's knowledge, threatened, action or proceeding against the Company under any of such Laws, other than any such actions or proceedings which, individually or in the aggregate, if adversely determined, would not have a material adverse effect on the assets, condition, affairs or prospects of the Company, financially or otherwise. 2.16 Qualified Small Business Stock. (a) As of and immediately following the Closing, the Stock will meet each of the requirements for qualification as "qualified small business stock" set forth in Section 1202(c) of the Internal Revenue Code of 1986, as amended (the "Code"), including without limitation the following: (i) the Company will be a domestic C corporation, (ii) the Company will not have made any purchases of its own stock described in Code Section 1202(c)(3)(B) during the one-year period preceding the Closing, and (iii) the Company's (and any predecessor's) aggregate gross assets, as defined by Code Section 1202(d)(2), at no time from the date of incorporation of the Company and through the Closing have exceeded or will exceed $50 million, taking into account the assets of any corporations required to be aggregated with the Company in accordance with Code Section 1202(d)(3). 5 6 (b) As of the Closing, at least 80% (by value) of the assets of the Company are used by it in the active conduct of one or more qualified trades or businesses, as defined by Code Section 1202(e)(3), and the Company is an eligible corporation, as defined by Code Section 1202(e)(4). 3. Representations and Warranties of Purchaser. Each Purchaser hereby represents and warrants that: 3.1 Authorization. Such Purchaser has full power and authority to enter into this Agreement and the Amended Rights Agreement and each such agreement constitutes a valid and legally binding obligation of such Purchaser, enforceable in accordance with its terms. 3.2 Purchase Entirely for Own Account. This Agreement is made with such Purchaser in reliance upon Purchaser's representation to the Company, which by such Purchaser's execution of this Agreement such Purchaser hereby confirms, that the Series A Preferred Stock to be received by such Purchaser and the Common Stock issuable upon conversion thereof (collectively, the "Securities") will be acquired for investment for such Purchaser's own account, not as a nominee or agent, and not with a view to the resale or distribution of any part thereof, and that such Purchaser has no present intention of selling, granting any participation in, or otherwise distributing the same. By executing this Agreement, such Purchaser further represents that such Purchaser does not have any contract, undertaking, agreement or arrangement with any person to sell, transfer or grant participations to such person or to any third person, with respect to any of the Securities. 3.3 Disclosure of Information. Such Purchaser believes it has received all the information it considers necessary or appropriate for deciding whether to purchase the Series A Preferred Stock. Such Purchaser further represents that it has had an opportunity to ask questions and receive answers from the Company regarding the terms and conditions of the offering of the Series A Preferred Stock and the business, properties, prospects and financial condition of the Company. The foregoing, however, does not limit or modify the representations and warranties of the Company in Section 2 of this Agreement or the right of such Purchaser to rely thereon. 3.4 Investment Experience. Such Purchaser is an investor in securities of companies in the development stage and acknowledges that it is able to fend for itself, can bear the economic risk of its investment, and has such knowledge and experience in financial or business matters that it is capable of evaluating the merits and risks of the investment in the Series A Preferred Stock. If other than an individual, such Purchaser also represents it has not been organized solely for the purpose of acquiring the Series A Preferred Stock. 3.5 Accredited Investor. Such Purchaser is an "accredited investor" within the meaning of Securities and Exchange Commission ("SEC") Rule 501 of Regulation D, as presently in effect. 3.6 Restricted Securities. Such Purchaser understands that the Securities it is purchasing are characterized as "restricted securities" under the federal securities laws inasmuch as they are being acquired from the Company in a transaction not involving a public offering and 6 7 that under such laws and applicable regulations such securities may be resold without registration under the Securities Act of 1933, as amended (the "Securities Act"), only in certain limited circumstances. In addition, such Purchaser represents that it is familiar with SEC Rule 144, as presently in effect, and understands the resale limitations imposed thereby and by the Securities Act. Each Purchaser understands that no public market presently exists for the Series A Preferred Stock or Common Stock of the Company, and that there are no assurances that any such market will be created. 3.7 Further Limitations on Disposition. Without in any way limiting the above, such Purchaser further agrees not to make any disposition of all or any portion of the Securities unless, and until the transferee has agreed in writing for the benefit of the Company to be bound by this Section 3 and Section 6 of this Agreement and Section 1.11 of the Amended Rights Agreement, and: (a) 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 (b) (i) Such Purchaser 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 (ii) if reasonably requested by the Company, such Purchaser 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. 3.8 Legends. It is understood that the certificate(s) evidencing the Shares shall bear the following legends: "The shares represented by this certificate have been acquired for investment and have not been registered under the Securities Act of 1933, as amended. Such shares may not be sold or transferred in the absence of such registration or unless the Corporation receives an opinion of counsel reasonably acceptable to it stating that such sale or transfer is exempt from the registration and prospectus delivery requirements of said act. Copies of the agreements covering the purchase of these shares and restricting their transfer may be obtained at no cost by written request made by the holder of record of this certificate to the Secretary of the Corporation at the principal executive offices of the Corporation." "The shares represented by this certificate are subject to the market stand-off provisions contained in the Corporation's Amended and Restated Investor Rights Agreement, dated February 13, 1998. A copy of such agreement may be obtained without charge upon written request to the Corporation at its principal place of business." 7 8 3.9 Accredited Purchasers. Such Purchaser is an "accredited investor" under Rule 501(a) of Regulation D promulgated under the Securities Act. 4. Conditions of Purchasers' Obligations at Closing. The obligations of each Purchaser to purchase Shares at the applicable Closing are subject to the fulfillment of each of the following conditions. 4.1 Representations and Warranties. The representations and warranties of the Company contained in Section 2 shall be true in all material respects on and as of the applicable Closing with the same effect as though such representations and warranties had been made on and as of such Closing. 4.2 Performance. The Company shall have performed and complied with all agreements, obligations and conditions contained in this Agreement that are required to be performed or complied with by it on or before the applicable Closing. 4.3 Qualifications. All authorizations, approvals, or permits, if any, of any governmental authority or regulatory body of the United States or of any state that are required in connection with the lawful issuance and sale of the Securities at the applicable Closing will have been obtained by the Company as of such Closing. 4.4 Proceedings and Documents. All corporate and other proceedings in connection with the transactions contemplated at the applicable Closing and all documents incident thereto shall be reasonably satisfactory in form and substance to such Purchaser. 4.5 Amended Rights Agreement. The Company and Purchasers holding a sufficient number of shares of "Registrable Securities" to amend and restate the Company's existing Investor Rights Agreement shall have entered into the Amended Rights Agreement. 4.6 Restated Certificate. The Restated Certificate shall have been filed with the Delaware Secretary of State. 5. Conditions of the Company's Obligations at Closing. The obligations of the Company to sell and issue the Shares at the applicable Closing are subject to the fulfillment of each of the following conditions: 5.1 Representations and Warranties. The representations and warranties of each Purchaser contained in Section 3 shall be true in all material respects on and as of the applicable Closing with the same effect as though such representations and warranties had been made on and as of such Closing. 5.2 Qualifications. All authorizations, approvals, or permits, if any, of any governmental authority or regulatory body of the United States or of any state that are required in connection with the lawful issuance and sale of the Securities at the applicable Closing pursuant to this Agreement shall be duly obtained and effective as of such Closing. 8 9 5.3 Amended Rights Agreement. The Company and Purchasers holding a sufficient number of shares of "Registrable Securities" to amend and restate the Company's existing Investor Rights Agreement shall have entered into the Amended Rights Agreement. 5.4 Restated Certificate. The Restated Certificate shall have been filed with the Delaware Secretary of State. 6. Miscellaneous. 6.1 Successors and Assigns. Except as otherwise provided herein, the terms and conditions of this Agreement shall inure to the benefit of and be binding upon the respective successors and assigns of the parties (including transferees of any Securities). Nothing in this Agreement, express or implied, is intended to confer upon any party other than the parties hereto or their respective successors and assigns any rights, remedies, obligations, or liabilities under or by reason of this Agreement, except as expressly provided in this Agreement. 6.2 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. 6.3 Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 6.4 Titles and Subtitles. The titles and subtitles used in this Agreement are used for convenience only and are not to be considered in construing or interpreting this Agreement. 6.5 Notices. All notices and other communications required or permitted hereunder shall be in writing, shall be effective when given, and shall in any event be deemed to be given upon receipt or, if earlier, (a) five (5) days after deposit with the U.S. Postal Service or other applicable postal service, if delivered by first class mail, postage prepaid, (b) upon delivery, if delivered by hand, (c) one (1) business day after the business day of deposit with Federal Express or similar overnight courier, freight prepaid or (d) one (1) business day after the business day of facsimile transmission, if delivered by facsimile transmission with copy by first class mail, postage prepaid, and shall be addressed (i) if to a Purchaser, at such Purchaser's address as set forth on Exhibit A, and (ii) if to the Company, at the address of its principal corporate offices (attention: Secretary), or at such other address as a party may designate by ten days' advance written notice to the other party pursuant to the provisions above. 6.6 Finder's Fee. Each party represents that it neither is nor will be obligated for any finders' fee or commission in connection with this transaction. Each Purchaser agrees to indemnify and hold harmless the Company from any liability for any commission or compensation in the nature of a finders' fee (and the costs and expenses of defending against such liability or asserted liability) for which Purchaser or any of its officers, partners, employees, or representative is responsible. The Company agrees to indemnify and hold harmless each 9 10 Purchaser from any liability for any commission or compensation in the nature of a finders' fee (and the costs and expenses of defending against such liability or asserted liability) for which the Company or any of its officers, employees or representatives is responsible. 6.7 Expenses. Each Purchaser shall pay all costs and expenses that it incurs with respect to the negotiation, execution, delivery and performance of this Agreement. 6.8 Amendment and Waivers. Any term of this Agreement may be amended and the severance of any term of this Agreement 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 a majority of the Common Stock issued or issuable upon conversion of the Series A Preferred Stock sold hereunder. Any amendment or waiver effected in accordance with this paragraph shall be binding upon each holder of any securities purchased under this Agreement at the time outstanding (including securities into which such securities are convertible), each future holder of all such securities and the Company. 6.9 Severability. If one or more provisions of this Agreement are held to be unenforceable under applicable law, such provision shall be excluded from this Agreement and the balance of the Agreement shall be interpreted as if such provision were so excluded and shall be enforceable in accordance with its terms. 6.10 Aggregation of Stock. All shares of the Series A Preferred Stock held or acquired (or Common Stock issued upon conversion thereof) by affiliated entities or persons shall be aggregated for the purpose of determining the availability of or discharge of any rights under this Agreement. 6.11 Entire Agreement. This Agreement and the documents referred to herein constitute the entire agreement among the parties and no party shall be liable or bound to any other party in any manner by any warranties, representations, or covenants except as specifically set forth herein or therein. 6.12 California Corporate Securities Law. THE SALE OF THE SECURITIES WHICH ARE THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF SUCH SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION THEREFOR PRIOR TO SUCH QUALIFICATION IS UNLAWFUL UNLESS THE SALE OF SECURITIES IS EXEMPT FROM THE QUALIFICATION BY SECTION 25100, 25102 OR 25105 OF THE CALIFORNIA CORPORATIONS CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY CONDITIONED UPON SUCH QUALIFICATION BEING OBTAINED, UNLESS THE SALE IS SO EXEMPT. 10 11 The parties have executed this Series A Preferred Stock Purchase Agreement as of the date first above written. NIKU CORPORATION By: ------------------------------------- Farzad Dibachi President and Chief Executive Officer Address: 1755 East BayShore Road, Suite 25B Redwood City, CA 94063 INITIAL CLOSING PURCHASERS ---------------------------------------- Name of Purchaser ---------------------------------------- Signature of Purchaser ---------------------------------------- Title, if any SIGNATURE PAGE TO NIKU CORPORATION SERIES A PREFERRED STOCK PURCHASE AGREEMENT 11 12 The undersigned hereby agrees to be bound by the terms of the Series A Preferred Stock Purchase Agreement as of the date indicated below. SUBSEQUENT CLOSING PURCHASERS: ---------------------------------------- Name of Purchaser ---------------------------------------- Signature of Purchaser ---------------------------------------- Title, if any ---------------------------------------- Date SIGNATURE PAGE TO NIKU CORPORATION SERIES A PREFERRED STOCK PURCHASE AGREEMENT 13 EXHIBIT A SCHEDULE OF PURCHASERS
Stockholder Name Number of Shares - --------------------------------------------------------------------------------------------- Garnett, Terence J. and Katrina A., Trustees 1,857,142 of the Garnett Family Trust U/D/T dated 4/27/97 Dibachi, Farid 714,285 Dibachi, Farzad and Rhonda L., Trustees of 285,714 the Dibachi Family Trust UDT dated 2-11-98 Gillach, Joe 142,857 Kaboli, Soroush and Niloofar Farhad JTWROS 142,857 VLG Investments 1998 71,428 Moore, Mark 71,428 Pickus, Joshua 28,571 Dunning, John 142,857 Delivanis, Constantin and Alison Kibrick as 142,857 co-trustees of the Delivanis-Kibrick Family Trust date 12/13/90 General Counsel Associates (GCA Investments 1998) 30,000 Goel, Vinay 150,000 Haque Family Trust 285,714 Phillips, Chuck 71,428 Rangaswami, Madhavan 142,857 Florence V, LLC, Harold Slawik, Managing Member 5,714 Chen, John S. and Sherry H. Chen Family 285,714 Trust 1994 Webb, Maynard G. Jr. and Irene C. 285,714 Webb, Trustees of the Webb Family Trust, dated 6/3/95 Raduchel, The William J. Raduchel Revocable Trust 285,714 TOTALS 5,142,851
14 EX-4.05 10 EX-4.05 1 EXHIBIT 4.05 NIKU CORPORATION SERIES B PREFERRED STOCK PURCHASE AGREEMENT October 13, 1998 2 NIKU CORPORATION SERIES B PREFERRED STOCK PURCHASE AGREEMENT THIS SERIES B PREFERRED STOCK PURCHASE AGREEMENT (this "Agreement") is made as of the 13th day of October, 1998, by and between Niku Corporation, a Delaware corporation (the "Company"), and the Purchasers listed on Exhibit A hereto (the "Purchasers"). THE PARTIES HEREBY AGREE AS FOLLOWS: 1. Purchase and Sale of Stock. 1.1 Sale and Issuance of Series B Preferred Stock. Subject to the terms and conditions of this Agreement, each Purchaser agrees to purchase at the Initial Closing (as defined below), and the Company agrees to sell and issue to such Purchaser at the Initial Closing, that number of shares of the Company's Series B Preferred Stock set forth opposite such Purchaser's name on Exhibit A hereto (the "Shares") for the purchase price set forth thereon (the "Purchase Price"). The Company's agreement with each Purchaser is a separate agreement, and the sale of the Shares to each Purchaser is a separate sale. 1.2 Filing of Restated Certificate. The Company shall adopt and file with the Secretary of State of Delaware on or before the Initial Closing a Third Amended and Restated Certificate of Incorporation (the "Restated Certificate"). 1.3 Closing. The initial purchase and sale of the Shares hereunder shall take place at the offices of Venture Law Group, A Professional Corporation, 2775 Sand Hill Road, Menlo Park, California, concurrently with the execution and delivery of this Agreement or at such other time and place as the Company and the Purchasers acquiring a majority of the total number of Shares to be purchased at such time mutually agree upon orally or in writing (which time and place are designated the "Initial Closing"). At the Initial Closing, the Company shall deliver to each Purchaser a certificate representing the Shares that such Purchaser is purchasing against payment of the purchase price therefor by check or wire transfer to an account designated by the Company. 1.4 Subsequent Closing(s). The Company may sell up to 1,200,000 shares of the Series B Preferred Stock not sold at the Initial Closing to such purchasers as it shall select, at the price and on the terms contained herein and in the exhibits hereto, at one or more subsequent closings (each, a "Subsequent Closing") provided that all Subsequent Closings shall take place not later than December 31, 1998. Upon payment of the purchase price for the Shares being purchased and execution of a signature page counterpart to this Agreement, the Second Amended and Restated Investor Rights Agreement, the Co-Sale Agreement and the Voting Agreement (each as defined below) and without need for an amendment hereto or thereto except to add such purchaser's name to Exhibit A to this Agreement and to the appropriate exhibit to such other agreements, any such purchaser shall become a party to this Agreement and such other agreements, and shall be deemed a "Purchaser" for purposes of this Agreement and an "Investor" (or a "New Investor," as applicable) for purposes of such other agreements, in each case as of the 3 date of the applicable Subsequent Closing. The Initial Closing and each Subsequent Closing shall be deemed a "Closing" under this Agreement. 2. Representations and Warranties of the Company. Except as set forth on the Schedule of Exceptions (as updated in connection with each Closing) (the "Schedule of Exceptions"), the Company hereby represents and warrants to each Purchaser as follows: 2.1 Organization, Good Standing and Qualification. The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and has all requisite corporate power and authority to carry on its business as now conducted and as proposed to be conducted. The Company is duly qualified to transact business and is in good standing in the State of California. 2.2 Capitalization and Voting Rights. (a) The authorized capital of the Company consists, or will consist immediately prior to the Initial Closing, of: (i) Preferred Stock. 23,400,000 shares of Preferred Stock (the "Preferred Stock") have been authorized, 10,000,000 of which have been designated Series F Preferred Stock (the "Series F Preferred Stock"), all of which are outstanding prior to the Initial Closing, 5,142,851 shares of which have been designated Series A Preferred Stock (the "Series A Preferred Stock"), all of which are issued and outstanding prior to the Initial Closing, and 8,257,149 shares of which have been designated Series B Preferred Stock (the "Series B Preferred Stock"), none of which are issued and outstanding prior to the Initial Closing. The outstanding shares of Preferred Stock are all duly and validly authorized and issued, fully paid and nonassessable and were issued in compliance with applicable Federal and state securities laws. The rights, privileges and preferences of the Preferred Stock will be as stated in the Restated Certificate. (ii) Common Stock. 50,000,000 shares of Common Stock (the "Common Stock"), of which 5,282,500 shares are issued and outstanding. The outstanding shares of Common Stock are all duly and validly authorized and issued, fully paid and nonassessable and were issued in compliance with applicable Federal and state securities law. In addition, the Company has reserved 5,000,000 shares of its Common Stock for issuance pursuant to the Company's 1998 Stock Plan, of which options to purchase a total of 2,048,500 shares have been granted and are outstanding and 470,000 shares of Restricted Stock are outstanding thereunder (which shares of Restricted Stock are included in the total number of issued and outstanding shares of Common Stock set forth above). (b) Except for (i) the conversion privileges of the Preferred Stock, and (ii) the options described in Section 2.2(a)(ii) above, there are no outstanding options, warrants, rights (including conversion or preemptive rights) or obligations for the purchase or acquisition from the Company of any shares of its capital stock. Except for the Voting Agreement (as defined below), the Company is not a party or subject to any agreement or understanding and, to the Company's knowledge, there is no agreement or understanding between any other persons or 2 4 entities which affects or relates to the voting or giving of written consents with respect to any security or by a director of the Company. 2.3 Subsidiaries. The Company does not presently own or control, directly or indirectly, any interest in any other corporation, association, or other business entity. The Company is not a participant in any joint venture, partnership, or similar arrangement. 2.4 Authorization. All corporate action on the part of the Company, its officers, directors and stockholders necessary for the authorization, execution and delivery of this Agreement and the Second Amended and Restated Investor Rights Agreement (the "Amended Rights Agreement"), the Co-Sale Agreement (the "Co-Sale Agreement") and the Voting Agreement (the "Voting Agreement," and collectively with the Amended Rights Agreement, the Co-Sale Agreement and this Agreement, the "Agreements"), the performance of all obligations of the Company hereunder and thereunder, and the authorization, issuance (or reservation for issuance), sale and delivery of the Series B Preferred Stock being sold hereunder and the Common Stock issuable upon conversion of the Series B Preferred Stock has been taken or will be taken prior to the Initial Closing, and the Agreements, when executed, will constitute valid and legally binding obligations of the Company, enforceable in accordance with their respective terms, except (i) as limited by applicable bankruptcy, insolvency, reorganization, moratorium, and other laws of general application affecting enforcement of creditors' rights generally, (ii) as limited by laws relating to the availability of specific performance, injunctive relief, or other equitable remedies, and (iii) to the extent the indemnification provisions contained in the Amended Rights Agreement may be limited by applicable federal or state securities laws. The Series B Preferred Stock being purchased by Purchasers hereunder, when issued, sold and delivered in accordance with the terms of this Agreement for the consideration expressed herein, and the Common Stock issuable upon conversion thereof (when issued in accordance with the Restated Certificate), will be duly and validly issued, fully paid and nonassessable. 2.5 Governmental Consents. No consent, approval, order or authorization of, or registration, qualification, designation, declaration or filing with, any federal, state or local governmental authority on the part of the Company is required in connection with the consummation of the transactions contemplated by this Agreement, except for the filing pursuant to Section 25102(f) of the California Corporate Securities Law of 1968, as amended, and the rules thereunder. 2.6 Litigation. There is no action, suit, proceeding or investigation pending or currently threatened against the Company that questions the validity of the Agreements, or the right of the Company to enter into any such agreement, or to consummate the transactions contemplated hereby or thereby, or that might result, either individually or in the aggregate, in any material adverse changes in the assets, condition, affairs or prospects of the Company, financially or otherwise, or any change in the current equity ownership of the Company. The Company is not a party or subject to the provisions of any order, writ, injunction, judgment or decree of any court or government agency or instrumentality. There is no action, suit, proceeding or investigation by the Company currently pending or that the Company intends to initiate. 3 5 2.7 Proprietary Information and Inventions Agreements. Each employee, officer and consultant of the Company has executed a Proprietary Information and Inventions Assignment. The Company is not aware that any of its employees, officers or consultants are in violation thereof, and the Company will use its best efforts to prevent any such violation. The Company is not aware that any officer or key employee intends to terminate employment with the Company, nor does the Company have a present intention to terminate the employment of any of the foregoing. Subject to general principles relating to wrongful termination of employees, the employment of each officer and employee of the Company is terminable at the will of the Company. 2.8 Title to Property and Assets. The Company owns its property and assets free and clear of all mortgages, liens, loans and encumbrances, except such encumbrances and liens that arise in the ordinary course of business and do not materially impair the Company's ownership or use of such property or assets. With respect to the property and assets it leases, the Company is in compliance with such leases and, to its knowledge, holds a valid leasehold interest free of any liens, claims or encumbrances. 2.9 Financial Statements. Prior to the Initial Closing, the Company has made available to each Purchaser its unaudited balance sheet and income statement at and for the six months ended June 30, 1998 and the month ended August 31, 1998 (collectively, the "Financial Statements"). The Financial Statements have been prepared in accordance with generally accepted accounting principles applied on a consistent basis throughout the periods indicated, except that the Financial Statements may not contain all footnotes required by generally accepted accounting principles. The Financial Statements fairly present the financial condition and operating results of the Company as of the dates, and for the periods, indicated therein, subject to normal year-end audit adjustments which the Company does not expect to be material. Except as set forth in the Financial Statements, the Company has no material liabilities, contingent or otherwise, other than (i) liabilities incurred in the ordinary course of business subsequent to the date of last set of Financial Statements delivered to the Purchasers and (ii) obligations under contracts and commitments incurred in the ordinary course of business and not required under generally accepted accounting principles to be reflected in the Financial Statements, which, in both cases, individually or in the aggregate are not material to the financial condition or operating results of the Company. Except as disclosed in the Financial Statements, the Company is not a guarantor or indemnity of any indebtedness of any other person, firm or corporation. 2.10 Books and Records. The minute books of the Company contain accurate summary records of all meetings and written consents to action of the Company's stockholders, the Company's Board of Directors and all committees, if any, appointed by the Board of Directors. The Company's stock ledger is complete and reflects all issuances, transfers, repurchases and cancellations of shares of capital stock of the Company. 2.11 Rights of Registration. Except as contemplated in the Amended Rights Agreement, the Company has not granted or agreed to grant any registration rights, including piggyback rights, to any person or entity. 4 6 2.12 Proprietary Rights. To its knowledge, the Company owns, has licensed or otherwise possesses all trademarks, trade names, copyrights and other intellectual property rights necessary to conduct its business as now being conducted without any known conflict with or infringement upon any intellectual property rights of others. The Company has not received any notice alleging that the Company has infringed upon or is conflict with the asserted rights of others. The Company has certain trade secrets, including know-how, computer software programs and other proprietary data (the "Proprietary Information") used, or proposed to be used, in the development, manufacture and sale of its products. To its knowledge, the Company has the right to use the Proprietary Information, except that the possibility exists that other persons may have independently developed trade secrets or technical information similar or identical to those of the Company. 2.13 No Conflict of Interest. The Company is not indebted, directly or indirectly, to any of its officers or directors or to their respective spouses or children, in any amount whatsoever other than in connection with expenses or advances of expenses incurred in the ordinary course of business or relocation expenses of employees. To the Company's knowledge, none of the Company's officers or directors, or any members of their immediate families, are, directly or indirectly, indebted to the Company (other than in connection with purchases of the Company's stock). To the Company's knowledge, none of the Company's officers or directors or any members of their immediate families have, directly or indirectly, any economic interest in any contract material to the Company other than with respect to equity held in the Company. 2.14 Tax Returns. All tax returns, declarations, statements, reports, schedules, forms and information returns ("Returns") required by all U.S. federal, state and local and foreign jurisdictions (in each case, including all political subdivisions thereof) relating to all U.S. federal, state, local and foreign taxes and other assessments of a similar nature (whether imposed directly or through withholding), including any interest, additions to tax, or penalties applicable thereto ("Taxes"), if any, required to be filed by the Company prior to the Initial Closing have been (or will be) timely filed and such Returns are (or will be) true, complete and correct in all material respects. All Taxes shown on any such Returns to be due from the Company that are due and payable have been paid, other than those being contested in good faith and for which an adequate reserve or accrual has been established in accordance with GAAP. The Company does not know of any actual or proposed material addition Tax assessments against the Company. 2.15 Compliance with Laws. The Company has obtained and maintained in good standing all of its licenses, permits, consents and authorizations required to be obtained by it or them under federal, state and local laws (collectively, "Laws"), except for those which, individually or in the aggregate, would not have a material adverse effect on the assets, condition, affairs or prospects of the Company, financially or otherwise, and all such licenses, permits, consents and authorizations remain in full force and effect. The Company is in material compliance with such Laws, and there is no pending or, to the Company's knowledge, threatened, action or proceeding against the Company under any of such Laws, other than any such actions or proceedings which, individually or in the aggregate, if adversely determined, 5 7 would not have a material adverse effect on the assets, condition, affairs or prospects of the Company, financially or otherwise. 2.16 Qualified Small Business Stock. (a) As of and immediately following the Closing, the Stock will meet each of the requirements for qualification as "qualified small business stock" set forth in Section 1202(c) of the Internal Revenue Code of 1986, as amended (the "Code"), including without limitation the following: (i) the Company will be a domestic C corporation, (ii) the Company will not have made any purchases of its own stock described in Code Section 1202(c)(3)(B) during the one-year period preceding the Closing, and (iii) the Company's (and any predecessor's) aggregate gross assets, as defined by Code Section 1202(d)(2), at no time from the date of incorporation of the Company and through the Closing have exceeded or will exceed $50 million, taking into account the assets of any corporations required to be aggregated with the Company in accordance with Code Section 1202(d)(3). (b) As of the Closing, at least 80% (by value) of the assets of the Company are used by it in the active conduct of one or more qualified trades or businesses, as defined by Code Section 1202(e)(3), and the Company is an eligible corporation, as defined by Code Section 1202(e)(4). 3. Representations and Warranties of Purchaser. Each Purchaser hereby represents and warrants that: 3.1 Authorization. Such Purchaser has full power and authority to enter into the Agreements and the Agreements, when executed, will constitute valid and legally binding obligations of such Purchaser, enforceable in accordance with their respective terms, except (i) as limited by applicable bankruptcy, insolvency, reorganization, moratorium, and other laws of general application affecting enforcement of creditors' rights generally, (ii) as limited by laws relating to the availability of specific performance, injunctive relief, or other equitable remedies, and (iii) to the extent the indemnification provisions contained in the Amended Rights Agreement may be limited by applicable federal or state securities laws. 3.2 Purchase Entirely for Own Account. This Agreement is made with such Purchaser in reliance upon Purchaser's representation to the Company, which by such Purchaser's execution of this Agreement such Purchaser hereby confirms, that the Series B Preferred Stock to be received by such Purchaser and the Common Stock issuable upon conversion thereof (collectively, the "Securities") will be acquired for investment for such Purchaser's own account, not as a nominee or agent, and not with a view to the resale or distribution of any part thereof, and that, except as disclosed to the Company, such Purchaser has no present intention of selling, granting any participation in, or otherwise distributing the same. By executing this Agreement, such Purchaser further represents that, except as disclosed to the Company, such Purchaser does not have any contract, undertaking, agreement or arrangement with any person to sell, transfer or grant participations to such person or to any third person, with respect to any of the Securities. 6 8 3.3 Disclosure of Information. Such Purchaser believes it has received all the information it considers necessary or appropriate for deciding whether to purchase the Series B Preferred Stock. Such Purchaser further represents that it has had an opportunity to ask questions and receive answers from the Company regarding the terms and conditions of the offering of the Series B Preferred Stock and the business, properties, prospects and financial condition of the Company. The foregoing, however, does not limit or modify the representations and warranties of the Company in Section 2 of this Agreement or the right of such Purchaser to rely thereon. 3.4 Investment Experience. Such Purchaser is an investor in securities of companies in the development stage and acknowledges that it is able to fend for itself, can bear the economic risk of its investment, and has such knowledge and experience in financial or business matters that it is capable of evaluating the merits and risks of the investment in the Series B Preferred Stock. If other than an individual, such Purchaser also represents it has not been organized solely for the purpose of acquiring the Series B Preferred Stock. 3.5 Accredited Investor. Such Purchaser is an "accredited investor" within the meaning of Securities and Exchange Commission ("SEC") Rule 501 of Regulation D promulgated under the Securities Act, as presently in effect. 3.6 Restricted Securities. Such Purchaser understands that the Securities it is purchasing are characterized as "restricted securities" under the federal securities laws inasmuch as they are being acquired from the Company in a transaction not involving a public offering and that under such laws and applicable regulations such securities may be resold without registration under the Securities Act of 1933, as amended (the "Securities Act"), only in certain limited circumstances. In addition, such Purchaser represents that it is familiar with SEC Rule 144, as presently in effect, and understands the resale limitations imposed thereby and by the Securities Act. Each Purchaser understands that no public market presently exists for the Series B Preferred Stock or Common Stock of the Company, and that there are no assurances that any such market will be created. 3.7 Further Limitations on Disposition. Without in any way limiting the above, such Purchaser further agrees not to make any disposition of all or any portion of the Securities unless: (a) 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 (b) (i) Such Purchaser 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 (ii) if reasonably requested by the Company, such Purchaser 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, provided, however, that the Company will not request an opinion in connection with customary distributions to general and limited partners of venture capital funds. 7 9 3.8 Legends. It is understood that the certificate(s) evidencing the Shares shall bear the following legends: (a) "The shares represented by this certificate have been acquired for investment and have not been registered under the Securities Act of 1933, as amended. Such shares may not be sold or transferred in the absence of such registration or unless the Corporation receives an opinion of counsel reasonably acceptable to it stating that such sale or transfer is exempt from the registration and prospectus delivery requirements of said act. Copies of the agreements covering the purchase of these shares and restricting their transfer may be obtained at no cost by written request made by the holder of record of this certificate to the Secretary of the Corporation at the principal executive offices of the Corporation." (b) "The shares represented by this certificate are subject to the market stand-off provisions contained in the Corporation's Second Amended and Restated Investor Rights Agreement. A copy of such agreement may be obtained without charge upon written request to the Corporation at its principal place of business." (c) Any other legends required by the Agreements or applicable law. 4. Conditions of Purchasers' Obligations at Closing. The obligations of each Purchaser to purchase Shares at the applicable Closing are subject to the fulfillment of each of the following conditions. 4.1 Representations and Warranties. The representations and warranties of the Company contained in Section 2 shall be true in all material respects on and as of the applicable Closing with the same effect as though such representations and warranties had been made on and as of such Closing. 4.2 Performance. The Company shall have performed and complied with all agreements, obligations and conditions contained in this Agreement that are required to be performed or complied with by it on or before the applicable Closing. 4.3 Compliance Certificate. The President of the Company shall deliver to such Purchaser at the applicable Closing a certificate certifying that the conditions specified in Sections 4.1 and 4.2 have been fulfilled. 4.4 Qualifications. All authorizations, approvals, or permits, if any, of any governmental authority or regulatory body of the United States or of any state that are required in connection with the lawful issuance and sale of the Shares at the applicable Closing shall have been obtained by the Company as of such Closing 8 10 4.5 Proceedings and Documents. All corporate and other proceedings in connection with the transactions contemplated at the applicable Closing and all documents incident thereto shall be reasonably satisfactory in form and substance to such Purchaser. 4.6 Restated Certificate. The Restated Certificate shall have been filed with the Delaware Secretary of State. 4.7 Amended Rights Agreement. The Company, such Purchaser and Investors (as defined therein) holding a sufficient number of shares of "Registrable Securities" to amend and restate the Company's Amended and Restated Investor Rights Agreement shall have entered into the Amended Rights Agreement. 4.8 Co-Sale Agreement. The Company, such Purchaser and the Founders (as defined therein) shall have executed and delivered the Co-Sale Agreement. 4.9 Voting Agreement. The Company and the stockholders specified therein shall have executed and delivered the Voting Agreement. 4.10 Opinion of Company Counsel. Such Purchaser shall have received from Venture Law Group, A Professional Corporation, counsel for the Company, an opinion, dated as of the applicable Closing. 4.11 Board of Directors. As of the Initial Closing, the Board shall be comprised of Farzad Dibachi, Terence Garnett, John Chen and Maynard Webb. 5. Conditions of the Company's Obligations at Closing. The obligations of the Company to sell and issue the Shares at the applicable Closing are subject to the fulfillment of each of the following conditions: 5.1 Representations and Warranties. The representations and warranties of each Purchaser contained in Section 3 shall be true in all material respects on and as of the applicable Closing with the same effect as though such representations and warranties had been made on and as of such Closing. 5.2 Qualifications. All authorizations, approvals, or permits, if any, of any governmental authority or regulatory body of the United States or of any state that are required in connection with the lawful issuance and sale of the Securities at the applicable Closing pursuant to this Agreement shall be duly obtained and effective as of such Closing. 5.3 Restated Certificate. The Restated Certificate shall have been filed with the Delaware Secretary of State. 5.4 Amended Rights Agreement. The Company and Investors (as defined therein) holding a sufficient number of shares of "Registrable Securities" to amend and restate the Company's Amended and Restated Investor Rights Agreement shall have entered into the Amended Rights Agreement. 9 11 5.5 Co-Sale Agreement. The Company and the Founders (as defined therein) shall have executed and delivered the Co-Sale Agreement. 5.6 Voting Agreement. The Company and the other parties thereto shall have executed and delivered the Voting Agreement. 6. Covenants. 6.1 Key Man Insurance. If and to the extent the Board of Directors deems it reasonable and appropriate, the Company shall obtain and maintain term life insurance as on key employees with the Company as named beneficiary, 6.2 Indemnification Agreements. The Company has entered into customary indemnification agreements with each of its current directors and executive officers and shall enter into such agreements with future directors and executive officers. 6.3 Publicity. The Company agrees not to make any public disclosure of any Investor's investment without such Investor's consent. Each Purchaser agrees not to make any public disclosure of its investment in the Company without the Company's prior consent. 6.4 Termination of Covenants. The covenants contained in this Section 6 shall terminate upon the earliest to occur of any one of the following events: (a) The liquidation, dissolution or indefinite cessation of the business operations of the Company; (b) The execution by the Company of a general assignment for the benefit of creditors or the appointment of a receiver or trustee to take possession of the property and assets of the Company; (c) The consummation of an underwritten public offering by the Company of shares of its Common Stock pursuant to a registration statement on form S-1 or SB-2 under the Securities Act, yielding gross proceeds to the Company in excess of ten million dollars ($10,000,000); (d) The acquisition of the Company by another entity by means of any transaction or series of related transactions (including, without limitation, any reorganization, merger or consolidation); or a sale of all or substantially all of the assets of the Corporation (including, for purposes of this section, intellectual property rights which, in the aggregate, constitute substantially all of the Corporation's material assets); unless in each case, the Corporation's stockholders of record as constituted immediately prior to such acquisition or sale will, immediately after such acquisition or sale (by virtue of securities issued as consideration for the Corporation's acquisition or sale or otherwise) hold at least fifty percent (50%) of the voting power of the surviving or acquiring entity. 7. Miscellaneous. 10 12 7.1 Successors and Assigns. Except as otherwise provided herein, the terms and conditions of this Agreement shall inure to the benefit of and be binding upon the respective successors and assigns of the parties (including transferees of any Securities). Nothing in this Agreement, express or implied, is intended to confer upon any party other than the parties hereto or their respective successors and assigns any rights, remedies, obligations, or liabilities under or by reason of this Agreement, except as expressly provided in this Agreement. 7.2 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. 7.3 Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 7.4 Titles and Subtitles. The titles and subtitles used in this Agreement are used for convenience only and are not to be considered in construing or interpreting this Agreement. 7.5 Notices. All notices and other communications required or permitted hereunder shall be in writing, shall be effective when given, and shall in any event be deemed to be given upon receipt or, if earlier, (a) five (5) days after deposit with the U.S. Postal Service or other applicable postal service, if delivered by first class mail, postage prepaid, (b) upon delivery, if delivered by hand, (c) one (1) business day after the business day of deposit with Federal Express or similar overnight courier, freight prepaid or (d) one (1) business day after the business day of facsimile transmission, if delivered by facsimile transmission with copy by first class mail, postage prepaid, and shall be addressed (i) if to a Purchaser, at such Purchaser's address as set forth on Exhibit A, and (ii) if to the Company, at the address of its principal corporate offices (attention: Secretary), or at such other address as a party may designate by ten days' advance written notice to the other party pursuant to the provisions above. 7.6 Finder's Fee. Each party represents that it neither is nor will be obligated for any finders' fee or commission in connection with this transaction. Each Purchaser agrees to indemnify and hold harmless the Company from any liability for any commission or compensation in the nature of a finders' fee (and the costs and expenses of defending against such liability or asserted liability) for which Purchaser or any of its officers, partners, employees, or representative is responsible. The Company agrees to indemnify and hold harmless each Purchaser from any liability for any commission or compensation in the nature of a finders' fee (and the costs and expenses of defending against such liability or asserted liability) for which the Company or any of its officers, employees or representatives is responsible. 7.7 Fees and Expenses. The Company shall pay the reasonable fees and expenses of Dewey Ballantine, counsel for the Venrock entities, incurred with respect to this Agreement, the documents referred to herein and the transactions contemplated hereby and thereby, up to a maximum of $15,000. 11 13 7.8 Amendment and Waivers. Any term of this Agreement may be amended and the severance of any term of this Agreement 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 a majority of the Common Stock issued or issuable upon conversion of the Series B Preferred Stock sold hereunder, provided, that no such consent will be required to add a party pursuant to Section 1.4 hereof. Any amendment or waiver effected in accordance with this paragraph shall be binding upon each holder of any securities purchased under this Agreement at the time outstanding (including securities into which such securities are convertible), each future holder of all such securities and the Company. 7.9 Severability. If one or more provisions of this Agreement are held to be unenforceable under applicable law, such provision shall be excluded from this Agreement and the balance of the Agreement shall be interpreted as if such provision were so excluded and shall be enforceable in accordance with its terms. 7.10 Aggregation of Stock. All shares of the Series B Preferred Stock held or acquired (or Common Stock issued upon conversion thereof) by affiliated entities or persons shall be aggregated for the purpose of determining the availability of or discharge of any rights under this Agreement. 7.11 Entire Agreement. This Agreement and the documents referred to herein constitute the entire agreement among the parties and no party shall be liable or bound to any other party in any manner by any warranties, representations, or covenants except as specifically set forth herein or therein. 7.12 California Corporate Securities Law. THE SALE OF THE SECURITIES WHICH ARE THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF SUCH SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION THEREFOR PRIOR TO SUCH QUALIFICATION IS UNLAWFUL UNLESS THE SALE OF SECURITIES IS EXEMPT FROM THE QUALIFICATION BY SECTION 25100, 25102 OR 25105 OF THE CALIFORNIA CORPORATIONS CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY CONDITIONED UPON SUCH QUALIFICATION BEING OBTAINED, UNLESS THE SALE IS SO EXEMPT. 12 14 The parties have executed this Series B Preferred Stock Purchase Agreement as of the date first above written. NIKU CORPORATION By: ------------------------------------- Farzad Dibachi President and Chief Executive Officer Address: 955A Charter Street Redwood City, CA 94063 INITIAL CLOSING PURCHASERS ---------------------------------------- Name of Purchaser ---------------------------------------- Signature of Purchaser ---------------------------------------- Title, if any SUBSEQUENT CLOSING PURCHASERS: ---------------------------------------- Name of Purchaser ---------------------------------------- Signature of Purchaser ---------------------------------------- Title, if any ---------------------------------------- Date 13 15 EXHIBIT A SCHEDULE OF PURCHASERS
Number Stockholder Name of Shares - -------------------------------------------------------------------------------- Venrock Associates 2,328,000 Venrock Associates II, L.P. 2,845,333 Dibachi, Farzad and Rhonda L., Trustees of 666,666 the Dibachi Family Trust UDT dated 2-11-98 Garnett, Terence J. and Katrina A., Trustees of 333,333 the Garnett Family Trust U/D/T dated 4-27-97 Garnett, Terence J. and Katrina A., Trustees of 160,000 the Garnett Family Trust U/D/T dated 4-27-97 Webb, Maynard G. Jr. and Irene C. Webb, 133,333 Trustees of the Webb Family Trust, dated 6/3/95 Broadview, Peter Mooney as nominee for 293,333 the Broadview Partners Group Haque Family Partners 133,333 Acosta, Jack 66,666 Raduchel, William J. 66,666 Smith, Roger 66,666 Neiman, Martin and Diana JTWROS 133,333 Ramsey Beiren Partners, LLC 160,000 Comdisco, Inc. 146,666 Labe, Jim & Caroline Labe, Trustees of the 6,666 1998 Revocable Trust, dated 10/5/98 Henriquez, Manuel 6,666
14 16 Phoenix Partners 333,333 Pickus, Joshua 13,333 VLG Investments 1998 13,333 Chinnasamy, Shanmugam 60,000 Prabhudesai, Anant V. 33,333 TOTALS 7,999,992
15 EX-4.06 11 EX-4.06 1 EXHIBIT 4.06 NIKU CORPORATION SERIES C PREFERRED STOCK PURCHASE AGREEMENT THIS SERIES C PREFERRED STOCK PURCHASE AGREEMENT (this "Agreement") is made as of the 13th day of May, 1999, by and between Niku Corporation, a Delaware corporation (the "Company"), and the Purchasers listed on Exhibit A hereto (the "Purchasers"). THE PARTIES HEREBY AGREE AS FOLLOWS: 1. Purchase and Sale of Stock. 1.1 Sale and Issuance of Series C Preferred Stock. Subject to the terms and conditions of this Agreement, each Purchaser agrees to purchase at the Initial Closing (as defined below), and the Company agrees to sell and issue to such Purchaser at the Initial Closing, that number of shares of the Company's Series C Preferred Stock set forth opposite such Purchaser's name on Exhibit A hereto (the "Shares") for the purchase price set forth thereon (the "Purchase Price"). The Company's agreement with each Purchaser is a separate agreement, and the sale of the Shares to each Purchaser is a separate sale. 1.2 Filing of Restated Certificate. The Company shall adopt and file with the Secretary of State of Delaware on or before the Initial Closing an Amended and Restated Certificate of Incorporation in the form attached hereto as Exhibit B (the "Restated Certificate"). 1.3 Closing. The initial purchase and sale of the Shares hereunder shall take place at the offices of Fenwick & West LLP, Two Palo Alto Square, Palo Alto, California, concurrently with the execution and delivery of this Agreement or at such other time and place as the Company and the Purchasers acquiring a majority of the total number of Shares to be purchased at such time mutually agree upon orally or in writing (which time and place are designated the "Initial Closing"). At the Initial Closing, the Company shall deliver to each Purchaser a certificate representing the Shares that such Purchaser is purchasing against payment of the purchase price therefor by check or wire transfer to an account designated by the Company. 1.4 Subsequent Closing(s). The Company may sell up to an aggregate of 10,075,000 shares of the Series C Preferred Stock at the Initial Closing and thereafter to such purchasers as it shall select, at the price and on the terms contained herein and in the exhibits hereto, at one or more subsequent closings (each, a "Subsequent Closing") provided that all Subsequent Closings shall take place not later than May 21, 1999 (and the Purchasers consent to such issuances). Upon payment of the purchase price for the Shares being purchased and execution of a signature page counterpart to this Agreement, the Investor Rights Agreement, the Co-Sale Agreement and the Voting Agreement (each as defined below) and without need for an amendment hereto or thereto except to add such purchaser's name to Exhibit A to this Agreement and to the appropriate exhibit to such other agreements, any such purchaser shall 2 become a party to this Agreement and such other agreements, and shall be deemed a "Purchaser" for purposes of this Agreement and an "Investor" (or a "New Investor," as applicable) for purposes of such other agreements, in each case as of the date of the applicable Subsequent Closing. The Initial Closing and each Subsequent Closing shall be deemed a "Closing" under this Agreement. 2. Representations and Warranties of the Company. Except as set forth on the Schedule of Exceptions attached as Exhibit C hereto (the "Schedule of Exceptions"), the Company hereby represents and warrants to each Purchaser as follows. 2.1 Organization, Good Standing and Qualification. The Company has been duly incorporated and organized, and is validly existing in good standing, under the laws of the State of Delaware. The Company has the corporate power and authority to enter into and perform its obligations under the Agreements (as defined below), to own and operate its properties and assets and to carry on its business as currently conducted. The Company is duly qualified to transact business and is in good standing in the State of California. 2.2 Capitalization and Voting Rights. (a) The authorized capital of the Company consists, or will consist immediately prior to the Initial Closing, of: (i) Preferred Stock. 34,272,843 shares of Preferred Stock (the "Preferred Stock") have been authorized, 10,000,000 of which have been designated Series F Preferred Stock (the "Series F Preferred Stock"), all of which are outstanding prior to the Initial Closing, 5,142,851 shares of which have been designated Series A Preferred Stock (the "Series A Preferred Stock"), all of which are issued and outstanding prior to the Initial Closing, 8,629,992 shares of which have been designated Series B Preferred Stock (the "Series B Preferred Stock"), 7,999,992 of which are issued and outstanding prior to the Initial Closing and 10,500,000 shares of which have been designated Series C Preferred Stock (the "Series C Preferred Stock") none of which are issued and outstanding prior to the Initial Closing. The outstanding shares of Preferred Stock are all duly and validly authorized and issued, fully paid and nonassessable and were issued in compliance with applicable Federal and state securities laws and have been approved by all requisite corporate and shareholder action. The rights, privileges and preferences of the Preferred Stock will be as stated in the Restated Certificate. (ii) Common Stock. 50,000,000 shares of Common Stock (the "Common Stock"), of which 6,754,578 shares are issued and outstanding. The outstanding shares of Common Stock are all duly and validly authorized, issued, fully paid and nonassessable and, were issued in compliance with applicable federal and state securities laws and have been approved by all requisite corporate and shareholder action. (iii) Options, Warrants, Reserved Shares. Except for (i) the conversion privileges of the Preferred Stock, (ii) the 6,000,000 shares of Common Stock reserved for issuance under the Company's 1998 Stock Plan under which options to purchase 2 3 2,865,167 shares are outstanding, (iii) warrants to purchase 630,000 shares of Series B Preferred Stock, there is no outstanding option, warrant, right (including conversion or preemptive rights) or agreement for the purchase or acquisition from the Company of any shares of its capital stock or any securities convertible into or ultimately exchangeable or exercisable for any shares of the Company's capital stock. Apart from the exceptions noted in this Section 2.2(a), and except for rights of first refusal held by the Company to purchase shares of its stock issued under the Company's 1998 Stock Plan, no shares of the Company's outstanding capital stock, or stock issuable upon exercise or exchange of any outstanding options, warrants or rights, or other stock issuable by the Company, are subject to any preemptive rights, rights of first refusal or other rights to purchase such stock (whether in favor of the Company or any other person), pursuant to any agreement or commitment of the Company. 2.3 Subsidiaries. The Company does not presently own or control, directly or indirectly, any interest in any other corporation, partnership, trust, joint venture, association, or other entity. 2.4 Authorization. All corporate action on the part of the Company, its officers, directors and stockholders necessary for the authorization, execution and delivery of this Agreement and the Third Amended and Restated Investor Rights Agreement attached hereto as Exhibit D (the "Rights Agreement"), the Amended and Restated Co-Sale Agreement attached hereto as Exhibit E (the "Co-Sale Agreement") and the Amended and Restated Voting Agreement attached hereto as Exhibit F (the "Voting Agreement," and collectively with the Rights Agreement, the Co-Sale Agreement and this Agreement, the "Agreements"), the performance of all obligations of the Company hereunder and thereunder, and the authorization, issuance (or reservation for issuance), sale and delivery of the Series C Preferred Stock being sold hereunder and the Common Stock issuable upon conversion of the Series C Preferred Stock has been taken or will be taken prior to the Initial Closing, and the Agreements, when executed and delivered, will constitute valid and legally binding obligations of the Company, enforceable in accordance with their respective terms, except (i) as limited by applicable bankruptcy, insolvency, reorganization, moratorium, and other laws of general application affecting or relating to the enforcement of creditors' rights generally and (ii) as limited by laws relating to the availability of and/or other equitable remedies. The Series C Preferred Stock being purchased by Purchasers hereunder, when issued, paid for and delivered in accordance with the terms of this Agreement for the consideration expressed herein, (when issued in accordance with the Restated Certificate), will be duly authorized and validly issued, fully paid and nonassessable. The shares of Common Stock issuable upon conversion of the Series C Preferred Stock, have been duly and validly reserved for issuance upon conversion thereof and, when issued upon such conversion in accordance with the Restated Certificate (assuming no change in the Restated Certificate or in applicable law), will be duly authorized and validly issued, fully paid and nonassessable. 2.5 Consents and Agreements. No consent, approval, order or authorization of, or registration, qualification, designation, declaration or filing with, third party not already a party to any of the Agreements or any federal, state or local governmental authority on the part 3 4 of the Company is required in order to enable the Company to execute, deliver and perform its obligations under this Agreement, the Rights Agreement, the Co-Sale Agreement or the Voting Agreement except for such qualifications or filings under applicable securities laws as may be required in connection with the transactions contemplated by this Agreement. All such qualifications and filings will, in the case of qualifications, be effective on the Closing and will, in the case of filings, be made within the time prescribed by law. 2.6 Litigation. There is no action, suit, proceeding, claim, arbitration or investigation ("Action") pending (or, to the Company's knowledge, currently threatened) against the Company, its activities, properties or assets or, to the Company's knowledge, against any officer, director or employee of the Company in connection with such officer's, director's or employee's relationship with, or actions taken on behalf of, the Company. 2.7 Proprietary Information and Inventions Agreements. Each employee, officer and consultant of the Company has executed a Confidential Information and Inventions Assignment in the form attached as Exhibit G. The Company is not aware that any of its employees, officers or consultants are in violation thereof, and the Company will use its best efforts to prevent any such violation. The Company is not aware that any officer or key employee intends to terminate employment with the Company, nor does the Company have a present intention to terminate the employment of any of the foregoing. Subject to general principles relating to wrongful termination of employees, the employment of each officer and employee of the Company is terminable at the will of the Company. 2.8 Title to Property and Assets. The Company owns its property and assets free and clear of all mortgages, liens, loans and encumbrances, except such encumbrances and liens that arise in the ordinary course of business and do not materially impair the Company's ownership or use of such property or assets. With respect to the property and assets it leases, the Company is in compliance with such leases and, to its knowledge, holds a valid leasehold interest free of any liens, claims or encumbrances. 2.9 Financial Statements. Prior to the Initial Closing, the Company has made available to each Purchaser its unaudited balance sheet and income statement at and for the year ended December 31, 1998 and the three months ended March 31, 1999 (collectively, the "Financial Statements"). The Financial Statements have been prepared in accordance with generally accepted accounting principles ("GAAP") applied on a consistent basis throughout the periods indicated, except that the Financial Statements may not contain all footnotes required by generally accepted accounting principles. The Financial Statements fairly present the financial condition and operating results of the Company as of the dates, and for the periods, indicated therein, subject to normal year-end audit adjustments which the Company does not expect to be material. Except as set forth in the Financial Statements, the Company has no material liabilities, contingent or otherwise, other than (i) liabilities incurred in the ordinary course of business subsequent to the date of the Financial Statements and (ii) obligations under contracts and commitments incurred in the ordinary course of business and not required under generally accepted accounting principles to be reflected in the Financial Statements, which, in both cases, individually or in the aggregate are not material to the 4 5 financial condition or operating results of the Company. Except as disclosed in the Financial Statements, the Company is not a guarantor or indemnitor of any indebtedness of any other person, firm, corporation or other entity. 2.10 Books and Records. The minute books of the Company contain accurate summary records of all meetings and written consents to action of the Company's stockholders, the Company's Board of Directors and all committees, if any, appointed by the Board of Directors. The Company's stock ledger is complete and reflects all issuances, transfers, repurchases and cancellations of shares of capital stock of the Company. 2.11 Rights of Registration. Except as contemplated in the Rights Agreement, the Company has not granted or agreed to grant any registration rights, including piggyback rights, to any person or entity. 2.12 Proprietary Rights. To its knowledge, the Company owns, has licensed or otherwise possesses all trademarks, trade names, copyrights and other intellectual property rights necessary to conduct its business as now being conducted without any known conflict with or infringement upon any intellectual property rights of others. The Company has not received any notice alleging that the Company has infringed upon or is conflict with the asserted rights of others. The Company has certain trade secrets, including know-how, computer software programs and other proprietary data (the "Proprietary Information") used, or proposed to be used, in the development, manufacture and sale of its products. To its knowledge, the Company has the right to use the Proprietary Information, except that the possibility exists that other persons may have independently developed trade secrets or technical information similar or identical to those of the Company. 2.13 No Conflict of Interest. The Company is not indebted, directly or indirectly, to any of its officers or directors or to their respective spouses or children, in any amount whatsoever other than in connection with expenses or advances of expenses incurred in the ordinary course of business or relocation expenses of employees. To the Company's knowledge, none of the Company's officers or directors, or any members of their immediate families, are, directly or indirectly, indebted to the Company (other than in connection with purchases of the Company's stock). To the Company's knowledge, none of the Company's officers or directors or any members of their immediate families have, directly or indirectly, any economic interest in any contract material to the Company other than with respect to equity held in the Company. 2.14 Tax Returns. All tax returns, declarations, statements, reports, schedules, forms and information returns ("Returns") required by all U.S. federal, state and local and foreign jurisdictions (in each case, including all political subdivisions thereof) relating to all U.S. federal, state, local and foreign taxes and other assessments of a similar nature (whether imposed directly or through withholding), including any interest, additions to tax, or penalties applicable thereto ("Taxes"), if any, required to be filed by the Company prior to the Initial Closing have been (or will be) timely filed and such Returns are (or will be) true, complete and correct in all material respects. All Taxes shown on any such Returns to be due from the 5 6 Company that are due and payable have been paid, other than those being contested in good faith and for which an adequate reserve or accrual has been established in accordance with GAAP. The Company does not know of any actual or proposed material addition Tax assessments against the Company. 2.15 Compliance with Laws. The Company has obtained and maintained in good standing all of its licenses, permits, consents and authorizations required to be obtained by it or them under federal, state and local laws (collectively, "Laws"), except for those which, individually or in the aggregate, would not have a material adverse effect on the assets, condition, affairs or prospects of the Company, financially or otherwise, and all such licenses, permits, consents and authorizations remain in full force and effect. The Company is in material compliance with such Laws, and there is no pending or, to the Company's knowledge, threatened, action or proceeding against the Company under any of such Laws, other than any such actions or proceedings which, individually or in the aggregate, if adversely determined, would not have a material adverse effect on the assets, condition, affairs or prospects of the Company, financially or otherwise. 2.16 Qualified Small Business Stock. (a) As of and immediately following the Closing, the Shares will meet each of the requirements for qualification as "qualified small business stock" set forth in Section 1202(c) of the Internal Revenue Code of 1986, as amended (the "Code"), including without limitation the following: (i) the Company will be a domestic C corporation, (ii) the Company will not have made any purchases of its own stock described in Code Section 1202(c)(3)(B) during the one-year period preceding the Closing, and (iii) the Company's (and any predecessor's) aggregate gross assets, as defined by Code Section 1202(d)(2), at no time from the date of incorporation of the Company and through the Closing have exceeded or will exceed $50 million, taking into account the assets of any corporations required to be aggregated with the Company in accordance with Code Section 1202(d)(3). (b) As of the Closing, at least 80% (by value) of the assets of the Company are used by it in the active conduct of one or more qualified trades or businesses, as defined by Code Section 1202(e)(3), and the Company is an eligible corporation, as defined by Code Section 1202(e)(4). 2.17 Year 2000 Compliance. To the Company's knowledge, the Company's products and services shall not fail to perform any function specified in the product specifications therefor, or otherwise be adversely affected in any material respect, solely as a result of the date change from December 31, 1999 to January 1, 2000, including without limitation, date data century recognition, calculations which accommodate same century and multi-century formulas and date values, and date data interface values which reflect the correct century. In addition, to the best of the Company's knowledge, all of the products and services upon which the Company is materially reliant, either individually or in the aggregate, including, without limitation, information technology systems such as financial and order entry 6 7 systems, non-information technology systems such as phones and facilities, third party licensed software and the products and services of the Company's customers, vendors and suppliers are designed to be used prior to, during, and after calendar year 2000 A.D., and such products and services will operate during each such time period without error relating to date data, including without limitation any error relating to, or the product of, date data that represents or references different centuries or more than one century. 2.18 No Contravention. The execution, delivery and performance by the Company of this Agreement and each other Agreement, including, without limitation, the issuance of the Series C Preferred Stock: (a) do not and will not contravene the terms of the Certificate of Incorporation, as amended, or By-Laws, as amended, of the Company, or any law, rule, regulation or similar requirement applicable to the Company or its assets, business or properties; (b) do not and will not (i) conflict with, contravene, result in any violation or breach of or default under (with or without the giving of notice or the lapse of time or both), (ii) create in any other person or entity a right or claim of termination or amendment, or (iii) require modification, acceleration or cancellation of any agreement, contract, or other instrument or contractual obligation of the Company; and (c) do not and will not result in the creation of any lien, charge or encumbrance (or obligation to create a lien, charge or encumbrance) against any property, asset or business of the Company. 2.19 Management Certificate. The representations and warranties in the "Management Certificate" provided by the Company to Fenwick & West LLP in connection with the rendering of a legal opinion at the Initial Closing are true and correct. 2.20 Prior Representations. The representations and warranties made by the Company in the agreements pursuant to which it sold shares of Preferred Stock prior to the date hereof and in the other documents signed in connection therewith were true and accurate as of the date such representations and warranties were made. 3. Representations and Warranties of Purchaser. Each Purchaser, severally and not jointly, hereby represents and warrants that: 3.1 Authorization. Such Purchaser has full power and authority to enter into the Agreements and the Agreements, when executed, will constitute valid and legally binding obligations of such Purchaser, enforceable in accordance with their respective terms, except (i) as limited by applicable bankruptcy, insolvency, reorganization, moratorium, and other laws of general application affecting enforcement of creditors' rights generally, (ii) as limited by laws relating to the availability of specific performance, injunctive relief, or other equitable remedies, and (iii) to the extent the indemnification provisions contained in the Rights Agreement may be limited by applicable federal or state securities laws. 3.2 Purchase Entirely for Own Account. This Agreement is made with such Purchaser in reliance upon Purchaser's representation to the Company, which by such Purchaser's execution of this Agreement such Purchaser hereby confirms, that the Series C Preferred Stock to be received by such Purchaser and the Common Stock issuable upon conversion thereof (collectively, the "Securities") will be acquired for investment for such 7 8 Purchaser's own account, not as a nominee or agent, and not with a view to the resale or distribution of any part thereof, and that, except as disclosed to the Company, such Purchaser has no present intention of selling, granting any participation in, or otherwise distributing the same. By executing this Agreement, such Purchaser further represents that, except as disclosed to the Company, such Purchaser does not have any contract, undertaking, agreement or arrangement with any person to sell, transfer or grant participations to such person or to any third person, with respect to any of the Securities. 3.3 Disclosure of Information. Such Purchaser believes it has received all the information it considers necessary or appropriate for deciding whether to purchase the Series C Preferred Stock. Such Purchaser further represents that it has had an opportunity to ask questions and receive answers from the Company regarding the terms and conditions of the offering of the Series C Preferred Stock and the business, properties, prospects and financial condition of the Company. The foregoing, however, does not limit or modify the representations and warranties of the Company in Section 2 of this Agreement or the right of such Purchaser to rely thereon. 3.4 Investment Experience. Such Purchaser is an investor in securities of companies in the development stage and acknowledges that it is able to fend for itself, can bear the economic risk of its investment, and has such knowledge and experience in financial or business matters that it is capable of evaluating the merits and risks of the investment in the Series C Preferred Stock. If other than an individual, such Purchaser also represents it has not been organized solely for the purpose of acquiring the Series C Preferred Stock. 3.5 Accredited Investor. Such Purchaser is an "accredited investor" within the meaning of Securities and Exchange Commission ("SEC") Rule 501 of Regulation D promulgated under the Securities Act, as presently in effect. 3.6 Restricted Securities. Such Purchaser understands that the Securities it is purchasing are characterized as "restricted securities" under the federal securities laws inasmuch as they are being acquired from the Company in a transaction not involving a public offering and that under such laws and applicable regulations such securities may be resold without registration under the Securities Act of 1933, as amended (the "Securities Act"), only in certain limited circumstances. In addition, such Purchaser represents that it is familiar with SEC Rule 144, as presently in effect, and understands the resale limitations imposed thereby and by the Securities Act. Each Purchaser understands that no public market presently exists for the Series C Preferred Stock or Common Stock of the Company, and that there are no assurances that any such market will be created. 3.7 Further Limitations on Disposition. Without in any way limiting the above, such Purchaser further agrees not to make any disposition of all or any portion of the Securities unless: (a) 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 8 9 (b) (i) Such Purchaser 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 (ii) if reasonably requested by the Company, such Purchaser 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, provided, however, that the Company will not request an opinion in connection with customary distributions to general and limited partners of venture capital funds. 3.8 Legends. It is understood that the certificate(s) evidencing the Shares shall bear the following legends: (a) "The shares represented by this certificate have been acquired for investment and have not been registered under the Securities Act of 1933, as amended. Such shares may not be sold or transferred in the absence of such registration or, if the Corporation timely requests, unless the Corporation receives an opinion of counsel reasonably acceptable to it stating that such sale or transfer is exempt from the registration and prospectus delivery requirements of said act. Copies of the agreements covering the purchase of these shares and restricting their transfer may be obtained at no cost by written request made by the holder of record of this certificate to the Secretary of the Corporation at the principal executive offices of the Corporation." (b) "The shares represented by this certificate are subject to the market stand-off provisions contained in the Corporation's Third Amended and Restated Investor Rights Agreement. A copy of such agreement may be obtained without charge upon written request to the Corporation at its principal place of business." (c) Any other legends required by the Agreements or applicable law. 4. Conditions of Purchasers' Obligations at Closing. The obligations of each Purchaser to purchase Shares at the applicable Closing are subject to the fulfillment of each of the following conditions. 4.1 Representations and Warranties. The representations and warranties of the Company contained in Section 2 shall be true in all material respects on and as of the applicable Closing with the same effect as though such representations and warranties had been made on and as of such Closing. 4.2 Performance. The Company shall have performed and complied with all agreements, obligations and conditions contained in this Agreement that are required to be performed or complied with by it on or before the applicable Closing. 9 10 4.3 Compliance Certificate. The President of the Company shall deliver to such Purchaser at the applicable Closing a certificate certifying that the conditions specified in Sections 4.1 and 4.2 have been fulfilled. 4.4 Qualifications. All authorizations, approvals, or permits, if any, of any governmental authority or regulatory body of the United States or of any state that are required in connection with the lawful issuance and sale of the Shares at the applicable Closing shall have been obtained by the Company as of such Closing. 4.5 Proceedings and Documents. All corporate and other proceedings in connection with the transactions contemplated at the applicable Closing and all documents incident thereto shall be reasonably satisfactory in form and substance to such Purchaser. 4.6 Restated Certificate. The Restated Certificate shall have been filed with the Delaware Secretary of State. 4.7 Rights Agreement. The Company, such Purchaser and Investors (as defined therein) holding a sufficient number of shares of "Registrable Securities" to amend and restate the Company's Second Amended and Restated Investor Rights Agreement shall have entered into and delivered the Rights Agreement. 4.8 Co-Sale Agreement. The Company, such Purchaser and the Founders (as defined in the Co-Sale Agreement) holding a sufficient number of Shares to amend and restate the prior Co-Sale Agreement shall have entered into and delivered the Co-Sale Agreement. 4.9 Voting Agreement. The Company, such Purchaser and the stockholders specified therein holding a sufficient number of Shares to amend and restate the prior Voting Agreement shall have entered into and delivered the Voting Agreement. 4.10 Opinion of Company Counsel. Such Purchaser shall have received from Fenwick & West LLP, counsel for the Company, an opinion, dated as of the applicable Closing. 4.11 Board of Directors. As of the Initial Closing, the Board shall be comprised of Farzad Dibachi, Terence Garnett, John Chen, Maynard Webb, William Raduchel, and Michael Brooks, and Mr. Brooks and the Company shall have executed and delivered an Indemnification Agreement in a form satisfactory to Mr. Brooks and the Company. 5. Conditions of the Company's Obligations at Closing. The obligations of the Company to sell and issue the Shares at the applicable Closing are subject to the fulfillment of each of the following conditions: 5.1 Representations and Warranties. The representations and warranties of each Purchaser contained in Section 3 shall be true in all material respects on and as of the applicable Closing with the same effect as though such representations and warranties had been made on and as of such Closing. 10 11 5.2 Qualifications. All authorizations, approvals, or permits, if any, of any governmental authority or regulatory body of the United States or of any state that are required in connection with the lawful issuance and sale of the Securities at the applicable Closing pursuant to this Agreement shall be duly obtained and effective as of such Closing. 5.3 Restated Certificate. The Restated Certificate shall have been filed with the Delaware Secretary of State. 5.4 Rights Agreement. The Company and Investors (as defined therein) holding a sufficient number of shares of "Registrable Securities" to amend and restate the Company's Second Amended and Restated Investor Rights Agreement shall have entered into and delivered the Rights Agreement. 5.5 Co-Sale Agreement. The Company, the Founders (as defined in the Co-Sale Agreement) and Investors (as defined in the Co-Sale Agreement) holding a sufficient number of shares to amend and restate the prior Co-Sale Agreement shall have entered into and delivered the Co-Sale Agreement. 5.6 Voting Agreement. The Company and the other parties thereto, holding a sufficient number of shares to amend and restate the prior Voting Agreement shall have entered into and delivered the Voting Agreement. 6. Covenants. 6.1 Key Man Insurance. If and to the extent the Board of Directors deems it reasonable and appropriate, the Company shall obtain and maintain term life insurance on key employees with the Company as named beneficiary. 6.2 Indemnification Agreements. The Company has entered into customary indemnification agreements with each of its current directors and executive officers and, for so long as J.H. Whitney & Co. or its affiliates continue to have a designated representative on the Board in accordance with the Voting Agreement, shall enter into such agreements with future directors and executive officers. 6.3 Publicity. The Company agrees not to make any public disclosure of any Purchaser's investment without such Purchaser's consent. Each Purchaser agrees not to make any public disclosure of its investment in the Company without the Company's prior consent. 6.4 Directors and Officers Insurance. The Company agrees to use commercially reasonable efforts to obtain and provide Directors and Officers insurance coverage, so long as J.H. Whitney & Co. continues to have a designated representative on the Board, in accordance with the Voting Agreement, within ninety (90) days of closing in amounts reasonably acceptable to J.H. Whitney & Co. and the Company. 6.5 Board of Directors Meetings. The Company shall pay reasonable travel expenses to and from all Board of Directors meetings (including lodgings and meals) for J.H. 11 12 Whitney & Co.'s designee on the Board of Directors, so long as J.H. Whitney & Co. continues to have a designated Board member in accordance with the Voting Agreement. 6.6 Termination of Covenants. Except as otherwise provided in Sections 6.2, 6.4 and 6.5 above, the covenants contained in this Section 6 shall terminate upon the earliest to occur of any one of the following events: (a) The liquidation, dissolution or indefinite cessation of the business operations of the Company; (b) The execution by the Company of a general assignment for the benefit of creditors or the appointment of a receiver or trustee to take possession of the property and assets of the Company; (c) The consummation of an underwritten public offering by the Company of shares of its Common Stock pursuant to a registration statement on form S-1 or SB-2 under the Securities Act, yielding gross proceeds to the Company in excess of twenty million dollars ($20,000,000); (d) The acquisition of the Company by another entity by means of any transaction or series of related transactions (including, without limitation, any reorganization, merger or consolidation); or a sale of all or substantially all of the assets of the Company (including, for purposes of this section, intellectual property rights which, in the aggregate, constitute substantially all of the Company's material assets); unless in each case, the Company's stockholders of record as constituted immediately prior to such acquisition or sale will, immediately after such acquisition or sale (by virtue of securities issued as consideration for the Corporation's acquisition or sale or otherwise) hold at least fifty percent (50%) of the voting power of the surviving or acquiring entity. 7. Miscellaneous. 7.1 Successors and Assigns. Except as otherwise provided herein, the terms and conditions of this Agreement shall inure to the benefit of and be binding upon the respective successors and assigns of the parties (including transferees of any Securities). Nothing in this Agreement, express or implied, is intended to confer upon any party other than the parties hereto or their respective successors and assigns any rights, remedies, obligations, or liabilities under or by reason of this Agreement, except as expressly provided in this Agreement. 7.2 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. 7.3 Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 12 13 7.4 Titles and Subtitles. The titles and subtitles used in this Agreement are used for convenience only and are not to be considered in construing or interpreting this Agreement. 7.5 Notices. All notices and other communications required or permitted hereunder shall be in writing, shall be effective when given, and shall in any event be deemed to be given upon receipt or, if earlier, (a) five (5) days after deposit with the U.S. Postal Service or other applicable postal service, if delivered by first class mail, postage prepaid, (b) upon delivery, if delivered by hand, (c) one (1) business day after the business day of deposit with Federal Express or similar overnight courier, freight prepaid or (d) one (1) business day after the business day of facsimile transmission, if delivered by facsimile transmission with copy by first class mail, postage prepaid, and shall be addressed (i) if to a Purchaser, at such Purchaser's address as set forth on Exhibit A, and (ii) if to the Company, at the address of its principal corporate offices (attention: Secretary), or at such other address as a party may designate by ten days' advance written notice to the other party pursuant to the provisions above. 7.6 Finder's Fee. Each party, severally and not jointly, represents that it neither is nor will be obligated for any finders' fee or commission in connection with this transaction. Each Purchaser agrees to indemnify and hold harmless the Company from any liability for any commission or compensation in the nature of a finders' fee (and the costs and expenses of defending against such liability or asserted liability) for which Purchaser or any of its officers, partners, employees, or representative is responsible. The Company agrees to indemnify and hold harmless each Purchaser from any liability for any commission or compensation in the nature of a finders' fee (and the costs and expenses of defending against such liability or asserted liability) for which the Company or any of its officers, employees or representatives is responsible. 7.7 Fees and Expenses. The Company shall pay the reasonable fees and expenses, of Morrison Cohen Singer & Weinstein, LLP, counsel to J.H. Whitney & Co. managed Purchasers, incurred with respect to this Agreement, the documents referred to herein and the transactions contemplated hereby and thereby, up to a maximum of $25,000. 7.8 Amendment and Waivers. Any term of this Agreement may be amended and the breach of any term of this Agreement 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 two-thirds (66 2/3%) of the Common Stock issued or issuable upon conversion of the Series C Preferred Stock sold hereunder and voting as a single class, provided, that no such consent will be required to add a party pursuant to Section 1.4 hereof. Any amendment or waiver effected in accordance with this paragraph shall be binding upon each holder of any securities purchased under this Agreement at the time outstanding (including securities into which such securities are convertible), each future holder of all such securities and the Company. 7.9 Severability. If one or more provisions of this Agreement are held to be unenforceable under applicable law, such provision shall be excluded from this Agreement and 13 14 the balance of the Agreement shall be interpreted as if such provision were so excluded and shall be enforceable in accordance with its terms. 7.10 Aggregation of Stock. All shares of the Series C Preferred Stock held or acquired (or Common Stock issued upon conversion thereof) by affiliated entities or persons shall be aggregated for the purpose of determining the availability of or discharge of any rights under this Agreement. 7.11 Entire Agreement. This Agreement and the documents referred to herein constitute the entire agreement among the parties and no party shall be liable or bound to any other party in any manner by any warranties, representations, or covenants except as specifically set forth herein or therein. 7.12 California Corporate Securities Law. THE SALE OF THE SECURITIES WHICH ARE THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF SUCH SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION THEREFOR PRIOR TO SUCH QUALIFICATION IS UNLAWFUL UNLESS THE SALE OF SECURITIES IS EXEMPT FROM THE QUALIFICATION BY SECTION 25100, 25102 OR 25105 OF THE CALIFORNIA CORPORATIONS CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY CONDITIONED UPON SUCH QUALIFICATION BEING OBTAINED, UNLESS THE SALE IS SO EXEMPT. 7.13 Survival of Representations and Warranties. All representations and warranties of the Company made herein shall survive the execution and delivery of this Agreement, any due diligence or other investigation by or on behalf of the Purchasers, acceptance of the Shares and payment therefor. LIST OF EXHIBITS Exhibit A - Purchasers Exhibit B - Restated Certificate Exhibit C - Schedule of Exceptions Exhibit D - Rights Agreement Exhibit E - Co-Sale Agreement Exhibit F - Voting Agreement Exhibit G -Confidential Information and Inventions Assignment Agreement 14 15 EXHIBIT A SCHEDULE OF PURCHASERS
PURCHASE PRICE PER AGGREGATE NAME NO. OF SHARES SHARE PURCHASE PRICE - ---- ------------- --------- -------------- J.H. Whitney III, L.P. 4,416,199 $ 1.99 $ 8,788,236.01 177 Broad Street Stamford, CT 06901 Attn: Mr. Daniel J. O'Brien Whitney Strategic Partners III, L.P. 106,414 $ 1.99 $ 211,763.86 177 Broad Street Stamford, CT 06901 Attn: Mr. Daniel J. O'Brien in each case, with copies to: Morrison Cohen Singer & Weinstein, LLP 750 Lexington Avenue New York, NY 10022 Attn: David A. Scherl, Esq Peter O. Crisp 25,126 $ 1.99 $ 50,000.74 103 Horseshoe Road Mill Neck, NY 11765 F & W Investments 1998 25,126 $ 1.99 $ 50,000.74 2 Palo Alto Square Palo Alto, CA 94306 Kip Fern 25,126 $ 1.99 $ 50,000.74 6222 185th Avenue NE Redmond, WA 99052 Terence J. Garnett and Katrina A. Garnett, 502,513 $ 1.99 $ 1,000,000.87 Trustees of the Garnett Family Trust U/D/T dated 4/2/97 2494 Sand Hill Road, Suite 200 Menlo Park, CA 94025 Terence J. Garnett 75,377 $ 1.99 $ 150,000.23 2494 Sand Hill Road, Suite 200 Menlo Park, CA 94025
16
PURCHASE PRICE PER AGGREGATE NAME NO. OF SHARES SHARE PURCHASE PRICE - ---- ------------- --------- -------------- Hambrecht & Quist Attn: Michael Beblo, CFO One Bush Street San Francisco, CA 94104 Hambrecht & Quist California 49,121 $ 1.99 $ 97,750.79 Hambrecht & Quist Employee Venture Fund, L.P. II 28,391 $ 1.99 $ 56,498.09 Access Technology Partners, L.P. 396,985 $ 1.99 $ 790,000.15 Access Technology Partners Brokers Fund, L.P. 4,397 $ 1.99 $ 8,750.03 Cristina Morgan 12,563 $ 1.99 $ 25,000.37 A.G. Edwards & Sons C/F Douglas P. 5,025 $ 1.99 $ 9,999.75 Smith IRA Account Kenneth Hao 2,513 $ 1.99 $ 5,000.87 Donald Fornes 3,518 $ 1.99 $ 7,000.82 Phoenix Partners IIIB 251,256 $ 1.99 $ 499,999.44 Attn: David Moss 1000 Second Avenue, Suite 3600 Seattle, WA 99104 Phoenix Partners IV 251,256 $ 1.99 $ 499,999.44 Attn: David Moss 1000 Second Avenue, Suite 3600 Seattle, WA 99104 TCW/ICICI India Private Equity Fund, L.L.C. 705,944 $ 1.99 $ 1,404,828.56 c/o Trust Company of the West Michael Sheldon, Managing Director 865 South Figueroa Street Los Angeles, CA 90017 TCW/ICICI India Private Equity Amp Fund, L.L.C. 299,081 $ 1.99 $ 595,171.19 c/o Trust Company of the West Michael Sheldon, Managing Director 865 South Figueroa Street
17
PURCHASE PRICE PER AGGREGATE NAME NO. OF SHARES SHARE PURCHASE PRICE - ---- ------------- --------- -------------- Los Angeles, CA 90017 Michael Tyrrell 25,126 $ 1.99 $ 50,000.74 27 Ballast Lane Marblehead, MA 01945 Venrock Associates 999,246 $ 1.99 $ 1,988,499.54 Kim Rummelsburg 2494 Sand Hill Road, Suite 200 Menlo Park, CA 94025 Venrock Associates II, L.P. 1,437,940 $ 1.99 $ 2,861,500.60 Kim Rummelsburg 2494 Sand Hill Road, Suite 200 Menlo Park, CA 94025 Maynard and Irene Webb, 50,251 $ 1.99 $ 99,999.49 Trustees of the Webb Family Trust Dated June, 1995 P. O. Box 8975 17688 Calle Mayor Rancho Santa Fe, CA 92067-8975 Henricus J. Stander III 25,126 $ 1.99 $ 50,000.74 c/o Trust Company of the West Michael Sheldon, Managing Director 865 South Figueroa Street Los Angeles, CA 90017 Mark A. Moore 12,563 $ 1.99 $ 25,000.37 708 Laurel Avenue Burlingame, CA 94010 Comdisco, Inc. 251,256 $ 1.99 $ 499,999.44 Attention: Grace Gillen 3000 Sand Hill Road Building 1, Suite 155 Menlo Park, CA 94025 TOTALS 9,987,439 $19,875,003.61
18 EXHIBIT B AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF NIKU CORPORATION a Delaware corporation (Originally incorporated on January 8, 1998 as Niku Corporation) ARTICLE I The name of this corporation is Niku Corporation (the "Corporation"). ARTICLE II The address of the registered office of the Corporation in the State of Delaware is 1013 Centre Road, in the City of Wilmington, County of New Castle. The name of its registered agent at such address is the Corporation Service Company. ARTICLE III The nature of the business or purposes to be conducted or promoted is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of Delaware. ARTICLE IV A. Classes of Stock. This Corporation is authorized to issue two classes of stock, to be designated, respectively, "Common Stock" and "Preferred Stock." The total number of shares which the corporation is authorized to issue is Eighty-Four Million Two Hundred Seventy-Two Thousand Eight Hundred Forty-Three (84,272,843) shares. Fifty Million (50,000,000) shares shall be Common Stock, par value $0.0001 per share, and Thirty-Four Million Two Hundred Seventy-Two Thousand Eight Hundred Forty-Three (34,272,843) shares shall be Preferred Stock, par value $0.0001 per share. Ten Million (10,000,000) shares of Preferred Stock shall be designated "Series F Preferred Stock," Five Million One Hundred Forty-Two Thousand Eight Hundred Fifty-One (5,142,851) shares of Preferred Stock shall be designated "Series A Preferred Stock", Eight Million Six Hundred Twenty-Nine Thousand Nine Hundred Ninety-Two (8,629,992) shares of Preferred Stock shall be designated "Series B Preferred Stock" and Ten Million Five Hundred Thousand (10,500,000) shares shall be designated "Series C Preferred Stock." B. Rights, Preferences, Privileges and Restrictions of Preferred Stock. The rights, preferences, privileges and restrictions granted to and imposed on the Series F Preferred Stock, Series A Preferred Stock, Series B Preferred Stock and Series C Preferred Stock (collectively, the "Preferred Stock") are as set forth below in this Article IV(B). 1. Dividend Provisions. The holders of shares of Preferred Stock shall be entitled to receive dividends, out of any assets legally available therefor, prior and in preference to any declaration or payment of any dividend (payable other than in Common Stock) on the Common Stock of this Corporation, at the rate of (a) $0.0025 per share per annum in the case of Series F Preferred Stock (as adjusted for any stock dividends, combinations or splits with respect to such shares), (b) $0.0175 per share per annum in the case of Series A Preferred Stock (as adjusted for any stock dividends, combinations or splits with respect to such shares (c) $0.0375 per share per annum in the case of Series B Preferred Stock (as adjusted for any stock dividends, combinations or splits with respect to such shares) and (d) $0.10 per share per annum in the case of Series C Preferred Stock (as adjusted for any stock dividends, combinations or splits with respect to such shares), when, as and if declared by the Board of Directors of the Corporation. Such dividends shall not be cumulative. No dividend shall be paid on shares 19 of Common Stock in any fiscal year unless the aforementioned preferential dividends of the Preferred Stock shall have been paid in full and the aggregate dividends paid on each share of Preferred Stock during such fiscal year equals or exceeds the dividends per share (computed on an as-converted basis) paid during such fiscal year on the Common Stock. 2. Liquidation Preference. a. Primary Distribution. In the event of any liquidation, dissolution or winding up of this Corporation, either voluntary or involuntary (a "Liquidation"), (i) each holder of Series C Preferred Stock shall be entitled to receive, prior and in preference to any distribution of any of the assets of this Corporation to the holders of other series of Preferred Stock or Common Stock by reason of their ownership thereof an amount equal to: (A) if the effective date of the Liquidation occurs within one year of the Series C Original Issue Date (as defined below), the sum of (x) $2.50 per share (as adjusted for any stock dividends, combinations or splits with respect to such shares) and (y) all declared but unpaid dividends on such shares, for each share of Series C Preferred Stock held by such holder; (B) if the effective date of the Liquidation occurs after one year from the Series C Original Issue Date but within two years of the Series C Original Issue Date, the sum of (x) $3.125 per share (as adjusted for any stock dividends, combinations or splits with respect to such shares) and (y) all declared but unpaid dividends on such shares, for each share of Series C Preferred Stock held by such holder; and (C) if the effective date of the Liquidation occurs at any time after two years of the Series C Original Issue Date but within three years of the Series C Original Issue Date, the sum of (x) $3.91 per share (as adjusted for any stock dividends, combinations or splits with respect to such shares) and (y) all declared but unpaid dividends on such shares, for each share of Series C Preferred Stock held by such holder; (ii) each holder of the Series F Preferred Stock shall be entitled to receive an amount equal to the sum of (x) five cents ($0.05) (the "Original Series F Issue Price") for each share of Series F Preferred Stock held of record by such holder (as adjusted for any stock dividends, combinations or splits with respect to such shares) and (y) all declared but unpaid dividends on such shares; (iii) each holder of the Series A Preferred Stock shall be entitled to receive an amount equal to the sum of (x) thirty-five cents ($0.35) (the "Original Series A Issue Price") for each share of Series A Preferred Stock held of record by such holder (as adjusted for any stock dividends, combinations or splits with respect to such shares) and (y) all declared but unpaid dividends on such shares; and (iv) each holder of the Series B Preferred Stock shall be entitled to receive an amount equal to the sum of (x) seventy-five cents ($0.75) ("Original Series B Issue Price") for each share of Series B Preferred Stock held of record by such holder (as adjusted for any stock dividends, combinations or splits with respect to such shares) and (y) all declared but unpaid dividends on such shares. If upon the occurrence of such event, the assets and funds of the Corporation legally available for distribution shall be insufficient to permit the payment to such holders of the full aforesaid preferential amounts, then the entire assets and funds of the Corporation legally available for distribution shall be distributed ratably first among the holders of the Series C Preferred Stock in proportion to the preferential amount each such holder is otherwise entitled to receive and then among the holders of the Series F, Series A, and Series B Preferred Stock in proportion to the preferential amount each such holder is otherwise entitled to receive. b. Secondary Distribution. Upon the completion of the distribution required by Section 2(a), the remaining assets of the Corporation available for distribution to stockholders shall be distributed of record among the holders of Common Stock pro rata in proportion to the number of shares of Common Stock held of record by each. 20 c. Definition of Liquidation Event; Notice. (i) For purposes of this Section 2, a "Liquidation" of this Corporation shall be deemed to be occasioned by, and to include, without limitation, (A) the acquisition of the Corporation by another entity by means of any transaction or series of related transactions (including, without limitation, any reorganization, merger or consolidation); or (B) a sale of all or substantially all of the assets of the Corporation (including, for purposes of this section, intellectual property rights which, in the aggregate, constitute substantially all of the Corporation's material assets); unless in each case, the Corporation's stockholders of record as constituted immediately prior to such acquisition or sale will, immediately after such acquisition or sale (by virtue of securities issued as consideration for the Corporation's acquisition or sale or otherwise) hold at least fifty percent (50%) of the voting power of the surviving or acquiring entity. (ii) In any of such events, if the consideration received by the Corporation is other than cash, its value will be deemed its fair market value as determined in good faith by the Board of Directors. Any securities received as consideration shall be valued as follows: (A) Securities not subject to investment letter or other similar restrictions on free marketability shall be valued as follows: (1) if traded on a securities exchange or through The Nasdaq National Market, the value shall be deemed to be the average of the closing prices of the securities on such exchange over the thirty day period ending three days prior to the closing; (2) if actively traded over-the-counter, the value shall be deemed to be the average of the closing bid or sale prices (whichever is applicable) over the thirty day period ending three days prior to the closing; and (3) if there is no active public market, the value shall be the fair market value thereof, as determined in good faith by the Board of Directors of the Corporation. (B) Securities subject to investment letter or other restrictions on free marketability (other than restrictions arising solely by virtue of a stockholder's status as an affiliate or former affiliate) shall be valued in such a manner as to make an appropriate discount from the market value determined as above in (A) (1), (2) or (3) to reflect the approximate fair market value thereof, as determined in good faith by the Board of Directors of the Corporation. (iii) The Corporation shall give each holder of record of Preferred Stock written notice of any such impending transaction not later than ten (10) days prior to the stockholder meeting called to approve such transaction, or twenty (20) days prior to the closing of such transaction whichever notice date is earlier, and shall also notify such holders in writing of the final approval of such transaction. The first of such notices shall describe the material terms and conditions of the impending transaction, the provisions of this Section 2, and the amounts anticipated to be distributed to holders of each outstanding class of capital stock of the Corporation pursuant to this Section 2, and the Corporation shall thereafter give such holders prompt notice of any material changes. The transaction shall in no event take place sooner than twenty (20) days after the Corporation has given the first notice provided for herein or sooner than ten (10) days after the Corporation has given notice of any material changes provided for herein; provided, however, that such periods may be shortened upon the written consent of the holders of Preferred Stock that are entitled to such notice rights or similar notice rights and that represent at least a majority of the voting power of the then outstanding shares of Preferred Stock (computed on an as-converted basis). (iv) In the event the requirements of subsection 2(c)(iii) are not complied with, this Corporation shall forthwith either: (A) cause such closing to be postponed until such time as the requirements of subsection 2(c)(iii) have been complied with; or 21 (B) cancel such transaction, in which event the rights, preferences and privileges of the holders of the Preferred Stock shall continue to be the same as such rights, preferences and privileges existing immediately prior to the date of the first notice referred to in subsection 2(c)(iii). 3. Conversion. The holders of Preferred Stock shall have conversion rights as follows (the "Conversion Rights"): a. Right to Convert. Each share of Preferred Stock shall be convertible, at the option of the holder thereof, at any time after the date of issuance of such share at the office of this Corporation or any transfer agent for such stock, into such number of fully paid and nonassessable shares of Common Stock as is determined by dividing the applicable Original Issue Price of such share by the Conversion Price applicable to such share in effect for such Preferred Stock on the date the certificate is surrendered for conversion. The Original Issue Price for the Series C Preferred Stock (the "Original Series C Issue Price") is $1.99 per share. The initial Conversion Price per share for shares of Preferred Stock shall be the Original Series F Issue Price for the Series F Preferred Stock, the Original Series A Issue Price for the Series A Preferred Stock, the Original Series B Issue Price for the Series B Preferred Stock and the Original Series C Issue Price for the Series C Preferred Stock; provided, however, that such Conversion Prices shall be subject to adjustment as set forth in subsection 3(d). b. Automatic Conversion. Each share of Preferred Stock shall automatically be converted into shares of Common Stock by dividing the applicable Original Issue Price of such share by the Conversion Price applicable to such share at the time in effect for such Preferred Stock immediately upon the earlier of (i) except as provided below in subsection 3(c), the Corporation's sale of its Common Stock in an underwritten public offering on form S-1 or SB-2 under the Securities Act of 1933, as amended (the "Securities Act"), yielding gross proceeds (before deduction of underwriter's discounts, commissions, or other costs and fees associated with the offering) to the Corporation in excess of Twenty Million Dollars ($20,000,000) if the Valuation (computed in accordance with Section 3(d)(i)(A)(III)(6) herein) of the Corporation is greater than or equal to Ninety Million Dollars ($90,000,000) immediately before such offering, and (ii) the date specified by written consent or agreement of the holders of at least a majority of the voting power of the then outstanding shares of Preferred Stock (computed on an as-converted basis) which majority must include at least two-thirds (66 2/3%) of the voting power of the then outstanding shares of Series C Preferred Stock (computed on an as-converted basis). c. Mechanics of Conversion. Before any holder of Preferred Stock shall be entitled to convert the same into shares of Common Stock, such holder shall surrender the certificate or certificates therefor, duly endorsed, at the office of this Corporation or of any transfer agent for the Preferred Stock, and shall give written notice to this Corporation at its principal corporate office, of the election to convert the same and shall state therein the name or names in which the certificate or certificates for shares of Common Stock are to be issued. This Corporation shall, as soon as practicable thereafter, issue and deliver at such office to such holder of Preferred Stock, or to the nominee or nominees of such holder, a certificate or certificates for the number of shares of Common Stock to which such holder shall be entitled as aforesaid. Such conversion shall be deemed to have been made immediately prior to the close of business on the date of such surrender of the shares of Preferred Stock to be converted, and the person or persons entitled to receive the shares of Common Stock issuable upon such conversion shall be treated for all purposes as the record holder or holders of such shares of Common Stock as of such date. If the conversion is in connection with an underwritten offering of securities registered pursuant to the Securities Act, the conversion, unless otherwise designated by the holder, will be conditioned upon the closing with the underwriters of the sale of securities pursuant to such offering, in which event the person(s) entitled to receive the Common Stock upon conversion of the Preferred Stock shall not be deemed to have converted such Preferred Stock until immediately prior to the closing of such sale of securities. d. Conversion Price Adjustments of Preferred Stock for Certain Dilutive Issuances, Splits, Dividends and Combinations. The Conversion Prices of the Preferred Stock shall be subject to adjustment from time to time as follows: (i)(A)(I) Adjustment Formula for Series F, Series A and Series B Preferred Stock. If at any time or from time to time after the Series C Original Issue Date the Corporation issues or 22 sells Additional Stock (as hereinafter defined), for an Effective Price (as hereinafter defined) that is less than the applicable Conversion Price for a series of Preferred Stock (other than the Series C Preferred Stock) in effect immediately prior to such issue or sale (or deemed issue or sale), then, and in each such case, the applicable Conversion Price for such series of Preferred Stock (other than the Series C Preferred Stock) shall be reduced, as of the close of business on the date of such issue or sale, to the price obtained by multiplying such Conversion Price by a fraction: (x) The numerator of which shall be the sum of (A) the number of shares of Common Stock issued and outstanding immediately prior to such issue or sale of Additional Stock plus (B) the quotient obtained by dividing the aggregate consideration received by the Corporation for the total number of Additional Stock so issued or sold (or deemed so issued and sold) by the Conversion Price for such series of Preferred Stock in effect immediately prior to such issue or sale; and (y) The denominator of which shall be the sum of (A) the number of shares of Common Stock issued and outstanding immediately prior to such issue or sale plus (B) the number of Additional Stock so issued or sold (or deemed so issued and sold). The foregoing calculation of Common Stock outstanding shall take into account shares deemed issued pursuant to Section 3(d)(i)(E) on account of options, rights, convertible or, exchangeable securities (or actual or deemed consideration therefor). (II) Adjustment Formula for Series C Preferred Stock. If at any time or from time to time after the Series C Original Issue Date the Corporation issues or sells Additional Stock for an Effective Price that is less than the Conversion Price for Series C Preferred Stock in effect immediately prior to such issue or sale (or deemed issue or sale), then, and in each such case, the Conversion Price for the Series C Preferred Stock shall be adjusted as follows: (1) If the Valuation (as hereinafter defined), is greater than or equal to Fifty Million Dollars ($50,000,000) immediately prior to the issuance of Additional Stock, then the Conversion Price for the Series C Preferred Stock shall be reduced, as of the close of business on the date of such issuance or sale, to the Effective Price at which such Additional Stock are so issued or sold (or deemed issued or sold). (2) If the Valuation is less than Fifty Million Dollars ($50,000,000) immediately prior to the issuance of Additional Stock, then the Conversion Price for the Series C Preferred Stock shall be reduced, first, to a price per share that would yield a Valuation, computed in accordance with Section 3(d)(i)(A)(III)(6) herein, of Fifty Million Dollars ($50,000,000) immediately prior to the issuance of the Additional Stock (the "Adjusted Conversion Price"), and then, the Adjusted Conversion Price for Series C Preferred Stock shall be further reduced, as of the close of business on the date of such issue or sale, to the price obtained by multiplying such Adjusted Conversion Price by a fraction: (x) The numerator of which shall be the sum of (1) the number of shares of Common Stock issued and outstanding immediately prior to such issue or sale of Additional Stock plus (2) the quotient obtained by dividing the aggregate consideration received by the Corporation for the total number of Additional Stock so issued or sold (or deemed so issued and sold) by the Conversion Price for such series of Preferred Stock in effect immediately prior to such issue or sale; and (y) The denominator of which shall be the sum of (1) the number of shares of Common Stock issued and outstanding immediately prior to such issue or sale plus (2) the number of Additional Stock so issued or sold (or deemed so issued and sold). The foregoing calculation of Common Stock outstanding shall take into account shares deemed issued pursuant to Section 3(d)(i)(E) on account of options, rights, or convertible or exchangeable securities (or actual or deemed consideration therefor). (III) Certain Definitions. For the purpose of this Section 3(d) the following terms have the following meanings: 23 (1) The "AGGREGATE CONSIDERATION RECEIVED" by the Corporation for any issue or sale (or deemed issue or sale) of securities shall (a) to the extent it consists of cash, be computed at the gross amount of cash received by the Corporation before deduction of any underwriting or similar commissions, compensation or concessions paid or allowed by the Corporation in connection with such issue or sale and without deduction of any expenses payable by the Corporation; (b) to the extent it consists of property other than cash, be computed at the fair value of that property as determined in good faith by the Board; and (c) if Additional Stock, Convertible Securities or Options or Rights to purchase either Additional 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 to be allocable to such Additional Stock, Convertible Securities or Options or Rights. (2) The "EFFECTIVE PRICE" of Additional Stock shall mean the quotient determined by dividing the total number of Additional Stock issued or sold, or deemed to have been issued or sold, by the Corporation under this subsection 3(d), into the Aggregate Consideration Received, or deemed to have been received, by the Corporation under this subsection 3(d), for the issuance (or deemed issuance) of such Additional Stock. (3) "SERIES C ORIGINAL ISSUE DATE" shall mean the date on which the first share of Series C Preferred Stock is issued by the Corporation. (4) The "OPTIONS OR RIGHTS" shall mean warrants, options or other rights to purchase or acquire shares of Common Stock or Convertible Securities. (5) The "CONVERTIBLE SECURITIES" shall mean securities convertible into or exchangeable into Additional Stock. (6) The "VALUATION" of the Company prior to an issuance of Additional Stock shall mean the Effective Price of the Additional Stock multiplied by the sum of (x) the total number of shares of Common Stock of the Corporation outstanding immediately prior to the issuance of Additional Stock plus (y) the total number of shares of Common Stock of the Corporation into which all then outstanding shares of Convertible Securities and Options or Rights of the Corporation are then convertible or exercisable immediately prior to the issuance of such Additional Stock. (IV) No adjustment of the Conversion Price for a series of Preferred Stock shall be made in an amount less than one cent per share, provided that any adjustments which are not required to be made by reason of this sentence shall be carried forward and shall be either taken into account in any subsequent adjustment made prior to three years from the date of the event giving rise to the adjustment being carried forward, or shall be made at the end of three years from the date of the event giving rise to the adjustment being carried forward. Except to the limited extent provided for in Sections 3(d)(i)(D)(3) and 3(d)(i)(D)(4), no adjustment of such Conversion Price pursuant to this Section 3(d)(i) shall have the effect of increasing the Conversion Price for a series of Preferred Stock above the Conversion Price for such shares in effect immediately prior to such adjustment. (B) In the case of the issuance of Common Stock for cash, the consideration shall be deemed to be the amount of cash paid therefor before deducting any reasonable discounts, commissions or other expenses allowed, paid or incurred by the Corporation for any underwriting or otherwise in connection with the issuance and sale thereof. (C) In the case of the issuance of the Common Stock for a consideration in whole or in part other than cash, the consideration other than cash shall be deemed to be the fair value thereof as determined by the Corporation's Board of Directors irrespective of any accounting treatment. (D) In the case of the issuance (whether before, on or after the Series C Original Issue Date) of Options or Rights or Convertible Securities, the following provisions shall apply for all purposes of this Section 3(d)(i) and Section 3(d)(ii): 24 (1) The aggregate maximum number of shares of Common Stock deliverable upon exercise (assuming the satisfaction of any conditions to exercisability, including without limitation, the passage of time, but without taking into account potential antidilution adjustments) of such Options or Rights shall be deemed to have been issued at the time such Options or Rights were issued and for a consideration equal to the consideration (determined in the manner provided in Sections 3(d)(i)(C) and 3(d)(i)(D)), if any, received by the Corporation upon the issuance of such Options or Rights plus the minimum exercise price provided for such Options or Rights (without taking into account potential antidilution adjustments) for the Common Stock covered thereby. (2) The aggregate maximum number of shares of Common Stock deliverable upon conversion of or in exchange (assuming the satisfaction of any conditions to convertibility or exchangeability, including, without limitation, the passage of time, but without taking into account potential antidilution adjustments) for any such Convertible Securities or upon the exercise of Options or Rights to subscribe for Convertible Securities and subsequent conversion or exchange thereof shall be deemed to have been issued at the time such Convertible Securities were issued or such Options or Rights were issued and for a consideration equal to the consideration, if any, received by the Corporation for any such Convertible Securities and related Convertible Options or Rights (excluding any cash received on account of accrued interest or accrued dividends), plus the minimum additional consideration, if any, to be received by the Corporation (without taking into account potential antidilution adjustments) upon the conversion or exchange of such securities or the exercise of any related Options or Rights (the consideration in each case to be determined in the manner provided in Sections 3(d)(i)(B) and 3(d)(i)(C)). (3) In the event of any change in the number of shares of Common Stock deliverable or in the consideration payable to the Corporation upon exercise of such Options or Rights or upon conversion of or in exchange for such Convertible Securities, including, but not limited to, a change resulting from the antidilution provisions thereof, the applicable Conversion Price of the affected series of Preferred Stock, to the extent in any way affected by or computed using such Convertible Options or Rights or Convertible Securities, shall be recomputed to reflect such change, but no further adjustment shall be made for the actual issuance of Common Stock or any payment of such consideration upon the exercise of any such Options or Rights or the conversion or exchange of such Convertible Securities. (4) Upon the expiration of any such Options or Rights, the termination of any such rights to convert or exchange or the expiration of any Options or Rights related to such Convertible Securities, the Conversion Price of the affected series of Preferred Stock, to the extent in any way affected by or computed using such Options, Rights or Convertible Securities or Options or Rights related to such Convertible Securities, shall be recomputed to reflect the issuance of only the number of shares of Common Stock (and Convertible Securities which remain in effect) actually issued upon the exercise of such Options or Rights, upon the conversion or exchange of such Convertible Securities or upon the exercise of the Options or Rights related to such Convertible Securities. Notwithstanding the foregoing sentence, in the event that the issuance of such Options or Rights or Convertible Securities caused an adjustment to the Conversion Price pursuant to Section 3(d)(III)(1) (i.e., a "full-ratchet" adjustment), then upon the expiration of any such Options or Rights or Convertible Securities or the termination of any such rights to convert or exchange or the expiration of any Options or Rights related to such Convertible Securities, without any of such Rights, Options or Convertible Securities, as the case may be, having been exercised and no shares of Common Stock issued pursuant thereto, then the Conversion Price for the Series C Preferred Stock shall be adjusted, to the Conversion Price for the Series C Preferred Stock that was in effect immediately prior to such issuance (the "Prior Series C Conversion Price"), subject, however, to such other adjustments as may have been made or which would have been made pursuant to this Section 3(d)(III) had the Prior Series C Conversion Price been in effect immediately prior to such sale or issuance of such Options, Rights or Convertible Securities. (5) The number of shares of Common Stock deemed issued and the consideration deemed paid therefor pursuant to Sections 3(d)(1)(D)(1) and (2) shall be appropriately adjusted to reflect any change, termination or expiration of the type described in either Section 3(d)(i)(D)(3) or (4). 25 (ii) "Additional Stock" shall mean any shares of Common Stock issued (or deemed to have been issued pursuant to Section 3(d)(i)(E)) by the Corporation after the Series C Original Issue Date other than: (A) Common Stock issued pursuant to a transaction described in Section 3(d)(iii) hereof, (B) Up to an aggregate of 8,568,210 shares (such number of shares of Common Stock to be calculated net of any repurchases of such shares by the Corporation and net of any expired or terminated options, warrants or rights and to be proportionately adjusted for subsequent events described in (IV)(B)(3)(d)(iii)and(iv) herein) issued as: (i) Common Stock issuable or issued to employees, consultants or directors of the Corporation following the Series C original Issue Date directly or pursuant to a stock option plan or agreement or restricted stock plan or agreement approved by the Board of Directors of the Corporation, (ii) Capital stock, or options or warrants to purchase capital stock, issued to financial institutions, equipment lessors or landlords in connection with commercial credit arrangements, equipment financing, real estate leases or similar transactions approved by the Board of Directors of the Corporation, (iii) Capital stock or options or warrants to purchase capital stock, issued to providers of products or technologies (or rights thereto) to the Corporation, if such issuance is approved by the Board of Directors of the Corporation, or (iv) Capital stock or options or warrants to purchase capital stock, issued in connection with bona fide acquisitions, mergers or similar transactions, the terms of which are approved by the Board of Directors of the Corporation, (C) Common Stock issued or issuable upon conversion of the Preferred Stock, (D) Capital stock issued or issuable upon exercise of any outstanding options or warrants to purchase Series A Preferred Stock, Series F Preferred Stock and Series B Preferred Stock which are outstanding as of the Series C Original Issue Date, or (E) Common Stock issued or issuable in a public offering in connection with which all outstanding shares of Preferred Stock will be converted to Common Stock. (iii) In the event the Corporation should at any time or from time to time after the Series C Original Issue Date fix a record date for the effectuation of a split or subdivision of the outstanding shares of Common Stock or for the determination of the outstanding shares of Common Stock entitled to receive a dividend or other distribution payable in additional shares of Common Stock without payment of any consideration by such holder for the additional shares of Common Stock, then, as of such record date (or the date of such dividend, distribution, split or subdivision if no record date is fixed), the Conversion Price of each applicable series of Preferred Stock shall be appropriately decreased so that the number of shares of Common Stock issuable on conversion of each share of such series shall be increased in proportion to such increase of the aggregate of shares of Common Stock outstanding. (iv) If the number of shares of Common Stock outstanding at any time after the Series C Original Issue Date is decreased by a combination of the outstanding shares of Common Stock or reverse stock split, then, following the record date of such combination or reverse stock split, the Conversion Price 26 for each applicable series of Preferred Stock shall be appropriately increased so that the number of shares of Common Stock issuable on conversion of each share of such series shall be decreased in proportion to such decrease in outstanding shares. e. Other Distributions. In the event the Corporation shall declare a distribution payable in securities of other persons, evidences of indebtedness issued by this Corporation or other persons, assets (excluding cash dividends) or Options or Rights not referred to in Section 3(d)(i), then, in each such case for the purpose of this Section 3(e), the holders of the Preferred Stock shall be entitled to a proportionate share of any such distribution as though they were the holders of the number of shares of Common Stock of the Corporation into which their shares of Preferred Stock are convertible as of the record date fixed for the determination of the holders of Common Stock of the Corporation entitled to receive such distribution. f. Recapitalizations. If at any time or from time to time there shall be a recapitalization of the Common Stock (other than a subdivision, combination or merger or sale of assets transaction provided for elsewhere in this Section 3 or Section 2) provision shall be made so that the holders of the Preferred Stock shall thereafter be entitled to receive upon conversion of the Preferred Stock the number of shares of stock or other securities or property of the Corporation or otherwise, which a holder of Common Stock deliverable upon conversion of such series of Preferred Stock immediately prior to such recapitalization would have been entitled to receive on such recapitalization. In any such case, appropriate adjustment shall be made in the application of the provisions of this Section 3 with respect to the rights of the holders of the Preferred Stock after the recapitalization to the extent that the provisions of this Section 3 (including adjustment of the Conversion Prices then in effect and the number of shares purchasable upon conversion of the Preferred Stock) shall be applicable after that event as nearly equivalently as may be practicable. g. No Impairment. The Corporation will not, by amendment of its Certificate of Incorporation or through any reorganization, recapitalization, 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 to be observed or performed hereunder by the Corporation, but will at all times in good faith assist in the carrying out of all the provisions of this Section 3 and in the taking of all such action as may be necessary or appropriate in order to protect the Conversion Rights of the holders of the Preferred Stock against impairment. h. No Fractional Shares and Certificate as to Adjustment. (i) No fractional shares shall be issued upon the conversion of any share or shares of the Preferred Stock, and the number of shares of Common Stock to be issued shall be rounded to the nearest whole share (with one-half being rounded downward). Whether or not fractional shares are issuable upon such conversion shall be determined on the basis of the total number of shares of Preferred Stock the holder is at the time converting into Common Stock and the number of shares of Common Stock issuable upon such aggregate conversion. (ii) Upon the occurrence of each adjustment or readjustment of the Conversion Price of a series of Preferred Stock pursuant to this Section 3, the Corporation, at its expense, shall promptly compute such adjustment or readjustment in accordance with the terms hereof and prepare and furnish to each holder of such series of Preferred Stock a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based. The Corporation shall, upon the reasonable written request at any time of any holder of Preferred Stock, furnish or cause to be furnished to such holder a like certificate setting forth (A) such adjustment and readjustment, (B) the Conversion Price for each series of Preferred Stock at the time in effect, and (C) the number of shares of Common Stock and the amount, if any, of other property which at the time would be received upon the conversion of a share of each series of Preferred Stock held by such holder. i. Notices of Record Date. In the event of any taking by the Corporation of a record date for determining the holders of any class of securities who are entitled to receive any dividend (other than a cash dividend) or other distribution, any right to subscribe for, purchase or otherwise acquire any shares of stock 27 of any class or any other securities or property, or to receive any other right, this Corporation shall mail to each holder of Preferred Stock, at least ten (10) days prior to the record date specified therein, a notice specifying the record date for the purpose of such dividend, distribution or right, and the amount and character of such dividend, distribution or right. j. Reservation of Stock Issuable Upon Conversion. This Corporation shall at all times reserve and keep available out of its authorized but unissued shares of Common Stock, solely for the purpose of effecting the conversion of the then outstanding shares of the Preferred Stock, such number of its shares of Common Stock as shall from time to time be sufficient to effect the conversion of all outstanding shares of the Preferred Stock; and if at any time the number of authorized but unissued shares of Common Stock shall not be sufficient to effect the conversion of all then outstanding shares of the Preferred Stock, in addition to such other remedies as shall be available to the holder of such Preferred Stock, 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 to such number of shares as shall be sufficient for such purposes, including, without limitation, engaging in best efforts to obtain the requisite Board of Directors and stockholder approval of any necessary amendment to its Certificate of Incorporation. k. Notices. Any notice required by the provisions of this Section 3 to be given to the holders of shares of Preferred Stock shall be deemed given if deposited in the United States mail, postage prepaid, and addressed to each holder of record at his address appearing on the books of the Corporation. 4. Redemption. (a) If requested in writing at any time after the seventh anniversary of the Series C Original Issue Date by the holders of at least two-thirds (66 2/3%) of the outstanding Series C Preferred Stock, the Corporation shall redeem, on the terms and conditions stated herein, out of funds legally available therefor, all of the outstanding Preferred Stock in four equal annual installments beginning on the first anniversary of the date redemption is requested by the requisite number of holders (the "Initial Redemption Date") and continuing thereafter on the first, second and third anniversaries of the Initial Redemption Date (each a "Preferred Stock Redemption Date"), by paying in cash therefor (i) in the case of the Series F Preferred Stock, an amount equal to the sum of (x) the Original Series F Issue Price for each share of Series F Preferred Stock held of record by such holder (as adjusted for any stock dividends, combinations or splits with respect to such shares) and (y) all declared but unpaid dividends thereon, (ii) in the case of the Series A Preferred Stock, an amount equal to the sum of (x) the Original Series A Issue Price for each share of Series A Preferred Stock held of record by such holder (as adjusted for any stock dividends, combinations, splits, recapitalizations and the like with respect to such shares) and (y) all declared but unpaid dividends thereon, (iii) in the case of the Series B Preferred Stock, an amount equal to the sum of (x) the Original Series B Issue Price for each share of Series B Preferred Stock held of record by such holder (as adjusted for any stock dividends, combinations, splits, recapitalizations and the like with respect to such shares) and (y) all declared but unpaid dividends thereon and (iv) in the case of the Series C Preferred Stock, an amount equal to the sum of (x) the Original Series C Issue Price for each share of Series C Preferred Stock, held of record by such holder (as adjusted for any stock dividends, combinations, splits, recapitalizations and the like with respect to such shares) and (y) all declared but unpaid dividends thereon (the "Series F Redemption Price," "Series A Redemption Price," "Series B Redemption Price," and "Series C Redemption Price," respectively). The number of shares of Preferred Stock that the Corporation shall be required to redeem under this subsection (a) on any one Preferred Stock Redemption Date shall be equal to the amount determined by dividing (x) the aggregate number of shares of shares of Preferred Stock outstanding immediately prior to that Preferred Stock Redemption Date by (y) the number of remaining Preferred Stock Redemption Dates (including the Preferred Stock Redemption Date to which such calculation applies). In the event that the Corporation is unable to redeem the full number of shares of Preferred Stock to be redeemed on any Preferred Stock Redemption Date, the shares not redeemed shall be redeemed by this Corporation as provided in this Section 4 as soon as practicable after funds are legally available therefor. Any redemption effected pursuant to this subsection 4 (a) shall be made ratably among the holders of the Preferred Stock in proportion to the redemption payment amount each such holder is otherwise entitled to receive on such Preferred Stock Redemption Date. 28 (b) At least thirty (30) but no more than sixty (60) days prior to each Preferred Stock Redemption Date, the Corporation shall give written notice by certified or registered mail, postage prepaid, to all holders of outstanding Preferred Stock, at the address last shown on the records of the Corporation for such holder, stating such Preferred Stock Redemption Date, the Series F, the Series A, Series B and Series C Redemption Price, as the case may be, and shall call upon such holder to surrender to the Corporation on such Preferred Stock Redemption Date at the place designated in the notice such holder's certificate or certificates representing the shares to be redeemed. On or after the Preferred Stock Redemption Date stated in such notice, the holder of each share of Preferred Stock called for redemption shall surrender the certificate or certificates evidencing such shares to the Corporation at the place designated in such notice and shall thereupon be entitled to receive payment of the Series F, Series A, Series B or Series C Redemption Price, as the case may be, for the shares surrendered. If less than all the shares represented by any such surrendered certificate are redeemed, a new certificate shall be issued representing the unredeemed shares. If such notice of redemption shall have been duly given, and if on such Preferred Stock Redemption Date funds necessary for the redemption shall be available therefor, then, as to any certificates evidencing any Preferred Stock so called for redemption and not surrendered, all rights of the holders of such shares shall cease as the close of business on the day immediately preceding the Preferred Stock Redemption Date with respect to such shares, except only the right of the holders to receive the Series F, Series A, Series B or Series C Redemption Price, as the case may be, for the Preferred Stock which they hold, without interest, upon surrender of their certificate or certificates therefor. 5. Voting Rights. Each holder of shares of Preferred Stock shall be entitled to a number of votes equal to the number of shares of Common Stock into which the shares of Preferred Stock held by such holder could be converted, shall have voting rights and powers equal to the voting rights and powers of the holders of Common Stock (except as required by law), shall be entitled to notice of any stockholder meeting in accordance with the Bylaws of the Corporation, and shall vote together as a single class with holders of Common Stock and all series of Preferred Stock on all matters except as required by law or as otherwise specifically provided herein. Fractional votes shall not be permitted and any fractional voting rights resulting from the above formula (after aggregating all shares into which shares of Preferred Stock held by each holder could be converted) shall be rounded to the nearest whole number (with one-half being rounded upward). 6. Status of Converted Preferred Stock. In the event any shares of Preferred Stock shall be converted pursuant to Section 3, the shares so converted shall be canceled and shall not thereafter be issuable by the Corporation. The Certificate of Incorporation of the Corporation shall be appropriately amended to effect the corresponding reduction in the Corporation's authorized capital stock. 7. Protective Provisions. (a) Class Vote. The Corporation shall not, without first obtaining the approval (by vote or written consent, as provided by law) of the holders of at least (1) a majority of the then outstanding shares of Preferred Stock, voting together as a single class, and (2) two-thirds (66 2/3%) of the then outstanding Series C Preferred Stock, voting as a separate series, authorize or effect the winding up or cessation of business of the Corporation. (b) Series Vote. The Corporation shall not, without first obtaining the approval (by vote or written consent, as provided by law) of the holders of at least a majority of each series of Preferred Stock so affected, amend, alter, or change in any adverse manner the rights of such series of Preferred Stock. The Corporation shall not, without the approval, by vote or written consent, of the holders of at least two-thirds (66 2/3%) of the then outstanding shares of Series C Preferred Stock, voting as a separate series: (1) amend its Certificate of Incorporation or Bylaws in any manner that would alter or change the rights, preferences, privileges or restrictions of the Series C Preferred Stock so as to materially adversely affect such Series C Preferred Stock; (2) reclassify any outstanding shares of securities of the Corporation into shares having rights, preferences or privileges senior to or on a parity with the Series C Preferred Stock; 29 (3) authorize or issue any other equity security, including any other security convertible into or exercisable for any equity security, having rights or preferences senior to or on a parity with the Series C Preferred Stock as to dividend rights, liquidation, redemption or voting preferences, including without limitation, shares of Series C Preferred Stock; (4) reorganize, consolidate or merge with or into any corporation or effect any transaction or series of related transactions if such transaction or series of related transactions would result in the stockholders of the Corporation immediately prior to such transaction or series of related transactions holding less than a majority of the voting power of the surviving corporation (or its parent corporation if the surviving corporation is wholly owned by the parent corporation); (5) sell, convey or otherwise dispose of all or substantially all the Corporation's assets in a single transaction or series of related transactions; (6) declare or pay any dividends (other than dividends payable solely in shares of its own Common Stock) on or declare or make any other distribution, purchase, redemption or acquisition, directly or indirectly, on account of any shares of Preferred Stock junior to the Series C Preferred Stock as to dividend rights, liquidation, redemption or voting privileges or any shares of Common Stock now or hereafter outstanding other than those distributions, purchases, redemptions, or acquisitions expressly permitted in this Certificate; or (7) incur any indebtedness to a bank, financial institution or lender in excess of ten million dollars ($10,000,000) unless otherwise approved by the Board of Directors. C. Common Stock. 1. 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 shall be entitled to receive, when and as declared by the Board of Directors, out of any assets of the Corporation legally available therefor, such dividends as may be declared from time to time by the Board of Directors. 2. Liquidation Rights. Upon the liquidation, dissolution or winding up of the Corporation, the assets of the Corporation shall be distributed as provided in Section 2 of Article IV(B) hereof. 3. Redemption. The Common Stock is not redeemable. 4. Voting Rights. Each holder of Common Stock shall be entitled to one (1) vote for each share of Common Stock held, shall be entitled to notice of any stockholder meeting in accordance with the Bylaws of the Corporation, and shall be entitled to vote upon such matters and in such manner as is otherwise provided herein or as may be provided by law. ARTICLE V Except as otherwise provided in this Fourth Amended and Restated Certificate of Incorporation, in furtherance and not in limitation of the powers conferred by statute, the Board of Directors is expressly authorized to make, repeal, alter, amend and rescind any or all of the Bylaws of the Corporation. ARTICLE VI The number of directors of the Corporation shall be fixed from time to time by, or in the manner provided in, the Bylaws or amendment thereof duly adopted by the Board of Directors or by the stockholders. 30 ARTICLE VII Elections of directors need not be by written ballot unless the Bylaws of the Corporation shall so provide. ARTICLE VIII Meetings of stockholders may be held within or without the State of Delaware, as the Bylaws may provide. The books of the Corporation may be kept (subject to any provision contained in the statutes) outside the State of Delaware at such place or places as may be designated from time to time by the Board of Directors or in the Bylaws of the Corporation. ARTICLE IX To the fullest extent permitted by the General Corporation Law of Delaware, as the same may be amended from time to time, a director of the Corporation shall not be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director. If the General Corporation Law of Delaware is hereafter amended to authorize, with or without the approval of a corporation's stockholders, further reductions in the liability of the corporation's directors for breach of fiduciary duty, then a director of the Corporation shall not be liable for any such breach to the fullest extent permitted by the General Corporation Law of Delaware, as so amended. Any repeal or modification of the foregoing provisions of this Article IX, by amendment of this Article IX or by operation of law, shall not adversely affect any right or protection of a director of the Corporation with respect to any acts or omissions of such director occurring prior, to such repeal or modification. ARTICLE X To the fullest extent permitted by applicable law, the Corporation is authorized to provide indemnification of (and advancement of expenses to) directors, officers, employees and other agents of the Corporation (and any other persons to which Delaware law permits the Corporation to provide indemnification) through Bylaw provisions, agreements with any such person, vote of stockholders or disinterested directors or otherwise, in excess of the indemnification and advancement otherwise permitted by Section 145 of the Delaware General Corporation Law, subject only to limits created by applicable Delaware law (statutory or nonstatutory), with respect to actions for breach of duty to a corporation, its stockholders, and others. Any repeal or modification of any of the foregoing provisions of this Article X, by amendment of this Article X or by operation of law, shall not adversely affect any right or protection of a director, officer, employee or agent or other person existing at the time of, or increase the liability of any. director of the Corporation with respect to any acts or omissions of such director, officer or agent occurring prior to, such repeal or modification. 31 ARTICLE XI 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, and all rights conferred upon stockholders herein are granted subject to this reservation. ARTICLE XII The Corporation shall have perpetual existence. * * * The foregoing Amended and Restated Certificate of Incorporation has been adopted by the Corporation's directors and stockholders in accordance with the applicable provisions of Sections 228, 242 and 245 of the General Corporation Law of the State of Delaware. 32 IN WITNESS WHEREOF, the undersigned has executed this certificate on May __, 1999. NIKU CORPORATION By: ------------------------------------- Farzad Dibachi President and Chief Executive Officer 33 EXHIBIT C SCHEDULE OF EXCEPTIONS Set forth below are exceptions to the representations and warranties of Niku Corporation (the "Company") contained in Section 2 of the Series C Preferred Stock Purchase Agreement (the "Agreement"). Section references in this Schedule of Exceptions are for convenience only; each disclosure and exception set forth below is intended to qualify all of the Company's representations and warranties in the Agreement. All capitalized terms used herein and not defined herein shall have the same meaning as in the Agreement. [INTENTIONALLY OMITTED] 34 EXHIBIT D NIKU CORPORATION THIRD AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT THIS THIRD AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT (this "Agreement") is made as of the 13th day of May 1999 by and between Niku Corporation, a Delaware corporation (the "Company") and those holders of the Company's securities whose names are set forth on Exhibit A hereto (collectively the "Existing Investors") and those holders of the Company's securities whose names are set forth on Exhibit B hereto (collectively the "New Investors"). The New Investors and the Existing Investors are referred to collectively herein as the "Investors." THE PARTIES HEREBY AGREE AS FOLLOWS: 1. Registration Rights. The Company covenants and agrees as follows: 1.1 Definitions. For purposes of this Section 1 (unless specifically stated elsewhere): (a) The term "Securities Act" means the Securities Act of 1933, as amended. (b) The term "Holder" means any person owning or having the right to acquire Registrable Securities or any assignee thereof. (c) The term "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended. (d) The terms "register," "registered" and "registration" refer to a registration effected by preparing and filing a registration statement or similar document in compliance with the Securities Act, and the declaration or ordering of effectiveness of such registration statement or document. (e) The term "Registrable Securities" means (i) Common Stock issuable or issued upon conversion of the Shares; (ii) Common Stock now owned by each of Farzad and Rhonda L. Dibachi, Trustees of the Dibachi Family Trust UDT dated 2/11/98 and the Garnett 1996 Children's Trust UTA dtd 3-11-96, Howard S. Zeprun, Trustee; (iii) Common Stock issued or issuable upon conversion of Preferred Stock of the Company issued or issuable upon exercise of warrants to purchase Preferred Stock of the Company issued after the date hereof to financial institutions or lessors in 35 connection with commercial credit arrangements, equipment financings or similar transactions, the terms of which are approved by the Board of Directors of the Company, provided that any such additional parties to this Agreement execute a counterpart signature page hereto and agree to be bound by the terms hereof, and (iv) 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 the foregoing, excluding in all cases, however, any shares sold or transferred by a person in a transaction in which the rights under this Section 1 are not assigned. (f) The number of shares of "Registrable Securities then outstanding" shall be determined by the number of shares of Common Stock outstanding which are, and the number of shares of Common Stock issuable pursuant to then exercisable or convertible securities which are Registrable Securities. (g) The term "Shares" shall mean shares of the Company's Series F Preferred Stock, Series A Preferred Stock, Series B Preferred Stock and Series C Preferred Stock. (h) The term "SEC" shall mean the Securities and Exchange Commission. 1.2 Demand Registration. (a) Registration Rights. If the Company shall receive at any time after six (6) months after the effective date of the first registration statement for a public offering of securities of the Company (other than a registration statement relating either to the sale of securities to employees of the Company pursuant to a stock option, stock purchase or similar plan or a SEC Rule 145 transaction), a written request from holders of at least 50% of the Registrable Securities then outstanding ("Initiating Holders"), requesting that the Company file a registration statement under the Securities Act covering the registration of at least twenty percent (20%) of the Registrable Securities then outstanding, then the Company shall: (i) within ten (10) days of the receipt thereof, give written notice of such request to all Holders; and (ii) effect as soon as practicable, and in any event within ninety (90) days of the receipt of such request, the registration under the Securities Act of all Registrable Securities which the Holders request to be registered, subject to the limitations of subsection 1.2(b), within fifteen (15) days of the mailing of such notice by the Company in accordance with Section 4.6. (b) Underwriting. 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 subsection 1.2(a) and the Company shall include such information in the written notice referred to in subsection 1.2(a). The underwriter 36 will be selected by the Company and shall be reasonably acceptable to a majority in interest of the Initiating Holders. In such event, the right of any Holder to include Registrable Securities in such registration shall be conditioned upon such Holder's participation in such underwriting and the inclusion of such Holder's Registrable Securities in the underwriting (unless otherwise mutually agreed by a majority in interest of the Initiating Holders and such Holder) to the extent provided herein. All Holders proposing to distribute Registrable Securities through such underwriting shall, together with the Company, enter into an underwriting agreement in customary form with the managing underwriter selected for such underwriting by the Company. Notwithstanding any other provision of this Section 1.2, if the Company and the underwriter advise the Initiating Holders in writing that marketing factors require a limitation of the number of shares to be underwritten, then the Initiating Holders shall so advise all Holders of Registrable Securities, and the number of Registrable Securities that may be included in the underwriting on behalf of each selling Holder shall be allocated pro-rata amongst all selling Holders according to the total number of Registrable Securities held by each such selling Holder. For purposes of the foregoing allocation and any other similar allocations required by this Section 1, for any selling Holder which is a partnership or corporation, the partners, retired partners and stockholders of such Holder (and in the case of a partnership, any affiliated partnerships), or the estates and family members of any such partners and retired partners and any trusts for the benefit of any of the foregoing persons shall be deemed to be a single "selling Holder," and any pro-rata reduction with respect to such "selling Holder" shall be based upon the aggregate number of Registrable Securities owned by all entities and individuals included in such "selling Holder," as defined in this sentence. To facilitate the allocation of shares in accordance with the above provisions, the Company may round the number of shares allocated to any Holder to the nearest 100 shares. (c) Deferral of Registration. Notwithstanding the foregoing, if the Company shall furnish to the Holders requesting a registration statement pursuant to this Section 1.2 a certificate signed by the Chief Executive Officer 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 for such registration statement to be filed and it is therefore essential to defer the filing of such registration statement, the Company shall have the right to defer taking action with respect to such filing for a period of not more than one hundred twenty (120) days after receipt of the request of the Initiating Holders; provided, however that the Company may not utilize this right more than twice in any twelve-month period and the Company shall not utilize this right (or the similar right to defer in Section 1.4(b)) for two consecutive one hundred twenty (120) day periods. (d) Number of Registrations. The Company shall not be obligated to effect, or to take any action to effect, any registration pursuant to this Section 1.2 after the Company has effected two (2) registrations pursuant to this Section 1.2 and such registrations have been declared or ordered effective. For the purposes of this Section 1.2, a proposed registration that is withdrawn due to a material adverse change in the Company's business or financial condition shall not count as a registration. 37 1.3 Piggyback Registration Rights. (a) Registration Rights. If the Company proposes to register any of its stock or other securities under the Securities Act in connection with the public offering of such securities solely for cash (other than a registration relating solely to the sale of securities to participants in a Company stock plan, a registration effected pursuant to Rule 145 under the Securities Act or a registration on any form which does not include substantially the same information as would be required to be included in a registration statement covering the sale of the Registrable Securities) the Company shall, at such time, promptly give each Holder written notice of such registration. Upon the written request of each Holder given within fifteen (15) days after mailing of such notice by the Company in accordance with Section 4.6, the Company shall, subject to the provisions of paragraph (b) below, cause to be registered under the Securities Act all of the Registrable Securities that each such Holder has requested to be registered. (b) Underwriting. If the registration of which the Company gives notice is for a registered public offering involving an underwriting, the Company shall so advise the Holders as part of the written notice given pursuant to Section 1.3(a). In such event, the right of any Holder to registration pursuant to this Section 1.3 shall be conditioned upon such Holder's participation in such underwriting and the inclusion of Registrable Securities in the underwriting to the extent provided herein. All Holders proposing to distribute Registrable Securities through such underwriting shall (together with the Company and the other holders distributing their securities through such underwriting) enter into an underwriting agreement in customary form with the managing underwriter selected for such underwriting by the Company. Notwithstanding any other provision of this Section 1.3, if the Company and the managing underwriter determine that marketing factors require a limitation of the number of shares to be underwritten, the managing underwriter may limit or exclude entirely the Registrable Securities to be included in such registration. The Company shall so advise all Holders distributing Registrable Securities through such underwriting, and the number of Registrable Securities that may be included in the underwriting on behalf of each selling Holder and each other person distributing securities in such underwriting shall be allocated pro-rata amongst all selling Holders and all such other persons according to the respective amounts of Registrable Securities or other securities entitled to registration rights held by such selling Holders and other persons at the time of filing the registration statement. To facilitate the allocation of shares in accordance with the above provisions, the Company may round the number of shares allocated to any Holder or other person to the nearest 100 shares. 1.4 Form S-3 Registration. If at any time, and from time to time, that the Company shall be eligible to effect a registration and offering pursuant to Form S-3 under the Securities Act or any successor form ("Form S-3"), the Company shall receive from one or more of the Holders a written request or requests that the Company effect a registration on Form S-3 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: 38 (a) promptly give written notice of the proposed registration, and any related qualification or compliance, to all other Holders; and (b) as soon as practicable, effect such registration and all such qualifications and compliances as may be so requested and as would permit or facilitate the sale and distribution of all or such portion of such Holder's or Holders' Registrable Securities as are specified in such request, together with all or such portion of the Registrable Securities of any other Holder or Holders joining in such request as are specified in a written request given within fifteen (15) days after receipt of such written notice from the Company; provided, however, that the Company shall not be obligated to effect any such registration, qualification or compliance, pursuant to this Section 1.4: (1) if Form S-3 is not available for such offering by the Holders; (2) 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 a gross aggregate price to the public of less than two million dollars ($2,000,000); (3) if the Company shall furnish to the Holders a certificate signed by the President 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 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 one hundred twenty (120) days after receipt of the request of the Holder or Holders under this Section 1.4; provided, however, that the Company shall not utilize this right more than twice in any twelve month period, and the Company shall not utilize this right (or the similar right to defer in Section 1.2(c)) for two consecutive one hundred twenty (120) day periods; (4) if the Company has, within the twelve (12) month period preceding the date of such request, previously effected a registration on Form S-3 pursuant to this Section 1.4; or (5) 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 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 1.4 shall not be counted as demands for registration or registrations effected pursuant to Sections 1.2 or 1.3, respectively. 1.5 Furnish Information. It shall be a condition precedent to the obligations of the Company to take any action pursuant to this Section 1 with respect to the Registrable Securities of any selling Holder that such Holder shall furnish to the Company such information regarding itself, the Registrable Securities held by it, and the intended method of disposition of such securities as shall be required to effect the registration of such Holder's Registrable Securities. 1.6 Expenses of Registration. The Company shall bear and pay all expenses incurred in connection with any registration, filing or qualification of Registrable Securities with respect to the registrations pursuant to this Section I for each Holder (which right may be assigned as provided in Section 1.10), including (without limitation) all registration, filing, and 39 qualification fees, printers and accounting fees relating or apportionable thereto and the fees and disbursements of counsel for the Company and no more than one counsel for all the selling Holders, but excluding underwriting discounts and commissions relating to Registrable Securities; provided, however, that the Company shall not be required to pay for any expenses of any registration proceeding begun pursuant to Section 1.2 or 1.4 if the registration request is subsequently withdrawn at the request of a majority of the Holders of the Registrable Securities electing to be registered (in which case all participating Holders shall bear such expenses), unless (i) the registration is withdrawn following any deferral of the registration by the Company pursuant to Section 1.2(c) or 1.4(b); (ii) the registration is withdrawn due to a material adverse change in the Company's business or financial condition; or (iii) in the case of a demand registration pursuant to Section 1.2, the Holders of a majority of the Registrable Securities proposed to be registered by such Holders requesting withdrawal agree that the Holders shall forfeit their right to one registration pursuant to Section 1.2. 1.7 No Delay of Registration. No Holder shall have any right to obtain or seek an injunction restraining or otherwise delaying any such registration as the result of any controversy that might arise with respect to the interpretation or implementation of this Section 1. 1.8 Indemnification. In the event any Registrable Securities are included in a registration statement under this Section 1: (a) To the extent permitted by law, the Company will indemnify and hold harmless 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"): (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; and the Company will pay to each such Holder, underwriter or controlling person any legal or other expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, damage, liability, or action, as such expenses are incurred; provided, however, that the indemnity agreement contained in this subsection 1.8(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 to any Holder, any underwriter (as defined in the Securities Act) for such Holder or any person who controls such Holder or underwriter within the meaning of the Securities Act or Exchange Act, for any such loss, claim, damage, liability, or action to the extent 40 that it arises out of or is based upon a Violation which occurs in reliance upon and in conformity with written information furnished by such Holder, underwriter or controlling person. (b) To the extent permitted by law, each Holder will indemnify and hold harmless the Company, each of its directors, each of its officers who has signed the registration statement, each person, if any, who controls the Company within the meaning of the Securities Act, any underwriter, any other Holder selling securities in such registration statement and any controlling person of any such underwriter or other Holder, severally but not jointly, against any losses, claims, damages, or liabilities (joint or several) to which any of the foregoing persons 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 specified for use in such registration statement; and each such Holder will pay any legal or other expenses reasonably incurred by any person intended to be indemnified pursuant to this subsection 1.8(b), in connection with investigating or defending any such loss, claim, damage, liability, or action; provided, however, that the indemnity agreement contained in this subsection 1.8(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, that, in no event shall any indemnity by any Holder under this subsection 1.8(b) exceed the net proceeds from the offering received by such Holder. (c) Promptly after receipt by an indemnified party under this Section 1.8 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 1.8, 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 one counsel mutually satisfactory to the parties; provided, however, that an indemnified party (together with all other indemnified parties which may be represented without conflict by one counsel) shall have the right to retain one separate 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 shall not relieve such indemnifying party of any liability to the indemnified party under this Section 1.8 unless the failure to deliver notice is materially prejudicial to its ability to defend such action. Any omission to so 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 1.8. (d) If the indemnification provided for in this Section 1.8 is held by a court of competent jurisdiction to be unavailable to an indemnified party with respect to any loss, liability, claim, damage, or expense referred to therein, then the indemnifying party, in lieu of indemnifying such indemnified party hereunder, shall contribute to the amount paid or payable 41 by such indemnified party as a result of such loss, liability, claim, damage, or expense in such proportion as is appropriate to reflect the relative fault of the indemnifying party on the one hand and of the indemnified party on the other in connection with the statements or omissions that resulted in such loss, liability, claim, damage, or expense as well as any other relevant equitable considerations; provided that in no event shall any Holder be required to contribute under this subsection 1.8(d) an aggregate amount in excess of the gross proceeds from the offering received by such Holder less any amounts paid by the Holder pursuant to subsection 1.8(b). The relative fault of the indemnifying party and of the indemnified party shall be determined 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. (e) Notwithstanding the foregoing, to the extent that the provisions on indemnification and contribution contained in the underwriting agreement entered into in connection with the underwritten public offering are in conflict with the foregoing provisions, the provisions in the underwriting agreement shall control as to the parties to the underwriters agreement and any stockholders of the Company selling shares of the Company in such offering. (f) The obligations of the Company and Holders under this Section 1.8 shall survive the completion of any offering of Registrable Securities in a registration statement under this Section 1, and otherwise. 1.9 Reports under the Exchange Act. With a view to making available to the Holders the benefits of Rule 144 promulgated under the Act and any other rule or regulation of the SEC that may at any time permit a Holder to sell securities of the Company to the public without registration or pursuant to a registration on Form S-3, the Company agrees to: (a) make and keep public information available, as those terms are understood and defined in SEC Rule 144, at all times after ninety (90) days after the effective date of the first registration statement filed by the Company for the 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 Securities Act and the Exchange Act; and (c) furnish to any Holder, so long as the Holder owns any Registrable Securities, forthwith upon request (i) a written statement by the Company that it has complied with the reporting requirements of SEC Rule 144 (at any time after ninety (90) days after the effective date of the first registration statement filed by the Company), the Securities Act and the Exchange Act (at any time after it has become subject to such reporting requirements), (ii) a copy of the most recent annual or quarterly report of the Company and such other reports and documents so filed by the Company, and (iii) such other information as may be reasonably requested in availing any Holder of any rule or regulation of the SEC which permits the selling of any such securities without registration. 42 1.10 Assignment of Registration Rights. The rights to cause the Company to register Registrable Securities pursuant to this Section 1 may be assigned (but only with all related obligations) by a Holder to a transferee or assignee of such securities who, after such assignment or transfer, holds at least five hundred thousand (500,000) shares of Registrable Securities (subject to appropriate adjustment for stock splits, dividends, combinations and other recapitalizations), provided: (a) the Company is, within a reasonable time before such transfer, furnished with 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; (b) such transferee or assignee agrees in writing to be bound by and subject to the terms and conditions of this Agreement, including without limitation the provisions of Section 1.11 and (c) such assignment shall be effective only if immediately following such transfer the further disposition of such securities by the transferee or assignee is restricted under the Securities Act. For the purposes of determining the number of shares of Registrable Securities held by a transferee or assignee of a holder of Registrable Securities, (i) the holdings of affiliated partnerships and other entities, constituent or retired partners or members (collectively, "Affiliated Members") and (ii) the holdings of spouses and ancestors, lineal descendants and siblings who acquire Registrable Securities by gift, will or intestate succession (collectively, "Family Members") shall in each case be aggregated together; provided that all assignees and transferees who would not qualify individually for assignment of registration rights shall designate in writing to the Company on behalf of the entire group of Affiliated Persons or Family Members, as the case may be, a single attorney-in-fact for the purpose of exercising any rights, receiving notices or taking any action under this Section 1. 1.11 "Market Stand-Off" Agreement. Each Holder hereby agrees that, during the period of duration specified by the Company and an underwriter of common stock or other securities of the Company, following the effective date of a registration statement of the Company filed under the Securities Act, it shall not, to the extent requested by the Company and such underwriter, directly or indirectly sell, offer to sell, contract to sell (including, without limitation, any short sale), grant any option to purchase or otherwise transfer or dispose of (other than to donees who agree to be similarly bound) any securities of the Company held by it as of the effective date except Registrable Securities included in such registration; provided, however, that: (a) all officers and directors of the Company enter into substantially similar agreements; and (b) such market stand-off time period shall not exceed one hundred eighty (180) days except as may be agreed to by holders of a majority of the then outstanding Registrable Securities. Each Investor agrees to provide to the underwriters of any public offering such further agreement as such underwriter may require in connection with this market stand-off agreement. In order to enforce the foregoing covenant, the Company may impose stop-transfer instructions with respect to the Registrable Securities of each Investor (and the shares or securities of every other person subject to the foregoing restriction) until the end of such period. 43 1.12 Termination of Registration Rights. No Holder shall be entitled to exercise any right provided for in this Section 1 after the earlier of (a) five (5) years following the consummation of an underwritten public offering by the Company of shares of its Common Stock pursuant to a registration statement on form S-1 or SB-2 under the Securities Act yielding gross proceeds to the Company in excess of twenty million dollars $20,000,000 (a "Qualified IPO"), and (b) such time as Rule 144 or another similar exemption under the Securities Act is available for the sale of all of such Holder's shares during a three (3)-month period without registration. 2. Right of First Refusal. 2.1 General. Each Holder (as defined in Section 1.1(b)) and any party to whom such Holder's rights under this Section 2 have been duly assigned in accordance with Section 2.6 (each such Holder or assignee being hereinafter referred to as a "Rights Holder") has the right of first refusal to purchase such Rights Holder's Pro Rata Share (as defined below), of all (or any part) of any "New Securities" (as defined in Section 2.2) that the Company may from time to time issue after the date of this Agreement. A Rights Holder's "Pro Rata Share" for purposes of this right of first refusal is the ratio of (a) the number of Registrable Securities as to which such Rights Holder is the Holder (and/or is deemed to be the Holder under Section 1.1(b)), to (b) a number of shares of Common Stock of the Company equal to the sum of (1) the total number of shares of Common Stock of the Company then outstanding plus (2) the total number of shares of Common Stock of the Company into which all then outstanding shares of Preferred Stock of the Company are then convertible plus (3) the number of shares of Common Stock of the Company reserved for issuance under stock purchase and stock option plans of the Company and outstanding warrants. 2.2 New Securities. "New Securities" shall mean any Common Stock or Preferred Stock of the Company, whether now authorized or not, and rights, options or warrants to purchase such Common Stock or Preferred Stock, and securities of any type whatsoever that are, or may become, convertible or exchangeable into such Common Stock or Preferred Stock; provided, however, that the term "New Securities" does not include: (a) shares of Common Stock issued or issuable upon conversion of the outstanding shares of the Preferred Stock; (b) up to an aggregate of 8,568,210 shares (such number to be calculated net of any repurchases of such shares by the Company and net of any expired or terminated options, warrants or rights and to be proportionately adjusted to reflect any subsequent split, subdivision, combination or reverse stock split of the outstanding shares of Common Stock of the Company) issued as (i) shares of Common Stock (or options, warrants or rights therefor) granted or issued hereafter to employees, officers, directors, contractors, consultants or advisers to, the Company or any Subsidiary pursuant to incentive agreements, stock purchase or stock option plans, stock bonuses or awards, 44 warrants, contracts or other arrangements that are approved by the Board of Directors; (ii) shares of the Company's Common Stock or Preferred Stock (and/or options or warrants therefor) issued or issuable to parties providing the Company with equipment leases, real property leases, loans, credit lines, guaranties of indebtedness, cash price reductions or similar financing, under arrangements approved by the Board of Directors; (c) shares of Common Stock or Preferred Stock issued pursuant to the acquisition of another corporation or entity by the Company by consolidation, merger, purchase of all or substantially all of the assets, or other reorganization in which the Company acquires, in a single transaction or series of related transactions, all or substantially all of the assets of such other corporation or entity or fifty percent (50%) or more of the voting power of such other corporation or entity or fifty percent (50%) or more of the equity ownership of such other entity; (d) any shares of Series C Preferred Stock issued under the Series C Preferred Stock Purchase Agreement of even date herewith; (e) any securities issuable upon exercise of any options, warrants or rights to purchase any securities of the Company outstanding on the date of this Agreement ("Warrant Securities") and any securities issuable upon the conversion of any Warrant Securities or upon the exercise or conversion of any securities, if such securities were first offered to the Rights Holders hereunder; (f) shares of the Company's Common Stock or Preferred Stock issued in connection with any stock split or stock dividend; and (g) securities offered by the Company to the public pursuant to a registration statement filed under the Securities Act. 2.3 Procedures. In the event that the Company proposes to undertake an issuance of New Securities, it shall give to each Rights Holder written notice of its intention to issue New Securities (the "Notice"), describing the type of New Securities and the price and the general terms upon which the Company proposes to issue such New Securities. Each Rights Holder shall have ten (10) business days from the date of mailing of any such Notice to agree in writing to purchase such Rights Holder's Pro Rata Share of such New Securities for the price and upon the general terms specified in the Notice by giving written notice to the Company and stating therein the quantity of New Securities to be purchased (not to exceed such Rights Holder's Pro Rata Share). If any Rights Holder fails to so agree in writing within such ten (10) business day period to purchase such Rights Holder's full Pro Rata Share of an offering of New Securities (a "Nonpurchasing Holder"), then such Nonpurchasing Holder shall forfeit the right hereunder to purchase that part of his Pro Rata Share of such New Securities that he did not so agree to purchase and the Company shall promptly give each Rights Holder who has timely agreed to purchase his full Pro Rata Share of such offering of New Securities (a "Purchasing Holder") written notice of the failure of any Nonpurchasing Holder to purchase such 45 Nonpurchasing Rights Holder's full Pro Rata Share of such offering of New Securities (the "Overallotment Notice"). Each Purchasing Holder shall have a right of overallotment such that such Purchasing Holder may agree to purchase a portion of the Nonpurchasing Holders' unpurchased Pro Rata Shares of such offering on a pro rata basis according to the relative Pro Rata Shares of the Purchasing Rights Holders, at any time within five (5) business days after receiving the Overallotment Notice. 2.4 Failure to Exercise. In the event that the Rights Holders fail to exercise in full the right of first refusal within such ten (10) plus five (5) business day period, then the Company shall have 120 days thereafter to sell the New Securities with respect to which the Rights Holders' rights of first refusal hereunder were not exercised, at a price and upon general terms not materially more favorable to the purchasers thereof than specified in the Company's Notice to the Rights Holders. In the event that the Company has not issued and sold the New Securities within such 120 day period, then the Company shall not thereafter issue or sell any New Securities without again first offering such New Securities to the Rights Holders pursuant to this Section 2. 2.5 Termination. This right of first refusal shall terminate (a) immediately before the closing of the first underwritten sale of Common Stock of the Company to the public pursuant to a registration statement filed with, and declared effective by, the SEC under the Securities Act, covering the offer and sale of Common Stock to the public at an aggregate gross public offering price (calculated before deduction of underwriters' discounts and commissions) of at least twenty million dollars ($20,000,000) or (b) upon 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 immediately prior to such transaction (x) own, immediately after such transaction, securities representing less than a majority of the voting power of the corporation or other entity surviving such transaction and (y) receive cash, securities registered under Section 12 of the Exchange Act, or a combination thereof in exchange for all shares of Common Stock of the Company owned by such holders immediately before such transaction. 2.6 Assignment of Right of First Refusal. The right to purchase the Pro Rata Shares pursuant to this Section 2 may be assigned (but only with all related obligations) by a Holder to a transferee or assignee of such securities who, after such assignment or transfer, holds at least five hundred thousand (500,000) shares of Registrable Securities (subject to appropriate adjustment for stock splits, dividends, combinations and other recapitalizations), provided: (a) the Company is, within a reasonable time before such transfer, furnished with written notice of the name and address of such transferee or assignee and the securities with respect to which such right of first refusal are being assigned; (b) such transferee or assignee agrees in writing to be bound by and subject to the terms and conditions of this Agreement, including without limitation the provisions of Section 1.11 and (c) such assignment shall be effective only if immediately following such transfer the further disposition of such securities by the transferee or assignee is restricted under the Securities Act. For the purposes of determining the number of shares of Registrable Securities held by a transferee or assignee of a holder of Registrable Securities, (i) the holdings of Affiliated Members and (ii) the holdings of Family Members shall in each case 46 be aggregated together; provided that all assignees and transferees who would not qualify individually for assignment of the right of first refusal shall designate in writing to the Company on behalf of the entire group of Affiliated Persons or Family Members, as the case may be, a single attorney-in-fact for the purpose of exercising any rights, receiving notices or taking any action under this Section 2. 3. Covenants of the Company. 3.1 Delivery of Financial Statements. The Company shall deliver to each Investor, so long as such Investor shall be a Holder of at least five hundred thousand (500,000) Shares (subject to appropriate adjustment for stock splits, dividends, combinations and other recapitalizations): (a) as soon as practicable, but in any event within one hundred twenty (120) days after the end of each fiscal year of the Company, an income statement for such fiscal year, a balance sheet of the Company and statement of stockholders' equity as of the end of such year, and a statement of cash flows for such year, such year-end financial reports to be in reasonable detail, prepared in accordance with generally accepted accounting principles ("GAAP"), and audited and certified by independent public accountants of nationally recognized standing selected by the Company; (b) as soon as practicable, but in any event within sixty (60) days after the end of each of the first three (3) quarters of each fiscal year of the Company, an unaudited profit or loss statement, a statement of cash flows for such fiscal quarter and an unaudited balance sheet as of the end of such fiscal quarter. 3.2 Inspection. The Company shall permit each Investor, so long as such Investor shall be a Holder of at least five hundred thousand (500,000) Shares (subject to appropriate adjustment for stock splits, dividends, combinations and other recapitalizations), at such Holder's expense, to visit and inspect the Company's properties, to examine its books of account and records and to discuss the Company's affairs, finances and accounts with its officers, all at such reasonable times as may be requested by the Holder; provided, however, that the Company shall not be obligated pursuant to this Section 3.2 to provide access to any information which it reasonably considers to be a trade secret or similar confidential information unless the recipient is not deemed by the Board of Directors to be a competitor or potential competitor of the Company and such Holder signs an appropriate nondisclosure agreement. 3.3 Termination of Covenants. The covenants set forth in this Section 3 shall terminate and be of no further force or effect (a) upon a Qualified IPO or when the Company first becomes subject to the periodic reporting requirements of Sections 12(g) or 15(d) of the Exchange Act, whichever event shall first occur, or (b) with respect to the covenants set forth in Section 3.2, as to any Holder, or transferee or assignee of such Holder, who is deemed by the Board of Directors of the Company to be a competitor or potential competitor of the Company. 47 4. Miscellaneous. 4.1 Additional Parties. In the event of the issuance of warrants to purchase Preferred Stock to financial institutions or lessors in connection with commercial credit arrangements, equipment financings or similar transactions, the terms of which are approved by the Board of Directors of the Company, upon execution of a counterpart signature page by any such entity and without need for an amendment hereto except to add such entity's name to Exhibit B hereto, any such entity shall become a party to this Agreement and shall be deemed an "Investor" for purposes of Sections 1, 2 and 4 of this Agreement as of the date of execution of such counterpart signature page. 4.2 Successors and Assigns. Except as otherwise provided herein, the terms and conditions of this Agreement shall inure to the benefit of and be binding upon the respective successors and permitted assigns of the parties (including transferees of any shares of Registrable Securities). Nothing in this Agreement, express or implied, is intended to confer upon any party other than the parties hereto or their respective successors and assigns any rights, remedies, obligations, or liabilities under or by reason of this Agreement, except as expressly provided in this Agreement. 4.3 Governing Law. This Agreement shall be governed by and construed under the laws of the State of California as such laws apply to agreements entered into by residents of California and to be performed entirely within such state. 4.4 Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 4.5 Titles and Subtitles. The titles and subtitles used in this Agreement are used for convenience only and are not to be considered in construing or interpreting this Agreement. 4.6 Notices. All notices and other communications required or permitted hereunder shall be in writing, shall be effective when given, and shall in any event be deemed to be given upon receipt or, if earlier, (a) five (5) days after deposit with the U.S. Postal Service or other applicable postal service, if delivered by first class mail, postage prepaid, (b) upon delivery, if delivered by hand, (c) one (1) business day after the business day of deposit with Federal Express or similar overnight courier, freight prepaid or (d) one (1) business day after the business day of facsimile transmission, if delivered by facsimile transmission with copy by first class mail, postage prepaid, and shall be addressed (i) if to the Investors, at the Investors' respective addresses as set forth on Exhibit A or Exhibit B hereto and (ii) if to the Company, at the address of its principal corporate offices (attention: Secretary), or in any such case at such other address as a party may designate by ten (10) days' advance written notice to the other party pursuant to the provisions above. 4.7 Expenses. If any action at law or in equity is necessary to enforce or interpret the terms of this Agreement, the prevailing party shall be entitled to reasonable 48 attorneys' fees, costs and necessary disbursements in addition to any other relief to which such party may be entitled. 4.8 Amendments and Waivers. Any term of this Agreement may be amended and the observance of any term of this Agreement 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 a majority of the Registrable Securities then outstanding. Any amendment or waiver effected in accordance with this paragraph shall be binding upon each holder of any Registrable Securities then outstanding, each future holder of all such Registrable Securities, and the Company. 4.9 Aggregation of Stock. All shares of the Series F, Series A, Series B, and Series C Preferred Stock of the Company held or acquired (or Common Stock issuable upon conversion thereof) by affiliated entities or persons shall be aggregated together for the purpose of determining the availability or discharge of any rights under this Agreement. 4.10 Severability. If one or more provisions of this Agreement are held to be unenforceable under applicable law, such provision shall be excluded from this Agreement and the balance of the Agreement shall be interpreted as if such provision were so excluded and shall be enforceable in accordance with its terms. 4.11 Entire Agreement; Amendment; Waiver. This Agreement (including the Exhibits hereto) constitutes the full and entire understanding and agreement between the parties with regard to the subjects hereof and thereof. [Signature Page Follows] 49 COMPANY: INVESTOR: NIKU CORPORATION J.H. WHITNEY III, L.P. By: J.H. Whitney Equity Partners III, LLC, Its General Partner By: By: --------------------------------- ------------------------------------- Farzad Dibachi, President Name: A Managing Member WHITNEY STRATEGIC PARTNERS III, L.P. By: J.H. Whitney Equity Partners III, LLC, Its General Partner By: ------------------------------------- Name: A Managing Member 50 LIST OF EXHIBITS Exhibit A - Existing Investors Exhibit B - New Investors
NAME NO. OF SHARES - ---- ------------- J. H. Whitney III, L.P. 4,416,199 177 Broad Street Stamford, CT 06901 Attn: Mr. Daniel J. O'Brien Whitney Strategic Partners III, L.P. 106,414 177 Broad Street Stamford, CT 06901 Attn: Mr. Daniel J. O'Brien in each case, with copies to: Morrison Cohen Singer & Weinstein, LLP 750 Lexington Avenue New York, NY 10022 Attn: David A. Scherl, Esq Peter O. Crisp 25,126 103 Horseshoe Road Mill Neck, NY 11765 F & W Investments 1998 25,126 2 Palo Alto Square Palo Alto, CA 94306 Kip Fern 25,126 6222 185th Avenue NE Redmond, WA 99052 Terence J. Garnett and Katrina A. Garnett, 502,513 Trustees of the Garnett Family Trust U/D/T dated 4/2/97 2494 Sand Hill Road, Suite 200 Menlo Park, CA 94025 Terence J. Garnett 75,377 2494 Sand Hill Road, Suite 200 Menlo Park, CA 94025
51
NAME NO. OF SHARES - ---- ------------- Hambrecht & Quist Attn: Michael Beblo, CFO One Bush Street San Francisco, CA 94104 Hambrecht & Quist California 49,121 Hambrecht & Quist Employee Venture Fund, L.P. II 28,391 Access Technology Partners, L.P. 396,985 Access Technology Partners Brokers Fund, L.P. 4,397 Cristina Morgan 12,563 A.G. Edwards & Sons C/F Douglas P. Smith IRA Account 5,025 Kenneth Hao 2,513 Donald Fornes 3,518 Phoenix Partners IIIB 251,256 Attn: David Moss 1000 Second Avenue, Suite 3600 Seattle, WA 99104 Phoenix Partners IV 251,256 Attn: David Moss 1000 Second Avenue, Suite 3600 Seattle, WA 99104 TCW/ICICI India Private Equity Fund, L.L.C 705,944 c/o Trust Company of the West Michael Sheldon, Managing Director 865 South Figueroa Street Los Angeles, CA 90017 TCW/ICICI India Private Equity Amp Fund, L.L.C 299,081 c/o Trust Company of the West Michael Sheldon, Managing Director 865 South Figueroa Street Los Angeles, CA 90017
52
NAME NO. OF SHARES - ---- ------------- Michael Tyrrell 25,126 27 Ballast Lane Marblehead, MA 01945 Venrock Associates 999,246 Kim Rummelsburg 2494 Sand Hill Road, Suite 200 Menlo Park, CA 94025 Venrock Associates II, L.P. 1,437,940 Kim Rummelsburg 2494 Sand Hill Road, Suite 200 Menlo Park, CA 94025 Maynard and Irene Webb, 50,251 Trustees of the Webb Family Trust Dated June, 1995 P. O. Box 8975 17688 Calle Mayor Rancho Santa Fe, CA 92067-8975 Henricus J. Stander III 25,126 c/o Trust Company of the West Michael Sheldon, Managing Director 865 South Figueroa Street Los Angeles, CA 90017 Mark A. Moore 12,563 708 Laurel Avenue Burlingame, CA 94010 Comdisco, Inc. 251,256 Attention: Grace Gillen 3000 Sand Hill Road Building 1, Suite 155 Menlo Park, CA 94025 TOTAL 9,987,439
53 EXHIBIT E NIKU CORPORATION AMENDED AND RESTATED CO-SALE AGREEMENT THIS AMENDED AND RESTATED CO-SALE AGREEMENT (this "Agreement") is made as of the _____ day of May, 1999 by and among Farzad and Rhonda L. Dibachi, Trustees of the Dibachi Family Trust UDT Dated 2-11-98 ("Dibachi") and The Garnett 1996 Children's Trust UTA dtd 3-11-98, Howard S. Zeprun, Trustee (the "Founders"), Niku Corporation, a Delaware corporation (the "Company"), and those holders of the Company's securities whose names are set forth on Exhibit A hereto (collectively the "Existing Investors") and those holders of the Company's securities whose names are set forth on Exhibit B hereto (collectively the "New Investors"). The New Investors and the Existing Investors are referred to collectively herein as the "Investors." THE PARTIES HEREBY AGREE AS FOLLOWS: 1. SALES BY FOUNDERS. (a) NOTICE OF SALES. Should any Founder propose to accept one or more bona fide offers (collectively, a "Purchase Offer") from any person or persons for the purchase of (i) the Company's Common Stock owned by such Founder or (ii) with respect only to Dibachi, the Series F Preferred Stock owned by Dibachi, or the shares of Common Stock into which such shares convert (the "Dibachi Shares", and together with the shares of Common Stock described in clause (i) above, the "Shares") from such Founder (other than as set forth in Section 1(e) hereof), such Founder shall promptly deliver a notice (the "Notice") to the Company and each Investor stating the terms and conditions of such Purchase Offer including, without limitation, the number of Shares to be sold or transferred, the nature of such sale or transfer, the consideration to be paid, and the name and address of each prospective purchaser or transferee. (b) CO-SALE RIGHT. Each Investor shall have the right (the "Co-Sale Right"), exercisable upon written notice to the Company within fifteen (15) business days, to participate in such Founder's sale of Shares pursuant to the specified terms and conditions of such Purchase Offer. To the extent an Investor exercises such Co-Sale Right in accordance with the terms and conditions set forth below, the number of Shares which such Founder may sell pursuant to such Purchase Offer shall be correspondingly reduced. The Co-Sale Right of each Investor shall be subject to the following terms and conditions: (i) CALCULATION OF SHARES. Each Investor may sell all or any part of that number of shares of Common Stock of the Company issued or issuable upon conversion of Preferred Stock or Common Stock received in connection with any stock dividend, stock split or other reclassification thereof (the "Conversion Shares") equal to the product obtained by multiplying (x) the aggregate number of Shares covered by the Purchase Offer by (y) a fraction, 54 the numerator of which is the number of Conversion Shares at the time owned by such Investor and the denominator of which is the combined number of Conversion Shares of the Company at the time owned by all Investors and all Founders participating in such sale, including shares transferred by such Founder to Permitted Transferees (as hereinafter defined) in accordance herewith. The provisions of this Agreement do not confer any Co-Sale rights with respect to any shares of Common Stock or other securities held by an Investor that are not Conversion Shares, nor do the provisions of this Agreement subject any shares of Preferred Stock of the Company held by the Founders to the Co-Sale rights of the Investors, other than the Shares. (ii) DELIVERY OF CERTIFICATES. Each Investor may effect its participation in the sale by delivering to the selling Founder for transfer to the prospective purchaser one or more certificates, properly endorsed for transfer, which represent the number of shares of Preferred Stock, or Common Stock issued upon conversion thereof, which such Investor elects to sell. (c) TRANSFER. The stock certificate or certificates which the Investor delivers to the selling Founder pursuant to Section 1(b) shall be delivered by such Founder to the prospective purchaser in consummation of the sale pursuant to the terms and conditions specified in the Notice, and such Founder shall promptly thereafter remit to such Investor that portion of the sale proceeds to which such Investor is entitled by reason of its participation in such sale. To the extent that any prospective purchaser or purchasers prohibits such assignment or otherwise refuses to purchase shares of capital stock of the Company from an Investor exercising its Co-Sale Right hereunder, the selling Founder or Founders shall not sell to such prospective purchaser or purchasers any shares of capital stock unless and until, simultaneously with such sale, the selling Founder or Founders shall purchase such shares from such Investor for the same consideration and on the same terms and conditions as the proposed transfer described in the Notice (which terms and conditions shall be no less favorable than those governing the sale to the purchaser by the Founder or Founders). (d) NO ADVERSE EFFECT. The exercise or non-exercise of the rights of the Investors hereunder to participate in one or more sales of Shares made by a Founder shall not adversely affect their rights to participate in subsequent sales of Shares by a Founder. (e) PERMITTED TRANSACTIONS. The provisions of Section 1 of this Agreement shall not pertain or apply to: (i) Any pledge of the Shares made by a Founder pursuant to a bona fide loan transaction which creates a mere security interest; (ii) Any repurchase of Shares by the Company; (iii) Any bona fide gift; (iv) Any transfer to a Founder's ancestors, descendants or spouse or to a trust for their benefit; 55 (v) Any sale or transfer of Shares between the Founders; or (vi) Sale(s) or transfer(s) by a Founder in an amount not exceeding 500,000 shares of Common Stock in the aggregate over the term of this Agreement. provided, that (x) the Founder(s) shall inform the Investors of such pledge, transfer or gift prior to effecting it, and (y) the pledgee, transferee or donee (collectively, the "Permitted Transferees") shall furnish the Investors with a written agreement to be bound by and comply with all provisions of this Agreement applicable to the Founders. 2. PROHIBITED TRANSFERS; PUT OPTION. Any attempt by a Founder to transfer shares of the Company in violation of Section 1 hereof (a "Prohibited Transfer") shall be void and the Company agrees it will not effect such a transfer nor will it treat any alleged transferee as the holder of such shares without the written consent of the holders of a majority of the Conversion Shares. In the event of a Prohibited Transfer, in addition to such other remedies as may be available at law, in equity or hereunder, if any, the Investors shall have the put option provided below, and the Founders or Founders who made the Prohibited Transfer shall be bound by the provisions of such option. (a) In the event of a Prohibited Transfer, each Investor shall have the right to sell to the Founder or Founders who made the Prohibited Transfer the type and number of Shares equal to the number of shares each Investor would have been entitled to transfer to the third party purchaser under Section 1 hereof, had the Prohibited Transfer been effected pursuant to and in compliance with the terms hereof. Such sale shall be made on the following terms and conditions: (i) The price per share at which the shares are to be sold to the Founder or Founders who made the Prohibited Transfer shall be equal to the price per share paid by the third party purchaser to such Founder in such Prohibited Transfer. The Founder shall also reimburse each Investor for fees and expenses, including legal fees and expenses, directly incurred pursuant to the exercise or the attempted exercise of the Investor's rights under this Section 2. (ii) Within ninety (90) days after the date on which an Investor receives notice of the Prohibited Transfer or otherwise becomes aware of the Prohibited Transfer, such Investor shall, if exercising the option created hereby, deliver to the Founder the certificate or certificates representing shares to be sold, each certificate to be properly endorsed for transfer. (iii) Such Founder shall, upon receipt of the certificate or certificates for the shares to be sold by an Investor, pay the aggregate purchase price therefor and the amount of reimbursable fees and expenses, in cash or by other means acceptable to the Investor. (b) Notwithstanding the foregoing, any attempt by a Founder to transfer securities in violation of this Section 2 shall be voidable at the option of the holders of a majority of the Conversion Shares if such holders do not elect to exercise the put option set forth in this Section 2, and the Company agrees it will not effect such a transfer, nor will the holders of a 56 majority of the Conversion Shares treat any alleged transferee as the holder of such shares, without the written consent of the holders of a majority of the Conversion Shares. 3. LEGENDED CERTIFICATES. Each certificate representing Shares now or hereafter owned by the Founders or issued to any Permitted Transferee pursuant to Section l(e) shall be endorsed with the following legend: "THE SALE, PLEDGE, HYPOTHECATION OR TRANSFER OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE IS SUBJECT TO THE TERMS AND CONDITIONS OF A CERTAIN CO-SALE AGREEMENT BY AND BETWEEN THE STOCKHOLDER, THE CORPORATION AND CERTAIN HOLDERS OF COMMON AND PREFERRED STOCK OF THE CORPORATION. COPIES OF SUCH AGREEMENT MAY BE OBTAINED UPON WRITTEN REQUEST TO THE SECRETARY OF THE CORPORATION." The foregoing legend shall be removed upon termination of this Agreement in accordance with the provisions of Section 4(a). 4. MISCELLANEOUS PROVISIONS. (a) TERMINATION. This Agreement shall terminate (and shall not apply to any transfer by a Founder in connection with) (a) upon the consummation of an underwritten public offering by the Company of shares of its Common Stock pursuant to a registration statement on form S-1 or SB-2 under the Securities Act, yielding gross proceeds to the Company in excess of twenty million dollars ($20,000,000) or (b) upon 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 immediately prior to such transaction (x) own, immediately after such transaction, securities representing less than a majority of the voting power of the corporation or other entity surviving such transaction and (y) receive cash, securities registered under Section 12 of the Securities Exchange Act of 1934, or a combination thereof in exchange for all shares of Common Stock of the Company owned by such holders immediately before such transaction. (b) SUCCESSORS AND ASSIGNS. This Agreement and the rights and obligations of the parties hereunder shall inure to the benefit of, and be binding upon, their respective successors, assigns and legal representatives. The rights of the Investors hereunder shall be assignable only (i) by each of such Investors to any other Investor or (ii) an assignee or transferee who acquires not less than 500,000 shares of Conversion Shares; provided that such limitation shall not apply to transfers by an Investor to constituent shareholders, constituent partners or retired constituent partners (including any constituent of a constituent) of the Investor (including spouses and ancestors, lineal descendants and siblings of such partners or spouses who acquire the Preferred Stock or Common Stock issued upon conversion thereof) if all such transferees or assignees irrevocably agree in writing to appoint a single representative as their attorney in fact for the purpose of receiving any notices and exercising their rights under this Agreement. 57 (c) GOVERNING LAW. This Agreement shall be governed by and construed under the laws of the State of California as such laws apply to agreements entered into by residents of California and to be performed entirely within such state. (d) COUNTERPARTS. This Agreement may be executed in two or more Counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. (e) TITLES AND SUBTITLES. The titles and subtitles used in this Agreement are used for convenience only and are not to be considered in construing or interpreting this Agreement. (f) NOTICES. All notices and other communications required or permitted hereunder shall be in writing, shall be effective when given, and shall in any event be deemed to be given upon receipt or, if earlier, (a) five (5) days after deposit with the U.S. Postal Service or other applicable postal service, if delivered by first class mail, postage prepaid, (b) upon delivery, if delivered by hand, (c) one (1) business day after the business day of deposit with Federal Express or similar overnight courier, freight prepaid or (d) one (1) business day after the business day of facsimile transmission, if delivered by facsimile transmission with copy by first class mail, postage prepaid, and shall be addressed (i) if to the Investors, at the Investors' respective addresses as set forth on Exhibit A hereto and (ii) if to the Company, at the address of its principal corporate offices (attention: Secretary), or in any such case at such other address as a party may designate by ten (10) days' advance written notice to the other party pursuant to the provisions above. (g) EXPENSES. If any action at law or in equity is necessary to enforce or interpret the terms of this Agreement, the prevailing party shall be entitled to reasonable attorneys' fees, costs and necessary disbursements in addition to any other relief to which such party may be entitled. (h) AMENDMENTS AND WAIVERS. Any term of this Agreement may be amended and the observance of any term of this Agreement 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 a majority of the Series B Preferred Stock then outstanding and at least two-thirds (66 2/3%) of the Series C Preferred Stock then outstanding. Any amendment or waiver effected in accordance with this paragraph shall be binding upon the Company, each holder of Preferred Stock and any holder of Shares then outstanding. (i) AGGREGATION OF STOCK. All shares of the Preferred Stock of the Company held or acquired (or Common Stock issuable upon conversion thereof) by affiliated entities or persons shall be aggregated together for the purpose of determining the availability or discharge of any rights under this Agreement. (j) SEVERABILITY. If one or more provisions of this Agreement are held to be unenforceable under applicable law, such provision shall be excluded from this Agreement and 58 the balance of the Agreement shall be interpreted as if such provision were so excluded and shall be enforceable in accordance with its terms. (k) ENTIRE AGREEMENT. This Agreement (including the Exhibit hereto) constitutes the full and entire understanding and agreement between the parties with regard to the subjects hereof and thereof [Signature Pages Follow] 59 The parties have executed this Amended and Restated Co-Sale Agreement as of the date first written above. COMPANY: INVESTOR: NIKU CORPORATION ---------------------------------------- Name of Investor By: By: --------------------------------- ------------------------------------- Farzad Dibachi, President Title: ---------------------------------- FOUNDERS: - ------------------------------------- Farzad and Rhonda L. Dibachi, Trustees of the Dibachi Family Trust UDT Dated 2-11-98 - ------------------------------------- Garnett 1996 Children's Trust UTA dtd 3-11-98, Howard S. Zeprun, Trustee 60 LIST OF EXHIBITS Exhibit A - Existing Investors: See Exhibit A to Third Amended and Restated Investors' Rights Agreement Exhibit B - New Investors: See Exhibit A to Series C Stock Purchase Agreement 61 Exhibit F NIKU CORPORATION AMENDED AND RESTATED VOTING AGREEMENT THIS AMENDED AND RESTATED VOTING AGREEMENT (this "Agreement") is made as of the 13th day of May, 1999 by and among Niku Corporation, a Delaware corporation (the "Company") and those holders of the Company's securities whose names are set forth on Exhibit A hereto (the "Investors") in connection with that Series C Preferred Stock Purchase Agreement (the "Stock Purchase Agreement") dated the date hereof by and among the Company and certain Purchasers (as defined in the Stock Purchase Agreement). AGREEMENT THE PARTIES AGREE AS FOLLOWS: 1. ELECTION OF DIRECTORS. 1.1 BOARD REPRESENTATION. At any meeting of the shareholders of the Company at which members of the Board of Directors of the Company are to be elected, or whenever members of the Board of Directors are to be elected by written consent, the parties agree to vote or act with respect to their shares (whether now or hereinafter acquired) so as to elect (a) one (1) member of the Company's Board of Directors designated by Venrock Associates and Venrock Associates II, L.P. (collectively "Venrock"), such director to initially be Terence Garnett, (b) Farzad Dibachi, and (c) so long as J. H. Whitney III, L. P., Whitney Strategic Partners III, L. P. or any of their respective affiliates (collectively, "Whitney") beneficially own at least twenty-five percent (25%) of the amount of Series C Preferred Stock of the Company purchased by Whitney at the Initial Closing (the "Minimum Amount"), one (1) member of the Company's Board of Directors designated by Whitney (a "Whitney Representative"), such director to initially be Michael Brooks. 1.2 BOARD OBSERVATION. The parties agree that, if the Venrock or Whitney designee to the Board of Directors to the Company is unable to attend a meeting of the Board of Directors, Venrock or Whitney as applicable, may cause another representative of Venrock or Whitney as applicable to attend such meeting as an observer, provided that the Company shall have the right to exclude such representative from all or any part of a Board meeting if in its reasonable judgment such exclusion is necessary to preserve the attorney-client privilege or to protect the Company's trade secrets or similar confidential information. 62 2. LEGENDS. Each certificate representing shares of the Company's capital stock held by Investors or any assignee of the Investors shall bear the following legend; provided, however, that stock certificates held by any assignee of the Investors shall only bear such legend until an underwritten public offering by the Company of shares of its Common Stock pursuant to a registration statement on form SB-1 or SB-2 under the Securities Act, yielding gross proceeds to the Company in excess of twenty million dollars ($20,000,000): "THE SHARES EVIDENCED HEREBY ARE SUBJECT TO A VOTING AGREEMENT BY AND AMONG THE COMPANY AND CERTAIN STOCKHOLDERS OF THE COMPANY (A COPY OF WHICH MAY BE OBTAINED FROM THE COMPANY), AND BY ACCEPTING ANY INTEREST IN SUCH SHARES THE PERSON ACCEPTING SUCH INTEREST SHALL BE DEEMED TO AGREE TO AND SHALL BECOME BOUND BY ALL THE PROVISIONS OF SAID VOTING AGREEMENT." 3. TERMINATION. 3.1 TERMINATION EVENTS. This Agreement shall terminate, except as to the obligation to vote for the Whitney Representative, upon the consummation of an underwritten public offering by the Company of shares of its Common Stock pursuant to a registration statement on form S-1 or SB-2 under the Securities Act, yielding gross proceeds to the Company in excess-of twenty million dollars ($20,000,000). 3.2 REMOVAL OF LEGEND. At any time after the termination of this Agreement in accordance with Section 3.1 as to any party, any party as to which this Agreement has been terminated who holds a stock certificate legended pursuant to Section 2 may surrender such certificate to the Company for removal of the legend, and the Company will duly reissue a new certificate without the legend. 4. MISCELLANEOUS. 4.1 SUCCESSORS AND ASSIGNS. The terms and conditions of this Agreement shall inure to the benefit of and be binding upon the respective successors and assigns of the parties. Nothing in this Agreement, express or implied, is intended to confer upon any party other than the parties hereto or their respective successors and assigns any rights, remedies, obligations, or liabilities under or by reason of this Agreement, except as expressly provided in this Agreement. 4.2 AMENDMENTS AND WAIVERS. Any term hereof may be amended or waived only with the written consent of the Company, Venrock, Whitney, and holders of at least a majority of the Shares held by the other parties hereto. Any amendment or waiver effected in accordance with this Section 4.2 shall be binding upon the Company, the Investors, and each of their respective successors and assigns. 63 4.3 NOTICES. All notices and other communications required or permitted hereunder shall be in writing, shall be effective when given, and shall in any event be deemed to be given upon receipt or, if earlier, (a) five (5) days after deposit with the U.S. Postal Service or other applicable postal service, if delivered by first class mail, postage prepaid, (b) upon delivery, if delivered by hand, (c) one (1) business day after the business day of deposit with Federal Express or similar overnight courier, freight prepaid or (d) one (1) business day after the business day of facsimile transmission, if delivered by facsimile transmission with copy by first class mail, postage prepaid, and shall be addressed (i) if to a Purchaser, at such Purchaser's address as set forth on Exhibit A, and (ii) if to the Company, at the address of its principal corporate offices (attention: Secretary), or at such other address as a party may designate by ten days' advance written notice to the other party pursuant to the provisions above. 4.4 SEVERABILITY. If one or more provisions of this Agreement are held to be unenforceable under applicable law, the parties agree to renegotiate such provision in good faith. In the event that the parties cannot reach a mutually agreeable and enforceable replacement for such provision, then (a) such provision shall be excluded from this Agreement, (b) the balance of the Agreement shall be interpreted as if such provision were so excluded and (c) the balance of the Agreement shall be enforceable in accordance with its terms. 4.5 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 in California. 4.6 COUNTERPARTS. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original and all of which together shall constitute one instrument. 4.7 TITLES AND SUBTITLES. The titles and subtitles used in this Agreement are used for convenience only and are not to be considered in construing or interpreting this Agreement. [Signature Page Follows] 64 The parties hereto have executed this Amended and Restated Voting Agreement as of the date first written above. COMPANY: STOCKHOLDERS NIKU CORPORATION ---------------------------------------- (Investor) By: By: -------------------------------- ------------------------------------- Farzad Dibachi, President Address: Name: 955A Charter Street ----------------------------------- Redwood City, CA 94063 (Print) Title: ---------------------------------- 65 Exhibit A INVESTORS SEE EXHIBIT A TO SERIES C PREFERRED STOCK PURCHASE AGREEMENT 66 Exhibit G NIKU CORPORATION CONFIDENTIAL INFORMATION AND INVENTION ASSIGNMENT AGREEMENT As a condition of my becoming employed (or my employment being continued) by or retained as a consultant (or my consulting relationship being continued) by Niku Corporation, a Delaware corporation or any of its current or future subsidiaries, affiliates, successors or assigns (collectively, the "Company"), and in consideration of my employment or consulting relationship with the Company and my receipt of the compensation now and hereafter paid to me by the Company, I agree to the following: 1. EMPLOYMENT OR CONSULTING RELATIONSHIP. I understand and acknowledge that this Agreement does not alter, amend or expand upon any rights I may have to continue in the employ of, or in a consulting relationship with, or the duration of my employment or consulting relationship with, the Company under any existing agreements between the Company and me or under applicable law. Any employment or consulting relationship between the Company and me, whether commenced prior to or upon the date of this Agreement, shall be referred to herein as the "Relationship." 2. AT-WILL RELATIONSHIP. I understand and acknowledge that my Relationship with the Company is and shall continue to be at-will, as defined under applicable law, meaning that either I or the Company may terminate the Relationship at any time for any reason or no reason, without further obligation or liability. 3. CONFIDENTIAL INFORMATION. (a) COMPANY INFORMATION. I agree at all times during the term of my Relationship with the Company and thereafter, to hold in strictest confidence, and not to use, except for the benefit of the Company, or to disclose to any person, firm, corporation or other entity without written authorization of the Board of Directors of the Company, any Confidential Information of the Company which I obtain or create. I further agree not to make copies of such Confidential Information except as authorized by the Company. I understand that "Confidential Information" means any Company proprietary information, technical data, trade secrets or know-how, including, but not limited to, research, product plans, products, services, suppliers, customer lists and customers (including, but not limited to, customers of the Company on whom I called or with whom I became acquainted during the Relationship), prices and costs, markets, software, developments, inventions, laboratory notebooks, processes, formulas, technology, designs, drawings, engineering, hardware configuration information, marketing, licenses, finances, budgets or other business information disclosed to me by the Company either directly or indirectly in writing, orally or by drawings or observation of parts or equipment or created by me during the period of the Relationship, whether or not during working hours. I understand that 67 "Confidential Information" includes, but is not limited to, information pertaining to any aspects of the Company's business which is either information not known by actual or potential competitors of the Company or is proprietary information of the Company or its customers or suppliers, whether of a technical nature or otherwise. I further understand that Confidential Information does not include any of the foregoing items which has become publicly and widely known and made generally available through no wrongful act of mine or of others who were under confidentiality obligations as to the item or items involved. (b) FORMER EMPLOYER INFORMATION. I represent that my performance of all terms of this Agreement as an employee or consultant of the Company has not breached and will not breach any agreement to keep in confidence proprietary information, knowledge or data acquired by me in confidence or trust prior or subsequent to the commencement of my Relationship with the Company, and I will not disclose to the Company, or induce the Company to use, any inventions, confidential or proprietary information or material belonging to any previous employer or any other party. (c) THIRD PARTY INFORMATION. I recognize that the Company has received and in the future will receive confidential or proprietary information from third parties subject to a duty on the Company's part to maintain the confidentiality of such information and to use it only for certain limited purposes. I agree to hold all such confidential or proprietary information in the strictest confidence and not to disclose it to any person, firm or corporation or to use it except as necessary in carrying out my work for the Company consistent with the Company's agreement with such third party. 4. INVENTIONS. (a) INVENTIONS RETAINED AND LICENSED. I have attached hereto, as Exhibit A, a list describing with particularity all inventions, original works of authorship, developments, improvements, and trade secrets which were made by me prior to the commencement of the Relationship (collectively referred to as "Prior Inventions"), which belong solely to me or belong to me jointly with another, which relate in any way to any of the Company's proposed businesses, products or research and development, and which are not assigned to the Company hereunder; or, if no such list is attached, I represent that there are no such Prior Inventions. If, in the course of my Relationship with the Company, I incorporate into a Company product, process or machine a Prior Invention owned by me or in which I have an interest, the Company is hereby granted and shall have a non-exclusive, royalty-free, irrevocable, perpetual, worldwide license (with the right to sublicense) to make, have made, copy, modify, make derivative works of, use, sell and otherwise distribute such Prior Invention as part of or in connection with such product, process or machine. (b) ASSIGNMENT OF INVENTIONS. I agree that I will promptly make full written disclosure to the Company, will hold in trust for the sole right and benefit of the Company, and hereby assign to the Company, or its designee, all my right, title and interest throughout the world in and to any and all inventions, original works of authorship, developments, concepts, know-how, improvements or trade secrets, whether or not patentable or registrable under 68 copyright or similar laws, which I may solely or jointly conceive or develop or reduce to practice, or cause to be conceived or developed or reduced to practice, during the period of time in which I am employed by or a consultant of the Company (collectively referred to as "Inventions"), except as provided in Section 4(e) below. I further acknowledge that all inventions, original works of authorship, developments, concepts, know-how, improvements or trade secrets which are made by me (solely or jointly with others) within the scope of and during the period of my Relationship with the Company are "works made for hire" (to the greatest extent permitted by applicable law) and are compensated by my salary (if I am an employee) or by such amounts paid to me under any applicable consulting agreement or consulting arrangements (if I am a consultant), unless regulated otherwise by the mandatory law of the state of California. (c) MAINTENANCE OF RECORDS. I agree to keep and maintain adequate and current written records of all Inventions made by me (solely or jointly with others) during the term of my Relationship with the Company. The records may be in the form of notes, sketches, drawings, flow charts, electronic data or recordings, laboratory notebooks, and any other format. The records will be available to and remain the sole property of the Company at all times. I agree not to remove such records from the Company's place of business except as expressly permitted by Company policy which may, from time to time, be revised at the sole election of the Company for the purpose of furthering the Company's business. (d) PATENT AND COPYRIGHT RIGHTS. I agree to assist the Company, or its designee, at the Company's expense, in every proper way to secure the Company's rights in the Inventions and any copyrights, patents, trademarks, mask work rights, moral rights, or other intellectual property rights relating thereto in any and all countries, including the disclosure to the Company of all pertinent information and data with respect thereto, the execution of all applications, specifications, oaths, assignments, recordations, and all other instruments which the Company shall deem necessary in order to apply for, obtain, maintain and transfer such rights and in order to assign and convey to the Company, its successors, assigns and nominees the sole and exclusive rights, title and interest in and to such Inventions, and any copyrights, patents, mask work rights or other intellectual property rights relating thereto. I further agree that my obligation to execute or cause to be executed, when it is in my power to do so, any such instrument or papers shall continue after the termination of this Agreement until the expiration of the last such intellectual property right to expire in any country of the world. If the Company is unable because of my mental or physical incapacity or unavailability or for any other reason to secure my signature to apply for or to pursue any application for any United States or foreign patents or copyright registrations covering Inventions or original works of authorship assigned to the Company as above, then I hereby irrevocably designate and appoint the Company and its duly authorized officers and agents as my agent and attorney in fact, to act for and in my behalf and stead to execute and file any such applications and to do all other lawfully permitted acts to further the application for, prosecution, issuance, maintenance or transfer of letters patent or copyright registrations thereon with the same legal force and effect as if originally executed by me. I hereby waive and irrevocably quitclaim to the Company any and all claims, of any nature whatsoever, which I now or hereafter have for infringement of any and all proprietary rights assigned to the Company. 69 (e) EXCEPTION TO ASSIGNMENTS. I understand that the provisions of this Agreement requiring assignment of Inventions to the Company do not apply to any invention which qualifies fully under the provisions of California Labor Code Section 2870 (attached hereto as Exhibit B). I will advise the Company promptly in writing of any inventions that I believe meet such provisions and are not otherwise disclosed on Exhibit A. 5. RETURNING COMPANY DOCUMENTS. I agree that, at the time of termination of my Relationship with the Company, I will deliver to the Company (and will not keep in my possession, recreate or deliver to anyone else) any and all devices, records, data, notes, reports, proposals, lists, correspondence, specifications, drawings, blueprints, sketches, laboratory notebooks, materials, flow charts, equipment, other documents or property, or reproductions of any aforementioned items developed by me pursuant to the Relationship or otherwise belonging to the Company, its successors or assigns. I further agree that to any property situated on the Company's premises and owned by the Company, including disks and other storage media, filing cabinets or other work areas, is subject to inspection by Company personnel at any time with or without notice. In the event of the termination of the Relationship, I agree to sign and deliver the "Termination Certification" attached hereto as Exhibit C. 6. NOTIFICATION TO OTHER PARTIES. (a) EMPLOYEES. In the event that I leave the employ of the Company, I hereby consent to notification by the Company to my new employer about my rights and obligations under this Agreement. (b) CONSULTANTS. I hereby grant consent to notification by the Company to any other parties besides the Company with whom I maintain a consulting relationship, including parties with whom such relationship commences after the effective date of this Agreement, about my rights and obligations under this Agreement. 7. SOLICITATION OF EMPLOYEES, CONSULTANTS AND OTHER PARTIES. I agree that during the term of my Relationship with the Company, and for a period of twenty-four (24) months immediately following the termination of my Relationship with the Company for any reason, whether with or without cause, I shall not either directly or indirectly solicit, induce, recruit or encourage any of the Company's employees or consultants to terminate their relationship with the Company, or take away such employees or consultants, or attempt to solicit, induce, recruit, encourage or take away employees or consultants of the Company, either for myself or for any other person or entity. Further, for a period of twenty-four (24) months following termination of my Relationship with the Company for any reason, with or without cause, I shall not solicit any licensor to or customer of the Company or licensee of the Company's products, in each case, that are known to me, with respect to any business, products or services that are competitive to the products or services offered by the Company or under development as of the date of termination of my Relationship with the Company. 70 8. REPRESENTATIONS AND COVENANTS. (a) FACILITATION OF AGREEMENT. I agree to execute promptly any proper oath or verify any proper document required to carry out the terms of this Agreement upon the Company's written request to do so. (b) CONFLICTS. I represent that my performance of all the terms of this Agreement will not breach any agreement to keep in confidence proprietary information acquired by me in confidence or in trust prior to commencement of my Relationship with the Company. I have not entered into, and I agree I will not enter into, any oral or written agreement in conflict with any of the provisions of this Agreement. (c) VOLUNTARY EXECUTION. I certify and acknowledge that I have carefully read all of the provisions of this Agreement and that I understand and will fully and faithfully comply with such provisions. 9. GENERAL PROVISIONS. (a) GOVERNING LAW. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of California, without giving effect to the principles of conflict of laws. (b) ENTIRE AGREEMENT. This Agreement sets forth the entire agreement and understanding between the Company and me relating to the subject matter herein and merges all prior discussions between us. No modification or amendment to this Agreement, nor any waiver of any rights under this Agreement, will be effective unless in writing signed by the party to be charged. Any subsequent change or changes in my duties, obligations, rights or compensation will not affect the validity or scope of this Agreement. (c) SEVERABILITY. If one or more of the provisions in this Agreement are deemed void by law, then the remaining provisions will continue in full force and effect. (d) SUCCESSORS AND ASSIGNS. This Agreement will be binding upon my heirs, executors, administrators and other legal representatives and will be for the benefit of the Company, its successors, and its assigns. (e) SURVIVAL. The provisions of this Agreement shall survive the termination of the Relationship and the assignment of this Agreement by the Company to any successor in interest or other assignee. (f) ADVICE OF COUNSEL. I ACKNOWLEDGE THAT, IN EXECUTING THIS AGREEMENT, I HAVE HAD THE OPPORTUNITY TO SEEK THE ADVICE OF INDEPENDENT LEGAL COUNSEL, AND I HAVE READ AND UNDERSTOOD ALL OF THE TERMS AND PROVISIONS OF THIS AGREEMENT. THIS AGREEMENT SHALL NOT BE CONSTRUED AGAINST ANY PARTY BY REASON OF THE DRAFTING OR PREPARATION HEREOF. 71 [Signature Page Follows] 72 The parties have executed this Agreement on the respective dates set forth below: COMPANY: EMPLOYEE: NIKU CORPORATION - ------------------------------------ ---------------------------------------- Farzad Dibachi, President Signature ---------------------------------------- Printed Name Date: Date: -------------------------------- ----------------------------------- Address: 955 Charter Street Address: Redwood City, CA 94063 -------------------------------- ---------------------------------------- 73 EXHIBIT A LIST OF PRIOR INVENTIONS AND ORIGINAL WORKS OF AUTHORSHIP EXCLUDED FROM SECTION 4
Identifying Number Title Date or Brief Description ----- ---- --------------------
___ No inventions or improvements ___ Additional Sheets Attached Signature of Employee/Consultant:_________________________________ Print Name of Employee/Consultant:________________________________ Date:_____________________________________________________________ 74 EXHIBIT B Section 2870 of the California Labor Code is as follows: (a) Any provision in an employment agreement which provides that an employee shall assign, or offer to assign, any of his or her rights in an invention to his or her employer shall not apply to an invention that the employee developed entirely on his or her own time without using the employer's equipment, supplies, facilities, or trade secret information except for those inventions that either: (1) Relate at the time of conception or reduction to practice of the invention to the employer's business, or actual or demonstrably anticipated research or development of the employer; or (2) Result from any work performed by the employee for the employer. (b) To the extent a provision in an employment agreement purports to require an employee to assign an invention otherwise excluded from being required to be assigned under subdivision (a), the provision is against the public policy of this state and is unenforceable. 75 EXHIBIT C TERMINATION CERTIFICATION This is to certify that I do not have in my possession, nor have I failed to return, any devices, records, data, notes, reports, proposals, lists, correspondence, specifications, drawings, blueprints, sketches, laboratory notebooks, flow charts, materials, equipment, other documents or property, or copies or reproductions of any aforementioned items belonging to Niku Corporation, its subsidiaries, affiliates, successors or assigns (together the "Company"). I further certify that I have complied with all the terms of the Company's Confidential Information and Invention Assignment Agreement signed by me, including the reporting of any inventions and original works of authorship (as defined therein), conceived or made by me (solely or jointly with others) covered by that agreement. I further agree that, in compliance with the Confidential Information and Invention Assignment Agreement, I will preserve as confidential all trade secrets, confidential knowledge, data or other proprietary information relating to products, processes, know-how, designs, formulas, developmental or experimental work, computer programs, data bases, other original works of authorship, customer lists, business plans, financial information or other subject matter pertaining to any business of the Company or any of its employees, clients, consultants or licensees. I further agree that for twenty-four (24) months from the date of this Certificate, I shall not either directly or indirectly solicit, induce, recruit or encourage any of the Company's employees or consultants to terminate their relationship with the Company, or take away such employees or consultants, or attempt to solicit, induce, recruit, encourage or take away employees or consultants of the Company, either for myself or for any other person or entity. Further, for a period of twenty-four (24) months from the date of this Certificate, I shall not solicit any licensor to or customer of the Company or licensee of the Company's products, in each case, that are known to me, with respect to any business, products or services that are competitive to the products or services offered by the Company or under development as of the date of termination of my Relationship with the Company. Date: ----------------------------- ---------------------------------------- (Employee's Signature) ---------------------------------------- (Type/Print Employee's Name) EX-4.07 12 EX-4.07 1 EXHIBIT 4.07 NIKU CORPORATION SERIES D PREFERRED STOCK PURCHASE AGREEMENT THIS SERIES D PREFERRED STOCK PURCHASE AGREEMENT (this "Agreement") is made as of the ____ day of November, 1999, by and between Niku Corporation, a Delaware corporation (the "Company"), and the Purchasers listed on Exhibit A hereto (the "Purchasers"). THE PARTIES HEREBY AGREE AS FOLLOWS: 1. Purchase and Sale of Stock. 1.1 Sale and Issuance of Series D Preferred Stock. Subject to the terms and conditions of this Agreement, each Purchaser agrees to purchase at the Initial Closing (as defined below), and the Company agrees to sell and issue to such Purchaser at the Initial Closing, that number of shares of the Company's Series D Preferred Stock set forth opposite such Purchaser's name on Exhibit A hereto (the "Shares") for the purchase price set forth thereon (the "Purchase Price"). The Company's agreement with each Purchaser is a separate agreement, and the sale of the Shares to each Purchaser is a separate sale. 1.2 Filing of Restated Certificate. The Company shall adopt and file with the Secretary of State of Delaware on or before the Initial Closing an Amended and Restated Certificate of Incorporation in the form attached hereto as Exhibit B (the "Restated Certificate"). 1.3 Closing. The initial purchase and sale of the Shares hereunder shall take place at the offices of Fenwick & West LLP, Two Palo Alto Square, Palo Alto, California, concurrently with the execution and delivery of this Agreement or at such other time and place as the Company and the Purchasers acquiring a majority of the total number of Shares to be purchased at such time mutually agree upon orally or in writing (which time and place are designated the "Initial Closing"). At the Initial Closing, the Company shall deliver to each Purchaser a certificate representing the Shares that such Purchaser is purchasing against payment of the purchase price therefor by check or wire transfer to an account designated by the Company. 1.4 Subsequent Closing(s). The Company may sell up to an aggregate of 8,000,000 shares of the Series D Preferred Stock at the Initial Closing and thereafter to such purchasers as it shall select, at the price and on the terms contained herein and in the exhibits hereto, at one or more subsequent closings (each, a "Subsequent Closing") provided that all Subsequent Closings shall take place not later than December 1, 1999. Upon payment of the purchase price for the Shares being purchased and execution of a signature page counterpart to this Agreement, the Investor Rights Agreement, the Co-Sale Agreement and the Voting Agreement (each as defined below) and without need for an amendment hereto or thereto except to add such purchaser's name to Exhibit A to this Agreement and to the appropriate exhibit to such other agreements, any such purchaser shall become a party to this Agreement 2 and such other agreements, and shall be deemed a "Purchaser" for purposes of this Agreement and an "Investor" (or a "New Investor," as applicable) for purposes of such other agreements, in each case as of the date of the applicable Subsequent Closing. The Initial Closing and each Subsequent Closing shall be deemed a "Closing" under this Agreement. 2. Representations and Warranties of the Company. Except as set forth on the Schedule of Exceptions attached as Exhibit C hereto (the "Schedule of Exceptions"), the Company hereby represents and warrants to each Purchaser as follows. 2.1 Organization, Good Standing and Qualification. The Company has been duly incorporated and organized, and is validly existing in good standing, under the laws of the State of Delaware. The Company has the corporate power and authority to enter into and perform its obligations under the Agreements (as defined below), to own and operate its properties and assets and to carry on its business as currently conducted. The Company is duly qualified to transact business and is in good standing in the State of California. 2.2 Capitalization and Voting Rights. (a) The authorized capital of the Company consists, or will consist immediately prior to the Initial Closing, of: (i) Preferred Stock. 51,910,282 shares of Preferred Stock (the "Preferred Stock") have been authorized, 10,000,000 of which have been designated Series F Preferred Stock (the "Series F Preferred Stock"), all of which are outstanding prior to the Initial Closing, 5,142,851 shares of which have been designated Series A Preferred Stock (the "Series A Preferred Stock"), all of which are issued and outstanding prior to the Initial Closing, 8,629,992 shares of which have been designated Series B Preferred Stock (the "Series B Preferred Stock"), 7,999,992 of which are issued and outstanding prior to the Initial Closing, 9,987,439 shares of which have been designated Series C Preferred Stock (the "Series C Preferred Stock") 9,987,439 of which are issued and outstanding prior to the Initial Closing, and 18,150,000 shares of which have been designated Series D Preferred Stock (the "Series D Preferred Stock") none of which are issued and outstanding prior to the Initial Closing. The outstanding shares of Preferred Stock are all duly and validly authorized and issued, fully paid and nonassessable and were issued in compliance with applicable Federal and state securities laws and have been approved by all requisite corporate and shareholder action. The rights, privileges and preferences of the Preferred Stock will be as stated in the Restated Certificate. (ii) Common Stock. 100,000,000 shares of Common Stock (the "Common Stock"), of which 8,368,618 shares are issued and outstanding. The outstanding shares of Common Stock are all duly and validly authorized, issued, fully paid and nonassessable and, were issued in compliance with applicable federal and state securities laws and have been approved by all requisite corporate and shareholder action. (iii) Options, Warrants, Reserved Shares. Except for (i) the conversion privileges of the Preferred Stock, (ii) the 8,000,000 shares of Common Stock 2 3 reserved for issuance under the Company's 1998 Stock Plan under which options to purchase 4,306,427 shares are outstanding, (iii) warrants to purchase 630,000 shares of Series B Preferred Stock, there is no outstanding option, warrant, right (including conversion or preemptive rights) or agreement for the purchase or acquisition from the Company of any shares of its capital stock or any securities convertible into or ultimately exchangeable or exercisable for any shares of the Company's capital stock. Apart from the exceptions noted in this Section 2.2(a), and except for rights of first refusal held by the Company to purchase shares of its stock issued under the Company's 1998 Stock Plan, no shares of the Company's outstanding capital stock, or stock issuable upon exercise or exchange of any outstanding options, warrants or rights, or other stock issuable by the Company, are subject to any preemptive rights, rights of first refusal or other rights to purchase such stock (whether in favor of the Company or any other person), pursuant to any agreement or commitment of the Company. 2.3 Subsidiaries. The Company does not presently own or control, directly or indirectly, any interest in any other corporation, partnership, trust, joint venture, association, or other entity. 2.4 Authorization. All corporate action on the part of the Company, its officers, directors and stockholders necessary for the authorization, execution and delivery of this Agreement and the Fourth Amended and Restated Investor Rights Agreement attached hereto as Exhibit D (the "Rights Agreement"), the Amended and Restated Co-Sale Agreement attached hereto as Exhibit E (the "Co-Sale Agreement") and the Amended and Restated Voting Agreement attached hereto as Exhibit F (the "Voting Agreement," and collectively with the Rights Agreement, the Co-Sale Agreement and this Agreement, the "Agreements"), the performance of all obligations of the Company hereunder and thereunder, and the authorization, issuance (or reservation for issuance), sale and delivery of the Series D Preferred Stock being sold hereunder and the Common Stock issuable upon conversion of the Series D Preferred Stock has been taken or will be taken prior to the Initial Closing, and the Agreements, when executed and delivered, will constitute valid and legally binding obligations of the Company, enforceable in accordance with their respective terms, except (i) as limited by applicable bankruptcy, insolvency, reorganization, moratorium, and other laws of general application affecting or relating to the enforcement of creditors' rights generally and (ii) as limited by laws relating to the availability of and/or other equitable remedies. The Series D Preferred Stock being purchased by Purchasers hereunder, when issued, paid for and delivered in accordance with the terms of this Agreement for the consideration expressed herein, (when issued in accordance with the Restated Certificate), will be duly authorized and validly issued, fully paid and nonassessable. The shares of Common Stock issuable upon conversion of the Series D Preferred Stock, have been duly and validly reserved for issuance upon conversion thereof and, when issued upon such conversion in accordance with the Restated Certificate (assuming no change in the Restated Certificate or in applicable law), will be duly authorized and validly issued, fully paid and nonassessable. 2.5 Consents and Agreements. No consent, approval, order or authorization of, or registration, qualification, designation, declaration or filing with, third party not already a 3 4 party to any of the Agreements or any federal, state or local governmental authority on the part of the Company is required in order to enable the Company to execute, deliver and perform its obligations under this Agreement, the Rights Agreement, the Co-Sale Agreement or the Voting Agreement except for such qualifications or filings under applicable securities laws as may be required in connection with the transactions contemplated by this Agreement. All such qualifications and filings will, in the case of qualifications, be effective on the Closing and will, in the case of filings, be made within the time prescribed by law. 2.6 Litigation. There is no action, suit, proceeding, claim, arbitration or investigation ("ACTION") pending (or, to the Company's knowledge, currently threatened) against the Company, its activities, properties or assets or, to the Company's knowledge, against any officer, director or employee of the Company in connection with such officer's, director's or employee's relationship with, or actions taken on behalf of, the Company. 2.7 Proprietary Information and Inventions Agreements. Each present and former employee, officer and consultant of the Company has executed a Confidential Information and Inventions Assignment in the form attached as Exhibit G. The Company after reasonable investigation is not aware that any of its employees, officers or consultants are in violation thereof, and the Company will use its best efforts to prevent any such violation. The Company is not aware that any officer or key employee intends to terminate employment with the Company, nor does the Company have a present intention to terminate the employment of any of the foregoing. Subject to general principles relating to wrongful termination of employees, the employment of each officer and employee of the Company is terminable at the will of the Company. 2.8 Title to Property and Assets. The Company owns its property and assets free and clear of all mortgages, liens, loans and encumbrances, except such encumbrances and liens that arise in the ordinary course of business and do not materially impair the Company's ownership or use of such property or assets. With respect to the property and assets it leases, the Company is in compliance with such leases and, to its knowledge, holds a valid leasehold interest free of any liens, claims or encumbrances. 2.9 Financial Statements. Prior to the Initial Closing, the Company has made available to each Purchaser its unaudited balance sheet and income statement at and for the year ended December 31, 1998 and the nine months ended September 30, 1999 (collectively, the "Financial Statements"). The Financial Statements have been prepared in accordance with generally accepted accounting principles ("GAAP") applied on a consistent basis throughout the periods indicated, except that the Financial Statements may not contain all footnotes required by generally accepted accounting principles. The Financial Statements fairly present the financial condition and operating results of the Company as of the dates, and for the periods, indicated therein, subject to normal year-end audit adjustments which the Company does not expect to be material. Except as set forth in the Financial Statements, the Company has no material liabilities, contingent or otherwise, other than (i) liabilities incurred in the ordinary course of business subsequent to the date of the Financial Statements and (ii) obligations under contracts and commitments incurred in the ordinary course of business and 4 5 not required under generally accepted accounting principles to be reflected in the Financial Statements, which, in both cases, individually or in the aggregate are not material to the financial condition or operating results of the Company. Except as disclosed in the Financial Statements, the Company is not a guarantor or indemnitor of any indebtedness of any other person, firm, corporation or other entity. 2.10 Books and Records. The minute books of the Company contain accurate summary records of all meetings and written consents to action of the Company's stockholders, the Company's Board of Directors and all committees, if any, appointed by the Board of Directors. The Company's stock ledger is complete and reflects all issuances, transfers, repurchases and cancellations of shares of capital stock of the Company. 2.11 Rights of Registration. Except as contemplated in the Rights Agreement, the Company has not granted or agreed to grant any registration rights, including piggyback rights, to any person or entity. 2.12 Proprietary Rights. The Company owns, has licensed or otherwise possesses all trademarks, trade names, copyrights and other intellectual property rights necessary to conduct its business as now being conducted without any known conflict with or infringement upon any intellectual property rights of others. The Company has not received any notice alleging that the Company has infringed upon or is conflict with the asserted rights of others, nor is the Company aware of any reasonable basis for any such allegation. The Company has certain trade secrets, including know-how, computer software programs and other proprietary data (the "Proprietary Information") used, or proposed to be used, in the development, manufacture and sale of its products. The Company has the right to use the Proprietary Information, except that the possibility exists that other persons may have independently developed trade secrets or technical information similar or identical to those of the Company. The Company is not aware of any rights to any patents, trademarks, service marks, tradenames, copyrights, trade secrets and proprietary rights and processes held by third parties that it will be required to obtain in order to conduct its business as proposed to be conducted that cannot be obtained on commercially reasonable terms from such parties. There are no outstanding options, licenses, or agreements of any kind relating to the Company's patents or trademarks. 2.13 No Conflict of Interest. The Company is not indebted, directly or indirectly, to any of its officers or directors or to their respective spouses or children, in any amount whatsoever other than in connection with expenses or advances of expenses incurred in the ordinary course of business or relocation expenses of employees. To the Company's knowledge, none of the Company's officers or directors, or any members of their immediate families, are, directly or indirectly, indebted to the Company (other than in connection with purchases of the Company's stock). To the Company's knowledge, none of the Company's officers or directors or any members of their immediate families have, directly or indirectly, any economic interest in any contract material to the Company other than with respect to equity held in the Company. 5 6 2.14 Tax Returns. All tax returns, declarations, statements, reports, schedules, forms and information returns ("Returns") required by all U.S. federal, state and local and foreign jurisdictions (in each case, including all political subdivisions thereof) relating to all U.S. federal, state, local and foreign taxes and other assessments of a similar nature (whether imposed directly or through withholding), including any interest, additions to tax, or penalties applicable thereto ("Taxes"), if any, required to be filed by the Company prior to the Initial Closing have been (or will be) timely filed and such Returns are (or will be) true, complete and correct in all material respects. All Taxes shown on any such Returns to be due from the Company that are due and payable have been paid, other than those being contested in good faith and for which an adequate reserve or accrual has been established in accordance with GAAP. The Company does not know of any actual or proposed material addition Tax assessments against the Company. 2.15 Compliance with Laws. The Company has obtained and maintained in good standing all of its licenses, permits, consents and authorizations required to be obtained by it or them under federal, state and local laws (collectively, "Laws"), except for those which, individually or in the aggregate, would not have a material adverse effect on the assets, condition, affairs or prospects of the Company, financially or otherwise, and all such licenses, permits, consents and authorizations remain in full force and effect. The Company is in material compliance with such Laws, and there is no pending or, to the Company's knowledge, threatened, action or proceeding against the Company under any of such Laws, other than any such actions or proceedings which, individually or in the aggregate, if adversely determined, would not have a material adverse effect on the assets, condition, affairs or prospects of the Company, financially or otherwise. 2.16 Year 2000 Compliance. The Company's products and services shall not fail to perform any function specified in the product specifications therefor, or otherwise be adversely affected in any material respect, solely as a result of the date change from December 31, 1999 to January 1, 2000, including without limitation, date data century recognition, calculations which accommodate same century and multi-century formulas and date values, and date data interface values which reflect the correct century. In addition, to the best of the Company's knowledge, all of the products and services upon which the Company is materially reliant, either individually or in the aggregate, including, without limitation, information technology systems such as financial and order entry systems, non-information technology systems such as phones and facilities, third party licensed software and the products and services of the Company's customers, vendors and suppliers are designed to be used prior to, during, and after calendar year 2000 A.D., and such products and services will operate during each such time period without error relating to date data, including without limitation any error relating to, or the product of, date data that represents or references different centuries or more than one century. 2.17 No Contravention. The Company is not in violation or default of any provision of its Certificate of Incorporation or Bylaws or of any instrument, judgment, order, writ, decree, or contract to which it is a party or by which it is bound or of any provision of federal or state statute, rule or regulation applicable to the Company. The execution, delivery 6 7 and performance by the Company of this Agreement and each other Agreement, including, without limitation, the issuance of the Series D Preferred Stock: (a) do not and will not contravene the terms of the Certificate of Incorporation, as amended, or By-Laws, as amended, of the Company, or any law, rule, regulation or similar requirement applicable to the Company or its assets, business or properties; (b) do not and will not (i) conflict with, contravene, result in any violation or breach of or default under (with or without the giving of notice or the lapse of time or both), (ii) create in any other person or entity a right or claim of termination or amendment, or (iii) require modification, acceleration or cancellation of any agreement, contract, or other instrument or contractual obligation of the Company; and (c) do not and will not result in the creation of any lien, charge or encumbrance (or obligation to create a lien, charge or encumbrance) against any property, asset or business of the Company. 2.18 Disclosure. The Company has fully provided each Purchaser will all the information which such purchaser has requested for deciding whether to purchase the Series D Preferred Stock. Neither this Agreement not any other statements, exhibits or certificates made or delivered in connection herewith, when taken as a whole contains any untrue statement of a material fact or omits to state a material fact necessary to make the statements herein or therein not misleading in light of the circumstances under which they were made. 3. Representations and Warranties of Purchaser. Each Purchaser, severally and not jointly, hereby represents and warrants that: 3.1 Authorization. Such Purchaser has full power and authority to enter into the Agreements and the Agreements, when executed, will constitute valid and legally binding obligations of such Purchaser, enforceable in accordance with their respective terms, except (i) as limited by applicable bankruptcy, insolvency, reorganization, moratorium, and other laws of general application affecting enforcement of creditors' rights generally, (ii) as limited by laws relating to the availability of specific performance, injunctive relief, or other equitable remedies, and (iii) to the extent the indemnification provisions contained in the Rights Agreement may be limited by applicable federal or state securities laws. 3.2 Purchase Entirely for Own Account. This Agreement is made with such Purchaser in reliance upon Purchaser's representation to the Company, which by such Purchaser's execution of this Agreement such Purchaser hereby confirms, that the Series D Preferred Stock to be received by such Purchaser and the Common Stock issuable upon conversion thereof (collectively, the "Securities") will be acquired for investment for such Purchaser's own account, not as a nominee or agent, and not with a view to the resale or distribution of any part thereof, and that, except as disclosed to the Company, such Purchaser has no present intention of selling, granting any participation in, or otherwise distributing the same. By executing this Agreement, such Purchaser further represents that, except as disclosed to the Company, such Purchaser does not have any contract, undertaking, agreement or arrangement with any person to sell, transfer or grant participations to such person or to any third person, with respect to any of the Securities. 7 8 3.3 Disclosure of Information. Such Purchaser believes it has received all the information it considers necessary or appropriate for deciding whether to purchase the Series D Preferred Stock. Such Purchaser further represents that it has had an opportunity to ask questions and receive answers from the Company regarding the terms and conditions of the offering of the Series D Preferred Stock and the business, properties, prospects and financial condition of the Company. The foregoing, however, does not limit or modify the representations and warranties of the Company in Section 2 of this Agreement or the right of such Purchaser to rely thereon. 3.4 Investment Experience. Such Purchaser is an investor in securities of companies in the development stage and acknowledges that it is able to fend for itself, can bear the economic risk of its investment, and has such knowledge and experience in financial or business matters that it is capable of evaluating the merits and risks of the investment in the Series D Preferred Stock. If other than an individual, such Purchaser also represents it has not been organized solely for the purpose of acquiring the Series D Preferred Stock. 3.5 Accredited Investor. Such Purchaser is an "accredited investor" within the meaning of Securities and Exchange Commission ("SEC") Rule 501 of Regulation D promulgated under the Securities Act, as presently in effect. 3.6 Restricted Securities. Such Purchaser understands that the Securities it is purchasing are characterized as "restricted securities" under the federal securities laws inasmuch as they are being acquired from the Company in a transaction not involving a public offering and that under such laws and applicable regulations such securities may be resold without registration under the Securities Act of 1933, as amended (the "Securities Act"), only in certain limited circumstances. In addition, such Purchaser represents that it is familiar with SEC Rule 144, as presently in effect, and understands the resale limitations imposed thereby and by the Securities Act. Each Purchaser understands that no public market presently exists for the Series D Preferred Stock or Common Stock of the Company, and that there are no assurances that any such market will be created. 3.7 Further Limitations on Disposition. Without in any way limiting the above, such Purchaser further agrees not to make any disposition of all or any portion of the Securities unless: (a) 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 (b) (i) Such Purchaser shall have notified the Company of the proposed disposition and shall have furnished the Company with a statement of the circumstances surrounding the proposed disposition, and (ii) if reasonably requested by the Company, such Purchaser 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, provided, however, that the Company will not request an 8 9 opinion in connection with customary distributions to general and limited partners of venture capital funds. 3.8 Legends. It is understood that the certificate(s) evidencing the Shares shall bear the following legends: (a) "The shares represented by this certificate have been acquired for investment and have not been registered under the Securities Act of 1933, as amended. Such shares may not be sold or transferred in the absence of such registration or, if the Corporation timely requests, unless the Corporation receives an opinion of counsel reasonably acceptable to it stating that such sale or transfer is exempt from the registration and prospectus delivery requirements of said act. Copies of the agreements covering the purchase of these shares and restricting their transfer may be obtained at no cost by written request made by the holder of record of this certificate to the Secretary of the Corporation at the principal executive offices of the Corporation." (b) "The shares represented by this certificate are subject to the market stand-off provisions contained in the Corporation's Fourth Amended and Restated Investor Rights Agreement. A copy of such agreement may be obtained without charge upon written request to the Corporation at its principal place of business." (c) Any other legends required by the Agreements or applicable law. 4. Conditions of Purchasers' Obligations at Closing. The obligations of each Purchaser to purchase Shares at the applicable Closing are subject to the fulfillment of each of the following conditions. 4.1 Representations and Warranties. The representations and warranties of the Company contained in Section 2 shall be true in all material respects on and as of the applicable Closing with the same effect as though such representations and warranties had been made on and as of such Closing. 4.2 Performance. The Company shall have performed and complied with all agreements, obligations and conditions contained in this Agreement that are required to be performed or complied with by it on or before the applicable Closing. 4.3 Compliance Certificate. The President of the Company shall deliver to such Purchaser at the applicable Closing a certificate certifying that the conditions specified in Sections 4.1 and 4.2 have been fulfilled. 4.4 Qualifications. All authorizations, approvals, or permits, if any, of any governmental authority or regulatory body of the United States or of any state that are required in connection with the lawful issuance and sale of the Shares at the applicable Closing shall have been obtained by the Company as of such Closing. 9 10 4.5 Proceedings and Documents. All corporate and other proceedings in connection with the transactions contemplated at the applicable Closing and all documents incident thereto shall be reasonably satisfactory in form and substance to such Purchaser. 4.6 Restated Certificate. The Restated Certificate shall have been filed with the Delaware Secretary of State. 4.7 Rights Agreement. The Company, such Purchaser and Investors (as defined therein) holding a sufficient number of shares of "Registrable Securities" to amend and restate the Company's Third Amended and Restated Investor Rights Agreement shall have entered into and delivered the Rights Agreement. 4.8 Co-Sale Agreement. The Company, such Purchaser and the Founders (as defined in the Co-Sale Agreement) holding a sufficient number of Shares to amend and restate the prior Co-Sale Agreement shall have entered into and delivered the Co-Sale Agreement. 4.9 Voting Agreement. The Company, such Purchaser and the stockholders specified therein holding a sufficient number of Shares to amend and restate the prior Voting Agreement shall have entered into and delivered the Voting Agreement. 4.10 Opinion of Company Counsel. Such Purchaser shall have received from Fenwick & West LLP, counsel for the Company, an opinion, dated as of the applicable Closing, reasonably acceptable to such Purchaser. 4.11 Letter Agreement. CNET, Inc. shall have received from the Company the letter agreement between CNET, Inc. and Company in a form satisfactory to CNET, Inc. 5. Conditions of the Company's Obligations at Closing. The obligations of the Company to sell and issue the Shares at the applicable Closing are subject to the fulfillment of each of the following conditions: 5.1 Representations and Warranties. The representations and warranties of each Purchaser contained in Section 3 shall be true in all material respects on and as of the applicable Closing with the same effect as though such representations and warranties had been made on and as of such Closing. 5.2 Qualifications. All authorizations, approvals, or permits, if any, of any governmental authority or regulatory body of the United States or of any state that are required in connection with the lawful issuance and sale of the Securities at the applicable Closing pursuant to this Agreement shall be duly obtained and effective as of such Closing. 5.3 Restated Certificate. The Restated Certificate shall have been filed with the Delaware Secretary of State. 5.4 Rights Agreement. The Company and Investors (as defined therein) holding a sufficient number of shares of "Registrable Securities" to amend and restate the 10 11 Company's Third Amended and Restated Investor Rights Agreement shall have entered into and delivered the Rights Agreement. 5.5 Co-Sale Agreement. The Company, the Founders (as defined in the Co-Sale Agreement) and Investors (as defined in the Co-Sale Agreement) holding a sufficient number of shares to amend and restate the prior Co-Sale Agreement shall have entered into and delivered the Co-Sale Agreement. 5.6 Voting Agreement. The Company and the other parties thereto, holding a sufficient number of shares to amend and restate the prior Voting Agreement shall have entered into and delivered the Voting Agreement. 6. Miscellaneous. 6.1 Indemnification. (a) The Company shall indemnify and hold the Purchasers and each of the Purchaser's partners, stockholders, officers, directors, employees and agents free and harmless from and against all actions, causes of action, suits, litigation, losses, liabilities and damages, investigations or proceedings instituted by any governmental agency or any other person and expenses in connection therewith, including reasonable attorneys' fees and disbursements, incurred by the indemnitee or any of them as a result of, or arising out of, or relating to any transaction to which the Purchaser is not a party, financed or to be financed in whole or in part directly with proceeds from the sale by the Company of the Series D Preferred Stock. (b) The Company shall indemnify and hold the Purchasers and each of the Purchaser's partners, stockholders, officers, directors, employees and agents, and each Purchaser shall indemnify and hold the Company and each other Purchaser, free and harmless from and against any losses, claims, damages or liabilities to which they become subject as a result of, or arising out of, or relating to any misrepresentation or breach of warranty or representation or any nonperformance or breach of any covenant or agreement of the indemnifying party contained in this Agreement. 6.2 Successors and Assigns. Except as otherwise provided herein, the terms and conditions of this Agreement shall inure to the benefit of and be binding upon the respective successors and assigns of the parties (including transferees of any Securities). Nothing in this Agreement, express or implied, is intended to confer upon any party other than the parties hereto or their respective successors and assigns any rights, remedies, obligations, or liabilities under or by reason of this Agreement, except as expressly provided in this Agreement. 6.3 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. 11 12 6.4 Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 6.5 Titles and Subtitles. The titles and subtitles used in this Agreement are used for convenience only and are not to be considered in construing or interpreting this Agreement. 6.6 Notices. All notices and other communications required or permitted hereunder shall be in writing, shall be effective when given, and shall in any event be deemed to be given upon receipt or, if earlier, (a) five (5) days after deposit with the U.S. Postal Service or other applicable postal service, if delivered by first class mail, postage prepaid, (b) upon delivery, if delivered by hand, (c) one (1) business day after the business day of deposit with Federal Express or similar overnight courier, freight prepaid or (d) one (1) business day after the business day of facsimile transmission, if delivered by facsimile transmission with copy by first class mail, postage prepaid, and shall be addressed (i) if to a Purchaser, at such Purchaser's address as set forth on Exhibit A, and (ii) if to the Company, at the address of its principal corporate offices (attention: Secretary), or at such other address as a party may designate by ten days' advance written notice to the other party pursuant to the provisions above. 6.7 Finder's Fee. Each party, severally and not jointly, represents that it neither is nor will be obligated for any finders' fee or commission in connection with this transaction. Each Purchaser agrees to indemnify and hold harmless the Company from any liability for any commission or compensation in the nature of a finders' fee (and the costs and expenses of defending against such liability or asserted liability) for which Purchaser or any of its officers, partners, employees, or representative is responsible. The Company agrees to indemnify and hold harmless each Purchaser from any liability for any commission or compensation in the nature of a finders' fee (and the costs and expenses of defending against such liability or asserted liability) for which the Company or any of its officers, employees or representatives is responsible. 6.8 Fees and Expenses. The Company and each Purchaser shall be responsible for and pay the fees and expenses of their own counsel. 6.9 Amendment and Waivers. Any term of this Agreement may be amended and the breach of any term of this Agreement 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 two-thirds (66 2/3%) of the Common Stock issued or issuable upon conversion of the Series D Preferred Stock sold hereunder and voting as a single class, provided, that no such consent will be required to add a party pursuant to Section 1.4 hereof. Any amendment or waiver effected in accordance with this paragraph shall be binding upon each holder of any securities purchased under this Agreement at the time outstanding (including securities into which such securities are convertible), each future holder of all such securities and the Company. 12 13 6.10 Severability. If one or more provisions of this Agreement are held to be unenforceable under applicable law, such provision shall be excluded from this Agreement and the balance of the Agreement shall be interpreted as if such provision were so excluded and shall be enforceable in accordance with its terms. 6.11 Aggregation of Stock. All shares of the Series D Preferred Stock held or acquired (or Common Stock issued upon conversion thereof) by affiliated entities or persons shall be aggregated for the purpose of determining the availability of or discharge of any rights under this Agreement. 6.12 Entire Agreement. This Agreement and the documents referred to herein constitute the entire agreement among the parties and no party shall be liable or bound to any other party in any manner by any warranties, representations, or covenants except as specifically set forth herein or therein. 6.13 California Corporate Securities Law. THE SALE OF THE SECURITIES WHICH ARE THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF SUCH SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION THEREFOR PRIOR TO SUCH QUALIFICATION IS UNLAWFUL UNLESS THE SALE OF SECURITIES IS EXEMPT FROM THE QUALIFICATION BY SECTION 25100, 25102 OR 25105 OF THE CALIFORNIA CORPORATIONS CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY CONDITIONED UPON SUCH QUALIFICATION BEING OBTAINED, UNLESS THE SALE IS SO EXEMPT. 6.14 Survival of Representations and Warranties. All representations and warranties of the Company made herein shall survive the execution and delivery of this Agreement, any due diligence or other investigation by or on behalf of the Purchasers, acceptance of the Shares and payment therefor. 13 14 LIST OF EXHIBITS Exhibit A - Purchasers Exhibit B - Restated Certificate Exhibit C - Schedule of Exceptions Exhibit D - Rights Agreement Exhibit E - Co-Sale Agreement Exhibit F - Voting Agreement Exhibit G - Confidential Information and Inventions Assignment Agreement 15 EXHIBIT A SCHEDULE OF PURCHASERS
PURCHASE NO. OF PRICE PER AGGREGATE NAME SHARES SHARE PURCHASE PRICE - ---- ------ --------- -------------- Amerindo entities (total is $10 million) Amerindo Technology Growth Fund II 798,500 $5.00 $3,992,500.00 399 Park Avenue, Floor 18 New York, NY 10022 Attn: Jessica Caruso James Stableford 5,000 $5.00 $25,000.00 43 Upper Grosvenor Street, London, UK W1X 9PG Anthony Ciulla 10,000 $5.00 $50,000.00 c/o Amerindo Investment Advisors, Inc. 1 Embarcadero Center, Ste 2300 San Francisco, CA 94111 Joaquin Garcia-Larrieu 2,000 $5.00 $10,000.00 c/o Amerindo Investment Advisors, Inc. 399 Park Avenue, Floor 18 New York, NY 10022 Pivotal Partners L.P. 320,000 $5.00 $1,600,000.00 Attention: Diana Mah One Embarcadero Center, Ste 2300 San Francisco, CA 94111 California Bank & Trust Agent for 60,000 $5.00 $300,000.00 Ralph Cechettini IRA #1 Attention: Diana Mah One Embarcadero Center, Ste 2300 San Francisco, CA 94111 William Slattery 1,000 $5.00 $5,000.00 c/o Amerindo Investment Advisors, Inc. 399 Park Avenue, Floor 18 New York, NY 10022 Vertex Capital II LLC 80,000 $5.00 $400,000.00 130 West Lake Street Wayzata, MN 55391 Attn: Matthew Fitzmaurice
16
PURCHASE NO. OF PRICE PER AGGREGATE NAME SHARES SHARE PURCHASE PRICE - ---- ------ --------- -------------- Matthew Fitzmaurice 20,000 $5.00 $100,000.00 130 West Lake Street Wayzata, MN 55391 Dana Smith 3,000 $5.00 $15,000.00 c/o Amerindo Investment Advisors, Inc. 399 Park Avenue, Floor 18 New York, NY 10022 Daniel Chapey 500 $5.00 $2,500.00 c/o Amerindo Investment Advisors, Inc. 1 Embarcadero Center, Ste 2300 San Francisco, CA 94111 Emeric McDonald 400,000 $5.00 $2,000,000.00 c/o Amerindo Investment Advisors, Inc. 1 Embarcadero Center, Ste 2300 San Francisco, CA 94111 Litton Master Trust 300,000 $5.00 $1,500,000.00 c/o Amerindo Investment Advisors, Inc. 399 Park Avenue, Floor 18 New York, NY 10022 Attn: Amy Caruso Jonathan Art 20,000 $5.00 $100,000.00 80 East End Avenue New York, NY 10028 Peter Mooney as Nominee for the Broadview 57,500 $5.00 $287,500.00 Partners Group David Elias c/o Broadview International One Bridge Plaza Fort Lee, NJ 07024 Richard L. Chang 5,000 $5.00 $25,000.00 c/o Bowman Capital Management, L.L.C. 1875 South Grant Street, Suite 600 San Mateo, CA 94402
17
PURCHASE NO. OF PRICE PER AGGREGATE NAME SHARES SHARE PURCHASE PRICE - ---- ------ --------- -------------- Charter Growth Capital, L.P. 480,000 $5.00 $2,400,000.00 c/o Charter Growth Capital 525 University Avenue, Suite 1400 Palo Alto, CA 94301 Attn: A. Barr Dolan Charter Growth Capital Co-Investment Fund, L.P. 90,000 $5.00 $450,000.00 c/o Charter Growth Capital 525 University Avenue, Suite 1400 Palo Alto, CA 94301 Attn: A. Barr Dolan CGC Investors, L.P. 30,000 $5.00 $150,000.00 c/o Charter Growth Capital 525 University Avenue, Suite 1400 Palo Alto, CA 94301 Attn: A. Barr Dolan Shanmugam Chinnasamy 10,191 $5.00 $50,955.00 7176 Josslyn Drive San Jose, CA 95120 CNET Investments, Inc. 1,000,000 $5.00 $5,000,000.00 150 Chestnut Street San Francisco, CA 94111 Attn: Brandyn Criswell Comdisco, Inc. 400,000 $5.00 $2,000,000.00 3000 Sand Hill Road Building One, Suite 155 Menlo Park, CA 94025 Attn: Grace Gillen Matthew T. Cowan 7,000 $5.00 $35,000.00 c/o Bowman Capital Management, L.L.C.
18
PURCHASE NO. OF PRICE PER AGGREGATE NAME SHARES SHARE PURCHASE PRICE - ---- ------ --------- -------------- 1875 South Grant Street, Suite 600 San Mateo, CA 94402 Peter O. Crisp 4,268 $5.00 $21,340.00 103 Horseshoe Road Mill Neck, NY 11765 CrossFire Ventures, LLC 100,000 $5.00 $500,000.00 6541 Crown Blvd., Suite E San Jose, CA 95120 Attn: John Dunning Constantin Delivanis & Alison Kibrick as 30,000 $5.00 $150,000.00 Co-trustees of the Delivanis-Kibrick Family Trust dated 12/30/90 12440 Hilltop Drive Los Altos Hills, CA 94024 Farid Dibachi 70,000 $5.00 $350,000.00 12424 Skyline Blvd. Woodside, CA 94062 Essex Private Placement Fund II 400,000 $5.00 $2,000,000.00 Limited Partnership 125 High Street, 29th Floor Boston, MA 02110-2702 Attn: Susan Stickells F&W Investments 1999 10,000 $5.00 $50,000.00 2 Palo Alto Square Palo Alto, CA 94306 Attn: Laird Simons, Esq. F&W Investments 2000 20,000 $5.00 $100,000.00 2 Palo Alto Square Palo Alto, CA 94306 Attn: Laird Simons, Esq.
19
PURCHASE NO. OF PRICE PER AGGREGATE NAME SHARES SHARE PURCHASE PRICE - ---- ------ --------- -------------- Terrence J. Garnett and Katrina A. Garnett, 500,000 $5.00 $2,500,000.00 Trustees of the Garnett Family Trust U/D/T dated 4/2/97 c/o Venrock Associates 2494 Sand Hill Road, Suite 200 Menlo Park, CA 94025 Hambrecht & Quist entities (total is $1 million) Attn: Isaac Ruiz One Bush Street San Francisco, CA 94104 (total is $1 million) Hambrecht & Quist California 10,000 $5.00 $50,000.00 Hambrecht & Quist Employee Venture 10,000 $5.00 $50,000.00 Fund, L.P. II Access Technology Partners, L.P. 160,000 $5.00 $800,000.00 Access Technology Partners Brokers 3,200 $5.00 $16,000.00 Fund, L.P. H&Q Niku Investors, LLC 16,800 $5.00 $84,000.00 Manuel A. Henriquez 1,132 $5.00 $5,660.00 170 Hanna Way Menlo Park, CA 94025 Soroush Kaboli 20,000 $5.00 $100,000.00 2042 Barbara Drive Palo Alto, CA 94303 David Lietzke 5,000 $5.00 $25,000.00 c/o Bowman Capital Management, L.L.C. 1875 South Grant Street, Suite 600 San Mateo, CA 94402 Mark A. Moore 14,267 $5.00 $71,335.00 708 Laurel Avenue Burlingame, CA 94010
20
PURCHASE NO. OF PRICE PER AGGREGATE NAME SHARES SHARE PURCHASE PRICE - ---- ------ --------- -------------- Morris Ventures 286,000 $5.00 $1,430,000.00 2500 Sand Hill Road, Suite 240 Menlo Park, CA 94025 Attn: Jeffrey A. Morris David Mullin 5,000 $5.00 $25,000.00 c/o SMART Modular Technologies, Inc. 4305 Cushing Parkway Fremont, CA 94538 Mark Nelson 5,000 $5.00 $25,000.00 c/o Niku Corporation 305 Main Street Redwood City, CA 94063 Mark and Dianne Nelson 5,000 $5.00 $25,000.00 c/o Niku Corporation 305 Main Street Redwood City, CA 94063 The Phoenix Partners IV Limited Partnership 100,000 $5.00 $500,000.00 1000 Second Avenue, Suite 3600 Seattle, WA 98104 Attn: David Johnston Ramsey Beirne Partners, LLC 27,178 $5.00 $135,890.00 500 Executive Blvd. Ossining, NY 10562 Attn: James Chung M. Rangaswami 30,000 $5.00 $150,000.00 3404 Clay Street San Francisco, CA 94108 Balasubramanian Ravishanker 20,000 $5.00 $100,000.00 3336 Americus Drive San Jose, CA 95148
21
PURCHASE NO. OF PRICE PER AGGREGATE NAME SHARES SHARE PURCHASE PRICE - ---- ------ --------- -------------- Richard F. Scocozza 20,000 $5.00 $100,000.00 166 Duane Street New York, NY 10013 Soros entities (total is $3 million) Attn: Michael C. Neus Soros Fund Management LLC 888 Seventh Avenue New York, NY 10106 Quantum Industrial Partners LDC 540,000 $5.00 $2,700,000.00 SFM Domestic Investments LLC 60,000 $5.00 $300,000.00 Henricus J. Stander III 4,268 $5.00 $21,340.00 c/o Trust Company of the West 865 South Figueroa Street Los Angeles, CA 90017 Tailwind Capital Partners, L.P. 150,000 $5.00 $750,000.00 Attn: Andrew Sessions One Montgomery Street San Francisco, CA 94104 TCS-America 100,000 $5.00 $500,000.00 Attn: Arup Gupta 101 Park Avenue New York, NY 10178 Venrock entities (total is $1,940,000) Venrock Associates 151,126 $5.00 $755,630.00 Kim Rummelsburg, CFO 2494 Sand Hill Road, Suite 200 Menlo Park, CA 94025 Venrock Associates II, L.P. 217,474 $5.00 $1,087,370.00 Kim Rummelsburg, CFO
22
PURCHASE NO. OF PRICE PER AGGREGATE NAME SHARES SHARE PURCHASE PRICE - ---- ------ --------- -------------- 2494 Sand Hill Road, Suite 200 Menlo Park, CA 94025 Venrock Entrepreneurs Fund, L.P. 19,400 $5.00 $97,000.00 Kim Rummelsburg, CFO 2494 Sand Hill Road, Suite 200 Menlo Park, CA 94025 Walnut Ventures, LLC 5,000 $5.00 $25,000.00 Attn: Krishnan Ramaswami c/o Trust Company of the West 865 South Figueroa, 15th Floor Los Angeles, CA 90017 J. H. Whitney III, L.P. 750,134 $5.00 $3,750,670.00 177 Broad Street Stamford, CT 06901 Attn: Rob Logan Whitney Strategic Partners III, L.P. 18,074 $5.00 $90,370.00 177 Broad Street Stamford, CT 06901 Attn: Rob Logan TOTALS: 7,998,012 $39,990,060.00 ========= ==============
23 EXHIBIT B AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF NIKU CORPORATION a Delaware corporation (Originally incorporated on January 8, 1998 as Niku Corporation) ARTICLE I The name of this corporation is Niku Corporation (the "Corporation"). ARTICLE II The address of the registered office of the Corporation in the State of Delaware is 1013 Centre Road, in the City of Wilmington, County of New Castle. The name of its registered agent at such address is the Corporation Service Company. ARTICLE III The nature of the business or purposes to be conducted or promoted is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of Delaware. ARTICLE IV A. Classes of Stock. This Corporation is authorized to issue two classes of stock, to be designated, respectively, "Common Stock" and "Preferred Stock." The total number of shares which the corporation is authorized to issue is One Hundred Fifty-One Million Nine Hundred Ten Thousand Two Hundred Eighty-Two (151,910,282) shares. One Hundred Million (100,000,000) shares shall be Common Stock, par value $0.0001 per share, and Fifty-One Million Nine Hundred Ten Thousand Two Hundred Eighty-Two (51,910,282) shares shall be Preferred Stock, par value $0.0001 per share. Ten Million (10,000,000) shares of Preferred Stock shall be designated "Series F Preferred Stock," Five Million One Hundred Forty-Two Thousand Eight Hundred Fifty-One (5,142,851) shares of Preferred Stock shall be designated "Series A Preferred Stock", Eight Million Six Hundred Twenty-Nine Thousand Nine Hundred Ninety-Two (8,629,992) shares of Preferred Stock shall be designated "Series B Preferred Stock", Nine Million Nine Hundred Eighty-Seven Thousand Four Hundred and Thirty-Nine (9,987,439) shares shall be designated "Series C Preferred Stock" and Eighteen Million One Hundred Fifty Thousand (18,150,000) shares shall be designated "Series D Preferred Stock." B. Rights, Preferences, Privileges and Restrictions of Preferred Stock. The rights, preferences, privileges and restrictions granted to and imposed on the Series F Preferred Stock, Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock (collectively, the "Preferred Stock") are as set forth below in this Article IV(B). 1. Dividend Provisions. The holders of shares of Preferred Stock shall be entitled to receive dividends, out of any assets legally available therefor, prior and in preference to any declaration or payment of any dividend (payable other than in Common Stock) on the Common Stock of this Corporation, at the rate of (a) $0.0025 per share per annum in the case of Series F Preferred Stock (as adjusted for any stock dividends, combinations or splits with respect to such shares), (b) $0.0175 per share per annum in the case of Series A Preferred Stock (as adjusted for any stock dividends, combinations or splits with respect to such shares (c) $0.0375 per share per annum in the case of Series B Preferred Stock (as adjusted for any stock dividends, combinations or splits with respect to such shares), (d) $0.10 per share per annum in the case of Series C Preferred Stock (as adjusted for any stock dividends, combinations or splits with respect to such shares) and $0.25 per share 24 per annum in the case of Series D Preferred Stock (as adjusted for any stock dividends, combinations or splits with respect to such shares), when, as and if declared by the Board of Directors of the Corporation. Such dividends shall not be cumulative. No dividend shall be paid on shares of Common Stock in any fiscal year unless the aforementioned preferential dividends of the Preferred Stock shall have been paid in full and the aggregate dividends paid on each share of Preferred Stock during such fiscal year equals or exceeds the dividends per share (computed on an as-converted basis) paid during such fiscal year on the Common Stock. 2. Liquidation Preference. a. Primary Distribution. In the event of any liquidation, dissolution or winding up of this Corporation, either voluntary or involuntary (a "Liquidation"), (i) each holder of Series C Preferred Stock shall be entitled to receive, prior and in preference to any distribution of any of the assets of this Corporation to the holders of other series of Series A Preferred Stock, Series B Preferred Stock, and Series F Preferred Stock or Common Stock by reason of their ownership thereof an amount equal to: (A) if the effective date of the Liquidation occurs within one year of the Series C Original Issue Date (as defined below), the sum of (x) $2.50 per share (as adjusted for any stock dividends, combinations or splits with respect to such shares) and (y) all declared but unpaid dividends on such shares, for each share of Series C Preferred Stock held by such holder; (B) if the effective date of the Liquidation occurs after one year from the Series C Original Issue Date but within two years of the Series C Original Issue Date, the sum of (x) $3.125 per share (as adjusted for any stock dividends, combinations or splits with respect to such shares) and (y) all declared but unpaid dividends on such shares, for each share of Series C Preferred Stock held by such holder; and (C) if the effective date of the Liquidation occurs at any time after two years of the Series C Original Issue Date, the sum of (x) $3.91 per share (as adjusted for any stock dividends, combinations or splits with respect to such shares) and (y) all declared but unpaid dividends on such shares, for each share of Series C Preferred Stock held by such holder; (ii) each holder of Series D Preferred Stock shall be entitled to receive, prior and in preference to any distribution of any of the assets of this Corporation to the holders of the Series A Preferred Stock, Series B Preferred Stock and Series F Preferred Stock, or Common Stock by reason of their ownership thereof an amount equal to: (A) if the effective date of the Liquidation occurs within one year of the Series D Original Issue Date (as defined below), the sum of (x) $6.25 per share (as adjusted for any stock dividends, combinations or splits with respect to such shares) and (y) all declared but unpaid dividends on such shares, for each share of Series D Preferred Stock held by such holder; (B) if the effective date of the Liquidation occurs after one year from the Series D Original Issue Date but within two years of the Series D Original Issue Date, the sum of (x) $7.8125 per share (as adjusted for any stock dividends, combinations or splits with respect to such shares) and (y) all declared but unpaid dividends on such shares, for each share of Series D Preferred Stock held by such holder; and (C) if the effective date of the Liquidation occurs at any time after two years of the Series D Original Issue Date, the sum of (x) $9.80 per share (as adjusted for any stock dividends, combinations or splits with respect to such shares) and (y) all declared but unpaid dividends on such shares, for each share of Series D Preferred Stock held by such holder; (iii) each holder of the Series F Preferred Stock shall be entitled to receive an amount equal to the sum of (x) five cents ($0.05) (the "Original Series F Issue Price") for each share of Series F Preferred Stock held of record by such holder (as adjusted for any stock dividends, combinations or splits with respect to such shares) and (y) all declared but unpaid dividends on such shares; (iv) each holder of the Series A Preferred Stock shall be entitled to receive an amount equal to the sum of (x) thirty-five cents ($0.35) (the "Original Series A Issue Price") for each share of Series A Preferred Stock held of record by such holder (as adjusted for any stock 25 dividends, combinations or splits with respect to such shares) and (y) all declared but unpaid dividends on such shares; and (v) each holder of the Series B Preferred Stock shall be entitled to receive an amount equal to the sum of (x) seventy-five cents ($0.75) ("Original Series B Issue Price") for each share of Series B Preferred Stock held of record by such holder (as adjusted for any stock dividends, combinations or splits with respect to such shares) and (y) all declared but unpaid dividends on such shares. If upon the occurrence of such event, the assets and funds of the Corporation legally available for distribution shall be insufficient to permit the payment to such holders of the full aforesaid preferential amounts, then the entire assets and funds of the Corporation legally available for distribution shall be distributed ratably first among the holders of the Series C Preferred Stock and Series D Preferred Stock in proportion to the preferential amount each such holder is otherwise entitled to receive and then among the holders of the Series F, Series A, and Series B Preferred Stock in proportion to the preferential amount each such holder is otherwise entitled to receive. b. Secondary Distribution. Upon the completion of the distribution required by Section 2(a), the remaining assets of the Corporation available for distribution to stockholders shall be distributed of record among the holders of Common Stock pro rata in proportion to the number of shares of Common Stock held of record by each. c. Definition of Liquidation Event; Notice. (i) For purposes of this Section 2, a "Liquidation" of this Corporation shall be deemed to be occasioned by, and to include, without limitation, (A) the acquisition of the Corporation by another entity by means of any transaction or series of related transactions (including, without limitation, any reorganization, merger or consolidation); or (B) a sale of all or substantially all of the assets of the Corporation (including, for purposes of this section, intellectual property rights which, in the aggregate, constitute substantially all of the Corporation's material assets); unless in each case, the Corporation's stockholders of record as constituted immediately prior to such acquisition or sale will, immediately after such acquisition or sale (by virtue of securities issued as consideration for the Corporation's acquisition or sale or otherwise) hold at least fifty percent (50%) of the voting power of the surviving or acquiring entity. (ii) In any of such events, if the consideration received by the Corporation is other than cash, its value will be deemed its fair market value as determined in good faith by the Board of Directors. Any securities received as consideration shall be valued as follows: (A) Securities not subject to investment letter or other similar restrictions on free marketability shall be valued as follows: (1) if traded on a securities exchange or through The Nasdaq National Market, the value shall be deemed to be the average of the closing prices of the securities on such exchange over the thirty day period ending three days prior to the closing; (2) if actively traded over-the-counter, the value shall be deemed to be the average of the closing bid or sale prices (whichever is applicable) over the thirty day period ending three days prior to the closing; and (3) if there is no active public market, the value shall be the fair market value thereof, as determined in good faith by the Board of Directors of the Corporation. (B) Securities subject to investment letter or other restrictions on free marketability (other than restrictions arising solely by virtue of a stockholder's status as an affiliate or former affiliate) shall be valued in such a manner as to make an appropriate discount from the market value determined as above in (A) (1), (2) or (3) to reflect the approximate fair market value thereof, as determined in good faith by the Board of Directors of the Corporation. (iii) The Corporation shall give each holder of record of Preferred Stock written notice of any such impending transaction not later than ten (10) days prior to the stockholder meeting 26 called to approve such transaction, or twenty (20) days prior to the closing of such transaction whichever notice date is earlier, and shall also notify such holders in writing of the final approval of such transaction. The first of such notices shall describe the material terms and conditions of the impending transaction, the provisions of this Section 2, and the amounts anticipated to be distributed to holders of each outstanding class of capital stock of the Corporation pursuant to this Section 2, and the Corporation shall thereafter give such holders prompt notice of any material changes. The transaction shall in no event take place sooner than twenty (20) days after the Corporation has given the first notice provided for herein or sooner than ten (10) days after the Corporation has given notice of any material changes provided for herein; provided, however, that such periods may be shortened upon the written consent of the holders of Preferred Stock that are entitled to such notice rights or similar notice rights and that represent at least a majority of the voting power of the then outstanding shares of Preferred Stock (computed on an as-converted basis). (iv) In the event the requirements of subsection 2(c)(iii) are not complied with, this Corporation shall forthwith either: (A) cause such closing to be postponed until such time as the requirements of subsection 2(c)(iii) have been complied with; or (B) cancel such transaction, in which event the rights, preferences and privileges of the holders of the Preferred Stock shall continue to be the same as such rights, preferences and privileges existing immediately prior to the date of the first notice referred to in subsection 2(c)(iii). 3. Conversion. The holders of Preferred Stock shall have conversion rights as follows (the "Conversion Rights"): a. Right to Convert. Each share of Preferred Stock shall be convertible, at the option of the holder thereof, at any time after the date of issuance of such share at the office of this Corporation or any transfer agent for such stock, into such number of fully paid and nonassessable shares of Common Stock as is determined by dividing the applicable Original Issue Price of such share by the Conversion Price applicable to such share in effect for such Preferred Stock on the date the certificate is surrendered for conversion. The Original Issue Price for the Series D Preferred Stock (the "Original Series D Issue Price") is $5.00 per share. The Original Issue Price for the Series C Preferred Stock (the "Original Series C Issue Price") is $1.99 per share. The initial Conversion Price per share for shares of Preferred Stock shall be the Original Series F Issue Price for the Series F Preferred Stock, the Original Series A Issue Price for the Series A Preferred Stock, the Original Series B Issue Price for the Series B Preferred Stock, the Original Series C Issue Price for the Series C Preferred Stock and the Original Series D Issue Price for the Series D Preferred Stock; provided, however, that such Conversion Prices shall be subject to adjustment as set forth in subsection 3(d). b. Automatic Conversion. Each share of Preferred Stock shall automatically be converted into shares of Common Stock by dividing the applicable Original Issue Price of such share by the Conversion Price applicable to such share at the time in effect for such Preferred Stock immediately upon the earlier of (i) except as provided below in subsection 3(c), the Corporation's sale of its Common Stock in an underwritten public offering on form S-1 or SB-2 under the Securities Act of 1933, as amended (the "Securities Act"), yielding gross proceeds (before deduction of underwriter's discounts, commissions, or other costs and fees associated with the offering) to the Corporation in excess of Twenty Million Dollars ($20,000,000) if the Valuation (computed in accordance with Section 3(d)(i)(A)(IV)(7) herein) of the Corporation is greater than or equal to Three Hundred Fifty Million Dollars ($350,000,000) immediately before such offering, and (ii) the date specified by written consent or agreement of the holders of at least a majority of the voting power of the then outstanding shares of Preferred Stock (computed on an as-converted basis) which majority must include at least two-thirds (66 2/3%) of the voting power of each of the then outstanding shares of Series C Preferred Stock and Series D Preferred Stock (computed on an as-converted basis). 27 c. Mechanics of Conversion. Before any holder of Preferred Stock shall be entitled to convert the same into shares of Common Stock, such holder shall surrender the certificate or certificates therefor, duly endorsed, at the office of this Corporation or of any transfer agent for the Preferred Stock, and shall give written notice to this Corporation at its principal corporate office, of the election to convert the same and shall state therein the name or names in which the certificate or certificates for shares of Common Stock are to be issued. This Corporation shall, as soon as practicable thereafter, issue and deliver at such office to such holder of Preferred Stock, or to the nominee or nominees of such holder, a certificate or certificates for the number of shares of Common Stock to which such holder shall be entitled as aforesaid. Such conversion shall be deemed to have been made immediately prior to the close of business on the date of such surrender of the shares of Preferred Stock to be converted, and the person or persons entitled to receive the shares of Common Stock issuable upon such conversion shall be treated for all purposes as the record holder or holders of such shares of Common Stock as of such date. If the conversion is in connection with an underwritten offering of securities registered pursuant to the Securities Act, the conversion, unless otherwise designated by the holder, will be conditioned upon the closing with the underwriters of the sale of securities pursuant to such offering, in which event the person(s) entitled to receive the Common Stock upon conversion of the Preferred Stock shall not be deemed to have converted such Preferred Stock until immediately prior to the closing of such sale of securities. d. Conversion Price Adjustments of Preferred Stock for Certain Dilutive Issuances, Splits, Dividends and Combinations. The Conversion Prices of the Preferred Stock shall be subject to adjustment from time to time as follows: (i)(A)(I) Adjustment Formula for Series F, Series A and Series B Preferred Stock. If at any time or from time to time after the Series D Original Issue Date the Corporation issues or sells Additional Stock (as hereinafter defined), for an Effective Price (as hereinafter defined) that is less than the applicable Conversion Price for a series of Preferred Stock (other than the Series C Preferred Stock and Series D Preferred Stock) in effect immediately prior to such issue or sale (or deemed issue or sale), then, and in each such case, the applicable Conversion Price for such series of Preferred Stock (other than the Series C Preferred Stock and Series D Preferred Stock) shall be reduced, as of the close of business on the date of such issue or sale, to the price obtained by multiplying such Conversion Price by a fraction: (x) The numerator of which shall be the sum of (A) the number of shares of Common Stock issued and outstanding immediately prior to such issue or sale of Additional Stock plus (B) the quotient obtained by dividing the aggregate consideration received by the Corporation for the total number of Additional Stock so issued or sold (or deemed so issued and sold) by the Conversion Price for such series of Preferred Stock in effect immediately prior to such issue or sale; and (y) The denominator of which shall be the sum of (A) the number of shares of Common Stock issued and outstanding immediately prior to such issue or sale plus (B) the number of Additional Stock so issued or sold (or deemed so issued and sold). The foregoing calculation of Common Stock outstanding shall take into account shares deemed issued pursuant to Section 3(d)(i)(D) on account of options, rights, convertible or, exchangeable securities (or actual or deemed consideration therefor). (II) Adjustment Formula for Series C Preferred Stock. If at any time or from time to time after the Series D Original Issue Date the Corporation issues or sells Additional Stock for an Effective Price that is less than the Conversion Price for Series C Preferred Stock in effect immediately prior to such issue or sale (or deemed issue or sale), then, and in each such case, the Conversion Price for the Series C Preferred Stock shall be adjusted as follows: (1) If the Valuation (as hereinafter defined), is greater than or equal to Fifty Million Dollars ($50,000,000) immediately prior to the issuance of Additional Stock, then the Conversion Price for the Series C Preferred Stock shall be reduced, as of the close of business on the date of such issuance or sale, to the Effective Price at which such Additional Stock are so issued or sold (or deemed issued or sold). 28 (2) If the Valuation is less than Fifty Million Dollars ($50,000,000) immediately prior to the issuance of Additional Stock, then the Conversion Price for the Series C Preferred Stock shall be reduced, first, to a price per share that would yield a Valuation, computed in accordance with Section 3(d)(i)(A)(IV)(7) herein, of Fifty Million Dollars ($50,000,000) immediately prior to the issuance of the Additional Stock (the "Adjusted Conversion Price"), and then, the Adjusted Conversion Price for Series C Preferred Stock shall be further reduced, as of the close of business on the date of such issue or sale, to the price obtained by multiplying such Adjusted Conversion Price by a fraction: (x) The numerator of which shall be the sum of (1) the number of shares of Common Stock issued and outstanding immediately prior to such issue or sale of Additional Stock plus (2) the quotient obtained by dividing the aggregate consideration received by the Corporation for the total number of Additional Stock so issued or sold (or deemed so issued and sold) by the Conversion Price for such series of Preferred Stock in effect immediately prior to such issue or sale; and (y) The denominator of which shall be the sum of (1) the number of shares of Common Stock issued and outstanding immediately prior to such issue or sale plus (2) the number of Additional Stock so issued or sold (or deemed so issued and sold). The foregoing calculation of Common Stock outstanding shall take into account shares deemed issued pursuant to Section 3(d)(i)(D) on account of options, rights, or convertible or exchangeable securities (or actual or deemed consideration therefor). (III) Adjustment Formula for Series D Preferred Stock. If at any time or from time to time after the Series D Original Issue Date the Corporation issues or sells Additional Stock for an Effective Price that is less than the Conversion Price for Series D Preferred Stock in effect immediately prior to such issue or sale (or deemed issue or sale), then, and in each such case, the Conversion Price for the Series D Preferred Stock shall be adjusted as follows: (1) If the Valuation (as hereinafter defined), is greater than or equal to One Hundred Twenty Million Dollars ($120,000,000) immediately prior to the issuance of Additional Stock, then the Conversion Price for the Series D Preferred Stock shall be reduced, as of the close of business on the date of such issuance or sale, to the Effective Price at which such Additional Stock are so issued or sold (or deemed issued or sold). (2) If the Valuation is less than One Hundred Twenty Million Dollars ($120,000,000) immediately prior to the issuance of Additional Stock, then the Conversion Price for the Series D Preferred Stock shall be reduced, first, to a price per share that would yield a Valuation, computed in accordance with Section 3(d)(i)(A)(IV)(7) herein, of One Hundred Twenty Million Dollars ($120,000,000) immediately prior to the issuance of the Additional Stock (the "Adjusted Conversion Price"), and then, the Adjusted Conversion Price for Series D Preferred Stock shall be further reduced, as of the close of business on the date of such issue or sale, to the price obtained by multiplying such Adjusted Conversion Price by a fraction: (x) The numerator of which shall be the sum of (1) the number of shares of Common Stock issued and outstanding immediately prior to such issue or sale of Additional Stock plus (2) the quotient obtained by dividing the aggregate consideration received by the Corporation for the total number of Additional Stock so issued or sold (or deemed so issued and sold) by the Conversion Price for such series of Preferred Stock in effect immediately prior to such issue or sale; and (y) The denominator of which shall be the sum of (1) the number of shares of Common Stock issued and outstanding immediately prior to such issue or sale plus (2) the number of Additional Stock so issued or sold (or deemed so issued and sold). The foregoing calculation of Common Stock outstanding shall take into account shares deemed issued pursuant to Section 3(d)(i)(D) on account of options, rights, or convertible or exchangeable securities (or actual or deemed consideration therefor). (IV) Certain Definitions. For the purpose of this Section 3(d) the following terms have the following meanings: 29 (1) The "AGGREGATE CONSIDERATION RECEIVED" by the Corporation for any issue or sale (or deemed issue or sale) of securities shall (a) to the extent it consists of cash, be computed at the gross amount of cash received by the Corporation before deduction of any underwriting or similar commissions, compensation or concessions paid or allowed by the Corporation in connection with such issue or sale and without deduction of any expenses payable by the Corporation; (b) to the extent it consists of property other than cash, be computed at the fair value of that property as determined in good faith by the Board; and (c) if Additional Stock, Convertible Securities or Options or Rights to purchase either Additional 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 to be allocable to such Additional Stock, Convertible Securities or Options or Rights. (2) The "EFFECTIVE PRICE" of Additional Stock shall mean the quotient determined by dividing the total number of Additional Stock issued or sold, or deemed to have been issued or sold, by the Corporation under this subsection 3(d), into the Aggregate Consideration Received, or deemed to have been received, by the Corporation under this subsection 3(d), for the issuance (or deemed issuance) of such Additional Stock. (3) "SERIES C ORIGINAL ISSUE DATE" shall mean the date on which the first share of Series C Preferred Stock is issued by the Corporation. (4) "SERIES D ORIGINAL ISSUE DATE" shall mean the date on which the first share of Series D Preferred Stock is issued by the Corporation. (5) The "OPTIONS OR RIGHTS" shall mean warrants, options or other rights to purchase or acquire shares of Common Stock or Convertible Securities. (6) The "CONVERTIBLE SECURITIES" shall mean securities convertible into or exchangeable into Additional Stock. (7) The "VALUATION" of the Company prior to an issuance of Additional Stock shall mean the Effective Price of the Additional Stock multiplied by the sum of (x) the total number of shares of Common Stock of the Corporation outstanding immediately prior to the issuance of Additional Stock plus (y) the total number of shares of Common Stock of the Corporation into which all then outstanding shares of Convertible Securities and Options or Rights of the Corporation are then convertible or exercisable immediately prior to the issuance of such Additional Stock. (V) No adjustment of the Conversion Price for a series of Preferred Stock shall be made in an amount less than one cent per share, provided that any adjustments which are not required to be made by reason of this sentence shall be carried forward and shall be either taken into account in any subsequent adjustment made prior to three years from the date of the event giving rise to the adjustment being carried forward, or shall be made at the end of three years from the date of the event giving rise to the adjustment being carried forward. Except to the limited extent provided for in Sections 3(d)(i)(D)(3) and 3(d)(i)(D)(4), no adjustment of such Conversion Price pursuant to this Section 3(d)(i) shall have the effect of increasing the Conversion Price for a series of Preferred Stock above the Conversion Price for such shares in effect immediately prior to such adjustment. (B) In the case of the issuance of Common Stock for cash, the consideration shall be deemed to be the amount of cash paid therefor before deducting any reasonable discounts, commissions or other expenses allowed, paid or incurred by the Corporation for any underwriting or otherwise in connection with the issuance and sale thereof. 30 (C) In the case of the issuance of the Common Stock for a consideration in whole or in part other than cash, the consideration other than cash shall be deemed to be the fair value thereof as determined by the Corporation's Board of Directors irrespective of any accounting treatment. (D) In the case of the issuance (whether before, on or after the Series D Original Issue Date) of Options or Rights or Convertible Securities, the following provisions shall apply for all purposes of this Section 3(d)(i) and Section 3(d)(ii): (1) The aggregate maximum number of shares of Common Stock deliverable upon exercise (assuming the satisfaction of any conditions to exercisability, including without limitation, the passage of time, but without taking into account potential antidilution adjustments) of such Options or Rights shall be deemed to have been issued at the time such Options or Rights were issued and for a consideration equal to the consideration (determined in the manner provided in Sections 3(d)(i)(B) and 3(d)(i)(C)), if any, received by the Corporation upon the issuance of such Options or Rights plus the minimum exercise price provided for such Options or Rights (without taking into account potential antidilution adjustments) for the Common Stock covered thereby. (2) The aggregate maximum number of shares of Common Stock deliverable upon conversion of or in exchange (assuming the satisfaction of any conditions to convertibility or exchangeability, including, without limitation, the passage of time, but without taking into account potential antidilution adjustments) for any such Convertible Securities or upon the exercise of Options or Rights to subscribe for Convertible Securities and subsequent conversion or exchange thereof shall be deemed to have been issued at the time such Convertible Securities were issued or such Options or Rights were issued and for a consideration equal to the consideration, if any, received by the Corporation for any such Convertible Securities and related Convertible Options or Rights (excluding any cash received on account of accrued interest or accrued dividends), plus the minimum additional consideration, if any, to be received by the Corporation (without taking into account potential antidilution adjustments) upon the conversion or exchange of such securities or the exercise of any related Options or Rights (the consideration in each case to be determined in the manner provided in Sections 3(d)(i)(B) and 3(d)(i)(C)). (3) In the event of any change in the number of shares of Common Stock deliverable or in the consideration payable to the Corporation upon exercise of such Options or Rights or upon conversion of or in exchange for such Convertible Securities, including, but not limited to, a change resulting from the antidilution provisions thereof, the applicable Conversion Price of the affected series of Preferred Stock, to the extent in any way affected by or computed using such Convertible Options or Rights or Convertible Securities, shall be recomputed to reflect such change, but no further adjustment shall be made for the actual issuance of Common Stock or any payment of such consideration upon the exercise of any such Options or Rights or the conversion or exchange of such Convertible Securities. (4) Upon the expiration of any such Options or Rights, the termination of any such rights to convert or exchange or the expiration of any Options or Rights related to such Convertible Securities, the Conversion Price of the affected series of Preferred Stock, to the extent in any way affected by or computed using such Options, Rights or Convertible Securities or Options or Rights related to such Convertible Securities, shall be recomputed to reflect the issuance of only the number of shares of Common Stock (and Convertible Securities which remain in effect) actually issued upon the exercise of such Options or Rights, upon the conversion or exchange of such Convertible Securities or upon the exercise of the Options or Rights related to such Convertible Securities. Notwithstanding the foregoing sentence, in the event that the issuance of such Options or Rights or Convertible Securities caused an adjustment to the Conversion Price for Series C Preferred Stock or Series D Preferred Stock pursuant to Section 3(d)(i)(A)(II)(1) or Section 3(d)(i)(A)(III)(1), respectively, (i.e., a "full-ratchet" adjustment), then upon the expiration of any such Options or Rights or Convertible Securities or the termination of any such rights to convert or exchange or the expiration of any Options or Rights related to such Convertible Securities, without any of such Rights, Options or Convertible Securities, as the case may be, having been exercised and no shares of Common Stock issued pursuant thereto, then the Conversion Price for the Series C Preferred Stock and Series D Preferred stock, as appropriate, shall be 31 adjusted, to the Conversion Price for the Series C Preferred Stock or Series D Preferred Stock, as appropriate, that was in effect immediately prior to such issuance (the "Prior Series C Conversion Price" or "Prior Series D Conversion Price", as appropriate), subject, however, to such other adjustments as may have been made or which would have been made pursuant to this Section 3(d)(i) had the Prior Series C Conversion Price or Prior Series D Conversion Price, as appropriate, been in effect immediately prior to such sale or issuance of such Options, Rights or Convertible Securities. (5) The number of shares of Common Stock deemed issued and the consideration deemed paid therefor pursuant to Sections 3(d)(i)(D)(1) and (2) shall be appropriately adjusted to reflect any change, termination or expiration of the type described in either Section 3(d)(i)(D)(3) or (4). (ii) "Additional Stock" shall mean any shares of Common Stock issued (or deemed to have been issued pursuant to Section 3(d)(i)(D)) by the Corporation after the Series D Original Issue Date other than: (A) Common Stock issued pursuant to a transaction described in Section 3(d)(iii) hereof, (B) Up to an aggregate of 10,000,000 shares (such number of shares of Common Stock to be calculated net of any repurchases of such shares by the Corporation and net of any expired or terminated options, warrants or rights and to be proportionately adjusted for subsequent events described in Section 3(d)(iii) and (iv) herein) issued as: (i) Common Stock issuable or issued to employees, consultants or directors of the Corporation following the Series D Original Issue Date directly or pursuant to a stock option plan or agreement or restricted stock plan or agreement approved by the Board of Directors of the Corporation, (ii) Capital stock, or options or warrants to purchase capital stock, issued to financial institutions, equipment lessors or landlords in connection with commercial credit arrangements, equipment financing, real estate leases or similar transactions approved by the Board of Directors of the Corporation, (iii) Capital stock or options or warrants to purchase capital stock, issued to providers of products or technologies (or rights thereto) to the Corporation, if such issuance is approved by the Board of Directors of the Corporation, or (iv) Capital stock or options or warrants to purchase capital stock, issued in connection with bona fide acquisitions, mergers or similar transactions, the terms of which are approved by the Board of Directors of the Corporation, (C) Common Stock issued or issuable upon conversion of the Preferred Stock, (D) Capital stock issued or issuable upon exercise of any outstanding options or warrants to purchase Series A Preferred Stock, Series F Preferred Stock, Series B Preferred Stock or Series C Preferred Stock which are outstanding as of the Series D Original Issue Date, or (E) Common Stock issued or issuable in a public offering in connection with which all outstanding shares of Preferred Stock will be converted to Common Stock. (iii) In the event the Corporation should at any time or from time to time after the Series D Original Issue Date fix a record date for the effectuation of a split or subdivision of the 32 outstanding shares of Common Stock or for the determination of the outstanding shares of Common Stock entitled to receive a dividend or other distribution payable in additional shares of Common Stock without payment of any consideration by such holder for the additional shares of Common Stock, then, as of such record date (or the date of such dividend, distribution, split or subdivision if no record date is fixed), the Conversion Price of each applicable series of Preferred Stock shall be appropriately decreased so that the number of shares of Common Stock issuable on conversion of each share of such series shall be increased in proportion to such increase of the aggregate of shares of Common Stock outstanding. (iv) If the number of shares of Common Stock outstanding at any time after the Series D Original Issue Date is decreased by a combination of the outstanding shares of Common Stock or reverse stock split, then, following the record date of such combination or reverse stock split, the Conversion Price for each applicable series of Preferred Stock shall be appropriately increased so that the number of shares of Common Stock issuable on conversion of each share of such series shall be decreased in proportion to such decrease in outstanding shares. e. Other Distributions. In the event the Corporation at any time after the Series D Original Issue Date shall declare a distribution payable in securities of other persons, evidences of indebtedness issued by this Corporation or other persons, assets (excluding cash dividends) or Options or Rights not referred to in Section 3(d)(i), then, in each such case for the purpose of this Section 3(e), the holders of the Preferred Stock shall be entitled to a proportionate share of any such distribution as though they were the holders of the number of shares of Common Stock of the Corporation into which their shares of Preferred Stock are convertible as of the record date fixed for the determination of the holders of Common Stock of the Corporation entitled to receive such distribution. f. Recapitalizations. If at any time or from time to time after the Series D Original Issue Date there shall be a recapitalization of the Common Stock (other than a subdivision, combination or merger or sale of assets transaction provided for elsewhere in this Section 3 or Section 2) provision shall be made so that the holders of the Preferred Stock shall thereafter be entitled to receive upon conversion of the Preferred Stock the number of shares of stock or other securities or property of the Corporation or otherwise, which a holder of Common Stock deliverable upon conversion of such series of Preferred Stock immediately prior to such recapitalization would have been entitled to receive on such recapitalization. In any such case, appropriate adjustment shall be made in the application of the provisions of this Section 3 with respect to the rights of the holders of the Preferred Stock after the recapitalization to the extent that the provisions of this Section 3 (including adjustment of the Conversion Prices then in effect and the number of shares purchasable upon conversion of the Preferred Stock) shall be applicable after that event as nearly equivalently as may be practicable. g. No Impairment. The Corporation will not, by amendment of its Certificate of Incorporation or through any reorganization, recapitalization, 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 to be observed or performed hereunder by the Corporation, but will at all times in good faith assist in the carrying out of all the provisions of this Section 3 and in the taking of all such action as may be necessary or appropriate in order to protect the Conversion Rights of the holders of the Preferred Stock against impairment. h. No Fractional Shares and Certificate as to Adjustment. (i) No fractional shares shall be issued upon the conversion of any share or shares of the Preferred Stock, and the number of shares of Common Stock to be issued shall be rounded to the nearest whole share (with one-half being rounded downward). Whether or not fractional shares are issuable upon such conversion shall be determined on the basis of the total number of shares of Preferred Stock the holder is at the time converting into Common Stock and the number of shares of Common Stock issuable upon such aggregate conversion. 33 (ii) Upon the occurrence of each adjustment or readjustment of the Conversion Price of a series of Preferred Stock pursuant to this Section 3, the Corporation, at its expense, shall promptly compute such adjustment or readjustment in accordance with the terms hereof and prepare and furnish to each holder of such series of Preferred Stock a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based. The Corporation shall, upon the reasonable written request at any time of any holder of Preferred Stock, furnish or cause to be furnished to such holder a like certificate setting forth (A) such adjustment and readjustment, (B) the Conversion Price for each series of Preferred Stock at the time in effect, and (C) the number of shares of Common Stock and the amount, if any, of other property which at the time would be received upon the conversion of a share of each series of Preferred Stock held by such holder. i. Notices of Record Date. In the event of any taking by the Corporation of a record date for determining the holders of any class of securities who are entitled to receive any dividend (other than a cash dividend) or other distribution, any right to subscribe for, purchase or otherwise acquire any shares of stock of any class or any other securities or property, or to receive any other right, this Corporation shall mail to each holder of Preferred Stock, at least ten (10) days prior to the record date specified therein, a notice specifying the record date for the purpose of such dividend, distribution or right, and the amount and character of such dividend, distribution or right. j. Reservation of Stock Issuable Upon Conversion. This Corporation shall at all times reserve and keep available out of its authorized but unissued shares of Common Stock, solely for the purpose of effecting the conversion of the then outstanding shares of the Preferred Stock, such number of its shares of Common Stock as shall from time to time be sufficient to effect the conversion of all outstanding shares of the Preferred Stock; and if at any time the number of authorized but unissued shares of Common Stock shall not be sufficient to effect the conversion of all then outstanding shares of the Preferred Stock, in addition to such other remedies as shall be available to the holder of such Preferred Stock, 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 to such number of shares as shall be sufficient for such purposes, including, without limitation, engaging in best efforts to obtain the requisite Board of Directors and stockholder approval of any necessary amendment to its Certificate of Incorporation. k. Notices. Any notice required by the provisions of this Section 3 to be given to the holders of shares of Preferred Stock shall be deemed given if deposited in the United States mail, postage prepaid, and addressed to each holder of record at his address appearing on the books of the Corporation. 4. Redemption. a. If requested in writing at any time after the seventh anniversary of the Series C Original Issue Date by the holders of at least two-thirds (66 2/3%) of the outstanding Series C Preferred Stock and Series D Preferred Stock (determined together on an as converted basis), the Corporation shall redeem, on the terms and conditions stated herein, out of funds legally available therefor, all of the outstanding Preferred Stock in four equal annual installments beginning on the first anniversary of the date redemption is requested by the requisite number of holders (the "Initial Redemption Date") and continuing thereafter on the first, second and third anniversaries of the Initial Redemption Date (each a "Preferred Stock Redemption Date"), by paying in cash therefor (i) in the case of the Series F Preferred Stock, an amount equal to the sum of (x) the Original Series F Issue Price for each share of Series F Preferred Stock held of record by such holder (as adjusted for any stock dividends, combinations or splits with respect to such shares) and (y) all declared but unpaid dividends thereon, (ii) in the case of the Series A Preferred Stock, an amount equal to the sum of (x) the Original Series A Issue Price for each share of Series A Preferred Stock held of record by such holder (as adjusted for any stock dividends, combinations, splits, recapitalizations and the like with respect to such shares) and (y) all declared but unpaid dividends thereon, (iii) in the case of the Series B Preferred Stock, an amount equal to the sum of (x) the Original Series B Issue Price for each share of Series B Preferred Stock held of record by such holder (as adjusted for any stock dividends, combinations, splits, recapitalizations and the like with respect to such shares) and (y) all declared but unpaid dividends thereon, (iv) in the case of the Series C Preferred Stock, an amount equal to the sum of (x) the Original 34 Series C Issue Price for each share of Series C Preferred Stock, held of record by such holder (as adjusted for any stock dividends, combinations, splits, recapitalizations and the like with respect to such shares) and (y) all declared but unpaid dividends thereon and (v) in the case of the Series D Preferred Stock, an amount equal to the sum of (x) the Original Series D Issue Price for each share of Series D Preferred Stock held of record by such holder (as adjusted for any stock dividends, combinations, splits, recapitalizations and the like with respect to such shares) and (y) all declared but unpaid dividends thereon (the "Series F Redemption Price," "Series A Redemption Price," "Series B Redemption Price," "Series C Redemption Price," and "Series D Redemption Price," respectively). The number of shares of Preferred Stock that the Corporation shall be required to redeem under this subsection (a) on any one Preferred Stock Redemption Date shall be equal to the amount determined by dividing (x) the aggregate number of shares of shares of Preferred Stock outstanding immediately prior to that Preferred Stock Redemption Date by (y) the number of remaining Preferred Stock Redemption Dates (including the Preferred Stock Redemption Date to which such calculation applies). In the event that the Corporation is unable to redeem the full number of shares of Preferred Stock to be redeemed on any Preferred Stock Redemption Date, the shares not redeemed shall be redeemed by this Corporation as provided in this Section 4 as soon as practicable after funds are legally available therefor. Any redemption effected pursuant to this subsection 4 (a) shall be made ratably among the holders of the Preferred Stock in proportion to the redemption payment amount each such holder is otherwise entitled to receive on such Preferred Stock Redemption Date. b. At least thirty (30) but no more than sixty (60) days prior to each Preferred Stock Redemption Date, the Corporation shall give written notice by certified or registered mail, postage prepaid, to all holders of outstanding Preferred Stock, at the address last shown on the records of the Corporation for such holder, stating such Preferred Stock Redemption Date, the Series F, the Series A, Series B, Series C Redemption Price and Series D Redemption Price, as the case may be, and shall call upon such holder to surrender to the Corporation on such Preferred Stock Redemption Date at the place designated in the notice such holder's certificate or certificates representing the shares to be redeemed. On or after the Preferred Stock Redemption Date stated in such notice, the holder of each share of Preferred Stock called for redemption shall surrender the certificate or certificates evidencing such shares to the Corporation at the place designated in such notice and shall thereupon be entitled to receive payment of the Series F, Series A, Series B, Series C Redemption Price or Series D Redemption Price, as the case may be, for the shares surrendered. If less than all the shares represented by any such surrendered certificate are redeemed, a new certificate shall be issued representing the unredeemed shares. If such notice of redemption shall have been duly given, and if on such Preferred Stock Redemption Date funds necessary for the redemption shall be available therefor, then, as to any certificates evidencing any Preferred Stock so called for redemption and not surrendered, all rights of the holders of such shares shall cease as the close of business on the day immediately preceding the Preferred Stock Redemption Date with respect to such shares, except only the right of the holders to receive the Series F, Series A, Series B, Series C Redemption Price or Series D Redemption Price, as the case may be, for the Preferred Stock which they hold, without interest, upon surrender of their certificate or certificates therefor. 5. Voting Rights. Each holder of shares of Preferred Stock shall be entitled to a number of votes equal to the number of shares of Common Stock into which the shares of Preferred Stock held by such holder could be converted, shall have voting rights and powers equal to the voting rights and powers of the holders of Common Stock (except as required by law), shall be entitled to notice of any stockholder meeting in accordance with the Bylaws of the Corporation, and shall vote together as a single class with holders of Common Stock and all series of Preferred Stock on all matters except as required by law or as otherwise specifically provided herein. Fractional votes shall not be permitted and any fractional voting rights resulting from the above formula (after aggregating all shares into which shares of Preferred Stock held by each holder could be converted) shall be rounded to the nearest whole number (with one-half being rounded upward). 6. Status of Converted Preferred Stock. In the event any shares of Preferred Stock shall be converted pursuant to Section 3, the shares so converted shall be canceled and shall not thereafter be issuable by the Corporation. The Certificate of Incorporation of the Corporation shall be appropriately amended to effect the corresponding reduction in the Corporation's authorized capital stock. 35 7. Protective Provisions. a. Class Vote. The Corporation shall not, without first obtaining the approval (by vote or written consent, as provided by law) of the holders of at least (1) a majority of the then outstanding shares of Preferred Stock, voting together as a single class, (2) two-thirds (66 2/3%) of the then outstanding Series C Preferred Stock, voting as a separate series, and (3) two-thirds (66 2/3%) of the then outstanding Series D Preferred Stock, voting as a separate series, authorize or effect the winding up or cessation of business of the Corporation. b. Series Vote. The Corporation shall not, without first obtaining the approval (by vote or written consent, as provided by law) of the holders of at least a majority of each series of Preferred Stock so affected, amend, alter, or change in any adverse manner the rights of such series of Preferred Stock. c. Series C Vote. The Corporation shall not, without the approval, by vote or written consent, of the holders of at least two-thirds (66 2/3%) of the then outstanding shares of Series C Preferred Stock, voting as a separate series: (1) amend its Certificate of Incorporation or Bylaws in any manner that would alter or change the rights, preferences, privileges or restrictions of the Series C Preferred Stock so as to materially adversely affect such Series C Preferred Stock; (2) reclassify any outstanding shares of securities of the Corporation into shares having rights, preferences or privileges senior to or on a parity with the Series C Preferred Stock; or (3) authorize any other equity security, including any other security convertible into or exercisable for any equity security, having rights or preferences senior to or on a parity with the Series C Preferred Stock as to dividend rights, liquidation, redemption or voting preferences, including without limitation, shares of Series C Preferred Stock. d. Series D Vote. The Corporation shall not, without the approval, by vote or written consent, of the holders of at least two-thirds (66 2/3%) of the then outstanding shares of Series D Preferred Stock, voting as a separate series: (1) amend its Certificate of Incorporation or Bylaws in any manner that would alter or change the rights, preferences, privileges or restrictions of the Series D Preferred Stock so as to materially adversely affect such Series D Preferred Stock; (2) reclassify any outstanding shares of securities of the Corporation into shares having rights, preferences or privileges senior to or on a parity with the Series D Preferred Stock; or (3) authorize any other equity security, including any other security convertible into or exercisable for any equity security, having rights or preferences senior to or on a parity with the Series D Preferred Stock as to dividend rights, liquidation, redemption or voting preferences, including without limitation, shares of Series D Preferred Stock. e. Series C and D Vote. The Corporation shall not, without first obtaining the approval (by vote or written consent, as provided by law) of the holders of at least two-thirds (66 2/3%) of each of the then outstanding shares of Series C Preferred Stock and Series D Preferred Stock, each voting as a separate series: (1) reorganize, consolidate or merge with or into any corporation or effect any transaction or series of related transactions if such transaction or series of related transactions would result in the stockholders of the Corporation immediately prior to such transaction or series of related transactions holding less than a majority of the voting power of the surviving corporation (or its parent corporation if the surviving corporation is wholly owned by the parent corporation); 36 (2) sell, convey or otherwise dispose of all or substantially all the Corporation's assets in a single transaction or series of related transactions; (3) declare or pay any dividends (other than dividends payable solely in shares of its own Common Stock) on or declare or make any other distribution, purchase, redemption or acquisition, directly or indirectly, on account of any shares of Preferred Stock junior to the Series C Preferred Stock or Series D Preferred Stock as to dividend rights, liquidation, redemption or voting privileges or any shares of Common Stock now or hereafter outstanding other than those distributions, purchases, redemptions, or acquisitions expressly permitted in this Certificate; or (4) incur any indebtedness to a bank, financial institution or lender in excess of ten million dollars ($10,000,000) unless otherwise approved by the Board of Directors. C. Common Stock. 1. 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 shall be entitled to receive, when and as declared by the Board of Directors, out of any assets of the Corporation legally available therefor, such dividends as may be declared from time to time by the Board of Directors. 2. Liquidation Rights. Upon the liquidation, dissolution or winding up of the Corporation, the assets of the Corporation shall be distributed as provided in Section 2 of Article IV(B) hereof. 3. Redemption. The Common Stock is not redeemable. 4. Voting Rights. Each holder of Common Stock shall be entitled to one (1) vote for each share of Common Stock held, shall be entitled to notice of any stockholder meeting in accordance with the Bylaws of the Corporation, and shall be entitled to vote upon such matters and in such manner as is otherwise provided herein or as may be provided by law. ARTICLE V Except as otherwise provided in this Amended and Restated Certificate of Incorporation, in furtherance and not in limitation of the powers conferred by statute, the Board of Directors is expressly authorized to make, repeal, alter, amend and rescind any or all of the Bylaws of the Corporation. ARTICLE VI The number of directors of the Corporation shall be fixed from time to time by, or in the manner provided in, the Bylaws or amendment thereof duly adopted by the Board of Directors or by the stockholders. ARTICLE VII Elections of directors need not be by written ballot unless the Bylaws of the Corporation shall so provide. ARTICLE VIII Meetings of stockholders may be held within or without the State of Delaware, as the Bylaws may provide. The books of the Corporation may be kept (subject to any provision contained in the statutes) outside the State of Delaware at such place or places as may be designated from time to time by the Board of Directors or in the Bylaws of the Corporation. 37 ARTICLE IX To the fullest extent permitted by the General Corporation Law of Delaware, as the same may be amended from time to time, a director of the Corporation shall not be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director. If the General Corporation Law of Delaware is hereafter amended to authorize, with or without the approval of a corporation's stockholders, further reductions in the liability of the corporation's directors for breach of fiduciary duty, then a director of the Corporation shall not be liable for any such breach to the fullest extent permitted by the General Corporation Law of Delaware, as so amended. Any repeal or modification of the foregoing provisions of this Article IX, by amendment of this Article IX or by operation of law, shall not adversely affect any right or protection of a director of the Corporation with respect to any acts or omissions of such director occurring prior, to such repeal or modification. ARTICLE X To the fullest extent permitted by applicable law, the Corporation is authorized to provide indemnification of (and advancement of expenses to) directors, officers, employees and other agents of the Corporation (and any other persons to which Delaware law permits the Corporation to provide indemnification) through Bylaw provisions, agreements with any such person, vote of stockholders or disinterested directors or otherwise, in excess of the indemnification and advancement otherwise permitted by Section 145 of the Delaware General Corporation Law, subject only to limits created by applicable Delaware law (statutory or nonstatutory), with respect to actions for breach of duty to a corporation, its stockholders, and others. Any repeal or modification of any of the foregoing provisions of this Article X, by amendment of this Article X or by operation of law, shall not adversely affect any right or protection of a director, officer, employee or agent or other person existing at the time of, or increase the liability of any. director of the Corporation with respect to any acts or omissions of such director, officer or agent occurring prior to, such repeal or modification. ARTICLE XI 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, and all rights conferred upon stockholders herein are granted subject to this reservation. ARTICLE XII The Corporation shall have perpetual existence. * * * The foregoing Amended and Restated Certificate of Incorporation has been adopted by the Corporation's directors and stockholders in accordance with the applicable provisions of Sections 228, 242 and 245 of the General Corporation Law of the State of Delaware. 38 IN WITNESS WHEREOF, the undersigned has executed this certificate on November ___, 1999. NIKU CORPORATION By: ------------------------------------- Farzad Dibachi President and Chief Executive Officer 39 EXHIBIT C SCHEDULE OF EXCEPTIONS Set forth below are exceptions to the representations and warranties of Niku Corporation (the "Company") contained in Section 2 of the Series D Preferred Stock Purchase Agreement (the "Agreement"). Section references in this Schedule of Exceptions are for convenience only; each disclosure and exception set forth below is intended to qualify all of the Company's representations and warranties in the Agreement. All capitalized terms used herein and not defined herein shall have the same meaning as in the Agreement. [Confidential] 40 EXHIBIT D NIKU CORPORATION FOURTH AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT THIS FOURTH AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT (this "Agreement") is made as of the _____ day of November, 1999 by and between Niku Corporation, a Delaware corporation (the "Company") and those holders of the Company's securities whose names are set forth on Exhibit A hereto (collectively the "Existing Investors") and those holders of the Company's securities whose names are set forth on Exhibit B hereto (collectively the "New Investors"). The New Investors and the Existing Investors are referred to collectively herein as the "Investors." THE PARTIES HEREBY AGREE AS FOLLOWS: 1. Registration Rights. The Company covenants and agrees as follows: 1.1 Definitions. For purposes of this Section 1 (unless specifically stated elsewhere): (a) The term "Securities Act" means the Securities Act of 1933, as amended. (b) The term "Holder" means any person owning or having the right to acquire Registrable Securities or any assignee thereof. (c) The term "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended. (d) The terms "register," "registered" and "registration" refer to a registration effected by preparing and filing a registration statement or similar document in compliance with the Securities Act, and the declaration or ordering of effectiveness of such registration statement or document. (e) The term "Registrable Securities" means (i) Common Stock issuable or issued upon conversion of the Shares; (ii) Common Stock now owned by each of Farzad and Rhonda L. Dibachi, Trustees of the Dibachi Family Trust UDT dated 2/11/98 and the Garnett 1996 Children's Trust UTA dtd 3-11-96, Howard S. Zeprun, Trustee; (iii) Common Stock issued or issuable upon conversion of Preferred Stock of the Company issued or issuable upon exercise of warrants to purchase Preferred Stock of the Company issued after the date hereof to financial institutions or lessors 41 in connection with commercial credit arrangements, equipment financings or similar transactions, the terms of which are approved by the Board of Directors of the Company, provided that any such additional parties to this Agreement execute a counterpart signature page hereto and agree to be bound by the terms hereof, and (iv) 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 the foregoing, excluding in all cases, however, any shares sold or transferred by a person in a transaction in which the rights under this Section 1 are not assigned. (f) The number of shares of "Registrable Securities then outstanding" shall be determined by the number of shares of Common Stock outstanding which are, and the number of shares of Common Stock issuable pursuant to then exercisable or convertible securities which are Registrable Securities. (g) The term "Shares" shall mean shares of the Company's Series F Preferred Stock, Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock. (h) The term "SEC" shall mean the Securities and Exchange Commission. 1.2 Demand Registration. (a) Registration Rights. If the Company shall receive at any time after six (6) months after the effective date of the first registration statement for a public offering of securities of the Company (other than a registration statement relating either to the sale of securities to employees of the Company pursuant to a stock option, stock purchase or similar plan or a SEC Rule 145 transaction), a written request from holders of at least 50% of the Registrable Securities then outstanding ("Initiating Holders"), requesting that the Company file a registration statement under the Securities Act covering the registration of the lesser of (i) at least twenty percent (20%) of the Registrable Securities then outstanding and (ii) at least $20,000,000 in gross proceeds, then the Company shall: (i) within ten (10) days of the receipt thereof, give written notice of such request to all Holders; and (ii) effect as soon as practicable, and in any event within ninety (90) days of the receipt of such request, the registration under the Securities Act of all Registrable Securities which the Holders request to be registered, subject to the limitations of subsection 1.2(b), within fifteen (15) days of the mailing of such notice by the Company in accordance with Section 4.6. (b) Underwriting. If the Initiating Holders intend to distribute the Registrable Securities covered by their request by means of an underwriting, they shall so 42 advise the Company as a part of their request made pursuant to subsection 1.2(a) and the Company shall include such information in the written notice referred to in subsection 1.2(a). The underwriter will be selected by the Company and shall be reasonably acceptable to a majority in interest of the Initiating Holders. In such event, the right of any Holder to include Registrable Securities in such registration shall be conditioned upon such Holder's participation in such underwriting and the inclusion of such Holder's Registrable Securities in the underwriting (unless otherwise mutually agreed by a majority in interest of the Initiating Holders and such Holder) to the extent provided herein. All Holders proposing to distribute Registrable Securities through such underwriting shall, together with the Company, enter into an underwriting agreement in customary form with the managing underwriter selected for such underwriting by the Company. Notwithstanding any other provision of this Section 1.2, if the Company and the underwriter advise the Initiating Holders in writing that marketing factors require a limitation of the number of shares to be underwritten, then the Initiating Holders shall so advise all Holders of Registrable Securities, and the number of Registrable Securities that may be included in the underwriting on behalf of each selling Holder shall be allocated pro-rata amongst all selling Holders according to the total number of Registrable Securities held by each such selling Holder. For purposes of the foregoing allocation and any other similar allocations required by this Section 1, for any selling Holder which is a partnership or corporation, the partners, retired partners and stockholders of such Holder (and in the case of a partnership, any affiliated partnerships), or the estates and family members of any such partners and retired partners and any trusts for the benefit of any of the foregoing persons shall be deemed to be a single "selling Holder," and any pro-rata reduction with respect to such "selling Holder" shall be based upon the aggregate number of Registrable Securities owned by all entities and individuals included in such "selling Holder," as defined in this sentence. To facilitate the allocation of shares in accordance with the above provisions, the Company may round the number of shares allocated to any Holder to the nearest 100 shares. (c) Deferral of Registration. Notwithstanding the foregoing, if the Company shall furnish to the Holders requesting a registration statement pursuant to this Section 1.2 a certificate signed by the Chief Executive Officer 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 for such registration statement to be filed and it is therefore essential to defer the filing of such registration statement, the Company shall have the right to defer taking action with respect to such filing for a period of not more than one hundred twenty (120) days after receipt of the request of the Initiating Holders; provided, however that the Company may not utilize this right more than twice in any twelve-month period and the Company shall not utilize this right (or the similar right to defer in Section 1.4(b)) for two consecutive one hundred twenty (120) day periods. (d) Number of Registrations. The Company shall not be obligated to effect, or to take any action to effect, any registration pursuant to this Section 1.2 after the Company has effected two (2) registrations pursuant to this Section 1.2 and such registrations have been declared or ordered effective. For the purposes of this Section 1.2, a proposed registration that is withdrawn due to a material adverse change in the Company's business or financial condition shall not count as a registration. 43 1.3 Piggyback Registration Rights. (a) Registration Rights. If the Company proposes to register any of its stock or other securities under the Securities Act in connection with the public offering of such securities solely for cash (other than a registration relating solely to the sale of securities to participants in a Company stock plan, a registration effected pursuant to Rule 145 under the Securities Act or a registration on any form which does not include substantially the same information as would be required to be included in a registration statement covering the sale of the Registrable Securities) the Company shall, at such time, promptly give each Holder written notice of such registration. Upon the written request of each Holder given within fifteen (15) days after mailing of such notice by the Company in accordance with Section 4.6, the Company shall, subject to the provisions of paragraph (b) below, cause to be registered under the Securities Act all of the Registrable Securities that each such Holder has requested to be registered. (b) Underwriting. If the registration of which the Company gives notice is for a registered public offering involving an underwriting, the Company shall so advise the Holders as part of the written notice given pursuant to Section 1.3(a). In such event, the right of any Holder to registration pursuant to this Section 1.3 shall be conditioned upon such Holder's participation in such underwriting and the inclusion of Registrable Securities in the underwriting to the extent provided herein. All Holders proposing to distribute Registrable Securities through such underwriting shall (together with the Company and the other holders distributing their securities through such underwriting) enter into an underwriting agreement in customary form with the managing underwriter selected for such underwriting by the Company. Notwithstanding any other provision of this Section 1.3, if the Company and the managing underwriter determine that marketing factors require a limitation of the number of shares to be underwritten, the managing underwriter may limit or exclude entirely the Registrable Securities to be included in such registration. The Company shall so advise all Holders distributing Registrable Securities through such underwriting, and the number of Registrable Securities that may be included in the underwriting on behalf of each selling Holder and each other person distributing securities in such underwriting shall be allocated pro-rata amongst all selling Holders and all such other persons according to the respective amounts of Registrable Securities or other securities entitled to registration rights held by such selling Holders and other persons at the time of filing the registration statement. To facilitate the allocation of shares in accordance with the above provisions, the Company may round the number of shares allocated to any Holder or other person to the nearest 100 shares. 1.4 Form S-3 Registration. If at any time, and from time to time, that the Company shall be eligible to effect a registration and offering pursuant to Form S-3 under the Securities Act or any successor form ("Form S-3"), the Company shall receive from one or more of the Holders a written request or requests that the Company effect a registration on Form S-3 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: 44 (a) promptly give written notice of the proposed registration, and any related qualification or compliance, to all other Holders; and (b) as soon as practicable, effect such registration and all such qualifications and compliances as may be so requested and as would permit or facilitate the sale and distribution of all or such portion of such Holder's or Holders' Registrable Securities as are specified in such request, together with all or such portion of the Registrable Securities of any other Holder or Holders joining in such request as are specified in a written request given within fifteen (15) days after receipt of such written notice from the Company; provided, however, that the Company shall not be obligated to effect any such registration, qualification or compliance, pursuant to this Section 1.4: (1) if Form S-3 is not available for such offering by the Holders; (2) 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 a gross aggregate price to the public of less than two million dollars ($2,000,000); (3) if the Company shall furnish to the Holders a certificate signed by the President 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 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 one hundred twenty (120) days after receipt of the request of the Holder or Holders under this Section 1.4; provided, however, that the Company shall not utilize this right more than twice in any twelve month period, and the Company shall not utilize this right (or the similar right to defer in Section 1.2(c)) for two consecutive one hundred twenty (120) day periods; (4) if the Company has, within the twelve (12) month period preceding the date of such request, previously effected a registration on Form S-3 pursuant to this Section 1.4; or (5) 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 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 1.4 shall not be counted as demands for registration or registrations effected pursuant to Sections 1.2 or 1.3, respectively. 1.5 Furnish Information. It shall be a condition precedent to the obligations of the Company to take any action pursuant to this Section 1 with respect to the Registrable Securities of any selling Holder that such Holder shall furnish to the Company such information regarding itself, the Registrable Securities held by it, and the intended method of disposition of such securities as shall be required to effect the registration of such Holder's Registrable Securities. 1.6 Expenses of Registration. The Company shall bear and pay all expenses incurred in connection with any registration, filing or qualification of Registrable Securities with respect to the registrations pursuant to this Section I for each Holder (which right may be assigned as provided in Section 1.10), including (without limitation) all registration, filing, and 45 qualification fees, printers and accounting fees relating or apportionable thereto and the fees and disbursements of counsel for the Company and no more than one counsel for all the selling Holders, but excluding underwriting discounts and commissions relating to Registrable Securities; provided, however, that the Company shall not be required to pay for any expenses of any registration proceeding begun pursuant to Section 1.2 or 1.4 if the registration request is subsequently withdrawn at the request of a majority of the Holders of the Registrable Securities electing to be registered (in which case all participating Holders shall bear such expenses), unless (i) the registration is withdrawn following any deferral of the registration by the Company pursuant to Section 1.2(c) or 1.4(b); (ii) the registration is withdrawn due to a material adverse change in the Company's business or financial condition; or (iii) in the case of a demand registration pursuant to Section 1.2, the Holders of a majority of the Registrable Securities proposed to be registered by such Holders requesting withdrawal agree that the Holders shall forfeit their right to one registration pursuant to Section 1.2. 1.7 No Delay of Registration. No Holder shall have any right to obtain or seek an injunction restraining or otherwise delaying any such registration as the result of any controversy that might arise with respect to the interpretation or implementation of this Section 1. 1.8 Indemnification. In the event any Registrable Securities are included in a registration statement under this Section 1: (a) To the extent permitted by law, the Company will indemnify and hold harmless 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"): (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; and the Company will pay to each such Holder, underwriter or controlling person any legal or other expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, damage, liability, or action, as such expenses are incurred; provided, however, that the indemnity agreement contained in this subsection 1.8(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 to any Holder, any underwriter (as defined in the Securities Act) for such Holder or any person who controls such Holder or underwriter within the meaning of the Securities Act or Exchange Act, for any such loss, claim, damage, liability, or action to the 46 extent that it arises out of or is based upon a Violation which occurs in reliance upon and in conformity with written information furnished by such Holder, underwriter or controlling person. (b) To the extent permitted by law, each Holder will indemnify and hold harmless the Company, each of its directors, each of its officers who has signed the registration statement, each person, if any, who controls the Company within the meaning of the Securities Act, any underwriter, any other Holder selling securities in such registration statement and any controlling person of any such underwriter or other Holder, severally but not jointly, against any losses, claims, damages, or liabilities (joint or several) to which any of the foregoing persons 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 specified for use in such registration statement; and each such Holder will pay any legal or other expenses reasonably incurred by any person intended to be indemnified pursuant to this subsection 1.8(b), in connection with investigating or defending any such loss, claim, damage, liability, or action; provided, however, that the indemnity agreement contained in this subsection 1.8(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, that, in no event shall any indemnity by any Holder under this subsection 1.8(b) exceed the net proceeds from the offering received by such Holder. (c) Promptly after receipt by an indemnified party under this Section 1.8 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 1.8, 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 one counsel mutually satisfactory to the parties; provided, however, that an indemnified party (together with all other indemnified parties which may be represented without conflict by one counsel) shall have the right to retain one separate 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 shall not relieve such indemnifying party of any liability to the indemnified party under this Section 1.8 unless the failure to deliver notice is materially prejudicial to its ability to defend such action. Any omission to so 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 1.8. 47 (d) If the indemnification provided for in this Section 1.8 is held by a court of competent jurisdiction to be unavailable to an indemnified party with respect to any loss, liability, claim, damage, or expense referred to therein, then the indemnifying party, in lieu of indemnifying such indemnified party hereunder, shall contribute to the amount paid or payable by such indemnified party as a result of such loss, liability, claim, damage, or expense in such proportion as is appropriate to reflect the relative fault of the indemnifying party on the one hand and of the indemnified party on the other in connection with the statements or omissions that resulted in such loss, liability, claim, damage, or expense as well as any other relevant equitable considerations; provided that in no event shall any Holder be required to contribute under this subsection 1.8(d) an aggregate amount in excess of the gross proceeds from the offering received by such Holder less any amounts paid by the Holder pursuant to subsection 1.8(b). The relative fault of the indemnifying party and of the indemnified party shall be determined 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. (e) Notwithstanding the foregoing, to the extent that the provisions on indemnification and contribution contained in the underwriting agreement entered into in connection with the underwritten public offering are in conflict with the foregoing provisions, the provisions in the underwriting agreement shall control as to the parties to the underwriters agreement and any stockholders of the Company selling shares of the Company in such offering. (f) The obligations of the Company and Holders under this Section 1.8 shall survive the completion of any offering of Registrable Securities in a registration statement under this Section 1, and otherwise. 1.9 Reports under the Exchange Act. With a view to making available to the Holders the benefits of Rule 144 promulgated under the Act and any other rule or regulation of the SEC that may at any time permit a Holder to sell securities of the Company to the public without registration or pursuant to a registration on Form S-3, the Company agrees to: (a) make and keep public information available, as those terms are understood and defined in SEC Rule 144, at all times after ninety (90) days after the effective date of the first registration statement filed by the Company for the 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 Securities Act and the Exchange Act; and (c) furnish to any Holder, so long as the Holder owns any Registrable Securities, forthwith upon request (i) a written statement by the Company that it has complied with the reporting requirements of SEC Rule 144 (at any time after ninety (90) days after the effective date of the first registration statement filed by the Company), the Securities 48 Act and the Exchange Act (at any time after it has become subject to such reporting requirements), (ii) a copy of the most recent annual or quarterly report of the Company and such other reports and documents so filed by the Company, and (iii) such other information as may be reasonably requested in availing any Holder of any rule or regulation of the SEC which permits the selling of any such securities without registration. 1.10 Assignment of Registration Rights. The rights to cause the Company to register Registrable Securities pursuant to this Section 1 may be assigned (but only with all related obligations) by a Holder to a transferee or assignee of such securities who, after such assignment or transfer, holds at least five hundred thousand (500,000) shares of Registrable Securities (subject to appropriate adjustment for stock splits, dividends, combinations and other recapitalizations), provided: (a) the Company is, within a reasonable time before such transfer, furnished with 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; (b) such transferee or assignee agrees in writing to be bound by and subject to the terms and conditions of this Agreement, including without limitation the provisions of Section 1.11 and (c) such assignment shall be effective only if immediately following such transfer the further disposition of such securities by the transferee or assignee is restricted under the Securities Act. For the purposes of determining the number of shares of Registrable Securities held by a transferee or assignee of a holder of Registrable Securities, (i) the holdings of affiliated partnerships and other entities, constituent or retired partners or members (collectively, "Affiliated Members") and (ii) the holdings of spouses and ancestors, lineal descendants and siblings who acquire Registrable Securities by gift, will or intestate succession (collectively, "Family Members") shall in each case be aggregated together; provided that all assignees and transferees who would not qualify individually for assignment of registration rights shall designate in writing to the Company on behalf of the entire group of Affiliated Persons or Family Members, as the case may be, a single attorney-in-fact for the purpose of exercising any rights, receiving notices or taking any action under this Section 1. 1.11 "Market Stand-Off" Agreement. Each Holder hereby agrees that, during the period of duration specified by the Company and an underwriter of common stock or other securities of the Company, following the effective time of a registration statement of the Company filed under the Securities Act, it shall not, to the extent requested by the Company and such underwriter, directly or indirectly sell, offer to sell, contract to sell (including, without limitation, any short sale), grant any option to purchase or otherwise transfer or dispose of (other than to donees who agree to be similarly bound) any securities of the Company held by it immediately prior to the effective time of such registration statement except Registrable Securities included in such registration; provided, however, that: (a) all officers and directors of the Company enter into substantially similar agreements; and (b) such market stand-off time period shall not exceed one hundred eighty (180) days except as may be agreed to by holders of a majority of the then outstanding Registrable Securities. 49 Each Investor agrees to provide to the underwriters of any public offering such further agreement as such underwriter may require in connection with this market stand-off agreement. In order to enforce the foregoing covenant, the Company may impose stop-transfer instructions with respect to the Registrable Securities of each Investor (and the shares or securities of every other person subject to the foregoing restriction) until the end of such period. 1.12 Termination of Registration Rights. No Holder shall be entitled to exercise any right provided for in this Section 1 after the earlier of (a) five (5) years following the consummation of an underwritten public offering by the Company of shares of its Common Stock pursuant to a registration statement on form S-1 or SB-2 under the Securities Act yielding gross proceeds to the Company in excess of twenty million dollars $20,000,000 (a "Qualified IPO"), and (b) such time as Rule 144 or another similar exemption under the Securities Act is available for the sale of all of such Holder's shares during a three (3)-month period without registration. 2. Right of First Refusal. 2.1 General. Each Holder (as defined in Section 1.1(b)) and any party to whom such Holder's rights under this Section 2 have been duly assigned in accordance with Section 2.6 (each such Holder or assignee being hereinafter referred to as a "Rights Holder") has the right of first refusal to purchase such Rights Holder's Pro Rata Share (as defined below), of all (or any part) of any "New Securities" (as defined in Section 2.2) that the Company may from time to time issue after the date of this Agreement. A Rights Holder's "Pro Rata Share" for purposes of this right of first refusal is the ratio of (a) the number of Registrable Securities as to which such Rights Holder is the Holder (and/or is deemed to be the Holder under Section 1.1(b)), to (b) a number of shares of Common Stock of the Company equal to the sum of (1) the total number of shares of Common Stock of the Company then outstanding plus (2) the total number of shares of Common Stock of the Company into which all then outstanding shares of Preferred Stock of the Company are then convertible plus (3) the number of shares of Common Stock of the Company reserved for issuance under stock purchase and stock option plans of the Company and outstanding warrants. 2.2 New Securities. "New Securities" shall mean any Common Stock or Preferred Stock of the Company, whether now authorized or not, and rights, options or warrants to purchase such Common Stock or Preferred Stock, and securities of any type whatsoever that are, or may become, convertible or exchangeable into such Common Stock or Preferred Stock; provided, however, that the term "New Securities" does not include: (a) shares of Common Stock issued or issuable upon conversion of the outstanding shares of the Preferred Stock; (b) up to an aggregate of 10,568,210 shares (such number to be calculated net of any repurchases of such shares by the Company and net of any expired or terminated options, warrants or rights and to be proportionately adjusted to reflect any subsequent split, subdivision, combination or reverse stock split of the outstanding shares of Common Stock of the Company) issued as 50 (i) shares of Common Stock (or options, warrants or rights therefor) granted or issued hereafter to employees, officers, directors, contractors, consultants or advisers to, the Company or any Subsidiary pursuant to incentive agreements, stock purchase or stock option plans, stock bonuses or awards, warrants, contracts or other arrangements that are approved by the Board of Directors; (ii) shares of the Company's Common Stock or Preferred Stock (and/or options or warrants therefor) issued or issuable to parties providing the Company with equipment leases, real property leases, loans, credit lines, guaranties of indebtedness or similar financing, under arrangements approved by the Board of Directors; (c) shares of Common Stock or Preferred Stock issued pursuant to the acquisition of another corporation or entity by the Company by consolidation, merger, purchase of all or substantially all of the assets, or other reorganization in which the Company acquires, in a single transaction or series of related transactions, all or substantially all of the assets of such other corporation or entity or fifty percent (50%) or more of the voting power of such other corporation or entity or fifty percent (50%) or more of the equity ownership of such other entity; (d) any shares of Series D Preferred Stock issued under the Series D Preferred Stock Purchase Agreement of even date herewith; (e) any securities issuable upon exercise of any options, warrants or rights to purchase any securities of the Company outstanding on the date of this Agreement ("Warrant Securities") and any securities issuable upon the conversion of any Warrant Securities or upon the exercise or conversion of any securities, if such securities were first offered to the Rights Holders hereunder; (f) shares of the Company's Common Stock or Preferred Stock issued in connection with any stock split or stock dividend; and (g) securities offered by the Company to the public pursuant to a registration statement filed under the Securities Act. 2.3 Procedures. In the event that the Company proposes to undertake an issuance of New Securities, it shall give to each Rights Holder written notice of its intention to issue New Securities (the "Notice"), describing the type of New Securities and the price and the general terms upon which the Company proposes to issue such New Securities. Each Rights Holder shall have ten (10) business days from the date of mailing of any such Notice to agree in writing to purchase such Rights Holder's Pro Rata Share of such New Securities for the price and upon the general terms specified in the Notice by giving written notice to the Company and stating therein the quantity of New Securities to be purchased (not to exceed such Rights Holder's Pro Rata Share). If any Rights Holder fails to so agree in writing within such ten (10) business day period to purchase such Rights Holder's full Pro Rata Share of an offering of New Securities (a "Nonpurchasing Holder"), then such Nonpurchasing Holder shall forfeit the right hereunder to purchase that part of his Pro Rata Share of such New 51 Securities that he did not so agree to purchase and the Company shall promptly give each Rights Holder who has timely agreed to purchase his full Pro Rata Share of such offering of New Securities (a "Purchasing Holder") written notice of the failure of any Nonpurchasing Holder to purchase such Nonpurchasing Rights Holder's full Pro Rata Share of such offering of New Securities (the "Overallotment Notice"). Each Purchasing Holder shall have a right of overallotment such that such Purchasing Holder may agree to purchase a portion of the Nonpurchasing Holders' unpurchased Pro Rata Shares of such offering on a pro rata basis according to the relative Pro Rata Shares of the Purchasing Rights Holders, at any time within five (5) business days after receiving the Overallotment Notice. 2.4 Failure to Exercise. In the event that the Rights Holders fail to exercise in full the right of first refusal within such ten (10) plus five (5) business day period, then the Company shall have 120 days thereafter to sell the New Securities with respect to which the Rights Holders' rights of first refusal hereunder were not exercised, at a price and upon general terms not materially more favorable to the purchasers thereof than specified in the Company's Notice to the Rights Holders. In the event that the Company has not issued and sold the New Securities within such 120 day period, then the Company shall not thereafter issue or sell any New Securities without again first offering such New Securities to the Rights Holders pursuant to this Section 2. 2.5 Termination. This right of first refusal shall terminate (a) immediately before the closing of the first underwritten sale of Common Stock of the Company to the public pursuant to a registration statement filed with, and declared effective by, the SEC under the Securities Act, covering the offer and sale of Common Stock to the public at an aggregate gross public offering price (calculated before deduction of underwriters' discounts and commissions) of at least twenty million dollars ($20,000,000) or (b) upon 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 immediately prior to such transaction (x) own, immediately after such transaction, securities representing less than a majority of the voting power of the corporation or other entity surviving such transaction and (y) receive cash, securities registered under Section 12 of the Exchange Act, or a combination thereof in exchange for all shares of Common Stock of the Company owned by such holders immediately before such transaction. 2.6 Assignment of Right of First Refusal. The right to purchase the Pro Rata Shares pursuant to this Section 2 may be assigned (but only with all related obligations) by a Holder to a transferee or assignee of such securities who, after such assignment or transfer, holds at least five hundred thousand (500,000) shares of Registrable Securities (subject to appropriate adjustment for stock splits, dividends, combinations and other recapitalizations), provided: (a) the Company is, within a reasonable time before such transfer, furnished with written notice of the name and address of such transferee or assignee and the securities with respect to which such right of first refusal are being assigned; (b) such transferee or assignee agrees in writing to be bound by and subject to the terms and conditions of this Agreement, 52 including without limitation the provisions of Section 1.11 and (c) such assignment shall be effective only if immediately following such transfer the further disposition of such securities by the transferee or assignee is restricted under the Securities Act. For the purposes of determining the number of shares of Registrable Securities held by a transferee or assignee of a holder of Registrable Securities, (i) the holdings of Affiliated Members and (ii) the holdings of Family Members shall in each case be aggregated together; provided that all assignees and transferees who would not qualify individually for assignment of the right of first refusal shall designate in writing to the Company on behalf of the entire group of Affiliated Persons or Family Members, as the case may be, a single attorney-in-fact for the purpose of exercising any rights, receiving notices or taking any action under this Section 2. 3. Covenants of the Company. 3.1 Delivery of Financial Statements. The Company shall deliver to each Investor, so long as such Investor shall be a Holder of at least five hundred thousand (500,000) Shares (subject to appropriate adjustment for stock splits, dividends, combinations and other recapitalizations): (a) as soon as practicable, but in any event within one hundred twenty (120) days after the end of each fiscal year of the Company, an income statement for such fiscal year, a balance sheet of the Company and statement of stockholders' equity as of the end of such year, and a statement of cash flows for such year, such year-end financial reports to be in reasonable detail, prepared in accordance with generally accepted accounting principles ("GAAP"), and audited and certified by independent public accountants of nationally recognized standing selected by the Company; (b) as soon as practicable, but in any event within sixty (60) days after the end of each of the first three (3) quarters of each fiscal year of the Company, an unaudited profit or loss statement, a statement of cash flows for such fiscal quarter and an unaudited balance sheet as of the end of such fiscal quarter. 3.2 Inspection. The Company shall permit each Investor, so long as such Investor shall be a Holder of at least five hundred thousand (500,000) Shares (subject to appropriate adjustment for stock splits, dividends, combinations and other recapitalizations), at such Holder's expense, to visit and inspect the Company's properties, to examine its books of account and records and to discuss the Company's affairs, finances and accounts with its officers, all at such reasonable times as may be requested by the Holder; provided, however, that the Company shall not be obligated pursuant to this Section 3.2 to provide access to any information which it reasonably considers to be a trade secret or similar confidential information unless the recipient is not deemed by the Board of Directors to be a competitor or potential competitor of the Company and such Holder signs an appropriate nondisclosure agreement. The Company hereby acknowledges that CNET, Inc. is not and will not be deemed a competitor or potential competitor for purposes of this Section 3.2. 3.3 Termination of Covenants. The covenants set forth in this Section 3 shall terminate and be of no further force or effect (a) upon a Qualified IPO or when the 53 Company first becomes subject to the periodic reporting requirements of Sections 12(g) or 15(d) of the Exchange Act, whichever event shall first occur, or (b) with respect to the covenants set forth in Section 3.2, as to any Holder, or transferee or assignee of such Holder, who is deemed by the Board of Directors of the Company to be a competitor or potential competitor of the Company. 4. Miscellaneous. 4.1 Additional Parties. "Purchaser" under that certain Series D Preferred Stock Purchase Agreement made as of November ___, 1999 by and between the Company and such Purchasers shall become a "New Investor" hereunder, when such Purchaser executes a counterpart signature page hereof and without the need for an amendment hereto except to add such Purchaser's name to Exhibit B hereto. In the event of the issuance of warrants to purchase Preferred Stock to financial institutions or lessors in connection with commercial credit arrangements, equipment financings or similar transactions, the terms of which are approved by the Board of Directors of the Company, upon execution of a counterpart signature page by any such entity and without need for an amendment hereto except to add such entity's name to Exhibit B hereto, any such entity shall become a party to this Agreement and shall be deemed an "Investor" for purposes of Sections 1, 2 and 4 of this Agreement as of the date of execution of such counterpart signature page. 4.2 Successors and Assigns. Except as otherwise provided herein, the terms and conditions of this Agreement shall inure to the benefit of and be binding upon the respective successors and permitted assigns of the parties (including transferees of any shares of Registrable Securities). Nothing in this Agreement, express or implied, is intended to confer upon any party other than the parties hereto or their respective successors and assigns any rights, remedies, obligations, or liabilities under or by reason of this Agreement, except as expressly provided in this Agreement. 4.3 Governing Law. This Agreement shall be governed by and construed under the laws of the State of California as such laws apply to agreements entered into by residents of California and to be performed entirely within such state. 4.4 Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 4.5 Titles and Subtitles. The titles and subtitles used in this Agreement are used for convenience only and are not to be considered in construing or interpreting this Agreement. 4.6 Notices. All notices and other communications required or permitted hereunder shall be in writing, shall be effective when given, and shall in any event be deemed to be given upon receipt or, if earlier, (a) five (5) days after deposit with the U.S. Postal Service or other applicable postal service, if delivered by first class mail, postage prepaid, (b) upon delivery, if delivered by hand, (c) one (1) business day after the business day of deposit with 54 Federal Express or similar overnight courier, freight prepaid or (d) one (1) business day after the business day of facsimile transmission, if delivered by facsimile transmission with copy by first class mail, postage prepaid, and shall be addressed (i) if to the Investors, at the Investors' respective addresses as set forth on Exhibit A or Exhibit B hereto and (ii) if to the Company, at the address of its principal corporate offices (attention: Secretary), or in any such case at such other address as a party may designate by ten (10) days' advance written notice to the other party pursuant to the provisions above. 4.7 Expenses. If any action at law or in equity is necessary to enforce or interpret the terms of this Agreement, the prevailing party shall be entitled to reasonable attorneys' fees, costs and necessary disbursements in addition to any other relief to which such party may be entitled. 4.8 Amendments and Waivers. Any term of this Agreement may be amended and the observance of any term of this Agreement 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 a majority of the Registrable Securities then outstanding. Any amendment or waiver effected in accordance with this paragraph shall be binding upon each holder of any Registrable Securities then outstanding, each future holder of all such Registrable Securities, and the Company. 4.9 Aggregation of Stock. All shares of the Series F, Series A, Series B, Series C and Series D Preferred Stock of the Company held or acquired (or Common Stock issuable upon conversion thereof) by affiliated entities or persons shall be aggregated together for the purpose of determining the availability or discharge of any rights under this Agreement. 4.10 Severability. If one or more provisions of this Agreement are held to be unenforceable under applicable law, such provision shall be excluded from this Agreement and the balance of the Agreement shall be interpreted as if such provision were so excluded and shall be enforceable in accordance with its terms. 4.11 Entire Agreement; Amendment; Waiver. This Agreement (including the Exhibits hereto) constitutes the full and entire understanding and agreement between the parties with regard to the subjects hereof and thereof. [Signature Page Follows] 55 COMPANY: INVESTOR: NIKU CORPORATION By: By: --------------------------------- ------------------------------ Farzad Dibachi, President Name: ---------------------------- Title: --------------------------- 56 LIST OF EXHIBITS Exhibit A - Existing Investors Exhibit B - New Investors 57 Exhibit A Existing Investors
COMMON STOCK NAME SHARES - ----------------------------------------------------------- Garnett 1996 Children's Trust 500,000 UTA dtd 3-11-96, Howard S. Zeprun, Trustee Dibachi, Farzad and Rhonda L., 3,200,000 Trustees of the Dibachi Family Trust UDT dated 2-11-98
SERIES F NAME SHARES - ----------------------------------------------------------- Garnett 1996 Children's Trust 700,000 UTA dtd 3-11-96, Howard S. Zeprun, Trustee Garnett, Terence J. and Katrina A., 1,300,000 Trustees of the Garnett Family Trust U/D/T dated 4-2-97 Florence V, LLC, Harold Slawik, 1,500,000 Managing Member Dibachi, Franklin David 500,000 Trust, Harold Slawik, Trustee Dibachi, Farzad and Rhonda L., 5,900,000 Trustees of the Dibachi Family Trust UDT dated 2-11-98 SILICON VALLEY COMMUNITIES VENTURES - NOT A PARTY TO THIS AGREEMENT (100,000 SHARES)
58
SERIES A NAME SHARES - ----------------------------------------------------------- Chen, John S. and Sherry H. Chen 285,714 Family Trust 1994 Delivanis, Constantin and Alison 142,857 Kibrick as co-trustees of the Delivanis-Kibrick Family Trust dtd 12-13-90 Farid Dibachi 714,285 Dibachi, Farzad and Rhonda L., 285,714 Trustees of the Dibachi Family Trust UDT dated 2-11-98 John Dunning 142,857 Florence V, LLC, Harold Slawik, 5,714 Managing Member Garnett, Terence J. and Katrina 1,857,142 A., Trustees of the Garnett Family Trust U/D/T dated 4-2-97 GCA Investments 1998 30,000 Joe Gillach 142,857 Vinay Goel 150,000 Haque Family Partners 285,714 Soroush and Niloofar Farhad 142,857
59 Kaboli, JTWROS Mark Moore 71,428 Charles Phillips 71,428 Morgan Stanley & Co. Joshua Pickus 28,571 The William J. Raduchel Revocable Trust 285,714 Madhavan Rangaswami 142,857 VLG Investments 1998 71,428 Attn: Linda Glisson Maynard G. Webb, Jr. And 285,714 Irene C. Webb, Trustees of the Webb Family Trust, dated June 3, 1995
SERIES B NAME SHARES - ----------------------------------------------------------- Comdisco, Inc. 146,666 Jim and Caroline Labe, Trustees of 6,666 the Labe 1998 Revocable Trust, dated 10/5/98 Manuel Henriquez 6,666 The Phoenix Partners 333,333 Joshua Pickus 13,333
60 VLG Investments 1998 13,333 Shanmugam Chinnasamy 60,000 Anant V. Prabhudesai 33,333 William J. Raduchel 66,666 Roger Smith 66,666 Martin and Diana Neiman JTWROS 133,333 Ramsey Beirne Partners, LLC 160,000 Venrock Associates 2,328,000 Venrock Associates II, L.P. 2,845,333 Farzad and Rhonda L. Dibachi, Trustees of 666,666 the Dibachi Family Trust UDT dated 2/11/98 Terence J. and Katrina A. Garnett, 333,333 Trustees of the Garnett Family Trust UDT dated 4/27/97 Terence J. and Katrina A. Garnett, 160,000 Trustees of the Garnett Family Trust UDT dated 4/27/97 Maynard G. Webb, Jr. and Irene C. Webb, 133,333 Trustees of the Webb Family Trust, dated 6/3/95 Peter Mooney as nominee for the Broadview 293,333 Partners Group
61 Haque Family Partners 133,333 Jack Acosta 66,666
SERIES C NAME SHARES - ------------------------------------------------------------ J.H. Whitney III, L.P. 4,416,199 Whitney Strategic Partners III, L.P. 106,414 Peter O. Crisp 25,126 F & W Investments 1998 25,126 Kip Fern 25,126 Terence J. Garnett and Katrina A. 502,513 Garnett, Trustees of the Garnett Family Trust U/D/T dated 4/2/97 Terence J. Garnett 75,377 Hambrecht & Quist California 49,121 Hambrecht & Quist Employee Venture 28,391 Fund, L.P. II Access Technology Partners, L.P. 396,985 Access Technology Partners Brokers 4,397 Fund, L.P. Cristina Morgan 12,563 A.G. Edwards & Sons C/F Douglas P. 5,025 Smith IRA Account Kenneth Hao 2,513 Donald Fornes 3,518 Phoenix Partners IIIB 251,256 Phoenix Partners IV 251,256
62 TCW/ICICI India Private Equity Fund, 705,944 L.L.C. TCW/ICICI India Private Equity Amp 299,081 Fund, L.L.C. Michael Tyrrell 25,126 Venrock Associates 999,246 Venrock Associates II, L.P. 1,437,940 Maynard and Irene Webb, 50,251 Trustees of the Webb Family Trust Dated June, 1995 Henricus J. Stander III 25,126 Mark A. Moore 12,563 Comdisco, Inc. 251,256
63 Exhibit B New Investors SEE EXHIBIT A TO SERIES D PREFERRED STOCK PURCHASE AGREEMENT 64 EXHIBIT E CO-SALE AGREEMENT NIKU CORPORATION AMENDED AND RESTATED CO-SALE AGREEMENT THIS AMENDED AND RESTATED CO-SALE AGREEMENT (this "Agreement") is made as of the ____ day of November, 1999 by and among Farzad and Rhonda L. Dibachi, Trustees of the Dibachi Family Trust UDT Dated 2-11-98 (collectively "Dibachi") and The Garnett 1996 Children's Trust UTA dtd 3-11-98, Howard S. Zeprun, Trustee (the "Founders"), Niku Corporation, a Delaware corporation (the "Company"), and those holders of the Company's securities whose names are set forth on Exhibit A hereto (collectively the "Existing Investors") and those holders of the Company's securities whose names are set forth on Exhibit B hereto (collectively the "New Investors"). The New Investors and the Existing Investors are referred to collectively herein as the "Investors." THE PARTIES HEREBY AGREE AS FOLLOWS: 1. SALES BY FOUNDERS. (a) NOTICE OF SALES. Should any Founder propose to accept one or more bona fide offers (collectively, a "Purchase Offer") from any person or persons for the purchase of (i) the Company's Common Stock owned by such Founder or (ii) with respect only to Dibachi, the Series F Preferred Stock owned by Dibachi, or the shares of Common Stock into which such shares convert (the "Dibachi Shares", and together with the shares of Common Stock described in clause (i) above, the "Shares") from such Founder (other than as set forth in Section 1(e) hereof), such Founder shall promptly deliver a notice (the "Notice") to the Company and each Investor stating the terms and conditions of such Purchase Offer including, without limitation, the number of Shares to be sold or transferred, the nature of such sale or transfer, the consideration to be paid, and the name and address of each prospective purchaser or transferee. (b) CO-SALE RIGHT. Each Investor shall have the right (the "Co-Sale Right"), exercisable upon written notice to the Company within fifteen (15) business days, to participate in such Founder's sale of Shares pursuant to the specified terms and conditions of such Purchase Offer. To the extent an Investor exercises such Co-Sale Right in accordance with the terms and conditions set forth below, the number of Shares which such Founder may sell pursuant to such Purchase Offer shall be correspondingly reduced. The Co-Sale Right of each Investor shall be subject to the following terms and conditions: 65 (i) CALCULATION OF SHARES. Each Investor may sell all or any part of that number of shares of Common Stock of the Company issued or issuable upon conversion of Preferred Stock or Common Stock received in connection with any stock dividend, stock split or other reclassification thereof (the "Conversion Shares") equal to the product obtained by multiplying (x) the aggregate number of Shares covered by the Purchase Offer by (y) a fraction, the numerator of which is the number of Conversion Shares at the time owned by such Investor and the denominator of which is the combined number of Conversion Shares of the Company at the time owned by all Investors and all Founders participating in such sale, including shares transferred by such Founder to Permitted Transferees (as hereinafter defined) in accordance herewith. The provisions of this Agreement do not confer any Co-Sale rights with respect to any shares of Common Stock or other securities held by an Investor that are not Conversion Shares, nor do the provisions of this Agreement subject any shares of Preferred Stock of the Company held by the Founders to the Co-Sale rights of the Investors, other than the Shares. (ii) DELIVERY OF CERTIFICATES. Each Investor may effect its participation in the sale by delivering to the selling Founder for transfer to the prospective purchaser one or more certificates, properly endorsed for transfer, which represent the number of shares of Preferred Stock, or Common Stock issued upon conversion thereof, which such Investor elects to sell. (c) TRANSFER. The stock certificate or certificates which the Investor delivers to the selling Founder pursuant to Section 1(b) shall be delivered by such Founder to the prospective purchaser in consummation of the sale pursuant to the terms and conditions specified in the Notice, and such Founder shall promptly thereafter remit to such Investor that portion of the sale proceeds to which such Investor is entitled by reason of its participation in such sale. To the extent that any prospective purchaser or purchasers prohibits such assignment or otherwise refuses to purchase shares of capital stock of the Company from an Investor exercising its Co-Sale Right hereunder, the selling Founder or Founders shall not sell to such prospective purchaser or purchasers any shares of capital stock unless and until, simultaneously with such sale, the selling Founder or Founders shall purchase such shares from such Investor for the same consideration and on the same terms and conditions as the proposed transfer described in the Notice (which terms and conditions shall be no less favorable than those governing the sale to the purchaser by the Founder or Founders). (d) NO ADVERSE EFFECT. The exercise or non-exercise of the rights of the Investors hereunder to participate in one or more sales of Shares made by a Founder shall not adversely affect their rights to participate in subsequent sales of Shares by a Founder. (e) PERMITTED TRANSACTIONS. The provisions of Section 1 of this Agreement shall not pertain or apply to: (i) Any pledge of the Shares made by a Founder pursuant to a bona fide loan transaction which creates a mere security interest; (ii) Any repurchase of Shares by the Company; 66 (iii) Any bona fide gift; (iv) Any transfer to a Founder's ancestors, descendants or spouse or to a trust for their benefit; (v) Any sale or transfer of Shares between the Founders; or (vi) Sale(s) or transfer(s) by a Founder in an amount not exceeding 500,000 shares of Common Stock in the aggregate over the term of this Agreement. provided, that (x) the Founder(s) shall inform the Investors of such pledge, transfer or gift prior to effecting it, and (y) the pledgee, transferee or donee (collectively, the "Permitted Transferees") shall furnish the Investors with a written agreement to be bound by and comply with all provisions of this Agreement applicable to the Founders. 2. PROHIBITED TRANSFERS; PUT OPTION. Any attempt by a Founder to transfer shares of the Company in violation of Section 1 hereof (a "Prohibited Transfer") shall be void and the Company agrees it will not effect such a transfer nor will it treat any alleged transferee as the holder of such shares without the written consent of the holders of a majority of the Conversion Shares. In the event of a Prohibited Transfer, in addition to such other remedies as may be available at law, in equity or hereunder, if any, the Investors shall have the put option provided below, and the Founders or Founders who made the Prohibited Transfer shall be bound by the provisions of such option. (a) In the event of a Prohibited Transfer, each Investor shall have the right to sell to the Founder or Founders who made the Prohibited Transfer the type and number of Shares equal to the number of shares each Investor would have been entitled to transfer to the third party purchaser under Section 1 hereof, had the Prohibited Transfer been effected pursuant to and in compliance with the terms hereof. Such sale shall be made on the following terms and conditions: (i) The price per share at which the shares are to be sold to the Founder or Founders who made the Prohibited Transfer shall be equal to the price per share paid by the third party purchaser to such Founder in such Prohibited Transfer. The Founder shall also reimburse each Investor for fees and expenses, including legal fees and expenses, directly incurred pursuant to the exercise or the attempted exercise of the Investor's rights under this Section 2. (ii) Within ninety (90) days after the date on which an Investor receives notice of the Prohibited Transfer or otherwise becomes aware of the Prohibited Transfer, such Investor shall, if exercising the option created hereby, deliver to the Founder the certificate or certificates representing shares to be sold, each certificate to be properly endorsed for transfer. 67 (iii) Such Founder shall, upon receipt of the certificate or certificates for the shares to be sold by an Investor, pay the aggregate purchase price therefor and the amount of reimbursable fees and expenses, in cash or by other means acceptable to the Investor. (b) Notwithstanding the foregoing, any attempt by a Founder to transfer securities in violation of this Section 2 shall be voidable at the option of the holders of a majority of the Conversion Shares if such holders do not elect to exercise the put option set forth in this Section 2, and the Company agrees it will not effect such a transfer, nor will the holders of a majority of the Conversion Shares treat any alleged transferee as the holder of such shares, without the written consent of the holders of a majority of the Conversion Shares. 3. LEGENDED CERTIFICATES. Each certificate representing Shares now or hereafter owned by the Founders or issued to any Permitted Transferee pursuant to Section l(e) shall be endorsed with the following legend: "THE SALE, PLEDGE, HYPOTHECATION OR TRANSFER OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE IS SUBJECT TO THE TERMS AND CONDITIONS OF A CERTAIN CO-SALE AGREEMENT BY AND BETWEEN THE STOCKHOLDER, THE CORPORATION AND CERTAIN HOLDERS OF COMMON AND PREFERRED STOCK OF THE CORPORATION. COPIES OF SUCH AGREEMENT MAY BE OBTAINED UPON WRITTEN REQUEST TO THE SECRETARY OF THE CORPORATION." The foregoing legend shall be removed upon termination of this Agreement in accordance with the provisions of Section 4(a). 4. MISCELLANEOUS PROVISIONS. (a) TERMINATION. This Agreement shall terminate (and shall not apply to any transfer by a Founder in connection with) (a) upon the consummation of an underwritten public offering by the Company of shares of its Common Stock pursuant to a registration statement on form S-1 or SB-2 under the Securities Act, yielding gross proceeds to the Company in excess of twenty million dollars ($20,000,000) or (b) upon 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 immediately prior to such transaction (x) own, immediately after such transaction, securities representing less than a majority of the voting power of the corporation or other entity surviving such transaction and (y) receive cash, securities registered under Section 12 of the Securities Exchange Act of 1934, or a combination thereof in exchange for all shares of Common Stock of the Company owned by such holders immediately before such transaction. (b) SUCCESSORS AND ASSIGNS. This Agreement and the rights and obligations of the parties hereunder shall inure to the benefit of, and be binding upon, their respective successors, assigns and legal representatives. The rights of the Investors hereunder shall be assignable only (i) by each of such Investors to any other Investor or (ii) an assignee or 68 transferee who acquires not less than 500,000 shares of Conversion Shares; provided that such limitation shall not apply to transfers by an Investor to constituent shareholders, constituent partners or retired constituent partners (including any constituent of a constituent) of the Investor (including spouses and ancestors, lineal descendants and siblings of such partners or spouses who acquire the Preferred Stock or Common Stock issued upon conversion thereof) if all such transferees or assignees irrevocably agree in writing to appoint a single representative as their attorney in fact for the purpose of receiving any notices and exercising their rights under this Agreement. (c) GOVERNING LAW. This Agreement shall be governed by and construed under the laws of the State of California as such laws apply to agreements entered into by residents of California and to be performed entirely within such state. (d) COUNTERPARTS. This Agreement may be executed in two or more Counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. (e) TITLES AND SUBTITLES. The titles and subtitles used in this Agreement are used for convenience only and are not to be considered in construing or interpreting this Agreement. (f) NOTICES. All notices and other communications required or permitted hereunder shall be in writing, shall be effective when given, and shall in any event be deemed to be given upon receipt or, if earlier, (a) five (5) days after deposit with the U.S. Postal Service or other applicable postal service, if delivered by first class mail, postage prepaid, (b) upon delivery, if delivered by hand, (c) one (1) business day after the business day of deposit with Federal Express or similar overnight courier, freight prepaid or (d) one (1) business day after the business day of facsimile transmission, if delivered by facsimile transmission with copy by first class mail, postage prepaid, and shall be addressed (i) if to the Investors, at the Investors' respective addresses as set forth on Exhibit A hereto and (ii) if to the Company, at the address of its principal corporate offices (attention: Secretary), or in any such case at such other address as a party may designate by ten (10) days' advance written notice to the other party pursuant to the provisions above. (g) EXPENSES. If any action at law or in equity is necessary to enforce or interpret the terms of this Agreement, the prevailing party shall be entitled to reasonable attorneys' fees, costs and necessary disbursements in addition to any other relief to which such party may be entitled. (h) AMENDMENTS AND WAIVERS. Any term of this Agreement may be amended and the observance of any term of this Agreement 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 a majority of the Series B Preferred Stock then outstanding, at least two-thirds (66 2/3%) of the Series C Preferred Stock then outstanding and at least two-thirds (66 2/3%) of the Series D Preferred Stock then outstanding. Any amendment or waiver 69 effected in accordance with this paragraph shall be binding upon the Company, each holder of Preferred Stock and any holder of Shares then outstanding. (i) AGGREGATION OF STOCK. All shares of the Preferred Stock of the Company held or acquired (or Common Stock issuable upon conversion thereof) by affiliated entities or persons shall be aggregated together for the purpose of determining the availability or discharge of any rights under this Agreement. (j) SEVERABILITY. If one or more provisions of this Agreement are held to be unenforceable under applicable law, such provision shall be excluded from this Agreement and the balance of the Agreement shall be interpreted as if such provision were so excluded and shall be enforceable in accordance with its terms. (k) ADDITIONAL PARTIES. Each Purchaser under that certain Series D Preferred Stock Purchase Agreement made as of November ___, 1999 by and between the Company and such Purchasers shall become a "New Investor" hereunder when such Purchaser executes a counterpart signature page hereof and without the need for an amendment hereto except to add such Purchaser's name to Exhibit B hereto. (l) ENTIRE AGREEMENT. This Agreement (including the Exhibit hereto) constitutes the full and entire understanding and agreement between the parties with regard to the subjects hereof and thereof [Signature Pages Follow] 70 The parties have executed this Amended and Restated Co-Sale Agreement as of the date first written above. COMPANY: INVESTOR: NIKU CORPORATION ----------------------------------- Name of Investor By: By: ------------------------------------ -------------------------------- Farzad Dibachi, President Title: ------------------------------ FOUNDERS: - --------------------------------------------- Farzad and Rhonda L. Dibachi, Trustees of the Dibachi Family Trust UDT Dated 2-11-98 - --------------------------------------------- Garnett 1996 Children's Trust UTA dtd 3-11-98, Howard S. Zeprun, Trustee 71 LIST OF EXHIBITS Exhibit A - Existing Investors - SEE EXHIBIT A TO FOURTH AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT Exhibit B - New Investors - SEE EXHIBIT A TO SERIES D PREFERRED STOCK PURCHASE AGREEMENT 72 EXHIBIT F NIKU CORPORATION AMENDED AND RESTATED VOTING AGREEMENT THIS AMENDED AND RESTATED VOTING AGREEMENT (this "Agreement") is made as of the ______ day of November, 1999 by and among Niku Corporation, a Delaware corporation (the "Company") and those holders of the Company's securities whose names are set forth on Exhibit A hereto (the "Investors") in connection with that Series D Preferred Stock Purchase Agreement (the "Stock Purchase Agreement") dated the date hereof by and among the Company and certain Purchasers (as defined in the Stock Purchase Agreement). AGREEMENT THE PARTIES AGREE AS FOLLOWS: 1. ELECTION OF DIRECTORS. 1.1 BOARD REPRESENTATION. At any meeting of the shareholders of the Company at which members of the Board of Directors of the Company are to be elected, or whenever members of the Board of Directors are to be elected by written consent, the parties agree to vote or act with respect to their shares (whether now or hereinafter acquired) so as to elect (a) one (1) member of the Company's Board of Directors designated by Venrock Associates and Venrock Associates II, L.P. (collectively "Venrock"), such director to initially be Terence Garnett, (b) Farzad Dibachi, and (c) so long as J. H. Whitney III, L. P., Whitney Strategic Partners III, L. P. or any of their respective affiliates (collectively, "Whitney") beneficially own at least twenty-five percent (25%) of the amount of Series C Preferred Stock of the Company purchased by Whitney at the Initial Closing under the Series C Preferred Stock Purchase Agreement made as of May 13, 1999 (the "Minimum Amount"), one (1) member of the Company's Board of Directors designated by Whitney (a "Whitney Representative"), such director to initially be Michael Brooks. 1.2 BOARD OBSERVATION. The parties agree that, if the Venrock or Whitney designee to the Board of Directors to the Company is unable to attend a meeting of the Board of Directors, Venrock or Whitney as applicable, may cause another representative of Venrock or Whitney as applicable to attend such meeting as an observer, provided that the Company shall have the right to exclude such representative from all or any part of a Board meeting if in its reasonable judgment such exclusion is necessary to preserve the attorney-client privilege or to protect the Company's trade secrets or similar confidential information. 73 2. LEGENDS. Each certificate representing shares of the Company's capital stock held by Investors or any assignee of the Investors shall bear the following legend; provided, however, that stock certificates held by any assignee of the Investors shall only bear such legend until an underwritten public offering by the Company of shares of its Common Stock pursuant to a registration statement on form SB-1 or SB-2 under the Securities Act, yielding gross proceeds to the Company in excess of twenty million dollars ($20,000,000): "THE SHARES EVIDENCED HEREBY ARE SUBJECT TO A VOTING AGREEMENT BY AND AMONG THE COMPANY AND CERTAIN STOCKHOLDERS OF THE COMPANY (A COPY OF WHICH MAY BE OBTAINED FROM THE COMPANY), AND BY ACCEPTING ANY INTEREST IN SUCH SHARES THE PERSON ACCEPTING SUCH INTEREST SHALL BE DEEMED TO AGREE TO AND SHALL BECOME BOUND BY ALL THE PROVISIONS OF SAID VOTING AGREEMENT." 3. TERMINATION. 3.1 TERMINATION EVENTS. This Agreement shall terminate, except as to the obligation to vote for the Whitney Representative, upon the consummation of an underwritten public offering by the Company of shares of its Common Stock pursuant to a registration statement on form S-1 or SB-2 under the Securities Act, yielding gross proceeds to the Company in excess-of twenty million dollars ($20,000,000). 3.2 REMOVAL OF LEGEND. At any time after the termination of this Agreement in accordance with Section 3.1 as to any party, any party as to which this Agreement has been terminated who holds a stock certificate legended pursuant to Section 2 may surrender such certificate to the Company for removal of the legend, and the Company will duly reissue a new certificate without the legend. 4. MISCELLANEOUS. 4.1 SUCCESSORS AND ASSIGNS. The terms and conditions of this Agreement shall inure to the benefit of and be binding upon the respective successors and assigns of the parties. Nothing in this Agreement, express or implied, is intended to confer upon any party other than the parties hereto or their respective successors and assigns any rights, remedies, obligations, or liabilities under or by reason of this Agreement, except as expressly provided in this Agreement. 4.2 AMENDMENTS AND WAIVERS. Any term hereof may be amended or waived only with the written consent of the Company, Venrock, Whitney, and holders of at least a majority of the Shares held by the other parties hereto. Any amendment or waiver effected in accordance with this Section 4.2 shall be binding upon the Company, the Investors, and each of their respective successors and assigns. 74 4.3 NOTICES. All notices and other communications required or permitted hereunder shall be in writing, shall be effective when given, and shall in any event be deemed to be given upon receipt or, if earlier, (a) five (5) days after deposit with the U.S. Postal Service or other applicable postal service, if delivered by first class mail, postage prepaid, (b) upon delivery, if delivered by hand, (c) one (1) business day after the business day of deposit with Federal Express or similar overnight courier, freight prepaid or (d) one (1) business day after the business day of facsimile transmission, if delivered by facsimile transmission with copy by first class mail, postage prepaid, and shall be addressed (i) if to a Purchaser, at such Purchaser's address as set forth on Exhibit A, and (ii) if to the Company, at the address of its principal corporate offices (attention: Secretary), or at such other address as a party may designate by ten days' advance written notice to the other party pursuant to the provisions above. 4.4 SEVERABILITY. If one or more provisions of this Agreement are held to be unenforceable under applicable law, the parties agree to renegotiate such provision in good faith. In the event that the parties cannot reach a mutually agreeable and enforceable replacement for such provision, then (a) such provision shall be excluded from this Agreement, (b) the balance of the Agreement shall be interpreted as if such provision were so excluded and (c) the balance of the Agreement shall be enforceable in accordance with its terms. 4.5 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 in California. 4.6 COUNTERPARTS. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original and all of which together shall constitute one instrument. 4.7 TITLES AND SUBTITLES. The titles and subtitles used in this Agreement are used for convenience only and are not to be considered in construing or interpreting this Agreement. [Signature Page Follows] 75 The parties hereto have executed this Amended and Restated Voting Agreement as of the date first written above. COMPANY: STOCKHOLDERS NIKU CORPORATION (Investor) By: By: ---------------------------------- ------------------------------ Farzad Dibachi, President Address: Name: 305 Main Street ---------------------------- Redwood City, CA 94063 (Print) Title: --------------------------- 76 Exhibit A INVESTORS SEE EXHIBIT A TO SERIES D PREFERRED STOCK PURCHASE AGREEMENT 77 EXHIBIT G CONFIDENTIAL INFORMATION AND INVENTIONS ASSIGNMENT AGREEMENT NIKU CORPORATION CONFIDENTIAL INFORMATION AND INVENTION ASSIGNMENT AGREEMENT As a condition of my becoming employed (or my employment being continued) by or retained as a consultant (or my consulting relationship being continued) by Niku Corporation, a Delaware corporation or any of its current or future subsidiaries, affiliates, successors or assigns (collectively, the "Company"), and in consideration of my employment or consulting relationship with the Company and my receipt of the compensation now and hereafter paid to me by the Company, I agree to the following: 1. EMPLOYMENT OR CONSULTING RELATIONSHIP. I understand and acknowledge that this Agreement does not alter, amend or expand upon any rights I may have to continue in the employ of, or in a consulting relationship with, or the duration of my employment or consulting relationship with, the Company under any existing agreements between the Company and me or under applicable law. Any employment or consulting relationship between the Company and me, whether commenced prior to or upon the date of this Agreement, shall be referred to herein as the "Relationship." 2. AT-WILL RELATIONSHIP. I understand and acknowledge that my Relationship with the Company is and shall continue to be at-will, as defined under applicable law, meaning that either I or the Company may terminate the Relationship at any time for any reason or no reason, without further obligation or liability. 3. CONFIDENTIAL INFORMATION. (a) COMPANY INFORMATION. I agree at all times during the term of my Relationship with the Company and thereafter, to hold in strictest confidence, and not to use, except for the benefit of the Company, or to disclose to any person, firm, corporation or other entity without written authorization of the Board of Directors of the Company, any Confidential Information of the Company which I obtain or create. I further agree not to make copies of such Confidential Information except as authorized by the Company. I understand that "Confidential Information" means any Company proprietary information, technical data, trade secrets or know-how, including, but not limited to, research, product plans, products, services, suppliers, customer lists and customers (including, but not limited to, customers of the Company on whom I called or with whom I became acquainted during the Relationship), prices and costs, markets, software, developments, inventions, laboratory notebooks, processes, formulas, technology, designs, drawings, engineering, hardware configuration information, marketing, licenses, finances, budgets or other business information disclosed to me by the Company either directly 78 or indirectly in writing, orally or by drawings or observation of parts or equipment or created by me during the period of the Relationship, whether or not during working hours. I understand that "Confidential Information" includes, but is not limited to, information pertaining to any aspects of the Company's business which is either information not known by actual or potential competitors of the Company or is proprietary information of the Company or its customers or suppliers, whether of a technical nature or otherwise. I further understand that Confidential Information does not include any of the foregoing items which has become publicly and widely known and made generally available through no wrongful act of mine or of others who were under confidentiality obligations as to the item or items involved. (b) FORMER EMPLOYER INFORMATION. I represent that my performance of all terms of this Agreement as an employee or consultant of the Company has not breached and will not breach any agreement to keep in confidence proprietary information, knowledge or data acquired by me in confidence or trust prior or subsequent to the commencement of my Relationship with the Company, and I will not disclose to the Company, or induce the Company to use, any inventions, confidential or proprietary information or material belonging to any previous employer or any other party. (c) THIRD PARTY INFORMATION. I recognize that the Company has received and in the future will receive confidential or proprietary information from third parties subject to a duty on the Company's part to maintain the confidentiality of such information and to use it only for certain limited purposes. I agree to hold all such confidential or proprietary information in the strictest confidence and not to disclose it to any person, firm or corporation or to use it except as necessary in carrying out my work for the Company consistent with the Company's agreement with such third party. 4. INVENTIONS. (a) INVENTIONS RETAINED AND LICENSED. I have attached hereto, as Exhibit A, a list describing with particularity all inventions, original works of authorship, developments, improvements, and trade secrets which were made by me prior to the commencement of the Relationship (collectively referred to as "Prior Inventions"), which belong solely to me or belong to me jointly with another, which relate in any way to any of the Company's proposed businesses, products or research and development, and which are not assigned to the Company hereunder; or, if no such list is attached, I represent that there are no such Prior Inventions. If, in the course of my Relationship with the Company, I incorporate into a Company product, process or machine a Prior Invention owned by me or in which I have an interest, the Company is hereby granted and shall have a non-exclusive, royalty-free, irrevocable, perpetual, worldwide license (with the right to sublicense) to make, have made, copy, modify, make derivative works of, use, sell and otherwise distribute such Prior Invention as part of or in connection with such product, process or machine. (b) ASSIGNMENT OF INVENTIONS. I agree that I will promptly make full written disclosure to the Company, will hold in trust for the sole right and benefit of the Company, and hereby assign to the Company, or its designee, all my right, title and interest throughout the world in and to any and all inventions, original works of authorship, developments, concepts, know-how, improvements or trade secrets, whether or not patentable or registrable under 79 copyright or similar laws, which I may solely or jointly conceive or develop or reduce to practice, or cause to be conceived or developed or reduced to practice, during the period of time in which I am employed by or a consultant of the Company (collectively referred to as "Inventions"), except as provided in Section 4(e) below. I further acknowledge that all inventions, original works of authorship, developments, concepts, know-how, improvements or trade secrets which are made by me (solely or jointly with others) within the scope of and during the period of my Relationship with the Company are "works made for hire" (to the greatest extent permitted by applicable law) and are compensated by my salary (if I am an employee) or by such amounts paid to me under any applicable consulting agreement or consulting arrangements (if I am a consultant), unless regulated otherwise by the mandatory law of the state of California. (c) MAINTENANCE OF RECORDS. I agree to keep and maintain adequate and current written records of all Inventions made by me (solely or jointly with others) during the term of my Relationship with the Company. The records may be in the form of notes, sketches, drawings, flow charts, electronic data or recordings, laboratory notebooks, and any other format. The records will be available to and remain the sole property of the Company at all times. I agree not to remove such records from the Company's place of business except as expressly permitted by Company policy which may, from time to time, be revised at the sole election of the Company for the purpose of furthering the Company's business. (d) PATENT AND COPYRIGHT RIGHTS. I agree to assist the Company, or its designee, at the Company's expense, in every proper way to secure the Company's rights in the Inventions and any copyrights, patents, trademarks, mask work rights, moral rights, or other intellectual property rights relating thereto in any and all countries, including the disclosure to the Company of all pertinent information and data with respect thereto, the execution of all applications, specifications, oaths, assignments, recordations, and all other instruments which the Company shall deem necessary in order to apply for, obtain, maintain and transfer such rights and in order to assign and convey to the Company, its successors, assigns and nominees the sole and exclusive rights, title and interest in and to such Inventions, and any copyrights, patents, mask work rights or other intellectual property rights relating thereto. I further agree that my obligation to execute or cause to be executed, when it is in my power to do so, any such instrument or papers shall continue after the termination of this Agreement until the expiration of the last such intellectual property right to expire in any country of the world. If the Company is unable because of my mental or physical incapacity or unavailability or for any other reason to secure my signature to apply for or to pursue any application for any United States or foreign patents or copyright registrations covering Inventions or original works of authorship assigned to the Company as above, then I hereby irrevocably designate and appoint the Company and its duly authorized officers and agents as my agent and attorney in fact, to act for and in my behalf and stead to execute and file any such applications and to do all other lawfully permitted acts to further the application for, prosecution, issuance, maintenance or transfer of letters patent or copyright registrations thereon with the same legal force and effect as if originally executed by me. I hereby waive and irrevocably quitclaim to the Company any and all claims, of any nature whatsoever, which I now or hereafter have for infringement of any and all proprietary rights assigned to the Company. 80 (e) EXCEPTION TO ASSIGNMENTS. I understand that the provisions of this Agreement requiring assignment of Inventions to the Company do not apply to any invention which qualifies fully under the provisions of California Labor Code Section 2870 (attached hereto as Exhibit B). I will advise the Company promptly in writing of any inventions that I believe meet such provisions and are not otherwise disclosed on Exhibit A. 5. RETURNING COMPANY DOCUMENTS. I agree that, at the time of termination of my Relationship with the Company, I will deliver to the Company (and will not keep in my possession, recreate or deliver to anyone else) any and all devices, records, data, notes, reports, proposals, lists, correspondence, specifications, drawings, blueprints, sketches, laboratory notebooks, materials, flow charts, equipment, other documents or property, or reproductions of any aforementioned items developed by me pursuant to the Relationship or otherwise belonging to the Company, its successors or assigns. I further agree that to any property situated on the Company's premises and owned by the Company, including disks and other storage media, filing cabinets or other work areas, is subject to inspection by Company personnel at any time with or without notice. In the event of the termination of the Relationship, I agree to sign and deliver the "Termination Certification" attached hereto as Exhibit C. 6. NOTIFICATION TO OTHER PARTIES. (a) EMPLOYEES. In the event that I leave the employ of the Company, I hereby consent to notification by the Company to my new employer about my rights and obligations under this Agreement. (b) CONSULTANTS. I hereby grant consent to notification by the Company to any other parties besides the Company with whom I maintain a consulting relationship, including parties with whom such relationship commences after the effective date of this Agreement, about my rights and obligations under this Agreement. 7. SOLICITATION OF EMPLOYEES, CONSULTANTS AND OTHER PARTIES. I agree that during the term of my Relationship with the Company, and for a period of twenty-four (24) months immediately following the termination of my Relationship with the Company for any reason, whether with or without cause, I shall not either directly or indirectly solicit, induce, recruit or encourage any of the Company's employees or consultants to terminate their relationship with the Company, or take away such employees or consultants, or attempt to solicit, induce, recruit, encourage or take away employees or consultants of the Company, either for myself or for any other person or entity. Further, for a period of twenty-four (24) months following termination of my Relationship with the Company for any reason, with or without cause, I shall not solicit any licensor to or customer of the Company or licensee of the Company's products, in each case, that are known to me, with respect to any business, products or services that are competitive to the products or services offered by the Company or under development as of the date of termination of my Relationship with the Company. 81 8. REPRESENTATIONS AND COVENANTS. (a) FACILITATION OF AGREEMENT. I agree to execute promptly any proper oath or verify any proper document required to carry out the terms of this Agreement upon the Company's written request to do so. (b) CONFLICTS. I represent that my performance of all the terms of this Agreement will not breach any agreement to keep in confidence proprietary information acquired by me in confidence or in trust prior to commencement of my Relationship with the Company. I have not entered into, and I agree I will not enter into, any oral or written agreement in conflict with any of the provisions of this Agreement. (c) VOLUNTARY EXECUTION. I certify and acknowledge that I have carefully read all of the provisions of this Agreement and that I understand and will fully and faithfully comply with such provisions. 9. GENERAL PROVISIONS. (a) GOVERNING LAW. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of California, without giving effect to the principles of conflict of laws. (b) ENTIRE AGREEMENT. This Agreement sets forth the entire agreement and understanding between the Company and me relating to the subject matter herein and merges all prior discussions between us. No modification or amendment to this Agreement, nor any waiver of any rights under this Agreement, will be effective unless in writing signed by the party to be charged. Any subsequent change or changes in my duties, obligations, rights or compensation will not affect the validity or scope of this Agreement. (c) SEVERABILITY. If one or more of the provisions in this Agreement are deemed void by law, then the remaining provisions will continue in full force and effect. (d) SUCCESSORS AND ASSIGNS. This Agreement will be binding upon my heirs, executors, administrators and other legal representatives and will be for the benefit of the Company, its successors, and its assigns. (e) SURVIVAL. The provisions of this Agreement shall survive the termination of the Relationship and the assignment of this Agreement by the Company to any successor in interest or other assignee. (f) ADVICE OF COUNSEL. I ACKNOWLEDGE THAT, IN EXECUTING THIS AGREEMENT, I HAVE HAD THE OPPORTUNITY TO SEEK THE ADVICE OF INDEPENDENT LEGAL COUNSEL, AND I HAVE READ AND UNDERSTOOD ALL OF THE TERMS AND PROVISIONS OF THIS AGREEMENT. THIS AGREEMENT SHALL NOT BE CONSTRUED AGAINST ANY PARTY BY REASON OF THE DRAFTING OR PREPARATION HEREOF. 82 The parties have executed this Agreement on the respective dates set forth below: COMPANY: EMPLOYEE: NIKU CORPORATION - --------------------------------- ------------------------------------ Farzad Dibachi, President Signature ------------------------------------ Printed Name Date: Date: ---------------------------- ------------------------------- Address: 955 Charter Street Address: Redwood City, CA 94063 --------------------- ----------------------------- 83 EXHIBIT A LIST OF PRIOR INVENTIONS AND ORIGINAL WORKS OF AUTHORSHIP EXCLUDED FROM SECTION 4
Identifying Number Title Date or Brief Description ___ No inventions or improvements ___ Additional Sheets Attached Signature of Employee/Consultant:_____________________ Print Name of Employee/Consultant:____________________ Date:_________________________________________________
84 EXHIBIT B Section 2870 of the California Labor Code is as follows: (a) Any provision in an employment agreement which provides that an employee shall assign, or offer to assign, any of his or her rights in an invention to his or her employer shall not apply to an invention that the employee developed entirely on his or her own time without using the employer's equipment, supplies, facilities, or trade secret information except for those inventions that either: (1) Relate at the time of conception or reduction to practice of the invention to the employer's business, or actual or demonstrably anticipated research or development of the employer; or (2) Result from any work performed by the employee for the employer. (b) To the extent a provision in an employment agreement purports to require an employee to assign an invention otherwise excluded from being required to be assigned under subdivision (a), the provision is against the public policy of this state and is unenforceable. 85 EXHIBIT C TERMINATION CERTIFICATION This is to certify that I do not have in my possession, nor have I failed to return, any devices, records, data, notes, reports, proposals, lists, correspondence, specifications, drawings, blueprints, sketches, laboratory notebooks, flow charts, materials, equipment, other documents or property, or copies or reproductions of any aforementioned items belonging to Niku Corporation, its subsidiaries, affiliates, successors or assigns (together the "Company"). I further certify that I have complied with all the terms of the Company's Confidential Information and Invention Assignment Agreement signed by me, including the reporting of any inventions and original works of authorship (as defined therein), conceived or made by me (solely or jointly with others) covered by that agreement. I further agree that, in compliance with the Confidential Information and Invention Assignment Agreement, I will preserve as confidential all trade secrets, confidential knowledge, data or other proprietary information relating to products, processes, know-how, designs, formulas, developmental or experimental work, computer programs, data bases, other original works of authorship, customer lists, business plans, financial information or other subject matter pertaining to any business of the Company or any of its employees, clients, consultants or licensees. I further agree that for twenty-four (24) months from the date of this Certificate, I shall not either directly or indirectly solicit, induce, recruit or encourage any of the Company's employees or consultants to terminate their relationship with the Company, or take away such employees or consultants, or attempt to solicit, induce, recruit, encourage or take away employees or consultants of the Company, either for myself or for any other person or entity. Further, for a period of twenty-four (24) months from the date of this Certificate, I shall not solicit any licensor to or customer of the Company or licensee of the Company's products, in each case, that are known to me, with respect to any business, products or services that are competitive to the products or services offered by the Company or under development as of the date of termination of my Relationship with the Company. Date: ----------------------------------- ----------------------------- (Employee's Signature) ----------------------------- (Type/Print Employee's Name) EX-10.01 13 EX-10.01 1 EXHIBIT 10.01 INDEMNITY AGREEMENT This Indemnity Agreement (this "Agreement"), dated as of _______________, 1999, is made by and between Niku Corporation, a Delaware corporation (the "Company"), and _________________________, a director and/or officer of the Company (the "Indemnitee"). RECITALS A. The Company is aware that competent and experienced persons are increasingly reluctant to serve as directors or officers of corporations unless they are protected by comprehensive liability insurance and/or indemnification, due to increased exposure to litigation costs and risks resulting from their service to such corporations, and due to the fact that the exposure frequently bears no reasonable relationship to the compensation of such directors and officers; B. Based on their experience as business managers, the Board of Directors of the Company (the "BOARD") has concluded that, to retain and attract talented and experienced individuals to serve as officers and directors of the Company, and to encourage such individuals to take the business risks necessary for the success of the Company, it is necessary for the Company contractually to indemnify officers and directors and to assume for itself maximum liability for expenses and damages in connection with claims against such officers and directors in connection with their service to the Company; C. Section 145 of the General Corporation Law of Delaware, under which the Company is organized (the "LAW"), empowers the Company to indemnify by agreement its officers, directors, employees and agents, and persons who serve, at the request of the Company, as directors, officers, employees or agents of other corporations or enterprises, and expressly provides that the indemnification provided by the Law is not exclusive; and D. The Company desires and has requested the Indemnitee to serve or continue to serve as a director or officer of the Company free from undue concern for claims for damages arising out of or related to such services to the Company. NOW, THEREFORE, the parties hereto, intending to be legally bound, hereby agree as follows: 1. DEFINITIONS. 1.1 Agent. For the purposes of this Agreement, "AGENT" of the Company means any person who is or was a director or officer of the Company or a subsidiary of the Company; or is or was serving at the request of, for the convenience of, or to represent the interest of the Company or a subsidiary of the Company as a director or officer of another foreign or domestic corporation, partnership, joint venture, trust or other enterprise or an affiliate of the Company; or was a director or officer of a foreign or domestic corporation which was a predecessor corporation of the Company, or was a director or officer of another enterprise or affiliate of the Company at the request of, for the convenience of, or to represent the interests of such predecessor corporation. The term "ENTERPRISE" includes any employee benefit plan of the Company, its subsidiaries, affiliates and predecessor corporations. 1 2 1.2 Expenses. For purposes of this Agreement, "EXPENSES" includes all direct and indirect costs of any type or nature whatsoever (including, without limitation, all attorneys' fees and related disbursements and other out-of-pocket costs) actually and reasonably incurred by the Indemnitee in connection with the investigation, defense or appeal of a proceeding or establishing or enforcing a right to indemnification or advancement of expenses under this Agreement, Section 145 or otherwise; provided, however, that expenses shall not include any judgments, fines, ERISA excise taxes or penalties or amounts paid in settlement of a proceeding. 1.3 Proceeding. For the purposes of this Agreement, "PROCEEDING" means any threatened, pending or completed action, suit or other proceeding, whether civil, criminal, administrative, investigative or any other type whatsoever. 1.4 Subsidiary. For purposes of this Agreement, "SUBSIDIARY" means any corporation of which more than fifty percent (50%) of the outstanding voting securities is owned directly or indirectly by the Company, by the Company and one or more of its subsidiaries or by one or more of the Company's subsidiaries. 2. AGREEMENT TO SERVE. The Indemnitee agrees to serve and/or continue to serve as an agent of the Company, at the will of the Company (or under separate agreement, if such agreement exists), in the capacity the Indemnitee currently serves as an agent of the Company, faithfully and to the best of his ability, so long as he is duly appointed or elected and qualified in accordance with the applicable provisions of the charter documents of the Company or any subsidiary of the Company; provided, however, that the Indemnitee may at any time and for any reason resign from such position (subject to any contractual obligation that the Indemnitee may have assumed apart from this Agreement), and the Company or any subsidiary shall have no obligation under this Agreement to continue the Indemnitee in any such position. 3. DIRECTORS' AND OFFICERS' INSURANCE. The Company shall, to the extent that the Board determines it to be economically reasonable, maintain a policy of directors' and officers' liability insurance ("D&O INSURANCE"), on such terms and conditions as may be approved by the Board. 4. MANDATORY INDEMNIFICATION. Subject to Section 9 below, the Company shall indemnify the Indemnitee: 4.1 Third Party Actions. If the Indemnitee is a person who was or is a party or is threatened to be made a party to any proceeding (other than an action by or in the right of the Company) by reason of the fact that he is or was an agent of the Company, or by reason of anything done or not done by him in any such capacity, against any and all expenses and liabilities of any type whatsoever (including, but not limited to, judgments, fines, ERISA excise taxes or penalties and amounts paid in settlement) actually and reasonably incurred by him in connection with the investigation, defense, settlement or appeal of such proceeding if he acted in good faith and in a manner he reasonably believed to be in, or not opposed to, the best interests of the Company and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful; and 4.2 Derivative Actions. If the Indemnitee is a person who was or is a party or is threatened to be made a party to any proceeding by or in the right of the Company to procure a 2 3 judgment in its favor by reason of the fact that he is or was an agent of the Company, or by reason of anything done or not done by him in any such capacity, against any amounts paid in settlement of any such proceeding and all expenses actually and reasonably incurred by him in connection with the investigation, defense, settlement or appeal of such proceeding if he acted in good faith and in a manner he reasonably believed to be in, or not opposed to, the best interests of the Company; except that no indemnification under this subsection shall be made in respect of any claim, issue or matter as to which such person shall have been finally adjudged to be liable to the Company by a court of competent jurisdiction due to willful misconduct of a culpable nature in the performance of his duty to the Company, unless and only to the extent that the Court of Chancery or the court in which such proceeding was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such amounts which the Court of Chancery or such other court shall deem proper; and 4.3 Exception for Amounts Covered by Insurance. Notwithstanding the foregoing, the Company shall not be obligated to indemnify the Indemnitee for expenses or liabilities of any type whatsoever (including, but not limited to, judgments, fines, ERISA excise taxes or penalties and amounts paid in settlement) to the extent such have been paid directly to the Indemnitee by D&O Insurance. 5. PARTIAL INDEMNIFICATION AND CONTRIBUTION. 5.1 Partial Indemnification. If the Indemnitee is entitled under any provision of this Agreement to indemnification by the Company for some or a portion of any expenses or liabilities of any type whatsoever (including, but not limited to, judgments, fines, ERISA excise taxes or penalties and amounts paid in settlement) incurred by him in the investigation, defense, settlement or appeal of a proceeding but is not entitled, however, to indemnification for all of the total amount thereof, then the Company shall nevertheless indemnify the Indemnitee for such total amount except as to the portion thereof to which the Indemnitee is not entitled to indemnification. 5.2 Contribution. If the Indemnitee is not entitled to the indemnification provided in Section 4 for any reason other than the statutory limitations set forth in the Law, then in respect of any threatened, pending or completed proceeding in which the Company is jointly liable with the Indemnitee (or would be if joined in such proceeding), the Company shall contribute to the amount of expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred and paid or payable by the Indemnitee in such proportion as is appropriate to reflect (i) the relative benefits received by the Company on the one hand and the Indemnitee on the other hand from the transaction from which such proceeding arose and (ii) the relative fault of the Company on the one hand and of the Indemnitee on the other hand in connection with the events which resulted in such expenses, judgments, fines or settlement amounts, as well as any other relevant equitable considerations. The relative fault of the Company on the one hand and of the Indemnitee on the other hand shall be determined by reference to, among other things, the parties' relative intent, knowledge, access to information and opportunity to correct or prevent the circumstances resulting in such expenses, judgments, fines or settlement amounts. The Company agrees that it would not be just and 3 4 equitable if contribution pursuant to this Section 5 were determined by pro rata allocation or any other method of allocation which does not take account of the foregoing equitable considerations. 6. MANDATORY ADVANCEMENT OF EXPENSES. 6.1 Advancement. Subject to Section 9 below, the Company shall advance all expenses incurred by the Indemnitee in connection with the investigation, defense, settlement or appeal of any proceeding to which the Indemnitee is a party or is threatened to be made a party by reason of the fact that the Indemnitee is or was an agent of the Company or by reason of anything done or not done by him in any such capacity. The Indemnitee hereby undertakes to promptly repay such amounts advanced only if, and to the extent that, it shall ultimately be determined that the Indemnitee is not entitled to be indemnified by the Company under the provisions of this Agreement, the Certificate of Incorporation or Bylaws of the Company, the Law or otherwise. The advances to be made hereunder shall be paid by the Company to the Indemnitee within thirty (30) days following delivery of a written request therefor by the Indemnitee to the Company. 6.2 Exception. Notwithstanding the foregoing provisions of this Section 6, the Company shall not be obligated to advance any expenses to the Indemnitee arising from a lawsuit filed directly by the Company against the Indemnitee if an absolute majority of the members of the Board reasonably determines in good faith, within thirty (30) days of the Indemnitee's request to be advanced expenses, that the facts known to them at the time such determination is made demonstrate clearly and convincingly that the Indemnitee acted in bad faith. If such a determination is made, the Indemnitee may have such decision reviewed by another forum, in the manner set forth in Sections 8.3, 8.4 and 8.5 hereof, with all references therein to "indemnification" being deemed to refer to "advancement of expenses," and the burden of proof shall be on the Company to demonstrate clearly and convincingly that, based on the facts known at the time, the Indemnitee acted in bad faith. The Company may not avail itself of this Section 6.2 as to a given lawsuit if, at any time after the occurrence of the activities or omissions that are the primary focus of the lawsuit, the Company has undergone a change in control. For this purpose, a change in control shall mean a given person or group of affiliated persons or groups increasing their beneficial ownership interest in the Company by at least twenty (20) percentage points without advance Board approval. 7. NOTICE AND OTHER INDEMNIFICATION PROCEDURES. 7.1 Promptly after receipt by the Indemnitee of notice of the commencement of or the threat of commencement of any proceeding, the Indemnitee shall, if the Indemnitee believes that indemnification with respect thereto may be sought from the Company under this Agreement, notify the Company of the commencement or threat of commencement thereof. 7.2 If, at the time of the receipt of a notice of the commencement of a proceeding pursuant to Section 7.1 hereof, the Company has D&O Insurance in effect, the Company shall give prompt notice of the commencement of such proceeding to the insurers in accordance with the procedures set forth in the respective policies. The Company shall thereafter take all necessary or desirable action to cause such insurers to pay, on behalf of the Indemnitee, all amounts payable as a result of such proceeding in accordance with the terms of such D&O Insurance policies. 4 5 7.3 In the event the Company shall be obligated to advance the expenses for any proceeding against the Indemnitee, the Company, if appropriate, shall be entitled to assume the defense of such proceeding, with counsel approved by the Indemnitee (which approval shall not be unreasonably withheld), upon the delivery to the Indemnitee of written notice of its election to do so. After delivery of such notice, approval of such counsel by the Indemnitee and the retention of such counsel by the Company, the Company will not be liable to the Indemnitee under this Agreement for any fees of counsel subsequently incurred by the Indemnitee with respect to the same proceeding, provided that: (a) the Indemnitee shall have the right to employ his own counsel in any such proceeding at the Indemnitee's expense; (b) the Indemnitee shall have the right to employ his own counsel in connection with any such proceeding, at the expense of the Company, if such counsel serves in a review, observer, advice and counseling capacity and does not otherwise materially control or participate in the defense of such proceeding; and (c) if (i) the employment of counsel by the Indemnitee has been previously authorized by the Company, (ii) the Indemnitee shall have reasonably concluded that there may be a conflict of interest between the Company and the Indemnitee in the conduct of any such defense or (iii) the Company shall not, in fact, have employed counsel to assume the defense of such proceeding, then the fees and expenses of the Indemnitee's counsel shall be at the expense of the Company. 8. DETERMINATION OF RIGHT TO INDEMNIFICATION. 8.1 To the extent the Indemnitee has been successful on the merits or otherwise in defense of any proceeding referred to in Section 4.1 or 4.2 of this Agreement or in the defense of any claim, issue or matter described therein, the Company shall indemnify the Indemnitee against expenses actually and reasonably incurred by him in connection with the investigation, defense or appeal of such proceeding, or such claim, issue or matter, as the case may be. 8.2 In the event that Section 8.1 is inapplicable, or does not apply to the entire proceeding, the Company shall nonetheless indemnify the Indemnitee unless the Company shall prove by clear and convincing evidence to a forum listed in Section 8.3 below that the Indemnitee has not met the applicable standard of conduct required to entitle the Indemnitee to such indemnification. 8.3 The Indemnitee shall be entitled to select the forum in which the validity of the Company's claim under Section 8.2 hereof that the Indemnitee is not entitled to indemnification will be heard from among the following, except that the Indemnitee can select a forum consisting of the stockholders of the Company only with the approval of the Company: (a) A quorum of the Board consisting of directors who are not parties to the proceeding for which indemnification is being sought; (b) The stockholders of the Company; (c) Legal counsel mutually agreed upon by the Indemnitee and the Board, which counsel shall make such determination in a written opinion; 5 6 (d) A panel of three arbitrators, one of whom is selected by the Company, another of whom is selected by the Indemnitee and the last of whom is selected by the first two arbitrators so selected; or (e) The Court of Chancery of Delaware or other court having jurisdiction of subject matter and the parties. 8.4 As soon as practicable, and in no event later than thirty (30) days after the forum has been selected pursuant to Section 8.3 above, the Company shall, at its own expense, submit to the selected forum its claim that the Indemnitee is not entitled to indemnification, and the Company shall act in the utmost good faith to assure the Indemnitee a complete opportunity to defend against such claim. 8.5 If the forum selected in accordance with Section 8.3 hereof is not a court, then after the final decision of such forum is rendered, the Company or the Indemnitee shall have the right to apply to the Court of Chancery of Delaware, the court in which the proceeding giving rise to the Indemnitee's claim for indemnification is or was pending or any other court of competent jurisdiction, for the purpose of appealing the decision of such forum, provided that such right is executed within sixty (60) days after the final decision of such forum is rendered. If the forum selected in accordance with Section 8.3 hereof is a court, then the rights of the Company or the Indemnitee to appeal any decision of such court shall be governed by the applicable laws and rules governing appeals of the decision of such court. 8.6 Notwithstanding any other provision in this Agreement to the contrary, the Company shall indemnify the Indemnitee against all expenses incurred by the Indemnitee in connection with any hearing or proceeding under this Section 8 involving the Indemnitee and against all expenses incurred by the Indemnitee in connection with any other proceeding between the Company and the Indemnitee involving the interpretation or enforcement of the rights of the Indemnitee under this Agreement unless a court of competent jurisdiction finds that each of the material claims and/or defenses of the Indemnitee in any such proceeding was frivolous or not made in good faith. 9. EXCEPTIONS. Any other provision herein to the contrary notwithstanding, the Company shall not be obligated pursuant to the terms of this Agreement: 9.1 Claims Initiated by Indemnitee. To indemnify or advance expenses to the Indemnitee with respect to proceedings or claims initiated or brought voluntarily by the Indemnitee and not by way of defense, except with respect to proceedings specifically authorized by the Board or brought to establish or enforce a right to indemnification and/or advancement of expenses arising under this Agreement, the charter documents of the Company or any subsidiary or any statute or law or otherwise, but such indemnification or advancement of expenses may be provided by the Company in specific cases if the Board finds it to be appropriate; or 9.2 Unauthorized Settlements. To indemnify the Indemnitee hereunder for any amounts paid in settlement of a proceeding unless the Company consents in advance in writing to such settlement, which consent shall not be unreasonably withheld; or 6 7 9.3 Securities Law Actions. To indemnify the Indemnitee on account of any suit in which judgment is rendered against the Indemnitee for an accounting of profits made from the purchase or sale by the Indemnitee of securities of the Company pursuant to the provisions of Section l6(b) of the Securities Exchange Act of 1934 and amendments thereto or similar provisions of any federal, state or local statutory law; or 9.4 Unlawful Indemnification. To indemnify the Indemnitee if a final decision by a court having jurisdiction in the matter shall determine that such indemnification is not lawful. In this respect, the Company and the Indemnitee have been advised that the Securities and Exchange Commission takes the position that indemnification for liabilities arising under the federal securities laws is against public policy and is, therefore, unenforceable and that claims for indemnification should be submitted to appropriate courts for adjudication. 10. NON-EXCLUSIVITY. The provisions for indemnification and advancement of expenses set forth in this Agreement shall not be deemed exclusive of any other rights which the Indemnitee may have under any provision of law, the Company's Certificate of Incorporation or Bylaws, the vote of the Company's stockholders or disinterested directors, other agreements or otherwise, both as to action in the Indemnitee's official capacity and to action in another capacity while occupying his position as an agent of the Company, and the Indemnitee's rights hereunder shall continue after the Indemnitee has ceased acting as an agent of the Company and shall inure to the benefit of the heirs, executors and administrators of the Indemnitee. 11. GENERAL PROVISIONS. 11.1 Interpretation of Agreement. It is understood that the parties hereto intend this Agreement to be interpreted and enforced so as to provide indemnification and advancement of expenses to the Indemnitee to the fullest extent now or hereafter permitted by law, except as expressly limited herein. 11.2 Severability. If any provision or provisions of this Agreement shall be held to be invalid, illegal or unenforceable for any reason whatsoever, then: (a) the validity, legality and enforceability of the remaining provisions of this Agreement (including, without limitation, all portions of any paragraphs of this Agreement containing any such provision held to be invalid, illegal or unenforceable that are not themselves invalid, illegal or unenforceable) shall not in any way be affected or impaired thereby; and (b) to the fullest extent possible, the provisions of this Agreement (including, without limitation, all portions of any paragraphs of this Agreement containing any such provision held to be invalid, illegal or unenforceable, that are not themselves invalid, illegal or unenforceable) shall be construed so as to give effect to the intent manifested by the provision held invalid, illegal or unenforceable and to give effect to Section 11.1 hereof. 11.3 Modification and Waiver. No supplement, modification or amendment of this Agreement shall be binding unless executed in writing by both of the parties hereto. No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provision hereof (whether or not similar), nor shall such waiver constitute a continuing waiver. 7 8 11.4 Subrogation. In the event of full payment under this Agreement, the Company shall be subrogated to the extent of such payment to all of the rights of recovery of the Indemnitee, who shall execute all documents required and shall do all acts that may be necessary or desirable to secure such rights and to enable the Company effectively to bring suit to enforce such rights. 11.5 Counterparts. This Agreement may be executed in one or more counter-parts, which shall together constitute one agreement. 11.6 Successors and Assigns. The terms of this Agreement shall bind, and shall inure to the benefit of, the successors and assigns of the parties hereto. 11.7 Notice. All notices, requests, demands and other communications under this Agreement shall be in writing and shall be deemed duly given: (a) if delivered by hand and signed for by the party addressee; or (b) if mailed by certified or registered mail, with postage prepaid, on the third business day after the mailing date. Addresses for notice to either party are as shown on the signature page of this Agreement or as subsequently modified by written notice. 11.8 Governing Law. This Agreement shall be governed exclusively by and construed according to the laws of the State of California, as applied to contracts between California residents entered into and to be performed entirely within California. 11.9 Consent to Jurisdiction. The Company and the Indemnitee each hereby irrevocably consent to the jurisdiction of the courts of the State of California for all purposes in connection with any action or proceeding which arises out of or relates to this Agreement. 11.10 Attorneys' Fees. In the event Indemnitee is required to bring any action to enforce rights under this Agreement (including, without limitation, the expenses of any Proceeding described in Section 3), the Indemnitee shall be entitled to all reasonable fees and expenses in bringing and pursuing such action, unless a court of competent jurisdiction finds each of the material claims of the Indemnitee in any such action was frivolous and not made in good faith. [Remainder of Page Intentionally Left Blank] 8 9 IN WITNESS WHEREOF, the parties hereto have entered into this Indemnity Agreement effective as of the date first written above. NIKU CORPORATION INDEMNITEE: By: By: ------------------------------- ------------------------------------- Name: Name: ----------------------------- ----------------------------------- Title: ---------------------------- 9 EX-10.02 14 EX-10.02 1 EXHIBIT 10.02 NIKU CORPORATION 1998 STOCK PLAN 1. PURPOSES OF THE PLAN. The purposes of this 1998 Stock Plan are to attract and retain the best available personnel for positions of substantial responsibility, to provide additional incentive to Employees and Consultants of the Company and its Subsidiaries and to promote the success of the Company's business. Options granted under the Plan may be Incentive Stock Options (as defined under Section 422 of the Code) or Nonstatutory Stock Options, as determined by the Administrator at the time of grant of an option and subject to the applicable provisions of Section 422 of the Code, as amended, and the regulations promulgated thereunder. Stock purchase rights may also be granted under the Plan. 2. DEFINITIONS. As used herein, the following definitions shall apply: (a) "ADMINISTRATOR" means the Board or any of its Committees appointed pursuant to Section 4 of the Plan. (b) "BOARD" means the Board of Directors of the Company. (c) "CODE" means the Internal Revenue Code of 1986, as amended. (d) "COMMITTEE" means the Committee appointed by the Board of Directors in accordance with Section 4(a) and (b) of the Plan. (e) "COMMON STOCK" means the Common Stock of the Company. (f) "COMPANY" means Niku Corporation, a Delaware corporation. (g) "CONSULTANT" means any person, including an advisor, who is engaged by the Company or any Parent or Subsidiary to render services and is compensated for such services, and any director of the Company whether compensated for such services or not. (h) "CONTINUOUS STATUS AS AN EMPLOYEE OR CONSULTANT" means the absence of any interruption or termination of service as an Employee or Consultant. Continuous Status as an Employee or Consultant shall not be considered interrupted in the case of: (i) sick leave; (ii) military leave; (iii) any other leave of absence approved by the Administrator, provided that such leave is for a period of not more than 90 days, unless reemployment upon the expiration of such leave is guaranteed by contract or statute, or unless provided otherwise pursuant to Company policy adopted from time to time; or (iv) in the case of transfers between locations of the Company or between the Company, its Subsidiaries or their respective successors. For purposes of this Plan, a change in status from an Employee to a Consultant or from a Consultant to an Employee will not constitute an interruption of Continuous Status as an Employee or Consultant. 2 (i) "EMPLOYEE" means any person, including officers and directors, employed by the Company or any Parent or Subsidiary of the Company, with the status of employment determined based upon such minimum number of hours or periods worked as shall be determined by the Administrator in its discretion, subject to any requirements of the Code. The payment by the Company of a director's fee to a director shall not be sufficient to constitute "employment" of such director by the Company. (j) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended. (k) "FAIR MARKET VALUE" means, as of any date, the fair market value of Common Stock determined as follows: (i) If the Common Stock is listed on any established stock exchange or a national market system including without limitation the National Market of the National Association of Securities Dealers, Inc. Automated Quotation ("Nasdaq") System, its Fair Market Value shall be the closing sales price for such stock (or the closing bid, if no sales were reported), as quoted on such system or exchange, or the exchange with the greatest volume of trading in Common Stock for the last market trading day prior to the time of determination, as reported in The Wall Street Journal or such other source as the Administrator deems reliable; (ii) If the Common Stock is quoted on the Nasdaq System (but not on the National Market thereof) or regularly quoted by a recognized securities dealer but selling prices are not reported, its Fair Market Value shall be the mean between the high bid and low asked prices for the Common Stock for the last market trading day prior to the time of determination, as reported in The Wall Street Journal or such other source as the Administrator deems reliable; or (iii) In the absence of an established market for the Common Stock, the Fair Market Value thereof shall be determined in good faith by the Administrator. (l) "INCENTIVE STOCK OPTION" means an Option intended to qualify as an incentive stock option within the meaning of Section 422 of the Code, as designated in the applicable written Option Agreement. (m) "NONSTATUTORY STOCK OPTION" means an Option not intended to qualify as an Incentive Stock Option, as designated in the applicable written Option Agreement. (n) "OPTION" means a stock option granted pursuant to the Plan. (o) "OPTION AGREEMENT" means a written agreement between an Optionee and the Company reflecting the terms of an Option granted under the Plan and includes any documents attached to such Option Agreement, including, but not limited to, a notice of stock option grant and a form of exercise notice. (p) "OPTIONED STOCK" means the Common Stock subject to an Option or a Stock Purchase Right. -2- 3 (q) "OPTIONEE" means an Employee or Consultant who receives an Option or a Stock Purchase Right. (r) "PARENT" means a "parent corporation," whether now or hereafter existing, as defined in Section 424(e) of the Code, or any successor provision. (s) "PLAN" means this 1998 Stock Plan. (t) "REPORTING PERSON" means an officer, director, or greater than 10% stockholder of the Company within the meaning of Rule 16a-2 under the Exchange Act, who is required to file reports pursuant to Rule 16a-3 under the Exchange Act. (u) "RESTRICTED STOCK" means shares of Common Stock acquired pursuant to a grant of a Stock Purchase Right under Section 10 below. (v) "RESTRICTED STOCK PURCHASE AGREEMENT" means a written agreement between a holder of a Stock Purchase Right and the Company reflecting the terms of a Stock Purchase Right granted under the Plan and includes any documents attached to such agreement. (w) "RULE 16b-3" means Rule 16b-3 promulgated under the Exchange Act, as the same may be amended from time to time, or any successor provision. (x) "SHARE" means a share of the Common Stock, as adjusted in accordance with Section 12 ----- of the Plan. (y) "STOCK EXCHANGE" means any stock exchange or consolidated stock price reporting system on which prices for the Common Stock are quoted at any given time. (z) "STOCK PURCHASE RIGHT" means the right to purchase Common Stock pursuant to Section 10 below. (aa) "SUBSIDIARY" means a "subsidiary corporation," whether now or hereafter existing, as defined in Section 424(f) of the Code, or any successor provision. 3. STOCK SUBJECT TO THE PLAN. Subject to the provisions of Section 12 of the Plan, the maximum aggregate number of Shares that may be optioned and sold under the Plan is 5,000,000 shares of Common Stock. The Shares may be authorized, but unissued, or reacquired Common Stock. If an Option should expire or become unexercisable for any reason without having been exercised in full, the unpurchased Shares that were subject thereto shall, unless the Plan shall have been terminated, become available for future grant under the Plan. In addition, any Shares of Common Stock which are retained by the Company upon exercise of an Option or Stock Purchase Right in order to satisfy the exercise or purchase price for such Option or Stock Purchase Right or any withholding taxes due with respect to such exercise shall be treated as not issued and shall continue to be available under the Plan. Shares repurchased by the Company pursuant to any repurchase right which the Company may have shall not be available for future grant under the Plan. -3- 4 4. ADMINISTRATION OF THE PLAN. (a) INITIAL PLAN PROCEDURE. Prior to the date, if any, upon which the Company becomes subject to the Exchange Act, the Plan shall be administered by the Board or a Committee appointed by the Board. (b) PLAN PROCEDURE AFTER THE DATE, IF ANY, UPON WHICH THE COMPANY BECOMES SUBJECT TO THE EXCHANGE ACT. (i) MULTIPLE ADMINISTRATIVE BODIES. If permitted by Rule 16b-3, grants under the Plan may be made by different bodies with respect to directors, non-director officers and Employees or Consultants who are not Reporting Persons. (ii) ADMINISTRATION WITH RESPECT TO REPORTING PERSONS. With respect to grants of Options or Stock Purchase Rights to Employees who are Reporting Persons, such grants shall be made by (A) the Board if the Board may make grants to Reporting Persons under the Plan in compliance with Rule 16b-3, or (B) a Committee designated by the Board to make grants to Reporting Persons under the Plan, which Committee shall be constituted in such a manner as to permit grants under the Plan to comply with Rule 16b-3. Once appointed, such Committee shall continue to serve in its designated capacity until otherwise directed by the Board. From time to time the Board may increase the size of the Committee and appoint additional members thereof, remove members (with or without cause) and appoint new members in substitution therefor, fill vacancies, however caused, and remove all members of the Committee and thereafter directly make grants to Reporting Persons under the Plan, all to the extent permitted by Rule 16b-3. (iii) ADMINISTRATION WITH RESPECT TO CONSULTANTS AND OTHER EMPLOYEES. With respect to grants of Options or Stock Purchase Rights to Employees or Consultants who are not Reporting Persons, the Plan shall be administered by (A) the Board or (B) a Committee designated by the Board, which Committee shall be constituted in such a manner as to satisfy the legal requirements relating to the administration of Incentive Stock Option plans, if any, of applicable corporate and securities laws, of the Code and of any applicable Stock Exchange (the "Applicable Laws"). Once appointed, such Committee shall continue to serve in its designated capacity until otherwise directed by the Board. From time to time the Board may increase the size of the Committee and appoint additional members thereof, remove members (with or without cause) and appoint new members in substitution therefor, fill vacancies, however caused, and remove all members of the Committee and thereafter directly administer the Plan, all to the extent permitted by the Applicable Laws. (c) POWERS OF THE ADMINISTRATOR. Subject to the provisions of the Plan and in the case of a Committee, the specific duties delegated by the Board to such Committee, and subject to the approval of any relevant authorities, including the approval, if required, of any Stock Exchange, the Administrator shall have the authority, in its discretion: (i) to determine the Fair Market Value of the Common Stock, in accordance with Section 2(k) of the Plan; -4- 5 (ii) to select the Consultants and Employees to whom Options and Stock Purchase Rights or any combination thereof may from time to time be granted hereunder; (iii) to determine whether and to what extent Options and Stock Purchase Rights or any combination thereof are granted hereunder; (iv) to determine the number of shares of Common Stock to be covered by each such award granted hereunder; (v) to approve forms of agreement for use under the Plan; (vi) to determine the terms and conditions, not inconsistent with the terms of the Plan, of any award granted hereunder; (vii) to determine whether and under what circumstances an Option may be settled in cash under Section 9(f) instead of Common Stock; (viii) to reduce the exercise price of any Option to the then current Fair Market Value if the Fair Market Value of the Common Stock covered by such Option shall have declined since the date the Option was granted; (ix) to determine the terms and restrictions applicable to Stock Purchase Rights and the Restricted Stock purchased by exercising such Stock Purchase Rights; and (x) to construe and interpret the terms of the Plan and awards granted pursuant to the Plan; and (xi) in order to fulfill the purposes of the Plan and without amending the Plan, to modify grants of Options or Stock Purchase Rights to participants who are foreign nationals or employed outside of the United States in order to recognize differences in local law, tax policies or customs. (d) EFFECT OF ADMINISTRATOR'S DECISION. All decisions, determinations and interpretations of the Administrator shall be final and binding on all holders of Options or Stock Purchase Rights. 5. ELIGIBILITY. (a) RECIPIENTS OF GRANTS. Nonstatutory Stock Options and Stock Purchase Rights may be granted to Employees and Consultants. Incentive Stock Options may be granted only to Employees. An Employee or Consultant who has been granted an Option or Stock Purchase Right may, if he or she is otherwise eligible, be granted additional Options or Stock Purchase Rights. (b) TYPE OF OPTION. Each Option shall be designated in the Option Agreement as either an Incentive Stock Option or a Nonstatutory Stock Option. However, -5- 6 notwithstanding such designations, to the extent that the aggregate Fair Market Value of Shares with respect to which Options designated as Incentive Stock Options are exercisable for the first time by any Optionee during any calendar year (under all plans of the Company or any Parent or Subsidiary) exceeds $100,000, such excess Options shall be treated as Nonstatutory Stock Options. For purposes of this Section 5(b), Incentive Stock Options shall be taken into account in the order in which they were granted, and the Fair Market Value of the Shares subject to an Incentive Stock Option shall be determined as of the date of the grant of such Option. (c) The Plan shall not confer upon the holder of any Option or Stock Purchase Right any right with respect to continuation of employment or consulting relationship with the Company, nor shall it interfere in any way with such holder's right or the Company's right to terminate his or her employment or consulting relationship at any time, with or without cause. 6. TERM OF PLAN. The Plan shall become effective upon the earlier to occur of its adoption by the Board of Directors or its approval by the stockholders of the Company as described in Section 19 of the Plan. It shall continue in effect for a term of ten years unless sooner terminated under Section 15 of the Plan. 7. TERM OF OPTION. The term of each Option shall be the term stated in the Option Agreement; provided, however, that the term shall be no more than ten years from the date of grant thereof or such shorter term as may be provided in the Option Agreement and provided further that, in the case of an Incentive Stock Option granted to an Optionee who, at the time the Option is granted, owns stock representing more than 10% of the total combined voting power of all classes of stock of the Company or any Parent or Subsidiary, the term of the Option shall be five years from the date of grant thereof or such shorter term as may be provided in the Option Agreement. 8. OPTION EXERCISE PRICE AND CONSIDERATION. (a) The per share exercise price for the Shares to be issued pursuant to exercise of an Option shall be such price as is determined by the Board and set forth in the applicable agreement, but shall be subject to the following: (i) In the case of an Incentive Stock Option that is: (A) granted to an Employee who, at the time of the grant of such Incentive Stock Option, owns stock representing more than 10% of the total combined voting power of all classes of stock of the Company or any Parent or Subsidiary, the per Share exercise price shall be no less than 110% of the Fair Market Value per Share on the date of grant. (B) granted to any other Employee, the per Share exercise price shall be no less than 100% of the Fair Market Value per Share on the date of grant. (ii) In the case of a Nonstatutory Stock Option that is: -6- 7 (A) granted to a person who, at the time of the grant of such Option, owns stock representing more than 10% of the total combined voting power of all classes of stock of the Company or any Parent or Subsidiary, the per Share exercise price shall be no less than 110% of the Fair Market Value per Share on the date of the grant. (B) granted to any person, the per Share exercise price shall be no less than 85% of the Fair Market Value per Share on the date of grant. (b) The consideration to be paid for the Shares to be issued upon exercise of an Option, including the method of payment, shall be determined by the Administrator (and, in the case of an Incentive Stock Option, shall be determined at the time of grant) and may consist entirely of (1) cash, (2) check, (3) promissory note (subject to the provisions of Section 153 of the Delaware General Corporation Law), (4) other Shares that (x) in the case of Shares acquired upon exercise of an Option, have been owned by the Optionee for more than six months on the date of surrender or such other period as may be required to avoid a charge to the Company's earnings, and (y) have a Fair Market Value on the date of surrender equal to the aggregate exercise price of the Shares as to which such Option shall be exercised, (5) authorization for the Company to retain from the total number of Shares as to which the Option is exercised that number of Shares having a Fair Market Value on the date of exercise equal to the exercise price for the total number of Shares as to which the Option is exercised, (6) delivery of a properly executed exercise notice together with such other documentation as the Administrator and the broker, if applicable, shall require to effect an exercise of the Option and delivery to the Company of the sale or loan proceeds required to pay the exercise price and any applicable income or employment taxes, (7) delivery of an irrevocable subscription agreement for the Shares that irrevocably obligates the option holder to take and pay for the Shares not more than twelve months after the date of delivery of the subscription agreement, (8) any combination of the foregoing methods of payment, or (9) such other consideration and method of payment for the issuance of Shares to the extent permitted under the Applicable Laws. In making its determination as to the type of consideration to accept, the Administrator shall consider if acceptance of such consideration may be reasonably expected to benefit the Company. 9. EXERCISE OF OPTION. (a) PROCEDURE FOR EXERCISE; RIGHTS AS A STOCKHOLDER. Any Option granted hereunder shall be exercisable at such times and under such conditions as determined by the Administrator and reflected in the Option Agreement, which may include vesting requirements and/or performance criteria with respect to the Company and/or the Optionee; provided, however, that such Option shall become exercisable at the rate of at least 20% per year over five years from the date the Option is granted. In the event that any of the Shares issued upon exercise of an Option should be subject to a right of repurchase in the Company's favor, such repurchase right shall lapse at the rate of at least 20% per year over five years from the date the Option is granted. Notwithstanding the above, in the case of an Option granted to an officer, director or Consultant of the Company or any Parent or Subsidiary of the Company, the Option may become fully exercisable, and a repurchase right, if any, in favor of the Company shall lapse, at any time or during any period established by the Administrator. -7- 8 An Option may not be exercised for a fraction of a Share. An Option shall be deemed to be exercised when written notice of such exercise has been given to the Company in accordance with the terms of the Option by the person entitled to exercise the Option and the Company has received full payment for the Shares with respect to which the Option is exercised. Full payment may, as authorized by the Board, consist of any consideration and method of payment allowable under Section 8(b) of the Plan. Until the issuance (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company) of the stock certificate evidencing such Shares, no right to vote or receive dividends or any other rights as a stockholder shall exist with respect to the Optioned Stock, not withstanding the exercise of the Option. The Company shall issue (or cause to be issued) such stock certificate promptly upon exercise of the Option. No adjustment will be made for a dividend or other right for which the record date is prior to the date the stock certificate is issued, except as provided in Section 12 of the Plan. Exercise of an Option in any manner shall result in a decrease in the number of Shares that thereafter may be available, both for purposes of the Plan and for sale under the Option, by the number of Shares as to which the Option is exercised. (b) TERMINATION OF EMPLOYMENT OR CONSULTING RELATIONSHIP. Subject to Section 9(c) below, in the event of termination of an Optionee's Continuous Status as an Employee or Consultant with the Company, such Optionee may, but only within three months (or such other period of time not less than 30 days as is determined by the Administrator, with such determination in the case of an Incentive Stock Option being made at the time of grant of the Option and not exceeding three months) after the date of such termination (but in no event later than the expiration date of the term of such Option as set forth in the Option Agreement), exercise his or her Option to the extent that the Optionee was entitled to exercise it at the date of such termination. To the extent that the Optionee was not entitled to exercise the Option at the date of such termination, or if the Optionee does not exercise such Option to the extent so entitled within the time specified herein, the Option shall terminate. No termination shall be deemed to occur and this Section 9(b) shall not apply if (i) the Optionee is a Consultant who becomes an Employee, or (ii) the Optionee is an Employee who becomes a Consultant. (c) DISABILITY OF OPTIONEE. (i) Notwithstanding Section 9(b) above, in the event of termination of an Optionee's Continuous Status as an Employee or Consultant as a result of his or her total and permanent disability (within the meaning of Section 22(e)(3) of the Code), such Optionee may, but only within twelve months from the date of such termination (but in no event later than the expiration date of the term of such Option as set forth in the Option Agreement), exercise the Option to the extent otherwise entitled to exercise it at the date of such termination. To the extent that the Optionee was not entitled to exercise the Option at the date of termination, or if the Optionee does not exercise such Option to the extent so entitled within the time specified herein, the Option shall terminate. -8- 9 (ii) In the event of termination of an Optionee's Continuous Status as an Employee or Consultant as a result of a disability which does not fall within the meaning of total and permanent disability (as set forth in Section 22(e)(3) of the Code), such Optionee may, but only within six months from the date of such termination (but in no event later than the expiration date of the term of such Option as set forth in the Option Agreement), exercise the Option to the extent otherwise entitled to exercise it at the date of such termination. However, to the extent that such Optionee fails to exercise an Option which is an Incentive Stock Option ("ISO") (within the meaning of Section 422 of the Code) within three months of the date of such termination, the Option will not qualify for ISO treatment under the Code. To the extent that the Optionee was not entitled to exercise the Option at the date of termination, or if the Optionee does not exercise such Option to the extent so entitled within six months from the date of termination, the Option shall terminate. (d) DEATH OF OPTIONEE. In the event of the death of an Optionee during the period of Continuous Status as an Employee or Consultant since the date of grant of the Option, or within 30 days following termination of the Optionee's Continuous Status as an Employee or Consultant, the Option may be exercised, at any time within six months following the date of death (but in no event later than the expiration date of the term of such Option as set forth in the Option Agreement), by such Optionee's estate or by a person who acquired the right to exercise the Option by bequest or inheritance, but only to the extent of the right to exercise that had accrued at the date of death or, if earlier, the date of termination of the Optionee's Continuous Status as an Employee or Consultant. To the extent that the Optionee was not entitled to exercise the Option at the date of death or termination, as the case may be, or if the Optionee does not exercise such Option to the extent so entitled within the time specified herein, the Option shall terminate. (e) RULE 16b-3. Options granted to Reporting Persons shall comply with Rule 16b-3 and shall contain such additional conditions or restrictions as may be required thereunder to qualify for the maximum exemption for Plan transactions. 10. STOCK PURCHASE RIGHTS. (a) RIGHTS TO PURCHASE. Stock Purchase Rights may be issued either alone, in addition to, or in tandem with other awards granted under the Plan and/or cash awards made outside of the Plan. After the Administrator determines that it will offer Stock Purchase Rights under the Plan, it shall advise the offeree in writing of the terms, conditions and restrictions related to the offer, including the number of Shares that such person shall be entitled to purchase, the price to be paid (which price shall not be less than 85% of the Fair Market Value of the Shares as of the date of the offer, or, in the case of a person owning stock representing more than 10% of the total combined voting power of all classes of stock of the Company or any Parent or Subsidiary, the price shall not be less than 100% of the Fair Market Value of the Shares as of the date of the offer), and the time within which such person must accept such offer, which shall in no event exceed 30 days from the date upon which the Administrator made the determination to grant the Stock Purchase Right. The offer shall be accepted by execution of a Restricted Stock Purchase Agreement in the form determined by the Administrator. -9- 10 (b) REPURCHASE OPTION. Unless the Administrator determines otherwise, the Restricted Stock Purchase Agreement shall grant the Company a repurchase option exercisable upon the voluntary or involuntary termination of the purchaser's employment with the Company for any reason (including death or disability). The purchase price for Shares repurchased pursuant to the Restricted Stock Purchase Agreement shall be the original purchase price paid by the purchaser and may be paid by cancellation of any indebtedness of the purchaser to the Company. The repurchase option shall lapse at such rate as the Administrator may determine; provided, however, that with respect to an Optionee who is not an officer, director or Consultant of the Company or of any Parent or Subsidiary of the Company, it shall lapse at a minimum rate of 20% per year. (c) OTHER PROVISIONS. The Restricted Stock Purchase Agreement shall contain such other terms, provisions and conditions not inconsistent with the Plan as may be determined by the Administrator in its sole discretion. In addition, the provisions of Restricted Stock Purchase Agreements need not be the same with respect to each purchaser. (d) RIGHTS AS A STOCKHOLDER. Once the Stock Purchase Right is exercised, the purchaser shall have the rights equivalent to those of a stockholder, and shall be a stockholder when his or her purchase is entered upon the records of the duly authorized transfer agent of the Company. No adjustment will be made for a dividend or other right for which the record date is prior to the date the Stock Purchase Right is exercised, except as provided in Section 12 of the Plan. 11. STOCK WITHHOLDING TO SATISFY WITHHOLDING TAX OBLIGATIONS. At the discretion of the Administrator, Optionees may satisfy withholding obligations as provided in this paragraph. When an Optionee incurs tax liability in connection with an Option or Stock Purchase Right, which tax liability is subject to tax withholding under applicable tax laws, and the Optionee is obligated to pay the Company an amount required to be withheld under applicable tax laws, the Optionee may satisfy the withholding tax obligation by one or some combination of the following methods: (a) by cash or check payment, or (b) out of the Optionee's current compensation, (c) if permitted by the Administrator, in its discretion, by surrendering to the Company Shares that (i) in the case of Shares previously acquired from the Company, have been owned by the Optionee for more than six months on the date of surrender, and (ii) have a fair market value on the date of surrender equal to or less than the Optionee's marginal tax rate times the ordinary income recognized, or (d) by electing to have the Company withhold from the Shares to be issued upon exercise of the Option, or the Shares to be issued in connection with the Stock Purchase Right, if any, that number of Shares having a fair market value equal to the amount required to be withheld. For this purpose, the fair market value of the Shares to be withheld shall be determined on the date that the amount of tax to be withheld is to be determined (the "Tax Date"). Any surrender by a Reporting Person of previously owned Shares to satisfy tax withholding obligations arising upon exercise of this Option must comply with the applicable provisions of Rule 16b-3. -10- 11 All elections by an Optionee to have Shares withheld to satisfy tax withholding obligations shall be made in writing in a form acceptable to the Administrator and shall be subject to the following restrictions: (a) the election must be made on or prior to the applicable Tax Date; (b) once made, the election shall be irrevocable as to the particular Shares of the Option or Stock Purchase Right as to which the election is made; and (c) all elections shall be subject to the consent or disapproval of the Administrator. In the event the election to have Shares withheld is made by an Optionee and the Tax Date is deferred under Section 83 of the Code because no election is filed under Section 83(b) of the Code, the Optionee shall receive the full number of Shares with respect to which the Option or Stock Purchase Right is exercised but such Optionee shall be unconditionally obligated to tender back to the Company the proper number of Shares on the Tax Date. 12. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION, MERGER OR CERTAIN OTHER TRANSACTIONS. (a) CHANGES IN CAPITALIZATION. Subject to any required action by the stockholders of the Company, the number of shares of Common Stock covered by each outstanding Option or Stock Purchase Right, and the number of shares of Common Stock that have been authorized for issuance under the Plan but as to which no Options or Stock Purchase Rights have yet been granted or that have been returned to the Plan upon cancellation or expiration of an Option or Stock Purchase Right, as well as the price per share of Common Stock covered by each such outstanding Option or Stock Purchase Right, shall be proportionately adjusted for any increase or decrease in the number of issued shares of Common Stock resulting from a stock split, reverse stock split, stock dividend, combination, recapitalization or reclassification of the Common Stock, or any other increase or decrease in the number of issued shares of Common Stock effected without receipt of consideration by the Company; provided, however, that conversion of any convertible securities of the Company shall not be deemed to have been "effected without receipt of consideration." Such adjustment shall be made by the Board, whose determination in that respect shall be final, binding and conclusive. Except as expressly provided herein, no issuance by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number or price of shares of Common Stock subject to an Option or Stock Purchase Right. (b) DISSOLUTION OR LIQUIDATION. In the event of the proposed dissolution or liquidation of the Company, the Board shall notify the Optionee at least 15 days prior to such proposed action. To the extent it has not been previously exercised, the Option or Stock Purchase Right will terminate immediately prior to the consummation of such proposed action. -11- 12 (c) MERGER OR SALE OF ASSETS. In the event of a proposed sale of all or substantially all of the Company's assets or a merger of the Company with or into another corporation where the successor corporation issues its securities to the Company's stockholders, each outstanding Option or Stock Purchase Right shall be assumed or an equivalent option or right shall be substituted by such successor corporation or a parent or subsidiary of such successor corporation, unless the successor corporation does not agree to assume the Option or Stock Purchase Right or to substitute an equivalent option or right, in which case such Option or Stock Purchase Right shall terminate upon the consummation of the merger or sale of assets. For purposes of this Section 12(c), an Option or a Stock Purchase Right shall be considered assumed, without limitation, if, at the time of issuance of the stock or other consideration upon such merger or sale of assets, each holder of an Option or a Stock Purchase Right would be entitled to receive upon exercise of the Option or Stock Purchase Right the same number and kind of shares of stock or the same amount of property, cash or securities as such holder would have been entitled to receive upon the occurrence of such transaction if the holder had been, immediately prior to such transaction, the holder of the number of Shares of Common Stock covered by the Option or the Stock Purchase Right at such time (after giving effect to any adjustments in the number of Shares covered by the Option or Stock Purchase Right as provided for in this Section 12). (d) CERTAIN DISTRIBUTIONS. In the event of any distribution to the Company's stockholders of securities of any other entity or other assets (other than dividends payable in cash or stock of the Company) without receipt of consideration by the Company, the Administrator may, in its discretion, appropriately adjust the price per share of Common Stock covered by each outstanding Option or Stock Purchase Right to reflect the effect of such distribution. 13. NON-TRANSFERABILITY OF OPTIONS AND STOCK PURCHASE RIGHTS. Options and Stock Purchase Rights may not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any manner other than by will or by the laws of descent or distribution and may be exercised or purchased during the lifetime of the Optionee or Stock Purchase Rights Holder only by the Optionee or Stock Purchase Rights Holder. 14. TIME OF GRANTING OPTIONS AND STOCK PURCHASE RIGHTS. The date of grant of an Option or Stock Purchase Right shall, for all purposes, be the date on which the Administrator makes the determination granting such Option or Stock Purchase Right, or such other date as is determined by the Board; provided, however, that in the case of any Incentive Stock Option, the grant date shall be the later of the date on which the Administrator makes the determination granting such Incentive Stock Option or the date of commencement of the Optionee's employment relationship with the Company. Notice of the determination shall be given to each Employee or Consultant to whom an Option or Stock Purchase Right is so granted within a reasonable time after the date of such grant. 15. AMENDMENT AND TERMINATION OF THE PLAN. (a) AUTHORITY TO AMEND OR TERMINATE. The Board may at any time amend, alter, suspend or discontinue the Plan, but no amendment, alteration, suspension or -12- 13 discontinuation shall be made that would impair the rights of any Optionee under any grant theretofore made, without his or her consent. In addition, to the extent necessary and desirable to comply with Rule 16b-3 or with Section 422 of the Code (or any other applicable law or regulation, including the requirements of any Stock Exchange), the Company shall obtain stockholder approval of any Plan amendment in such a manner and to such a degree as required. (b) EFFECT OF AMENDMENT OR TERMINATION. No amendment or termination of the Plan shall adversely affect Options already granted, unless mutually agreed otherwise between the Optionee and the Board, which agreement must be in writing and signed by the Optionee and the Company. 16. CONDITIONS UPON ISSUANCE OF SHARES. Shares shall not be issued pursuant to the exercise of an Option or Stock Purchase Right unless the exercise of such Option or Stock Purchase Right and the issuance and delivery of such Shares pursuant thereto shall comply with all relevant provisions of law, including, without limitation, the Securities Act of 1933, as amended, the Exchange Act, the rules and regulations promulgated thereunder, and the requirements of any Stock Exchange. As a condition to the exercise of an Option, the Company may require the person exercising such Option to represent and warrant at the time of any such exercise that the Shares are being purchased only for investment and without any present intention to sell or distribute such Shares if, in the opinion of counsel for the Company, such a representation is required by law. 17. RESERVATION OF SHARES. The Company, during the term of this Plan, will at all times reserve and keep available such number of Shares as shall be sufficient to satisfy the requirements of the Plan. The inability of the Company to obtain authority from any regulatory body having jurisdiction, which authority is deemed by the Company's counsel to be necessary to the lawful issuance and sale of any Shares hereunder, shall relieve the Company of any liability in respect of the failure to issue or sell such Shares as to which such requisite authority shall not have been obtained. 18. AGREEMENTS. Options and Stock Purchase Rights shall be evidenced by written Option Agreements and Restricted Stock Purchase Agreements, respectively, in such form(s) as the Administrator shall approve from time to time. 19. STOCKHOLDER APPROVAL. Continuance of the Plan shall be subject to approval by the stockholders of the Company within twelve months before or after the date the Plan is adopted. Such stockholder approval shall be obtained in the degree and manner required under applicable state and federal law and the rules of any Stock Exchange upon which the Common Stock is listed. All Options and Stock Purchase Rights issued under the Plan shall become void in the event such approval is not obtained. 20. INFORMATION AND DOCUMENTS TO OPTIONEES AND PURCHASERS. The Company shall provide financial statements at least annually to each Optionee and to each individual who acquired Shares Pursuant to the Plan, during the period such Optionee or purchaser has one or -13- 14 more Options or Stock Purchase Rights outstanding, and in the case of an individual who acquired Shares pursuant to the Plan, during the period such individual owns such Shares. The Company shall not be required to provide such information if the issuance of Options or Stock Purchase Rights under the Plan is limited to key employees whose duties in connection with the Company assure their access to equivalent information. In addition, at the time of issuance of any securities under the Plan, the Company shall provide to the Optionee or the Purchaser a copy of the Plan and any agreement(s) pursuant to which securities granted under the Plan are issued. -14- EX-10.03 15 EX-10.03 1 EXHIBIT 10.03 NIKU CORPORATION 2000 EQUITY INCENTIVE PLAN As Adopted December 8, 1999 1. PURPOSE. The purpose of this Plan is to provide incentives to attract, retain and motivate eligible persons whose present and potential contributions are important to the success of the Company, its Parent and Subsidiaries, by offering them an opportunity to participate in the Company's future performance through awards of Options, Restricted Stock and Stock Bonuses. Capitalized terms not defined in the text are defined in Section 23. 2. SHARES SUBJECT TO THE PLAN. 2.1 Number of Shares Available. Subject to Sections 2.2 and 18, the total number of Shares reserved and available for grant and issuance pursuant to this Plan will be 6,000,000 Shares plus Shares that are subject to: (a) issuance upon exercise of an Option but cease to be subject to such Option for any reason other than exercise of such Option; (b) an Award granted hereunder but are forfeited or are repurchased by the Company at the original issue price; and (c) an Award that otherwise terminates without Shares being issued. In addition, any authorized shares not issued or subject to outstanding grants under the Company's 1998 Stock Plan (the "PRIOR PLAN") on the Effective Date (as defined below) and any shares issued under the Prior Plan that are forfeited or repurchased by the Company or that are issuable upon exercise of options granted pursuant to the Prior Plan that expire or become unexercisable for any reason without having been exercised in full, will no longer be available for grant and issuance under the Prior Plan, but will be available for grant and issuance under this Plan. In addition, on each January 1, the aggregate number of Shares reserved and available for grant and issuance pursuant to this Plan will be increased automatically by a number of Shares equal to 5% of the total outstanding shares of the Company as of the immediately preceding December 31, provided that no more than 20,000,000 shares shall be issued as ISOs (as defined in Section 5 below). At all times the Company shall reserve and keep available a sufficient number of Shares as shall be required to satisfy the requirements of all outstanding Options granted under this Plan and all other outstanding but unvested Awards granted under this Plan. 2.2 Adjustment of Shares. In the event that the number of outstanding shares is changed by a stock dividend, recapitalization, stock split, reverse stock split, subdivision, combination, reclassification or similar change in the capital structure of the Company without consideration, then (a) the number of Shares reserved for issuance under this Plan, (b) the number of Shares that may be granted pursuant to Sections 3 and 9 below, (c) the Exercise Prices of and number of Shares subject to outstanding Options, and (d) the number of Shares subject to other outstanding Awards will be proportionately adjusted, subject to any required action by the Board or the stockholders of the Company and compliance with applicable securities laws; provided, however, that fractions of a Share will not be issued but will either be replaced by a cash payment equal to the Fair Market Value of such fraction of a Share or will be rounded up to the nearest whole Share, as determined by the Committee. 3. ELIGIBILITY. ISOs (as defined in Section 5 below) may be granted only to employees (including officers and directors who are also employees) of the Company or of a Parent or Subsidiary of the Company. All other Awards may be granted to employees, officers, directors, consultants, independent contractors and advisors of the Company or any Parent or Subsidiary of the Company; provided such consultants, contractors and advisors render bona fide services not in connection with the offer and sale of securities in a capital-raising transaction. No person will be eligible to receive more than 2,000,000 Shares in any calendar year under this Plan pursuant to the grant of Awards hereunder, other than new employees of the Company or of a Parent or Subsidiary of the Company (including new employees who are also officers and directors of the Company or any Parent or Subsidiary of the Company), who are eligible to receive up to a maximum of 2,500,000 Shares in the calendar year in which they commence their employment. A person may be granted more than one Award under this Plan. 2 Niku Corporation 2000 Equity Incentive Plan 4. ADMINISTRATION. 4.1 Committee Authority. This Plan will be administered by the Committee or by the Board acting as the Committee. Except for automatic grants to Outside Directors pursuant to Section 9 hereof, and subject to the general purposes, terms and conditions of this Plan, and to the direction of the Board, the Committee will have full power to implement and carry out this Plan. Except for automatic grants to Outside Directors pursuant to Section 9 hereof, the Committee will have the authority to: (a) construe and interpret this Plan, any Award Agreement and any other agreement or document executed pursuant to this Plan; (b) prescribe, amend and rescind rules and regulations relating to this Plan or any Award; (c) select persons to receive Awards; (d) determine the form and terms of Awards; (e) determine the number of Shares or other consideration subject to Awards; (f) determine whether Awards will be granted singly, in combination with, in tandem with, in replacement of, or as alternatives to, other Awards under this Plan or any other incentive or compensation plan of the Company or any Parent or Subsidiary of the Company; (g) grant waivers of Plan or Award conditions; (h) determine the vesting, exercisability and payment of Awards; (i) correct any defect, supply any omission or reconcile any inconsistency in this Plan, any Award or any Award Agreement; (j) determine whether an Award has been earned; and (k) make all other determinations necessary or advisable for the administration of this Plan. 4.2 Committee Discretion. Except for automatic grants to Outside Directors pursuant to Section 9 hereof, any determination made by the Committee with respect to any Award will be made in its sole discretion at the time of grant of the Award or, unless in contravention of any express term of this Plan or Award, at any later time, and such determination will be final and binding on the Company and on all persons having an interest in any Award under this Plan. The Committee may delegate to one or more officers of the Company the authority to grant an Award under this Plan to Participants who are not Insiders of the Company. 5. OPTIONS. The Committee may grant Options to eligible persons and will determine whether such Options will be Incentive Stock Options within the meaning of the Code ("ISO") or Nonqualified Stock Options ("NQSOs"), the number of Shares subject to the Option, the Exercise Price of the Option, the period during which the Option may be exercised, and all other terms and conditions of the Option, subject to the following: 5.1 Form of Option Grant. Each Option granted under this Plan will be evidenced by an Award Agreement which will expressly identify the Option as an ISO or an NQSO ("STOCK OPTION AGREEMENT"), and, except as otherwise required by the terms of Section 9 hereof, will be in such form and contain such provisions (which need not be the same for each Participant) as the Committee may from time to time approve, and which will comply with and be subject to the terms and conditions of this Plan. 2 3 Niku Corporation 2000 Equity Incentive Plan 5.2 Date of Grant. The date of grant of an Option will be the date on which the Committee makes the determination to grant such Option, unless otherwise specified by the Committee. The Stock Option Agreement and a copy of this Plan will be delivered to the Participant within a reasonable time after the granting of the Option. 5.3 Exercise Period. Options may be exercisable within the times or upon the events determined by the Committee as set forth in the Stock Option Agreement governing such Option; provided, however, that no Option will be exercisable after the expiration of ten (10) years from the date the Option is granted; and provided further that no ISO granted to a person who directly or by attribution owns more than ten percent (10%) of the total combined voting power of all classes of stock of the Company or of any Parent or Subsidiary of the Company ("TEN PERCENT STOCKHOLDER") will be exercisable after the expiration of five (5) years from the date the ISO is granted. The Committee also may provide for Options to become exercisable at one time or from time to time, periodically or otherwise, in such number of Shares or percentage of Shares as the Committee determines. 5.4 Exercise Price. The Exercise Price of an Option will be determined by the Committee when the Option is granted and may be not less than 85% of the Fair Market Value of the Shares on the date of grant; provided that: (i) the Exercise Price of an ISO will be not less than 100% of the Fair Market Value of the Shares on the date of grant; and (ii) the Exercise Price of any ISO granted to a Ten Percent Stockholder will not be less than 110% of the Fair Market Value of the Shares on the date of grant. Payment for the Shares purchased may be made in accordance with Section 8 of this Plan. 5.5 Method of Exercise. Options may be exercised only by delivery to the Company of a written stock option exercise agreement (the "EXERCISE AGREEMENT") in a form approved by the Committee (which need not be the same for each Participant), stating the number of Shares being purchased, the restrictions imposed on the Shares purchased under such Exercise Agreement, if any, and such representations and agreements regarding Participant's investment intent and access to information and other matters, if any, as may be required or desirable by the Company to comply with applicable securities laws, together with payment in full of the Exercise Price for the number of Shares being purchased. 5.6 Termination. Notwithstanding the exercise periods set forth in the Stock Option Agreement, exercise of an Option will always be subject to the following: (a) If the Participant is Terminated for any reason except death or Disability, then the Participant may exercise such Participant's Options only to the extent that such Options would have been exercisable upon the Termination Date no later than three (3) months after the Termination Date (or such shorter or longer time period not exceeding five (5) years as may be determined by the Committee, with any exercise beyond three (3) months after the Termination Date deemed to be an NQSO), but in any event, no later than the expiration date of the Options. (b) If the Participant is Terminated because of Participant's death or Disability (or the Participant dies within three (3) months after a Termination other than for Cause or because of Participant's Disability), then Participant's Options may be exercised only to the extent that such Options would have been exercisable by Participant on the Termination Date and must be exercised by Participant (or Participant's legal representative or authorized assignee) no later than twelve (12) months after the Termination Date (or such shorter or longer time period not exceeding five (5) years as may be determined by the Committee, with any such exercise beyond (a) three (3) months after the Termination Date when the Termination is for any reason other than the Participant's death or Disability, or (b) twelve (12) months after the Termination Date when the Termination is for Participant's death or Disability, deemed to be an NQSO), but in any event no later than the expiration date of the Options. 3 4 Niku Corporation 2000 Equity Incentive Plan (c) Notwithstanding the provisions in paragraph 5.6(a) above, if a Participant is terminated for Cause, neither the Participant, the Participant's estate nor such other person who may then hold the Option shall be entitled to exercise any Option with respect to any Shares whatsoever, after termination of service, whether or not after termination of service the Participant may receive payment from the Company or Subsidiary for vacation pay, for services rendered prior to termination, for services rendered for the day on which termination occurs, for salary in lieu of notice, or for any other benefits. In making such determination, the Board shall give the Participant an opportunity to present to the Board evidence on his behalf. For the purpose of this paragraph, termination of service shall be deemed to occur on the date when the Company dispatches notice or advice to the Participant that his service is terminated. 5.7 Limitations on Exercise. The Committee may specify a reasonable minimum number of Shares that may be purchased on any exercise of an Option, provided that such minimum number will not prevent Participant from exercising the Option for the full number of Shares for which it is then exercisable. 5.8 Limitations on ISO. The aggregate Fair Market Value (determined as of the date of grant) of Shares with respect to which ISO are exercisable for the first time by a Participant during any calendar year (under this Plan or under any other incentive stock option plan of the Company, Parent or Subsidiary of the Company) will not exceed $100,000. If the Fair Market Value of Shares on the date of grant with respect to which ISO are exercisable for the first time by a Participant during any calendar year exceeds $100,000, then the Options for the first $100,000 worth of Shares to become exercisable in such calendar year will be ISO and the Options for the amount in excess of $100,000 that become exercisable in that calendar year will be NQSOs. In the event that the Code or the regulations promulgated thereunder are amended after the Effective Date of this Plan to provide for a different limit on the Fair Market Value of Shares permitted to be subject to ISO, such different limit will be automatically incorporated herein and will apply to any Options granted after the effective date of such amendment. 5.9 Modification, Extension or Renewal. The Committee may modify, extend or renew outstanding Options and authorize the grant of new Options in substitution therefor, provided that any such action may not, without the written consent of a Participant, impair any of such Participant's rights under any Option previously granted. Any outstanding ISO that is modified, extended, renewed or otherwise altered will be treated in accordance with Section 424(h) of the Code. The Committee may reduce the Exercise Price of outstanding Options without the consent of Participants affected by a written notice to them; provided, however, that the Exercise Price may not be reduced below the minimum Exercise Price that would be permitted under Section 5.4 of this Plan for Options granted on the date the action is taken to reduce the Exercise Price. 5.10 No Disqualification. Notwithstanding any other provision in this Plan, no term of this Plan relating to ISO will be interpreted, amended or altered, nor will any discretion or authority granted under this Plan be exercised, so as to disqualify this Plan under Section 422 of the Code or, without the consent of the Participant affected, to disqualify any ISO under Section 422 of the Code. 6. RESTRICTED STOCK. A Restricted Stock Award is an offer by the Company to sell to an eligible person Shares that are subject to restrictions. The Committee will determine to whom an offer will be made, the number of Shares the person may purchase, the price to be paid (the "PURCHASE PRICE"), the restrictions to which the Shares will be subject, and all other terms and conditions of the Restricted Stock Award, subject to the following: 6.1 Form of Restricted Stock Award. All purchases under a Restricted Stock Award made pursuant to this Plan will be evidenced by an Award Agreement ("RESTRICTED STOCK PURCHASE AGREEMENT") that will be in such form (which need not be the same for each Participant) as the Committee will from time to time approve, and will comply with and be subject to the terms and conditions of this Plan. The offer of Restricted Stock will be accepted by the Participant's execution and delivery of the Restricted Stock Purchase Agreement and full payment for the Shares to the Company within thirty (30) days from the date the Restricted Stock Purchase Agreement is 4 5 Niku Corporation 2000 Equity Incentive Plan delivered to the person. If such person does not execute and deliver the Restricted Stock Purchase Agreement along with full payment for the Shares to the Company within thirty (30) days, then the offer will terminate, unless otherwise determined by the Committee. 6.2 Purchase Price. The Purchase Price of Shares sold pursuant to a Restricted Stock Award will be determined by the Committee on the date the Restricted Stock Award is granted, except in the case of a sale to a Ten Percent Stockholder, in which case the Purchase Price will be 100% of the Fair Market Value. Payment of the Purchase Price may be made in accordance with Section 8 of this Plan. 6.3 Terms of Restricted Stock Awards. Restricted Stock Awards shall be subject to such restrictions as the Committee may impose. These restrictions may be based upon completion of a specified number of years of service with the Company or upon completion of the performance goals as set out in advance in the Participant's individual Restricted Stock Purchase Agreement. Restricted Stock Awards may vary from Participant to Participant and between groups of Participants. Prior to the grant of a Restricted Stock Award, the Committee shall: (a) determine the nature, length and starting date of any Performance Period for the Restricted Stock Award; (b) select from among the Performance Factors to be used to measure performance goals, if any; and (c) determine the number of Shares that may be awarded to the Participant. Prior to the payment of any Restricted Stock Award, the Committee shall determine the extent to which such Restricted Stock Award has been earned. Performance Periods may overlap and Participants may participate simultaneously with respect to Restricted Stock Awards that are subject to different Performance Periods and having different performance goals and other criteria. 6.4 Termination During Performance Period. If a Participant is Terminated during a Performance Period for any reason, then such Participant will be entitled to payment (whether in Shares, cash or otherwise) with respect to the Restricted Stock Award only to the extent earned as of the date of Termination in accordance with the Restricted Stock Purchase Agreement, unless the Committee will determine otherwise. 7. STOCK BONUSES. 7.1 Awards of Stock Bonuses. A Stock Bonus is an award of Shares (which may consist of Restricted Stock) for services rendered to the Company or any Parent or Subsidiary of the Company. A Stock Bonus may be awarded for past services already rendered to the Company, or any Parent or Subsidiary of the Company pursuant to an Award Agreement (the "STOCK BONUS AGREEMENT") that will be in such form (which need not be the same for each Participant) as the Committee will from time to time approve, and will comply with and be subject to the terms and conditions of this Plan. A Stock Bonus may be awarded upon satisfaction of such performance goals as are set out in advance in the Participant's individual Award Agreement (the "PERFORMANCE STOCK BONUS AGREEMENT") that will be in such form (which need not be the same for each Participant) as the Committee will from time to time approve, and will comply with and be subject to the terms and conditions of this Plan. Stock Bonuses may vary from Participant to Participant and between groups of Participants, and may be based upon the achievement of the Company, Parent or Subsidiary and/or individual performance factors or upon such other criteria as the Committee may determine. 7.2 Terms of Stock Bonuses. The Committee will determine the number of Shares to be awarded to the Participant. If the Stock Bonus is being earned upon the satisfaction of performance goals pursuant to a Performance Stock Bonus Agreement, then the Committee will: (a) determine the nature, length and starting date of any Performance Period for each Stock Bonus; (b) select from among the Performance Factors to be used to measure the performance, if any; and (c) determine the number of Shares that may be awarded to the Participant. Prior to the payment of any Stock Bonus, the Committee shall determine the extent to which such Stock Bonuses have been earned. Performance Periods may overlap and Participants may participate simultaneously with respect to Stock Bonuses that are subject to different Performance Periods and different performance goals and other criteria. The number of Shares may be fixed or may vary in accordance with such performance goals and criteria as may be determined by the Committee. The Committee may adjust the performance goals applicable to the Stock Bonuses to take into account changes in law and accounting or tax rules and to make such adjustments as the 5 6 Niku Corporation 2000 Equity Incentive Plan Committee deems necessary or appropriate to reflect the impact of extraordinary or unusual items, events or circumstances to avoid windfalls or hardships. 7.3 Form of Payment. The earned portion of a Stock Bonus may be paid currently or on a deferred basis with such interest or dividend equivalent, if any, as the Committee may determine. Payment may be made in the form of cash or whole Shares or a combination thereof, either in a lump sum payment or in installments, all as the Committee will determine. 8. PAYMENT FOR SHARE PURCHASES. 8.1 Payment. Payment for Shares purchased pursuant to this Plan may be made in cash (by check) or, where expressly approved for the Participant by the Committee and where permitted by law: (a) by cancellation of indebtedness of the Company to the Participant; (b) by surrender of shares that either: (1) have been owned by Participant for more than six (6) months and have been paid for within the meaning of SEC Rule 144 (and, if such shares were purchased from the Company by use of a promissory note, such note has been fully paid with respect to such shares); or (2) were obtained by Participant in the public market; (c) by tender of a full recourse promissory note having such terms as may be approved by the Committee and bearing interest at a rate sufficient to avoid imputation of income under Sections 483 and 1274 of the Code; provided, however, that Participants who are not employees or directors of the Company will not be entitled to purchase Shares with a promissory note unless the note is adequately secured by collateral other than the Shares; (d) by waiver of compensation due or accrued to the Participant for services rendered; (e) with respect only to purchases upon exercise of an Option, and provided that a public market for the Company's stock exists: (1) through a "same day sale" commitment from the Participant and a broker-dealer that is a member of the National Association of Securities Dealers (an "NASD DEALER") whereby the Participant irrevocably elects to exercise the Option and to sell a portion of the Shares so purchased to pay for the Exercise Price, and whereby the NASD Dealer irrevocably commits upon receipt of such Shares to forward the Exercise Price directly to the Company; or (2) through a "margin" commitment from the Participant and a NASD Dealer whereby the Participant irrevocably elects to exercise the Option and to pledge the Shares so purchased to the NASD Dealer in a margin account as security for a loan from the NASD Dealer in the amount of the Exercise Price, and whereby the NASD Dealer irrevocably commits upon receipt of such Shares to forward the Exercise Price directly to the Company; or (f) by any combination of the foregoing. 8.2 Loan Guarantees. The Committee may help the Participant pay for Shares purchased under this Plan by authorizing a guarantee by the Company of a third-party loan to the Participant. 6 7 Niku Corporation 2000 Equity Incentive Plan 9. AUTOMATIC GRANTS TO OUTSIDE DIRECTORS. 9.1 Types of Options and Shares. Options granted under this Plan and subject to this Section 9 shall be NQSOs. 9.2 Eligibility. Options subject to this Section 9 shall be granted only to Outside Directors. 9.3 Initial Grant. Each Outside Director who first becomes a member of the Board on or after the Effective Date will automatically be granted an Option for 50,000 Shares (an "INITIAL GRANT") on the date such Outside Director first becomes a member of the Board, unless such Outside Director received a grant of Options before the Effective Date. Each Outside Director who became a member of the Board prior to the Effective Date and who did not receive a prior Option grant will receive an Initial Grant immediately following the Effective Date. 9.4 Succeeding Grant. Immediately following each Annual Meeting of stockholders, each Outside Director will automatically be granted an Option for 25,000 Shares (a "SUCCEEDING GRANT"), provided the Outside Director is a member of the Board on such date and has served continuously as a member of the Board for a period of at least one year since the date of such Outside Director's Initial Grant. Notwithstanding anything in this Section 9.4 to the contrary, the Board may make discretionary supplemental grants to an Outside Director who has served for less than one year from the date of such Outside Director's Initial Grant, provided that no Outside Director may receive more than 75,000 Shares in any calendar year pursuant to this Section 9. 9.5 Vesting. The date an Outside Director receives an Initial Grant or a Succeeding Grant is referred to in this Plan as the "START DATE" for such Option. (a) Initial Grants. Each Initial Grant will vest as to 2.778% of the Shares on each monthly anniversary of the Start Date, so long as the Outside Director continuously remains a director or a consultant of the Company. (b) Succeeding Grants. Each Succeeding Grant will vest as to 2.778% of the Shares on each monthly anniversary of the Start Date, so long as the Outside Director continuously remains a director or a consultant of the Company. Notwithstanding any provision to the contrary, in the event of a Corporate Transaction described in Section 18.1, the vesting of all options granted to Outside Directors pursuant to this Section 9 will accelerate and such options will become exercisable in full prior to the consummation of such event at such times and on such conditions as the Committee determines, and must be exercised, if at all, within three months of the consummation of said event. Any options not exercised within such three-month period shall expire. 9.6 Exercise Price. The exercise price of an Option pursuant to an Initial Grant and Succeeding Grant shall be the Fair Market Value of the Shares, at the time that the Option is granted. 10. WITHHOLDING TAXES. 10.1 Withholding Generally. Whenever Shares are to be issued in satisfaction of Awards granted under this Plan, the Company may require the Participant to remit to the Company an amount sufficient to satisfy federal, state and local withholding tax requirements prior to the delivery of any certificate or certificates for such Shares. Whenever, under this Plan, payments in satisfaction of Awards are to be made in cash, such payment will be net of an amount sufficient to satisfy federal, state, and local withholding tax requirements. 10.2 Stock Withholding. When, under applicable tax laws, a Participant incurs tax liability in connection with the exercise or vesting of any Award that is subject to tax withholding and the Participant is obligated to pay the Company the amount required to be withheld, the Committee may in its sole discretion allow 7 8 Niku Corporation 2000 Equity Incentive Plan the Participant to satisfy the minimum withholding tax obligation by electing to have the Company withhold from the Shares to be issued that number of Shares having a Fair Market Value equal to the minimum amount required to be withheld, determined on the date that the amount of tax to be withheld is to be determined. All elections by a Participant to have Shares withheld for this purpose will be made in accordance with the requirements established by the Committee and be in writing in a form acceptable to the Committee. 11. TRANSFERABILITY. 11.1 Except as otherwise provided in this Section 11, Awards granted under this Plan, and any interest therein, will not be transferable or assignable by Participant, and may not be made subject to execution, attachment or similar process, otherwise than by will or by the laws of descent and distribution or as determined by the Committee and set forth in the Award Agreement with respect to Awards that are not ISOs. 11.2 All Awards other than NQSO's. All Awards other than NQSO's shall be exercisable: (i) during the Participant's lifetime, only by (A) the Participant, or (B) the Participant's guardian or legal representative; and (ii) after Participant's death, by the legal representative of the Participant's heirs or legatees. 11.3 NQSOs. Unless otherwise restricted by the Committee, an NQSO shall be exercisable: (i) during the Participant's lifetime only by (A) the Participant, (B) the Participant's guardian or legal representative, (C) a Family Member of the Participant who has acquired the NQSO by "permitted transfer;" and (ii) after Participant's death, by the legal representative of the Participant's heirs or legatees. "Permitted transfer" means, as authorized by this Plan and the Committee in an NQSO, any transfer effected by the Participant during the Participant's lifetime of an interest in such NQSO but only such transfers which are by gift or domestic relations order. A permitted transfer does not include any transfer for value and neither of the following are transfers for value: (a) a transfer of under a domestic relations order in settlement of marital property rights or (b) a transfer to an entity in which more than fifty percent of the voting interests are owned by Family Members or the Participant in exchange for an interest in that entity. 12. PRIVILEGES OF STOCK OWNERSHIP; RESTRICTIONS ON SHARES. 12.1 Voting and Dividends. No Participant will have any of the rights of a stockholder with respect to any Shares until the Shares are issued to the Participant. After Shares are issued to the Participant, the Participant will be a stockholder and have all the rights of a stockholder with respect to such Shares, including the right to vote and receive all dividends or other distributions made or paid with respect to such Shares; provided, that if such Shares are Restricted Stock, then any new, additional or different securities the Participant may become entitled to receive with respect to such Shares by virtue of a stock dividend, stock split or any other change in the corporate or capital structure of the Company will be subject to the same restrictions as the Restricted Stock; provided, further, that the Participant will have no right to retain such stock dividends or stock distributions with respect to Shares that are repurchased at the Participant's Purchase Price or Exercise Price pursuant to Section 12. 12.2 Financial Statements. The Company will provide financial statements to each Participant prior to such Participant's purchase of Shares under this Plan, and to each Participant annually during the period such Participant has Awards outstanding; provided, however, the Company will not be required to provide such financial statements to Participants whose services in connection with the Company assure them access to equivalent information. 12.3 Restrictions on Shares. At the discretion of the Committee, the Company may reserve to itself and/or its assignee(s) in the Award Agreement a right to repurchase a portion of or all Unvested Shares held by a Participant following such Participant's Termination at any time within ninety (90) days after the later of Participant's Termination Date and the date Participant purchases Shares under this Plan, for cash and/or cancellation of purchase money indebtedness, at the Participant's Exercise Price or Purchase Price, as the case may be. 8 9 Niku Corporation 2000 Equity Incentive Plan 13. CERTIFICATES. All certificates for Shares or other securities delivered under this Plan will be subject to such stock transfer orders, legends and other restrictions as the Committee may deem necessary or advisable, including restrictions under any applicable federal, state or foreign securities law, or any rules, regulations and other requirements of the SEC or any stock exchange or automated quotation system upon which the Shares may be listed or quoted. 14. ESCROW; PLEDGE OF SHARES. To enforce any restrictions on a Participant's Shares, the Committee may require the Participant to deposit all certificates representing Shares, together with stock powers or other instruments of transfer approved by the Committee, appropriately endorsed in blank, with the Company or an agent designated by the Company to hold in escrow until such restrictions have lapsed or terminated, and the Committee may cause a legend or legends referencing such restrictions to be placed on the certificates. Any Participant who is permitted to execute a promissory note as partial or full consideration for the purchase of Shares under this Plan will be required to pledge and deposit with the Company all or part of the Shares so purchased as collateral to secure the payment of Participant's obligation to the Company under the promissory note; provided, however, that the Committee may require or accept other or additional forms of collateral to secure the payment of such obligation and, in any event, the Company will have full recourse against the Participant under the promissory note notwithstanding any pledge of the Participant's Shares or other collateral. In connection with any pledge of the Shares, Participant will be required to execute and deliver a written pledge agreement in such form as the Committee will from time to time approve. The Shares purchased with the promissory note may be released from the pledge on a pro rata basis as the promissory note is paid. 15. EXCHANGE AND BUYOUT OF AWARDS. The Committee may, at any time or from time to time, authorize the Company, with the consent of the respective Participants, to issue new Awards in exchange for the surrender and cancellation of any or all outstanding Awards. The Committee may at any time buy from a Participant an Award previously granted with payment in cash, Shares (including Restricted Stock) or other consideration, based on such terms and conditions as the Committee and the Participant may agree. 16. SECURITIES LAW AND OTHER REGULATORY COMPLIANCE. An Award will not be effective unless such Award is in compliance with all applicable federal and state securities laws, rules and regulations of any governmental body, and the requirements of any stock exchange or automated quotation system upon which the Shares may then be listed or quoted, as they are in effect on the date of grant of the Award and also on the date of exercise or other issuance. Notwithstanding any other provision in this Plan, the Company will have no obligation to issue or deliver certificates for Shares under this Plan prior to: (a) obtaining any approvals from governmental agencies that the Company determines are necessary or advisable; and/or (b) completion of any registration or other qualification of such Shares under any state or federal law or ruling of any governmental body that the Company determines to be necessary or advisable. The Company will be under no obligation to register the Shares with the SEC or to effect compliance with the registration, qualification or listing requirements of any state securities laws, stock exchange or automated quotation system, and the Company will have no liability for any inability or failure to do so. 17. NO OBLIGATION TO EMPLOY. Nothing in this Plan or any Award granted under this Plan will confer or be deemed to confer on any Participant any right to continue in the employ of, or to continue any other relationship with, the Company or any Parent or Subsidiary of the Company or limit in any way the right of the Company or any Parent or Subsidiary of the Company to terminate Participant's employment or other relationship at any time, with or without cause. 18. CORPORATE TRANSACTIONS. 18.1 Assumption or Replacement of Awards by Successor. Except for automatic grants to Outside Directors pursuant to Section 9 hereof, in the event of (a) a dissolution or liquidation of the Company, (b) a merger or consolidation in which the Company is not the surviving corporation (other than a merger or consolidation with a wholly-owned subsidiary, a reincorporation of the Company in a different jurisdiction, or other transaction in which there is no substantial change in the stockholders of the Company or their relative stock 9 10 Niku Corporation 2000 Equity Incentive Plan holdings and the Awards granted under this Plan are assumed, converted or replaced by the successor corporation, which assumption will be binding on all Participants), (c) a merger in which the Company is the surviving corporation but after which the stockholders of the Company immediately prior to such merger (other than any stockholder that merges, or which owns or controls another corporation that merges, with the Company in such merger) cease to own their shares or other equity interest in the Company, (d) the sale of substantially all of the assets of the Company, or (e) the acquisition, sale, or transfer of more than 50% of the outstanding shares of the Company by tender offer or similar transaction (each, a "CORPORATE TRANSACTION"),(i) the vesting of all outstanding Awards will accelerate as to an additional 25% of the Shares that are unvested on the date of the Corporate Transaction and, (ii) thereafter, unless otherwise set forth below, all unvested shares subject to outstanding Awards will continue to vest in equal monthly installments over the remaining original vesting term as set forth in the Award Agreement. Upon a Corporate Transaction all outstanding Awards shall be assumed by the successor or acquiring corporation (if any), which assumption will be binding on all Participants. In the alternative, the successor or acquiring corporation may substitute equivalent Awards or provide substantially similar consideration to Participants as was provided to shareholders (after taking into account the existing provisions of the Awards). The successor corporation may also issue, in place of outstanding unvested Shares of the Company held by the Participants, substantially similar shares or other property subject to repurchase restrictions no less favorable to the Participant. In the event such successor corporation (if any) refuses to assume or substitute unvested Awards, as provided above, pursuant to a Corporate Transaction described in this Subsection 18.1, such unvested Awards will expire on such Corporate Transaction at such time and on such conditions as the Committee will determine. Notwithstanding anything in this Plan to the contrary, the Committee may, in its sole discretion, provide that the vesting of any or all Awards granted pursuant to this Plan will accelerate upon a Corporate Transaction described in this Section 18. If the Committee exercises such discretion with respect to Awards, such Awardss will become exercisable in full prior to the consummation of such event at such time and on such conditions as the Committee determines, and if such Awardss are not exercised prior to the consummation of the Corporate Transaction, they shall terminate at such time as determined by the Committee. 18.2 Other Treatment of Awards. Subject to any greater rights granted to Participants under the foregoing provisions of this Section 18, in the event of the occurrence of any Corporate Transaction described in Section 18.1, any outstanding Awards will be treated as provided in the applicable agreement or plan of merger, consolidation, dissolution, liquidation, or sale of assets. 18.3 Assumption of Awards by the Company. The Company, from time to time, also may substitute or assume outstanding awards granted by another company, whether in connection with an acquisition of such other company or otherwise, by either; (a) granting an Award under this Plan in substitution of such other company's award; or (b) assuming such award as if it had been granted under this Plan if the terms of such assumed award could be applied to an Award granted under this Plan. Such substitution or assumption will be permissible if the holder of the substituted or assumed award would have been eligible to be granted an Award under this Plan if the other company had applied the rules of this Plan to such grant. In the event the Company assumes an award granted by another company, the terms and conditions of such award will remain unchanged (except that the exercise price and the number and nature of Shares issuable upon exercise of any such option will be adjusted appropriately pursuant to Section 424(a) of the Code). In the event the Company elects to grant a new Option rather than assuming an existing option, such new Option may be granted with a similarly adjusted Exercise Price. 19. ADOPTION AND STOCKHOLDER APPROVAL. This Plan will become effective on the date on which the registration statement filed by the Company with the SEC under the Securities Act registering the initial public offering of the Company's Common Stock is declared effective by the SEC (the "EFFECTIVE DATE"). This Plan shall be approved by the stockholders of the Company (excluding Shares issued pursuant to this Plan), consistent with applicable laws, within twelve (12) months before or after the date this Plan is adopted by the Board. Upon the Effective Date, the Committee may grant Awards pursuant to this Plan; provided, however, that: (a) no Option may be exercised prior to initial stockholder approval of this Plan; (b) no Option granted pursuant to an increase in the number of Shares subject to this Plan approved by the Board will be exercised prior to the time such increase has been approved by the stockholders of the Company; (c) in the event that initial stockholder approval is not obtained within the time period provided herein, all Awards granted hereunder shall be cancelled, any Shares issued pursuant to any Awards shall be cancelled and any purchase of Shares issued hereunder shall be rescinded; 10 11 Niku Corporation 2000 Equity Incentive Plan and (d) in the event that stockholder approval of such increase is not obtained within the time period provided herein, all Awards granted pursuant to such increase will be cancelled, any Shares issued pursuant to any Award granted pursuant to such increase will be cancelled, and any purchase of Shares pursuant to such increase will be rescinded. 20. TERM OF PLAN/GOVERNING LAW. Unless earlier terminated as provided herein, this Plan will terminate ten (10) years from the date this Plan is adopted by the Board or, if earlier, the date of stockholder approval. This Plan and all agreements thereunder shall be governed by and construed in accordance with the laws of the State of California. 21. AMENDMENT OR TERMINATION OF PLAN. The Board may at any time terminate or amend this Plan in any respect, including without limitation amendment of any form of Award Agreement or instrument to be executed pursuant to this Plan; provided, however, that the Board will not, without the approval of the stockholders of the Company, amend this Plan in any manner that requires such stockholder approval. 22. NONEXCLUSIVITY OF THE PLAN. Neither the adoption of this Plan by the Board, the submission of this Plan to the stockholders of the Company for approval, nor any provision of this Plan will be construed as creating any limitations on the power of the Board to adopt such additional compensation arrangements as it may deem desirable, including, without limitation, the granting of stock options and bonuses otherwise than under this Plan, and such arrangements may be either generally applicable or applicable only in specific cases. 23. DEFINITIONS. As used in this Plan, the following terms will have the following meanings: "AWARD" means any award under this Plan, including any Option, Restricted Stock or Stock Bonus. "AWARD AGREEMENT" means, with respect to each Award, the signed written agreement between the Company and the Participant setting forth the terms and conditions of the Award. "BOARD" means the Board of Directors of the Company. "CAUSE" means the commission of an act of theft, embezzlement, fraud, dishonesty or a breach of fiduciary duty to the Company or a Parent or Subsidiary of the Company. "CODE" means the Internal Revenue Code of 1986, as amended. "COMMITTEE" means the Compensation Committee of the Board. "COMPANY" means NIKU Corporation or any successor corporation. "DISABILITY" means a disability, whether temporary or permanent, partial or total, as determined by the Committee. "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended. "EXERCISE PRICE" means the price at which a holder of an Option may purchase the Shares issuable upon exercise of the Option. "FAIR MARKET VALUE" means, as of any date, the value of a share of the Company's Common Stock determined as follows: 11 12 Niku Corporation 2000 Equity Incentive Plan (a) if such Common Stock is then quoted on the Nasdaq National Market, its closing price on the Nasdaq National Market on the date of determination as reported in The Wall Street Journal; (b) if such Common Stock is publicly traded and is then listed on a national securities exchange, its closing price on the date of determination on the principal national securities exchange on which the Common Stock is listed or admitted to trading as reported in The Wall Street Journal; (c) if such Common Stock is publicly traded but is not quoted on the Nasdaq National Market nor listed or admitted to trading on a national securities exchange, the average of the closing bid and asked prices on the date of determination as reported in The Wall Street Journal; (d) in the case of an Award made on the Effective Date, the price per share at which shares of the Company's Common Stock are initially offered for sale to the public by the Company's underwriters in the initial public offering of the Company's Common Stock pursuant to a registration statement filed with the SEC under the Securities Act; or (e) if none of the foregoing is applicable, by the Committee in good faith. "FAMILY MEMBER" includes any of the following: (a) child, stepchild, grandchild, parent, stepparent, grandparent, spouse, former spouse, sibling, niece, nephew, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law of the Participant, including any such person with such relationship to the Participant by adoption; (b) any person (other than a tenant or employee) sharing the Participant's household; (c) a trust in which the persons in (a) and (b) have more than fifty percent of the beneficial interest; (d) a foundation in which the persons in (a) and (b) or the Participant control the management of assets; or (e) any other entity in which the persons in (a) and (b) or the Participant own more than fifty percent of the voting interest. "INSIDER" means an officer or director of the Company or any other person whose transactions in the Company's Common Stock are subject to Section 16 of the Exchange Act. "OPTION" means an award of an option to purchase Shares pursuant to Section 5. "OUTSIDE DIRECTOR" means a member of the Board who is not an employee of the Company or any Parent, Subsidiary or Affiliate of the Company. "PARENT" means any corporation (other than the Company) in an unbroken chain of corporations ending with the Company if each of such corporations other than the Company owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in such chain. "PARTICIPANT" means a person who receives an Award under this Plan. 12 13 Niku Corporation 2000 Equity Incentive Plan "PERFORMANCE FACTORS" means the factors selected by the Committee from among the following measures to determine whether the performance goals established by the Committee and applicable to Awards have been satisfied: (a) Net revenue and/or net revenue growth; (b) Earnings before income taxes and amortization and/or earnings before income taxes and amortization growth; (c) Operating income and/or operating income growth; (d) Net income and/or net income growth; (e) Earnings per share and/or earnings per share growth; (f) Total stockholder return and/or total stockholder return growth; (g) Return on equity; (h) Operating cash flow return on income; (i) Adjusted operating cash flow return on income; (j) Economic value added; and (k) Individual confidential business objectives. "PERFORMANCE PERIOD" means the period of service determined by the Committee, not to exceed five years, during which years of service or performance is to be measured for Restricted Stock Awards or Stock Bonuses. "PLAN" means this NIKU Corporation 2000 Equity Incentive Plan, as amended from time to time. "RESTRICTED STOCK AWARD" means an award of Shares pursuant to Section 6. "SEC" means the Securities and Exchange Commission. "SECURITIES ACT" means the Securities Act of 1933, as amended. "SHARES" means shares of the Company's Common Stock reserved for issuance under this Plan, as adjusted pursuant to Sections 2 and 18, and any successor security. "STOCK BONUS" means an award of Shares, or cash in lieu of Shares, pursuant to Section 7. "SUBSIDIARY" means any corporation (other than the Company) in an unbroken chain of corporations beginning with the Company if each of the corporations other than the last corporation in the unbroken chain owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in such chain. "TERMINATION" or "TERMINATED" means, for purposes of this Plan with respect to a Participant, that the Participant has for any reason ceased to provide services as an employee, officer, director, consultant, independent contractor, or advisor to the Company or a Parent or Subsidiary of the Company. An employee will not be deemed to have ceased to provide services in the case of (i) sick leave, (ii) military leave, or (iii) any other 13 14 Niku Corporation 2000 Equity Incentive Plan leave of absence approved by the Committee, provided, that such leave is for a period of not more than 90 days, unless reemployment upon the expiration of such leave is guaranteed by contract or statute or unless provided otherwise pursuant to formal policy adopted from time to time by the Company and issued and promulgated to employees in writing. In the case of any employee on an approved leave of absence, the Committee may make such provisions respecting suspension of vesting of the Award while on leave from the employ of the Company or a Subsidiary as it may deem appropriate, except that in no event may an Option be exercised after the expiration of the term set forth in the Option agreement. The Committee will have sole discretion to determine whether a Participant has ceased to provide services and the effective date on which the Participant ceased to provide services (the "TERMINATION DATE"). "UNVESTED SHARES" means "Unvested Shares" as defined in the Award Agreement. "VESTED SHARES" means "Vested Shares" as defined in the Award Agreement. 14 EX-10.04 16 EX-10.04 1 EXHIBIT 10.04 NIKU CORPORATION 2000 EMPLOYEE STOCK PURCHASE PLAN As Adopted December 8, 1999 1. ESTABLISHMENT OF PLAN. NIKU Corporation (the "COMPANY") proposes to grant options for purchase of the Company's Common Stock to eligible employees of the Company and its Participating Subsidiaries (as hereinafter defined) pursuant to this Employee Stock Purchase Plan (this "PLAN"). For purposes of this Plan, "PARENT CORPORATION" and "SUBSIDIARY" shall have the same meanings as "parent corporation" and "subsidiary corporation" in Sections 424(e) and 424(f), respectively, of the Internal Revenue Code of 1986, as amended (the "CODE"). "PARTICIPATING SUBSIDIARIES" are Parent Corporations or Subsidiaries that the Board of Directors of the Company (the "BOARD") designates from time to time as corporations that shall participate in this Plan. The Company intends this Plan to qualify as an "employee stock purchase plan" under Section 423 of the Code (including any amendments to or replacements of such Section), and this Plan shall be so construed. Any term not expressly defined in this Plan but defined for purposes of Section 423 of the Code shall have the same definition herein. A total of 1,000,000 shares of the Company's Common Stock is reserved for issuance under this Plan. In addition, on each January 1, the aggregate number of shares of the Company's Common Stock reserved for issuance under the Plan shall be increased automatically by a number of shares equal to 1% of the total number of outstanding shares of the Company Common Stock on the immediately preceding December 31; provided, that the Board or the Committee may in its sole discretion reduce the amount of the increase in any particular year; and, provided further, that the aggregate number of shares issued over the term of this Plan shall not exceed 10,000,000 shares. Such number shall be subject to adjustments effected in accordance with Section 14 of this Plan. 2. PURPOSE. The purpose of this Plan is to provide eligible employees of the Company and Participating Subsidiaries with a convenient means of acquiring an equity interest in the Company through payroll deductions, to enhance such employees' sense of participation in the affairs of the Company and Participating Subsidiaries, and to provide an incentive for continued employment. 3. ADMINISTRATION. This Plan shall be administered by the Compensation Committee of the Board (the "COMMITTEE"). Subject to the provisions of this Plan and the limitations of Section 423 of the Code or any successor provision in the Code, all questions of interpretation or application of this Plan shall be determined by the Committee and its decisions shall be final and binding upon all participants. Members of the Committee shall receive no compensation for their services in connection with the administration of this Plan, other than standard fees as established from time to time by the Board for services rendered by Board members serving on Board committees. All expenses incurred in connection with the administration of this Plan shall be paid by the Company. 4. ELIGIBILITY. Any employee of the Company or the Participating Subsidiaries is eligible to participate in an Offering Period (as hereinafter defined) under this Plan except the following: (a) employees who are not employed by the Company or a Participating Subsidiary prior to the beginning of such Offering Period or prior to such other time period as specified by the Committee, except that employees who are employed on the Effective Date of the Registration Statement filed by the Company with the Securities and Exchange Commission ("SEC") under the Securities Act of 1933, as amended (the "SECURITIES ACT") registering the initial public offering of the Company's Common Stock shall be eligible to participate in the first Offering Period under the Plan; (b) employees who are customarily employed for twenty (20) hours or less per week; (c) employees who are customarily employed for five (5) months or less in a calendar year; (d) employees who, together with any other person whose stock would be attributed to such employee pursuant to Section 424(d) of the Code, own stock or hold options to purchase stock possessing five 2 NIKU Corporation 2000 Employee Stock Purchase Plan percent (5%) or more of the total combined voting power or value of all classes of stock of the Company or any of its Participating Subsidiaries or who, as a result of being granted an option under this Plan with respect to such Offering Period, would own stock or hold options to purchase stock possessing five percent (5%) or more of the total combined voting power or value of all classes of stock of the Company or any of its Participating Subsidiaries; and (e) individuals who provide services to the Company or any of its Participating Subsidiaries as independent contractors who are reclassified as common law employees for any reason except for federal income and employment tax purposes. 5. OFFERING DATES. The offering periods of this Plan (each, an "OFFERING PERIOD") shall be of twenty-four (24) months duration commencing on March 1 and September 1 of each year and ending on February 28 and August 31 of each year; provided, however, that the first such Offering Period shall commence on the first business day on which price quotations for the Company's Common Stock are available on the Nasdaq National Market (the "FIRST OFFERING DATE") and shall end on February 28, 2002. Except for the first Offering Period, each Offering Period shall consist of four (4) six month purchase periods (individually, a "PURCHASE PERIOD") during which payroll deductions of the participants are accumulated under this Plan. The first Offering Period shall consist of no more than five and no fewer than three Purchase Periods, any of which may be greater or less than six months as determined by the Committee. The first business day of each Offering Period is referred to as the "OFFERING DATE". The last business day of each Purchase Period is referred to as the "PURCHASE DATE". The Committee shall have the power to change the Offering Dates, the Purchase Dates and the duration of Offering Periods or Purchase Periods without stockholder approval if such change is announced prior to the relevant Offering Period or prior to such other time period as specified by the Committee. 6. PARTICIPATION IN THIS PLAN. Eligible employees may become participants in an Offering Period under this Plan on the first Offering Date after satisfying the eligibility requirements by delivering a subscription agreement to the Company prior to such Offering Date, or such other time period as specified by the Committee. Notwithstanding the foregoing, the Committee may set a later time for filing the subscription agreement authorizing payroll deductions for all eligible employees with respect to a given Offering Period. An eligible employee who does not deliver a subscription agreement to the Company by such date after becoming eligible to participate in such Offering Period shall not participate in that Offering Period or any subsequent Offering Period unless such employee enrolls in this Plan by filing a subscription agreement with the Company prior to such Offering Date, or such other time period as specified by the Committee. Once an employee becomes a participant in an Offering Period, such employee will automatically participate in the Offering Period commencing immediately following the last day of the prior Offering Period unless the employee withdraws or is deemed to withdraw from this Plan or terminates further participation in the Offering Period as set forth in Section 11 below. Such participant is not required to file any additional subscription agreement in order to continue participation in this Plan. 7. GRANT OF OPTION ON ENROLLMENT. Enrollment by an eligible employee in this Plan with respect to an Offering Period will constitute the grant (as of the Offering Date) by the Company to such employee of an option to purchase on the Purchase Date up to that number of shares of Common Stock of the Company determined by dividing (a) the amount accumulated in such employee's payroll deduction account during such Purchase Period by (b) the lower of (i) eighty-five percent (85%) of the fair market value of a share of the Company's Common Stock on the Offering Date (but in no event less than the par value of a share of the Company's Common Stock), or (ii) eighty-five percent (85%) of the fair market value of a share of the Company's Common Stock on the Purchase Date (but in no event less than the par value of a share of the Company's Common Stock), provided, however, that the number of shares of the Company's Common Stock subject to any option granted pursuant to this Plan shall not exceed the lesser of (x) the maximum number of shares set by the Committee pursuant to Section 10(c) below with respect to the applicable Purchase Date, or (y) the maximum number of shares which may be purchased pursuant to Section 10(b) below with respect to the applicable Purchase Date. The fair market value of a share of the Company's Common Stock shall be determined as provided in Section 8 below. 8. PURCHASE PRICE. The purchase price per share at which a share of Common Stock will be sold in any Offering Period shall be eighty-five percent (85%) of the lesser of: 2 3 NIKU Corporation 2000 Employee Stock Purchase Plan (a) The fair market value on the Offering Date; or (b) The fair market value on the Purchase Date. For purposes of this Plan, the term "FAIR MARKET VALUE" means, as of any date, the value of a share of the Company's Common Stock determined as follows: (a) if such Common Stock is then quoted on the Nasdaq National Market, its closing price on the Nasdaq National Market on the date of determination as reported in The Wall Street Journal; (b) if such Common Stock is publicly traded and is then listed on a national securities exchange, its closing price on the date of determination on the principal national securities exchange on which the Common Stock is listed or admitted to trading as reported in The Wall Street Journal; (c) if such Common Stock is publicly traded but is not quoted on the Nasdaq National Market nor listed or admitted to trading on a national securities exchange, the average of the closing bid and asked prices on the date of determination as reported in The Wall Street Journal; or (d) if none of the foregoing is applicable, by the Board in good faith, which in the case of the First Offering Date will be the price per share at which shares of the Company's Common Stock are initially offered for sale to the public by the Company's underwriters in the initial public offering of the Company's Common Stock pursuant to a registration statement filed with the SEC under the Securities Act. 9. PAYMENT OF PURCHASE PRICE; CHANGES IN PAYROLL DEDUCTIONS; ISSUANCE OF SHARES. (a) The purchase price of the shares is accumulated by regular payroll deductions made during each Offering Period. The deductions are made as a percentage of the participant's compensation in one percent (1%) increments not less than one percent (1%), nor greater than ten percent (10%) or such lower limit set by the Committee; provided, however, that no participant shall be entitled to deduct more than $10,000 on any Purchase Period (or such other maximum amount as determined by the Committee prior to or during any Purchase Period). Compensation shall mean all W-2 cash compensation, including, but not limited to, base salary, wages, commissions, overtime, shift premiums and bonuses, plus draws against commissions, provided, however, that for purposes of determining a participant's compensation, any election by such participant to reduce his or her regular cash remuneration under Sections 125 or 401(k) of the Code shall be treated as if the participant did not make such election. Payroll deductions shall commence on the first payday of the Offering Period and shall continue to the end of the Offering Period unless sooner altered or terminated as provided in this Plan. (b) A participant may increase or decrease the rate of payroll deductions during an Offering Period by filing with the Company a new authorization for payroll deductions, in which case the new rate shall become effective for the next payroll period commencing after the Company's receipt of the authorization and shall continue for the remainder of the Offering Period unless changed as described below. Such change in the rate of payroll deductions may be made at any time during an Offering Period, but not more than one (1) change may be made effective during any Purchase Period. A participant may increase or decrease the rate of payroll deductions for any subsequent Offering Period by filing with the Company a new authorization for payroll deductions prior to the beginning of such Offering Period, or such other time period as specified by the Committee. (c) A participant may reduce his or her payroll deduction percentage to zero during an Offering Period by filing with the Company a request for cessation of payroll deductions. Such reduction shall be effective beginning with the next payroll period after the Company's receipt of the request and no further payroll deductions will be made for the duration of the Offering Period. Payroll deductions credited to the participant's account prior to the effective date of the request shall be used to purchase shares of Common Stock of the Company in accordance with Section (e) below. A participant may not resume making payroll deductions during the Offering Period in which he or she reduced his or her payroll deductions to zero. 3 4 NIKU Corporation 2000 Employee Stock Purchase Plan (d) All payroll deductions made for a participant are credited to his or her account under this Plan and are deposited with the general funds of the Company. No interest accrues on the payroll deductions. All payroll deductions received or held by the Company may be used by the Company for any corporate purpose, and the Company shall not be obligated to segregate such payroll deductions. (e) On each Purchase Date, so long as this Plan remains in effect and provided that the participant has not submitted a signed and completed withdrawal form before that date which notifies the Company that the participant wishes to withdraw from that Offering Period under this Plan and have all payroll deductions accumulated in the account maintained on behalf of the participant as of that date returned to the participant, the Company shall apply the funds then in the participant's account to the purchase of whole shares of Common Stock reserved under the option granted to such participant with respect to the Offering Period to the extent that such option is exercisable on the Purchase Date. The purchase price per share shall be as specified in Section 8 of this Plan. Any cash remaining in a participant's account after such purchase of shares shall be refunded to such participant in cash, without interest; provided, however that any amount remaining in such participant's account on a Purchase Date which is less than the amount necessary to purchase a full share of Common Stock of the Company shall be carried forward, without interest, into the next Purchase Period or Offering Period, as the case may be. In the event that this Plan has been oversubscribed, all funds not used to purchase shares on the Purchase Date shall be returned to the participant, without interest. No Common Stock shall be purchased on a Purchase Date on behalf of any employee whose participation in this Plan has terminated prior to such Purchase Date. (f) As promptly as practicable after the Purchase Date, the Company shall issue shares for the participant's benefit representing the shares purchased upon exercise of his or her option. (g) During a participant's lifetime, his or her option to purchase shares hereunder is exercisable only by him or her. The participant will have no interest or voting right in shares covered by his or her option until such option has been exercised. 10. LIMITATIONS ON SHARES TO BE PURCHASED. (a) No participant shall be entitled to purchase stock under this Plan at a rate which, when aggregated with his or her rights to purchase stock under all other employee stock purchase plans of the Company or any Subsidiary, exceeds $25,000 in fair market value, determined as of the Offering Date (or such other limit as may be imposed by the Code) for each calendar year in which the employee participates in this Plan. The Company shall automatically suspend the payroll deductions of any participant as necessary to enforce such limit provided that when the Company automatically resumes such payroll deductions, the Company must apply the rate in effect immediately prior to such suspension. (b) No more than two hundred percent (200%) of the number of shares determined by using eighty-five percent (85%) of the fair market value of a share of the Company's Common Stock on the Offering Date as the denominator may be purchased by a participant on any single Purchase Date. (c) No participant shall be entitled to purchase more than the Maximum Share Amount (as defined below) on any single Purchase Date. All participants shall not be entitled to purchase more than 500,000 shares (or such other maximum number of shares as determined by the Committee) of the Company's Common Stock in the aggregate on any single Purchase Date. Prior to the commencement of any Offering Period, or prior to such time period as specified by the Committee, the Committee may, in its sole discretion, set a maximum number of shares which may be purchased by any employee at any single Purchase Date (hereinafter the "MAXIMUM SHARE AMOUNT"). The Maximum Share Amount shall be 2,000 shares of the Company's Common Stock (or such other Maximum Share Amount as determined by the Committee). In no event shall the Maximum Share Amount exceed the amounts permitted under Section 10(b) above. If a new Maximum Share Amount is set, then all participants must be notified of such Maximum Share Amount prior to the commencement of the next Offering Period. The 4 5 NIKU Corporation 2000 Employee Stock Purchase Plan Maximum Share Amount shall continue to apply with respect to all succeeding Purchase Dates and Offering Periods unless revised by the Committee as set forth above. (d) If the number of shares to be purchased on a Purchase Date by all employees participating in this Plan exceeds the number of shares then available for issuance under this Plan, then the Company will make a pro rata allocation of the remaining shares in as uniform a manner as shall be reasonably practicable and as the Committee shall determine to be equitable. In such event, the Company shall give written notice of such reduction of the number of shares to be purchased under a participant's option to each participant affected. (e) Any payroll deductions accumulated in a participant's account which are not used to purchase stock due to the limitations in this Section 10 shall be returned to the participant as soon as practicable after the end of the applicable Purchase Period, without interest. 11. WITHDRAWAL. (a) Each participant may withdraw from an Offering Period under this Plan by signing and delivering to the Company a written notice to that effect on a form provided for such purpose. Such withdrawal may be elected at any time prior to the end of an Offering Period, or such other time period as specified by the Committee. (b) Upon withdrawal from this Plan, the accumulated payroll deductions shall be returned to the withdrawn participant, without interest, and his or her interest in this Plan shall terminate. In the event a participant voluntarily elects to withdraw from this Plan, he or she may not resume his or her participation in this Plan during the same Offering Period, but he or she may participate in any Offering Period under this Plan which commences on a date subsequent to such withdrawal by filing a new authorization for payroll deductions in the same manner as set forth in Section 6 above for initial participation in this Plan. (c) If the Fair Market Value on the first day of the current Offering Period in which a participant is enrolled is higher than the Fair Market Value on the first day of any subsequent Offering Period, the Company will automatically enroll such participant in the subsequent Offering Period. Any funds accumulated in a participant's account prior to the first day of such subsequent Offering Period will be applied to the purchase of shares on the Purchase Date immediately prior to the first day of such subsequent Offering Period, if any. 12. TERMINATION OF EMPLOYMENT. Termination of a participant's employment for any reason, including retirement, death or the failure of a participant to remain an eligible employee of the Company or of a Participating Subsidiary, immediately terminates his or her participation in this Plan. In such event, the payroll deductions credited to the participant's account will be returned to him or her or, in the case of his or her death, to his or her legal representative, without interest. For purposes of this Section 12, an employee will not be deemed to have terminated employment or failed to remain in the continuous employ of the Company or of a Participating Subsidiary in the case of sick leave, military leave, or any other leave of absence approved by the Board; provided that such leave is for a period of not more than ninety (90) days or reemployment upon the expiration of such leave is guaranteed by contract or statute. 13. RETURN OF PAYROLL DEDUCTIONS. In the event a participant's interest in this Plan is terminated by withdrawal, termination of employment or otherwise, or in the event this Plan is terminated by the Board, the Company shall deliver to the participant all payroll deductions credited to such participant's account. No interest shall accrue on the payroll deductions of a participant in this Plan. 14. CAPITAL CHANGES. Subject to any required action by the stockholders of the Company, the number of shares of Common Stock covered by each option under this Plan which has not yet been exercised and the number of shares of Common Stock which have been authorized for issuance under this Plan but have not yet been placed under option (collectively, the "RESERVES"), as well as the price per share of Common Stock covered by each option under this Plan which has not yet been exercised, shall be proportionately adjusted for any increase or decrease in the number of issued and outstanding shares of Common Stock of the Company resulting from a stock 5 6 NIKU Corporation 2000 Employee Stock Purchase Plan split or the payment of a stock dividend (but only on the Common Stock) or any other increase or decrease in the number of issued and outstanding shares of Common Stock effected without receipt of any consideration by the Company; provided, however, that conversion of any convertible securities of the Company shall not be deemed to have been "effected without receipt of consideration". Such adjustment shall be made by the Committee, whose determination shall be final, binding and conclusive. Except as expressly provided herein, no issue by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number or price of shares of Common Stock subject to an option. In the event of the proposed dissolution or liquidation of the Company, the Offering Period will terminate immediately prior to the consummation of such proposed action, unless otherwise provided by the Committee. The Committee may, in the exercise of its sole discretion in such instances, declare that this Plan shall terminate as of a date fixed by the Committee and give each participant the right to purchase shares under this Plan prior to such termination. In the event of (i) a merger or consolidation in which the Company is not the surviving corporation (other than a merger or consolidation with a wholly-owned subsidiary, a reincorporation of the Company in a different jurisdiction, or other transaction in which there is no substantial change in the stockholders of the Company or their relative stock holdings and the options under this Plan are assumed, converted or replaced by the successor corporation, which assumption will be binding on all participants), (ii) a merger in which the Company is the surviving corporation but after which the stockholders of the Company immediately prior to such merger (other than any stockholder that merges, or which owns or controls another corporation that merges, with the Company in such merger) cease to own their shares or other equity interest in the Company, (iii) the sale of all or substantially all of the assets of the Company or (iv) the acquisition, sale, or transfer of more than 50% of the outstanding shares of the Company by tender offer or similar transaction, the Plan will continue with regard to Offering Periods that commenced prior to the closing of the proposed transaction and shares will be purchased based on the Fair Market Value of the surviving corporation's stock on each Purchase Date, unless otherwise provided by the Committee consistent with pooling of interests accounting treatment. The Committee may, if it so determines in the exercise of its sole discretion, also make provision for adjusting the Reserves, as well as the price per share of Common Stock covered by each outstanding option, in the event that the Company effects one or more reorganizations, recapitalizations, rights offerings or other increases or reductions of shares of its outstanding Common Stock, or in the event of the Company being consolidated with or merged into any other corporation. 15. NONASSIGNABILITY. Neither payroll deductions credited to a participant's account nor any rights with regard to the exercise of an option or to receive shares under this Plan may be assigned, transferred, pledged or otherwise disposed of in any way (other than by will, the laws of descent and distribution or as provided in Section 22 below) by the participant. Any such attempt at assignment, transfer, pledge or other disposition shall be void and without effect. 16. REPORTS. Individual accounts will be maintained for each participant in this Plan. Each participant shall receive promptly after the end of each Purchase Period a report of his or her account setting forth the total payroll deductions accumulated, the number of shares purchased, the per share price thereof and the remaining cash balance, if any, carried forward to the next Purchase Period or Offering Period, as the case may be. 17. NOTICE OF DISPOSITION. Each participant shall notify the Company in writing if the participant disposes of any of the shares purchased in any Offering Period pursuant to this Plan if such disposition occurs within two (2) years from the Offering Date or within one (1) year from the Purchase Date on which such shares were purchased (the "NOTICE PERIOD"). The Company may, at any time during the Notice Period, place a legend or legends on any certificate representing shares acquired pursuant to this Plan requesting the Company's transfer agent to notify the Company of any transfer of the shares. The obligation of the participant to provide such notice shall continue notwithstanding the placement of any such legend on the certificates. 6 7 NIKU Corporation 2000 Employee Stock Purchase Plan 18. NO RIGHTS TO CONTINUED EMPLOYMENT. Neither this Plan nor the grant of any option hereunder shall confer any right on any employee to remain in the employ of the Company or any Participating Subsidiary, or restrict the right of the Company or any Participating Subsidiary to terminate such employee's employment. 19. EQUAL RIGHTS AND PRIVILEGES. All eligible employees shall have equal rights and privileges with respect to this Plan so that this Plan qualifies as an "employee stock purchase plan" within the meaning of Section 423 or any successor provision of the Code and the related regulations. Any provision of this Plan which is inconsistent with Section 423 or any successor provision of the Code shall, without further act or amendment by the Company, the Committee or the Board, be reformed to comply with the requirements of Section 423. This Section 19 shall take precedence over all other provisions in this Plan. 20. NOTICES. All notices or other communications by a participant to the Company under or in connection with this Plan shall be deemed to have been duly given when received in the form specified by the Company at the location, or by the person, designated by the Company for the receipt thereof. 21. TERM; STOCKHOLDER APPROVAL. After this Plan is adopted by the Board, this Plan will become effective on the First Offering Date (as defined above). This Plan shall be approved by the stockholders of the Company, in any manner permitted by applicable corporate law, within twelve (12) months before or after the date this Plan is adopted by the Board. No purchase of shares pursuant to this Plan shall occur prior to such stockholder approval. This Plan shall continue until the earlier to occur of (a) termination of this Plan by the Board (which termination may be effected by the Board at any time), (b) issuance of all of the shares of Common Stock reserved for issuance under this Plan, or (c) ten (10) years from the adoption of this Plan by the Board. 22. DESIGNATION OF BENEFICIARY. (a) A participant may file a written designation of a beneficiary who is to receive any shares and cash, if any, from the participant's account under this Plan in the event of such participant's death subsequent to the end of an Purchase Period but prior to delivery to him of such shares and cash. In addition, a participant may file a written designation of a beneficiary who is to receive any cash from the participant's account under this Plan in the event of such participant's death prior to a Purchase Date. (b) Such designation of beneficiary may be changed by the participant at any time by written notice. In the event of the death of a participant and in the absence of a beneficiary validly designated under this Plan who is living at the time of such participant's death, the Company shall deliver such shares or cash to the executor or administrator of the estate of the participant, or if no such executor or administrator has been appointed (to the knowledge of the Company), the Company, in its discretion, may deliver such shares or cash to the spouse or to any one or more dependents or relatives of the participant, or if no spouse, dependent or relative is known to the Company, then to such other person as the Company may designate. 23. CONDITIONS UPON ISSUANCE OF SHARES; LIMITATION ON SALE OF SHARES. Shares shall not be issued with respect to an option unless the exercise of such option and the issuance and delivery of such shares pursuant thereto shall comply with all applicable provisions of law, domestic or foreign, including, without limitation, the Securities Act, the Securities Exchange Act of 1934, as amended, the rules and regulations promulgated thereunder, and the requirements of any stock exchange or automated quotation system upon which the shares may then be listed, and shall be further subject to the approval of counsel for the Company with respect to such compliance. 24. APPLICABLE LAW. The Plan shall be governed by the substantive laws (excluding the conflict of laws rules) of the State of California. 25. AMENDMENT OR TERMINATION OF THIS PLAN. The Board may at any time amend, terminate or extend the term of this Plan, except that any such termination cannot affect options previously granted under this Plan, nor may any amendment make any change in an option previously granted which would adversely affect the right of any participant, nor may any amendment be made without approval of the stockholders of the Company 7 8 NIKU Corporation 2000 Employee Stock Purchase Plan obtained in accordance with Section 21 above within twelve (12) months of the adoption of such amendment (or earlier if required by Section 21) if such amendment would: (a) increase the number of shares that may be issued under this Plan; or (b) change the designation of the employees (or class of employees) eligible for participation in this Plan. Notwithstanding the foregoing, the Board may make such amendments to the Plan as the Board determines to be advisable, if the continuation of the Plan or any Offering Period would result in financial accounting treatment for the Plan that is different from the financial accounting treatment in effect on the date this Plan is adopted by the Board. 8 EX-10.05 17 EX-10.05 1 EXHIBIT 10.05 MID~PENINSULA BANK September 23, 1999 Mr. Mark Nelson Chief Financial Officer NIKU CORPORATION 305 Main Street Redwood City, CA 94063 Dear Mark: We are pleased to provide our terms for the current credit accommodation requested by Niku Corporation. Facility $4,000,000 Revolving Line of Credit BORROWER: Niku Corporation, A Delaware Corporation GUARANTOR: Niku Corporation, A Delaware Corporation AMOUNT & TYPE: $4,000,000 Commercial Revolving Line of Credit PURPOSE: To support cash flows as deemed necessary by borrower INTEREST RATE: Prime Rate (currently 8.25%) + 1% Variable FEE: 0.375% ($15,000) commitment fee, due at funding REPAYMENT: Monthly payments of interest only based on outstanding principal balance. Any outstanding principal balance due at Maturity. MATURITY: 12 months COLLATERAL: Perfected first security interest (Blanket UCC-1 filing) on all company assets including but not limited to accounts receivable, inventory, intangibles, fixed assets and intellectual property CONDITIONS: 1. Borrower, at all times, shall maintain no less than $6,000,000 on deposit with lender. This balance may
2 be held in any combination of Mid-Peninsula Bank depository accounts. 2. Borrower shall maintain, on a monthly basis, minimum Tangible Net Worth of $9,000,000. (Tangible Net Worth is defined as Net Worth, minus Intangibles plus Subordinated Debt acceptable to Bank) 3. Borrower shall maintain all primary depository and operational accounts at Mid-Peninsula Bank. (Excludes investments in securities or other non-bank instruments) 4. Borrower shall provide lender monthly consolidated financial statements and account receivable aging within 20 days of month end. 5. Borrower shall provide lender audited annual financial statement within 120 days of year end. 6. Borrower shall provide lender annual federal return within 15 days of filing.
This facility will be deemed as supported by 80% of eligible receivables and 40% of inventory and equipment. Advances shall be made at the sole discretion of borrower. Submission of monthly borrowing base certificate will be waived at this time. This credit facility shall be made available to you upon presentation and execution of supporting loan documentation as provided in writing to Niku Corporation by the Bank. We anticipate loan documents to be available for signature no later than September 28, 1999. If you have any questions or comments, please feel free to call me direct at 614-5765. We look forward to this opportunity to continue our financial relationship with Niku Corporation. Sincerely, MID-PENINSULA BANK By: V. Michelle Boucher Vice President 3 CORPORATE RESOLUTION TO BORROW
- ---------------------------------------------------------------------------------------------------------------------- PRINCIPAL LOAN DATE MATURITY LOAN NO CALL COLLATERAL ACCOUNT OFFICER INITIALS $4,000,000.00 09-28-1999 10-01-2000 373376955 2000 PC014100102 24 - ---------------------------------------------------------------------------------------------------------------------- References in the shaded area are for Lender's Use only and do not limit the applicability of this document to any particular loan or item. - ----------------------------------------------------------------------------------------------------------------------
BORROWER: NIKU CORPORATION LENDER: MID-PENINSULA BANK 306 MAIN STREET C/O GREATER BAY BANCORP REDWOOD CITY, CA 94063 2860 W. BAYSHORE ROAD PALO ALTO, CA 94303 I, the UNDERSIGNED SECRETARY OR ASSISTANT SECRETARY OF NIKU CORPORATION (THE "CORPORATION"), HEREBY CERTIFY THAT the Corporation is organized and existing under and by virtue of the laws of the State of Delaware as a corporation for profit, with its principal office at 305 Main Street, Redwood City, CA 94063, and is duly authorized to transact business in the State of California. I FURTHER CERTIFY that at a meeting of the Directors of the Corporation, duly called and held on ________________, at which a quorum was present and voting, or by other duly authorized corporate action in lieu of a meeting, the following resolutions were adopted: BE IT RESOLVED, that any one (1) of the following named officers, employees, or agents of this Corporation, whose actual signatures are shown below: NAME POSITION ACTUAL SIGNATURE Farzad Dibachi President/CEO X ---------------------------- acting for and on behalf of the Corporation and as its act and deed be, and he or she hereby is, authorized and empowered: BORROW MONEY. To borrow from time to time from Mid-Peninsula Bank ("Lender"), on such terms as may be agreed upon between the Corporation and Lender, such sum or sums of money as in his or her judgment should be borrowed, without limitation. EXECUTE NOTES. To execute and deliver to Lender the promissory note or notes, or other evidence of credit accommodations of the Corporation, on Lender's forms, at such rates of interest and on such terms as may be agreed upon, evidencing the sums of money so borrowed or any indebtedness of the Corporation to Lender, and also to execute and deliver to Lender one or more renewals, extensions, modifications, refinancings, consolidations, or substitutions for one or more of the notes, any portion of the notes, or any other evidence of credit accommodations. GRANT SECURITY. To mortgage, pledge, transfer, endorse, hypothecate, or otherwise encumber and deliver to Lender, as security for the payment of any loans or credit accommodations so obtained, any promissory notes so executed (including any amendments to or modifications, renewals, and extensions of such promissory notes), or any other or further indebtedness of the Corporation to Lender at any time owing, however the same may be evidenced, any property now or hereafter belonging to the Corporation or in which the Corporation now or hereafter may have an interest, including without limitation all real property and all personal property (tangible or intangible) of the Corporation. Such property may be mortgaged, pledged, transferred, endorsed, hypothecated, or encumbered at the time such loans are obtained or such indebtedness is incurred, or at any other time or times, and may be either in addition to or in lieu of any property theretofore mortgaged, pledged, transferred, endorsed, hypothecated, or encumbered. EXECUTE SECURITY DOCUMENTS. To execute and deliver to Lender the forms of mortgage, deed of trust, pledge agreement, hypothecation agreement, and other security agreements and financing statements which may be required by Lender, and which shall evidence the terms and conditions under and pursuant to which such liens and encumbrances, or any of them, are given; and also to execute and deliver to Lender any other written instruments, any chattel paper, or any other collateral, of any kind or nature, which Lender may deem necessary or proper in connection with or pertaining to the giving of the liens and encumbrances. NEGOTIATE ITEMS. To draw, endorse, and discount with Lender all drafts, trade acceptances, promissory notes, or other evidences of indebtedness payable to or belonging to the Corporation in which the Corporation may have an interest, and either to receive cash for the same or to cause such proceeds to be credited to the account of the Corporation with Lender, or to cause such other disposition of the proceeds derived therefrom as they may deem advisable. FURTHER ACTS. In the case of lines of credit, to designate additional or alternate individuals as being authorized to request advances thereunder, and in all cases, to do and perform such other acts and things, to pay any and all fees and costs, and to execute and deliver such other documents and agreements as he or she may in his or her discretion deem reasonably necessary or proper in order to carry into effect the provisions of these Resolutions. The following person or persons currently are authorized to request advances and authorize payments under the line of credit until Lender receives written notice of revocation of their authority: Farzad Dibachi, Mark Nelson, Tony Swenson and Cathy Bottarini. BE IT FURTHER RESOLVED, that any and all acts authorized pursuant to these Resolutions and performed prior to the passage of these Resolutions are hereby ratified and approved, that these Resolutions shall remain in full force and effect and Lender may rely on these Resolutions until written notice of his or her revocation shall have been delivered to and received by Lender. Any such notice shall not affect any of the Corporation's agreements or commitments in effect at the time notice is given. BE IT FURTHER RESOLVED, that the Corporation will notify Lender in writing at Lender's address shown above (or such other addresses as Lender may designate from time to time) prior to any (a) change in the name of the Corporation, (b) change in the assumed business name(s) of the Corporation, (c) change in the management of the Corporation, (d) change in the authorized signer(s), (e) conversion of the Corporation to a new or different type of business entity, or (f) change in any other aspect of the Corporation that directly or indirectly relates to any agreements between the Corporation and Lender. No change in the name of the Corporation will take effect until after Lender has been notified. I FURTHER CERTIFY that the officer, employee, or agent named above is duly elected, appointed, or employed by or for the Corporation, as the case may be, and occupies the position set opposite the name; that the foregoing Resolutions now stand of record on the books of the Corporation; and that the Resolutions are in full force and effect and have not been modified or revoked in any manner whatsoever. The Corporation has no corporate seal, and therefore, no seal is affixed to this certificate. 4 09-28-1999 CORPORATE RESOLUTION TO BORROW PAGE 2 LOAN NO 373376955 (CONTINUED) - -------------------------------------------------------------------------------- IN TESTIMONY WHEREOF, I HAVE HEREUNTO SET MY HAND ON SEPTEMBER 28, 1999 AND ATTEST THAT THE SIGNATURES, SET OPPOSITE THE NAMES LISTED ABOVE ARE THEIR GENUINE SIGNATURES. CERTIFICATE TO AND ATTESTED BY: X ------------------------------------ X ------------------------------------ NOTE: In case the secretary or other certifying officer is designated by the foregoing resolutions as one of the signing officers, it is advisable to have this certificate signed by a second Officer or Director of the Corporation. - -------------------------------------------------------------------------------- 5
BUSINESS LOAN AGREEMENT PRINCIPAL LOAN MATURITY LOAN NO CALL COLLATERAL ACCOUNT OFFICER INITIALS $4,000,000.00 DATE 10-01- 373376955 2000 PC 24 09-28- 2000 014100102 1999
- ------------------------------------------------------------------------------- References in the shaded area are for Lender's Use only and do not limit the applicability of this document to an particular loan or item. - -------------------------------------------------------------------------------- BORROWER: NIKU CORPORATION LENDER: MID-PENINSULA BANK 306 MAIN STREET C/O GREATER BAY BANCORP REDWOOD CITY, CA 94063 2860 W. BAYSHORE ROAD PALO ALTO, CA 94303 THIS BUSINESS LOAN AGREEMENT between Niku Corporation ("Borrower") and Mid-Peninsula Bank ("Lender") is made and executed on the following terms and conditions. Borrower has received prior commercial loans from Lender or has applied to Lender for a commercial loan or loans and other financial accommodations, including those which may be described on any exhibit or schedule attached to this Agreement. All such loans and financial accommodations, together with all future loans and financial accommodations from Lender to Borrower, are referred to in this Agreement individually as the "Loan" and collectively as the "Loans." Borrower understands and agrees that: (a) In granting, renewing, or extending any Loan, Lender is relying upon Borrower's representations, warranties, and agreements, as set forth in this Agreement; (b) the granting, renewing, or extending of any Loan by Lender at all times shall be subject to Lender's sole judgment and discretion; and (c) all such Loans shall be and shall remain subject to the following terms and conditions of this Agreement. TERM. This Agreement shall be effective as of September 28, 1999, and shall continue thereafter until all Indebtedness of Borrower to Lender has been performed in full and the parties terminate this Agreement in writing. DEFINITIONS. The following words shall have the following meanings when used in this Agreement. Terms not otherwise defined in this Agreement shall have the meanings attributed to such terms in the Uniform Commercial Code. All references to dollar amounts shall mean amounts in lawful money of the United States of America. AGREEMENT. The word "Agreement" means this Business Loan Agreement, as this Business Loan Agreement may be amended or modified from time to time, together with all exhibits and schedules attached to this Business Loan Agreement from time to time. BORROWER. The word "Borrower" means Niku Corporation. The word "Borrower" also includes, as applicable, all subsidiaries and affiliates of Borrower as provided below in the paragraph titled "Subsidiaries and Affiliates." CERCLA. The word "CERCLA" means the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended. CASH FLOW. The words "Cash Flow" mean net income after taxes, and exclusive of extraordinary gains and income, plus depreciation and amortization. COLLATERAL. The word "Collateral" means and includes without limitation all property and assets granted as collateral security for a Loan, whether real or personal property, whether granted directly or indirectly, whether granted now or in the future, and whether granted in the form of a security interest, mortgage, deed of trust, assignment, pledge, chattel mortgage, chattel trust, factor's lien, equipment trust, conditional sale, trust receipt, lien, charge, lien or title retention contract, lease or consignment intended as a security device, or any other security or lien interest whatsoever, whether created by law, contract, or otherwise. DEBT. The word "Debt" means all of Borrower's liabilities excluding Subordinated Debt. ERISA. The word "ERISA" means the Employee Retirement Income Security Act of 1974, as amended. EVENT OF DEFAULT. The words "Event" of Default mean and include without limitation any of the Events of Default set forth below in the section titled "EVENTS OF DEFAULT." GRANTOR. The word "Grantor" means and includes without limitation each and all of the persons or entities granting a Security Interest in any Collateral for the Indebtedness, including without limitation all Borrowers granting such a Security Interest. GUARANTOR. The word "Guarantor" means and includes without limitation each and all of the guarantors, sureties, and accommodation parties in connection with any Indebtedness. INDEBTEDNESS. The word "Indebtedness" means and includes without limitation all Loans, together with all other obligations, debts and liabilities of Borrower to Lender, or any one or more of them, as well as all claims by Lender against Borrower, or any one or more of them; whether now or hereafter existing, voluntary or involuntary, due or not due, absolute or contingent, liquidated or unliquidated; whether Borrower may be liable individually or jointly with others; whether Borrower may be obligated as a guarantor, surety, or otherwise; whether recovery upon such Indebtedness may be or hereafter may become barred by any statute of limitations; and whether such Indebtedness may be or hereafter may become otherwise unenforceable. 6 09-28-1999 BUSINESS LOAN AGREEMENT Page 2 Loan No 373376955 (Continued) LENDER: The Word "Lender" means Mid-Peninsula Bank, its successors and assigns. LIQUID ASSETS. The words "Liquid Assets" mean Borrower's cash on hand plus Borrower's readily marketable securities. LOAN. The word "Loan" or "Loans" means and includes without limitation any and all commercial loans and financial accommodations from Lender to Borrower, whether now or hereafter existing, and however evidenced, including without limitation those loans and financial accommodations described herein or described on any exhibit or schedule attached to this Agreement from time to time. NOTE. The word "Note" means and includes without limitation Borrower's promissory note or notes, if any, evidencing Borrower's Loan obligations in favor of Lender, as well as any substitute, replacement or refinancing note or notes therefor. PERMITTED LIENS. The words "Permitted Liens" mean: (a) liens and security interests securing Indebtedness owed by Borrower to Lender; (b) liens for taxes, assessments, or similar charges either not yet due or being contested in good faith; (c) liens of materialmen, mechanics, warehousemen, or carriers, or other like liens arising in the ordinary course of business and securing obligations which are not yet delinquent; (d) purchase money liens or purchase money security interests upon or in any property acquired or held by Borrower in the ordinary Course Of business to secure indebtedness outstanding on the date of this Agreement or permitted to be incurred under the paragraph of this Agreement titled "Indebtedness and Liens; (e) liens and security interests which, as of the date of this Agreement, have been disclosed to and approved by the Lender in writing; and (f) those liens and security interests which in the aggregate constitute an immaterial and insignificant monetary amount with respect to the net value of Borrower's assets. RELATED DOCUMENTS. The words "Related Documents" mean and include without limitation all promissory notes, credit agreements, loan agreements, environmental agreements, guaranties, security agreements, mortgages, deeds of trust, and all other instruments, agreements and documents, whether now or hereafter existing, executed in connection with the Indebtedness. SECURITY AGREEMENT. The words "Security Agreement" mean and include without limitation any agreements, promises, covenants, arrangements, (this line cut off) Interest SECURITY INTEREST. The words "Security Interest" mean and include without limitation any type of collateral security, whether in the form of a lien, charge, mortgage, deed of trust, assignment, pledge, chattel mortgage, chattel trust, factor's lien, equipment trust, conditional sale, trust receipt, lien or title retention contract, lease or consignment intended as a security device, or any other security or lien interest whatsoever, whether created by law, contract, or otherwise. SARA. The word "SARA" mean the Superfund Amendments and Reauthorization Act of 1986 as now or hereafter amended. SUBORDINATED DEBT. The words "Subordinated Debt" mean indebtedness and liabilities of Borrower which have been subordinated by written agreement to indebtedness owed by Borrower to Lender in form and substance acceptable to Lender. TANGIBLE NET WORTH. The words "Tangible Net Worth" mean Borrower's total assets excluding all intangible assets (i.e., goodwill, trademarks, patents, copyrights, organizational expenses, and similar intangible items, but including leaseholds and leasehold improvements) less total Debt. WORKING CAPITAL. The words "Working Capital" mean Borrower's current assets, excluding prepaid expenses, less Borrower's current liabilities. CONDITIONS PRECEDENT TO EACH ADVANCE. Lender's obligation to make the initial Loan Advance and each subsequent Loan Advance under this Agreement shall be subject to the fulfillment to Lender's satisfaction of all of the conditions set forth in this Agreement and in the Related Documents LOAN DOCUMENTS. Borrower shall provide to Lender in form satisfactory to Lender the following documents for the Loan: (a) the Note, (b) Security Agreements granting to Lender security interests in the Collateral, (c) Financing Statements perfecting Lender's Security Interests; (d) evidence of insurance as required below; and (e) any other documents required under this Agreement or by Lender or its counsel. BORROWER'S AUTHORIZATION. Borrower shall have provided in form and substance satisfactory to Lender property certified resolutions, duly authorizing the execution and delivery of this Agreement, the Note and the Related Documents, and such other authorizations and other documents and instruments as Lender or its counsel, in their sole discretion, may require. PAYMENT OF FEES AND EXPENSES. Borrower shall have paid to lender all fees, charges, and other expenses which are then due and payable as specified in this Agreement or any Related Document. REPRESENTATIONS AND WARRANTIES. The representations and warranties set forth in this Agreement, in the Related Documents, and in any document or certificate delivered to Lender under this Agreement are true and correct. NO EVENT OF DEFAULT. There shall not exist at the time of any advance a condition which would constitute an Event of Default under this Agreement. REPRESENTATIONS AND WARRANTIES. Borrower represents and warrants to Lender, as of the date of this Agreement, as of the date of each disbursement of Loan proceeds, as of the date of any renewal, extension or modification of any Loan, and at all times any Indebtedness exists: 7 09-28-1999 BUSINESS LOAN AGREEMENT Page 3 Loan No 373376955 (Continued) ORGANIZATION. Borrower is a corporation which is duly organized, validly existing, and in good standing under the laws of the State of Delaware and is validly existing and in good standing in all states in which Borrower is doing business. Borrower has the full power and authority to own its properties and to transact the businesses in which it is presently engaged or presently proposes to engage. Borrower also is duly qualified as a foreign corporation and is in good standing in all states in which the failure to so qualify would have a material adverse effect on its businesses or financial condition. AUTHORIZATION. The execution, delivery, and performance of this Agreement and all Related Documents by Borrower, to the extent to be executed, delivered or performed by Borrower, have been duly authorized by all necessary action by Borrower; do not require the consent or approval of any other person, regulatory authority or governmental body, and do not conflict with, result in a violation of, or constitute a default under (a) any provision of its articles of incorporation or organization, or bylaws, or any agreement or other instrument binding upon Borrower or (b) any law, governmental regulation, court decree, or order applicable to Borrower. FINANCIAL INFORMATION. Each financial statement of Borrower supplied to Lender truly and completely disclosed Borrower's financial condition as of the date of the statement, and there has been no material adverse change in Borrower's financial condition subsequent to the date of the most recent financial statement supplied to Lender. Borrower has no material contingent obligations except as disclosed in such financial statements. LEGAL EFFECT. This Agreement constitutes, and any instrument or agreement required hereunder to be given by Borrower when delivered will constitute, legal, valid and binding obligations of Borrower enforceable against Borrower in accordance with their respective terms. PROPERTIES. Except as contemplated by this Agreement or as previously disclosed in Borrower's financial statements or in writing to Lender and as accepted by Lender, and except for property tax liens for taxes not presently due and payable, Borrower owns and has good title to all of Borrower's properties free and clear of all Security Interests, and has not executed any security documents or financing statements relating to such properties. All of Borrower's properties are titled in Borrower's legal name, and Borrower has not used, or filed a financing statement under, any other name for at least the last five (5) years. HAZARDOUS SUBSTANCES. The terms "hazardous waste," "hazardous substance," "disposal," "release," and "threatened release," as used in this Agreement, shall have the same meanings as set forth in the "CERCLA," "SARA," the Hazardous Materials Transportation Act, 49 U.S.C. Section 1801, et seq., the Resource Conservation and Recovery Act, 42 U.S.C. Section 6901, et seq., Chapters 6.5 through 7.7 of Division 20 of the California Health and Safety Code, Section 25100, et seq., or other applicable state or Federal laws, rules, or regulations adopted pursuant to any of the foregoing. Except as disclosed to and acknowledged by Lender in writing, Borrower represents and warrants that: (a) During the period of Borrower's ownership of the properties, there has been no use, generation, manufacture, storage, treatment, disposal, release or threatened release of any hazardous waste or substance by any person on, under, about or from any of the properties, (b) Borrower has no knowledge of, or reason to believe that there has been (i) any use, generation, manufacture, storage, treatment, disposal, release, or threatened release of any hazardous waste or substance on, under, about or from the properties by any prior owners or occupants of any of the properties, or (ii) any actual or threatened litigation or claims of any kind by any person relating to such matters, (c) Neither Borrower nor any tenant, contractor, agent or other authorized user of any of the properties shall use, generate, manufacture, store, treat, dispose of, or release any hazardous waste or substance on, under, about or from any of the properties; and any such activity shall be conducted in compliance with all applicable federal, state, and local laws, regulations, and ordinances, including without limitation those laws, regulations and ordinances described above. Borrower authorizes Lender and its agents to enter upon the properties to make such inspections and tests as Lender may deem appropriate to determine compliance of the properties with this section of the Agreement. Any inspections or tests made by Lender shall be at Borrower's expense and for Lender's purposes only and shall not be construed to create any responsibility or liability on the part of Lender to Borrower or to any other person. The representations and warranties contained herein are based on Borrower's due diligence in investigating the properties for hazardous waste and hazardous substances. Borrower hereby (a) releases and waives any future claims against Lender for indemnity or contribution in the event Borrower becomes liable for cleanup or other costs under any such laws, and (b) agrees to indemnify and hold harmless Lender against any and all claims, losses, liabilities, damages, penalties, and expenses which Lender may directly or indirectly sustain or suffer resulting from a breach of this section of the Agreement or as a consequence of any use, generation, manufacture, storage, disposal, release or threatened release of a hazardous waste or substance on the properties. The provisions of this section of the Agreement, including the obligation to indemnify, shall survive the payment of the Indebtedness and the termination or expiration of this Agreement and shall not be affected by Lender's acquisition of any interest in any of the properties, whether by foreclosure or otherwise. LITIGATION AND CLAIMS. No litigation, claim, investigation, administrative proceeding or similar action (including those for unpaid taxes) against Borrower is pending or threatened, and no other event has occurred which may materially adversely affect Borrower's financial condition or properties, other than litigation, claims, or other events, if any, that have been disclosed to and acknowledged by Lender in writing. TAXES. To the best of Borrower's knowledge, all tax returns and reports of Borrower that are or were required to be filed, have been filed, and all taxes, assessments and other governmental charges have been paid in full, except those presently being or to be contested by Borrower in good faith in the ordinary course of business and for which adequate reserves have been provided. LIEN PRIORITY. Unless otherwise previously disclosed to Lender in writing, Borrower has not entered into or granted any Security Agreements, or permitted the filing or attachment of any Security Interests on or affecting any of the Collateral directly or indirectly securing repayment of Borrower's Loan and Note, that would be prior or that may in any way be superior to Lender's Security Interests and rights in and to such Collateral. 8 09-28-1999 BUSINESS LOAN AGREEMENT Page 4 Loan No 373376955 (Continued) BINDING EFFECT. This Agreement, the Note, all Security Agreements directly or indirectly securing repayment of Borrower's Loan and Note and all of the Related Documents are binding upon Borrower as well as upon Borrower's successors, representatives and assigns, and are legally enforceable in accordance with their respective terms. COMMERCIAL PURPOSES. Borrower intends to use the Loan proceeds solely for business or commercial related purposes. EMPLOYEE BENEFIT PLANS. Each employee benefit plan as to which Borrower may have any liability complies in all material respects with all applicable requirements of law and regulations, and (i) no Reportable Event nor Prohibited Transaction (as defined in ERISA) has occurred with respect to any such plan, (ii) Borrower has not withdrawn from any such plan or initiated steps to do so, (iii) no steps have been taken to terminate any such plan, and (iv) there are no unfunded liabilities other than those previously disclosed to Lender in writing. LOCATION OF BORROWER'S OFFICES AND RECORDS. Borrower's place of business, or Borrower's Chief executive office, if Borrower has more than one place of business, is located at 305 Main Street, Redwood City, CA 94063. Unless Borrower has designated otherwise in writing this location is also the office of offices where Borrower keeps its records concerning the Collateral. YEAR 2000. Borrower warrants and represents that all software utilized in the conduct of Borrower's business will have appropriate capabilities and compatibility for operation to handle calendar dates falling on or after January 1, 2000, and all information pertaining to such calendar dates, in the same manner and with the same functionality as the software does respecting calendar dates falling on or before December 31, 1999. Further, Borrower warrants and represents that the data-related user interface functions, data-fields, and data-related program instructions and functions of the software include the indication of the century. INFORMATION. All information heretofore or contemporaneously herewith furnished by Borrower to Lender for the purposes of or in connection with this Agreement or any transaction contemplated hereby is, and all information hereafter furnished by or on behalf of Borrower to Lender will be, true and accurate in every material respect on the date as of which such information is dated or certified; and none of such information is or will be incomplete by omitting to state any material fact necessary to make such information not misleading. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. Borrower understands and agrees that Lender, without independent investigation, is relying upon the above representations and warranties in extending Loan Advances to Borrower. Borrower further agrees that the foregoing representations and warranties shall be continuing in nature and shall remain in full force and effect until such time as Borrower's Indebtedness shall be paid in full, or until this Agreement shall be terminated in the manner provided above, whichever is the last to occur. AFFIRMATIVE COVENANTS. Borrower covenants and agrees with Lender that, while this Agreement is in effect, Borrower will: LITIGATION. Promptly inform Lender in writing of (a) all material adverse changes in Borrower's financial condition, and (b) all existing and all threatened litigation, claims, investigations, administrative proceedings or similar actions affecting Borrower or any Guarantor which could materially affect the financial condition of Borrower or the financial condition of any Guarantor. FINANCIAL RECORDS. Maintain its books and records in accordance with generally accepted accounting principles, applied on a consistent basis, and permit Lender to examine and audit Borrower's books and records at all reasonable times. FINANCIAL STATEMENTS. Furnish Lender with, as soon as available, but in no event later than ninety (90) days after the end of each fiscal year, Borrower's balance sheet and income statement for the year ended, audited by a certified public accountant satisfactory to Lender. All financial reports required to be provided under this Agreement shall be prepared in accordance with generally accepted accounting principles, applied on a consistent basis, and certified by Borrower as being true and correct. ADDITIONAL INFORMATION. Furnish such additional information and statements, lists of assets and liabilities, agings of receivables and payables, inventory schedules, budgets, forecasts, tax returns, and other reports with respect to Borrower's financial condition and business operations as Lender may request from time to time. FINANCIAL COVENANTS AND RATIOS. Comply with the following covenants and ratios: TANGIBLE NET WORTH. Maintain a minimum Tangible Net Worth of not less than $9,000,000.00. The following provisions shall apply for purposes of determining compliance with the foregoing financial covenants and ratios: TANGIBLE NET WORTH TO BE MAINTAINED ON A MONTHLY BASIS. Except as provided above, all computations made to determine compliance with the requirements contained in this paragraph shall be made in accordance with generally accepted accounting principles, applied on a consistent basis, and certified by Borrower as being true and correct. INSURANCE. Maintain fire and other risk insurance, public liability insurance, and such other insurance as Lender may require with respect to Borrower's properties and operations, in form, amounts, coverages and with insurance companies reasonably acceptable to Lender, Borrower, upon request of Lender, will deliver to Lender from time to time the policies or certificates of insurance in form satisfactory to Lender, including stipulations that coverages will not be cancelled diminished without at least ten (10) days' prior written notice to Lender. Each insurance Policy also shall include an endorsement providing that coverage in favor of Lender will not be impaired in any way by any act, omission or default of Borrower or any other person. In connection with all policies covering assets in which Lender holds or is offered a security interest for the Loans, Borrower will provide Lender with such loss payable or other endorsements as Lender may require. 9 09-28-1999 BUSINESS LOAN AGREEMENT Page 5 LOAN NO. 373376955 (Continued) INSURANCE REPORTS. Furnish to Lender, upon request of Lender, reports on each existing insurance policy showing such information as Lender may reasonably request, including without limitation the following: (a) the name of the insurer; (b) the risks insured; (c) the amount of the Policy; (d) the properties insured; (e) the then current property values on the basis of which insurance has been obtained, and the manner of determining those values; and (f) the expiration date of the policy. In addition, upon request of Lender (however not more often than annually), Borrower will have an independent appraiser satisfactory to Lender determine, as applicable, the actual cash value or replacement cost of any Collateral. The cost of such appraisal shall be paid by Borrower. OTHER AGREEMENTS. Comply with all terms and conditions of all other agreements, whether now or hereafter existing, between Borrower and any other party and notify Lender immediately in writing of any default in connection with any other such agreements. LOAN PROCEEDS. Use all Loan proceeds solely for Borrower's business operations, unless specifically consented to the contrary by Lender in writing. TAXES, CHARGES AND LIENS. Pay and discharge when due all of its indebtedness and obligations, including without limitation all assessments, taxes, governmental charges, levies and liens, of every kind and nature, imposed upon Borrower or its properties, income, or profits, prior to the date on which penalties would attach, and all lawful claims that, if unpaid, might become a lien or charge upon any of Borrower's properties, income, or profits. Provided however, Borrower will not be required to pay and discharge any such assessments, tax, charge, levy, lien or claim so long as (a) the legality of the same shall be contested in good faith by appropriate proceedings, and (b) Borrower shall have established on its books adequate reserves with respect to such contested assessment, tax, charge, levy, lien, or claim in accordance with generally accepted accounting practices. Borrower, upon demand of Lender, will furnish to Lender evidence of payment of the assessments, taxes, charges, levies, liens and claims and will authorize the appropriate governmental official to deliver to Lender at any time a written statement of any assessments, taxes, charges, levies, liens and claims against Borrower's properties, income, or profits. PERFORMANCE. Perform and comply with all terms, conditions, and provisions set forth in this Agreement and in the Related Documents in a timely manner, and promptly notify Lender if Borrower learns of the occurrence of any event which constitutes an Event of Default under this Agreement or under any of the Related Documents. OPERATIONS. Maintain executive and management personnel with substantially the same qualifications and experience as the present executive and management personnel; provide written notice to Lender of any change in executive and management personnel; conduct its business affairs in a reasonable and prudent manner and in compliance with all applicable federal, state and municipal laws, ordinances, rules and regulations respecting its properties, charters, businesses and operations, including without limitation, compliance with the Americans With Disabilities Act and with all minimum funding standards and other requirements of ERISA and other laws applicable to Borrower's employee benefit plans. INSPECTION. Permit employees or agents of Lender at any reasonable time to inspect any and all Collateral for the Loan or Loans and Borrower's and other properties and to examine or audit Borrower's books, accounts, and records and to make copies and memoranda of Borrower's books, accounts, and records. If Borrower now or at any time hereafter maintains any records (including without limitation computer generated records and computer software programs for the generation of such records) in the possession of a third party, Borrower, upon request of Lender, shall notify such party to permit Lender free access to such records at all reasonable times and to provide Lender with copies of any records it may request, all at Borrower's expense. COMPLIANCE CERTIFICATE. Unless waived in writing by Lender, provide Lender at least annually with a certificate executed by Borrower's chief financial officer, or other officer or person acceptable to Lender, certifying that the representations and warranties set forth in this Agreement are true and correct as of the date of the certificate and further certifying that, as of the date of the certificate, no Event of Default exists under this Agreement. ENVIRONMENTAL COMPLIANCE AND REPORTS. Borrower shall comply in all respects with all environmental protection federal, state and local laws, statutes, regulations and ordinances; not cause or permit to exist, as a result of an intentional or unintentional action or omission on its part or on the part of any third party, on property owned and/or occupied by Borrower, any environmental activity where damage may result to the environment, unless such environmental activity is pursuant to and in compliance with the conditions of a permit issued by the appropriate federal, state or local governmental authorities; shall furnish to Lender promptly and in any event within thirty (30) days after receipt thereof a copy of any notice, summons, lien, citation, directive, letter or other communication from any governmental agency or instrumentality concerning any intentional or unintentional action or omission on Borrower's part in connection with any environmental activity whether or not there is damage to the environment and/or other natural resources. ADDITIONAL ASSURANCES. Make, execute and deliver to Lender such promissory notes, mortgages, deeds of trust, security agreements, financing statements, instruments, documents and other agreements as Lender or its attorneys may reasonably request to evidence and secure the Loans and to perfect all Security Interests. NEGATIVE COVENANTS. Borrower covenants and agrees with Lender that while this Agreement is in effect, Borrower shall not, without the prior written consent of Lender: INDEBTEDNESS AND LIENS. (a) Except for trade debt incurred in the normal course of business and indebtedness to Lender contemplated by this Agreement, create, incur or assume indebtedness for borrowed money, including capital leases, (b) except as allowed as a Permitted Lien, sell, transfer, mortgage, assign, pledge, lease, grant a security interest in, or encumber any of Borrower's assets, or (c) sell with recourse any of Borrower's accounts, except to Lender. 10 09-28-1999 BUSINESS LOAN AGREEMENT Page 6 Loan No 373376955 (Continued) CONTINUITY OF OPERATIONS. (a) Engage in any business activities substantially different than those in which Borrower is presently engaged, (b) cease operations, liquidate, merge, transfer, acquire or consolidate with any other entity, change ownership, change its name, dissolve or transfer or sell Collateral out of the ordinary course of business, (c) pay any dividends on Borrower's stock (other than dividends payable in it stock), provided, however that notwithstanding the foregoing, but only so long as no Event of Default has occurred and is continuing or would result from the payment of dividends, if Borrower is a "Subchapter S Corporation" (as defined in the Internal Revenue Code of 1986, as amended), Borrower may pay cash dividends on its stock to its shareholders from time to time in amounts necessary to enable the shareholders to pay income taxes and make estimated income tax payments to satisfy their liabilities under federal and state law which arise solely form their status as Shareholders of a Subchapter S Corporation because of their ownership of shares of stock of Borrower, or (d) purchase or retire any of Borrower's outstanding shares or alter or amend Borrower's capital structure. LOANS, ACQUISITIONS AND GUARANTIES. (a) Loan, invest in or advance money or assets, (b) purchase, create or acquire any interest in any Other enterprise or entity, or (c) incur any obligation as surety or guarantor other than in the ordinary course of business. CESSATION OF ADVANCES. If Lender has made any commitment to make any Loan to Borrower, whether under this Agreement or under any other agreement, Lender shall have no obligation to make Loan Advances or to disburse Loan proceeds it: (a) Borrower or any Guarantor is in default under the terms of this Agreement or any of the Related Documents or any other agreement that Borrower or any Guarantor has with Lender; (b) Borrower or any Guarantor becomes insolvent, files a petition in bankruptcy or similar proceedings, or is adjudged a bankrupt; (c) there occurs a material adverse change in Borrower's financial condition, in the financial condition of any Guarantor, or in the value of any Collateral securing any Loan; or (d) any Guarantor seeks, claims or otherwise attempts to limit, modify or revoke such Guarantor's guaranty of the Loan or any other loan with Lender. OUT OF DEBT PROVISION. Borrower agrees to maintain the principal balance on the Note at a zero balance for a period of at least thirty (30) consecutive days during each annual twelve (12) month period. DEPOSIT AND INVESTMENT RELATIONSHIP. 1. Borrower agrees that until such time as Borrower is no longer subject to the terms of any credit agreement(s) with Lender, the primary deposit account(s), operational account(s) and investment relationship maintained by Borrower will be placed with Lender, or a bank affiliated with Lender. 2. Borrower agrees that until such time as borrower is no longer subject to the terms of any credit agreement(s) with Lender, Borrower will, at all times, maintain no less than $6,000,000.00 on deposit with Lender. EVENTS OF DEFAULT. Each of the following shall constitute an Event of Default under this Agreement: DEFAULT ON INDEBTEDNESS. Failure of Borrower to make any payment when due on the Loans. OTHER DEFAULTS. Failure of Borrower or any Grantor to comply with or to perform when due any other term, obligation, covenant or condition contained in this Agreement or in any of the Related Documents, or failure of Borrower to comply with or to perform any other term, obligation, covenant or condition contained in any other agreement between Lender and Borrower. DEFAULT IN FAVOR OF THIRD PARTIES. Should Borrower or any Grantor default under any loan, extension of credit, security agreement, purchase or sales agreement, or any other agreement, in favor of any other creditor or person that may materially affect any of Borrower's property or Borrower's or any Grantor's ability to repay the Loans or perform their respective obligations under this Agreement or any of the Related Documents. FALSE STATEMENTS. Any warranty, representation or statement made or furnished to Lender by or on behalf of Borrower or any Grantor under this Agreement or the Related Documents is false or misleading in any material respect at the time made or furnished, or becomes false or misleading at any time thereafter. DEFECTIVE COLLATERALIZATION. This Agreement or any of the Related Documents ceases to be in full force and effect (including failure of any Security Agreement to create a valid and perfected Security Interest) at any time and for any reason. INSOLVENCY. The dissolution or termination of Borrower's existence as a going business, the insolvency of Borrower, the appointment of a receiver for any part of Borrower's property, any assignment for the benefit of creditors, any type of creditor workout, or the commencement of any proceeding under any bankruptcy or insolvency laws by or against Borrower. CREDITOR OR FORFEITURE PROCEEDINGS. Commencement of foreclosure or forfeiture proceedings, whether by judicial proceeding, self-help, repossession or any other method, by any creditor of Borrower, any creditor of any Grantor against any collateral securing the Indebtedness, or by any governmental agency. This includes a garnishment, attachment, or levy on or of any of Borrower's deposit accounts with Lender. However, this Event of Default shall not apply if there is a good faith dispute by Borrower or Grantor, as the case may be, as to the validity or reasonableness of the claim which is the basis of the creditor or forfeiture proceeding, and if Borrower or Grantor gives Lender written notice of the creditor or forfeiture proceeding and furnishes reserves or a surety bond for the creditor or forfeiture proceeding satisfactory to Lender. EVENTS AFFECTING GUARANTOR. Any of the preceding events occurs with respect to any Guarantor of any of the Indebtedness or any Guarantor dies or becomes incompetent, or revokes or disputes the validity of, or liability under, any Guaranty of the Indebtedness. Lender, at its option, may, but shall not be required to, permit the Guarantor's estate to assume unconditionally the obligations arising under the guaranty in a manner satisfactory to Lender, and, in doing so, cure the Event of Default. 11 09-28-1999 BUSINESS LOAN AGREEMENT Page 7 Loan No 373376955 (Continued) CHANGE IN OWNERSHIP. Any change in ownership of twenty-five percent (25%) or more of the common stock of Borrower. ADVERSE CHANGE. A material adverse change occurs in Borrower's financial condition, or Lender believes the prospect of payment or performance of the Indebtedness is impaired. RIGHT TO CURE. If any default, other than a Default on Indebtedness, is curable and if Borrower or Grantor, as the case may be, has not been given a notice of a similar default within the preceding twelve (12) months, it may be cured (and no Event of Default will have occurred) if Borrower or Grantor, as the case may be, after receiving written notice from Lender demanding cure of such default: (a) cures the default within fifteen (15) days; or (b) if the cure requires more than fifteen (15) days, immediately initiates steps which Lender deems in Lender's sole discretion to be sufficient to cure the default and thereafter continues and completes all reasonable and necessary steps sufficient to produce compliance as soon as reasonably practical. EFFECT OF AN EVENT OF DEFAULT. If any Event of Default shall occur, except where otherwise provided in this Agreement or the Related Documents, all commitments and obligations of Lender under this Agreement or the Related Documents or any other agreement immediately will terminate (including any obligation to make Loan Advances or disbursements), and, at Lenders option, all Indebtedness immediately will become due and payable, all without notice of any kind to Borrower, except that in the case of an Event of Default of the type described in the "Insolvency" subsection above, such acceleration shall be automatic and not optional. In addition, Lender shall have all the rights and remedies provided in the Related Documents or available at law, in equity, or otherwise. Except as may be prohibited by applicable law, all of Lender's rights and remedies shall be cumulative and may be exercised singularly or concurrently. Election by Lender to pursue any remedy shall not exclude pursuit of any other remedy, and an election to make expenditures or to take action to perform an obligation of Borrower or of any Grantor shall not affect Lender's right to declare a default and to exercise its rights and remedies. MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of this Agreement: AMENDMENTS. This Agreement, together with any Related Documents, constitutes the entire understanding and agreement of the parties as to the matters set forth in this Agreement. No alteration of or amendment to this Agreement shall be effective unless given in writing and signed by the party or parties sought to be charged or bound by the alteration or amendment. APPLICABLE LAW. This Agreement has been delivered to Lender and accepted by Lender in the State of California. If there is a lawsuit, Borrower agrees upon Lender's request to submit to the jurisdiction of the courts of Santa Clara County, the State of California. This Agreement shall be governed by and construed in accordance with the laws of the State of California. CAPTION HEADINGS. Caption headings in this Agreement are for convenience purposes only and are not to be used to interpret or define the provisions of this Agreement. CONSENT TO LOAN PARTICIPATION. Borrower agrees and consents to Lender's sale or transfer, whether now or later, of one or more participation interests in the Loans to one or more purchasers, whether related or unrelated to Lender. Lender may provide, without any limitation whatsoever, to any one or more purchasers, or potential purchasers, any information or knowledge Lender may have about Borrower or about any other matter relating to the Loan, and Borrower hereby waives any rights to privacy it may have with respect to such matters. Borrower additionally waives any and all notices of sale of participation interests, as well as all notices of any repurchase of such participation interests. Borrower also agrees that the purchasers of any such participation interests will be considered as the absolute owners of such interests in the Loans and will have all the rights granted under the participation agreement or agreements governing the sale of such participation interests. Borrower further waives all rights of offset or counterclaim that it may have now or later against Lender or against any purchaser of such a participation interest and unconditionally agrees that either Lender or such purchaser may enforce Borrower's obligation under the Loans irrespective of the failure or insolvency of any holder of any interest in the Loans. Borrower further agrees that the purchaser of any such participation interests may enforce its interests irrespective of any personal claims or defenses that Borrower may have against Lender. COSTS AND EXPENSES. Borrower agrees to pay upon demand all of Lender's expenses, including without limitation attorneys' fees, incurred in (this part cut off) modification and collection of this Agreement or in connection with the Loans made pursuant to this Agreement. Lender may pay someone else to help collect the Loans and to enforce this Agreement, and Borrower will pay that amount. This includes, subject to any limits under applicable law, Lender's attorneys' fees and Lender's legal expenses, whether or not there is a lawsuit, including attorneys' fees for bankruptcy proceedings (including efforts to modify or vacate any automatic stay or injunction), appeals, and any anticipated post-judgment collection services. Borrower also will pay any court costs, in addition to all other sums provided by law. NOTICES. All notices required to be given under this Agreement shall be given in writing, may be sent by telefacsimile (unless otherwise required by law), and shall be effective when actually delivered or when deposited with a nationally recognized overnight courier or deposited in the United States mail, first class, postage prepaid, addressed to the party to whom the notice is to be given at the address shown above. Any party may change its address for notices under this Agreement by giving formal written notice to the other parties, specifying that the purpose of the notice is to change the party's address. To the extent permitted by applicable law, if there is more than one Borrower, notice to any Borrower will constitute notice to all Borrowers. For notice purposes, Borrower will keep Lender informed at all times of Borrower's current address(es). SEVERABILITY. If a court of competent jurisdiction finds any provision of this Agreement to be invalid or unenforceable as to any person or circumstance, such finding shall not render that provision invalid or unenforceable as to any other persons or circumstances. If feasible, any such offending provision shall be deemed to be modified to be within the limits of 12 09-28-1999 BUSINESS LOAN AGREEMENT Page 8 Loan No 373376955 (Continued) enforceability or validity; however, if the offending provision cannot be so modified, it shall be stricken and all other provisions of this Agreement in all other respects shall remain valid and enforceable. SUBSIDIARIES AND AFFILIATES OF BORROWER. To the extent the context of any provisions of this Agreement makes it appropriate, including without limitation any representation, warranty or covenant, the word "Borrower" as used herein shall include all subsidiaries and affiliates of Borrower. Notwithstanding the foregoing however, under no circumstances shall this Agreement be construed to require Lender to make any Loan or other financial accommodation to any subsidiary or affiliate of Borrower. SUCCESSORS AND ASSIGNS. All covenants and agreements contained by or on behalf of Borrower shall bind its successors and assigns and shall inure to the benefit of Lender, its successors and assigns. Borrower shall not, however, have the right to assign its rights under this Agreement or any interest therein, without the prior written consent of Lender. SURVIVAL. All warranties, representations, and covenants made by Borrower in this Agreement or in any certificate or other instrument delivered by Borrower to Lender under this Agreement shall be considered to have been relied upon by Lender and will survive the making of the Loan and delivery to Lender of the Related Documents, regardless of any investigation made by Lender or on Lender's behalf. TIME IS OF THE ESSENCE. Time is of the essence in the performance of this Agreement. WAIVER. Lender shall not be deemed to have waived any rights under this Agreement unless such waiver is given in writing and signed by Lender. No delay or omission on the part of Lender in exercising any right shall operate as a waiver of such right or any other right. A waiver by Lender of a provision of this Agreement shall not prejudice or constitute a waiver of Lender's right otherwise to demand strict compliance with that provision or any other provision of this Agreement. No prior waiver by Lender, nor any course of dealing between Lender and Borrower, or between Lender and any Grantor, shall constitute a waiver of any of Lender's rights or of any obligations of Borrower or of any Grantor as to any future transactions. Whenever the consent of Lender is required under this Agreement, the granting of such consent by Lender in any instance shall not constitute continuing consent in subsequent instances where such consent is required, and in all cases such consent may be granted or withheld in the sole discretion of Lender. BORROWER ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS BUSINESS LOAN AGREEMENT, AND BORROWER AGREES TO ITS TERMS. THIS AGREEMENT IS DATED AS OF SEPTEMBER 28, 1999. BORROWER: Niku Corporation By: -------------------------------------- Farzad Dibachi, President/CEO LENDER: Mid-Peninsula Bank By: -------------------------------------- Authorized Officer 13 PROMISSORY NOTE
PRINCIPAL LOAN DATE MATURITY LOAN NO CALL COLLATERAL ACCOUNT OFFICER INITIALS $4,000,000.00 09-28-1999 10-01-2000 373376955 2000 PC014100102 24 References in the shaded area are for Lender's Use only and do not limit the applicability of this document to any particular loan or item. Borrower: NIKU CORPORATION Lender: MID-PENINSULA BANK 306 MAIN STREET c/o Greater Bay Bancorp REDWOOD CITY, CA 94063 2860 W. Bayshore Road Palo Alto, CA 94303 Principal amount: $4,000,000.00 Initial rate: 9.250% Date of Note: September 28, 1999
PROMISE TO PAY. Niku Corporation ("Borrower") promises to pay to Mid-Peninsula Bank ("Lender"), or order, in lawful money of the United States of America, the principal amount of Four Million & 00/100 Dollars ($4,000,000.00) or so much as may be outstanding, together with interest on the unpaid outstanding principal balance of each advance. Interest shall be calculated from the date of each advance until repayment of each advance. PAYMENT. Borrower will pay this loan in one payment of all outstanding principal plus all accrued unpaid interest on October 1, 2000. In addition, Borrower will pay regular monthly payments of accrued unpaid interest beginning November 1, 1999, and all subsequent interest payments are due on the same day of each month after that. The annual interest rate for this Note is computed on a 365/360 basis; that is, by applying the ratio of the annual interest rate over a year of 360 days, multiplied by the outstanding principal balance, multiplied by the actual number of days the principal balance is outstanding. Borrower will pay Lender at Lender's address shown above or at such other place as Lender may designate in writing. Unless otherwise agreed or required by applicable law, payments will be applied first to accrued unpaid interest, then to principal, and any remaining amount to any unpaid collection costs and late charges. VARIABLE INTEREST RATE. The interest rate on this Note is subject to change from time to time based on changes in an independent index which is the Prime Rate as published in the Wall Street Journal (Western Edition) (the "Index"). The index is not necessarily the lowest rate charged by Lender on its loans. If the Index becomes unavailable during the term of this loan, Lender may designate a substitute index after notice to Borrower. Lender will tell Borrower the current Index rate upon Borrower's request. Borrower understands that Lender may make loans based on other rates as well. The interest rate change will not occur more often than each day. The Index currently is 8250%. The interest rate to be applied to the unpaid principal balance of this Note will be at a rate of 1.000 percentage point over the Index, resulting in an Initial rate of 9250%. NOTICE: Under no circumstances will the interest rate on this Note be more than the maximum rate allowed by applicable law. PREPAYMENT; MINIMUM INTEREST CHARGE. Borrower agrees that all loan fees and other prepaid finance charges are earned fully as of the date of the loan and will not be subject to refund upon early payment (whether voluntary or as a result of default), except as otherwise required by law. In any event, even upon full prepayment of this Note, Borrower understands that Lender is entitled to a minimum Interest charge of $250.00. Other than Borrower's obligation to pay any minimum interest charge, Borrower may pay without penalty all or a portion of the amount owed earlier than it is due. Early payments will not, unless agreed to by Lender in writing, relieve Borrower of Borrower's obligation to continue to make payments of accrued unpaid interest. Rather, they will reduce the principal balance due. LATE CHARGE. If a payment is 10 days or more late, Borrower will be charged 5.000% of the unpaid portion of the regularly scheduled payment. DEFAULT. Borrower will be in default if any of the following happens: (a) Borrower fails to make any payment when due. (b) Borrower breaks any promise Borrower has made to Lender, or Borrower fails to comply with or to perform when due any other term, obligation, covenant, or condition contained in this Note or any agreement related to this Note, or in any other agreement or loan Borrower has with lender. (c) Borrower defaults under any loan, extension of credit, security agreement, purchase or sales agreement, or any other agreement, in favor of any other creditor or person that may materially affect any of Borrower's property or Borrower's ability to repay this Note or perform Borrower's obligations under this Note or any of the Related Documents. (d) Any representation or statement made or furnished to Lender by Borrower or on Borrower's behalf is false or misleading in any material respect either now or at the time made or furnished. (e) Borrower becomes insolvent, a receiver is appointed for any part of Borrower's property, Borrower makes an assignment for the benefit of creditors, or any proceeding is commenced either by Borrower or against Borrower under any bankruptcy or insolvency laws. (f) Any creditor tries to take any of Borrower's property on or in which Lender has a lien or security interest. This includes a garnishment of any Borrower's accounts with Lender. (g) Any guarantor dies or any of the other events described in this default section occurs with respect to any guarantor of this Note. (h) A material adverse change occurs in Borrower's financial condition, or Lender believes the prospect of performance of the Indebtedness is impaired. If any default, other than a default in payment, is curable and if Borrower has not been given a notice of a breach of the same provision of this Note within the preceding twelve (12) months, it may be cured (and no event of default will have occurred) if Borrower, after receiving written notice from Lender demanding cure of such default; (a) cures the default within fifteen (15) days; or (b) if the cure requires more than fifteen (15) days, immediately initiates steps which Lender deems in Lender's sole discretion to be sufficient to cure the default and thereafter continues and completes all reasonable and necessary steps sufficient to produce compliance as soon as reasonably practical. LENDER'S RIGHTS. Upon default, Lender may declare the entire unpaid principal balance on this Note and all accrued unpaid interest immediately due, without notice, and then Borrower will pay that amount. Upon borrower's failure to pay all amounts declared due pursuant to this section, including failure to pay upon final maturity, Lender, at its option, may also, if permitted under applicable law, increase the variable interest rate on this Note to 6.000 percentage points over the Index. Lender may hire or pay someone else to help collect this Note if Borrower does not pay. Borrower also will pay Lender that amount. This includes, subject to any limits under applicable law, Lender's attorneys' fees and Lender's legal expenses whether or not there is a lawsuit, including attorneys' fees and legal expenses for bankruptcy proceedings (including efforts to modify or vacate any automatic stay or injunction), appeals, and any anticipated post-judgment collection services. Borrower also will pay any court costs, in addition to all other sums provided by law. This Note has been delivered to Lender and accepted by Lender in the State of California. If there is a lawsuit Borrower agrees upon Lender's request to submit to the jurisdiction of the courts of Santa Clara County, the State of California. This Note shall be governed by and construed in accordance with the laws of the State of California. COLLATERAL. This Note is secured by the Collateral as described in that certain Commercial Security Agreement dated September 28, 1999. LINE OF CREDIT. This Note evidences a revolving line of credit. Advances under this Note may be requested either orally or in writing by Borrower or by an authorized person. Lender may, but need not, require that all oral requests be confirmed in writing. All communications, instructions of directions by telephone or otherwise to Lender are to be directed to Lender's office shown above. The following party or parties are authorized to request advances under the line of credit until Lender receives from Borrower at Lender's address shown above written notice of revocation of their authority; Farzad Dibachi, Mark Nelson, Tony Swenson and Cathy Bottarini. Borrower agrees to be liable for all sums either; (a) advanced in accordance with the instructions of an authorized person or (b) credited to any of Borrower's accounts with Lender. The unpaid principal balance owing on this Note at any time may be evidenced by endorsements on this Note or by Lender's internal records, including daily computer print-outs. 14 09-28-1999 PROMISSORY NOTE Page 2 LOAN NO. 373376965 (Continued) Lender will have no obligation to advance funds under this Note if: (a) Borrower or any guarantor is in default under the terms of this Note or any agreement that Borrower or any guarantor has with Lender, including any agreement made in connection with the signing of this Note; (b) Borrower or any guarantor ceases doing business or is insolvent; (c) any guarantor seeks, claims or otherwise attempts to limit, modify or revoke such guarantor's guarantee of this Note or any other loan with Lender, or (d) Borrower has applied funds provided pursuant to this Note for purposes other than those authorized by Lender. BUSINESS LOAN AGREEMENT. In addition to the terms and conditions contained in the Note, it is also subject to the terms and conditions contained in that certain Business Loan Agreement (the "Agreement") dated September 28, 1999, executed by Borrower in favor of Lender. GENERAL PROVISIONS. Lender may delay or forgo enforcing any of its rights or remedies under this Note without losing them. Borrower and any other person who signs, guarantees or endorses this Note, to the extent allowed by law, waive any applicable statute of limitations, presentment, demand for payment, protest and notice of dishonor. Upon any change in the terms of this Note, and unless otherwise expressly stated in writing, no party who signs this Note, whether as maker, guarantor, accommodation maker or endorser, shall be released from liability. All such parties agree that Lender may renew or Wend (repeatedly and for any length of time) this loan, or release any party or guarantor or collateral; or impair, fail to realize upon or perfect Lender's security interest in the collateral; and take any other action deemed necessary by Lender without the consent of or notice to anyone. All such parties also agree that Lender may modify this loan without the consent of or notice to anyone other than the party with whom the modification is made. PRIOR TO SIGNING THIS NOTE, BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS OF THIS NOTE, INCLUDING THE VARIABLE INTEREST RATE PROVISIONS. BORROWER AGREES TO THE TERMS OF THE NOTE AND ACKNOWLEDGES RECEIPT OF A COMPLETED COPY OF THE NOTE. BORROWER: Niku Corporation By: ------------------------------------- Farzad Dibachi, President/CEO 15 COMMERCIAL SECURITY AGREEMENT
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Borrower: NIKU CORPORATION Lender: MID-PENINSULA BANK 306 MAIN STREET c/o Greater Bay Bancorp REDWOOD CITY, CA 94063 2860 W. Bayshore Road Palo Alto, CA 94303 THIS COMMERCIAL SECURITY AGREEMENT is entered into between Niku Corporation (referred to below as "Grantor"); and Mid-Peninsula Bank (referred to below as "Lender"). For valuable consideration, Grantor grants to Lender a security interest in the Collateral to secure the Indebtedness and agrees that Lender shall have the rights stated in this Agreement with respect to the Collateral, in addition to all other rights which Lender may have by law. DEFINITIONS. The following words shall have the following meanings when used in this Agreement. Terms not otherwise defined in this Agreement shall have the meanings attributed to such terms in the Uniform Commercial Code. All references to dollar amounts shall mean amounts in lawful money of the United States of America. AGREEMENT. The word "Agreement" means this Commercial Security Agreement, as this Commercial Security Agreement may be amended or modified from time to time, together with all exhibits and schedules attached to this Commercial Security Agreement from time to time. COLLATERAL. The word "Collateral" means the following described property of Grantor, whether now owned or hereafter acquired, whether now existing or hereafter arising, and wherever located: ALL INVENTORY, CHATTEL PAPER, ACCOUNTS, EQUIPMENT AND GENERAL INTANGIBLES In addition, the word "Collateral" includes all the following, whether now owned or hereafter acquired, whether now existing or hereafter arising, and wherever located: (a) All attachments, accessions, accessories, tools, parts, supplies, increases, and additions to and all replacements of and substitutions for any property described above. (b) All products and produce or any of the property described in this Collateral section. (c) All accounts, general intangibles, instruments, rents, monies, payments, and all other rights, arising out of a sale, lease, or other disposition of any of the property described in this Collateral section. (d) All proceeds (including insurance proceeds) from the sale, destruction, loss, or other disposition of any of the property described in this Collateral section. (e) All records and data relating to any of the property described in this Collateral section, whether in the form of a writing, photograph, microfilm, microfiche, or electronic media, together with all of Grantor's right, title, and interest in and to all computer software required to utilize, create, maintain, and process any such records or data on electronic media. EVENT OF DEFAULT. The words "Event of Default" mean and include without limitation any of the Events of Default set forth below in the section titled "Events of Default." GRANTOR. The word "Grantor" means Niku Corporation, its successors and assigns. GUARANTOR. The word "Guarantor" means and includes without limitation each and all of the guarantors, sureties, and accommodation parties in connection with the Indebtedness. INDEBTEDNESS. The word "Indebtedness" means the indebtedness evidenced by the Note, including all principal and interest, together with all other indebtedness and costs and expenses for which Grantor is responsible under this Agreement or under any of the Related Documents. In addition, the word "Indebtedness" includes all other obligations, debts and liabilities, plus interest thereon, of Grantor, or any one or more of them, to Lender, as well as all claims by Lender against Grantor, or any one or more of them, whether existing now or later, whether they are voluntary or involuntary, due or not due, direct or indirect, absolute or contingent, liquidated or unliquidated; whether Grantor may be liable individually or jointly with others; whether Grantor may be obligated as guarantor, surety, accommodation party or otherwise; whether recovery upon such indebtedness may be or hereafter may become barred by any statute of limitations; and whether such indebtedness may be or hereafter may become otherwise unenforceable. (Initial Here _______) LENDER. The word "Lender" means Mid-Peninsula Bank, its successors and assigns. NOTE. The word "Note" means the note or credit agreement dated September 28, 1999, in the principal amount of $4,000,000.00 from Niku Corporation to Lender, together with all renewals of, extensions of, modifications of, refinancings of, consolidations of and substitutions for the note or credit agreement. RELATED DOCUMENTS. The words "Related Documents" mean and include without limitation all promissory notes, credit agreements, loan agreements, environmental agreements, guaranties, security agreements, mortgages, deeds of trust, and all other instruments, agreements and documents, whether now or hereafter existing, executed in connection with the Indebtedness. OBLIGATIONS OF GRANTOR. Grantor warrants and covenants to Lender as follows: PERFECTION OF SECURITY INTEREST. Grantor agrees to execute such financing statements and to take whatever other actions are requested by Lender to perfect and continue Lender's security interest in the Collateral. Upon request of Lender, Grantor will deliver to Lender, any and all of the documents evidencing or constituting the Collateral, and Grantor will note Lender's interest upon any and all chattel paper if not delivered to Lender for possession by Lender. Grantor hereby appoints Lender as its irrevocable attorney-in-fact for the purpose of executing any documents necessary to perfect or to continue the security interest granted in this Agreement. Lender may at any time, and without further authorization from Grantor, file a carbon, photographic or other reproduction of any financing statement or of this Agreement for use as a financing statement. Grantor will reimburse Lender for all expenses for the perfection and the continuation of the perfection of Lenders' security interest in the Collateral. Grantor promptly will notify Lender before any change in Grantor's name including any change to the 16 09-28-1999 COMMERCIAL SECURITY AGREEMENT Page 2 LOAN NO. 373376955 (Continued) assumed business names of Grantor. This is a continuing Security Agreement and will continue in effect even though all or any part of the Indebtedness is paid in full and even though for a period of time Grantor may not be indebted to Lender. NO VIOLATION. The execution and delivery of this Agreement will not violate any law or agreement governing Grantor or to which Grantor is a party, and its certificate or articles of incorporation and bylaws do not prohibit any term or condition of this Agreement. ENFORCEABILITY OF COLLATERAL. To the extent the Collateral consists of accounts, chattel paper, or general intangibles, the Collateral is enforceable in accordance with its terms, is genuine, and complies with applicable laws concerning form, content and manner of preparation and execution, and all persons appearing to be obligated on the Collateral have authority and capacity to contract and are in fact obligated as they appear to be on the Collateral. At the time any account becomes subject to a security interest in favor of Lender, the account shall be a good and valid account representing an undisputed, bona fide indebtedness incurred by the account debtor, for merchandise held subject to delivery instructions or theretofore shipped or delivered pursuant to a contract of sale, or for services theretofore performed by Grantor with or for the account debtor; there shall be no setoffs or counterclaims against any such account; and no agreement under which any deductions or discounts may be claimed shall have been made with the account debtor except those disclosed to Lender in writing. LOCATION OF THE COLLATERAL. Grantor, upon request of Lender, will deliver to Lender in form satisfactory to Lender a schedule of real properties and Collateral locations relating to Grantor's operations, including without limitation the following: (a) all real property owned or being Purchased by Grantor; (b) all real property being rented or leased by Grantor; (c) all storage facilities owned, rented, leased, or being used by Grantor; and (d) all other properties where Collateral is or may be located. Except in the ordinary course of its business, Grantor shall not remove the Collateral from its existing locations without the prior written consent of Lender. REMOVAL OF COLLATERAL. Grantor shall keep the Collateral (or to the extent the Collateral consists of intangible property such as accounts, the records concerning the Collateral) at Grantor's address shown above, or at such other locations as are acceptable to Lender. Except in the ordinary course of its business, including the sales of inventory, Grantor shall not remove the Collateral from its existing locations without the prior written consent of Lender. To the extent that the Collateral consists of vehicles, or other filled property, Grantor shall not take or permit any action which would require application for certificates of title for the vehicles outside the State of California, without the prior written consent of Lender. TRANSACTIONS INVOLVING COLLATERAL. Except for inventory sold or accounts collected in the ordinary course of Grantor's business, Grantor shall not sell, offer to sell, or otherwise transfer or dispose of the Collateral. While Grantor is not in default under this Agreement, Grantor may sell inventory, but only in the ordinary course of its business and only to buyers who qualify as a buyer in the ordinary course of business. A sale in the ordinary course of Grantor's business does not include a transfer in partial or total satisfaction of a debt or any bulk sale. Grantor shall not pledge, mortgage, encumber or otherwise permit the Collateral to be subject to any lien, security interest, encumbrance, or charge, other than the security interest provided for in this Agreement, without the prior written consent of Lender. This includes security interests even if junior in right to the security interests granted under this Agreement. Unless waived by Lender, all proceeds from any disposition of the Collateral (for whatever reason) shall be held in trust for Lender and shall not be commingled with any other funds; provided however, this requirement shall not constitute consent by Lender to any sale or other disposition. Upon receipt, Grantor shall immediately deliver any such proceeds to Lender. TITLE. Grantor represents and warrants to Lender that it holds good and marketable title to the Collateral, free and clear of all liens and encumbrances except for the lien of this Agreement. No financing statement covering any of the Collateral is on file in any public office other than those which reflect the security interest created by this Agreement or to which Lender has specifically consented. Grantor shall defend Lender's rights in the Collateral against the claims and demands of all other persons. COLLATERAL SCHEDULES AND LOCATIONS. As often as Lender shall require, and insofar as the Collateral consists of accounts and general intangibles, Grantor shall deliver to Lender schedules of such Collateral, including such information as Lender may require, including without limitation names and addresses of account debtors and agings of accounts and general intangibles. Insofar as the Collateral consists of inventory and equipment, Grantor shall deliver to Lender, as often as Lender shall require, such lists, descriptions, and designations of such Collateral as Lender may require to identify the nature, extent, and location of such Collateral. Such information shall be submitted for Grantor and each of its subsidiaries or related companies. MAINTENANCE AND INSPECTION OF COLLATERAL. Grantor shall maintain all tangible collateral in good condition and repair. Grantor will not commit or permit damage to or destruction of the Collateral or any part of the Collateral. Lender and its designated representatives and agents shall have the right at all reasonable times to examine, inspect, and audit the Collateral wherever located. Grantor shall immediately notify Lender of all cases involving the return, rejection, repossession, loss or damage of or to any Collateral; of any request for credit or adjustment of any other dispute arising with respect to the Collateral; and generally of all happenings and events affecting the Collateral or the value or the amount of the Collateral. TAXES, ASSESSMENTS AND LIENS. Grantor will pay when due all taxes, assessments and liens upon the Collateral, its use or operation, upon this Agreement, upon any promissory note or notes evidencing the Indebtedness, or upon any of the other Related Documents. Grantor may withhold any such payment or may elect to contest any lien if Grantor is in good faith conducting an appropriate proceeding to contest the obligation to pay and so long as Lender's interest in the Collateral is not jeopardized in Lender's sole opinion. If the Collateral is subjected to a lien which is not discharged within fifteen (15) days, Grantor shall deposit with Lender cash, a sufficient corporate surety bond or other security satisfactory to Lender in an amount adequate to provide for the discharge of the lien plus any interest, costs, attorneys' fees or other charges that could accrue as a result of foreclosure or sale of the Collateral. In any contest Grantor shall defend itself and Lender and shall satisfy any final adverse judgment before enforcement against the Collateral. Grantor shall name Lender as an additional obligee under any surety bond furnished in the contest proceedings. COMPLIANCE WITH GOVERNMENTAL REQUIREMENTS. Grantor shall comply promptly with all laws, ordinances, rules and regulations of all governmental authorities, now or hereafter in effect, applicable to the ownership, production, disposition, or use of the Collateral. Grantor may contest in good faith any such law, ordinance or regulation and withhold compliance during any proceeding, including appropriate appeals, so long as Lender's interest in the Collateral, in Lender's opinion, is not jeopardized. HAZARDOUS SUBSTANCES. Grantor represents and warrants that Collateral never has been, and never will be so long as this Agreement remains a lien on the Collateral, used for the generation, manufacture, storage, transportation, treatment, disposal, release or threatened release of any hazardous waste or substance, as those terms are defined in the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended, 42 U.S.C. Section 9601, et seq. ("CERCLA"), the Superfund Amendments and Reauthorization Act of 1986, Pub. L. No. 99-499 ("SARA"), the Hazardous Materials Transportation Act, 49 U.S.C. Section 1801, et seq., the Resource Conservation and Recovery Act, 42 U.S.C. Section 6901, et seq., Chapters 6.5 through 7.7 of Division 20 of the California Health and Safety Code, Section 25100, et seq., or other applicable state or Federal laws, rules, or regulations adopted pursuant to any of the foregoing. The terms "hazardous waste" and "hazardous substance" shall also include, without limitation, petroleum and petroleum by-products or any fraction thereof and asbestos. The representations and warranties contained herein are based on Grantor's due diligence in investigating the Collateral for hazardous wastes and substances. Grantor hereby (a) releases and waives any future claims against Lender for indemnity or contribution in the event Grantor becomes liable for cleanup 17 09-28-1999 COMMERCIAL SECURITY AGREEMENT Page 3 LOAN NO. 373376955 (Continued) or other costs under any such laws, and (b) agrees to indemnify and hold harmless Lender against any and all claims and losses resulting from a breach of this provision of this Agreement. This obligation to indemnity shall survive the payment of the Indebtedness and the satisfaction of this Agreement. MAINTENANCE OF CASUALTY INSURANCE. Guarantor shall procure and maintain all risks insurance, including without limitation fire, theft and liability coverage together with such other insurance as Lender may require with respect to the Collateral, in form, amounts, coverages and basis reasonably acceptable to Lender and issued by a company or companies reasonably acceptable to Lender. Grantor, upon request of Lender, will deliver to Lender from time to time the policies or certificates of insurance in form satisfactory to Lender, including stipulations that coverages will not be cancelled or diminished without at least ten (10) days' prior written notice to Lender and not including any disclaimer of the insured's liability for failure to give such a notice. Each insurance policy also shall include an endorsement providing that coverage in favor of Lender will not be impaired in any way by any act, omission or default of Grantor or any other person. In connection with all policies covering assets in which Lender holds or is offered a security interest, Grantor will provide Lender with such loss payable or other endorsements as Lender may require. If Grantor at any time fails to obtain or maintain any insurance as required under this Agreement, Lender may (but shall not be obligated to) obtain such insurance as Lender deems appropriate, including if it so chooses "single interest insurance," which will cover only Lender's interest in the Collateral. APPLICATION OF INSURANCE PROCEEDS. Grantor shall promptly notify Lender of any loss or damage to the Collateral. Lender may make proof of loss if Grantor fails to do so within fifteen (15) days of the casualty. All proceeds of any insurance an the Collateral, including accrued Proceeds thereon, shall be held by Lender as part of the Collateral. If Lender consents to repair or replacement of the damaged or destroyed Collateral, Lender shall, upon satisfactory proof of expenditure, pay or reimburse Grantor from the proceeds for the reasonable cost of repair or restoration. If Lender does not consent to repair or replacement of the Collateral, Lender shall retain a sufficient amount of the proceeds to pay all of the Indebtedness, and shall pay the balance to Grantor. Any proceeds which have not been disbursed within six (6) months after their receipt and which Grantor has not committed to the repair or restoration of the Collateral shall be used to prepay the Indebtedness. INSURANCE RESERVES. Lender may require Grantor to maintain with Lender reserves for payment of insurance premiums, which reserves shall be created by monthly payments from Grantor of a sum estimated by Lender to be sufficient to produce, at least fifteen (15) days before the premium due date, amounts at least equal to the insurance premiums to be paid. If fifteen (15) days before payment is due, the reserve funds are insufficient, Grantor shall upon demand pay any deficiency to Lender. The reserve funds shall be held by Lender as a general deposit and shall constitute a non-interest-bearing account which Lender may satisfy by payment of the insurance premiums required to be paid by Grantor as they become due. Lender does not hold the reserve funds in trust for Grantor, and Lender is not the agent of Grantor for payment of the insurance premiums required to be paid by Grantor. The responsibility for the payment of premiums shall remain Grantor's sole responsibility. INSURANCE REPORTS. Grantor, upon request of Lender, shall furnish to Lender reports on each existing policy of insurance showing such information as Lender may reasonably request including the following: (a) the name of the insurer; (b) the risks insured; (c) the amount of the policy; (d) the property insured; (e) the then current value on the basis of which insurance has been obtained and the manner of determining that value; and (f) the expiration date of policy. In addition, Grantor shall upon request by Lender (however not more often than annually) have an independent appraiser satisfactory to Lender determine, as applicable, the cash value or replacement cost of the Collateral. GRANTOR'S RIGHT TO POSSESSION AND TO COLLECT ACCOUNTS. Until default and except as otherwise provided below with respect to accounts. Grantor may have possession of the tangible personal property and beneficial use of all the Collateral and may use it in any lawful manner not inconsistent with this Agreement or the Related Documents, provided that Grantor's right to possession and beneficial use shall not apply to any Collateral where possession of the Collateral by Lender is required by law to perfect Lender's security interest in such Collateral. Until otherwise notified by Lender, Grantor may collect any of the Collateral consisting of accounts. At any time and even though no Event of Default exists, Lender may exercise its rights to collect the accounts and to notify account debtors to make payments directly to Lender for application to the Indebtedness. If Lender at any time has possession of any Collateral, whether before or after an Event of Default, Lender shall be deemed to have exercised reasonable care in the custody and preservation of the Collateral if Lender takes such action for that purpose as Grantor shall request or as Lender, in Lender's sole discretion, shall deem appropriate under the circumstances, but failure to honor any request by Grantor shall not of itself be deemed to be a failure to exercise reasonable care. Lender shall not be required to take any steps necessary to preserve any rights in the Collateral against prior parties, nor to protect, preserve or maintain any security interest given to secure the Indebtedness. EXPENDITURES BY LENDER. If not discharged or paid when due, Lender may (but shall not be obligated to) discharge or pay any amounts required to be discharged or paid by Grantor under this Agreement, including without limitation all taxes, liens, security interests, encumbrances, and other claims, at any time levied or placed on the Collateral. Lender also may (but shall not be obligated to) pay all costs for insuring, maintaining and preserving the Collateral. All such expenditures incurred or paid by Lender for such purposes will then bear interest at the rate charged under the Note from the date incurred or paid by Lender to the date of repayment by Grantor. All such expenses shall become a part of the Indebtedness and, at Lender's option, will (a) be payable on demand, (b) be added to the balance of the Note and be apportioned among and be payable with any installment payments to become due during either (i) the term of any applicable insurance policy or (ii) the remaining term of the Note, or (c) be treated as a balloon payment which will be due and payable at the Note's maturity. This Agreement also will secure payment of these amounts. Such right shall be in addition to all other rights and remedies to which Lender may be entitled upon the occurrence of an Event of Default. EVENTS OF DEFAULT. Each of the following shall constitute an Event of Default under this Agreement: DEFAULT AN INDEBTEDNESS. Failure of Grantor to make any payment when due on the Indebtedness. OTHER DEFAULTS. Failure of Grantor to comply with or to perform any other term, obligation, covenant or condition contained in this Agreement or in any of the Related Documents or in any other agreement between Lender and Grantor. DEFAULT IN FAVOR OF THIRD PARTIES. Should Borrower or any Grantor default under any loan, extension of credit, security agreement, purchase or sales agreement, or any other agreement, in favor of any other creditor or person that may materially affect any of Borrower's property of Borrower's or any Grantor's ability to repay the Loans or perform their respective obligations under this Agreement or any of the Related Documents. FALSE STATEMENTS. Any warranty, representation or statement made or furnished to Lender by or on behalf of Grantor under this Agreement, the Note or the Related Documents is false or misleading in any material respect, either now or at the time made or furnished. DEFECTIVE COLLATERALIZATION. This Agreement or any of the Related Documents ceases to be in full force and effect (including failure of any collateral documents to create a valid and perfected security interest or lien) at any time and for any reason. INSOLVENCY. The dissolution or termination of Grantor's existence as a going business, the insolvency of Grantor, the appointment of a receiver for any part of Grantor's property, any assignment for the benefit of creditors, any type of creditor workout, or the commencement of any proceeding under any bankruptcy or insolvency laws by or against Grantor. 18 09-28-1999 COMMERCIAL SECURITY AGREEMENT Page 4 Loan No 373376955 (Continued) CREDITOR OR FORFEITURE PROCEEDINGS. Commencement of foreclosure or forfeiture proceedings, whether by judicial proceeding, self-help, repossession or any other method, by any creditor or Grantor or by any governmental agency against the Collateral or any other collateral securing the Indebtedness. This includes a garnishment of any of Grantor's deposit accounts with Lender. However, this Event of Default shall not apply if there is a good faith dispute by Grantor as to the validity or reasonableness of the claim which is the basis of the creditor or forfeiture proceeding and if Grantor gives Lender written notice of the creditor or forfeiture proceeding and deposits with Lender monies or a surety bond for the creditor or forfeiture proceeding, in an amount determined by Lender, in its sole discretion, as being an adequate reserve or bond for the dispute. EVENTS AFFECTING GUARANTOR. Any of the preceding events occurs with respect to any Guarantor of any of the Indebtedness or such Guarantor dies or becomes incompetent, Lender, at its option, may, but shall not be required to, permit the Guarantor's estate to assume unconditionally the obligations arising under the guaranty in a manner satisfactory to Lender, and, in doing so, cure the Event of Default. ADVERSE CHANGE. A Material adverse change occurs in Grantor's financial condition, or Lender believes the prospect of Payment or performance of the Indebtedness is impaired. RIGHTS TO CURE. If any default, other than a Default on Indebtedness, is curable and if Grantor has not been given a prior notice of a breach of the same provision of this Agreement, it may be cured (and no Event of Default will have occurred) it Grantor, after Lender sends written notice demanding cure of such default, (a) cures the default within fifteen (15) days; or (b), if the cure requires more than fifteen (15) days, immediately initiates steps which Lender deems in Lender's sole discretion to be sufficient to cure the default and thereafter continues and completes all reasonable and necessary steps sufficient to produce compliance as soon as reasonably practical. RIGHTS AND REMEDIES ON DEFAULT. If an Event of Default occurs under this Agreement, at any time thereafter, Lender shall have all the rights of a secured party under the California Uniform Commercial Code. In addition and without limitation, Lender may exercise any one or more of the following rights and remedies: ACCELERATE INDEBTEDNESS. Lender may declare the entire Indebtedness, including any prepayment penalty which Grantor would be required to pay, immediately due and payable, without notice. ASSEMBLE COLLATERAL. Lender may require Grantor to deliver to Lender all or any portion of the Collateral and any and all certificates of title and other documents relating to the Collateral. Lender may require grantor to assemble the Collateral and make it available to Lender at a place to be designated by Lender. Lender also shall have full power to enter upon the property of Grantor to take possession of and remove the Collateral. If the Collateral contains other goods not covered by this Agreement at the time of repossession, Grantor agrees Lender may take such other goods, provided that Lender makes reasonable efforts to return them to Grantor after repossession. SELL THE COLLATERAL. Lender shall have full power to sell, lease, transfer, or otherwise deal with the Collateral or proceeds thereof in its own name or that of Grantor. Lender may sell the Collateral at public auction or private sale. Unless the Collateral threatens to decline speedily in value or is of a type customarily sold on a recognized market, Lender will give Grantor reasonable notice of the time after which any private sale or any other intended disposition of the Collateral is to be made. The requirements of reasonable notice shall be met if such notice is given at least ten (10) days, or such lesser time as required by state law, before the time of the sale or disposition. All expenses relating to the disposition of the Collateral, including without limitation the expenses of retaking, holding, insuring, preparing for sale and selling the Collateral, shall become a part of the Indebtedness secured by this Agreement and shall be payable on demand, with interest at the Note rate from date of expenditure until repaid. APPOINT RECEIVER. To the extent permitted by applicable law, Lender shall have the following rights and remedies regarding the appointment of a receiver: (a) Lender may have a receiver appointed as a matter of right, (b) the receiver may be an employee of Lender and may serve without bond, and (c) all fees of the receiver and his or her attorney shall become part of the Indebtedness secured by this Agreement and shall be payable on demand, with interest at the Note rate from date of expenditure until repaid. COLLECT REVENUES, APPLY ACCOUNTS. Lender, either itself or through a receiver, may collect the payments, rents, income, and revenues from the Collateral. Lender may at any time in its discretion transfer any Collateral into its own name or that of its nominee and receive the payments, rents, income, and revenues therefrom and hold the same as security for the Indebtedness or apply it to payment of the Indebtedness in such order of preference as Lender may determine. Insofar as the Collateral consists of accounts, general intangibles, insurance policies, instruments, chattel paper, choses in action, or similar property, Lender may demand, collect, receipt for, settle, compromise, adjust, sue for, foreclose, or realize on the Collateral as Lender may determine, whether or not Indebtedness or Collateral is then due. For these purposes, Lender may, on behalf of and in the name of Grantor, receive, open and dispose of mail addressed to Grantor, change any address to which mail and payments are to be sent; and endorse notes, checks, drafts, money orders, documents of title, instruments and items pertaining to payment, shipment, or storage of any Collateral. To facilitate collection, Lender may notify account debtors and obligors on any Collateral to make payments directly to Lender. OBTAIN DEFICIENCY. If Lender chooses to sell any or all of the Collateral, Lender may obtain a judgment against Grantor for any deficiency remaining on the Indebtedness due to Lender after application of all amounts received from the exercise of the rights provided in this Agreement. Grantor shall be liable for a deficiency even if the transaction described in this subsection is a sale of accounts or chattel paper. OTHER RIGHTS AND REMEDIES. Lender shall have all the rights and remedies of a secured creditor under the provisions of the Uniform Commercial Code, as may be amended from time to time. In addition, Lender shall have and may exercise any or all other rights and remedies it may have available at law, in equity, or otherwise. CUMULATIVE REMEDIES. All of Lender's rights and remedies, whether evidenced by this Agreement or the Related Documents or by any other writing, shall be cumulative and may be exercised singularly or concurrently. Election by Lender to pursue any remedy shall not exclude pursuit of any other remedy, and an election to make expenditures or to take action to perform an obligation of Grantor under this Agreement, after Grantor's failure to perform, shall not affect Lender's right to declare a default and to exercise its remedies. MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of this Agreement: AMENDMENTS. This Agreement, together with any Related Documents, constitutes the entire understanding and agreement of the parties as to the matters set forth in this Agreement. No alteration of or amendment to this Agreement shall be effective unless given in writing and signed by the party or parties sought to be charged or bound by the alteration or amendment. APPLICABLE LAW. This Agreement has been delivered to Lender and accepted by Lender in the State of California. If there is a lawsuit, Grantor agrees upon Lender's request to submit to the jurisdiction of the courts of the State of California. This Agreement shall be governed by and construed in accordance with the laws of the State of California. 19 09-28-1999 COMMERCIAL SECURITY AGREEMENT Page 5 Loan No 373376955 (Continued) ATTORNEYS' FEES; EXPENSES. Grantor agrees to pay upon demand all of Lender's costs and expenses, including attorneys' fees and Lender's legal expenses, incurred in connection with the enforcement of this Agreement. Lender may pay someone else to help enforce this Agreement, and Grantor shall pay the costs and expenses of such enforcement. Costs and expenses include Lender's attorneys' fees and legal expenses whether or not there is a lawsuit, including attorneys' fees and legal expenses for bankruptcy proceedings (and including efforts to modify or vacate any automatic stay or injunction), appeals, and any anticipated post-judgment collection services. Grantor also shall pay all court Costs and such additional fees as may be directed by the court. CAPTION HEADINGS. Caption headings in this Agreement are for convenience purposes only and are not to be used to interpret or define the provisions of this Agreement. NOTICES. All notices required to be given under this Agreement shall be given in writing, may be sent by telefacsimile (unless otherwise required by law), and shall be effective when actually delivered or when deposited with a nationally recognized overnight courier or deposited in the United States mail, first class, postage prepaid, addressed to the party to whom the notice is to be given at the address shown above. Any party may change its address for notices under this Agreement by giving formal written notice to the other parties, specifying that the purpose of the notice is to change the party's address. To the extent permitted by applicable law, if there is more than one Grantor, notice to any Grantor will constitute notice to all Grantors. For notice purposes, Grantor will keep Lender informed at all times of Grantor's current address(es). POWER OF ATTORNEY. Grantor hereby appoints Lender as its true and lawful attorney-in-fact, irrevocably, with full power of substitution to do the following: (a) to demand, collect, receive, receipt for, sue and recover all sums of money or other property which may now or hereafter become due, owing or payable from the Collateral; (b) to execute, sign and endorse any and all claims, instruments, receipts, checks, drafts or warrants issued in payment for the Collateral; (c) to settle or compromise any and all claims arising under the Collateral, and, in the place and stead of Grantor, to execute and deliver its release and settlement for the claim; and (d) to file any claim or claims or to take any action or institute or take part in any proceedings, either in its own name or in the name of Grantor, or otherwise, which in the discretion of Lender may seem to be necessary or advisable. This power is given as security for the Indebtedness, and the authority hereby conferred is and shall be irrevocable and shall remain in full force and affect until renounced by Lender. PREFERENCE PAYMENT. Any monies Lender pays because of an asserted preference claim in Borrower's bankruptcy will become a part of the Indebtedness and, at Lender's option, shall be payable by Borrower as provided above in the "EXPENDITURES BY LENDER" paragraph. SEVERABILITY. If a court of competent jurisdiction finds any provision of this Agreement to be invalid or unenforceable as to any person or circumstance, such finding shall not render that provision invalid or unenforceable as to any other persons or circumstances. If feasible, any such offending provision shall be deemed to be modified to be within the limits of enforceability or validity; however, if the offending provision cannot be so modified, it shall be stricken and all other provisions of this Agreement in all other respects shall remain valid and enforceable. SUCCESSOR INTERESTS. Subject to the limitations set forth above on transfer of the Collateral, this Agreement shall be binding upon and inure to the benefit of the parties, their successors and assigns. WAIVER. Lender shall not be deemed to have waived any rights under this Agreement unless such waiver is given in writing and signed by Lender. No delay or omission on the part of Lender is exercising any right shall operate as a waiver of such right or any other right. A waiver by Lender of a provision of this Agreement shall not prejudice or constitute a waiver of Lender's right otherwise to demand strict compliance with that provision or any other provision of this Agreement. No prior waiver by Lender, nor any course of dealing between Lender and Grantor, shall constitute a waiver of any of Lender's rights or of any of Grantor's obligations as to any future transactions. Whenever the consent of Lender is required under this Agreement, the granting of such consent by Lender in any instance shall not constitute continuing consent in subsequent instances where such consent is required and in all cases such consent may be granted or withhold in the sole discretion of Lender. WAIVER OF CO-OBLIGOR'S RIGHTS. If more than one person is obligated for the Indebtedness, Borrower irrevocably waives, disclaims and relinquishes all claims against such other person which Borrower has or would otherwise have by virtue of payment of the Indebtedness or any part thereof, specifically including but not limited to all rights of indemnity, contribution or exoneration. GRANTOR ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS COMMERCIAL SECURITY AGREEMENT, AND GRANTOR AGREES TO ITS TERMS. THIS AGREEMENT IS DATED SEPTEMBER 28, 1999. GRANTOR: Niku Corporation By: -------------------------------------- Farzad Dibachi, President/CEO LASER PRO. Reg. U.S. Pat. & T.M. Off., Ver. 3.27(c) 1999 ProServices, Inc. All rights reserved [CA-C40 NIKU99.LN] EX-10.06 18 EX-10.06 1 EXHIBIT 10.06 SUBORDINATED LOAN AND SECURITY AGREEMENT THIS AGREEMENT (the "Agreement"), dated as of February 2, 1999, is entered into by and between Niku Corporation, a Delaware corporation, with its chief executive office, and principal place of business located at 955-A Charter Street, Redwood City, CA 94063 (the "Borrower") and Comdisco, Inc., a Delaware corporation, with its principal place of business located at 6111 North River Road, Rosemont, Illinois 60018 (the "Lender" or sometimes, "Comdisco"). In consideration of the mutual agreements contained herein, the parties hereto agree as follows: RECITALS WHEREAS, Borrower has requested Lender to make available to Borrower a loan in the aggregate principal amount of Three Million and 00/100 Dollars ($3,000,000.00) in three tranches of One Million Dollars ($1,000,000.00) each available as further set forth herein (as the same may from time to time be amended, modified, supplemented or revised, the "Loan"), which would be evidenced by Subordinated Promissory Note(s) executed by Borrower substantially in the form of Exhibit A hereto (as the same may from time to time be amended, modified, supplemented or restated the "Note(s)"). WHEREAS, Lender is willing to make the Loan on the terms and conditions set forth in this Agreement, and WHEREAS, Lender and Borrower agree any Loan hereunder shall be subordinate to Senior Debt (as defined herein) to the extent set forth in the Subordination Agreement (as defined herein). AGREEMENT NOW, THEREFORE, in consideration of the premises and the mutual agreements contained herein, Borrower and Lender hereby agree as follows: SECTION 1. DEFINITIONS Unless otherwise defined herein, the following capitalized terms shall have the following meanings (such meanings being equally applicable to both the singular and plural form of the terms defined); 1.1 "ACCOUNT" means any "account," as such term is defined in Section 9106 of the UCC, now owned or hereafter acquired by Borrower or in which Borrower now holds or hereafter acquires any interest and, in any event, shall include, without limitation, all accounts receivable, book debts and other forms of obligations (other than forms of obligations evidenced by Chattel Paper, Documents or Instruments) now owned or hereafter received or acquired by or belonging or owing to Borrower (including, without limitation, under any trade name, style or division thereof) whether arising out of goods sold or services rendered by Borrower or from any other transaction, whether or not the same involves the sale of goods or services by Borrower (including, without limitation, any such obligation which may be characterized as an account or 2 contract right under the UCC) and all of Borrower's rights in, to and under all purchase orders or receipts now owned or hereafter acquired by it for goods or services, and all of Borrower's rights to any goods represented by any of the foregoing (including, without limitation, unpaid seller's rights of rescission, replevin, reclamation and stoppage in transit and rights to returned, reclaimed or repossessed goods), and all monies due or to become due to Borrower under all purchase orders and contracts for the sale of goods or the performance of services or both by Borrower (whether or not yet earned by performance on the part of Borrower or in connection with any other transaction), now in existence or hereafter occurring, including, without limitation, the right to receive the proceeds of said purchase orders and contracts, and all collateral security and guarantees of any kind given by any Person with respect to any of the foregoing. 1.2 "ACCOUNT DEBTOR" means any "account debtor," as such term is defined in Section 9105(l)(a) of the UCC. 1.3 "ADVANCE" means each installment made by the Lender to Borrower pursuant to the Loan to be evidenced by the Note(s) secured by the Collateral. 1.4 "ADVANCE DATE" means the funding date of any Advance of the Loan. 1.5 "ADVANCE REQUEST" means the request by Borrower for an Advance under the Loan, each to be substantially in the form of Exhibit C attached hereto, as submitted by Borrower to Lender from time to time. 1.6 "CHATTEL PAPER" means any "chattel paper," as such term is defined in Section 9105(l)(b) of the UCC, now owned or hereafter acquired by Borrower or in which Borrower now holds or hereafter acquires any interest. 1.7 "CLOSING DATE" means the date hereof. 1.8 "COLLATERAL" shall have the meaning assigned to such term in Section 3 of this Agreement. 1.9 "CONTRACTS" means all contracts, undertakings, franchise agreements or other agreements (other than rights evidenced by Chattel Paper, Documents or Instruments) in or under which Borrower may now or hereafter have any right, title or interest, including, without limitation, with respect to an Account, any agreement relating to the terms of payment or the terms of performance thereof. 1.10 "COPYRIGHTS" means all of the following now owned or hereafter acquired by Borrower or in which Borrower now holds or hereafter acquires any interest: (i) all copyrights, whether registered or unregistered, held pursuant to the laws of the United States, any State thereof or of any other country; (ii) registrations, applications and recordings in the United States Copyright Office or in any similar office or agency of the United States, any state thereof or any other country; (iii) any continuations, renewals or extensions thereof; and (iv) any registrations to be issued in any pending applications. 2 3 1.11 "COPYRIGHT LICENSE" means any written agreement granting any right to use any Copyright or Copyright registration now owned or hereafter acquired by Borrower or in which Borrower now holds or hereafter acquires any interest. 1.12 "DOCUMENTS" means any "documents," as such term is defined in Section 9105(l)(f) of the UCC, now owned or hereafter acquired by Borrower or in which Borrower now holds or hereafter acquires any interest. 1.13 "EQUIPMENT" means any "equipment," as such term is defined in Section 9109(2) of the UCC, now or hereafter owned or acquired by Borrower or in which Borrower now holds or hereafter acquires any interest and any and all additions, substitutions and replacements of any of the foregoing, wherever located, together with all attachments, components, parts, equipment and accessories installed thereon or affixed thereto. 1.14 "EXCLUDED AGREEMENTS" means (i) any Warrant Agreement(s) executed hereunder, and any other warrants (including without limitation, the warrant agreement dated as of February 2, 1999) to acquire, or agreements governing the rights of the holders of, any equity security of Borrower, (ii) any stock of the Borrower issued or purchased pursuant to the Warrant Agreement, and (iii) the Master Lease Agreement dated as of January _1999 between Borrower, as lessee, and Lender, as lessor, including, without limitation, any Equipment Schedules and Summary Equipment Schedules to the Master Lease Agreement executed or delivered by Borrower pursuant thereto and any other modifications or amendments thereof, whereby Borrower (as lessee) leases equipment, software, or goods from Lender (as lessor) to Borrower (as lessee). 1.15 "FACILITY FEE" means one percent (1.0%) of the principal amount of the Loan plus due diligence and legal expenses of up to $5,000, due at the Closing Date 1.16 "FIXTURES" means any "fixtures," as such term is defined in Section 9313(l)(a) of the UCC, now or hereafter owned or acquired by Borrower or in which Borrower now holds or hereafter acquires any interest and, now or hereafter attached or affixed to or constituting a part of, or located in or upon, real property wherever located, together with all right, title and interest of Borrower in and to all extensions, improvements, betterments, renewals, substitutes, and replacements of, and all additions and appurtenances to any of the foregoing property, and all conversions of the security constituted thereby, immediately upon any acquisition or release thereof or any such conversion, as the case may be. 1.17 "GENERAL INTANGIBLES" means any "general intangibles," as such term is defined in Section 9106 of the UCC, now owned or hereafter acquired by Borrower or in which Borrower now holds or hereafter acquires any interest and, in any event, shall include, without limitation, all right, title and interest which Borrower may now or hereafter have in or under any contract, all customer lists, Copyrights, Trademarks, Patents, rights to Intellectual Property, interests in partnerships, joint ventures and other business associations, Licenses, permits, trade secrets, proprietary or confidential information, inventions (whether or not patented or patentable), technical information, procedures, designs, knowledge, know-how, software, data bases, data, skill, expertise, recipes, experience, processes, models, drawings, materials and records, goodwill 3 4 (including, without limitation, the goodwill associated with any Trademark, Trademark registration or Trademark licensed under any Trademark License), claims in or under insurance policies, including unearned premiums, uncertificated securities, cash and other forms of money or currency, deposit accounts (including as defined in Section 9105(e) of the UCC), rights to sue for past, present and future infringement of Copyrights, Trademarks and Patents, rights to receive tax refunds and other payments and rights of indemnification. 1.18 "INSTRUMENTS" means any "instrument," as such term is defined in Section 9105(l)(i) of the UCC, now owned or hereafter acquired by Borrower or in which Borrower now holds or hereafter acquires any interest. 1.19 "INTELLECTUAL PROPERTY" means all Copyrights, Trademarks, Patents, trade secrets, source codes, customer lists, proprietary or confidential information, inventions (whether or not patented or patentable), technical information, procedures, designs, knowledge, knowhow, software, data bases, skill, expertise, experience, processes, models, drawings, materials and records. 1.20 "INVENTORY " means any "inventory," as such term is defined in Section 9109(4) of the UCC, wherever located, now or hereafter owned or acquired by Borrower or in which Borrower now holds or hereafter acquires any interest, and, in any event, shall include, without limitation, all inventory, goods and other personal property which are held by or on behalf of Borrower for sale or lease or are furnished or are to be furnished under a contract of service or which constitute raw materials, work in process or materials used or consumed or to be used or consumed in Borrower's business, or the processing, packaging, promotion, delivery or shipping of the same, and all furnished goods whether or not such inventory is listed on any schedules, assignments or reports furnished to Lender from time to time and whether or not the same is in transit or in the constructive, actual or exclusive occupancy or possession of Borrower or is held by Borrower or by others for Borrower's account, including, without limitation, all goods covered by purchase orders and contracts with suppliers and all goods billed and held by suppliers and all inventory which may be located on premises of Borrower or of any carriers, forwarding agents, truckers, warehousemen, vendors, selling agents or other persons. 1.21 "LICENSE" means any Copyright License, Patent License, Trademark License or other license of rights or interests now held or hereafter acquired by Borrower or in which Borrower now holds or hereafter acquires any interest and any renewals or extensions thereof. 1.22 "LIEN" means any mortgage, deed of trust, pledge, hypothecation, assignment for security, security interest, encumbrance, levy, lien or charge of any kind, whether voluntarily incurred or arising by operation of law or otherwise, against any property, any conditional sale or other title retention agreement, any lease in the nature of a security interest, and the filing of any financing statement (other than a precautionary financing statement with respect to a lease that is not in the nature of a security interest) under the UCC or comparable law of any jurisdiction. 1.23 "LOAN DOCUMENTS" shall mean and include this Agreement, the Note(s), and any other documents executed in connection with the Secured Obligations or the transactions 4 5 contemplated hereby, as the same may from time to time be amended, modified, supplemented or restated, provided, that the Loan Documents shall not include any of the Excluded Agreements. 1.24 "MATERIAL ADVERSE EFFECT" means a material adverse effect upon: (i) the business, operations, or conditions (financial or otherwise) of Borrower; or (ii) the ability of Borrower to repay the Secured Obligations or otherwise perform, its obligations under the Loan Documents. 1.25 "MATURITY DATE" means the date thirty-six (36) months from the Advance Date of each installment of the Loan. 1.26 "PATENT LICENSE" means any written agreement granting any right with respect to any invention on which a Patent is in existence now owned or hereafter acquired by Borrower or in which Borrower now holds or hereafter acquires any interest. 1.27 "PATENTS" means all of the following now owned or hereafter acquired by Borrower or in which Borrower now holds or hereafter acquires any interest: (a) letters patent of, or rights corresponding thereto in, the United States or any other county, all registrations and recordings thereof, and all applications for letters patent of, or rights corresponding thereto in the United States or any other country, including, without limitation, registrations, recordings and applications in the United States Patent and Trademark Office or in any similar office or agency of the United States, any State thereof or any other country; (b) all reissues, continuations, continuations-in-part or extensions thereof; (c) all petty patents, divisionals, and patents of addition; and (d) all patents to issue in any such applications. 1.28 "PERMITTED LIENS" means any and all of the following: (i) Liens in favor of Lender, (ii) Liens related to, or arising in connection with, Senior Debt and (iii) Liens permitted under the Senior Loan Documents. 1.29 "PROCEEDS" means "proceeds," as such term is defined in Section 9306(l) of the UCC and, in any event, shall include, without limitation, (a) any and all Accounts, Chattel Paper, Instruments, cash or other forms of money or currency or other proceeds payable to Borrower from time to time in respect of the Collateral, (b) any and all proceeds of any insurance, indemnity, warranty or guaranty payable to Borrower from time to time with respect to any of the Collateral, (c) any and all payments (in any form whatsoever) made or due and payable to Borrower from time to time in connection with any requisition, confiscation, condemnation, seizure or forfeiture of all or any part of the Collateral by any governmental authority (or any Person acting under color of governmental authority), (d) any claim of Borrower against third parties (i) for past, present or future infringement of any Copyright, Patent or Patent License or (ii) for past, present or future infringement or dilution of any Trademark or Trademark License or for injury to the goodwill associated with any Trademark, Trademark registration or Trademark licensed under any Trademark License and (e) any and all other amounts from time to time paid or payable under or in connection with any of the Collateral. 1.30 "RECEIVABLES" shall mean and include all of the Borrowers accounts, instruments, documents, chattel paper and general intangibles whether secured or unsecured, whether now 5 6 existing or hereafter created or arising, and whether or not specifically sold or assigned to Lender hereunder. 1.31 "SECURED OBLIGATIONS" shall mean and include all principal, interest, fees, costs, or other liabilities or obligations for monetary amounts owed by Borrower to Lender, whether due or to become due, matured or unmatured, liquidated or unliquidated, contingent or non-contingent, and all covenants and duties regarding such amounts, of any kind of nature, present or future, arising under this Agreement, the Note(s), or any of the other Loan Documents, whether or not evidenced by any Note(s), Agreement or other instrument, as the same may from time to time be amended, modified, supplemented or restated, provided, that the Secured Obligations shall not include any indebtedness or obligations of Borrower arising under or in connection with the Excluded Agreements. 1.32 "SENIOR CREDITOR" means Imperial Bank (and any successors thereto) and any other bank, insurance company, pension fund, or other institutional lender to be determined, or a syndication of such institutional lenders that provides Senior Debt financing to Borrower; provided, that Senior Creditor shall not include any officer, director, shareholder, venture capital investor, or insider of Borrower, or any affiliate of the foregoing persons, except upon the express written consent of Lender. 1.33 "SENIOR DEBT" means any and all indebtedness and obligations for borrowed money (including, without limitation, principal, premium (if any), interest, fees charges, expenses, costs, professional fees and expenses, and reimbursement obligations) at any time owing by Borrower to Senior Creditor under the Senior Loan Documents, including, but not limited to such amounts as may accrue or be incurred before or after default or workout or the commencement of any liquidation, dissolution, bankruptcy, receivership or reorganization by or against Borrower provided, that Senior Debt shall not include debt exceeding Three Million Dollars ($3,000,000.00) outstanding at any one time excluding receivables financing covering a maximum of 80% of eligible receivables. 1.34 "SENIOR LOAN DOCUMENTS" means the loan agreement between Borrower and Senior Creditor and any other agreement, security agreement, document, promissory note, UCC financing statement, or instrument executed by Borrower in favor of Senior Creditor pursuant to or in connection with the Senior Debt or the loan agreement, as the same may from time to time be amended, modified, supplemented, extended, renewed, restated or replaced. 1.35 "SUBORDINATION AGREEMENT" means the Subordination Agreement of even date herewith, entered into between Borrower and Lender for the benefit of Senior Creditor. 1.36 "TRADEMARK LICENSE" means any written agreement granting any right to use any Trademark or Trademark registration now owned or hereafter acquired by Borrower or in which Borrower now holds or hereafter acquires any interest. 1.37 "TRADEMARKS" means any of the following now owned or hereafter acquired by Borrower or in which Borrower now holds or hereafter acquires any interest: (a) any and all trademarks, tradenames, corporate names, business names, trade styles, service marks, logos, 6 7 other source or business identifiers, prints and labels on which any of the foregoing have appeared or appear, designs and general intangibles of like nature, now existing or hereafter adopted or acquired, all registrations and recordings thereof, and any applications in connection therewith, including, without limitation, registrations, recordings and applications in the United States Patent and Trademark Office or in any similar office or agency of the United States, any State thereof or any other country or any political subdivision thereof and (b) any reissues, extensions or renewals thereof. 1.38 "UCC" shall mean the Uniform Commercial Code as the same may, from time to time, be in effect in the State of Illinois. Unless otherwise defined herein, terms that are defined in the UCC and used herein shall have the meanings given to them in the UCC. 1.39 "WARRANT AGREEMENT(s)" shall mean those agreements entered into in connection with the Loan, substantially in the form attached hereto as Exhibit B pursuant to which Borrower granted Lender the right to purchase that number of shares of Series B Preferred Stock of Borrower as more particularly set forth therein. SECTION 2. THE LOAN 2.1 Subject to the terms and conditions set forth herein, Lender shall lend to Borrower the aggregate original principal amount of Three Million Dollars ($3,000,000) with interest at the rate of twelve percent (12%). The principal amount of the Loan shall accrue interest at the rate of twelve percent (12%) per annum from the Advance Date until the earlier of (i) the close of the next private equity financing of Borrower; (ii) the effective date of an initial public offering of the Borrower's securities; (iii) the effective date of an acquisition or merger of Borrower in which more than fifty percent (50%) of the voting power of the Borrower is transferred, excluding any merger effected exclusively to change the domicile of the Borrower or (iv) December 31, 1999. Upon the occurrence of the earliest of the foregoing events, unless prepaid in accordance with Section 2.2 below, the principal and accrued interest shall be payable in equal monthly installments of principal and interest commencing upon the first day of the month immediately following such event and continuing for a period ending thirty-six (36) months from the Advance Date (each, a "Payment Date"). Notwithstanding the foregoing, in the event the Loan is not prepaid within twenty-four (24) months of the Advance Date, the principal amount shall accrue interest at the rate of fourteen (14%) per annum. 2.2 Borrower shall have the option to prepay the Loan, in whole or in part, after twelve (12) months from the Closing Date by paying the principal amount thereon together with all accrued and unpaid interest with respect to such principal amount, as of the date of such prepayment, without premium. In the event Borrower prepays the Note(s) within twelve (12) months from the Closing Date hereof, Borrower shall pay the principal amount together with all accrued and unpaid interest and a prepayment premium equal to one percent (1%) of the then outstanding principal amount (the "Prepayment Penalty"). Notwithstanding the foregoing, in the event Borrower prepays the Loan in conjunction with a merger, sale of all or substantially all of Borrower's assets, or an initial public offering of Borrower's equity securities, the Prepayment Penalty shall not apply. 7 8 2.3 (a) Notwithstanding any provision in this Agreement, the Note(s), or any other Loan Document, it is not the parties' intent to contract for, charge or receive interest at a rate that is greater than the maximum rate permissible by law which a court of competent jurisdiction shall deem applicable hereto (which under the laws of the State of Illinois shall be deemed to be the laws relating to permissible rates of interest on commercial loans) (the "Maximum Rate"). If the Borrower actually pays Lender an amount of interest, chargeable on the total aggregate principal Secured Obligations of Borrower under this Agreement and the Note(s) (as said rate is calculated over a period of time from the date of this Agreement through the end of time that any principal is outstanding on the Note(s)), which amount of interest exceeds interest calculated at the Maximum Rate on said principal chargeable over said period of time, then such excess interest actually paid by Borrower shall be applied first, to the payment of principal outstanding on the Note(s); second, after all principal is repaid, to the payment of Lender's out of pocket costs, expenses, and professional fees which are owed by Borrower to Lender under this Agreement or the Loan Documents; and third, after all principal, costs, expenses, and professional fees owed by Borrower to Lender are repaid, the excess (if any) shall be refunded to Borrower, and the effective rate of interest will be automatically reduced to the Maximum Rate. (b) In the event any interest is not paid when due hereunder, delinquent interest shall be added to principal and shall bear interest on interest, compounded at the rate set forth in Section 2.1. (c) Upon and during the continuation of an Event of Default hereunder, all Secured Obligations, including principal, interest, compounded interest, and professional fees, shall bear interest at a rate per annum equal to the rate set forth in Section 2.1. plus five percent (5%) per annum ("Default Rate"). SECTION 3. SECURITY INTEREST As security for the prompt, complete and indefeasible payment when due (whether at stated payment dates or otherwise) of all the Secured Obligations and in order to induce Lender to make the Loan upon the terms and subject to the conditions of the Note(s), and subject to Liens related to, or arising in connection with, Senior Debt or permitted under the Senior Loan Documents, Borrower hereby assigns, conveys, mortgages, pledges, hypothecates and transfers to Lender for security purposes only, and hereby grants to Lender a secondary security interest in, all of Borrower's right, title and interest in, to and under each of the following (all of which being hereinafter collectively called the "Collateral"): (a) All Receivables; (b) All Equipment; (c) All Fixtures; (d) All General Intangibles excluding Intellectual Property; (e) All Inventory; 8 9 (f) All other goods and personal property of Borrower whether tangible or intangible and whether now or hereafter owned or existing, leased, consigned by or to, or acquired by, Borrower and wherever located; and (g) To the extent not otherwise included, all Proceeds of each of the foregoing and all accessions to, substitutions and replacements for, and rents, profits and products of each of the foregoing. SECTION 4. REPRESENTATIONS AND WARRANTIES OF BORROWER Except as set forth in the Schedule of Exceptions attached hereto as Exhibit D the Borrower represents, warrants and agrees that; 4.1 Borrower has good and indefeasible title to the Collateral, free and clear of Liens, except for Permitted Liens. 4.2 Borrower has the full power and authority to, and does hereby grant and convey to the Lender, a perfected (upon the timely filing of all financing statements) security interest in the Collateral as security for the Secured Obligations, free of all liens, security interests, encumbrances and claims, other than Permitted Liens and shall execute such Uniform Commercial Code financing statements in connection herewith as the Lender may reasonably request. Except for Permitted Liens and as set forth herein, no other lien, security interest, adverse claim or encumbrance has been created by Borrower or is known by Borrower to exist with respect to any Collateral. 4.3 Borrower is a corporation duly organized, legally existing and in good standing under the laws of the State of Delaware, and is duly qualified as a foreign corporation in all jurisdictions in which the nature of its business or location of its properties require such qualifications and where the failure to be qualified would have a material adverse effect. 4.4 Borrower's execution, delivery and performance of the Note(s), this Agreement, all financing statements, all other Loan Documents required to be delivered or executed in connection herewith, and the Warrant Agreement(s) have been duly authorized by all necessary corporate action of Borrower, the individual or individuals executing the Loan Documents and the Warrant Agreement(s) were duly authorized to do so; and the Loan Documents and the Warrant Agreement(s) constitute legal, valid and binding obligations of the Borrower, enforceable in accordance with their respective terms, subject to applicable bankruptcy, insolvency, reorganization or other similar laws generally affecting the enforcement of the rights of creditors and as limited by laws relating to the availability of specific performance, injunctive relief or other equitable remedies. 4.5 This Agreement, the other Loan Documents and the Warrant Agreement(s) do not and will not violate any provisions of Borrower's Certificate of Incorporation or Bylaws and will not constitute an event of default under any material agreement to which the Borrower is a party or by which it is bound, Borrower is not in default under any agreement to which it is a party or 9 10 by which it is bound, which default would reasonably be expected to have a Material Adverse Effect. 4.6 The execution, delivery and performance of this Agreement, the other Loan Documents and the Warrant Agreement(s) do not require the consent or approval of any other person or entity including, without limitation, any regulatory authority or governmental body of the United States or any state thereof or any political subdivision of the United States or any state thereof. 4.7 There has not been a change in the consolidated financial condition of Borrower since the date of the most recent financial statements submitted to Lender that would result in a Material Adverse Effect. 4.8 No fact or condition exists that would (or would, with the passage of time, the giving of notice, or both) constitute a default under the Loan Agreement between Borrower and Senior Creditor. 4.9 Borrower has filed and will file all tax returns, federal, state and local, which it is required to file and has duly paid or fully reserved for all taxes or installments thereof (including any interest or penalties) as and when due, which have or may become due pursuant to such returns or pursuant to any assessment received by Borrower for the three (3) years preceding the Closing Date, if any (including any taxes being contested in good faith and by appropriate proceedings). SECTION 5. INSURANCE 5.1 So long as there are any Secured Obligations outstanding, Borrower shall cause to be carried and maintained insurance upon the Collateral and Borrower's business, covering casualty, hazard and such other property risks customarily insured against in Borrower's line of business. Borrower shall deliver to Lender lender's loss payable endorsements (Form BFU 438 or equivalent) naming Lender as loss payee or additional insured, as appropriate. Borrower shall use commercially reasonable efforts to cause all policies evidencing such insurance to provide for at least twenty (20) days prior written notice by the underwriter or insurance company to Lender in the event of cancellation or expiration. Such policies shall be issued by such insurers and in such amounts as are reasonably acceptable to Lender. 5.2 Borrower shall and does hereby indemnify and hold Lender and its agents and employees harmless from and against any and all claims, costs, expenses, damages and liabilities (including, without limitation, such claims, costs, expenses, damages and liabilities based on liability in tort, including without limitation, strict liability in tort), including reasonable attorneys' fees, arising out of the disposition or utilization of the Collateral, other than claims arising at or caused by Lender's gross negligence or willful misconduct. SECTION 6. COVENANTS OF BORROWER Borrower covenants and agrees as follows at all times while any of the Secured Obligations remain outstanding: 10 11 6.1 Borrower shall furnish to Lender the financial statements listed hereinafter, each prepared in accordance with generally accepted accounting principles consistently applied (the "Financial Statements"): (a) as soon as practicable (and in any event within thirty (30) days) after the end of each calendar quarter, unaudited interim financial statements as of the end of such quarter (prepared on a consolidated basis, if applicable), including balance sheet and related statements of income and cash flows accompanied by a report detailing any material contingencies (including the commencement of any material litigation by or against Borrower) or any other occurrence that could reasonably be expected to have a Material Adverse Effect, all certified by Borrower's Chief Executive Officer or Chief Financial Officer or Controller to be true and correct; (b) as soon as practicable (and in any event within ninety (90) days) after the end of each fiscal year, unqualified audited financial statements as of the end of such year (prepared on a consolidated basis, if applicable), including balance sheet and related statements of income and cash flows, and setting forth in comparative form the corresponding figures for the preceding fiscal year, as applicable and at such time as Borrower's accountants present financial results in such format, certified by a firm of independent certified public accountants selected by Borrower and reasonably acceptable to Lender, accompanied by any management report from such accountants; (c) promptly after the sending or filing thereof, as the case may be, copies of any proxy statements, financial statements or reports which Borrower has made available to its shareholders and copies of any regular, periodic and special reports or registration statements which Borrower files with the Securities and Exchange Commission or any governmental authority which may be substituted therefor, or any national securities exchange; and (d) promptly upon receipt of notice thereof, a report of any legal actions pending or threatened against Borrower that could result in damages or costs to Borrower of $100,000.00 or more (e) promptly, any additional information, financial or otherwise (including, but not limited, to tax returns and names of principal creditors) as Lender reasonably believes necessary to evaluate Borrower's continuing ability to meet its financial obligations. 6.2 Borrower shall permit any authorized representative of Lender and its attorneys and accountants on reasonable notice to inspect, examine and make copies and abstracts of the books of account and records of Borrower at reasonable times during normal business hours. In addition, such representative of Lender and its attorneys and accountants shall have the right to meet with management and officers of the Company to discuss such books of account and records. 6.3 Borrower will from time to time execute, deliver and file, alone or with Lender, any financing statements, security agreements or other documents; procure any instruments or documents as may be requested by Lender; and take all further action that may be necessary or 11 12 desirable, or that Lender may request, to confirm, perfect, preserve and protect the security interests intended to be granted hereby, and in addition, and for such purposes only and provided Borrower has not executed such agreements within ten (10) days of receipt thereof, Borrower hereby authorizes Lender to execute and deliver on behalf of Borrower and to file such financing statements, security agreement and other documents without the signature of Borrower either in Lender's name or in the name of Borrower as agent and attorney-in-fact for Borrower. The parties agree that a carbon, photographic or other reproduction of this Agreement shall be sufficient as a financing statement and may be filed in any appropriate office in lieu thereof. 6.4 Borrower shall protect and defend Borrower's title as well as the interest of the Lender against all persons claiming any interest adverse to Borrower or Lender and shall at all times keep the Collateral free and clear from any legal process, liens or encumbrances whatsoever (except Permitted Liens and any placed thereon by Lender) and shall give Lender immediate written notice thereof. 6.5 Without Lender's prior written consent, Borrower shall not except in the ordinary course of business and consistent with past practice, (a) grant any material extension of the time of payment of any of the Receivables, (b) to any material extent, compromise, compound or settle the same for less than the full amount thereof, (c) release, wholly or partly, any Person liable for the payment thereof, or allow any credit or discount whatsoever thereon other than trade discounts granted in the ordinary course of business of Borrower. 6.6 Borrower shall maintain and protect its properties, assets and facilities, including without limitation, its Equipment and Fixtures, in good order and working repair and condition (taking into consideration ordinary wear and tear) and from time to time make or cause to be made all necessary and proper repairs, renewals and replacements thereto in accordance with customary industry practice and shall competently manage and care for its property in accordance with prudent industry practices. 6.7 Borrower shall not merge with and into any other entity, other than a merger among the Borrower and any of its subsidiaries in which the Borrower is the surviving entity; or sell or convey all or substantially all of its assets or stock to any other person or entity without obtaining Lender's consent to the assignment of all of Borrower's Secured Obligations hereunder to the successor entity in form and substance satisfactory to Lender, which consent shall not be unreasonably withheld. In the event Lender does not consent to such assignment the parties agree Borrower shall prepay the Loan in accordance with Section 2.2 hereof. 6.8 Borrower shall not, without the prior written consent of Lender, such consent not to be unreasonably withheld, declare or pay any cash dividend or make a distribution on any class of stock, other than pursuant to employee repurchase plans upon an employee's death or termination of employment or transfer, sell, lease, lend or in any other manner convey any equitable, beneficial or legal interest in any material portion of the assets of Borrower (except inventory sold in the normal course of business). Notwithstanding the foregoing, Borrower may convert any of its convertible securities into other securities pursuant to the terms of such convertible securities or otherwise in exchange therefor. 12 13 6.9 Upon the request of Lender, Borrower shall, during business hours, make the Inventory and Equipment available to Lender for inspection at the place where it is normally located and shall make Borrower's log and maintenance records maintained by Borrower consistent with past practice, pertaining to the Inventory and Equipment available to Lender for inspection. Borrower shall take all action necessary to maintain such logs and maintenance records in accordance with past practice in a correct and complete fashion. 6.10 Borrower covenants and agrees to pay when due, all taxes, fees or other charges of any nature whatsoever (together with any related interest or penalties) now or hereafter imposed or assessed against Borrower, Lender or the Collateral or upon Borrower's ownership, possession, use, operation or disposition thereof or upon Borrower's rents, receipts or earnings arising therefrom. Borrower shall file on or before the due date therefor all personal property tax returns in respect of the Collateral. Notwithstanding the foregoing, Borrower may contest, in good faith and by appropriate proceedings, taxes for which Borrower maintains adequate reserves therefor. 6.11 Borrower shall not relocate any item of the Collateral (other than sale of inventory in the ordinary course of business) except: (i) with the prior written consent of the Lender not to be unreasonably withheld; and (ii) if such relocation shall be within the continental United States. If permitted to relocate Collateral pursuant to the foregoing sentence, unless otherwise agreed in writing by Lender, Borrower shall first (a) cause to be filed and/or delivered to the Lender all Uniform Commercial Code financing statements, certificates or other documents or instruments necessary to continue in effect the perfected security interest of the Lender in the Collateral, and (b) have given the Lender prior written notice of such relocation. 6.12 Borrower shall not sell, transfer, assign, hypothecate or otherwise encumber its Intellectual Property without Lender's prior written consent. SECTION 7. CONDITIONS PRECEDENT TO LOAN 7.1 (a) THE ADVANCE DATE FOR ANY INSTALLMENT SHALL OCCUR ON OR BEFORE JULY 2, 1999. The obligation of Lender to fund the Loan on each Advance Date shall be subject to Lender's discretion and satisfactory completion of its due diligence and approval process, and satisfaction by Borrower or waiver by Lender, in Lender's sole discretion, of the following conditions: 7.2 Borrower shall have entered into a leasing transaction with Lender in the minimum amount of Two Hundred Fifty Thousand Dollars ($250,000.00). 7.3 DOCUMENT DELIVERY. Borrower, on or prior to the Closing Date, shall have delivered to Lender the following: (a) executed originals of the Agreement, the Warrant Agreement, and any documents reasonably required by Lender to effectuate the liens of Lender, with respect to all Collateral; 13 14 (b) certified copy of resolutions of Borrower's board of directors evidencing approval of the borrowing and other transactions evidenced by the Loan Documents and the Warrant Agreement(s); (c) certified copies of the Certificate of Incorporation and the Bylaws, as amended through the Closing Date, of Borrower; (d) certificate of good standing for Borrower from its state of incorporation and similar certificates from all other jurisdictions in which it does business and where the failure to be qualified would have a Material Adverse Effect; (e) payment of the Facility Fee; (f) such other documents as Lender may reasonably request. 7.4 ADVANCE REQUEST. Borrower shall: (a) deliver to Lender, written notice in the form of an Advance Request, or as otherwise specified by Lender from time to time, specifying amount of such Advance and wire transfer instructions. (b) deliver executed original Note as set forth in Section 2, as applicable. (c) such other documents as Lender may reasonably request. 7.5 PERFECTION OF SECURITY INTERESTS. Borrower shall have taken or caused to be taken such actions requested by Lender to grant Lender a secondary security interest in the Collateral, subject only to Permitted Liens. Such actions shall include, without limitation, the delivery to Lender of all appropriate financing statements, executed by Borrower, as to the Collateral granted by Borrower for all jurisdictions as may be necessary or desirable to perfect the security interest of Lender in such Collateral. 7.5 ABSENCE OF EVENTS OF DEFAULTS. As of the Closing Date or the Advance Date, no fact or condition exists that would (or would, with the passage of time, the giving of notice, or both) constitute an Event of Default under this Agreement or any of the Loan Documents and no fact or condition exists that would (or would, with the passage of time, the giving of notice, or both) constitute a default under the Senior Loan Documents between Borrower and Senior Creditor. 7.6 MATERIAL ADVERSE EFFECT. As of the Closing Date or the Advance Date, no event which has had or could reasonably be expected to have a Material Adverse Effect has occurred and is continuing. SECTION 8. DEFAULT The occurrence of any one or more of the following events (herein called "Events of Default") shall constitute a default hereunder and under the Note(s) and other Loan Documents: 14 15 8.1 Borrower defaults in the payment of any principal, interest or other Secured Obligation involving the payment of money under this Agreement, the Note(s) or any of the other Loan Documents, and such default continues for more than five (5) days after the due date thereof or default in payment of any other Secured Obligation not constituting principal or interest, including without limitation Lender's expenses within thirty (30) days of receipt of Borrower of an invoice for such other Secured Obligations; or 8.2 Borrower defaults in the performance of any other covenant or Secured Obligation of Borrower hereunder or under the Note(s) or any of the other Loan Documents, and such default continues for more than thirty (30) days after Lender has given notice of such default to Borrower. 8.3 Any representation or warranty made herein by Borrower shall prove to have been false or misleading in any material respect and has had a Material Adverse Effect on the Loan; or 8.4 Borrower shall make an assignment for the benefit of creditors, or shall admit in writing its inability to pay its debts as they become due, or shall file a voluntary petition in bankruptcy, or shall file any petition or answer seeking for itself any reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar relief under any present or future statute, law or regulation pertinent to such circumstances, or shall seek or consent to or acquiesce in the appointment of any trustee, receiver, or liquidator of Borrower or of all or any substantial part (33-1/3% or more) of the properties of Borrower; or Borrower or its directors or majority shareholders shall take any action initiating the dissolution or liquidation of Borrower; or 8.5 Sixty (60) days shall have expired after the commencement of an action by or against Borrower seeking reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar relief under any present or future statute, law or regulation, without such action being dismissed or all orders or proceedings thereunder affecting the operations or the business of Borrower being stayed; or a stay of any such order or proceedings shall thereafter be set aside and the action setting it aside shall not be timely appealed; or Borrower shall file any answer admitting or not contesting the material allegations of a petition filed against Borrower in any such proceedings; or the court in which such proceedings are pending shall enter a decree or order granting the relief sought in any such proceedings; or 8.6 Sixty (60) days shall have expired after the appointment, without the consent or acquiescence of Borrower, of any trustee, receiver or liquidator of Borrower or of all or any substantial part of the properties of Borrower without such appointment being vacated; or 8.7 The default and passage of all applicable grace periods by Borrower under any Excluded Agreement(s), or a default with respect to any other promissory note or agreement for borrowed money in an amount in excess of $100,000.00 or any other agreement between Borrower and Lender that would reasonably be expected to have a Material Adverse Effect. 8.8 The occurrence of any default under any lease or other agreement or obligation of Borrower involving an amount in excess of $100,000.00 or having a Material Adverse Effect; or the entry of any judgment against Borrower involving an award in excess of $100,000.00 that 15 16 would have a Material Adverse Effect, that has not been bonded or stayed on appeal within thirty (30) days; or 8.9 The occurrence of any material default under the Senior Loan Documents. SECTION 9. REMEDIES Upon the occurrence of any one or more Events of Default, Lender, at its option, may declare the Note and all of the other Secured Obligations to be accelerated and immediately due and payable (provided, that upon the occurrence of an Event of Default of the type described in Sections 8.4 or 8.5, the Note(s) and all of the other Secured Obligations shall automatically be accelerated and made due and payable without any further act), whereupon the unpaid principal of and accrued interest on such Note(s) and all other outstanding Secured Obligations shall become immediately due and payable, and shall thereafter bear interest at the Default Rate set forth in, and calculated according to, Section 2.3(c) of this Agreement. Lender may exercise all rights and remedies with respect to the Collateral under the Loan Documents or otherwise available to it under applicable law, including the right to release, hold or otherwise dispose of all or any part of the Collateral and the right to occupy, utilize, process and commingle the Collateral. Upon the happening and during the continuance of any Event of Default, Lender may then, or at any time thereafter and from time to time, apply, collect, sell in one or more sales, lease or otherwise dispose of, any or all of the Collateral, in its then condition or following any commercially reasonable preparation or processing, in such order as Lender may elect, and any such sale may be made either at public or private sale at its place of business or elsewhere. Borrower agrees that any such public or private sale may occur upon five (5) calendar days' prior written notice to Borrower. Lender may require Borrower to assemble the Collateral and make it available to Lender at a place designated by Lender which is reasonably convenient to Lender and Borrower. The proceeds of any sale, disposition or other realization upon all or any part of the Collateral shall be distributed by Lender in the following order of priorities: First, to Lender in an amount sufficient to pay in full Lender's costs and professionals' and advisors' fees and expenses; Second, to Lender in an amount equal to the then unpaid amount of the Secured Obligations in such order and priority as Lender may choose in its sole discretion; and Finally, upon payment in full of all of the Secured Obligations, to Borrower or its representatives or as a court of competent jurisdiction may direct. Lender shall be deemed to have acted reasonably in the custody, preservation and disposition of any of the Collateral if it complies with the obligations of a secured party under Section 9207 of the UCC. Lender's rights and remedies hereunder are subject to the terms of the Subordination Agreement. 16 17 SECTION 10. MISCELLANEOUS 10.1 CONTINUATION OF SECURITY INTEREST. This is a continuing Agreement and the grant of a security interest hereunder shall remain in full force and effect and all the rights, powers and remedies of Lender hereunder shall continue to exist until the Secured Obligations are paid in full as the same become due and payable and until Lender has executed a written termination statement (which Lender shall execute within a reasonable time after full payment of the Secured Obligations hereunder), reassigning to Borrower, without recourse, the Collateral and all rights conveyed hereby and returning possession of the Collateral to Borrower. The rights, powers and remedies of Lender hereunder shall be in addition to all rights, powers and remedies given by statute or rule of law and are cumulative. The exercise of any one or more of the rights, powers and remedies provided herein shall not be construed as a waiver of or election of remedies with respect to any other rights, powers and remedies of Lender. 10.2 SEVERABILITY. Whenever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement shall be prohibited by or invalid under such law, such provision shall be ineffective only to the extent and duration of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Agreement. 10.3 NOTICE. Except as otherwise provided herein, all notices and service of process required, contemplated, or permitted hereunder or with respect to the subject matter hereof shall be in writing, and shall be deemed to have been validly served, given or delivered upon the earlier of: (i) the first business day after transmission by facsimile or hand delivery or deposit with an overnight express service or overnight mail delivery service; or (ii) the third calendar day after deposit in the United States mails, with proper first class postage prepaid, and shall be addressed to the party to be notified as follows: (a) IF TO LENDER: COMDISCO, INC. Legal Department Attention: General Counsel 6111 North River Road Rosemont, IL 60018 Facsimile: (847) 518-5088 WITH A COPY TO: COMDISCO, INC./COMDISCO VENTURES 6111 North River Road Rosemont, IL 60018 Facsimile: (847) 518-5465 17 18 (b) IF TO BORROWER: NIKU CORPORATION Attention: Chief Financial Officer 955-A Charter Street Redwood City, CA 94063 Facsimile: (650) 369-9290 Phone: (650) 369-9298 or to such other address as each party may designate for itself by like notice. 10.4 ENTIRE AGREEMENT; AMENDMENTS. This Agreement, the Note(s), and the other Loan Documents, and the Warrant Agreement(s) constitute the entire agreement and understanding of the parties hereto in respect of the subject matter hereof and thereof, and supersede and replace in their entirety any prior proposals, term sheets, letters, negotiations or other documents or agreements, whether written or oral, with respect to the subject matter hereof or thereof (including, without limitation, Lender's proposal letter dated November 20, 1998, all of which are merged herein and therein. None of the terms of this Agreement, the Note(s), any of the other Loan Documents or Warrant Agreement(s) may be amended except by an instrument executed by each of the parties hereto. 10.5 HEADINGS. The various headings in this Agreement are inserted for convenience only and shall not affect the meaning or interpretation of this Agreement or any provisions hereof. 10.6 NO WAIVER. The powers conferred upon Lender by this Agreement are solely to protect its interest in the Collateral and shall not impose any duty upon Lender to exercise any such powers. No omission, or delay, by Lender at any time to enforce any right or remedy reserved to it, or to require performance of any of the terms, covenants or provisions hereof by Borrower at any time designated, shall be a waiver of any such right or remedy to which Lender is entitled, nor shall it in any way affect the right of Lender to enforce such provisions thereafter. 10.7 SURVIVAL. All agreements, representations and warranties contained in this Agreement, the Note(s), the other Loan Documents and the Warrant Agreement(s) or in any document delivered pursuant hereto or thereto shall be for the benefit of Lender and shall survive the execution and delivery of this Agreement and the expiration or other termination of this Agreement. 10.8 SUCCESSOR AND ASSIGNS. The provisions of this Agreement, the other Loan Documents and the Warrant Agreement(s) shall inure to the benefit of and be binding on Borrower and its permitted assigns (if any). Borrower shall not assign its obligations under this Agreement, the Note(s), any of the other Loan Documents or the Warrant Agreement(s), without Lender's express written consent, which shall not be unreasonably withheld, and any such attempted assignment shall be void and of no effect. Lender may assign, transfer, or endorse its rights hereunder and under the other Loan Documents or Warrant Agreement(s) with notice to Borrower, and all of such rights shall inure to the benefit of Lender's successors and assigns. 18 19 10.9 FURTHER INDEMNIFICATION. Borrower agrees to pay, and to save Lender harmless from, any and all liabilities with respect to, or resulting from any delay in paying, any and all excise, sales or other similar taxes which may be payable or determined to be payable with respect to any of the Collateral or in connection with any of the transactions contemplated by this Agreement. 10.10 GOVERNING LAW. This Agreement, the Note(s), the other Loan Documents and the Warrant Agreement(s) have been negotiated and delivered to Lender in the State of Illinois, and shall not become effective until accepted by Lender in the State of Illinois. Payment to Lender by Borrower of the Secured Obligations is due in the State of Illinois. This Agreement, the Note(s), the other Loan Documents and the Warrant Agreement(s) shall be governed by, and construed and enforced in accordance with, the laws of the State of Illinois, excluding conflict of laws principles that would cause the application of laws of any other jurisdiction. 10.11 CONSENT TO JURISDICTION AND VENUE. All judicial proceedings arising in or under or related to this Agreement, the Note(s), any of the other Loan Documents or Warrant Agreement(s) may be brought in any state or federal court of competent jurisdiction located in the State of Illinois. By execution and delivery of this Agreement, each party hereto generally and unconditionally: (a) consents to personal jurisdiction in Cook County, State of Illinois; (b) waives any objection as to jurisdiction or venue in Cook County, State of Illinois; (c) agrees not to assert any defense based on lack of jurisdiction or venue in the aforesaid courts; and (d) irrevocably agrees to be bound by any judgment rendered thereby in connection with this Agreement, the Note(s), the other Loan Documents or Warrant Agreement(s). Service of process on any party hereto in any action arising out of or relating to this agreement shall be effective if given in accordance with the requirements for notice set forth in Section 10.3, above and shall be deemed effective and received as set forth in Section 10.3, above. Nothing herein shall affect the right to serve process in any other manner permitted by law or shall limit the right of either party to bring proceedings in the courts of any other jurisdiction. 10.12 MUTUAL WAIVER OF JURY TRIAL. Because disputes arising in connection with complex financial transactions are most quickly and economically resolved by an experienced and expert person and the parties wish applicable state and federal laws to apply (rather than arbitration rules), the parties desire that their disputes be resolved by a judge applying such applicable laws. EACH OF BORROWER AND LENDER SPECIFICALLY WAIVES ANY RIGHT IT MAY HAVE TO TRIAL BY JURY OF ANY CAUSE OF ACTION, CLAIM, CROSS-CLAIM, COUNTERCLAIM, THIRD PARTY CLAIM OR ANY OTHER CLAIM (COLLECTIVELY, "CLAIMS") ASSERTED BY BORROWER AGAINST LENDER OR ITS ASSIGNEE AND/OR BY LENDER OR ITS ASSIGNEE AGAINST BORROWER. This waiver extends to all such Claims, including, without limitation, Claims which involve persons or entities other than Borrower and Lender; Claims which arise out of or are in any way connected to the relationship between Borrower and Lender; and any Claims for damages, breach of contract arising out of this Agreement, any other Loan Document or any of the Excluded Agreements, specific performance, or any equitable or legal relief of any kind. 10.13 CONFIDENTIALITY. Lender acknowledges that certain items of Collateral, including, but not limited to trade secrets, source codes, customer lists and certain other items of Intellectual 19 20 Property, and any Financial Statements provided pursuant to Section 6 hereof, constitute proprietary and confidential information of the Borrower (the "Confidential Information"). Accordingly, Lender agrees that any Confidential Information it may obtain in the course of acquiring, perfecting or foreclosing on the Collateral or otherwise provided under this Agreement, provided such Confidential Information is marked as confidential by Borrower at the time of disclosure, shall be received in the strictest confidence and will not be disclosed to any other person or entity in any manner whatsoever, in whole or in part, without the prior written consent of the Borrower, unless and until Lender has acquired indefeasible title thereto. 10.14 COUNTERPARTS. This Agreement and any amendments, waivers, consents or supplements hereto may be executed in any number of counterparts, and by different parties hereto in separate counterparts, each of which when so delivered shall be deemed an original, but all of which counterparts shall constitute but one and the same instrument. IN WITNESS WHEREOF, the Borrower and the Lender have duly executed and delivered this Agreement as of the day and year first above written. BORROWER: NIKU CORPORATION Signature: -------------------------- Print Name: ------------------------- Title: ------------------------------ ACCEPTED IN ROSEMONT, ILLINOIS: LENDER: COMDISCO, INC. Signature: -------------------------- Print Name: ------------------------- Title: ------------------------------ 20 21 EXHIBIT C ADVANCE REQUEST Name: Niku Corporation ("Borrower") Date: _____________ Address: 955-A Charter Street Redwood City, CA 94063 Borrower hereby requests from Comdisco, Inc. ("Lender") an Advance in the amount of $__________ on ____________, 199_ (the "Advance Date") under that Subordinated Loan and Security Agreement between Borrower and Lender dated January __, 1999 (the "Agreement"). Please: (a) Issue a check payable to Borrower ____________ or (b) Wire Funds to Borrower's account ____________ Bank:________________________________ Address:_____________________________ ABA Number:__________________________ Account Number:______________________ Account Name:________________________ Borrower hereby affirms that all Representations and Warranties of Borrower set forth in Section 4 and all Conditions Precedent to Loan set forth in Section 7 of the Agreement remain true and correct as of the date hereof. Executed this __ day of ____________, 199__ by: BORROWER: NIKU CORPORATION By:_________________________________ Title:______________________________ Print:______________________________ 21 22 EXHIBIT D SCHEDULE OF EXCEPTIONS This Schedule of Exceptions, dated as February 2, 1999, is made and delivered pursuant to Section 4 of the Subordinated Loan and Security agreement dated as of February 2, 1999 (the "Agreement"). The section numbers below correspond to the section numbers in the Agreement. However, any information disclosed under one or more subsections below shall be deemed disclosed and incorporated in and under each other subsection of Section 4 in which such disclosure is relevant or appropriate. Capitalized terms used but not otherwise defined below shall have the meanings given them in the Agreement and its other exhibits. 4.6 Consents To reserve the necessary shares of Series B Preferred Stock, the Borrower amended its Amended and Restated Certificate of Incorporation to increase the number of authorized Preferred stock and the number of shares designated Series B Preferred Stock. The amendment required the written consent of a majority of the Borrower's Preferred Stockholders and a majority of the Company's Common Stockholders, which consent the Company has obtained. 22 23 EXHIBIT A SUBORDINATED PROMISSORY NOTE $ 3,000,000 DATE: February 11, 1999 DUE: February 1, 2002 FOR VALUE RECEIVED, Niku Corporation, a Delaware corporation (the "Borrower" ) hereby promises to pay to the order of Comdisco, Inc., a Delaware corporation (the "Lender") at P.O. Box 91744, Chicago, IL 60693 or such other place of payment as the holder of this Secured Promissory Note (this "Note") may specify from time to time in writing, in lawful money of the United States of America, the principal amount of Three Million and 00/100 Dollars ($3,000,000.00). The principal amount shall accrue interest at the rate of twelve percent (12%) per annum from the date of this Note and no payment of interest or principal shall be due until the earliest of (i) the close of the next private equity financing of Borrower; (ii) the effective date of an initial public offering of the Borrower's securities; (iii) the effective date of an acquisition or merger of Borrower in which more than fifty percent (50%) of the voting power of the Borrower is transferred, excluding any merger effected exclusively to change the domicile of Borrower; or (iv) December 31, 1999. Upon the occurrence of the earliest of the foregoing events, unless prepaid in accordance with the terms of Section 2.2 of the Loan Agreement, the principal and accrued interest due hereunder shall be payable in equal monthly installments of principal and interest commencing on the first day of the month immediately following such event and on the same day of each month thereafter to and including thirty-six (36) months after the date of this Note, such installments to be applied first to accrued and unpaid interest and the balance to unpaid principal. Notwithstanding the foregoing, in the event principal and interest are not prepaid by February 2, 2001, then the principal amount shall accrue interest at fourteen percent (14%) per annum. Interest shall be computed on the basis of a year consisting of twelve months of thirty days each. This Note is the Note referred to in, and is executed and delivered in connection with, that certain Subordinated Loan and Security Agreement of even date herewith by and between Borrower and Lender (as the same may from time to time be amended, modified or supplemented in accordance with its terms, the "Loan Agreement"), and is entitled to the benefit and security of the Loan Agreement and the other Loan Documents (as defined in the Loan Agreement), to which reference is made for a statement of all of the terms and conditions thereof. All terms defined in the Loan Agreement shall have the same definitions when used herein, unless otherwise defined herein. THIS NOTE IS EXPRESSLY SUBJECT TO THE TERMS OF THAT CERTAIN SUBORDINATION AGREEMENT BY AND BETWEEN LENDER AND BORROWER FOR THE BENEFIT OF SENIOR CREDITOR. IN THE EVENT OF ANY CONTRADICTION OR INCONSISTENCY BETWEEN THIS NOTE AND THE SUBORDINATION AGREEMENT, THE TERMS OF THE SUBORDINATION AGREEMENT SHALL CONTROL. The Borrower waives presentment and demand for payment, notice of dishonor, protest and notice of protest and any other notice as permitted under the UCC or any applicable law. This 23 24 Note has been negotiated and delivered to Lender and is payable in the State of Illinois, and shall not become effective until accepted by Lender in the State of Illinois. This Note shall be governed by and construed and enforced in accordance with, the laws of the State of Illinois, excluding any conflicts of law rules or principles that would cause the application of the laws of any other jurisdiction. BORROWER: NIKU CORPORATION 955-A Charter Street Redwood City, CA 94063 Signature: /s/ HAROLD SLAWIK -------------------------- Print Name: Harold Slawik ------------------------- Title: Vice President ------------------------------ 24 EX-10.07 19 EX-10.07 1 * Confidential treatment has been requested with respect to certain information contained in this document. Confidential portions have been omitted from the public filing and have been filed separately with the Securities and Exchange Commission. EXHIBIT 10.07 [USi LOGO OMITTED] USi Agreement Number: 84 iMAP AGREEMENT USinternetworking, Inc. ("USi"), a Delaware corporation with its principal office located at One USi Plaza, Annapolis, MD 21401-7428 and Niku Corporation ("Client"), a Delaware corporation with offices at 955 Charter Street, Redwood City, California 94063, hereby agree that the following terms and conditions will apply to each iMAP Solution provided under this iMAP Agreement ("Agreement"). 1. SCOPE OF SERVICE 1.1 SERVICES USi will provide the services as defined in individual Product Schedules which will be mutually agreed upon, attached hereto and incorporated herein as Exhibit A. The Product Schedules may be modified by mutual written agreement. Changes or additions to work performed under each Product Schedule may require changes in the resources provided by Usi. Notwithstanding the foregoing, no additional costs or charges shall be due from Licensee without Licensee's prior written consent. 1.2 SEPARATE AGREEMENT Each Product Schedule shall reflect a separate agreement of the parties, and, unless otherwise clearly specified in writing, the terms and conditions of each Product Schedule shall be independent of and shall have no impact upon, the provisions of any other Product Schedule. 1.3 ADDITIONAL SERVICES Client may order additional iMAP Solutions or add on to existing iMAP Solutions by contacting USi. USi will send Client a Product Schedule, based on USi's formal requirements analysis and/or proposal for the additional services, specifying the terms of the iMAP Solution, including the payment(s) due for each ordered item. Client may accept the terms of the iMAP Solution by signing that Product Schedule and returning it to USi. All executed Product Schedules will become part of this Agreement and will be covered by all of this Agreement's terms and conditions. 2. DEFINITIONS 2.1 "ACCEPTABLE USE POLICY" shall mean USi's policy on the use of its Global Network posted at http://www.usi.net/usepolicy.html as of June 30, 1999. 2.2 "ADDENDA" shall mean any written document executed by both parties which modifies the terms of this Agreement or any executed Product Schedule. 2.3 "AGREEMENT" shall mean this iMAP Agreement, any and all Exhibits attached hereto and all Product Schedules attached simultaneously with the execution of the Agreement or agreed upon and executed subsequent hereto. 2.4 "CONSULTING AND IMPLEMENTATION SERVICES" shall mean the services provided by USi as part of the iMAP Solution and may be set forth in the Product Schedule as applicable. 2.5 "CONTENT" means any and all text, multimedia or images (graphics, audio and video), data and the like provided by Client and installed on a server, which shall be subject to the terms and conditions set forth in the Product Schedule and Acceptable Use Policy. 2.6 "CUSTOMIZATION" shall mean any customized deliverable created by USi as part of the iMAP Solution. Page 1 Proprietary & Confidential 2 2.7 "DOCUMENTATION" shall mean the Software Application user manual(s) and any other materials supplied by USi concurrently with the delivery of and for use with the iMAP Solution. 2.8 "GLOBAL NETWORK" shall mean USi's Internet-based data center and network. 2.9 "HARDWARE" shall mean any computing or networking equipment USi uses and/or provides to Client for its use as part of the iMAP Solution. 2.10 "iMAP SOLUTION" shall mean the collective bundling of any and all Consulting and Implementation Services, Customization, access to the Global Network, Hardware, Project Software, Software Application(s), USi Software and Work Product, as outlined in each executed Product Schedule. 2.11 "PRODUCT SCHEDULE" shall mean a written order for any iMAP Solution accepted by USi and executed by both parties, which shall be subject to the terms and conditions of this Agreement and which, at a minimum, shall contain a description of the work to be undertaken and the obligations and responsibilities of each party related to that Product Schedule. 2.12 "PROJECT SOFTWARE" shall mean any software developed by USi under this Agreement or any Product Schedule. 2.13 "SLA" shall mean the Service Level Agreement specified in each Product Schedule. 2.14 "SOFTWARE APPLICATION" shall mean the Third Party computer software USi provides to Client for its use as part of the iMAP Solution. 2.15 "THIRD PARTY" shall mean any natural person or legal entity other than USi and Client. 2.16 "USi SOFTWARE" shall mean certain software which was developed by USi independently of this Agreement or pursuant to the terms of this Agreement as may be required for customization. 2.17 "WORK PRODUCT" shall mean all Consulting and Implementation Services performed and/or created by USi under this Agreement as well as any other products of its work created hereunder which may consist of reports, designs, data or similar materials. 3. LICENSE 3.1 RIGHTS GRANTED In accordance with the terms of this Agreement, USi grants to Client a limited, nontransferable, non-exclusive license to use the iMAP Solution included in the executed Product Schedules attached hereto and Documentation for the sole purpose of supporting the operations of Client's business as described in the Product Schedule. Notwithstanding anything to the contrary, Client may not use the iMAP Solution in a resale capacity, to process and/or analyze the data of a Third Party as a service bureau or on any Hardware other than as set forth in the relevant Product Schedule. 3.2 OWNERSHIP Except as expressly provided in Section 11 below, all components of the iMAP Solution provided to Client shall remain at all times the property of USi and/or its Third Party Software Application vendors and contain trade secrets and other valuable proprietary information of USi and/or its Third Party vendor. 3.3 EFFECTIVE DATE This Agreement shall be effective on the date it is executed by USi, and shall remain in effect for the Term unless terminated in accordance with the provisions set forth in this Agreement. 3.4 SOFTWARE Client acknowledges and understands that USi may provide to Client (a) USi Software and/or (b) Software Applications owned by Third Parties which USi uses under license agreements from Third Parties defined Page 2 3 in Section 2.14 as "Software Application." Client acknowledges that (a) title to all such USi Software and Software Application remains with and is subject to the proprietary rights of USi or its Third Party vendor, and (b) such USi Software and Software Application contain trade secrets and other valuable proprietary information of USi or its Third Party vendor. 3.5 RESTRICTIONS Except as authorized by USi,Client agrees it shall not: (a) alter or modify the USi or Software Application or any part thereof; (b) copy or duplicate, or permit a Third Party to copy or duplicate, the USi Software or Software Application or any part thereof or (c) reverse engineer, decompile or disassemble USi Software or Software Application, unless otherwise provided in the relevant Product Schedule. 3.6 NON-TRANSFERABLE Client agrees not to license, sell, transfer or lease the USi Software or Software Application to any Third Party. Client agrees not to disclose any source code or technical information regarding USi Software or Software Application that Client obtains from USi under this Agreement. 4. TERM 4.1 AGREEMENT TERM The term of this Agreement (the "Term") shall commence on the Effective Date and shall expire three (3) years thereafter unless (a) either terminated pursuant to the terms of this Agreement or (b) extended by mutual written agreement. 4.2 PRODUCT SCHEDULE Each individual Product Schedule shall include a period of performance. In the event that any Product Schedule period of performance extends beyond the Term, the Term shall automatically be extended and remain in effect until such time as the Product Schedule period of performance is completed. 5. PAYMENTS 5.1 FEES As compensation for the license of the iMAP Solution granted to Client and the provisions of services as applicable, Client agrees to pay the amount(s) specified in each executed Product Schedule. Any fee specified in a Product Schedule will only remain in effect until the date specified in the Product Schedule. 5.2 PAYMENT TERMS Unless otherwise specified in the Product Schedule, payments will be due and payable to USi within thirty (30) days of Client's receipt of USi's invoice. Such invoices will be generated in accordance with the terms specified in each Product Schedule. USi reserves the right, in USi's absolute discretion, to perform a credit check on Client. 5.3 TAXES Client shall be responsible for the payment of all taxes associated with this Agreement or its use of the iMAP Solution (other than taxes based on USi's net income), including, but not limited to, personal property taxes, import taxes, taxes on telecommunication services, information services, data processing services or similar governmental charges that may be assessed by any jurisdiction, whether based on gross revenue or delivery of products or services. If USi is required to pay any such taxes directly, Client shall, upon receipt of USi's invoice, reimburse USi for any amount that USi has paid. Notwithstanding the above, Client shall not be required to pay those taxes from which Client is legally exempt. 5.4 INSURANCE Page 3 4 If and when USi Hardware is placed on Client's premises, Client will obtain and maintain adequate liability insurance and insurance against loss of or damage to such Hardware to an extent to be agreed in the applicable Product Schedule. 5.5 INTEREST Any payments not made when due will be subject to an interest charge of one and one-half percent (1.5%) per month, unless applicable law specifies a lower lawful rate of interest, in which case past due payments shall bear interest at that lower maximum rate. 6. WARRANTIES 6.1 PERFORMANCE WARRANTY USi warrants that (a) work performed to complete any Product Schedule will be performed by qualified personnel in a professional, workmanlike manner, consistent with the prevailing standards of the industry and in accordance with the descriptions in the applicable Product Schedule; and (b) it will complete each Product Schedule as soon as commercially practicable. 6.2 AUTHORITY WARRANTY USi warrants that it has the authority to (i) license the Software Application(s) for the purposes set forth in this Agreement and the Product Schedule and (ii) provide the services described in this Agreement and the Product Schedule(s). Client acknowledges and agrees that its sole and exclusive remedies for breach of these warranties are set forth in Section 8.1 of this Agreement. 6.3 LIMITATION Unless otherwise expressly provided herein or in a Product Schedule, neither USi nor any of its service providers, licensors, employees or agents warrant (a) that the functions contained in the iMAP Solution provided hereunder will meet Client's requirements or (b) that the operation of the iMAP Solution will be uninterrupted or error free or (c) that the products or services will have the capacity to meet the demand during specific hours. USi will not be liable for unauthorized access to or alteration, theft or destruction of Client's data files, programs, procedures or information through accident, fraudulent means or devices, or any other method, unless such access, alteration, theft or destruction is caused as a result of USi's negligence or intentional misconduct. Nor will Niku be liable for unauthorized access to or alteration, theft or destruction of data files, programs, procedures or information stored or hosted by USi under this Agreement through accident, fraudulent means or devices, or any other method, unless such access, alteration, theft or destruction is caused as a result of Client's negligence or intentional misconduct. 6.4 EXCLUSION THE WARRANTIES ABOVE ARE EXCLUSIVE AND IN LIEU OF ALL OTHER WARRANTIES AND CONDITIONS, EXPRESSED, IMPLIED OR STATUTORY, INCLUDING, BUT NOT LIMITED TO, THE WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE, TITLE OR NONINFRINGEMENT. 7. CLIENT CARE 7.1 CLIENT ASSISTANCE CENTER Under the Client Care program, USi will provide a level of service concerning Client's iMAP Solution as outlined in each specific Product Schedule. In all cases, Client will have availability to USi's Client Page 4 5 Assistance Center twenty-four (24) hours per day, seven (7) days per week, three hundred sixty-five (365) days per year. Client acknowledges and agrees that all calls into the Client Assistance Center are public and may be monitored and/or recorded for quality control purposes. 7.2 SERVICE LEVEL AGREEMENTS USi will provide a Service Level Agreement with each iMAP Solution which will be stated in each executed Product Schedule. Specific remedies for USi's failure to meet the applicable Service Level Agreement will be stated in each executed Product Schedule. 7.3 MAINTENANCE WINDOW USi has established set maintenance windows on Tuesday and Friday mornings between the hours of 2am and 6am (ET). During this time, USi reserves the right to take down a Client's server(s) in order to conduct routine maintenance checks to both software and hardware. If a Client's server(s) will be down for more than [***] within this pre-established window, USi will advise Client of such at least ten (10) calendar days prior to any scheduled maintenance downtime. USi will not be responsible for any damages or costs incurred by Client, if any, for scheduled down time. USi reserves the right to change its maintenance window upon thirty (30) days prior notice to Client. 8. INDEMNITY OBLIGATIONS 8.1 USi INDEMNITY OBLIGATIONS USi will (i) defend Client against any claim that the products or services delivered by USi infringe a patent, copyright, trade secret, or other proprietary right in the United States; and (ii) pay costs, damages and attorney's fees finally awarded against Client as a result of such claims. (a) Infringement Remedies. In addition to defending Client as stated above, if a claim occurs, or in USi's opinion, is likely to occur, USi will, at its sole option and expense, (subject to its agreement with Software Application vendors) either (i) procure Client the right to continue using the Software Application in question, or (ii) replace or modify the infringing Software Application so that it becomes noninfringing; provided that the Software Application's functionality are not materially and adversely affected by such replacement or modification. If neither of these alternatives is reasonably available, Client shall return the Software Application at issue and USi will refund the amount paid by Client to USi for such Software Application as depreciated. The depreciation shall be an equal amount per year over a three (3) year life commencing with the date of installation. (b) Exclusions. USi shall not be liable for infringement claims based on (i) the combination, operation or use of Software Application with hardware, data or software not supplied by USi if the claim would have been avoided by use of other hardware, data or software; or (ii) modifications to Software Application if the modifications were not made by USi. 8.2 CLIENT INDEMNITY OBLIGATIONS Client will (a) defend USi against any claims by Third Parties arising from Client's use of the iMAP Solution provided by USi hereunder excluding, however, (i) claims under Section 8.1; and (ii) claims for bodily injury or damages to tangible personal property proximately caused by the negligent act, error or omission of USi and (b) pay costs, damages and attorney's fees finally awarded against USi and any settlement costs incurred as a result of such claims. 8.3 CONDITIONS * Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. Page 5 6 The indemnification obligations set forth above in Sections 8.1 and 8.2 are contingent upon compliance with the following conditions by the party seeking indemnification: (a) Providing prompt written notice of a claim within twenty (20) days of its service upon indemnified party; (b) Providing all information and evidence within its control which is necessary for the indemnifying party to conduct a defense; and (c) Providing the indemnifying party with sole control of the defense and all related settlement negotiations. However, the non-indemnifying party may participate in the defense or settlement of the claim at its own expense. 8.4 LIMITATIONS OF REMEDY This Section 8 states the entire obligations of the parties with respect to indemnity or infringement of copyrights, patents, trade secrets or other intellectual property or proprietary rights. 9. LIMITATION OF LIABILITY 9.1 LIMITATION OF LIABILITY Each party's entire liability and exclusive remedies are set forth in this Section 9, Section 6, Section 8 and Section 10. Except for a breach under Section 8 or 12.1, each party's liability to the other party for damages (regardless of the form of action, whether in contract, tort, warranty or otherwise) shall in no event exceed [***]. This Section 9.1 shall supercede and prevail over any provisions to the contrary in this Agreement, the Product Schedules or any document incorporated by reference into this Agreement. 9.2 DISCLAIMER OF DAMAGES EXCEPT IN THE CASE OF CLIENT'S BREACH OF SECTION 3.5 OR EITHER PARTY'S BREACH OF SECTION 8, 12.1, NEITHER PARTY SHALL BE LIABLE FOR ANY SPECIAL, PUNITIVE, INCIDENTAL, INDIRECT OR CONSEQUENTIAL DAMAGES OR FOR THE LOSS OF PROFIT, REVENUE, OR DATA, EVEN IF THE OTHER PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH POTENTIAL LOSS OR DAMAGES. EACH PARTY FURTHER AGREES THAT THE OTHER PARTY SHALL NOT BE LIABLE FOR ANY CLAIM OR DEMAND BY ANY THIRD PARTY, EXCEPT TO THE EXTENT EXPRESSLY COVERED UNDER SECTION 8 (INDEMNITY OBLIGATIONS) OR SECTION 9 (LIMITATION OF LIABILITY). THIS SECTION 9.2 SHALL SUPERCEDE AND PREVAIL OVER ANY PROVISIONS TO THE CONTRARY IN THIS AGREEMENT, THE PRODUCT SCHEDULES OR ANY DOCUMENT INCORPORATED BY REFERENCE INTO THIS AGREEMENT. 10. TERMINATION 10.1 TERMINATION FOR BREACH Either party may terminate this Agreement immediately upon written notice to the other party if the other party materially breaches any obligation under this Agreement and fails to cure such breach within thirty (30) days after receiving notice of the breach. Unless otherwise agreed in writing, termination of this Agreement shall also automatically terminate all Product Schedules which are incomplete at the time of termination. Termination of one Product Schedule shall have no effect on any other Product Schedule or the Agreement so long as the party in default of the Product Schedule being terminated complies with the terms and conditions of the Agreement and other Product Schedules. Notwithstanding anything to the * Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. Page 6 7 contrary, either party shall have the right to terminate this Agreement and the license granted herein in the event the other party (a) terminates or suspends its business, (b) becomes subject to any bankruptcy or insolvency proceeding under Federal or state statute, (c) becomes insolvent or becomes subject to direct control by a trustee, receiver or similar authority, or (d) has wound up liquidated, voluntarily or otherwise. In the event of, and thirty (30) days after, termination by reason of Client's failure to comply with any part of this Agreement, or any act which shall give rise to USi's right to terminate, USi shall have the right to terminate the license and, on five (5) days' notice, to the return of the iMAP Solutions and all copies wherever located. In the event of a termination by reason of USi`s failure to comply with any part of this Agreement, the time period for USi to terminate the license shall be extended to [***]. Within ten (10) days after termination of the license, Client shall return to USi all tangible portions of the iMAP Solutions, including any Hardware provided by USi and any Software in the form provided by USi or as modified, or, upon request by USi, destroy all tangible portions of the iMAP Solutions and all copies, and certify in writing that they have been destroyed. Termination of this Agreement shall not relieve either party of its obligations regarding confidentiality under Section 12 below. Lastly, no cure period shall be afforded in an event of a breach of Sections 3.5 or 12.1, for which the nonbreaching party shall be entitled to all legal and equitable remedies, including but not limited to, injunctive relief, without requirement of bond. 10.2 EFFECT OF TERMINATION Termination of this Agreement for any reason shall not affect any past due or remaining payments Client is required to make under this Agreement or applicable Product Schedule, or any additional remedies provided by law or equity to either party. All rights that have been granted to Client shall immediately be terminated and all unpaid charges accrued under this Agreement shall become immediately due and payable upon the happening of any event of termination. The Parties also agree to return to one another, within sixty (60) days of a request, any property, data sheets, schematics, samples, customer lists, confidential information, in whatever form or media which are used by a disclosing party or which are furnished to a recipient. 10.3 RETURN OF CONTENT In the event of a termination of this Agreement or any Product Schedule for default by USi, or on account of Client's decision not to renew a Product Schedule at the end of the applicable period of performance defined in each Product Schedule, USi shall deliver to Client, at no additional cost to Client, and in a format and on a date mutually agreeable to both parties, (i) all data contained on Hardware (Section 2.9) used in the iMAP Solution delivered to Client; (ii) all Content (Section 2.5), (iii) all Project Software (Section 2.12); and (iv) all Work Product (Section 2.17). Client agrees that, after termination of this Agreement or a specific Product Schedule, (a) USi shall have no obligation to support the Work Product or Project Software; (b) Client may use the Work Product and Project Software solely to support the internal operations of its business, with the understanding that (i) Client's providing web sites at http://www.iniku.com and http://www.niku.com is deemed an "internal" operation of its business, and (ii) Client in no event will permit any third party to host the Work Product or Project Software; (c) Client may not resell, disclose, or allow access to the Work Product or Project Software to any Third Party; and (d) USi reserves all rights to (i) the use of the Work Product or Project Software in whatever manner USi chooses, including in the support of iMAP Solutions provided to other USi clients; and (ii) the IP addresses Page 7 8 or address blocks assigned by USi in support of the iMAP Solution delivered to Client under this Agreement and related Product Schedule(s). 11. SOFTWARE AND WORK PRODUCT DEVELOPED UNDER AGREEMENT 11.1 TITLE Except as otherwise provided for in Section 11.2 below or as may be expressly agreed in any Product Schedule, USi shall retain (a) title to and ownership of any Hardware provided by USi; and (b) whatever rights it has in any Software Application(s); and (c) any USi Software. Without affecting Client's rights under Section 3.1, above, to the extent that Project Software contains any USi Software or Software Application(s), such Project Software is subject to restrictions as may be applicable to the USi Software or Software Application(s) which is incorporated therein. 11.2 CLIENT OWNERSHIP Client shall retain title to and all ownership rights (a) in any Work Product; (b) in any Project Software; and (c) in Content, but grants USi a perpetual, royalty-free license to use the Work Product and Project Software pursuant to Section 10.3(d). 12. GENERAL PROVISIONS 12.1 NONDISCLOSURE Each party shall retain in confidence all proprietary information transmitted to the other that the disclosing party has identified in writing as being proprietary and/or confidential, and will make no use of such information except under the terms and during the term of this Agreement. Client agrees to use all reasonable precautions and take all necessary steps to prevent the iMAP Solution from being acquired by unauthorized persons, and to take appropriate action, by instruction, agreement, or otherwise, with regard to all persons permitted access to the iMAP Solution, in order to ensure the iMAP Solution is protected. Client shall not disclose the iMAP Solution to any person for any purpose other than as provided in this Agreement. However, neither party shall have an obligation to maintain the confidentiality of information that (a) it has rightfully received from another party prior to its receipt from the disclosing party; (b) the disclosing party has disclosed to a Third Party without any obligation to maintain such information in confidence, (c) enters the public domain or becomes generally known to the public by some action other than breach of this Agreement by the receiving party; or (d) is independently developed by the receiving party. Each party shall safeguard proprietary and confidential information disclosed by the other using the same degree of care it uses to safeguard its own proprietary and confidential information but, in no event, shall use less than a reasonable degree of care. Each party's obligation under this paragraph shall extend for a period of three (3) years following termination or expiration of this Agreement. 12.2 ASSIGNMENT Neither this Agreement nor any rights granted hereunder may be sold, leased, assigned or otherwise transferred, in whole or in part by either party by operation of law otherwise, and any such attempted assignment shall be void and of no effect without the advance written consent of the other party, such consent not to be unreasonably withheld or delayed; provided, however, that such consent shall not be required if either party assigns this Agreement to a wholly owned subsidiary or in connection with a merger, acquisition, or sale of all or substantially all of its assets, unless the surviving entity is a competitor Page 8 9 of the other party. USi reserves the right to assign its right to receive and collect payments hereunder without the consent of Client, provided that in such case Niku's rights will remain unchanged. 12.3 GOVERNING LAW This Agreement shall be governed by and construed in accordance with the laws of the State of New York, without regard to conflicts of law. 12.4 WAIVER No waiver of any breach of any provisions of this Agreement shall constitute a waiver of any other breach of the same or any other provision of the Agreement, and no waiver shall be effective unless made in writing. 12.5 SEVERABILITY In the event that any term or provision of this Agreement conflicts with the law under which this Agreement is to be construed, or if any such provision is held invalid by a court with jurisdiction over the parties to this Agreement, such provision shall be restated to reflect, as nearly as possible, the original intentions of the parties in accordance with applicable law, and the remainder of this Agreement shall remain in full force and effect. 12.6 ENFORCEMENT Both parties agree to pay all reasonable costs and expenses the other party incurs in successfully enforcing this Agreement, including reasonable attorneys' fees. 12.7 FORCE MAJEURE Neither party shall be liable for any delay or failure in performance due to Force Majeure, which shall mean acts of God, earthquake, labor disputes, changes in law, regulation or government policy, riots, war, fire, epidemics, acts or omissions of vendors or suppliers, transportation difficulties or other occurrences which are beyond either party's reasonable control. In the event that USi is prevented or delayed in the delivery or installation of the iMAP Solution for reasons beyond its control, such delivery or installation shall take place as soon thereafter as is reasonably possible. This provision shall not apply to any obligation of Client to pay money under this Agreement or any Product Schedule. 12.8 NOTICE Any notice or invoice required or permitted under this Agreement shall be in writing and delivered by hand or mailed by overnight express charges prepaid or certified mail with return receipt requested to the address set forth above. Notices or invoices shall be deemed received when delivered. 12.9 SURVIVAL The terms of Sections 3, 4, 5, 8, 9, 11 and 12 shall survive the termination or expiration of this Agreement. 12.10 ACCEPTABLE USE POLICY Client agrees at all times, and to require and enforce its employees, agents and contractors at all times, to comply with the USi Acceptable Use Policy, the terms of which may be modified from time to time by USi on the website referred to above in Section 2.1. (a) The modifications to the AUP will not apply to Client until thirty (30) days after written notice from USi unless a shorter period is necessary for USi to avoid disruption from its internet service providers or to otherwise avoid liability, in which case USi would provide written notice as soon as is reasonable. (b) If USi receives notice that Client has violated the AUP, USi will notify Client and use reasonable efforts to give Client seven (7) days notice prior to termination or suspension; provided, however: (1) Such seven day period will be shortened to forty eight hours if USi has received written notice from its internet service Page 9 10 providers that such provider will disrupt service to USi because of Client's violation of the AUP and (2) notwithstanding the foregoing, if a shorter period is necessary for USi to avoid disruption by its service providers or to otherwise avoid liability, USi may terminate or suspend the iMAP Solution in the shorter period of time, provided that such shorter time shall not be less than three (3) hours after USi contacts Client at the pager number to be provided by Client. Client agrees to indemnify and hold USi harmless from any damages, costs and expenses incurred by USi caused by the breach of this provision. 12.11 THIRD PARTY RIGHTS The provisions of this Agreement are solely for the benefit of the parties hereto and not for the benefit of any Third Parties. 12.12 ENTIRE AGREEMENT This Agreement (including all Product Schedules and Addenda, if any) contains the full understanding between the parties and supercedes all prior representations or agreements, whether oral or written, with respect to such matters. The Agreement (including all Product Schedules and Addenda, if any) may only be changed by a written document signed by both parties. Except as specified in Sections 8 and 9, to the extent of any inconsistencies between the Agreement and the Product Schedule, the Product Schedule shall control, except if the Agreement is modified by Addenda, then the Addenda shall control. Principles of contract construction or rules of law that, in the event of inconsistency or ambiguity, would construe against the drafter this Agreement or any Product Schedule, shall not apply. USINTERNETWORKING, INC. NIKU CORPORATION By: /s/ William T. Price By: /s/ Kenneth Johnson ------------------------------- ------------------------------------- Name: William T. Price Name: Kenneth Johnson Title: Vice President Title: VP Sales and General Counsel Date: 6/30/99 Date: 6-30-99 ----------------------------- ----------------------------------- Page 10 11 [USi GRAPHIC OMITTED] USi Agreement Number: 84 Effective Date: September 29, 1999 PRODUCT SCHEDULE This Product Schedule is governed by and incorporated into the terms and conditions contained in the iMAP Agreement entered into between USinternetworking, Inc. ("USi") and Niku Corporation ("Client") dated June 30, 1999. USi's Proposal to Client dated September 29, 1999 ("Proposal") is attached as Exhibit A to this Product Schedule, although only those Sections of the Proposal specifically referenced below shall be incorporated into the terms and conditions of this Product Schedule. REPLACEMENT OF PREVIOUS PRODUCT SCHEDULE: THIS PRODUCT SCHEDULE REPLACES IN ITS ENTIRETY THE PRODUCT SCHEDULE, WITH AN EFFECTIVE DATE OF JUNE 30, 1999, PREVIOUSLY EXECUTED BETWEEN USi AND CLIENT. IMAP SOLUTION: Complex Web Site Management as detailed in Sections 1, 2, 3, and 4 of the Proposal. PAYMENT SCHEDULE: Client agrees to the following Payment Schedule: 1. Thirty-six (36) equal monthly service fee payments of [***] commencing upon the Effective Date of this Product Schedule, due and payable within thirty (30) days of Client's receipt of invoice from USi. All monthly service fee invoices will be issued in advance on the 15th of the month prior to the calendar month of service. This pricing is valid for the Initial Period and is exclusive of any applicable taxes, tariffs, telecommunications surcharges or other governmental fees or charges that may be imposed from time to time by applicable law or regulation. CLIENT SHALL RECEIVE A CREDIT FOR ANY PAYMENTS MADE UNDER THE PREVIOUS PRODUCT SCHEDULE AGAINST THE FIRST INVOICE DUE HEREUNDER. EFFECTIVE DATE OF PRODUCT SCHEDULE: September 29, 1999 PERIOD OF PERFORMANCE: The Period of Performance of this Product Schedule shall commence on the Effective Date and shall continue for a period of thirty-six (36) months (the "Initial Period"). Thereafter, this Product Schedule shall automatically renew on a month-to-month basis until terminated by either party giving the other party at least sixty (60) days prior written notice. EARLY TERMINATION: Client may terminate the last [***] of the Initial Period by providing USi with ninety (90) days written notice prior to the end of the [***] of the Initial Period. Client agrees to pay USi a termination fee equal to [***] upon its election to terminate this Product Schedule pursuant to this section. UPGRADE COMPONENTS: During the first six (6) months of the Initial Period, Client can add the following Upgrade Components to the iMAP Solution by executing an applicable Addenda to this Product Schedule. Upon exercise of this upgrade, the monthly service fee payment will increase by applicable amount shown below for the remaining term of the Initial Period commencing on the first day the Upgrade Component is implemented.
- ----------------------------------------------------------------------------------------- UPGRADE COMPONENT ADDITIONAL MONTHLY FEE - ----------------------------------------------------------------------------------------- Additional Internet bandwidth per additional 1Mbps increments [***] - ----------------------------------------------------------------------------------------- Additional cost per Sun E4500 server [***] - ----------------------------------------------------------------------------------------- Additional cost per Sun E250 server [***] - ----------------------------------------------------------------------------------------- Additional locally-mirrored EMC Storage capacity usable [***] with BCV per additional 100Gb increments - ----------------------------------------------------------------------------------------- Additional RAM for E4500 server (one (1) Gb increments) See Note 1 - ----------------------------------------------------------------------------------------- Additional CPUs for E4500 server (one (1) CPU increments) See Note 1 - ----------------------------------------------------------------------------------------- Incremental CPU & Memory (Per two 1 Gb Memory Upgrades and 2 [***] CPUs) - ----------------------------------------------------------------------------------------- Additional CPU/RAM for E4500 server (one CPU/one Gb [***] increments) - -----------------------------------------------------------------------------------------
Note 1: The configuration of Client's E4500 servers will allow three (3) additional I/O slots for expansion of additional CPUs and RAM. Each I/O card will accommodate two (2) additional CPUs and two (2) additional Gbs of RAM. This allows for a maximum of six (6) additional CPUs and six (6) additional Gbs of RAM per E4500 server. USi recommends that Client upgrades in bundles of 1 CPU/ 1 Gb RAM or 2 CPU/2 Gb RAM to eliminate the I/O card configuration complexity. CLIENT CARE: Under the Client Care program, Client's Help Desk will have availability to USi's Client Assistance Center twenty-four (24) hours per day, seven (7) days per week, three hundred sixty-five (365) days per year. *** Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. Page 1 Proprietary & Confidential 12 BANDWIDTH VARIATION POLICY: Should Client exceed bandwidth or server processing requirements of this project, USi reserves the right to amend this Product Schedule and increase the monthly fees to reflect the additional bandwidth requirements. USi will provide Client with a monthly status report of bandwidth and server usage. CONSULTING SERVICES: USi will provide Consulting Services as outlined in Sections 1, 2, 3 and 4 of the Proposal. SECURITY PROCEDURES: USi defines certain policies and procedures to provide the level of security associated with the iMAP Solution. Client acknowledges and understands that no network security procedures can assure complete network security or prevent all unauthorized access to the network. These policies and procedures will change over time to reflect emerging technologies, business practices and Internet-related issues. SERVICE LEVEL AGREEMENT: USi'S SERVICE LEVEL: USi will provide for [***] during Phase I and for [***] during Phase 2 monthly service availability for those components of the service within USi's direct control, where "available" is defined as an Internet user being able to [***] to the appropriate [***]. Specifically, covered services will include [***] and the [***] facility, all [***], and all [***] provided by [***] as part of the [***]. REMEDY: (PHASE 1) In the event USi is unable to provide an Internet client access to the custom hosting server with: 1. [***] Availability in any given calendar month, Client shall receive a credit to their account equal to [***] of that month's service fees excluding rebilled circuit charges. 2. [***] Availability in any given calendar month, Client shall receive a credit to their account equal to [***] of that month's service fees excluding rebilled circuit charges. 3. [***] Availability in any given calendar month, Client shall receive a credit to their account equal to [***] of that month's service fees, excluding rebilled circuit charges. If USi fails to meet [***] Availability for [***] calendar months, Client may terminate this Product Schedule without penalty, regardless of any term remaining on the Agreement, without liability to either party for penalties or damages associated with such termination and upon thirty (30) days prior written notice to USi. REMEDY: (PHASE 2) In the event USi is unable to provide an Internet client access to the custom hosting server with: 1. [***] Availability in any given calendar month, Client shall receive a credit to their account equal to [***] of that month's service fees excluding rebilled circuit charges. 2. [***] Availability in any given calendar month, Client shall receive a credit to their account equal to [***] of that month's service fees excluding rebilled circuit charges. 3. [***] Availability in any given calendar month, Client shall receive a credit to their account equal to [***] of that month's service fees, excluding rebilled circuit charges. If USi fails to meet [***] Availability for [***], Client may terminate this Product Schedule without penalty, regardless of any term remaining on the Agreement, without liability to either party for penalties or damages associated with such termination and upon thirty (30) days prior written notice to USi. "Availability" percentage shall be calculated as follows: [***] where "n" is the total number of hours in any given calendar month, and "x" is the Availability percentage. Specifically excluded from "n" in this calculation and exceptions to the levels of Availability provided herein are (a) [***]; (b) reasons of Force Majeure (as defined in Section 12.8 of the Agreement); (c) issues associated with [***] not on [***] list; (d) use of unapproved or [***] and/or; (e) issues arising from the [***] by Client, its employees, agents, customers or contractors. *** Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. Page 2 13 In the event of a Force Majeure event, the Client shall have the option of canceling this Product Schedule with USi if the resulting total outage time is greater than [***] in any [***] period, without liability to either party for penalties or damages associated with such outages or termination and upon thirty (30) days prior written notice to USi. The remedies stated in this Section are Client's sole and exclusive remedies for service interruption. CLIENT RESPONSIBILITIES: This section describes Client's additional responsibilities under this Agreement. 1. Client will designate qualified personnel to act as liaisons between Client and USi. 2. Client is responsible for obtaining and complying with license terms for all Client-provided software, if any, which are sufficient to allow use of the software on the Hardware. 3. Client is solely responsible for the Contents of its transmissions and the transmissions of Third Parties accessing the iMAP Solution through Client. Client agrees to comply with U.S. and International law with regard to the transmission of technical data which is exported from the United States through the iMAP Solution. Client further agrees not to use the iMAP Solution (a) for illegal purposes or (b) to interfere with or disrupt other network users, network services or network equipment. Interference or disruptions include, but are not limited to, distribution of unsolicited advertising or chain letters, propagation of computer worms and viruses, and use of the network to make unauthorized entry to any other machine accessible via the network. If USi finds a violation of the foregoing by Client, USi will immediately notify Client in writing, and Client will close the account f the party responsible for the violation within [***]. If Client fails to close the applicable account within [***], USi may suspend its services until such time as Client closes the applicable account. 4. Client shall be responsible for providing USi with end user login names and passwords for the purpose of authenticating and authorizing Global Network access by end users to the iMAP Solution. 5. Client shall be responsible for handling all communication, technical support to and business relations with end users who are the customers of Client including but not limited to responding to inquiries and questions. 6. Client shall be responsible for providing to USi all information required for the Acceptance Test in a timely manner and in form directed by USi. Client shall participate in the Acceptance Testing in good faith and with all due diligence. 7. Client shall provide USi with access to such hardware, software and network connections that reside on Client's premises as USi shall require. 8. Client shall be responsible for obtaining and maintaining the following hardware and/or software: a. Software Licenses: NAKS, Fulcrum, JavaVM, Apache, and PictureTalk Client may add or delete items from this list at any time. 9. Client shall be responsible to perform the obligations set forth in the incorporated provisions of the Proposal. OFFER EXPIRATION DATE: SEPTEMBER 30, 1999 USINTERNETWORKING, INC. NIKU CORPORATION /s/ William T. Price /s/ Martin Neiman - ----------------------------------- ---------------------------------------- (signature) (signature) William T. Price Vice President and General Counsel MARTIN NEIMAN ---------------------------------------- (printed name) CIO ---------------------------------------- (title) 9/30/99 9/30/99 - ----------------------------------- ---------------------------------------- (date) (date) * Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. Page 3 EX-10.08 20 EX-10.08 1 * Confidential treatment has been requested with respect to certain information contained in this document. Confidential portions have been omitted from the public filing and have been filed separately with the Securities and Exchange Commission. EXHIBIT 10.08 SOFTWARE LICENSE AGREEMENT This Software License Agreement ("Agreement") is made effective June 30, 1999 ("Effective Date") by and between Niku Corporation, a Delaware corporation with offices at 955 Charter Street, Redwood City, California 94063 ("Niku"), and USinternetworking, Inc., a Delaware corporation with offices at One USi Plaza, Annapolis, MD 21401-7428 ("Licensee"). 1. DEFINITIONS. 1.1 "Authorized Users" means the employees or agents of Licensee who are authorized to use the Software, as defined in Exhibit A. 1.2 "Designated Facility" means the business facility of Licensee identified in Exhibit A. The Designated Facility may be changed only with the prior, written consent of an authorized officer of Niku. 1.3 "End User" means any party licensed by Licensee under this Agreement to: (a) use, but not to further distribute, the Software; or (b) access the Software remotely from Licensee's servers. 1.4 "Documentation" means the on-line help files and written manuals included with the Software which describe its features and use. 1.5 "License Fee" means the amount to be paid to Niku by Licensee for the rights granted under this Agreement, as specified in Exhibit A. 1.6 "Software" means the binary code version of the Niku software product listed in Exhibit A. 1.7 "Support Fees" means the amount of annual fees to be paid by License for technical support and maintenance for the Software, as specified in Exhibit A. 2. DELIVERY. Niku will use reasonable efforts to deliver the Software to Licensee as soon as practicable after the Effective Date. 3. LICENSE. 3.1 GRANT. Subject to the payment of the License Fee and compliance with the other terms of this Agreement, Niku grants Licensee a nonexclusive, nontransferable right and license: a) to sublicense/distribute unmodified Software and Documentation to End Users, provided, however, that prior to any distribution of Software or Documentation, Licensee must enter into a sublicense agreement with each End User that is consistent with and not less restrictive than the terms herein; b) to install and use one copy of each of the Software on a server computer system at the Designated Facility for purposes of remote End User system access and Authorized User use.. Licensee may make and maintain up to three (3) copies of the installed server Software for archival, back-up, and internal testing purposes, and NIKU/USINTERNETWORKING CONFIDENTIAL - 1 - 2 c) to use the Documentation in connection with the use of the Software by Authorized Users. 3.2 THIRD PARTY SOFTWARE. To the extent the Software incorporates any software licensed by Niku from a third party, Niku grants Licensee a sublicense that is co-extensive with the rights to Software granted under Section 3.1. 3.3 RESTRICTIONS. Licensee expressly agrees that it will not: a) transfer the Software or Documentation to a third party for any purpose other than off-site storage of archival or back-up copies, except as set forth in Section 3.1(a); b) transfer the server Software to a business facility other than the Designated Facility without the prior, written consent of Niku. c) produce a source listing, decompile, disassemble, or otherwise reverse engineer the Software; or d) use the Software to provide data processing services, commercial timesharing, rental, or any similar sharing arrangement for a third party, except as consistent with Section 3.1. 3.4 PROPRIETARY NOTICES. Licensee shall not remove or obscure any notices or markings, including without limitation, copyright, trademark, or confidentiality notices, or ownership notices on Software and the Documentation, including any screen displayed by the Software. 3.5 RESERVATION OF RIGHTS. Niku retains rights in and to the Software and Documentation not specifically granted to Licensee hereunder, and any use of these items beyond the scope permitted by this Agreement shall constitute a material breach of this Agreement. 3.6 RECORDS AND COMPLIANCE. Licensee shall maintain accurate records relating to the distribution and sublicensing of the Software, to identify all sublicenses and to otherwise verify Licensee's compliance with the terms of this Agreement. Licensee shall provide such records to Niku within 10 days after the end of each calendar quarter, together with any applicable fees as set forth in Exhibit A. Niku will have the right to inspect Licensee's records and the Software at Licensee's facility as reasonably necessary to verify that Licensee is in compliance with this Agreement. Niku will provide Licensee with reasonable notice prior to any inspections. Niku will be limited to conducting three (3) such inspections in any twelve (12) month period, and will not unreasonably interfere with Licensee's business operations. Niku will bear all costs and expenses associated with the exercise of these rights, unless such inspection reveals that Licensee is not in compliance with this Agreement, in which case, Licensee agrees to pay Licensor the reasonable costs of such inspection plus any additional license fees related to unauthorized use of the Software. 4. LICENSE FEE. Licensee will pay Niku the License Fee in the amount and according to the terms specified in Exhibit A. Unless otherwise specifically provided otherwise in Exhibit A: - 2 - 3 (i) the License Fee will be due and payable in full within thirty (30) days after receipt of the Software by Licensee; and (ii) a late charge of one and one half percent (1.5%) per month or the highest rate permitted by law, whichever is lower, will apply to an overdue balance. 5. SERVICES. 5.1 SUPPORT. Subject to the payment of Support Fees, Licensee will be entitled to receive technical support and maintenance under Niku's standard terms and conditions, as set forth in Exhibit B. Niku will provide 7x24x365 pager support for "critical" and "serious" nonconformances in Software in accordance with Exhibit B. Licensee shall be responsible for technical support and maintenance of End Users. 5.2 CONSULTING & TRAINING SERVICES. Niku may provide consulting and training services to Licensee related to the implementation and use of the Software for its applications services provider business. Any such services will be billed on a time and materials basis unless the parties expressly agree otherwise in writing. Any consulting or training services acquired from Niku will be bid separately from the Software licenses granted under this Agreement, and Licensee may acquire either without acquiring the other. 6. TERM AND TERMINATION. 6.1 TERM. This Agreement commences on the Effective Date and will remain in force and effect unless terminated in accordance with this Article. 6.2 TERMINATION. This Agreement may be terminated as follows: a) By either party upon thirty (30) days written notice specifying breach if the other party fails to comply with any of the material terms or conditions of this Agreement unless, within the period of notice, all specified breaches have been cured. b) By Niku immediately in the event Licensee becomes subject to any bankruptcy or insolvency proceeding, becomes insolvent or subject to control by a trustee, receiver or similar authority or has wound up liquidated, voluntarily or otherwise. 6.3 EFFECT OF TERMINATION FOR LICENSEE'S BREACH. Subject to the terms of this Agreement, in the event of termination of this Agreement due to a breach by Licensee, the rights and licenses granted to Licensee will immediately terminate and Licensee will have no further right to use the Software. Within thirty (30) days after termination, Licensee must return all copies of the Software and Documentation in its possession or control to Niku, or permanently destroy or disable all such copies. If requested by Niku, a duly authorized officer of Licensee will certify in writing to Niku that Licensee has taken such action. 6.4 EFFECT OF TERMINATION FOR NIKU'S BREACH. In the event of termination of this Agreement due to a breach by Niku, and without limiting Licensee's right in accordance with this Agreement to obtain remedies for Niku's breach, the rights and licenses granted to Licensee will survive to the extent necessary for Licensee to continue using the Software as permitted under this Agreement. Such continuing - 3 - 4 rights are subject to Licensee's continued compliance with the terms of this Agreement, including payment of any portion of the License Fee outstanding as of the termination. Nothing will require Niku to provide any technical support or maintenance to Licensee after termination. 6.5 SURVIVAL. Rights and obligations under this Agreement which by their nature should survive, will remain in effect after termination hereof. 6.6 If this Agreement terminates, Niku will continue to provide, and Licensee will continue to pay Niku for, service and support to End Users in accordance with this Agreement and for the term of the end-user agreements existing at the time of termination. 7. CONFIDENTIALITY. 7.1 Either party may disclose to the other party technical, product, financial and business information which the disclosing party ("Disclosing Party") considers to be confidential ("Confidential Information"). Information will be considered "Confidential Information" if it is clearly marked as confidential or verbally identified as confidential at the time of disclosure. 7.2 The party receiving the Confidential Information ("Receiving Party") will not reproduce in any form, or provide, disclose, or give access to Confidential Information to any third party, or to any employee or agent not having a legitimate need to know it, and shall not use the Confidential Information for any purpose other than performing its obligations and exercising its rights under this Agreement. 7.3 This Agreement imposes no obligation upon the Receiving Party with respect to Confidential Information which the Receiving Party can establish by legally sufficient evidence: (i) was in the possession of, or was known by, the Receiving Party prior to its receipt from the Disclosing Party, without an obligation to maintain its confidentiality; (ii) is or becomes generally known to the public without violation of this Agreement; (iii) is obtained by the Receiving Party from a third party having the right to disclose it, without an obligation to keep such information confidential; or (iv) is independently developed by the Receiving Party without the use of Confidential Information and without the participation of individuals who have had access to the Confidential Information. 7.4 The Disclosing Party retains ownership of the Confidential Information. The Receiving Party does not acquire any rights in Confidential Information under this Agreement, except the limited right to use as described above. 7.5 The Receiving Party's confidentiality obligations with respect to the Confidential Information shall survive the termination of this Agreement and will continue for a period of five (5) years from the Effective Date, provided that the obligation to maintain the confidentiality of any Niku source code shall be perpetual. 8. WARRANTY AND DISCLAIMER. 8.1 Niku warrants to Licensee that the Software will perform in substantial accordance with the Documentation for a period of one (1) year from the date the Software is delivered to - 4 - 5 Licensee. If the Software does not perform as warranted, Niku will attempt to correct the Software, or if a correction is not reasonably possible , to replace the Software free of charge. If Niku is unable to make the Software perform as warranted, Niku will terminate this Agreement and refund the License Fee. This warranty is made to and for the sole benefit of Licensee, and will be enforceable against Niku only if: a) all modifications, alterations or additions to the Software made by Licensee, if any, have been made using tools or utilities included in the Software or otherwise provided by Niku; and b) Licensee has not made or caused to be made any modifications, alterations, or additions to the Software that cause it to deviate from the Documentation. 8.2 Niku represents and warrants to Licensee that the media upon which the Software is provided will be free from defects and viruses, and will function properly under ordinary use for a period of ninety (90) days. 8.3 Niku warrants to Licensee that the Software will record, store, process and calculate any information dependent on or relating to dates on or after January 1, 2000 in the same manner, and with the same functionality, data integrity and performance, as such Software records, stores, processes, calculates and presents calendar dates on or before December 31, 1999. This warranty does not apply if any hardware, third party software or data used by Customer in conjunction with the Software does not meet the same performance standards as those stated for the Software in this Section 8.2. 8.4 OTHER THAN THE EXPRESS WARRANTIES IN SECTION 8.1 THROUGH 8.3, NIKU DOES NOT MAKE AND DISCLAIMS ANY EXPRESS OR IMPLIED WARRANTIES OR CONDITIONS WITH RESPECT TO THE SOFTWARE INCLUDING, WITHOUT LIMITATION, ANY WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. No agent of Niku is authorized to modify these limitations. 8.5 With respect to the warranties set forth in this Section 8, Licensee may disclose to its End Users the preceding warranties and may pass such warranties in Licensee's name. Any breach of the foregoing warranty claims by such End Users will be considered as a warranty claim that Licensee may bring under this Section 8. 9. INDEMNITY. 9.1 INDEMNIFICATION BY NIKU. Niku will (a) defend Licensee against a claim that the Software or Documentation infringes a patent, copyright, trade secret or other proprietary right in the United States and (b) indemnify Licensee for damages, costs and reasonable attorneys' fees finally awarded against Licensee, provided that: (i) Licensee notifies Niku in writing within twenty (20) days of the claim; (ii) Niku has sole control of the defense and all related settlement negotiations, provided that Licensee may participate in the defense or settlement of the claim at its own expense; and (iii) Licensee provides Niku with the assistance, information, and authority reasonably necessary to perform the above. Reasonable out-of-pocket expenses incurred by Licensee in providing such assistance will be reimbursed by Niku. - 5 - 6 9.2 EXCLUSIONS. Niku shall have no liability for any claim of infringement based on: (i) use of a superseded or altered release of some or all of the Software or any modification thereof furnished under this Agreement including, but not limited to, Licensee's failure to use corrections, fixes, or enhancements made available by Niku; (ii) the combination, operation, or use of some or all of the Software or any modification thereof with information, software, specifications, instructions, data, or materials ("Material") not furnished by Niku to the extent the infringement would have been avoided by not combining, operating, or using the Software or the modification thereof, with such Material; (iii) any change, not made by Niku, to Software or any modification thereof; or (iv) Licensee's misuse of the Software or any modification thereof. 9.3 INFRINGEMENT. If the Software is held or is believed by Niku to infringe, Niku shall have the option, at its expense, to: (i) modify the Software to be non-infringing; (ii) obtain for Licensee a license to continue using the Software; or (iii) terminate this Agreement and refund a pro rata portion of the License Fee. The pro rata portion to be refunded shall be determined by amortizing the Licensee Fee evenly over a three (3) year period from the Effective Date. 9.4 END USERS. With respect to the indemnity set forth in this Section 9, Licensee may disclose to its End Users the preceding indemnity and may pass such indemnity in Licensee's name. Any indemnification claims by such End Users will be considered as an indemnification claim that Licensee may bring under this Section 9. 9.5 EXCLUSIVE REMEDY. Sections 9.1 through 9.4 state Niku's entire liability and Licensee's exclusive remedy for claims of infringement of intellectual property rights related to the Software. 9.6 9.6 INDEMNIFICATION BY LICENSEE. Except as provided under Section 9.1, Licensee will (a) defend Niku against any breach of the representation and warranty set forth in Section 11.11(b) and any claims arising from a third party's use of Software and (b) indemnify Niku for damages, costs and reasonable attorneys' fees finally awarded against Niku, provided that: (i) Niku notifies Licensee in writing within twenty (20) days of the claim; (ii) Licensee has sole control of the defense and all related settlement negotiations; and (iii) Niku provides Licensee with the assistance, information, and authority reasonably necessary to perform the above. Reasonable out-of-pocket expenses incurred by Niku in providing such assistance will be reimbursed by Licensee. 10. LIMITATION OF LIABILITY. 10.1 LIMITATIONS. Except for express undertakings to indemnify, or breach of obligations concerning the use of Confidential Information, or breach of the scope of the license rights granted hereunder, and to the extent not prohibited by applicable law: a) IN NO EVENT SHALL EITHER PARTY'S TOTAL LIABILITY TO THE OTHER FOR DAMAGES (REGARDLESS OF THE FORM OF THE ACTION, WHETHER IN CONTRACT, TORT, WARRANTY, OR OTHERWISE) EXCEED $200,000; AND b) NEITHER PARTY WILL BE LIABLE FOR ANY INDIRECT, PUNITIVE, SPECIAL, INCIDENTAL OR CONSEQUENTIAL DAMAGES IN CONNECTION - 6 - 7 WITH OR ARISING OUT OF THIS AGREEMENT, INCLUDING LOSS OF BUSINESS, REVENUE, PROFITS, USE, DATA OR OTHER ECONOMIC ADVANTAGE, HOWEVER IT ARISES, WHETHER IN CONTRACT OR TORT, EVEN IF THAT PARTY HAS BEEN PREVIOUSLY ADVISED OF THE POSSIBILITY OF SUCH DAMAGE. 10.2 ALLOCATION OF RISK. The parties acknowledge that the foregoing limitations of liability represent a reasonable and negotiated allocation of risk as between the parties, that these limitations constitute an integral part of this Agreement, and that absent these limitations the parties would not have executed this Agreement. These limitations will apply notwithstanding the failure of the essential purpose of any limited remedy. 11. GENERAL. 11.1 NOTICES. All notices required by this Agreement must be delivered in person or by means evidenced by a delivery receipt to the address specified below or as otherwise notified in writing and will be effective upon receipt. To Niku: To Licensee: Niku Corporation USinternetworking, Inc. 955 Charter Street One USi Plaza Redwood City, CA 94063 Annapolis, MD 21401-7428 Attn: President Attn: General Counsel 11.2 GOVERNING LAW. Any action related to this Agreement will be governed by New York law and controlling U.S. federal law. In the event of any disagreement under this Agreement, the parties agree to use good faith efforts to resolve such disagreement before commencing any legal action. 11.2 RELATIONSHIP. This Agreement is not intended to create a relationship such as a partnership, franchise, joint venture, agency, or employment relationship. Neither party may act in a manner which expresses or implies a relationship other than that of independent contractor, nor bind the other party. 11.3 ATTORNEY'S FEES. In addition to any other relief, the prevailing party in any action arising out of this Agreement will be entitled to reasonable attorney's fees and costs. 11.4 ASSIGNMENT. Neither party may assign or otherwise transfer any of its rights or obligations under this Agreement, without the prior written consent of the other party. 11.5 WAIVER. Any express waiver or failure to exercise promptly any right under this Agreement will not create a continuing waiver or any expectation of non-enforcement. 11.6 SEVERABILITY. If any provision of this Agreement is held invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions will not in any way be affected or impaired thereby, and will be interpreted, to the extent possible, to achieve the purposes as originally expressed in the invalid, illegal or unenforceable provision. - 7 - 8 11.7 EXPORT CONTROL. The Software and Confidential Information may be subject to U.S. export control laws and export or import regulations in other countries. Licensee agrees to comply strictly with all such laws and regulations and acknowledges that it has the responsibility to obtain such licenses to export, re-export, or import the Software and Confidential Information as may be required after delivery to Licensee. 11.8 FORCE MAJEURE. A party is not liable under this Agreement for non-performance, if the non-performance is caused by events or conditions beyond that party's control, and provided the party makes reasonable efforts to perform under the circumstances. This provision does not relieve Licensee of its obligation to make any payments then owing. 11.9 ENTIRE AGREEMENT. This Agreement is the parties' entire agreement relating to its subject matter. It supercedes all prior or contemporaneous oral or written communications, proposals, conditions, representations and warranties and prevails over any conflicting or additional terms of any quote, order, acknowledgement, or other communication between the parties relating to its subject matter during the term of this Agreement. No modification to this Agreement will be binding, unless in writing and signed by a duly authorized representative of each party. 11.10 TRADEMARKS. Neither party will use the other party's trade names, trademarks, service marks or logos ("Marks") without such party's permission. Use of each party's Marks will inure to the owner's benefit. - 8 - 9 IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by their duly authorized representatives. NIKU CORPORATION USINTERNETWORKING, INC. By By --------------------------------- -------------------------------------- Name: Name: ------------------------------ ----------------------------------- Title: Title: ----------------------------- ---------------------------------- The Exhibits to this Agreement are: Exhibit A - Software Specific Terms Exhibit B- Support Terms and Conditions - 9 - 10 EXHIBIT A SOFTWARE SPECIFIC TERMS 1. SOFTWARE PRODUCT DESCRIPTION: Niku for IT Consulting, version 2.1 2. AUTHORIZED USERS. Licensee will be authorized to designate as Authorized Users up to [***] - whether as Licensee [***] or [***], or [***]. 3. DESIGNATED FACILITY. USinternetworking, Inc. One USi Plaza Annapolis, MD 21401-7428 1375 McCandless Drive Milpitas, CA 95035 Kruislaan 415 1098 SJ Amsterdam 4th Floor 1-15 Ariake, 3-Chome Koto-KU, Tokyo 135-8650 4. LICENSE FEE. Within [***] of the Effective Date, Licensee will pay Niku a nonrefundable license fee of $[***] for [***] licenses that Licensee, at its discretion or as the parties specifically agree in the future, may use internally or sublicense to End-Users according to the terms of this Agreement. 5. SUPPORT FEES. Within [***] of the Effective Date, Licensee will pay Niku [***] of the License Fee - for support for of its internal use licenses during the first [***] of this Agreement. Beginning [***], and every [***] thereafter, Additional Support Fees, also calculated at [***] of the License Fee, will be billed to Licensee, and will become payable in full within thirty (30) days of the invoice. 6. TRAINING SERVICES AND FEE. Any training service to be provided by Niku and associated fees will be negotiated separately by the parties. *** Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. - 10 - 11 EXHIBIT B NIKU CORPORATION STANDARD SOFTWARE SUPPORT TERMS AND CONDITIONS 1. COVERED SOFTWARE. a. Licensee agrees to purchase, and Niku agrees to furnish, software maintenance services (the "Support Services") in support of Licensee's use of software licensed by Niku to Licensee under the terms and conditions of the attached Software License Agreement (the "Agreement"), subject to these Standard Software Support Terms and Conditions (the "Support Terms"). The software covered by this is specified in Exhibit A to the Agreement (the "Software"). All corrections, updates, improvements, modifications and new versions of Software furnished to Licensee (the "Updates") will be considered Software within the meaning of the Agreement, and Licensee's use of the Updates will be governed thereby. b. The terms of the Agreement governing confidential information, Software warranties and disclaimers, indemnification against intellectual property claims, limitations of liability, notice, governing law, independent contractor status, assignment, waiver, severability, export control, force majeure, and integration of terms are incorporated herein by reference and will govern the Support Terms. Any capitalized terms which are not separately defined in these Support Terms, will have the same meaning as specified in the Agreement. 2. SUPPORT SERVICES. For the term of this Agreement and subject to the exclusions listed in Section 4 below, Niku will provide the following services with respect to the Software: (a) Niku will attempt to correct within a reasonable time any reported failure of the Software to substantially conform to or perform substantially in accordance with the Documentation; (b) Niku will furnish Licensee, at no additional charge, except for taxes, insurance, shipping and handling, with all Updates which are released generally by Niku to its licensees; (c) Niku will provide Licensee with 24x7x365 pager support for all "critical" and "serious" (as defined below) nonconformances in the Software; and (d) Niku will provide Licensee with telephone, facsimile and e-mail based support to assist Licensee in its use of the Software. 3. SERVICE STANDARDS. a. The Software's failure to substantially conform to Niku's user documentation will be divided into three classes of severity: (i) a "critical" nonconformance shall be any nonconformance causing a complete failure of the Software or the Licensee's computer accessing the Software; (ii) a "serious" nonconformance shall be any nonconformance which seriously impairs the functionality of the Software (this includes any critical nonconformance for which a work-around or detour solution has been devised or identified); and (iii) a "minor" nonconformance shall be any nonconformance which does not seriously impair the functionality of the Software. - 11 - 12 b. Niku will provide a response to a report of the above-described nonconformity by Licensee according to the following response schedule: (a) all critical nonconformity's shall be responded to by Niku within one (1) hour of that time that Licensee first reports such nonconformity's to Niku; (b) all serious nonconformity's shall be responded to by Niku within five (5) hours of the date that Licensee first reports such nonconformity's to Niku; and (c) all minor nonconformity's shall be responded to by Niku within three (3) days of the date that Licensee first reports such nonconformity's to Niku. Niku's duty to respond shall consist of (i) delivery of an existing or new update, modification or enhancement to correct such nonconformance; or (ii) identification of a workaround or detour solution; or (iii) a request for more information for purposes of analyzing or verifying the nonconformance; or (iv) delivery of a plan for correcting the nonconformance. c. Niku will use all reasonable efforts to reach closure on all nonconformity's reported by the Licensee to Niku in accordance with the following schedule: (i) critical nonconformity's shall be closed within two (2) hours of notice to Niku; (ii) serious nonconformity's will be closed within twelve (12) hours of notice to Niku; and (iii) minor nonconformity's will be closed in next regular Software update generally distributed by Niku to all licensees. "Closure" or "closed" consists of Niku providing an update or new documentation to the Software which eliminates the nonconformance or provides a work-around solution which enables the user to easily avoid the nonconformance. 4. EXCLUSIONS. The Support Services do not include: (a) repair, replacement, correction or adjustment of any malfunction caused by: (i) modification or repair of the Software by anyone other than Niku; or (ii) accident, catastrophe, abuse, misuse or user error; (b) new products for which Niku establishes a separate license fee; (c) any expendable items, such as tape cartridges, magnetic media, and similar items or supplies; or (d) any software design, development, installation, implementation, or consulting services. 5. LICENSEE DUTIES. Throughout the term for which Licensee has paid for Support Services, at Licensee's request, Licensee will: (a) provide Niku with remote log-in access to the computer system(s) on which the Software is installed at the Licensee's facility so that Niku can perform diagnostic, error correction, and software downloading services; (b) cooperate with Niku in identifying the cause of any claimed failure of the Software to substantially conform to or perform substantially in accordance with the Documentation, including without limitation, providing Niku with such documentation and other information concerning any such claimed failure as Niku may reasonably request; and (c) allow Niku remote and on-site access to the Software and Licensee's associated equipment for the purpose of performing services under these Support Terms. In addition, Licensee will provide front-line support to its End Users. Licensee will be responsible for and bear all expenses associated with providing front-line support and Updates to its End Users. Front-line support includes but is not limited to, call receipt, entitlement verification, call screening, installation assistance, problem identification and diagnosis and product defect determination. Licensee agrees that any documentation distributed by Licensee to its End Users will clearly and conspicuously state that End Users should call Licensee for technical support for the Software. 6. SERVICE HOURS. The support described in section 2 (c) of this Agreement will be provided by Niku to Licensee by telephone, facsimile or email during the business hours of 8:00 - 12 - 13 a.m. to 5:00 p.m. US Pacific Standard Time, Monday through Friday, excluding Niku's public holidays. Notwithstanding the foregoing, critical or serious nonconformances in Software will be supported on a 24x7x365 basis by pager. 7. PRICES, INVOICING AND PAYMENT. If Licensee decides to purchase support and maintenance services, Licensee will pay the annual fees specified in the Agreement. In addition, Licensee will pay all taxes, excluding taxes based on Niku's net income, payroll, all freight, shipping and insurance costs associated with delivery of materials to Licensee under this Agreement and all preapproved travel, lodging, meal and other incidental expenses specifically incurred by Niku and agreed to by Licensee for furnishing maintenance and support services to Licensee "on-site" at the Licensee's facility. Software maintenance fees are payable annually in advance. Niku will invoice Licensee for the initial [***] Support Fees upon acceptance of the Software, and Niku will invoice Licensee for additional Support Fees pertaining to each succeeding twelve (12) month period at or about the commencement of such period. Niku will invoice Licensee for other charges permitted under this Agreement at or about the times such charges are incurred; except for payment for the initial Support Fees, which shall be payable ninety (90) days after invoice, all Support Fees invoices shall be paid by Licensee within thirty (30) days of receipt. 8. CHANGE IN SUPPORT FEES. Effective upon any twelve (12) month anniversary of the Effective Date, Niku may increase the amount of the Support Fees relating to the Software, unless provided otherwise in Exhibit B; provided, however, that no such increase shall exceed [***] of the amount of the Support Fees for the twelve (12) month period immediately preceding the effective date of such increase. 9. TERM AND TERMINATION. These Support Terms shall become effective as of the Effective Date and shall continue in effect for the initial term specified above and thereafter for successive one (1) year renewal terms until terminated as provided in this section. Either party may terminate this Agreement as of the end of its initial term, or as of the end of any renewal term, by written notice to the other party at least thirty (30) days prior to the effective date of termination. In the event that Licensee's license to use the Software is terminated by Niku or Licensee pursuant to the Agreement, these Support Terms shall also terminate as to such Software and Niku will refund to Licensee the amount of any Support Fees already paid with respect to such Software for service beyond the effective date of termination, prorated on a daily basis. *** Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. - 13 - EX-10.09 21 EX-10.09 1 * Confidential treatment has been requested with respect to certain information contained in this document. Confidential portions have been omitted from the public filing and have been filed separately with the Securities and Exchange Commission. EXHIBIT 10.09 EXECUTION COPY CONFIDENTIAL MANAGED SERVICES AGREEMENT This Managed Services Agreement ("Agreement") is entered into this 19th day of August, 1999 by Niku Corporation, a Delaware corporation with its principal place of business at 955 Charter Street, Redwood City, California 94063 ("NIKU"), and USinternetworking, Inc., a Delaware corporation with its principal place of business at One USi Plaza, Annapolis, Maryland 21401 ("USi"), (also "Party" or "Parties"). NIKU owns business application software that USi wishes to install on its servers and, through remote access, make available to USi customers. This Agreement and the Attachments hereto set forth the terms and conditions on which NIKU will grant, and USi will receive and use, licenses regarding such software. 1. DEFINITIONS. 1.1 "Affiliate" means, with respect to either Party, any entity at a time Controlling, Controlled by, or under common Control with, such Party. The term "Control," "Controlling" and "Controlled" as used in this Agreement means the legal, beneficial or equitable ownership, directly or indirectly, of more than 50% of the aggregate of all equity interest in such entity. 1.2 "Customer" means the entity or person to which USi provides the Services Offering on agreed terms not less restrictive than, and not inconsistent with this Agreement. 1.3 "Designated Facility" means Licensee's business facility identified in Attachment A, which may be changed only with the prior written consent of an authorized Niku officer. 1.4 "Documentation" means the published product specifications for the Licensed Products, user manuals and other materials which describe the Licensed Products features and use, in written or machine readable form. 1.5 "Lead" means a qualified prospect for a Services Offering. "Qualified" means that (a) the prospect has expressed interest in an outsourcing solution for the Licensed Product; and (b) NIKU has determined the prospect's interest and capabilities to be suitable for a Services Offering. 1.6 "Licensed Product" means the object code version of the Niku software described in Attachment A, and including Niku's Third-Party Suppliers' software incorporated therein. "Licensed Product" does not mean code, media, or documentation of USi or any third-party element within USi's portion of a Services Offering. 1 2 1.7 "Maintenance" means the NIKU maintenance and support specified in Attachment D. 1.8 "Marketing and Demonstration Materials" means Licensed Product brochures, technical specification sheets, product guides, demonstration presentations, graphics, pictures, drawings, screen layouts, text, icons, descriptions and other marketing sales literature provided by NIKU to USi. 1.9 "Services Offering" means the solution based on Licensed Product, delivered and administered by USi over its network. It includes: (a) connectivity between the dedicated Customer server(s) hosted by USi, and the Internet; (b) application hosting and management at USi's data center; (c) application backup and recovery services; (d) implementation and integration services; (e) billing for combined business service; and (f) customer support help desk as set forth in Attachment B. It is limited to remote access, and does not involve the distribution of software to Customers. 1.10 "Software Updates" means software program updates (including cumulative releases containing corrections to the Licensed Products), major and minor enhancements, and the new system versions and releases generally made available by NIKU to users of Licensed Products. 1.11 "Support Fee" means the fee paid by USi to NIKU for services specified in Attachment C, and for Software Updates. 1.12 "Support Line" means such telephone, email, fax, mail, beeper and web support, including research time provided by NIKU Support Line staff under Attachment D. 2. LICENSE GRANT. 2.1 License Rights. NIKU grants to USi during the term of this Agreement a limited, nonexclusive, nontransferable, worldwide, fee-bearing right: (a) to install and use one (1) copy of each of the Licensed Products on a server computer system in the Designated Facility for purposes of providing the Service Offering to Customers; (b) to make up to three (3) copies of the installed Licensed Products for archival back-up or internal testing purposes; and, (c) to use, store, transmit, display and sublicense the Licensed Products and Documentation to End Users as part of the Service Offering, provided, 2 3 however, that prior to granting any person or entity access to the Licensed Products or Documentation, USi must enter into a valid and enforceable agreement with such person or entity that is consistent with and not less restrictive than NIKU's standard end user license agreement ("End User License Agreement"), a copy of which is attached as Attachment D. 2.2 Intellectual Property Rights: 2.2.1 USi acknowledges and agrees (a) that the Licensed Products and Documentation, the ideas, methods of operation, processes, know-how, aesthetic aspects, subsystems and modules included therein, the graphical user interfaces for the Licensed Products, and the look and feel of the Licensed Products and Documentation are proprietary materials, some of which contain valuable trade secrets; (b) that all title and intellectual property rights - meaning copyrights, confidentiality rights, trade secret rights, trademark rights, patent rights and other intellectual property and proprietary rights - in the Licensed Products and Documentation are owned exclusively by NIKU and its third-party suppliers , subject only to the licenses granted herein; and (c) USi will not take any action to jeopardize, limit or interfere in any manner with NIKU's or its third-party suppliers' ownership of or rights with respect to the Licensed Product(s) and Documentation. 2.2.2 USi will take reasonable precautions (including the precautions taken to protect its own confidential information) to prevent unauthorized use or disclosure of the Licensed Products, any source code provided to USi hereunder, and the results of any performance or benchmark tests of any software included in such Licensed Products. 2.2.3 Without the prior express written consent of NIKU, USi will not, and will not grant any other person or entity the right to, disassemble, decompile, decode, translate, modify, produce a source listing, create derivative works or reverse engineer any Licensed Products or Documentation. In the event any Derivative Works is created hereunder, USi agrees that Niku will be the sole owner of all Derivative Works (as such term is defined below). Niku grants to USi, during the term of this Agreement, a nonexclusive, royalty-free and nontransferable right and license (with no right of sublicense) to use any Derivative Works solely with the Licensed Product(s) and solely for USi's own internal use and benefit. USi agrees that all use of any Derivative Works will be in accordance with this Agreement. For the purposes of this Agreement, "Derivative Works" means any inventions, improvements, reports, drawings and other works of authorship, improvements and/or modifications to the Licensed Product(s) or Documentation, that USi and/or its agents may conceive, develop or reduce to practice, alone or jointly with others, 3 4 whether or not they are eligible for patent, copyright, trademark, trade secret or other legal protection. To the extent that USi and/or its agents may acquire property rights in any Derivative Works by operation of law, USi hereby assigns to Niku, with full title guarantee, all of its rights in the Derivative Works. At Niku's request and expense, USi will assist and cooperate with Niku in all reasonable respects and execute any documents and take further acts as reasonably requested by Niku to acquire, transfer, maintain and enforce any legal protection for the Derivative Works. USi hereby appoints the officers of Niku as in existence from time to time as its attorneys-in-fact to execute documents on its behalf for this limited purpose. 2.2.4 USi will not obscure, remove or modify any notices or marking, including without limitation, copyright, trademark or confidentiality notices on the Licensed Product and Documentation provided to USi by NIKU or its third-party suppliers. 2.2.5 NIKU and its third-party suppliers retain rights in and to the Licensed Products and Documentation not specifically granted to USi hereunder, and any use of these items other than as expressly permitted by this Agreement shall constitute a material breach of this Agreement. 2.2.6 Where USi uses a multi-processor server, USi will maintain accurate records of the number of CPUs used for the Licensed Product(s) and provide such records to Niku on a quarterly basis as set forth in Attachment A. 2.3 Prepaid Maintenance Customers: Where a potential Customer for a Services Offering already lawfully has the right to use a Licensed Product for internal use, and has prepaid maintenance, USi (a) may host such Licensed Product without being obligated to pay NIKU a license fee; and (b) will assume the obligation to perform Maintenance, in which case NIKU will credit USi with the amount of prepaid Maintenance to be provided by USi. After expiration of the prepaid Maintenance term for such Customer, USi will purchase Maintenance at the lower of [***], or the [***] to [***] under this Agreement. 3. USI RESPONSIBILITIES. 3.1 USi will create a Services Offering entitled "Professional Services Automation powered by Niku." 3.2 USi will provide the Customer support specified in Attachment B. *** Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. 4 5 3.3 USi will provide to NIKU the information and materials reasonably necessary to allow NIKU to most effectively present the Services Offering concept to any prospect. 3.4 USi will make no representations, warranties or promises, expressed or implied, oral or written, to Customers with respect to any Licensed Product, other than the written representations, warranties and promises made to USi by NIKU in this Agreement. 3.5 Integration Services: 3.5.1 Through its Advanced Engineering organization, USi will conduct performance tests of Services Offerings over varying concurrent users and bandwidth levels. USi will share this information with NIKU to assist NIKU in its optimization of the Licensed Products. 3.5.2 Training and Certification. Within three (3) months after execution of this Agreement, USi will create one NIKU Client Care Team (i) composed of installation and help desk staff to support Customers as further described in Attachment B, (ii) trained in the Licensed Products, either directly by NIKU, or through USi's internal training group, and (iii) to provide Level One and Level Two support (as these are defined in Section 5.3, below) to Customers. USi will purchase training from NIKU for internal team members at rates specified in Attachment A. 3.6 USi will staff its operations teams with vendor-certified network, database, application, and hardware technical specialists, and will have application expertise for Licensed Products available to all shifts, as needed in order to provide Level One and Level Two support to Customers. 3.7 USi will train NIKU's sales force in the promotion of Services Offerings as soon as reasonably possible after execution of this Agreement. USi will provide reasonable value proposition/messaging/demonstration capabilities to the NIKU sales force. 3.8 USi will exercise its rights in, and to enforce each End User License Agreement as reasonably requested by NIKU or as otherwise necessary to protect NIKU's rights hereunder. USi agrees to report to NIKU any violation of the End User License Agreement and to reasonably cooperate with NIKU in any enforcement actions taken by NIKU at NIKU's expense. 4. NIKU'S RESPONSIBILITIES. 5 6 4.1 On terms consistent with this Agreement, NIKU will deliver to USi Licensed Products as they become available, and as set forth in Attachment A. Attachment A may be modified only upon mutual agreement of the parties. 4.2 NIKU will provide Maintenance for Licensed Products to USi in accordance with Attachment B. 4.3 Upon execution of this Agreement, NIKU will deliver to USi the current Marketing and Demonstration Materials. Subject to the guidelines established by NIKU, NIKU authorizes USi to place a notice on these materials, under NIKU's guidelines, to indicate USi's authority to use, and provide access to, the Licensed Products in accordance with the Services Offering. 4.4 During the term of this Agreement, NIKU will deliver to USi a reasonable number of copies of the Licensed Product, not to exceed use by [***] seats, of which [***] will be used for USi's internal testing and demonstration, and [***] for training purposes at [***]. Where NIKU uses beta testing, NIKU will invite USi to participate as a beta test site for new Licensed Products. 4.5 NIKU will give USi written notice prior to withdrawing any commercially available Licensed Product (including any version thereof) from marketing or support of NIKU's customers, as soon after NIKU's decision to withdraw a Licensed Product as reasonably possible. 4.6 Not later than fourteen (14) days after execution of this Agreement, and for three (3) months thereafter, NIKU will make available, at rates specified in Attachment A, one trained NIKU consultant to be on-site at USi to provide knowledge transfer and engineering services in support of USi's drafting the specifications, and testing the Services Offering. 4.7 NIKU will train USi's sales force in the Licensed Products as soon as reasonably possible after execution of this Agreement. NIKU will provide reasonable value proposition/messaging/demonstration capabilities to the USi sales force. 4.8 In the process of qualifying a prospect, NIKU will make available to all prospects such information about the Services Offering in a manner designed to convert a prospect into a qualified lead and, ultimately, into a Customer. 5. CUSTOMER SUPPORT. 5.1 USi will provide technical and application response-line support to Customers in accordance with Attachment B. *** Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. 6 7 5.2 Where necessary for implementation of a Services Offering, USi will purchase from NIKU professional services at rates specified in Attachment A, and payable by USi as delivered. The consultants designated to perform professional services will be chosen on the basis of their availability and required expertise. Notwithstanding NIKU's assistance in the implementation of a Services Offering, USi will remain solely responsible for Customer implementations. 5.3 USi will provide Level One and Level Two Support to Customers. "Level One Support" means initial contact with the Customer for questions regarding the implementation of the Services Offering. "Level Two Support" means advising Customer on application functionality and configuration, internetworking, database configuration and maintenance, and hardware configuration and maintenance. 5.4 NIKU will provide Level Three Support in accordance with definitions and terms of the Service Level Agreement in Attachment C. 6. PRICING AND PAYMENT TERMS. 6.1 Fees payable by USi to NIKU will be calculated on a per-Customer basis in accordance with Attachment A. 6.2 In accordance with the fees agreed in Attachment A, USi shall pay NIKU the license fees, Maintenance fees, and services fees together with any applicable sales or use tax or similar tax, excluding any taxes based on NIKU's net income, payroll, or gross receipts. 7. MARKETING. 7.1 As additional consideration for the rights granted by NIKU to USi hereunder, USi shall, at its own expense, actively promote and market Licensed Products to potential Customers as part of the Services Offering. USi will produce, and deliver to NIKU, marketing and demonstration materials describing and promoting Services Offerings, and will assist NIKU in qualifying prospects. USi will use Marketing and Demonstration Materials for purposes of marketing the Services Offering. 7.2 USi and NIKU will participate in joint advertising opportunities 7.3 USi and NIKU each will designate marketing contacts. 7.4 The Parties will meet quarterly to assess market conditions, customer satisfaction, and projections for training programs, business strategies, revenue forecasts, and proposals 7 8 for the Services Offering. The Parties will also meet annually to review the terms of the Agreement. 7.5 Sales Force Compensation: For Services Offering sales, NIKU will compensate its sales force in the same manner and at the same rates as it compensates its sales force for sales of licenses of the Licensed Products. 7.6 The Parties acknowledge that USi has an exclusive arrangement with Siebel Systems for the outsourcing of Siebel's software for the automation of corporate sales, marketing, and customer service functions ("Siebel ERM Software"). The Parties agree that current Licensed Products do not compete with Siebel ERM Software. In the event that the Parties deem future Licensed Products to compete with Siebel ERM Software, the Parties will negotiate additional terms and conditions for the purpose of resolving the conflict. 7.7 The Parties acknowledge and agree that this Agreement is non-exclusive. 8. DATA AND DOCUMENTS RESULTING FROM THE LICENSED PRODUCTS. 8.1 USi and its Customers are free to use any results, such as databases or reports, created as a by-product from use of Licensed Products in accordance with a Services Offering ("Results"). USi and/or the Customer will own the Results, but not any portion of the Licensed Products. 9. WARRANTIES. 9.1 NIKU warrants that the Licensed Product, when properly installed and used, will perform in substantial accordance with the Documentation for a period of one (1) year from the date the Software is delivered to USi. If the Licensed Product does not perform as warranted, NIKU will attempt to correct the Licensed Product, or if a correction is not reasonably possible, to replace the Licensed Product free of charge. If NIKU is unable to make the Licensed Product perform as warranted, NIKU will terminate this Agreement and refund the license fee paid by USi less any cumulative amortization or depreciation of that Licensed Product by USi on its financial statements as of the date when NIKU terminates the license for such Licensed Product. This warranty is made to and for the sole benefit of USi, and will be enforceable against NIKU only if: (a) all modifications, alterations or additions to the Licensed Product made by USi, if any, have been made using tools or utilities included in the Licensed Product or otherwise provided by Niku; and (b) USi has not made or caused to be made any modifications, alterations, or additions to the Licensed Product that cause it to deviate from the Documentation. NIKU will not be liable for any claimed breach of this Warranty caused by the acts or omissions of USi or any third party, with the exception of any Niku third-party supplier. 8 9 9.2 NIKU warrants that, during the Maintenance period, the Licensed Products will be Year 2000 Compliant. "Year 2000 Compliant" means (to the extent that other information technology, data, hardware or software used in combination with the Licensed Products, properly exchanges date/time data with the Licensed Products): (i) the Licensed Products, as delivered by NIKU, will accurately process date/time data (including, without limitation, calculating, comparing and sequencing) from, into and between the twentieth and twenty-first centuries, and the years 1999 and 2000 and leap year calculations, in accordance with the Documentation relating to those Licensed Products and in effect at the time the support is provided; and (ii) the Licensed Products, as delivered by NIKU, will accurately process date/time data (including, without limitation, calculating, comparing and sequencing) on or after January 1, 2000 in the same manner, and with the same functionality as the same release level of the Licensed Products processes date/time data (including, without limitation, calculating, comparing and sequencing) on or before December 31, 1999. During the Maintenance period, NIKU will not modify the Documentation or the Licensed Products in any manner that would cause the Licensed Products to not be Year 2000 Compliant. This warranty does not apply if any other information technology, data, hardware or software used in combination with the Licensed Products are not Year 2000 Compliant. 9.3 NIKU warrants that, for a period of ninety (90) days from the date NIKU delivers the Licensed Products to USi, the media upon which the Licensed Product is provided will be free of material defects ("Media Warranty"). The sole and exclusive remedy for breach of the Media Warranty is replacement of the defective media if any such defect is found within ninety (90) days after delivery of the defective media. 9.4 EXCEPT AS EXPRESSLY PROVIDED IN THIS AGREEMENT, NEITHER USi NOR NIKU (OR ITS THIRD-PART SUPPLIERS) MAKES OR RECEIVES ANY OTHER EXPRESSED OR IMPLIED WARRANTIES OR REPRESENTATIONS OF ANY KIND WITH RESPECT TO THE LICENSED PRODUCTS OR SERVICES PROVIDED UNDER THIS AGREEMENT, OR RENDERED UNDER A SERVICES OFFERING, IN FACT OR IN LAW, INCLUDING, BUT NOT LIMITED TO, ANY EXPRESSED OR IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE, WHICH ARE HEREBY EXPRESSLY DISCLAIMED. 9.5 The warranties, and remedies for their breach, in Sections 9.1, 9.2, and 9.3, above, and in NIKU's Product License Agreement for Licensed Products are NIKU's sole and exclusive warranties and remedies to USi. USi will not pass to Customers any warranty or remedy on behalf of NIKU. 9.6 Each Party warrants that its performance under this Agreement does not materially conflict with its obligations under any other agreement. 9 10 10. CONFIDENTIALITY. 10.1 "Confidential Information" means information disclosed by NIKU or USi in writing, orally or by inspection, which is identified as "Confidential" or "Proprietary", or which, given the nature of the information or the circumstances surrounding its disclosure, the Parties reasonably ought to recognize as being confidential. Notwithstanding the foregoing, information, in whatever form, disclosed by NIKU that relates to the features and/or functionality of the Licensed Products and that is not publicly known is "Confidential Information" whether or not so identified. 10.2 Each Party will treat as confidential all Confidential Information received from the other Party, will use such Confidential Information only as expressly permitted under this Agreement, will only disclose it to employees needing access to it in order to fulfill the Party's obligations, and will not disclose such Confidential Information to any third party without the disclosing Party's prior written consent except as provided in Section 10.4 below. 10.3 Notwithstanding the above, the restrictions of this Section will not apply to information that is (i) in the public domain through no breach of this Agreement, (ii) obtained from third parties not subject to restrictions on disclosure, (iii) independently developed without reference to Confidential Information, or (iv) previously known to the recipient. 10.4 If either Party receives a subpoena or other validly issued administrative or judicial demand requiring it to disclose Confidential Information of the other Party, the recipient will promptly notify the discloser and tender to it defense of such demand. Unless the demand will have been timely limited, quashed or extended, the recipient will then be entitled to comply with such subpoena or other process to the extent required by law. 10.5 Notwithstanding any provision in this Agreement to the contrary, in the event of an actual or threatened breach of this Section 10, the Parties agree that there would be no adequate remedy at law, and that the injured Party (or the Party threatened to be injured) may be entitled to immediate injunctive and other equitable relief, without bond and without the necessity of showing the inadequacy of legal remedies. 11. INDEMNIFICATION BY USI. 11.1 USi, at its expense, will defend any suit or claim brought against NIKU, and will indemnify NIKU against an award of damages and costs (including reasonable attorneys' fees) against NIKU by a final court judgment based on a claim that any Licensed Product infringes a U.S. or Canadian patent, worldwide trade secret, or Berne Convention country 10 11 copyright to the extent such infringement results from modifications to any Licensed Product made by USi, the marketing, distribution or use of the Licensed Products in conjunction with the Services Offering or services or software not supplied by NIKU, any warranty, condition or representation or indemnity granted by USi for the Services Offering in addition to or in lieu of the warranties described in this Agreement, or from USi's failure to use corrections or enhancements delivered by NIKU to USi in order to rectify any infringement, provided that NIKU (a) notifies USi in writing of the suit or claim within ten (10) days after NIKU receives notice of it; (b) gives USi sole authority to defend or settle the suit or claim; (c) gives USi all information in NIKU's possession or control concerning the suit or claim; and (d) at its expense, reasonably cooperates and assists USi with defense of the suit or claim. 11.2 Section 11.1, above, states USi's entire liability, and NIKU's sole remedy, with respect to any infringement claim arising under that section. 12. INDEMNIFICATION BY NIKU. 12.1 NIKU, at its expense, will defend any suit or claim brought against USi, and will indemnify USi against an award of damages and costs (including reasonable attorneys' fees) against USi by a final court judgment based on a claim that USi's marketing, distribution, or use of any Licensed Product infringes a U.S. or Canadian patent, worldwide trade secret or Berne Convention country copyright, provided that USi (a) notifies NIKU in writing of the suit or claim within ten (10) days after USi receives notice of it; (b) gives NIKU sole authority to defend or settle the suit or claim; (c) gives NIKU all information in USi's possession or control concerning the suit or claim; and (d) at its expense, reasonably cooperates and assists NIKU with defense of the suit or claim. 12.2 If any Licensed Product becomes, or in NIKU's opinion is likely to become, the subject of a suit or claim of infringement of a patent or copyright, NIKU shall, at its option and expense, (a) obtain the right for USi to use the Licensed Product; (b) replace or modify the Licensed Product so that it becomes non-infringing, provided that the replacement or modification is of similar or better quality or functionality; or (c) terminate (i) USi's license for the infringing Licensed Product, and (ii) this Agreement to the extent that it relates to the infringing Licensed Product. If NIKU terminates the license for the infringing Licensed Product under this Section, USi will cease use of the infringing product and return it to NIKU; and (d) NIKU will pay USi, as USi's sole and exclusive remedy against NIKU (other than indemnification by NIKU under Section 12.1 above) an amount equal to the License Fee paid under this Agreement for the infringing Licensed Product, less any cumulative amortization or depreciation of that Licensed Product by USi on its financial statements as of the date when NIKU terminates the license for the infringing Licensed Product. 11 12 12.3 NIKU will not be liable to USi under this Section 12 if any suit or claim of infringement is based on the use of the Licensed Product (a) in combination, operation or use with any product not furnished or suggested in writing by NIKU; (b) in a modified state not authorized by NIKU; (c) that is a superseded or altered release of some or all of the Licensed Product or any modification thereof including, but not limited to, USi's failure to use corrections, fixes or enhancements made available by NIKU; or (d) in a manner other than for which it was designed, provide that infringement would have been avoided without such use of the Licensed Product. Nor will NIKU be liable to USi for any infringement outside the United States. 12.4 Sections 12.1 - 12.3, above, state NIKU's entire liability, and USi's sole remedy, with respect to any infringement claim arising under those sections. 13. LIMITATION ON LIABILITY. 13.1 Except for claims for breach of either Party's Intellectual Property Rights and proprietary rights, and claims for indemnification under Sections 11 and 12, the limit of each Party's and its suppliers' liability (whether in contract, tort, negligence, strict liability in tort or by statute or otherwise) to the other, or to any third party, concerning performance or non-performance under this Agreement, or in any manner related to this Agreement, for any and all claims will not in the aggregate exceed the monetary amounts paid or received under this Agreement. 13.2 EXCEPT FOR CLAIMS FOR BREACH OF EITHER PARTY'S INTELLECTUAL PROPERTY RIGHTS AND PROPRIETARY RIGHTS, AND CLAIMS FOR INDEMNIFICATION UNDER SECTIONS 11 AND 12, IN NO EVENT WILL EITHER PARTY (OR NIKU'S THIRD-PART SUPPLIERS) BE LIABLE FOR CONSEQUENTIAL, INDIRECT, SPECIAL, INCIDENTAL, OR PUNITIVE LOSS, DAMAGE OR EXPENSES (INCLUDING LOST PROFITS OR SAVINGS), EVEN IF IT HAS BEEN ADVISED OF THEIR POSSIBLE EXISTENCE. 13.3 The allocations of liability in this Section 13 represent the agreed and bargained-for understanding of the Parties and each Party's compensation reflects such allocations. 14. CHOICE OF LAW AND VENUE. 14.1 This Agreement will be governed by New York law without reference to that State's conflicts of law principles. 14.2 INJUNCTIVE RELIEF: IN THE EVENT OF AN ACTUAL OR THREATENED BREACH BY EITHER PARTY OF ANY TERM, RESTRICTION, COVENANT, OR CONDITION IN THIS AGREEMENT, THE NON-BREACHING PARTY 12 13 (or its successors or assigns), will have, in addition to the right to damages, the right to seek equitable relief in a court of competent jurisdiction, without the requirement of bond, for the purpose of enjoining such actual or threatened breach. The Party intending to seek equitable relief will notify the other Party of the actual or threatened breach prior to the commencement of any such action. 15. TERM AND TERMINATION. 15.1 This Agreement will become effective upon execution by both Parties. The initial term of this Agreement is three (3) years, but it may be terminated thereafter by either Party on the anniversary date as provided by this Section 15. 15.1.1 After the initial three-year term, unless this Agreement is automatically extended as provided below, (a) USi may not enter into any new Services Offering Agreement; and (b) the Parties will continue to abide by this Agreement to the extent reasonably necessary to complete performance of any existing Services Offering Agreement. 15.1.2 At the end of the initial three-year term, this Agreement will extend automatically for one-year periods unless either Party, on sixty (60) days' written notice to the other, terminates this Agreement. 15.2 Either Party may terminate this Agreement immediately upon the public announcement of the other Party's change of control, which is defined as a change of more than fifty percent (50%) of ownership. 15.3 If either Party breaches any of its material obligations, the other Party may terminate this Agreement by written notice specifying the breach. Such notice will be effective sixty (60) days after its receipt, unless the Party receiving the notice has cured the breach. 15.4 If Customer for a Services Offering wishes to obtain a license to retain a right to use of a Licensed Product after termination of the Services Offering Agreement, then USi will refer Customer to NIKU for negotiation of a separate license agreement between Customer and NIKU, in which case NIKU will be entitled to retain all revenues from such sale. 15.5 Subject to the provisions of this Section 15, upon termination USi shall cease use of the Licensed Products and immediately return such Licensed Products and any copies thereof to NIKU. Termination or expiration of this Agreement will not release either party from its obligation to pay any fees accruing prior to the date of such termination or expiration. 13 14 15.6 The provisions of Section 2.3, and 10 through 16 will survive termination of this Agreement. 16. GENERAL. 16.1 Freedom to Set Customer Pricing and Terms and Conditions: Subject to the terms of this Agreement, USi will have full freedom and flexibility in pricing the Services Offering, and in establishing the terms and conditions under which such services, including the Services Offering, are offered to Customers, except that the term of any Services Offering Agreement shall not exceed five (5) years without express written consent of NIKU. 16.2 Assignment of Personnel: Except as expressly agreed by USi and NIKU to the contrary, nothing contained in this Agreement will limit or restrict the assignment or reassignment of employees of USi and NIKU within their respective organizations or that of their Affiliates. 16.3 Notices: Where one Party is required or permitted under this Agreement to give notice to the other, the notice will be deemed given when delivered via facsimile, by hand, or on the third business day after such notice is deposited in the mail, registered or certified, return receipt requested, postage prepaid and addressed as follows: In the case of USi: James Stalder USinternetworking, Inc. Senior VP, Strategic Development One USi Plaza Annapolis, Maryland 21401 410 573 1906 (fax) with a copy to: William T. Price Vice President & General Counsel USinternetworking, Inc. One USi Plaza Annapolis, Maryland 21401 410 573 1906 (fax) In the case of NIKU: 955 Charter Street 14 15 Redwood City, CA 94063 Attention: CEO With a copy to: Legal Department Either Party may change its foregoing address by giving the other written notice of the new address. 16.4 Independent Contractor: USi and NIKU are independent contractors with respect to all performance rendered pursuant to this Agreement. The employees of one Party will not be considered employees of the other for any purpose. Neither Party will have the authority to bind or make commitments on behalf of the other Party for any purpose. Each Party assumes full responsibility for its actions and the actions of its personnel in rendering performance pursuant to this Agreement, and for the supervision, daily direction and control, payment of salary (including withholding of income taxes and social security), workers' compensation, disability benefits and the like of its personnel. 16.5 Compliance with Laws and Regulations: Each Party will, at its own expense, comply with any governmental law, statute, ordinance, administrative order, rule or regulation relating to its duties, obligations and performance under this Agreement and will procure all licenses and pay all fees and other charges required. 16.6 Export of Technical Data: USi will not export, re-export or transmit, directly or indirectly, any technical data or computer software received under this Agreement except in full compliance with all applicable federal, state and local laws, regulations and ordinances, including the Regulations of the U.S. Departments of Commerce and/or State. 16.7 Force Majeure: Neither Party will be liable for failure to fulfill its obligations under this Agreement, if such failure is caused by flood, extreme weather, fire, or other natural calamity, acts of governmental agency, or other cause beyond the reasonable control of such Party. 16.8 Trademarks and Advertising: Nothing in this Agreement confers upon either Party any right to use the other Party's trademarks, tradenames or service marks in connection with any product, service, promotion or publication, without the prior written consent of the owner of such trademark, tradename, or service mark. 16.10 Assignment: Neither Party may sell, transfer, assign, or subcontract any right or obligation except as expressly provided by this Agreement, without the prior written consent of the other Party, and any act in derogation of the foregoing will be null and void; provided, however, that either Party may, without the other's consent, assign its rights or 15 16 obligations under this Agreement to an Affiliate, or to a financier of its choice solely for financing purposes. 16.11 Publicity: Upon the execution of this Agreement, or as soon as possible thereafter, and upon prior written approval from the other Party, each Party will make reasonable efforts to announce publicly the general nature and purpose of the relationship created by this Agreement. Any announcement may be made jointly and/or separately by mutual consent of the Parties. 16.12 Severability: If any provision of this Agreement is held by a court of competent jurisdiction to be contrary to law, the remaining provisions of such Agreement will remain in full force and effect. 16.13 Amendment; Waiver: No amendment to this Agreement will be effective unless in writing and executed by an authorized representative of both NIKU and USi. No waiver of any provision of this Agreement will be effective unless it is set forth in a writing referring to the provision(s) waived and the instrument in which such provision(s) is (are) contained, and is executed by an authorized representative of the Party waiving its rights. No failure or delay by either Party in exercising any right, power or remedy will operate as a waiver of any such right, power or remedy. 16.14 Entire Agreement: The provisions of this Agreement constitute the entire agreement between the Parties. They supersede all prior agreements, oral or written, and all other communications relating to the subject matter of this Agreement. Any terms contained in USi invoices, acknowledgments, shipping instructions, or other forms that are inconsistent with or different from the terms of this Agreement will be void and of no effect. 16.15 Headings: The Section headings in this Agreement are for convenience of reference only, and are not intended to define or limit the terms or provisions hereof. 16 17 By the signatures of their authorized representations, the Parties acknowledge the validity of, and their consent to, each of the terms contained in this Agreement. FOR USINTERNETWORKING, INC. FOR NIKU CORPORATION By By -------------------------- ---------------------------- (Authorized Signature) (Authorized Signature) VP General Counsel VP Global Sales and Services -------------------------- ---------------------------- (Title) (Title) 8/19/99 8/19/99 -------------------------- ---------------------------- (Date) (Date) 17 18 ATTACHMENT A DESIGNATED FACILITIES, LICENSED PRODUCTS, AND PRICING 1. Licensed Product Description: Niku for IT Consulting, Version 3.x 2. Designated Facilities: One USi Plaza, Annapolis, MD 21401 1375 McCandless Drive, Milpitas, CA, 95035 Kruislaan 415, 1098 SJ Amsterdam, The Netherlands 4th Floor, 1-15 Ariake, 3 Chrome; Kotu-KU, Tokyo 135-8650, Japan 3. Reporting and Compliance. USi will maintain accurate records relating to (a) the sublicensing of Licensed Product(s) to Customers; and (b) internal licenses for USi. Such records will include, without limitation, the number of Customers (where the Customer is an entity, the number of individual users within the Customer), the number of internal use users and the number of CPUs where the Licensed Product is used. USi will provide such records to Niku within 10 days after the end of each quarter, together with any applicable fees as set forth in Section 4 below. Niku will have the right to inspect USi's records and the Licensed Product at the Designated Facility as reasonably necessary to verify that Licensee is in compliance with this Agreement. Niku will provide Licensee with reasonable notice prior to any inspections. Niku will be limited to conducting three (3) such inspections in any twelve (12) month period, and will not unreasonably interfere with Licensee's business operations. Niku will bear all costs and expenses associated with the exercise of these rights, unless such inspection reveals that Licensee is not in compliance with this Agreement, in which case, Licensee agrees to pay Licensor the reasonable costs of such inspection plus any additional license fees related to unauthorized use of the Software. 4. License Fees: Niku is offering the Licensed Products to USi based on the fees set forth below. License Fees will accrue in the applicable quantity upon: (a) the first date of access to any Licensed Product by any employee, contractor or consultant of USi; (b) authorization by USi for any Customer to increase the quantity of users accessing the Licensed Product; or (c) the earlier of: (1) the execution of the End User License Agreement; or (2) the date a Customer or, if the Customer is an entity, any individual user within the Customer, has access to the Licensed Product. After the Effective Date, Licensee will pay Niku such License Fees accrued during each quarter, together 19 with any support fees due during such quarter, by the tenth day after the end of each calendar quarter. All payments for the License Fee will be provided with the quarterly reports required under Section 3 of this Attachment A. The following fees are effective through December 31, 1999. Niku will provide a new pricing schedule to USi by January 2, 2000. The following License Fees will apply after the [***] licenses under the Software License Agreement, effective as of June 30, 1999, between the parties has been drawn down: Licensed Product fee*: [***] Niku Support Fee: [***], or the [***] by end-user, whichever is [***] * [***] will apply where appropriate 3. Services Fees: Consistent with the license fees above, fees from Niku's Professional Services organization will be revised by January 2, 2000. The following fees will be applicable for all engagements not currently quoted with a Niku Statement of Work:
Role Rate Niku Project Director [***] Niku Project Manager [***] Niku Technical Lead [***] Niku Consultant [***]
4. Training Services and Fees: Niku will provide training to USi at Niku's facilities for a rate of [***], for between five (5) and fifteen (15) USi attendees. For training conducted offsite, USi will reimburse Niku for reasonable expenses of Niku's training staff. *** Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. 20 ATTACHMENT B CUSTOMER SUPPORT USi will provide telephone, email, fax, and World Wide Web support to Customers, including by way of example and not limitation, problem identification, diagnosis, correction, usage concerns and resolution. USi will provide telephone, email, fax, and World Wide Web support in accordance with the following requirements which may be amended from time to time by agreement of the Parties: (a) USi will maintain an internal competency center or help desk to provide a central point of contact for systems, network and operational support through a telephone support line which will be open, at minimum, during normal business hours; (b) When a Customer reports a problem which USi reasonably concludes to be due to a defect in the Licensed Product, USi will determine the level of severity of the problem, such levels to be the same as or comparable to the following ranges: (i) [***]: a problem does not require [***], but needs [***] for a [***] on how to use the [***] or [***], or the problem is in a [***]; (ii) [***]: a problem does not have an [***] on [***], but is causing a [***] and a [***] is not [***]; and (iii) [***]: the problem is that a [***] of the Licensed Products is [***] and cannot be [***] and subject to [***] occurring so frequently as to [***], and the problem is having a [***] on with no available; (c) For critical problems which USi requires further assistance in resolving, the following provisions will apply: USi will immediately bring such problems to the attention of NIKU and the Parties will cooperate with each other to address and correct such critical problems in an efficient and timely manner in accordance with NIKU and USi standard procedures for correcting problems. Upon execution of this Agreement, NIKU and USi will share each Party's standard procedures for correcting problems of all severity levels; *** Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. 21 ATTACHMENT C NIKU SERVICE LEVEL AGREEMENT The Parties agree that the terms of the Service Level Agreement will be concluded, and incorporated into this Attachment C, not later than September 15, 1999 EX-10.10 22 EX-10.10 1 * Confidential treatment has been requested with respect to certain information contained in this document. Confidential portions have been omitted from the public filing and have been filed separately with the Securities and Exchange Commission. EXHIBIT 10.10 PROMOTION AGREEMENT This Promotion Agreement (the "Agreement") is dated as of September 10, 1999 between CNET, Inc., with its principal place of business located at 150 Chestnut Street, San Francisco, California 94111 ("CNET"), and Niku Corporation, with its principal place of business located at 305 Main Street, Redwood City, California 94063 (the "Company"). Pursuant to this Agreement, the Company and CNET will work together to create a co-branded site to provide Company's services to CNET users, and CNET will provide various promotions to the Company to assist the Company in promoting the co-branded site and Company services. Accordingly, the parties hereby agree as follows: 1. DEFINITIONS. "Above the Fold" means that a particular item on a Web page is viewable on a computer screen at an 800 x 600 pixels resolution when the User first accesses such Web page, without scrolling down to view more of the Web page. "Business Computing Channel" means the Business Computing channel on the CNET Site, as may be changed from time to time by CNET. "CNET Competitor" means the competitors of CNET listed on Exhibit G, as reasonably amended by CNET from time to time, but in no event more than once during each calendar quarter. "CNET Content Areas" means the header and footer of each page of the Co-Branded Site designed in accordance with Section 2.3.1. "CNET Marks" means any trademarks, trade names, service marks and logos delivered by CNET to the Company expressly for inclusion on the Company Site. "CNET Sites" means the Internet sites operated by CNET together with any mirror sites and successors to the foregoing, but not including the Distributor Sites as described in Section 12.14. "Co-Branded Site" means the web site created pursuant to Section 5, below, which features branding for CNET and the Company. "Company Competitor" means the competitors of the Company listed on Exhibit H, as mutually amended by CNET and the Company from time to time, but in no event more than once during each calendar quarter. "Company Content Area" means the middle section of each page of the Co-Branded Site designed in accordance with Section 2.3.2. "Company Marks" means any trademarks, trade names, service marks and logos that may be delivered by the Company to CNET expressly for inclusion in the Promotions. "Company Services" means any product or service sold or provided on or through the Company Site. 1 2 "Company Site" means the Internet site operated by the Company at http://www.iniku.com, together with any mirror sites and successors to the foregoing, but not including the Company Distributor Sites as described in Section 12.15. "Impression" means the display of a Promotion on the CNET Sites. "Launch Date" means the date on which the Co-Branded Site is made generally available to Users, as further described in Section 2.7. "Look and Feel" means the look and feel, User interface and flow of User experience. "Promotions" means banners, buttons, text links, windows and other promotions that are offered by the relevant party now or in the future, for which such party receives monetary payment, barter, or other compensation. "Special Promotions" means branded or unbranded Promotions specifically promoting the Co-Branded Site. "Sponsorship" means the Business Solutions Directory sponsorship described in Section 3.3. "Standard Promotions" means Promotions linked to the Company Site and which promote the Company's products and services. "Television Spotlight" means a weekly television spotlight to be run in selected CNET programming available on CNBC. "Term" means the term described in Section 5. "User" means a user of a CNET Site. 2. CO-BRANDED SITE DEVELOPMENT AND INTEGRATION. 2.1 Co-Branded Site Described. The parties will work together in good faith to create the Co-Branded Site on the terms describe in this Section 2. Unless otherwise mutually agreed by the parties, the Co-Branded Site will provide all of the features and functionality provided by, and will perform in a manner substantially identical to, the Company Site, as the Company Site may be updated and enhanced from time to time. 2.2 Hosting. The Company or its designee (provided that such designee is not a CNET Competitor) will host the Co-Branded Site on its servers (or on servers within its control) and will provide all computer hardware, software, bandwidth and personnel necessary to operate and maintain the Co-Branded Site as a functional site accessible to Users. The Company will operate the Co-Branded Site in a manner that meets or exceeds the reliability and performance standards described on Exhibit C, and will use commercially reasonable efforts to ensure that the performance and reliability of the Co-Branded Site are at least as good as the CNET Sites. 2 3 2.3 Design. 2.3.1 CNET Content Areas. CNET will create the specification, design, functionality, user interface and Look and Feel for the CNET Content Areas, and Company will use commercially reasonable efforts to assist CNET. Subject to the terms of Section 2.13.1, such CNET Content Area may include branding, promotions, content, navigational tools, and other features, tools and content as determined by CNET. CNET will develop all elements of the CNET Content Areas interface, including graphics and templates. Company acknowledges that CNET may change the design and content of the CNET Content Areas from time to time, as determined at CNET's discretion. Initially, the CNET Content Areas will substantially conform to the illustrations attached as Exhibit E. 2.3.2 Company Content Area. Company will create the specification, design, functionality, user interface and Look and Feel for the Company Content Area; provided, however, that the Company Content Area will substantially conform to the Look and Feel of the Company Site, as may be changed from time to time. Company will consider CNET's reasonable requests to change the design and content of the Company Content Area, provided that the final design and Look and Feel of the Company Content Area will be determined by the Company. Subject to the terms of Sections 2.4 and 2.13.2, such Company Content Area will include branding, promotions, content, navigational tools, and other features, tools and content as mutually agreed by Company and CNET. Company will develop all elements of the Company Content Area interface, including graphics and templates. CNET acknowledges that Company may change the design and content of the Company Content Area to add or delete Company Services in accordance with Section 2.4. Initially, the Company Content Area will substantially conform to the illustrations attached as Exhibit E. 2.4 Company Services. Company will provide on the Co-Branded Site substantially all Company Services offered on the Company Site. CNET acknowledges that (i) the Company may change the Company Services offered on the Company Site from time to time, in which case the Company Services offered on the Co-Branded Site will be changed in a similar fashion and (ii) Company may license content from third party suppliers from time to time for display on the Company Site, and the complete text of such content may reside on the Company Site without being posted to the Co-Branded Site.The Company will in good faith consider all changes, improvements and enhancements reasonably suggested by CNET. The Company will be responsible for incorporating all bug fixes and upgrades into the Company Services offered on the Co-Branded Site on an ongoing basis. 2.5 CNET Content. Company may include content from the CNET Sites as described on Exhibit F on relevant pages of the Co-Branded Site, or as otherwise mutually agreed by the Company and CNET. 2.6 Co-Branding Features. Each page on the Co-Branded Site will include branding for CNET and the Company so that the CNET Marks and Company Marks are 3 4 both Above the Fold. The "Home" page of the Co-Branded Site will include a Company Mark within the top CNET Content Area, as illustrated in Exhibit E. All other pages on the Co-Branded Site will include CNET graphics and links in the CNET Content Area and Company graphics and links in the Company Content Area, as illustrated on Exhibit E. 2.7 Launch Date. The parties will use commercially reasonable efforts to achieve a Launch Date for the Co-Branded Site [***] after the Effective Date. 2.8 IP Masking. Using IP masking, the URL for the Co-Branded Site will begin with http://iniku.cnet.com. The Company agrees that CNET will be entitled to count all page views of the Co-Branded Site towards CNET's traffic as measured by Media Metrix (as both a "Property" and "Domain" listing) and other Internet traffic-auditing firms. In addition, both parties will count the traffic as a "Consolidated" listing as measured by Media Metrix. CNET shall have the right to provide a redacted copy of this Agreement to an Internet traffic-auditing firm in connection with this Section. Furthermore, simultaneous with the execution of this Agreement, the parties shall execute the letter to Media Metrix set forth in Exhibit D attached hereto. 2.9 Terms and Pricing. The Company shall offer Users of the Co-Branded Site pricing and terms equivalent in value to the lowest generally available pricing and terms offered by the Company to similarly situated users of the Company Site, provided that such pricing will not be greater than the published pricing on the Company Site. 2.10 Quality assurance. Throughout the Term, the Co-Branded Site will comply with the performance standards and technical specifications described on Exhibit C. 2.11 Customer Support. The Company will provide reasonable support to registered users on the Co-Branded Site in a quality and manner substantially equivalent to the customer support provided on the Company Site. 2.12 Technical Support. Each party will provide all necessary technical support for the parts of the Co-Branded Site they each provide and will designate a technical point of contact. Each party will use reasonable efforts to notify the other's designated contact at least three (3) business days in advance of any planned outages of its portion of the Services, and within fifteen (15) minutes in case of any unplanned outages of its portion of the Services. 2.13 Advertising. 2.13.1 CNET Content Areas. CNET shall own and have the right to use or sell all of the advertising inventory within the CNET Content Areas. The Company will fully cooperate with CNET in integrating CNET's Promotion serving software with the Co-Branded Site in a manner that allows CNET to accurately deliver and track Promotions and other advertising. CNET will have the right to retain all revenues associated with Promotions, subscriptions, services and transactions displayed in the CNET Content Areas. CNET shall not display any Promotions, *** Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. 4 5 advertising or solicitations within the CNET Content Areas for any Company Competitor listed on Exhibit H. 2.13.2 Company Content Area. Company shall own and have the right to use or sell all of the advertising inventory within the Company Content Area. Company will have the right to retain all revenues associated with Promotions, subscriptions, services and transactions sold by Company or its agents and displayed in the Company Content Areas. Company shall not display any Promotions, advertising or solicitations within the Company Content Area for any CNET Competitor listed on Exhibit G; provided, however, that the foregoing shall not restrict the Company from placing a reasonable number of unpaid editorial links from the Company Content Area to CNET Competitors. Except as specifically restricted in the foregoing sentence, Company shall have the right to display third party (including CNET Competitor) links, media, banner advertisements, other Promotions, and/or unpaid editorial content anywhere on the Company Site. Notwithstanding the foregoing, if CNET and the Company reasonably determine that unused promotional space exists within the Company Content Area, CNET and the Company will work together to allow CNET to use such unused promotional space for Promotions delivered by CNET. The Company will fully cooperate with CNET in integrating CNET's Promotion serving software with the Co-Branded Site in a manner that allows CNET to accurately deliver and track Promotions and other advertising which CNET provides in the Company Content Area. CNET will have the right to retain all revenues associated with Promotions sold by CNET and displayed in the Company Content Areas. 2.14 Performance Standards. October 1st 1999 will be the first day of the initial 3 month evaluation period. Within a reasonable time after the end of the first three months following October 1st 1999 (the "First Quarter"), CNET and the Company will work together in good faith to evaluate the success of the Co-Branded Site taking into consideration factors such as (a) the number of Co-Branded Site users, (b) feedback from the Co-Branded Site users, (c) consumer response to the joint marketing activities, and (d) any technical issues related to the Co-Branded Site. CNET and the Company will agree on a list of action items aimed at improving the success of the Co-Branded Site. Within a reasonable time after the end of the three months immediately following the First Quarter (the "Second Quarter"), CNET and the Company will work together in good faith to evaluate the success of the Co-Branded Site taking into consideration factors similar to those considered at the end of the First Quarter. CNET and the Company will agree on a list of action items aimed at improving the success of the Co-Branded Site. During the three months immediately following the Second Quarter (the "Third Quarter"), the parties will work together in good faith to determine and establish performance standards for the remainder of the term, based on the success of the Co-Branded Site during the First Quarter and Second Quarter. The parties agree to finalize such performance standards by the end of the Third Quarter; provided, however, that if the parties, working together in good faith, are unable to finalize such performance standards by the end of the Third Quarter, then on July 5th, 2000 either party may terminate this Agreement immediately upon written notice to the other party. The parties agree that the 5 6 foregoing meetings are an essential part of this Agreement and a party's failure to participate in the such meetings will be deemed to be a material breach of this Agreement by such party. 2.15 Bi-annual Executive Review. Every six months after the execution of this Agreement., senior executives of CNET and the Company (President level or above) will conduct face-to-face meetings at a mutually agreed time and location to discuss the performance of the Co-Branded Site and the relationship between the parties. The parties agree that the first executive meeting will occur in conjunction with the second performance standards meeting set forth in Section 2.14. 3. PROMOTIONS BY CNET. 3.1 Standard Promotions. During the Term of this Agreement, the Company will purchase Standard Promotions on the CNET Site (based on a [***]) as set forth in Section 5.2.CNET will use commercially reasonable means to deliver for the Company the Standard Promotions as set forth on Exhibit A, as may be modified from time to time as determined by the Company and subject to CNET's then-current inventory availability. If the Company fails to provide CNET with a Standard Promotions media plan for a minimum of [***] for any particular month on or before the fifth day of such month, then CNET will choose and run a mix of Standard Promotions equal to the monthly advertising payment. CNET will use commercially reasonable efforts to choose Standard Promotions that are consistent with the Company's goals. The Company may request any reasonable reallocation of the location and type of the Standard Promotions subject to CNET's then-current inventory availability and the terms of CNET's Media Kit at http://www.cnet.com/Media/, as may be reasonably changed from time to time. CNET shall not charge the Company any extra fees for such requested reallocations of Standard Promotions if they are equivalent in value to those that would otherwise be provided by CNET hereunder. If the Company's requested reallocations of Standard Promotions are more expensive than the location and type normally provided hereunder by CNET, then the Company shall pay the difference of such cost based on a [***] at the time of request. CNET will use commercially reasonable efforts to implement the Company's requests made in accordance with the preceding sentence within thirty (30) days after receipt of each request. The Company will design any graphics and other materials required for the Standard Promotions, and CNET will provide reasonable assistance to the Company in connection with the design and creation of such materials. The Company will be responsible for ensuring that each URL provided to CNET for use in a Standard Promotion takes the User to the appropriate area within the Company Site and that such site functions with reasonable reliability and in a commercially reasonable manner throughout the Term. In particular, the Company agrees that the Company Site will comply with the performance standards set forth on Exhibit C throughout the Term. 3.2 Special Promotions. During the Term of this Agreement, CNET may, at its sole discretion, deliver Special Promotions to encourage Users to visit the Co-Branded Site. CNET will design any graphics and other materials required for the *** Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. 6 7 Special Promotions, and the Company will provide reasonable assistance to CNET in connection with the design and creation of such materials. Special Promotions may appear anywhere on the CNET Sites as determined in CNET's sole discretion. 3.3 Sponsorship. On or before November 1, 1999 and continuing throughout the remainder of the Term, CNET and the Company will work together in good faith to provide a message to all CNET Business Solutions Directory subscribers enabling them to subscribe to the Company Services through the Co-Branded Site. Such message will appear each time a CNET Business Solutions Directory subscriber completes registration of the Business Solutions Directory on the CNET Sites. Further, CNET will use commercially reasonable efforts to allow each Business Solutions Directory Subscriber to register with the Company through the Co-Branded Site in a manner that does not require such subscriber to separately re-enter the information they have already provided to CNET. 3.4 Television Spotlight. During the Term of this Agreement, CNET will deliver for the Company the Television Spotlights as set forth on Exhibit A. Each Television Spotlight will contain a Company Site promotion along with a URL selected by the Company. The Company will record the Television Spotlights and design any graphics and other materials required for the Television Spotlights, and will supply copies of such materials to CNET in a form reasonably requested by CNET. All materials provided to CNET will comply with CNET's reasonable technical and editorial guidelines, as in effect from time to time. CNET will provide reasonable assistance to the Company in connection with the design and delivery of such materials. 3.5 Promotion of the Co-Branded Site. During the Term of this Agreement, CNET will purchase [***] worth of Promotions for the Co-Branded Site on third-party web sites or through other media. CNET and the Company will work together in good faith to determine the type, quantity and delivery time of such Promotions, provided that the final placement, type and quantity of Promotions will be determined by CNET. The parties agree that the timing of such Promotions shall be in the manner described on Exhibit K, unless otherwise mutually agreed by the parties. Such Promotions will encourage users to visit the Co-Branded Site and will include branding for CNET and the Company, as reasonably determined by the parties. 3.6 Links from Business Computing. During the Term of this Agreement, CNET will provide navigational links to the Co-Branded Site throughout all relevant areas of the Business Computing Channel, with specific placement determined at the sole discretion of CNET. Throughout the Term, at a minimum CNET will provide a navigational link to the Co-Branded Site from the Business Computing channel (excluding Company Profile Pages), including but not limited to a navigational link on (a) the [***] of the [***] channel at a minimum level of [***] as shown in Illustration E-4, attached to Exhibit E, (b) the [***] of the [***] at a minimum level of [***] as shown in illustration E-5 (c) on all of the [***] (an example of which is shown in Illustration E-6) within a minimum of [***] of the [***] (as defined below) listed on the [***] of the [***], at a minimum level of [***] as shown in Illustration E-6, (provided that *** Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. 7 8 CNET may change the font, style or characteristics of the link to make it consistent with the design and layout of the page), and (d) on all pages within a minimum of [***] of the [***] listed on the [***] of the [***]. For the purposes of this Section 3.6, a "Top Level Category" is any highlighted link presented on the front door of a channel or directory that is designed to categorize all content within that channel or directory. CNET will create the specification, design, functionality, user interface and Look and Feel for the Business Computing Channel. Not more than once per month during the Term, CNET will consider Company's reasonable requests to change the design and content of the Business Computing Channel, provided that the final design and Look and Feel of the Business Computing Channel will be determined by CNET. At any time during the Term, if CNET decides to stop displaying the Business Computing Channel or any successor page on the CNET Sites, then (a) CNET will provide the Company written notice of such decision within a reasonable time prior to removing the Business Computing Channel from the CNET Sites, and (b) executives (Senior Vice President level or above) from both CNET and the Company will participate in a face-to-face meeting to discuss alternative promotional opportunities for the Company. 4. PROMOTIONS BY THE COMPANY. 4.1 CNET Content. Company may include content from the CNET Sites as described on Exhibit F on relevant pages of the Company Site, or as otherwise mutually agreed by the Company and CNET. Beginning on November 1, 1999 and continuing through the remainder of the Term, each time a user of the Company Site clicks on a link within the content described on Exhibit F, such user will be shown a link back to the Company Site on a navigational bar displayed Above the Fold, or other method mutually agreed upon by the parties. Initially, such navigational bar will be substantially similar to Illustration E-7 attached to Exhibit E. 4.2 Promotions on the Company Site. During the Term of this Agreement, CNET will purchase Promotions on the Company Site in the amount of [***]. The Company will use commercially reasonable means to deliver for CNET the Promotions as set forth on Exhibit B, as may be modified from time to time upon the mutual consent of the parties subject to the Company's then-current inventory availability. CNET may request any reasonable reallocation of the location and type of the Promotions subject to the Company's then-current inventory availability. The Company shall not charge CNET any extra fees for such requested reallocations of Promotions if they are equivalent in value to those that would otherwise be provided by the Company hereunder. If CNET's requested reallocations of Promotions are more expensive than the location and type normally provided hereunder by Company, then CNET shall pay the difference of such cost based on a [***] at the time of request. The Company will use commercially reasonable efforts to implement CNET's requests made in accordance with the preceding sentence within thirty (30) days after receipt of each request. CNET will design any graphics and other materials required for such Promotions, and the Company will provide reasonable assistance to CNET in connection with the design and creation of such materials. CNET will be responsible for ensuring that each URL provided to the Company *** Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. 8 9 for use in a Promotion takes the User to the appropriate area within CNET and that such site functions with reasonable reliability and in a commercially reasonable manner throughout the Term. In particular, CNET agrees that the CNET Sites will comply with the performance standards and technical specifications set forth on Exhibit I throughout the Term. 4.3 Sponsorship. On or before November 1, 1999 and continuing throughout the remainder of the Term, the Company will provide a message to all Company Site and Co-Branded Site Information Technology ("IT") subscribers of the Company Project Market enabling them to subscribe to the CNET Business Solutions Directory. Such message will appear each time a Co-Branded or Company Site subscriber completes registration for the Project Market section of the Company Site and Co-Branded site. Further, the Company will use commercially reasonable efforts to allow each Company Project Market subscriber creating a profile on the Co-Branded or Company Site to register with CNET's Business Solutions Directory in a manner that does not require such subscriber to separately re-enter the information they have already provided to the Company. 5. PAYMENTS. 5.1 Integration Fee. The integration fee will cover fees and costs associated with creating and integrating technology resources dedicated to the Co-Branded Site, maintenance of the Co-Branded Site and Special Promotions (described in Section 3.2) to drive traffic to the Co-Branded Site. Company will pay CNET an integration fee totaling [***] as follows: 5.1.1 Upon execution of this Agreement, Company shall pay CNET $[***]; 5.1.2 On or before the 12 month anniversary date of this Agreement, Company shall pay CNET an additional [***]; 5.1.3 On or before the 18 month anniversary date of this Agreement, Company shall pay CNET an additional [***]. 5.1.4 Payments under this Section 5.1 will be made by check or wire transfer of immediately available funds as reasonably directed by CNET. 5.2 Standard Promotions, Sponsorships and Television Spotlights. Beginning October 1, 1999 and continuing throughout the Term, Company will pay CNET a total of [***], at a rate of approximately [***] per year, and [***] per month, for the Standard Promotions, Sponsorships and Television Spotlights delivered as described in Exhibit A. Within 30 days after delivery of the Promotions for a given month, CNET shall invoice the Company for the Promotions, Sponsorships and Television Spotlights for a given month. All amounts due to CNET under this Section 5.2 must be paid not more than 30 days after delivery of the Promotions, Sponsorships or Television Spotlights for a given month. Payments under this Section 5.2 will be made by check or wire transfer of immediately available funds as reasonably directed by CNET. 5.3 Promotions on the Company Site. Starting October 1, 1999 and continuing throughout the Term, CNET will pay the Company a total of [***] for the *** Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. 9 10 Promotions on the Company Site delivered as described in Exhibit B. CNET will pay Company an engineering and maintenance fee of [***] to covers fees and costs associated with creating and integrating technology resources dedicated to the Co-Branded Site, maintenance of the Co-Branded Site and Promotions (described in Section 4.2) to drive traffic to the Co-Branded Site as follows: 5.3.1 Upon execution of this Agreement, CNET will pay Company [***]; 5.3.2 5.3.3 On or before March 30, 2000, CNET will pay Company an additional [***]; and 5.3.4 On or before June 30, 2000, CNET will pay Company an additional [***]. The remaining [***] due to Company under this Section 5.3 shall be paid by CNET over the Term in monthly payments of [***] for the Promotions delivered to CNET each month starting October 1, 1999. Within 30 days after delivery of the Promotions for a given month, the Company shall invoice CNET for Promotions. Payments under this Section 5.3 will be made within 30 days after the receipt of an invoice by check or wire transfer of immediately available funds as reasonably directed by the Company. 5.4 Net 30 Terms. All payments by both parties listed in Section 5 are due within 30 days of the payment date. 6. TERM AND TERMINATION. 6.1 Term. This Agreement shall begin on the Effective Date and end on the second anniversary of the Launch Date (the "Term"). Thereafter, this Agreement will continue on a month-to-month basis unless terminated by either party upon 30 days written notice to the other. 6.2 Termination for Breach. If either party commits a material breach of its obligations hereunder that is not cured within 30 days after notice thereof from the non-breaching party, the non-breaching party may terminate this Agreement at any time by giving written notice of termination to the breaching party. 6.3 Termination by CNET. 6.3.1 Competitive Services. If the Company is reasonably deemed by CNET to offer Competitive Services (as defined below), then CNET shall give Company written notice of such determination and Company shall have 30 days to cease such Competitive Services. If Company fails to cease the Competitive Services within 30 days in a manner reasonably acceptable to CNET, then CNET may terminate this Agreement immediately upon written notice to Company. Notwithstanding the foregoing, the parties acknowledge and agree that the Company Site (and the Co-Branded Site, to the extent that it duplicates the Company Site), in the form that it exists on the Effective Date, does not offer *** Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. 10 11 Competitive Services in a manner that allows CNET to terminate hereunder, and that such termination rights will only apply if the Company adds Competitive Services to the Company Site (or Co-Branded Site). For the purposes of this Section 6.3.1, "Competitive Services" means (a) comparative pricing search engine or services for computer and technology products and/or services, (b) aggregating or providing more than 100 downloadable software titles, (c) aggregation and display of five or more technology news headlines each from three or more sources, and (d) aggregation of computer and technology product reviews. 6.3.2 CNET may notify Company in writing if CNET reasonably determines that the Company Services (a) contain any virus, worm, "trojan horse", time bomb or similar contaminating or destructive feature, (b) contain material "bugs" that are not adequately remedied to CNET's satisfaction, or (c) on the Co-Branded Site are not performing in a manner that is substantially similar to the Company Site. Company will have 30 days from receiving notice from CNET to cure. If Company fails to cure within such 30 day period, CNET may terminate this Agreement immediately upon written notice to Company. Notwithstanding the foregoing or anything herein to the contrary, if CNET reasonably determines that subparagraphs (a), (b) or (c) apply, then CNET may immediately remove any or all links to the Company Site and Co-Branded Site, at CNET's sole discretion, until such time as the Company notifies CNET that the Company Services have resumed acceptable operation. Upon notification by the Company and verification by CNET that the Company Services have resumed acceptable operations, CNET shall re-post links to the Company Site and Co-Branded Site within two business days in a manner substantially similar to the manner in which such links were previously included on the CNET Sites. These remedies are for CNET's editorial purposes and in no way limit CNET's ability to terminate this contract or pursue any other remedies hereunder in the event the performance standards set forth herein are not met. 6.3.3 This termination remedy in Section 6.3 is for CNET's editorial purposes and in no way limits CNET's ability to terminate this Agreement or pursue any other remedies hereunder. 6.4 Termination by Company. 6.4.1 If CNET is reasonably deemed by the Company to offer Company Competitive Services (as defined below), then the Company shall give CNET written notice of such determination and CNET shall have 30 days to cease such Company Competitive Services. If CNET fails to cease the Company Competitive Services within 30 days in a manner reasonably acceptable to the Company, then the Company may terminate this Agreement immediately upon written notice to CNET. Notwithstanding the foregoing, the parties acknowledge and agree that the CNET Sites, in the form that it exists on the Effective Date, does not offer Company Competitive Services in a manner that allows the Company to terminate hereunder, and that such termination rights will 11 12 only apply if CNET adds the Company Competitive Services to the CNET Sites. For the purposes of Section 6.4.1, "Company Competitive Services" means (a) an online application for virtual team project management or time & expense reporting; (b) an online application for file sharing and management; (c) an online resource management application for staff planning; and (d) an online sales and marketing application for managing customer acquisition opportunities 6.4.2 If CNET acquires, or is acquired by, any Company Competitor then Company may terminate this Agreement upon 90 days written notice to CNET; provided, however, that beginning on the date such termination notice is delivered to CNET, Company shall not be required to deliver a CNET Business Solutions Directory message to Company subscribers as described in Section 4.3. Further, for all new Co-Branded Site Users registered by the Company after the date of such termination notice, the requirements of Section 6.5 will not apply. 6.4.3 The Company may notify CNET in writing if the Company reasonably determines that CNET Sites with links to the Co-Branded Site or the Company Site, and CNET Content featured on the Company Site or Co-Branded Site: (a) contain any virus, worm, "trojan horse", time bomb or similar contaminating or destructive feature, or (b) contain material "bugs" that are not adequately remedied to CNET's satisfaction. CNET will have 30 days from receiving notice from the Company to cure. If CNET fails to cure within such 30 day period, the Company may terminate this Agreement immediately upon written notice to CNET. Notwithstanding the foregoing or anything herein to the contrary, if the Company reasonably determines that subparagraphs (a) or (b) apply, then the Company may immediately remove all links to the CNET Content, at the Company's sole discretion, until such time as CNET notifies the Company that the CNET Sites have resumed acceptable operation. Upon notification by CNET and verification by the Company that the CNET Sites have resumed acceptable operations, the Company shall re-post links to the CNET Content in a manner substantially similar to the manner in which such links were previously included on the Company Sites and/or Co-Branded Site. 6.4.4 This termination remedy in Section 6.4 is for Company's editorial purposes and in no way limits Company's ability to terminate this Agreement or pursue any other remedies hereunder. 6.4 Survival. The provisions of Sections 8.2, 9, 10 and 12, and any obligations arising prior to termination will survive any termination of this Agreement. 6.5 Transition Obligation. Upon the expiration or termination of this Agreement, at CNET's request the Company will reasonably provide the Users of the Co-Branded Site with the option to move their data and information from the Company Services to CNET or CNET's designee. Notwithstanding the foregoing, CNET shall not require any User to move data or information from the Co-Branded Site or Company Services. 12 13 7. REPORTING. 7.1 CNET Promotion Report. Within 30 days after the end of each month during the Term, CNET will provide to the Company standard advertising reports, as generally offered by CNET, with respect to the Standard Promotions, Sponsorships and Television Spotlights. Company acknowledges that the statistics provided on the CNET report are the official, definitive measurement of CNET's performance on any delivery obligations described in this Agreement. No other measurements or usage statistics (including those of Company or a third-party advertisement server) shall be accepted by CNET or have bearing on this Agreement. Any data provided to Company under this Section 7.1 shall be deemed "Confidential Information" as described in Section 12.7. 7.2 Company Report. 7.2.1 Within 30 days after the end of each month during the Term, the Company will provide to CNET a report that includes the following information for such month: (a) the aggregate number of referrals from the CNET Sites to the Company Site and; (b) the total value of Company Services purchased by CNET Users on the Co-Branded Sites; (c) the total value of Company Services purchased by CNET Users on the Company Site; and (d) any information collected on the Co-Branded Site, such as number of page views, number of unique users, and other standard reports. The Company will obtain the foregoing data by tagging each User using a cookie or other similar technology, as agreed upon by the parties. 7.2.2 The Company will provide standard reporting on all Promotions CNET runs on the Company Site, including number of Impressions delivered broken down by Promotion and page. 7.2.3 Any reports delivered to CNET pursuant to this Section 7.2 may not be shared by CNET with any third party, and will be used only to improve the ongoing marketing and promotional programs. Such reports will be deemed "Confidential Information" as described in Section 12.7. 8. USER DATA. 8.1 Delivery by Company to CNET. If such data is made available by a CNET User, Company will supply CNET with the following registration data received from CNET Users in both summary and detailed form: (a) [***], (b) [***], and (c) [***]. This data will be shared in real time if commercially and technologically feasible in a manner so that, for example, CNET can match a tracking tag on a User session with that User's registration data in order to customize the CNET Site content and advertising for that User. If real time data sharing is not available, the data shall be provided to CNET no less frequently than weekly. This data shall be deemed "Confidential Information" as described in Section 12.7. 8.2 Permitted use. CNET will use the registration data collected by the Company for internal purposes only. It will not be sold or otherwise distributed to third parties, provided that CNET may use and distribute statistics based on the aggregate data. Further, all use of Company's proprietary data will comply with applicable law and be consistent with the respective privacy policies of Company *** Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. 13 14 and CNET. CNET will not send targeted communications to the Company's members without the prior consent of Company. This Section 8.2 will survive any termination or expiration of this Agreement. 9. DISCLAIMER OF WARRANTIES. EACH PARTY AND ITS LICENSORS HEREBY DISCLAIM ALL WARRANTIES, EXPRESS, IMPLIED OR STATUTORY, WITH RESPECT TO THE CONTENT, MARKS, AND ANY OTHER MATERIALS PROVIDED BY SUCH PARTY HEREUNDER, INCLUDING BUT NOT LIMITED TO ANY WARRANTY WITH CONCERNING THE ACCURACY OF THE CONTENT AND OTHER MATERIALS PROVIDED BY SUCH PARTY, AND THE IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE. Neither CNET nor Company will make any representation, warranty or guaranty, whether written or oral, on behalf of the other. 10. MUTUAL INDEMNIFICATION. 10.1 Indemnification by CNET. CNET shall indemnify and hold the Company harmless from and against any costs, losses, liabilities and expenses, including all court costs, reasonable expenses and reasonable attorney's fees (collectively, "Losses") that the Company may suffer, incur or be subjected to by reason of any legal action, proceeding, arbitration or other claim by a third party, whether commenced or threatened, arising out of or as a result of (a) the use of the CNET Marks by the Company in accordance with this Agreement; (b) the operation of any CNET site (except in cases where the Company is required to indemnify CNET under the following paragraph), including claims of infringement or misappropriation of intellectual property rights; (c) any content provided by CNET for the Company Site or Co-Branded Site; or (d) the offer or sale of CNET products or services through the CNET Sites, Company Site or Co-Branded Site. 10.2 Indemnification by the Company. The Company shall indemnify and hold CNET harmless from and against any Losses that CNET may suffer, incur or be subjected to by reason of any legal action, proceeding, arbitration or other claim by a third party, whether commenced or threatened, arising out of or as a result of (a) the use of the Company Marks by CNET in accordance with this Agreement; (b) any content provided by the Company for the Co-Branded Site; (c) the operation of the Company Site; or (d) the offer or sale of the Company Services by the Company through the Company Site or Co-Branded Site. 10.3 Indemnification Procedures. If any party entitled to indemnification under this Section (an "Indemnified Party") makes an indemnification request to the other, the Indemnified Party shall permit the other party (the "Indemnifying Party") to control the defense, disposition or settlement of the matter at its own expense; provided that the Indemnifying Party shall not, without the consent of the Indemnified Party enter into any settlement or agree to any disposition that imposes an obligation on the Indemnified Party that is not wholly discharged or dischargeable by the Indemnifying Party, or imposes any conditions or obligations on the Indemnified Party other than the payment of monies that are readily measurable for purposes of determining the monetary indemnification or reimbursement obligations of Indemnifying Party. The Indemnified Party shall notify Indemnifying Party promptly of any claim for which Indemnifying Party is 14 15 responsible and shall cooperate with Indemnifying Party in every commercially reasonable way to facilitate defense of any such claim; provided that the Indemnified Party's failure to notify Indemnifying Party shall not diminish Indemnifying Party's obligations under this Section except to the extent that Indemnifying Party is materially prejudiced as a result of such failure. An Indemnified Party shall at all times have the option to participate in any matter or litigation through counsel of its own selection and at its own expense. 11. TRADEMARK LICENSES. 11.1 Company Marks. The Company hereby grants to CNET a non-exclusive, royalty-free license, effective throughout the Term, to use, display and publish the Company Marks solely within the Co-Branded Site, Promotions, Sponsorships and Television Spotlights as provided in Section 3, above. Any use of the Company Marks by CNET must comply with any reasonable usage guidelines communicated by the Company to CNET from time to time. Nothing contained in this Agreement will give CNET any right, title or interest in or to the Company Marks or the goodwill associated therewith, except for the limited usage rights expressly provided above. CNET acknowledges and agrees that, as between the Company and CNET, the Company is the sole owner of all rights in and to the Company Marks. 11.2 CNET Marks. CNET hereby grants to the Company a non-exclusive, royalty free license, effective throughout the Term, to use, display and publish the CNET Marks solely within the Co-Branded Site, Promotions, and Company Site as provided in Section 4, above. Any use of the CNET Marks by the Company must comply with any reasonable usage guidelines communicated to the Company by CNET from time to time. Nothing contained in this Agreement will give the Company any right, title or interest in or to the CNET Marks or the goodwill associated therewith, except for the limited usage rights expressly provided above. The Company acknowledges and agrees that, as between the Company and CNET, CNET is the sole owner of all rights in and to the CNET Marks. 12. MISCELLANEOUS. 12.1 LIMITATION OF DAMAGES. EXCEPT FOR ANY CLAIM UNDER SECTION 10 OR 11, ABOVE, NEITHER PARTY WILL BE LIABLE FOR ANY SPECIAL, INDIRECT, CONSEQUENTIAL OR INCIDENTAL DAMAGES ARISING OUT OF OR RELATED TO THIS AGREEMENT, HOWEVER CAUSED AND ON ANY THEORY OF LIABILITY (INCLUDING NEGLIGENCE), AND EVEN IF SUCH PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. FURTHER, EXCEPT FOR ANY CLAIM ARISING UNDER SECTION 10, 11, OR 12.7, IN NO EVENT SHALL EITHER PARTY BE LIABLE FOR DAMAGES IN EXCESS OF THE TOTAL PAYMENTS MADE UNDER THIS AGREEMENT. 12.2 Assignment. Neither party may assign this Agreement, except (a). upon the transfer of substantially all of the business operations of such party (whether by asset sale, stock sale, merger or otherwise); (b) to an affiliate of such party; or (c) with the written permission of the other party. Notwithstanding the foregoing, if 15 16 the Company's acquiror is a CNET Competitor, then CNET may terminate this Agreement upon ten days written notice to the acquiror. 12.3 Relationship of Parties. This Agreement will not be construed to create a joint venture, partnership or the relationship of principal and agent between the parties hereto, nor to impose upon either party any obligations for any losses, debts or other obligations incurred by the other party except as expressly set forth herein. 12.4 Marketing. The parties shall issue a press release concerning the business relationship contemplated in this agreement, and each party will provide an appropriate quote from one of its senior executive officers for use in the press release. Each party will review and comment on the press release prior to its publication. Further, the parties will participate in joint marketing and public relations activities as they mutually deem appropriate, as further defined on Exhibit J attached hereto. The parties will work together in good faith to create joint marketing activities that are anticipated by both parties to obtain favorable results, taking into consideration the timing, type and content of the activity. Notwithstanding the foregoing, and except for the activities described on Exhibit J, neither party will be obligated to engage in any marketing activity that is (a) unduly burdensome on a party, (b) deemed to be illegal, improper, unethical, or ineffective by a party, or (c) inconsistent with the general marketing practices of the party. Further, each party acknowledges that there may be times when a party may be restricted by law, rule or regulation from engaging in marketing activities or making public statements (e.g., SEC "quiet period"), and such party will be excused from the marketing activities described herein (including those on Exhibit J) during such time. 12.5 Audit Rights. Each party will have the right to engage an independent third party to audit the books and records of the other party relevant to the quantification of the Promotions, upon reasonable notice and during normal business hours, and the other party will provide reasonable cooperation in connection with any such audit. The party requesting the audit will pay all expenses of the auditor unless the audit reveals an underpayment by the other party of more than 5%, in which case the other party will reimburse all reasonable expenses of the auditor. 12.6 Applicable Law. This Agreement will be construed in accordance with and governed by the laws of the State of California, without regard to principles of conflicts of law. 12.7 Confidentiality. In connection with the activities contemplated by this Agreement, each party may have access to confidential or proprietary technical or business information of the other party, including without limitation (a) proposals, ideas or research related to possible new products or services; (b) financial statements and other financial information; (c) any reporting information required herein; and (d) the material terms of the relationship between the parties; provided, however, that such information will be considered confidential only if it is conspicuously designated as "Confidential," or if provided orally, identified at the time of disclosure and confirmed in writing within 30 days of disclosure (collectively, "Confidential Information"). Each party will take reasonable precautions to protect the confidentiality of the other party's Confidential Information, which precautions will be at least equivalent to those taken by such party to protect its own 16 17 Confidential Information. Except as required by law or as necessary to perform under this Agreement, neither party will knowingly disclose the Confidential Information of the other party or use such Confidential Information for the benefit of any third party. Each party's obligations in this Section with respect to any portion of the other party's disclosed Confidential Information shall terminate when the party seeking to avoid its obligation under such Paragraph can document that such disclosed Confidential Information: (i) was in the public domain at or subsequent to the time it was communicated to the receiving party ("Recipient") by the disclosing party ("Discloser") through no fault of Recipient; (ii) was rightfully in Recipient's possession free of any obligation of confidence at or subsequent to the time it was communicated to Recipient by Discloser; (iii) was developed by employees or agents of Recipient independently of and without reference to any information communicated to Recipient by Discloser; (iv) was communicated by the Discloser to an unaffiliated third party free of any obligation of confidence; or (v) was in response to a valid order by a court or other governmental body, was otherwise required by law or was necessary to establish the rights of either party under this Agreement; provided, however, that both parties will stipulate to any orders necessary to protect said information from public disclosure. 12.8 Severability of Agreement. If a court of an arbitrator or competent jurisdiction holds any provision of this Agreement to be illegal, unenforceable, or invalid in whole or in part for any reason, the validity and enforceability of the remaining provisions, or portions thereof, will not be affected. 12.9 Dispute Resolution. In the event that any dispute arises hereunder, the parties agree that prior to commencing litigation, arbitration, or any other legal proceeding, each party shall send an officer of such party to negotiate a resolution of the dispute in good faith at a time and place as may be mutually agreed. Each officer shall have the power to bind its respective party in all material respects related to the dispute. If the parties cannot agree on a time or place, upon written notice from either party to the other, the negotiations shall be held at the principal executive offices of CNET twenty one days following such notice (or on the next succeeding business day, if the twenty first day is a weekend or holiday). Notwithstanding the foregoing dispute resolution process, neither party shall be excluded from seeking provisional remedies in the courts of any jurisdiction, including, but not limited to, temporary restraining orders and preliminary injunctions, but such remedies shall not be sought as a means to avoid the dispute resolution process. 12.10 Article Headings. The captions and headings of the various articles of this Agreement are inserted merely for the purpose of convenience and do not expressly or by implication limit, define or extend and specific terms or text of the article so designated and shall not in any way alter the meaning or interpretation of this Agreement. 12.11 No Waiver. No waiver of breach, failure of any condition, or any right or remedy contained in or granted by the provisions of this Agreement will be effective unless it is in writing and signed by the party waiving the breach, failure, right or remedy. No waiver of any other breach, failure, right or remedy will be deemed a waiver of any other breach, failure, right or remedy, whether or 17 18 not similar, nor shall any waiver constitute a continuing waiver unless the writing so specifies. 12.12 Remedies Not Exclusive. Any specific right or remedy provided in this Agreement shall not be exclusive but shall be cumulative upon all other rights and remedies set forth herein and allowed or allowable under applicable law. 12.13 Illustrations. Except for Illustrations E-4, E-5 and E-6 attached to Exhibit E. all Illustrations attached to the Exhibits are for illustrative purposes only and shall not be deemed to bind, obligate or restrict either party from making reasonable changes in such party's discretion. 12.14 CNET Co-Branded Editions. Company acknowledges that CNET produces co-branded editions of the CNET Sites for various resellers, distributors, other licensees and/or joint venture partners (collectively the "CNET Distributors"). In some cases, such CNET Distributors are entitled to replace or remove CNET's default content with other content within their own co-branded editions of any CNET Site. Notwithstanding any other provisions of this Agreement, if any such CNET Distributor has exercised its right to replace Promotions or the Co-Branded Site with other content or Promotions, then CNET will not be required to display the Promotions or Co-Branded Site within such CNET Distributor's co-branded edition of the CNET Sites. If CNET does display the Promotions or Co-Branded Site within a co-branded edition of any CNET Site, such display will be governed by this Agreement. 12.15 Company Co-Branded Editions. CNET acknowledges that the Company may produce co-branded editions of the Company Sites for various non-IT or technology related resellers, distributors, other licensees and/or joint venture partners (collectively the "Company Distributors"). In some cases, such Company Distributors are entitled to replace the Company's default content with other content within their own co-branded editions of any Company Site. Notwithstanding any other provisions of this Agreement, if any such Company Distributor has exercised its right to replace Promotions with other content or Promotions, then the Company will not be required to display the Promotions within such Company Distributor's co-branded edition of the Company Sites. If the Company does display the Promotions within a co-branded edition of any Company Site, such display will be governed by this Agreement. 12.15 Entire Agreement. This Agreement constitutes and contains the entire agreement between the parties with respect to the subject matter hereof and supersedes any prior oral or written agreements. This Agreement may not be amended except in writing signed by both parties. Each party acknowledges and agrees that the other has not made any representations, warranties or agreements of any kind, except as expressly set forth herein. 18 19 IN WITNESS WHEREOF, each party has caused this Agreement to be executed by its duly authorized representatives as of the date first written above. CNET, INC. NIKU CORPORATION By: /s/ Richard Marino By: /s/ Harold J. Slawik -------------------------------- ----------------------------- Name: Richard Marino Name: Harold J. Slawik -------------------------------- --------------------------- Title: President Title: Sr. Vice President -------------------------------- -------------------------- 19 20 EXHIBIT A PROMOTIONAL PLAN ON THE CNET MEDIA PROPERTIES Beginning October 1, 1999 and continuing throughout the Term, the Company will pay [***] per month to CNET for Promotions, Sponsorships and Television Spotlight provided by CNET as set forth in the Agreement. CNET will provide all Promotions and Television Spotlight to Company at a rate of [***] in accordance with the time, quantity and Promotion type specified by the Company, subject to CNET's advertising inventory availability. The Company may select from, but is not limited to, the following five types of promotional opportunities, as available: 1. CPM Based Media Ad Units: Banners, Windows, Portals, Buttons Sites: News.com, Builder.com, CNET.com, Download.com 2. Online Sponsorships Exclusive E-Board Topic Center Sponsorships Exclusive E-Board News.com Category Sponsorships News.com Send A Story Sponsorships 3. Email Sponsorships Email Dispatch Text Ad Sponsorships 4. TV Sponsorships Founding Series Sponsorships CNBC TV.Com Sponsor Spotlight Sponsors of CNET's USA Network TV shows 5. TV Spotlight Hardware Sponsorship on CNET TV.com 6. Off line Sponsorships Techies Day Tour series Sponsorships *** Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. 20 21 EXHIBIT B PROMOTIONAL PLAN ON THE COMPANY SITE Beginning October 1, 1999 and throughout the term of this agreement CNET will pay [***] per month to the Company, and the Company will provide CNet, Inc. an anchor sponsorship of the Company Site. The CNet anchor program will include the sponsorship of the IT channel of the Company Site, sponsorship of the Company Site membership newsletter, and the sponsorship of any CNet content used in the company site as outlined in sections 2.5 and 4.1 of this agreement. CNet will be sponsoring the content channel for IT professionals on the Company Site. This channel will combine what is currently titled, "What the experts say" and "Technology Stories" into one area where IT professionals will go to find business-critical information on IT industry trends and analysis. This area will include IT consulting methodologies/best practices, IT industry premium research reports and analysis (e.g. Gartner Group), a Web directory of useful sites for IT consultants, and industry news. In the new user interface scheduled to launch in early September, CNet will receive the following promotion on the Company Site: A. Primary IT Channel Sponsorship. B. A "brought to you by" or "sponsored by" text placement in combination with CNet's logo prominently displayed on the main page of the IT channel. C. CNet logo prominently displayed around IT industry news headlines and story abstracts to be fed into the company site from News.com with links back to CNet for viewing of full-length stories. The full-length stories will displayed as per Exhibit J with CNet owning all page views and advertising inventory on these pages. D. Sponsorship of the "iNikuNews" Company Site newsletter, currently a monthly newsletter, which will become a weekly in the near term. This will include display of the CNet logo and links to relevant CNet content from the newsletter. The newsletter is currently distributed to 8,000 members with the distribution expected to grow to 1 million during the terms of this agreement. The newsletter is only available to sponsors and partners. E. Prominent display of CNet logo and branding on all areas of the company site where CNet content is featured as per sections 2.5 and 4.1 of this agreement. This will include news areas in the other vertical channels that will be featured on the Company Site. F. Featuring of CNet content for selected services within the current "Services" area of the Company Site. This will drive traffic to CNet services such as Shopper.com and Download.com. The Company Site is a new offering and has not yet built the page view churn normally associated with CPM pricing. As our audience is extremely targeted we anticipate a healthy margin as website page views become more in-line with industry averages. Until that time pricing for this opportunity will be sponsorship based and by default a minimum impression guarantee will not be offered. We will review the allocation of CNet's advertising on an ongoing basis to maximize its promotional effectiveness for CNet. *** Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. 21 22 EXHIBIT C PERFORMANCE STANDARDS AND TECHNICAL SPECIFICATIONS The Company will use commercially reasonable efforts to comply with the following performance standards throughout the Term: 1. The Company Site and Co-Branded Site will be operational and fully functional in all material respects (i.e. capable of displaying information and conducting transactions as contemplated in the ordinary course of business) at least [***] of the time during any [***] period, except for a reasonable number of planned maintenance windows as specified by the Company. 2. The average time required to start displaying the HTML on a page of the Company Site and Co-Branded Site (excluding planned maintenance windows specified by the Company and unplanned outages) after a link from the CNET Sites shall not exceed a daily average of [***], and the average time required to deliver an entire page of the Company Site or Co-Branded Site (excluding planned maintenance windows specified by the Company and unplanned outages) over the open Internet shall not exceed a daily average of [***]. For measurements required in this Paragraph, the Company may assume standard T1 connectivity to the Internet. 3. Without limiting the effect of Paragraphs 1 and 2 above, the Company shall provide to Users coming to the Co-Branded Site at least the same level of service as is offered to Users coming directly to the Company Site. 4. Company shall ensure that planned maintenance windows will not occur during peak traffic hours. 5. The Company Site or Co-Branded Site shall not, to Company's [***]: (a) contain publicly accessible defamatory or libelous material or material [***], without such person's consent; (b) permit to appear or be uploaded any publicly accessible messages, data, images or programs [***] or are, by law, [***]; or (c) permit to appear or be uploaded any publicly accessible messages, data, images or programs [***], including unauthorized [***] used in an [***]. Notwithstanding the foregoing, each party acknowledges and agrees that the Company may draft original news reports and editorial content and materials that may occasionally contain information or graphics in violation of the foregoing standards, and any such news reports and editorial treatment shall not be deemed a breach of this provision; provided, however, that Company will use commercially reasonable efforts to minimize any violation of the foregoing standards. This Section 5 shall only apply to materials on the Company Site or Co-Branded Site created by the Company. 6. If any of the standards set forth in Section 5, above, are not met by the Company, CNET may immediately remove any or all links to the Company Site and Co-Branded Site, at CNET's sole discretion. In such instance CNET will provide immediate notice and 24 hours from said notice to cure. If the Company Site or Co-Branded Site fails to operate *** Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. 22 23 fully and functionally in any material respect for any period of four or more consecutive hours, even if otherwise in compliance with the performance standards, CNET may immediately remove any or all links to the Company Site and Co-Branded Site, at CNET's sole discretion, until such time as the Company notifies CNET that such Company Site and Co-Branded Site has resumed acceptable operation. Upon notification by the Company and verification by CNET that the Company Site and Co-Branded Site have resumed acceptable operations, CNET shall re-post links to the Company Site and Co-Branded Site within two business days in a manner substantially similar to the manner in which such links were previously included on the CNET Sites. These remedies are for CNET's editorial purposes and in no way limit CNET's ability to terminate this contract or pursue any other remedies hereunder in the event the performance standards set forth herein are not met. 23 24 EXHIBIT D MEDIA METRIX LETTER September 10, 1999 Dear Media Metrix: Niku Corporation wishes to make it clear that CNET will receive the credit for all page views of the Co-Branded Sites (as that term is defined in the contract between CNET and Niku Corporation dated September 10, 1999), which include the site located at http://iniku.cnet.com. By signing below, Niku Corporation hereby agrees that CNET will be entitled to count all page views of the Co-Branded Site towards CNET's traffic as measured by Media Metrix as a "Domain" listing and "Property" listing. Further, Niku Corporation and CNET agree that each will receive credit in the "Consolidated" listing of Media Metrix. Niku Corporation acknowledges that CNET may present this letter to Media Metrix and other Internet traffic-auditing firms. Sincerely, Niku Corporation ----------------------------- Countersigned: ----------------------------- CNET 24 25 EXHIBIT E ILLUSTRATIONS ILLUSTRATION E-1: Co-Branded Site Home Page ILLUSTRATION E-2: Co-Branded Site Workspace Page ILLUSTRATION E-3: Co-Branded Site Project Market Page ILLUSTRATION E-4: Navigational Links to Co-Branded Site ILLUSTRATION E-5: Navigational Links to Co-Branded Site ILLUSTRATION E-6: Navigational Links to Co-Branded Site ILLUSTRATION E-7: Navigational Bar 25 26 ILLUSTRATION E-1 CO-BRANDED SITE HOME PAGE [GRAPHIC DEPICTING WEB PAGE] 27 ILLUSTRATION E-2 CO-BRANDED SITE WORKSPACE PAGE [GRAPHIC DEPICTING WEB PAGE] 28 ILLUSTRATION E-3 CO-BRANDED SITE PROJECT MARKET PAGE [GRAPHIC DEPICTING WEB SITE] 29 ILLUSTRATION E-4 NAVIGATIONAL LINKS TO CO-BRANDED SITES [GRAPHIC DEPICTING WEB PAGE] 30 ILLUSTRATION E-5 NAVIGATIONAL LINKS TO CO-BRANDED SITE [GRAPHIC DEPICTING WEB PAGE] 31 ILLUSTRATION E-6 NAVIGATIONAL LINKS TO CO-BRANDED SITE [GRAPHIC DEPICTING WEB SITE] 32 ILLUSTRATION E-7 NAVIGATIONAL BAR [GRAPHIC DEPICTING WEB SITE] 33 EXHIBIT F CNET CONTENT Company will receive a [daily/hourly] update containing the following CNET content: CNET.COM: Between four and eight current headlines taken from the CNET.com site and one-paragraph summaries of the stories associated with such headlines NEWS.COM: Between four and eight current headlines taken from the News.com site and one-paragraph summaries of the stories associated with such headlines DOWNLOAD.COM: Between four and eight current headlines taken from the Download.com site and one-paragraph summaries of the stories associated with such headlines BUILDER.COM: Between four and eight current headlines taken from the Download.com site and one-paragraph summaries of the stories associated with such headlines SHOPPER.COM: Shopper.com product search tool 36 34 EXHIBIT G CNET COMPETITORS Ziff Davis CMP IDG Wired Mecklermedia Andover News Network FileZ.com Developer.com EarthWeb MacCentral Tucows Dave Central Gamelan Softseek Tipworld Tom's Hardware Amazon Auctions and Amazon Shop the Web (but not including sites operated by Amazon.com in other categories, including books, CDs, videos, etc.) eBay Onsale Bidder's Edge Boxlot uBid BottomDollar MySimon Price Watch CompareNet PriceScan 37 35 EXHIBIT H COMPANY COMPETITORS Guru.com HotOffice.com Portera Freeagent.com Agillion Onvia.com MonsterTalent.com Skillsvillage.com Evolve Office.com Winstar Telebase or Winstar Communications eWork.com DigitalWork Net-Temps Dice.com Bsource.com Bizland.com Hypermart myfreeoffice.com mediadepot.com Commerce-market.com Visto.com Magicaldesk.com WebEx.com Hotkoko.com Skill.com Aquent Partners Contract-jobs.com ConsultLink ExpertMarketplace.com (PEN Group) MBAFreeAgents.com iFreeAgents icenationwide.com BrainStorm Interactive, Inc. thedigs.com elance.com Expenseable.com iTeamwork.com Instinctive.com (eRoom or Instinctive Technology, Inc.) 38 36 EXHIBIT I PERFORMANCE STANDARDS AND TECHNICAL SPECIFICATIONS CNET will use commercially reasonable efforts to comply with the following performance standards throughout the Term: 1. The CNET Sites will be operational and fully functional in all material respects (i.e. capable of displaying information and conducting transactions as contemplated in the ordinary course of business) at least [***] of the time during any [***] period, except for a reasonable number of planned maintenance windows as specified by CNET. 2. The average time required to start displaying the HTML on a page of the CNET Sites (excluding planned maintenance windows specified by CNET and unplanned outages) after a link from the Company Site shall not exceed a daily average of [***], and the average time required to deliver an entire page of the CNET Sites (excluding planned maintenance windows specified by CNET and unplanned outages) over the open Internet shall not exceed a daily average of [***]. For measurements required in this Paragraph, CNET may assume standard T1 connectivity to the Internet. 3. Without limiting the effect of Paragraphs 1 and 2 above, CNET shall provide to Users coming to the CNET Sites from the Company Site at least the same level of service as is offered to Users coming directly to the CNET Sites. 4. CNET shall ensure that planned maintenance windows will not occur during peak traffic hours. 5. The CNET Sites shall not, to CNET's [***]: (a) contain publicly accessible defamatory or libelous material or material [***], without such person's consent; (b) permit to appear or be uploaded any publicly accessible messages, data, images or programs [***] or are, by law, [***]; or (c) permit to appear or be uploaded any publicly accessible messages, data, images or programs [***], including unauthorized [***] text, images or programs, [***] or other [***] used in an [***]. Notwithstanding the foregoing, each party acknowledges and agrees that CNET drafts original news reports and editorial content and materials that may occasionally contain information or graphics in violation of the foregoing standards, and any such news reports and editorial treatment shall not be deemed a breach of this provision; provided, however, that CNET will use commercially reasonable efforts to minimize any violation of the foregoing standards. This Section 5 shall only apply to non-editorial materials on the CNET Sites created by CNET. 6. If any of the standards set forth in Section 5, above, are not met by the CNET, Company may immediately remove any or all links to the CNET Site that is in violation, at Company's sole discretion. In such instance Company will provide immediate notice and 24 hours from said notice to cure. If a CNET Site fails to operate fully and functionally in any material respect for any period of four or more consecutive hours, even if otherwise in compliance with the performance standards, Company may immediately *** Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. 39 37 remove any or all links to such CNET Site, at Company's sole discretion, until such time as the CNET notifies Company that such CNET Site has resumed acceptable operation. Upon notification by CNET and verification by the Company that the CNET Site in violation has resumed acceptable operations, Company shall re-post links to such CNET Site, if applicable, within two business days in a manner substantially similar to the manner in which such links were previously included on the Company Site and Co-Branded Site. These remedies are for Company's editorial purposes and in no way limit Company's ability to terminate this contract or pursue any other remedies hereunder in the event the performance standards set forth herein are not met. 40 38 EXHIBIT J MARKETING PLAN 1. One press release and a reasonable amount of supporting media activity (including at least two CEO media interviews) related to the Agreement and the Co-Branded Site. The timing of all marketing activities will be mutually upon by the parties, provided that most media activity will occur within a reasonable time of the September launch of the new Company Site. 2. An additional two press releases over the Term describing customer acquisition on the Co-Branded Site, the success of the Co-Branded Site, and other newsworthy events related to the Co-Branded Site. 3. A reasonable amount of executive referrals and interviews for substantial business and trade opportunities. Each party will provide a quote for two press releases per year regarding new services, initiatives, and other newsworthy events. 4. Use of both parties' logos and description of the relationship on Company Site, in Company corporate materials, and in Company presentations (based on mutually agreeable standards determined by the parties from time to time) 41 39 EXHIBIT K PROMOTION OF THE CO-BRANDED SITE Pursuant to Section 3.5, CNET will purchase Promotions on third party web sites or other media as follows: Month Amount ----- ------ October 1999 - September 2001 [***] per quarter *** Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. 42 EX-10.11 23 EX-10.11 1 * Confidential treatment has been requested with respect to certain information contained in this document. Confidential portions have been omitted from the public filing and have been filed separately with the Securities and Exchange Commission. EXHIBIT 10.11 SOFTWARE LICENSE AND SERVICES AGREEMENT This Software License and Services Agreement ("Agreement") is made effective December 22, 1998 ("Effective Date") by and between Niku Corporation, a Delaware corporation with offices at 955-A Charter Street, Redwood City, California 94063 ("Niku"), and Sybase, Inc., a Delaware corporation, with offices at 6475 Christie Ave., Emeryville, California 94608 ("Licensee"). 1. DEFINITIONS. 1.1 "Affiliated Company" means a business entity or entities controlled by, under common control with or controlling a party to this Agreement. Such business entity or entities will be considered affiliated only so long as such control exists. 1.2 "Authorized Users" means the employees or agents of Licensee who are authorized to use the Software, as defined in Exhibit A. 1.3 "Release(s)" means the releases of the Software to be delivered to Licensee under this Agreement, as specified in Exhibit A. 1.4 "Software" means the binary code versions of the Niku software products specified in Exhibit A. 1.5 "Services" means the implementation services for the Software to be provided to Licensee by Niku under this Agreement, as more fully described in Exhibit B. 1.6 "Statement of Work" means a document describing the Services to be provided to Licensee by Niku and meets the formal requirements stated in Exhibit B. 2. DELIVERY AND SERVICES. 2.1 Niku will use reasonable efforts to deliver the Software to Licensee according to the delivery terms specified in Exhibit A. 2.2 After delivery of the Software and pursuant to a mutually agreed schedule, Niku will provide Licensee with the Services, including the Initial Services (as defined in Exhibit B), at Licensee's place of business in accordance with Exhibit B and the terms of each Statement of Work. Acceptance of the Software will be governed by the Statement(s) of Work and any amendments thereto subsequently adopted by the parties. 3. LICENSE. 3.1 GRANT. Subject to the payment of the License Fee and compliance with the other terms of this Agreement, Niku grants Licensee a nonexclusive, nontransferable right and license to make, install and use such copies of the Software on server computer systems as are reasonably necessary to provide access and use by Authorized Users from client computer systems. Licensee may make and 1 2 maintain such copies of the installed Software as are reasonably necessary for archival and back-up purposes. To the extent the Software incorporates any software licensed by Niku from a third party, Niku grants Licensee a sublicense that is co-extensive with the foregoing rights to Software. Licensee is expressly prohibited from copying or transferring the Software to a third party for any purpose other than off-site storage of archival or back-up copies. Licensee agrees not to produce a source listing, decompile, disassemble, or otherwise reverse engineer the Software. 3.2 PROPRIETARY NOTICES. Licensee must reproduce and shall not remove or obscure any notices or markings, including without limitation, copyright, trademark, or confidentiality notices, or ownership notices on Software and its accompanying documentation, including any screen displayed by the Software. 3.3 RESERVATION OF RIGHTS. Niku retains rights in and to the Software not specifically granted to Licensee hereunder, and any uses by Licensee of the Software, or any part thereof, beyond the scope permitted by this Agreement shall constitute a material breach of this Agreement. 3.4 COMPLIANCE. Niku will have the right to have the Software inspected at Licensee's facility as reasonably necessary to verify that Licensee's use of the Software is limited to Authorized Users. Niku will provide Licensee with reasonable notice prior to any inspections. The inspections will be conducted by an independent accounting firm reasonably acceptable to Licensee. Niku will be limited to conducting one (1) such inspection in any twelve (12) month period. The accounting firm shall protect the confidentiality of Licensee's information and abide by Licensee's reasonable security regulations. Niku will bear all costs and expenses associated with the exercise of these rights, unless such inspection reveals that Licensee is not in compliance with this Agreement, in which case, Licensee agrees to pay Licensor the reasonable costs of such inspection plus any additional license fees related to unauthorized use of the Software. 4. LICENSE FEE. Licensee will pay Niku license fees for the Software (the "License Fee") in the amount and according to the terms specified in Exhibit A. In addition to the License Fee, Licensee will pay any applicable shipping charges, and sales, use, value-added or similar taxes, tariffs or governmental charges, excluding any taxes based on Niku's net income. Unless otherwise specifically provided otherwise in Exhibit A: (i) the License Fee will be due and payable in full within thirty (30) days after receipt of the initial release of the Software by Licensee; and (ii) a late charge of one and one half percent (1.5%) per month or the highest rate permitted by law, whichever is lower, will apply to any overdue balances. 5. MAINTENANCE. Subject to the payment of annual maintenance fees and entry into a separate Maintenance Agreement, Niku will provide Licensee with technical support and maintenance on terms no less favorable to Licensee than those of the form of agreement 2 3 attached as Exhibit C. The amount of the annual maintenance fees and payment terms are specified in Exhibit A. 6. TERM AND TERMINATION. 6.1 TERM. This Agreement commence on the Effective Date and will remain in force and effect unless terminated in accordance with this Article. 6.2 TERMINATION. This Agreement may be terminated as follows: 6.2.1 By either party upon sixty (60) days written notice specifying breach if the other party fails to comply with any of the material terms or conditions of this Agreement unless, within the period of notice, all specified breaches have been cured. 6.2.2 By Niku immediately upon written notice in the event of the direct or indirect assumption of control of Licensee, or of substantially all of Licensee's assets, by any government, governmental agency or any third party engaged in the development, licensing, or distribution of business applications software products which Niku deems to be in direct or indirect competition with any Niku software products or component technologies. 6.3 EFFECT OF TERMINATION FOR LICENSEE'S BREACH. In the event of termination of this Agreement due to a breach by Licensee, the rights and licenses granted to Licensee will immediately terminate and Licensee will have no further right to use the Software. Within thirty (30) days after termination, Licensee must return all copies of the Software in its possession or control to Niku, or permanently destroy or disable all such copies. Promptly after return or destruction of all such copies, a duly authorized officer of Licensee must certify to Niku in writing that Licensee has destroyed or returned all copies of the Software. 6.4 EFFECT OF TERMINATION FOR NIKU'S BREACH. In the event of termination of this Agreement due to a breach by Niku, the rights and licenses granted to Licensee will survive to the extent necessary for Licensee to using the Software as permitted under this Agreement. Such continuing rights are subject to Licensee's continued compliance with the terms of this Agreement, including payment of any outstanding portion of the License Fee. Nothing will require Niku to provide any support or maintenance to Licensee after termination. 6.5 SURVIVAL. Rights and obligations specified in Articles 1, 3, 6, 7, 8, 9, 10 and 11 will survive and remain in effect after termination hereof. 3 4 7. CONFIDENTIALITY. 7.1 The parties may disclose technical, product, financial and business information to each other under this Agreement which the disclosing party (the "Discloser")considers to be confidential ("Confidential Information"). Confidential Information shall be limited to information clearly marked as confidential, or information which is disclosed verbally and identified as confidential in a writing delivered to Licensee within thirty (30) days of disclosure. 7.2 The party receiving Confidential Information (the "Receiver") will not reproduce in any form or provide, disclose, or give access to Confidential Information to any third party, or to any employee or agent not having a legitimate need to know it, and shall not use the Confidential Information for any purpose other than performing its obligations and exercising its rights under this Agreement. 7.3 This Agreement imposes no obligation upon the Receiver with respect to Confidential Information which it can establish by legally sufficient evidence: (i) was in the possession of, or was known by, Receiver prior to its receipt from Discloser, without an obligation to maintain its confidentiality; (ii) is or becomes generally known to the public without violation of this Agreement; (iii) is obtained by Receiver from a third party having the right to disclose it, without an obligation to keep such information confidential; or (iv) is independently developed by Receiver without the use of Confidential Information and without the participation of individuals who have had access to the Confidential Information. 7.4 Each party retains ownership of its respective Confidential Information. A Receiver does not acquire any rights in Confidential Information under this Agreement, except the limited right to use described above. 7.5 The parties' confidentiality obligations with respect to the Confidential Information shall survive the termination of this Agreement and will continue for a period of five (5) years from the Effective Date, provided that the obligation to maintain the confidentiality of any Niku or Licensee source code shall be perpetual. 8. WARRANTY AND DISCLAIMER. 8.1 Niku warrants that the Software will correctly record, store, process and calculate any information dependent on or relating to dates on or after January 1, 2000, and will do so in the same manner, and with the same functionality, data integrity and performance, as such Software records, stores, processes, calculates and presents calendar dates on or before December 31, 1999. All claims related to the above Year 2000 warranty must be made no later than January 15, 2001. The ability of the Software to perform in the manner described above is dependent upon the 4 5 receipt of correctly processed and transmitted data from and by all non-Niku supplied products (such as hardware, software and firmware) that the Licensee uses in connection with the Software. 8.2 OTHER THAN THE EXPRESS WARRANTY OF SECTION 8.1, NIKU DOES NOT MAKE AND DISCLAIMS ANY EXPRESS OR IMPLIED WARRANTIES OR CONDITIONS WITH RESPECT TO SOFTWARE INCLUDING, WITHOUT LIMITATION, ANY WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. No agent of Niku is authorized to incur warranty obligations on behalf of Niku or modify these limitations. 9. INDEMNITY. 9.1 INDEMNIFICATION BY NIKU. Niku will defend and indemnify Licensee against a claim that the Software infringes a United States trade secret, copyright, or patent, provided that: (i) Licensee notifies Niku in writing within sixty (60) days of the claim; (ii) Niku has sole control of the defense and all related settlement negotiations; and (iii) Licensee provides Niku with the assistance, information, and authority reasonably necessary to perform the above. Reasonable out-of-pocket expenses incurred by Licensee in providing such assistance will be reimbursed by Niku. 9.2 EXCLUSIONS. Niku shall have no liability for any claim of infringement based on: (i) use of a superseded release, or a release altered by Licensee, of some or all of the Software or any modification thereof furnished under this Agreement including, but not limited to, Licensee's failure to use corrections, fixes, or enhancements within six (6) months of the time they are first made available by Niku; (ii) the combination, operation, or use of some or all of the Software or any modification thereof with information, software, specifications, instructions, data, or materials ("Material") not furnished by Niku if the infringement would have been avoided by not combining, operating, or using the Software or the modification thereof, with such Material; (iii) any change, not made by Niku, to Software or any modification thereof; or (iv) Licensee's misuse of the Software or any modification thereof. 9.3 If the Software is held or is believed by Niku to infringe, Niku shall have the option, at its expense, to: (i) modify the Software to be non-infringing; (ii) obtain for Licensee a license to continue using the Software; or (iii) terminate this Agreement and refund a pro rata portion of the License Fee. SECTIONS 9.1 THROUGH 9.3 STATE NIKU'S ENTIRE LIABILITY AND LICENSEE'S EXCLUSIVE REMEDY FOR CLAIMS OF INFRINGEMENT OF INTELLECTUAL PROPERTY RIGHTS RELATED TO THE SOFTWARE. 5 6 10. LIMITATION OF LIABILITY. 10.1 LIMITATIONS. Except for express undertakings to indemnify, breach of obligations concerning the use of Confidential Information, and to the extent not prohibited by applicable law: 10.1.1 EACH PARTY'S AGGREGATE LIABILITY TO THE OTHER FOR CLAIMS RELATING TO THIS AGREEMENT, WHETHER IN CONTRACT OR IN TORT, WILL BE LIMITED TO THE LICENSE FEE PAID AND OWING BY LICENSEE FOR THE SOFTWARE. 10.1.2 NEITHER PARTY WILL BE LIABLE FOR ANY INDIRECT, PUNITIVE, SPECIAL, INCIDENTAL OR CONSEQUENTIAL DAMAGE IN CONNECTION WITH OR ARISING OUT OF THIS AGREEMENT, INCLUDING LOSS OF BUSINESS, REVENUE, PROFITS, USE, DATA OR OTHER ECONOMIC ADVANTAGE, HOWEVER IT ARISES, WHETHER FOR BREACH OR IN TORT, EVEN IF THAT PARTY HAS BEEN PREVIOUSLY ADVISED OF THE POSSIBILITY OF SUCH DAMAGE. 10.1.3 Liability for damages will be limited and excluded, even if any exclusive remedy provided for in this Agreement fails of its essential purpose. 10.2 ALLOCATION OF RISK. The parties acknowledge that the foregoing limitations of liability represent a reasonable and negotiated allocation of risk as between the parties, that these limitations constitute an integral part of this Agreement, and that absent these limitations the parties would not have executed this Agreement. These limitations will apply notwithstanding the failure of essential purpose of any limited remedy provided herein. 11. SOURCE CODE ESCROW. If elected by Licensee, Niku will deposit the current (and, to the extent requested, future) source code for the Software in escrow with a reputable third party escrow agent. Niku will make the initial deposit within thirty (30) days from receipt of a written notice of election from Licensee. The source code will be released to Licensee if (i) Niku ceases operations, files a petition for relief in bankruptcy, or is otherwise adjudged insolvent in a court of law; or (ii) Niku rejects or fails to perform it obligations under this Agreement. Current source code and associated documentation will be stored along with the binary code versions of the Software delivered hereunder. Costs of establishing and maintaining the escrow account for the Software will be borne by Licensee provided that, in the event that Niku establishes another escrow account for the same version of the Software escrowed hereunder for which Niku bears some or all of the costs, Licensee will be made a beneficiary of such other escrow account if a reduction in costs to Licensee would result. In the event of the release of the source code from the escrow agent, Licensee will have a perpetual, worldwide right and license to use, modify, and copy the source code for the sole purpose of maintaining the Software for the uses contemplated hereunder. 6 7 12. GENERAL. 12.1 NOTICES. All written notices required by this Agreement must be delivered in person or by means evidenced by a delivery receipt to the address specified below or as otherwise notified in writing and will be effective upon receipt. To Niku: To Licensee: Niku Corporation Sybase, Inc. 955-A Charter Street 6475 Christie Ave. Redwood City, CA 94063 Emeryville, CA 94608 Attn: President and CEO Attn: General Counsel 12.2 GOVERNING LAW. Any action related to this Agreement will be governed by California law and controlling U.S. federal law. No choice of law rules of any jurisdiction will apply. 12.3 RELATIONSHIP. This Agreement is not intended to create a relationship such as a partnership, franchise, joint venture, agency, or employment relationship. Neither party may act in a manner which expresses or implies a relationship other than that of independent contractor, nor bind the other party. 12.4 ATTORNEY'S FEES. In addition to any other relief, the prevailing party in any action arising out of this Agreement will be entitled to reasonable attorneys' fees and costs. 12.5 ASSIGNMENT. Neither party may assign or otherwise transfer any of its rights or obligations under this Agreement, without the prior written consent of the other party, except that Niku may assign its right to payment and may assign this Agreement to an Affiliated Company. 12.6 WAIVER. Any express waiver or failure to exercise promptly any right under this Agreement will not create a continuing waiver or any expectation of non-enforcement. 12.7 SEVERABILITY. If any provision of this Agreement is held invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions will not in any way be affected or impaired thereby, and will be interpreted, to the extent possible, to achieve the purposes as originally expressed in the invalid, illegal or unenforceable provision. 12.8 EXPORT CONTROL. The Software and Confidential Information may be subject to U.S. export control laws and export or import regulations in other countries. Licensee agrees to comply strictly with all such laws and regulations and acknowledges that it has the responsibility to obtain such licenses to export, re-export, or import the Software and Confidential Information as may be required after delivery to Licensee. 7 8 12.9 FORCE MAJEURE. A party is not liable under this Agreement for non-performance, if the non-performance is caused by events or conditions beyond that party's control, and provided the party makes reasonable efforts to perform under the circumstances. This provision does not relieve Licensee of its obligation to make any payments then owing. 12.10 ENTIRE AGREEMENT. This Agreement is the parties entire agreement relating to its subject matter. It supercedes all prior or contemporaneous oral or written communications, proposals, conditions, representations and warranties and prevails over any conflicting or additional terms of any quote, order, acknowledgement, or other communication between the parties relating to its subject matter during the term of this Agreement. No modification to this Agreement will be binding, unless in writing and signed by a duly authorized representative of each party. IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by their duly authorized representatives. NIKU CORPORATION SYBASE, INC. By /s/ HAROLD J. SLAWIK By /s/ RICHARD LABARBERA --------------------------------- -------------------------------------- Name: Harold J. Slawik Name: Richard N. LaBarbera Title: Vice President Title: Senior Vice President & General Manager, Enterprise Solutions Division The Exhibits to this Agreement are: Exhibit A - SOFTWARE SPECIFIC TERMS, CANCELLATION RIGHTS Exhibit B - SERVICES Exhibit C - SOFTWARE MAINTENANCE AGREEMENT 8 9 EXHIBIT A SOFTWARE SPECIFIC TERMS, CANCELLATION RIGHTS 1. SOFTWARE PRODUCT DESCRIPTION: Niku(TM) for IT Consulting, Version 1.0 2. AUTHORIZED USERS. All employees and authorized subcontractors who work for the Sybase Professional Services division of Sybase, Inc. 3. DELIVERY. Niku will deliver the Software to Licensee in binary code form within thirty (30) days of the Effective Date of this Agreement. 4. FEES. a) LICENSE FEE. Licensee will pay initial License Fees of One Hundred Fifty Thousand Dollars (US $150,000) within thirty (30) days of delivery of the initial release of the Software. Subject to the parties' agreement on the scope and content of the Statements of Work described in Exhibit B, Licensee will also pay the additional License Fees set forth in each Statement of Work. b) MAINTENANCE FEE. Licensee will pay an annual maintenance fee valued at no greater than [***] of the license fees due hereunder, including, where appropriate, the license fees payable under Statements of Work adopted hereunder (the "Maintenance Fee"), for support and maintenance of the Software provided that, in no event shall such Maintenance Fee percentage exceed the rate Niku charges any other customer. The Maintenance Fee will apply to the Software version specified in this Exhibit, and to all upgrades, new versions, updates, improvements and modifications to the Software which are generally released by Niku to its licensees and to any future versions of the Software delivered to Licensee pursuant to a Statement of Work. The Maintenance Fee will not apply to new products for which Niku charges a separate license fee. Licensee may terminate its obligation to pay the Maintenance Fee at any time by terminating the Maintenance Agreement. The Maintenance Fee will be prorated to the date of termination and any amounts paid for services not yet rendered will be refunded by Niku. 5. CANCELLATION RIGHT. Licensee will have the right to cancel this Agreement at any time after payment of the initial installment of the Licensee Fees specified in Exhibit A. In the event of cancellation, Niku will retain the initial License Fee payment set forth in Section 4(a), above, and Licensee will *** Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. Exhibit A, Page 1 10 have the right to retain and use the version of the Software in its possession subject to the applicable terms and conditions of this Agreement, provided that, in the event that Sybase cancels this Agreement after Niku has begun providing services under the Statement of Work, the License Fee for such Statement of Work will be prorated over the portion completed and Licensee will be responsible for full payment of such prorated portion. 7. ADDITIONAL TERMS. a) Upon the generally available release of Niku(TM) for IT Consulting, Version 1.0 or the natural successor thereto if such product is not ever generally released, the following warranty will apply to the Software licensed hereunder notwithstanding the provisions of Section 8.2 of the Agreement: For one year from the generally available release of the Software, Niku warrants that, when properly used, the Software will operate in all material respects in conformity with its associated documentation, and the Software media will be free of defects. b) Niku and Licensee anticipate entering into further agreements regarding Niku's intention to position Sybase as its preferred vendor for its customers' consulting needs and Niku's continued use of Sybase SQL Anywhere as its base database technology. Exhibit A, Page 2 11 EXHIBIT B SERVICES 1. SERVICES. Niku will provide software installation and implementation services ("Initial Services") as necessary to meet Licensee's specific business requirements. Niku will provide up to [***] person-days of such services without charge to Licensee. Services beyond this amount will be billed to Licensee on a time and materials basis according to Niku's standard rates and terms. 2. STATEMENT OF WORK. In addition to the Initial Services, Niku will provide additional customization and enhancement services as described in one or more Statements of Work to be negotiated and agreed upon by the parties. To the extent that Licensee has not used the full forty-five days of services provided free of charge for the Initial Services, the balance of such days of service may be used for the services described under the Statements of Work. Each Statement of Work will meet the following minimal formal requirements: (i) the scope of work; (ii) the hourly or daily rate for consultants providing services under the Statement of Work; (iii) the estimated number of days or hours required for each task described in the Statement of Work; (iv) an estimated schedule for completion of the Services; (v) any deliverables; and (vi) an estimate of any materials and equipment Niku will require to complete the Services. (vii) acceptance criteria for each deliverable (viii) a payment schedule Any changes to the scope of work or deliverables shall be made by a written amendment to the applicable Statement of Work. The amendment shall be signed by an authorized representative of each party prior to implementation of the changes. *** Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. Exhibit B, Page 1 12 EXHIBIT C FORM OF SOFTWARE MAINTENANCE AGREEMENT This Software Maintenance Agreement (the "Agreement") dated as of [MONTH] [DATE], [YEAR] (the "Effective Date") is by and between the Niku Corporation ("Niku"), a corporation organized under the laws of the state of [NIKU'S STATE OF INCORPORATION HERE] with its principal place of business at [NIKU OFFICIAL ADDRESS HERE] and [NAME OF CUSTOMER HERE] ("Customer"), a (STATE OF INCORPORATION HERE] corporation with its principal place of business at [CUSTOMER'S OFFICIAL ADDRESS HERE] 1. COVERED SOFTWARE. Customer agrees to purchase, and Niku agrees to furnish, software maintenance services for the Software, as defined in the Software License and Services Agreement between the parties, including the associated user documentation (all such computer software programs and associated user documentation shall be referred to herein as the "Software"), in accordance with the terms and conditions of this Agreement. 2. MAINTENANCE SERVICES TO BE PROVIDED BY NIKU. Throughout the term of this Agreement and subject to the exclusions listed in paragraph 4 below, Niku will provide the following services with respect to the Software: (a) Niku will endeavor to correct within a reasonable time any reported failure of the Software to substantially conform to or perform substantially in accordance with Niku's published user documentation; (b) Niku will furnish Customer, at no additional charge (except for taxes, insurance, shipping and handling) with all updates, improvements and modifications to the Software which are released generally by Niku to its licensees (all such updates, improvements and modifications shall be made available for downloading by Niku to the Customer via the Internet from a Web site designated and maintained by Niku); and (c) Niku will provide Customer with telephone, facsimile and email based support to assist Customer in its use of the Software. 3. SUPPORT AND MAINTENANCE STANDARDS. a. The Software's failure to substantially conform to Niku's user documentation will be divided into three classes of severity: (i) a "critical" nonconformance shall be any nonconformance causing a complete failure of the Software or the Customer's computer accessing the Software; (ii) a "serious" nonconformance shall be any nonconformance which seriously impairs the functionality of the Software (this includes any critical nonconformances for which a work-around or detour solution has been devised or identified); and (iii) a "minor" nonconformance shall be any nonconformance which does not seriously impair the functionality of the Software. b. Niku will provide a response to a report of the above described nonconformances by Customer according to the following response schedule: (a) all critical nonconformances shall be responded to by Niku within twenty-four (24) hours of that time that Customer first reports such nonconformances to Niku; (b) all serious nonconformances shall be responded to by Niku within three (3) days of the date that Customer first reports such nonconformances to Niku; and (c) all minor nonconformances shall be responded to by Niku within seven (7) days of the date Exhibit C, Page 1 13 that Customer first reports such nonconformances to Niku. For purposes of this Agreement, Niku's duty to "respond" shall consist of (i) delivery of an existing or new update, modification or enhancement to correct such nonconformance; (ii) identification of a workaround or detour solution; (iii) a request for more information for purposes of analyzing or verifying the nonconformance; and (iv) delivery of a plan for correcting the nonconformance. c. Niku will use all reasonable efforts to reach closure on all nonconformances reported by the Customer to Niku in accordance with the following schedule: (i) critical nonconformances shall be closed within seven (7) days of notice to Niku; (ii) serious nonconformances will be closed with fourteen (14) days of notice to Niku; and (iii) minor conformances will be closed in next regular Software update generally distributed by Niku to all licensees. For purposes of this Agreement, "closure" or "closed" consists of Niku providing an update or new documentation to the Software which eliminates the nonconformance or provides a work-around solution which enables the end user to easily avoid the nonconformance. 4. EXCLUSIONS. The maintenance services to be provided by Niku under this Agreement do not include: (a) repair, replacement, correction or adjustment of any malfunction caused by: (i) Customer's failure to perform normal preventative maintenance in accordance with the recommendations of Niku; (ii) modification or repair of the Software by anyone other than Niku; (iii) accident, catastrophe, abuse, misuse or operator error; or (iv) Customer's failure to maintain a computing environment in accordance with Niku's specifications; (b) new versions, options or applications for which Niku establishes a separate license fee; (c) any expendable items, such as tape cartridges, magnetic media, and similar items or supplies; or (d) any software design, development, installation, implementation, or consulting services. 5. CUSTOMER DUTIES. Throughout the term of this Agreement, Customer will: (a) at Customer's expense, maintain a modem and associated dial-up telephone equipment as specified by Niku so as to enable Niku to gain remote access to the computer system(s) on which the Software is installed at Customer's installation site for diagnostic, error correction, and software downloading purposes; (b) cooperate with Niku in identifying the cause of any claimed failure of the Software to substantially conform to or perform substantially in accordance with Niku's published user documentation, including without limitation providing Niku with such documentation and other information concerning any such claimed failure as Niku may reasonably request; and (c) allow Niku reasonably free remote and on-site access to the Software and Customer's associated equipment for the purpose of performing services under this Agreement. 6. SERVICE HOURS. The support described in section 2(c) of this Agreement will be provided by Niku to Customer by telephone, facsimile or email during the business hours of 8:00 a. m. to 5:00 US pacific time, Monday through Friday, excluding public holidays for Niku. 7. PROPRIETARY RIGHTS AND LICENSE. All software furnished to Customer by Niku under this Agreement, including all corrections, updates, improvements, modifications and new versions of Software which may be furnished to Customer by Niku under this Agreement will be Exhibit C, Page 2 14 considered software licensed to Customer by Niku in accordance with the terms and conditions of the license agreement between Customer and Niku (the "License Agreement"), as applicable. 8. LIMITED WARRANT. Niku warrants that, throughout the term of this Agreement, the Software will substantially conform to and perform substantially in accordance with Niku's published user documentation, and Niku will endeavor to correct any failure of the Licensed Software to so conform or perform, provided that such failure to so conform or perform is not, in Niku's reasonable opinion, a result of any modification of or damage to the software or its operating environment or of Customer's failure to operate the software in the proper hardware and software environment. ALL OTHER WARRANTIES, EXPRESS OR IMPLIED, INCLUDING ANY WARRANTIES OF MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE, ARE SPECIFICALLY EXCLUDED AND DISCLAIMED. NIKU DOES NOT WARRANT THAT THE SOFTWARE WILL MEET CUSTOMER'S REQUIREMENTS, THAT THE OPERATION OF THE SOFTWARE WILL BE UNINTERRUPTED OR ERROR FREE, OR THAT ALL FAILURES OF THE SOFTWARE TO SUBSTANTIALLY CONFORM TO OR PERFORM SUBSTANTIALLY IN ACCORDANCE WITH NIKU'S PUBLISHED USER DOCUMENTATION WILL BE CORRECTED. 9. LIMITATION OF REMEDIES AND DAMAGES. a. CUSTOMER'S SOLE AND EXCLUSIVE REMEDY FOR BREACH OF THE FOREGOING WARRANTY SHALL BE THAT: (A) NIKU WILL ENDEAVOR TO CORRECT WITHIN A REASONABLE TIME ANY REPORTED FAILURE OF THE SOFTWARE TO SUBSTANTIALLY CONFORM TO OR PERFORM SUBSTANTIALLY IN ACCORDANCE WITH NIKU'S PUBLISHED USER DOCUMENTATION, OR (B) IN THE EVENT THAT NIKU SHALL FAIL OR BE UNABLE FOR ANY REASON TO CORRECT ANY FAILURE OF THE SOFTWARE TO SUBSTANTIALLY CONFORM TO OR PERFORM SUBSTANTIALLY IN ACCORDANCE WITH NIKU'S PUBLISHED USER DOCUMENTATION, CUSTOMER MAY TERMINATE THIS AGREEMENT, AND NIKU WILL REFUND TO CUSTOMER THE FULL AMOUNT OF THE MAINTENANCE FEES ALREADY PAID WITH RESPECT TO SUCH SOFTWARE FOR SERVICE BEYOND THE EFFECTIVE DATE OF TERMINATION, PRORATED ON A DAILY BASIS. b. IN NO EVENT SHALL NIKU BE LIABLE TO CUSTOMER FOR INCIDENTAL, CONSEQUENTIAL, INDIRECT OR SPECIAL DAMAGES, EVEN IF ADVISED OF THE POTENTIAL OF SUCH DAMAGES. NIKU'S ENTIRE LIABILITY TO CUSTOMER, REGARDLESS OF THE FORM OF ACTION, SHALL BE LIMITED TO THE FEES PAID BY CUSTOMER TO NIKU PURSUANT TO THIS AGREEMENT. 10. PRICES, INVOICING AND PAYMENT. In addition to the maintenance fees to be paid by Customer under this Agreement, Customer will pay (or reimburse Niku for) all taxes (excluding taxes based on Niku's net income), all freight, shipping and insurance costs associated with delivery of materials to Customer under this Agreement and all travel, lodging, meal and other incidental expenses reasonably incurred by Niku in connection with furnishing Exhibit C, Page 3 15 maintenance and support services to Customer under this Agreement. Software maintenance fees are payable annually in advance. Niku will invoice Customer for the initial twelve (12) months maintenance fees upon acceptance of the Software, and Niku will invoice Customer for maintenance fees pertaining to each succeeding twelve (12) month period at or about the commencement of such period. Niku will invoice Customer for other charges permitted under this Agreement at or about the times such charges are incurred; all such invoices shall be paid by Customer within thirty (30) days of receipt. 11. CHANGE IN MAINTENANCE FEES. Effective upon any twelve (12) month anniversary of the effective date specified in paragraph 12, Niku may increase the amount of the maintenance fees relating to the Software; provided, however, that no such increase shall exceed fifteen percent (15%) of the amount of the maintenance fees for the twelve (12) month period immediately preceding the effective date of such increase. 12. TERM AND TERMINATION. This Agreement shall become effective as of the Effective Date and shall continue in effect for the initial term specified above and thereafter for successive one (1) year renewal terms until terminated as provided in this section of the Agreement. Either party may terminate this Agreement as of the end of its initial term, or as of the end of any renewal term, by written notice to the other party at least thirty (30) days prior to the effective date of termination. In the event that Customer's license to use the Software is terminated by Niku or Customer pursuant to the above described License Agreement, this Agreement shall also terminate as to such Software and Niku will refund to Customer the amount of any maintenance fees already paid with respect to such software for service beyond the effective date of termination, prorated on a daily basis. 13. MISCELLANEOUS TERMS AND CONDITIONS. This Agreement shall be construed in accordance with and governed by the laws of the State of California, without regard to its conflicts of law rules. Niku's failure to enforce at any time any of the provisions of this Agreement or any right with respect thereto, shall in no way be construed to be a waiver of such provision or right, or in any way to affect the validity of this Agreement. This Agreement shall be binding upon and inure to the benefit of the successors and permitted assigns of the Customer and Niku. This Agreement hereto shall be modified only by an instrument in writing signed by the parties. All notices, requests, consents, and other communications hereunder must be in writing, and will be deemed to have been properly given when actually received by the party to whom sent. The provisions of this Agreement are severable, and if any provision is held invalid or unenforceable in whole or in part in any jurisdiction, then such invalidity or unenforceability will affect only such provision or part thereof in such jurisdiction, and will not in any manner affect the provision in any other jurisdiction, or any other provision in this Agreement in any other jurisdiction. This Agreement constitutes the entire agreement between the parties with respect to the subject matter hereof, and supersedes all previous communications, representations, understandings, and agreements, either oral or. written, between the parties or any official or representative thereof. Exhibit C, Page 4 16 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the Effective Date. NIKU CORPORATION [NAME OF CUSTOMER HERE] By: --------------------------------- ---------------------------------------- (Signature) (Signature) - ------------------------------------ ---------------------------------------- (Typed or Printed Name) (Typed or Printed Name) Title: Title: ------------------------------ ---------------------------------- Exhibit C, Page 5 17 FIRST ADDENDUM TO SOFTWARE LICENSE AND SERVICES AGREEMENT This First Addendum (the "Addendum") to the Software License and Services Agreement ("Agreement") dated December 22, 1998 by and between Niku Corporation, a Delaware corporation with offices at 955 Charter Street, Redwood City, California 94063 ("Niku"), and Sybase, Inc., a Delaware corporation, with offices at 6475 Christie Ave., Emeryville, California 94608 ("Licensee"), is made effective March 29, 1999. 1. DEFINITIONS. Except as specifically modified below, the capitalized terms defined in the Agreement shall have the same meaning when used in this Addendum. 1.1 "Software" means Niku(TM) for IT Consulting, Version 2.0 and all prior versions thereof. 2. DELIVERY. Niku will deliver the Software to Licensee as soon as practicable after execution of this Addendum but no later than twenty (20) days thereafter. 3. LICENSE FEE. Licensee will make a final payment of the license fees for the Software (the "License Fee") in the amount of TWO HUNDRED THOUSAND AND NO/100 DOLLARS ($200,000.00) within thirty (30) days after delivery by Niku of the Software. This amount is in addition to the initial License Fee of $150,000 referenced in Exhibit A of the Agreement paid for a previous version of the Software. 4. WARRANTY. The express warranty clause set forth in Paragraph Seven (7) of Exhibit A to the Agreement will apply to the Software delivered pursuant to this Addendum (Version 2.0). 5. APPLICABILITY. Except as specifically modified and supplement by this Addendum, the Agreement will remain in full force and effect. In particular, the parties acknowledge their agreement that Niku deliver the Software and Sybase pay the License Fee, notwithstanding any delay in entering into a Statement of Work under the Agreement. NIKU CORPORATION SYBASE, INC. By: By: --------------------------------- ------------------------------------- Name: Ken Johnson Name: Rich N. LaBarbera Title: Vice President, Sales Title: Sr. Vice President and Gen. Manager, Enterprise Solutions Division 18 SECOND ADDENDUM TO SOFTWARE LICENSE AND SERVICES AGREEMENT This Second Addendum (the "Addendum") to the Software License and Services Agreement dated December 22,1998 (as amended by the First Addendum to the Software License and Services Agreement dated March 29,1999, the "Agreement") by and between Niku Corporation, a Delaware corporation with offices at 305 Main Street, Redwood City, California 94063 ("Niku"), and Sybase, Inc., a Delaware corporation, with offices at 6475 Christie Ave., Emeryville, California 94608 ("Licensee") is made effective September 16,1999. 1. DEFINITIONS. Except as specifically modified below, the capitalized terms defined in the Agreement shall have the same meaning when used in this Addendum. 1.1 "Software" means Niku(TM) for IT Consulting, Version 3.0 and all prior versions thereof. 2. DELIVERY. Niku will deliver the Software to Licensee as soon as practicable after execution of this Addendum but no later than twenty (20) days thereafter. 3. LICENSE FEE. Licensee will pay Niku FOUR HUNDRED THOUSAND DOLLARS ($400,000) for the Software (the "License Fee") as follows: (a) $200,000 will be paid on a net 30 days basis from October 1, 1999; and (b) $200,000 will be made on a net 90 days basis from January 1, 2000. This amount is in addition to any previous license fees referenced in the Agreement for previous versions of the Software and constitutes the final license fee payments for the Software under the Agreement. 4. WARRANTY. The express warranty clause set forth in Paragraph Seven (7) of Exhibit A to the Agreement will apply to the Software delivered pursuant to this Addendum (Version 3.0). 5. APPLICABILITY. Except as specifically modified and supplement by this Addendum, the Agreement will remain in full force and effect. In particular, the parties acknowledge their agreement that Niku deliver the Software and Sybase pay the License Fee, notwithstanding any delay in entering into a Statement of Work under the Agreement. Niku Corporation Sybase, Inc. By: By: --------------------------------- ------------------------------------- Name: Ken Johnson Name: Rich N. LaBarbera Title: Sr. Vice President, Sales Title: Sr. Vice President and Gen. Manager, Enterprise Solutions Division EX-10.12 24 EX-10.12 1 * Confidential treatment has been requested with respect to certain information contained in this document. Confidential portions have been omitted from the public filing and have been filed separately with the Securities and Exchange Commission. EXHIBIT 10.12 SOFTWARE LICENSE AGREEMENT THIS SOFTWARE LICENSE AGREEMENT, is made between Sybase, Inc., a Delaware corporation, and its majority owned direct and indirect subsidiaries (collectively, "Sybase"), with offices at 6475 Christie Avenue, Emeryville, CA 94608; and Niku Corporation ("Customer") with offices at 955 Charter Street, Redwood City, CA 94063. 1. DEFINITIONS "Agreement" - this Software License Agreement, the Exhibit A and any other addenda attached hereto, each supplemental Exhibit A signed by both parties, and each Purchase Order. "Documentation" - installation instructions and user manuals. "MACHINE" - a hardware system with any number of processors running a single copy of the operating system on which the Sybase software is running; except in the case of SYBASE MPP(TM), in which case a Machine is a cluster of Machines linked together through a high speed interconnect. "NAMED USER" - a specific named person licensed to Use a Program. "OPERATING SYSTEM SOFTWARE" - the operating system software listed in the Exhibit A or Purchase Order applicable to the relevant copy of the Program. "PRICE LIST" - Sybase's then current price list for the country in which the Program is to be Used. "Primary Copy" - a licensed copy of the Program provided by Sybase, which may have been provided initially as a trial copy. "PROGRAM" - the object code version of the software product(s) listed in the Exhibit A or Purchase Order, together with all data files included by Sybase. "PURCHASE ORDER" - a purchase order or other purchase authorizing document issued by Customer for Sybase products and/or services and accepted by Sybase, as confirmed by a Sybase invoice. "SEAT" specific identifiable unique accessor of information such as a terminal, PC, single user workstation or real time device. "SECONDARY COPY" - a licensed copy of the Program reproduced by Customer from the Primary Copy. "USE" to lead, utilize, or store the Program. 2. LICENSE 2.1 Sybase grants to Customer, solely for customer's own internal business purposes, a non-exclusive, nontransferable, perpetual, fully paid license to Use each Primary Copy (and made and Use each Secondary Copy) on one Machine running the Operating System Software at the site specified on the Exhibit A or Purchase Order. If such license is designated as a NETWORKED LICENSE, each copy of the Program may be accessed by any and all Seats or Named Users that are licensed to access such Program subject to the following restrictions: (i) Workplace Seats and Workplace Named Users licensed to access a particular Program may only access the workplace level of such Program, and (ii) Enterprise Seats and Enterprise Named Users licensed to access a particular Program may access the Workplace and Enterprise levels of such Program. Accordingly, Seats and Named Users in a Networked Licensed are not tied to a particular copy of the Program. Use of software or hardware which reduces the number of Seats directly accessing the Programs (sometime called "multiplexing" or "pooling") does not reduce the number of Seats required to be licensed, but rather the number of licensed Seats must be equal to the number of distinct inputs to the multiplexing software or hardware. If the license is designated as a STANDALONE NAMED USER LICENSE, the Program may be Used only by one 2 Named User, but such Named User may copy and Use such Program on more than one Machine. If the license is designated as a STANDALONE SEAT LICENSE, the copy of the Program may only be accessed by he Machine on which it resides. A license for a copy of a Program will allow Customer to Use the indicated version or instead any earlier version for which Customer already has a Primary Copy. If Customer's Support plan entitles Customer to updates (i.e., new version of the Program), the license shall also extend to each new version provided. If a Run-Time Program is licensed, the Program may only be Used to run Customer's applications but cannot be Used to (i) develop or modify applications, or (ii) perform other programming tasks. 2.2 Customer may make a reasonable number of copies of each Program exclusively for inactive back-up or archival purposes. 2.3 The Program and all copies (in whole or part) shall remain the exclusive property of Sybase and its licensors. Customer shall not modify, reverse engineer, reverse assembly or reverse compile any Program or part thereof, except Customer may modify data file portions of the Program as described in the user manuals. Customer shall not Use the Program in a service bureau or time-sharing arrangement nor distribute, rent, lease or transfer the Program to any third party. 2.4 Upon Sybase's receipt of Customer's Purchase Order, Sybase shall deliver the Primary Copy and one set of Documentation to Customer. Customer, at its own expense, shall be responsible for installing the Program and all new versions thereof. 2.5 For its own use, Customer may make copies of the Documentation delivered by Sybase or nay purchase copies at the prices in the Price List. 2.6 No more often than annually, Sybase may, upon reasonable notice and at its expense, direct an accounting firm acceptable to Customer to audit during business hours the number of copies of the Program in Use and the number of Seats and/or Named Users accessing the Programs. The auditors shall protect the confidentiality of Customer's information and abide by Customer's reasonable security regulations. If the use of the Program is found to be greater than that contracted for, Customer will be invoiced for the additional copies, Seats, Named Users or processors at the prices in the Price List. 2.7 Subject to acceptance by Sybase, consulting or educational services provided to Customer will be subject to the terms of this Agreement unless otherwise agreed in writing. Educational services are provided at Sybase designated facilities. 3. PAYMENT 3.1 Payment is due to Sybase or its assigns within 30 calendar days after the invoice date. Customer will pay all applicable shipping charges and sales, use, personal property or similar taxes, tariffs or governmental charges, exclusive of Sybase's income and corporate franchise taxes. Customer will reimburse Sybase for all reasonable costs incurred (including reasonable attorneys' fees) in collecting past due amounts. 3.2 Except with respect to specific Programs designated by Sybase, Customer must purchase a technical support plan ("Support") for the first year for all Programs licensed. 2 3 Support commences on the date the Primary Copy is shipped to Customer or on the date invoiced for Secondary Copies ("the Support Date"). Fees for annual Support ("Support Fees") shall be paid in advance. Unless Support has been purchased for such copies or new versions have been separately licensed, no new versions of the Program will be provided to Customer for the Primary Copy and no new versions may be copied by Customer to update Secondary Copies. Support may be extended for one year periods on the anniversary of each Support Date at the Support Fees shown in the Price List for as long as Sybase offers Support. Customer may reinstate lapsed support for any then currently supported Program by paying all Support Fees in arrears and all time and travel expenses incurred in updating the Program to the current version. 4. SUPPORT AND TECHNICAL SERVICES Provided Customer has paid applicable Support Fees, Sybase shall support the Program as follows. Customer shall designate as technical support contacts that number of Customer employees as are permitted under the level of Support purchased. Each contact may telephone Sybase for problem resolution during Sybase's published support hours corresponding to the level of Support Fees paid. Upon notice from a contact of a Program problem (which problem can be reproduced at a Sybase support facility or via remote access to Customer's facility), Sybase shall use reasonable efforts to correct or circumvent the problem. Sybase reserves the right to make Program corrections only to the most current generally available version. For 12 months after the introduction of a new generally available enhancement release, Sybase will use reasonable efforts to support the previously released version of such Program. A Program may be transferred to another site or operating system software only upon written notice to Sybase and subject to Sybase's transfer policies and fees then in effect. A Program may be transferred without cost or notice from one Machine to another at the same site if the second Machine runs the same Operation System Software as the first Machine. Sybase shall have no obligation to support the program (i) for Use on any computer system running other than the Operating System Software, or (ii) if Customer modifies the Program in breach of this Agreement. Only those versions of different cooperating Programs specified in the Documentation will execute correctly together on a CPU or in a network. Sybase has no obligation to modify any version of the Program to run with new versions of the Operating Systems Software. If Customer purchases Support for any Program in Use on a Machine or in a network, it must purchase the same level of Support for all copies of such Program on such Machine or network. 5. CONFIDENTIALITY 5.1 "Confidential Information," which includes the Program (including methods or concepts utilized therein) and all information identified by the disclosing party as proprietary or confidential, shall remain the sole property of the disclosing party and shall not be disclosed to any third party without the express written consent of the disclosing party (except solely for Customer's internal business needs, to consultants who are bound by a written agreement with Customer to maintain the confidentiality of such Confidential Information in a manner consistent with this Agreement). Except with respect to the Program, items will not be deemed Confidential Information if (i) available to the public other than by a breach of an agreement with Sybase; (ii) rightfully received from a third party not in breach of any obligation of confidentiality; (iii) independently developed by one party without access to the Confidential Information of the other; (iv) known to the recipient at the time of disclosure; or (v) produced in 3 4 compliance with applicable law or a court order, provided the other party is given reasonable notice of such law or order. A copyright notice on a Program does not, by itself, constitute evidence of publication or public disclosure. Customer shall not release the results of any benchmark of the Programs to any third party without the prior written approval of Sybase for each such release. 6. INFRINGEMENT INDEMNITY Sybase at its own expense shall (i) defend, or at its option settle, any claim or suit against customer on the basis of infringement of any trademark, copyright, trade secret or United States patent ("Intellectual Property Rights") by the Program or Use thereof, and (ii) pay any final judgment entered against Customer on such issue or any settlement thereof, provided (a) Sybase has sole control of the defense and/or settlement; (b) Customer notifies Sybase promptly in writing of each such claim or suit and gives Sybase all information known to Customer relating thereto, and (c) Customer cooperates with Sybase in the settlement and/or defense. (Customer shall be reimbursed for all reasonable out-of-pocket expenses incurred in providing any cooperation requested by Sybase.) If all or any part of the Program is, or in the opinion of Sybase may become, the subject of any claim or suit for infringement of any Intellectual Property Rights, Sybase may, and in the event of any adjudication that the Program or any part thereof does infringe or if the Use of the Program or any part thereof is enjoined, Sybase shall, at its expense do one of the following things: (1) procure for Customer the right to Use the Program or the affected part thereof; (2) replace the Program or affected part with other suitable programs; (3) modify the Program or affected part to make it noninfringing; or (4) if none of the foregoing remedies are commercially feasible, refund the aggregate payments made by Customer for the Program or the affected part thereof. Sybase shall have no obligations under this Section 6 to the extent a claim is based upon (A) use of any version of the Program other than a current, unaltered version, if infringement would have been avoided by a current, unaltered version; or (B) combination, operation or use of the Program with software and/or hardware not delivered by Sybase if such infringement could have been avoided by combination, operation or use of the Program with other software and/or hardware. This Section 6 states the entire liability of Sybase and the exclusive remedy of Customer with respect to any alleged infringement by the Program or any part thereof. 7. PROPRIETARY NOTICES The Programs and related documentation are proprietary and protected by copyright and/or trade secret law. All proprietary notices incorporated in or fixed to a Program or documentation shall be duplicated by Customer on all copies or extracts thereof and shall not be altered, removed or obliterated. 8. WARRANTY/LIMITATIONS ON LIABILITY 8.1 For one year form the date of shipment of a version of the Program to Customer, Sybase warrants that the version when property Used will operate in all material respects in conformity with the Documentation for such version, and the Program media shall be free of defects. Customer's sole remedy in the even of nonconformity of a Program at Sybase's option 4 5 will be replacement of the defective Programs or a refund of the license fees paid for the affected Program. 8.2 NO OTHER WARRANTY, EXPRESS OR IMPLIED, IS MADE REGARDING THE PROGRAM, GOODS OR SERVICES TO BE SUPPLIED HEREUNDER, INCLUDING WITHOUT LIMITATION ANY IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. NO WARRANTY IS MADE REGARDING THE RESULTS OF ANY PROGRAM OR SERVICES OR THAT ALL ERRORS IN THE PROGRAM WILL BE CORRECTED, OR THAT THE PROGRAM'S FUNCTIONALITY WILL MEET CUSTOMER'S REQUIREMENTS. CUSTOMER ACKNOWLEDGES ITS RESPONSIBILITY TO (I) REGULARLY BACK UP DATA MAINTAINED ON ANY COMPUTER SYSTEM USING THE PROGRAM, AND (II) ADEQUATELY TEST PRIOR TO DEPLOYMENT EACH PRODUCTION VERSION OF THE PROGRAM IN A CONFIGURATION WHICH REASONABLY SIMULATES CUSTOMER'S PLANNED PRODUCTION ENVIRONMENT. 8.3 THE TOTAL LIABILITY, IF ANY, OF SYBASE AND ITS SUBSIDIARIES, INCLUDING BUT NOT LIMITED TO LIABILITY ARISING OUT OF CONTRACT, TORT, BREACH OR WARRANTY, CLAIMS BY THIRD PARTIES OR OTHERWISE, SHALL NOT IN ANY EVENT EXCEED THE LICENSE FEES PAID BY CUSTOMER FOR THE PROGRAM(S) WHICH GIVE RISE TO THE CLAIM. SYBASE'S LICENSORS SHALL NOT BE LIABLE FOR DIRECT DAMAGE HEREUNDER, AND NEITHER SYBASE NOR ANY OF ITS SUBSIDIARIES OR LICENSORS SHALL BE LIABLE FOR LOSS OF PROFITS, LOSS OR INACCURACY OF DATA, OR INDIRECT, SPECIAL, INCIDENTAL OR CONSEQUENTIAL DAMAGES, EVEN IS SUCH PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. 9. TERMINATION Sybase may terminate a license if Customer has not paid the license fees therefore within 15 calendar days after written notice that payment is past due. Either party may terminate this Agreement upon any other material breach of this Agreement by the other party, which if remediable, has not been corrected within 60 calendar days after written notice. On termination, all licenses granted hereunder shall terminate, Customer shall cease Using the Program and Documentation (whether or not modified or merged into other materials) and Customer shall certify in writing to Sybase that all copies (in any form or media) have been destroyed or returned to Sybase. Termination shall not relieve Customer from paying all fees accruing prior to termination and shall not limit either party form pursuing any other available remedies. Sections 5, 6, 8.2, 8.3, 9 and 10.3 shall survive termination of this Agreement. 10. GENERAL 10.1 Neither this Agreement nor any license hereunder may be assigned (whether by operation of law or otherwise) by Customer without Sybase's prior written consent, not to be unreasonably withheld. 5 6 10.2 This Agreement is the entire agreement of the parties and supersedes all previous and contemporaneous communications, representations, or agreements regarding the subject matter hereof. A facsimile of a signed copy of this Agreement received from Customer may be relied upon as an original and if there is any inconsistency between such facsimile and a subsequently received hard copy, the facsimile shall prevail. This Agreement may be modified only in a writing signed by both parties. Purchase Orders shall be binding as to: the products and services ordered, fees therefore and the site for installation or performance of services as set forth on the face side of or a special attachment to the order. Other terms and preprinted terms on or attached to any Purchase Order shall be void. 10.3 Customer shall not transfer, directly or indirectly, any restricted Programs or technical data received from Sybase or its subsidiaries, or the direct product of such data, to any destination subject to export restrictions under U.S. law, unless prior written authorization is obtained from the appropriate U.S. agency. 10.4 No delay or default in performance of any obligation by either party, excepting all obligations to make payments, shall constitute a breach of this Agreement to the extent caused by force majeure. 10.5 All notices relating to this Agreement shall be in writing and delivered by overnight delivery service or first class prepaid mail with return receipt requested, to the address of such party specified above (in the case of Sybase to the attention of its General Counsel) or the address specified by such party in accordance with this Section. 10.6 If this license is acquired under a U.S. Government contract, Use, duplication or disclosure by the U.S. Government is subject to restrictions set forth in FAR subparagraphs 52.227-19(a)-(d) for civilian agency contract and DFARS 252.227-7013(c)(ii) for Department of Defense contracts. Sybase reserves all unpublished rights under the United States copyright laws. 10.7 THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED UNDER THE LAWS OF THE STATE OF CALIFORNIA EXCLUDING ITS CONFLICT OF LAWS RULES. IT SHALL NOT BE GOVERNED BY THE UNITED NATIONS CONVENTION ON THE INTERNATIONAL SALE OF GOODS, THE APPLICATION OF WHICH IS EXPRESSLY EXCLUDED. CUSTOMER SUBMITS TO THE JURISDICTION OF THE STATE AND FEDERAL COURTS FOR THE COUNTY OF ALAMEDA WITHIN THE STATE OF CALIFORNIA. If any provision of this Agreement is held to be unenforceable, the parties shall substitute for the affected provision an enforceable provision which approximates the intent and economic effect of the affected provision. The failure or delay by either party to enforce any term of this Agreement shall not be deemed a waiver of such term. 6 7 The parties have caused this Agreement to be executed by their respective authorized representatives. SYBASE, INC.: By: ------------------------------------ (Authorized Signature) Name: ---------------------------------- Title: --------------------------------- Date: ---------------------------------- CUSTOMER: By: ------------------------------------ (Authorized Signature) Name: ---------------------------------- Title: --------------------------------- Date: ---------------------------------- 7 8 To SYBASE Software License Agreement Prepared for: ------------------------------------------------- Contact: ------------------------------------------------- Site Address: ------------------------------------------------- ------------------------------------------------- -------------------------------------------------
- ------------------------------------------------------------------------------------------------------------- Catalog License Unit Number Program Description Type Platform/OS P/S Count Media - ------------------------------------------------------------------------------------------------------------- 94160 Internet Access License - CPU Fee IC Solaris P 4 - ------------------------------------------------------------------------------------------------------------- 13839 Adaptive Server Enterprise - Server SR Solaris P 2 - ------------------------------------------------------------------------------------------------------------- 10500 JConnect SR Solaris P 2 - ------------------------------------------------------------------------------------------------------------- 94283 Internet Access License - CPU Fee IC Solaris P 2 - ------------------------------------------------------------------------------------------------------------- 28216 Adaptive Server Enterprise - Server SR Solaris P 1 - ------------------------------------------------------------------------------------------------------------- 13839 Adaptive Server Enterprise - Seats SS Solaris S 50 - ------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------ Catalog Price Net Unit Extended Number Program Description per Unit [***] Price Price Support Fees - ------------------------------------------------------------------------------------------------------------ 94160 Internet Access License - CPU Fee [***] [***] [***] [***] [***] - ------------------------------------------------------------------------------------------------------------ 13839 Adaptive Server Enterprise - Server [***] [***] [***] [***] [***] - ------------------------------------------------------------------------------------------------------------ 10500 JConnect [***] [***] [***] [***] [***] - ------------------------------------------------------------------------------------------------------------ 94283 Internet Access License - CPU Fee [***] [***] [***] [***] [***] - ------------------------------------------------------------------------------------------------------------ 28216 Adaptive Server Enterprise - Server [***] [***] [***] [***] [***] - ------------------------------------------------------------------------------------------------------------ 13839 Adaptive Server Enterprise - Seats [***] [***] [***] [***] [***] - ------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------
License Model: Networked -------------------- Support Program: Extended -------------------- Payment Terms: Net 30 days -------------------- FOB: Destination --------------------
License Fees: $142,500 -------- Support Fees: $ 34,644 Education Fees: Consulting Fees: -------- Total: $177,144 -------- less other discount: -------- Grand Total: $177,144 -------- Currency: USD
Media and documentation shipped for Primary Copies only. Secondary Copies are a right to create a copy of the Program from the Primary Copy. E/W/O = E is Enterprise, W is Workplace, and O is Other P/S = P is Primary Copy and S is Secondary Copy License Types: Server (SR), Seat (ST), Concurrent User (CU), Standalone Seat (SS), Incremental CPU (IC). The above Sybase Programs are licensed subject to the terms of the Software License Agreement between the parties referenced above or if no such agreement exists the Sybase license agreement included with the Program package. Third party products supplied with a license from the supplier are provided subject to the terms of such supplier license. Any support or warranty service for such third party products is provided by the supplier. Any additional Sybase products not listed above and supplied to the Customer without additional charges are subject to the applicable Sybase license agreement included with such product. PURCHASE ORDER INFORMATION By signing this Exhibit A, customer agrees to be bound by this Exhibit A and the referenced license agreement and customer authorized Sybase to invoice customer, under net 30 day terms from the date of the Exhibit A, the amounts for the Programs and services listed above, plus applicable tax, VAT and delivery charges. Tax Exempt No. ---------------------------------------- P.O. Number: ---------------------------------------- (if available) SYBASE, INC. By: ---------------------------------------- Name: ---------------------------------------- Title: ---------------------------------------- Billing Address: ---------------------------------------- ---------------------------------------- ---------------------------------------- ---------------------------------------- Name of Customer: ---------------------------------------- Authorized Customer Signature: ---------------------------------------- Customer Name/Title: ---------------------------------------- Date Signed: ---------------------------------------- *** Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. 8 9 INTERNET ACCESS LICENSE ADDENDUM (EXTERNAL USE VIA THE INTERNET) This INTERNET ACCESS LICENSE ADDENDUM is made as of ________________, 1999___, and amends that certain Software License Agreement dated ______________, 19__ (the "Agreement") between Sybase, Inc. or Sybase Canada Limited ("Sybase") and ______________________________________________________ ("Customer"). Capitalized terms not otherwise defined in this Addendum shall have the same meanings set forth in the Agreement. 1. Each copy of a Program licensed by Customer for which a corresponding Internet Access License has been purchased (together, the "Internet Products") may be accessed by "External Internet Seats" as outlined in Section 2 below, provided that Customer has paid the applicable CPU fees for each processor on the Workplace, Enterprise or Super Enterprise level Machine on which such Internet Products are used. 2. Customer may use the Internet Products in connection with an Internet website, and may allow an unlimited number of External Internet Seats to indirectly access such Internet Products. "External Internet Seats" shall mean Seats which access the Internet Products via the Internet; provided that the person at such Seat is not acting in the capacity of an employee, agent or independent contractor of Customer. External Internet Seats may query the Internet Products database and update such database to the extent allowed by Customer's application, but may not use the Internet Products to develop or modify applications or perform other programming tasks. The limited use authorized above shall not be deemed to violate the restrictions set forth in the last sentence of Section 2.3 of the Agreement. 3. Nothing in this Addendum authorizes Customer to use the Internet Products in connection with a website hosted by Customer on behalf of third parties. In addition, this Addendum does not cover intranet usage or other internal usage and Customer must acquire the necessary Seat licenses for all internal usage of the Internet Products in accordance with the Agreement. Except as amended above, the Agreement shall remain in full force and effect. SYBASE, INC. CUSTOMER: (or Sybase Canada Limited, if applicable) By: By: -------------------------------- ------------------------------------- Name: Name: ------------------------------ ----------------------------------- Title: Title: ----------------------------- ---------------------------------- 9 EX-10.13 25 EX-10.13 1 EXHIBIT 10.13 [NIKU CORPORATION LETTERHEAD] October 26, 1999 Joshua Pickus 1690 Oak Avenue Menlo Park, CA 94025 Dear Josh: I am pleased to offer you a position with Niku Corporation ("the Company") as a President, Vertical Markets reporting directly to Farzad Dibachi, President and CEO, commencing on November 1, 1999 ("Start Date"). You will receive a monthly salary of $25,000.00, which is equivalent to $300,000.00 on an annualized basis, less applicable withholding, payable twice monthly, in accordance with our normal payroll procedures. You are also eligible to receive certain employee benefits which will be outlined in the Company employee handbook. Like all Niku employees, you will be entitled to two weeks of vacation and eight holidays each year. In connection with the commencement of your employment, the Company will recommend that the Board of Directors grant you the right to purchase 1,250,000 shares of the Company's restricted common stock with an exercise price equal to the fair market value on the date of the grant. The restricted stock will be subject to the Company's right to repurchase which will be exercisable should you leave the Company. This repurchase right will lapse at the rate of 1/3rd for the first year and 1/36th of the total shares per month thereafter, so that all shares are fully vested after three years). It is agreed that any unvested portion of the total shares will vest fully in the event of a change in control of the Company. To complete the restricted stock purchase the Company agrees to loan you the maximum amount allowed by law. The stock grant will otherwise be subject to the terms of the Company's 1998 Stock Plan and the Restricted Stock Agreement between you and the Company. The Company will also loan you the amount of $200,000, to be made available within 10 days of your Start Date. The loan will accrue simple interest at the rate of 8%. The Company will make a separate payment of $25,000 to you for every three months of your employment during your first two years. We are very excited about the opportunity of working together and we know that you will be invaluable to our success. The next paragraphs were written by the Company's lawyer. I apologize for their being so terse. 2 Joshua Pickus October 26, 1999 Page 2 Your employment is at-will and for no specified period, and either you or the Company may terminate this employment relationship at any time and for any reason. As an employee, you will be expected to abide by the Company's rules and regulations and to devote all of your business time, skill, attention and best efforts to Company business so as to fulfill the responsibilities assigned to you. Your acceptance of this offer and commencement of employment with the Company is contingent upon the execution and delivery of the Company's Confidential Information and Invention Assignment Agreement (the "Confidentiality Agreement"), a copy of which is enclosed for your review and execution, to an officer of the Company prior to or on your Start Date. For purposes of federal immigration law, you will be required to provide to the Company documentary evidence of your identity and eligibility for employment in the United States. Such documentation must be provided within three (3) business days of your date of hire, or our employment relationship with you may be terminated. You agree to follow the Company's strict policy that employees must not disclose, either directly or indirectly, any of the terms of this agreement, regarding salary, bonuses, or stock option allocations to any person, including other employees of the Company; provided, however, that you may discuss such terms with members of your immediate family and any legal, tax or accounting specialists who provide you with individual legal, tax or accounting advice. This employment offer will expire if not accepted by October 29, 1999. To accept the offer before this expiration date, you must sign and date this letter in the space provided below and return it to me, along with a signed and dated copy of the Confidentiality Agreement. This letter, together with the Confidentiality Agreement, sets forth the terms of your employment with the Company and supersede any prior representations or agreements, whether written or oral. This letter may not be modified or amended except by a written agreement, signed by the Company and by you. Sincerely, Niku Corporation BY: --------------------------------------- Cathy Bottarini, Office of the Chairman 3 Joshua Pickus October 26, 1999 Page 3 AGREED AND ACCEPTED: Joshua Pickus - -------------------------------------- Signature - -------------------------------------- Date enclosure: Duplicate Letter Confidential Information and Invention Assignment Agreement EX-10.14 26 EX-10.14 1 EXHIBIT 10.14 [NIKU CORPORATION LETTERHEAD] July 22, 1999 Mark Nelson 505 Cypress Point Drive #185 Mountain View, CA 94043 Dear Mark, I am pleased to offer you a position with Niku Corporation ("the Company") as the Chief Financial Officer reporting directly to Farzad Dibachi, commencing on August 11, 1999 ("Start Date"). You will receive a monthly salary of $16,666.66, which is equivalent to $200,000.00 on an annualized basis, less applicable withholding, payable twice monthly, in accordance with our normal payroll procedures. You are also eligible to receive certain employee benefits which will be outlined in the Company Employee Handbook. Like all Niku employees, you will be entitled to two weeks of vacation and seven holidays each year. In connection with the commencement of your employment, the Company will recommend that its Board of Directors grant you an option to purchase 350,000 shares of the Company's Common Stock. The per share exercise price will equal the fair market value established by the Board on the date the grant is approved. The option will vest at the rate of 1/4th after one year and 1/48th per month thereafter, so that the option is fully vested after four years. The option will be an incentive stock option to the maximum extent allowed by the tax code and will be subject to the terms of the Company's 1998 Stock Plan and the Stock Option Agreement between you and the Company. In the event of a change in control of the Company which results in a reduction in your job responsibilities, your option will become fully vested as of the later of the effective date of such a change in control or reduction in your responsibilities. For purposes of this offer letter, a "change in control" means (i) an acquisition, consolidation, or reorganization of the Company which results in the stockholders of the Company before such event no longer holding a majority of the voting stock after such event, or (ii) the sale of substantially all the assets of the company to an unaffiliated third party, or (iii) the occurrence of any other tender offer, merger, consolidation or similar event which, in the opinion of the Board of Directors, results in a change in control of the Company. We are very excited about the opportunity of working together and we know that you will be invaluable to our success. The next two paragraphs were written by the Company's lawyer. I apologize for their being so terse. 2 Mark Nelson July 22, 1999 Page 2 Your employment is at-will and for no specified period, and either you or the Company may terminate this employment relationship at any time and for any reason. As an employee, you will be expected to abide by the Company's rules and regulations and to devote all of your business time, skill, attention and best efforts to Company business so as to fulfill the responsibilities assigned to you. Your acceptance of this offer and commencement of employment with the Company is contingent upon the execution and delivery of the Company's Confidential Information and Invention Assignment Agreement (the "Confidentiality Agreement"), a copy of which is enclosed for your review and execution, to an officer of the Company prior to or on your Start Date. For purposes of federal immigration law, you will be required to provide to the Company documentary evidence of your identity and eligibility for employment in the United States. Such documentation must be provided within three (3) business days of your date of hire, or our employment relationship with you may be terminated. You agree to follow the Company's strict policy that employees must not disclose, either directly or indirectly, any information, including any of the terms of this agreement, regarding salary, bonuses, or stock option allocations to any person, including other employees of the Company; provided, however, that you may discuss such terms with members of your immediate family and any legal, tax or accounting specialists who provide you with individual legal, tax or accounting advice. This employment offer will expire if not accepted by July 16, 1999. To accept the offer before this expiration date, you must sign and date this letter in the space provided below and return it to me, along with a signed and dated copy of the Confidentiality Agreement. This letter, together with the Confidentiality Agreement, sets forth the terms of your employment with the Company and supersede any prior representations or agreements, whether written or oral. This letter may not be modified or amended except by a written agreement, signed by the Company and by you. Sincerely, Niku Corporation BY: ------------------------------------------- Cathy Bottarini, Office of the Chairman 3 Mark Nelson July 22, 1999 Page 3 AGREED AND ACCEPTED: Mark Nelson - -------------------------------------- Signature - -------------------------------------- Date enclosure: Duplicate Letter Confidential Information and Invention Assignment Agreement EX-10.15 27 EX-10.15 1 EXHIBIT 10.15 [NIKU CORPORATION LETTERHEAD] May 1, 1999 Rhonda Dibachi 27800 Central Drive Los Altos, CA 94022 Dear Rhonda: I am pleased to offer you a position with Niku Corporation as the Director of Product Management and Development, and Acting Vice President of Development reporting directly to Farzad Dibachi, commencing on May 1, 1998. You will receive a monthly salary of $12,000.00, which is equivalent to $144,000.00 on an annualized basis, less applicable withholding, payable twice monthly, in accordance with Niku's normal payroll procedures. You are also eligible to receive certain employee benefits which will be outlined in the Niku employee handbook. Like all Niku employees, you will be entitled to two weeks of vacation and eight holidays each year. We are very excited about the opportunity of working together and we know that you will be invaluable to Niku's success. The next two paragraphs were written by Niku's lawyer. I apologize for their being so terse. Your employment is at-will and for no specified period, and either you or Niku may terminate this employment relationship at any time and for any reason. As an employee of Niku, you will be expected to abide by the company's rules and regulations and to devote all of your business time, skill, attention and best efforts to Niku business to fulfill the responsibilities assigned to you. Your acceptance of this offer and commencement of employment with the Company is contingent upon the execution, and delivery to an officer of the Company, of the Company's Confidential Information and Invention Assignment Agreement, a copy of which is enclosed for your review and execution (the "Confidentiality Agreement"), prior to or on your Start Date. For purposes of federal immigration law, you will be required to provide to the Company documentary evidence of your identity and eligibility for employment in the United States. Such documentation must be provided within three (3) business days of your date of hire, or our employment relationship with you may be terminated. You agree to follow the Company's strict policy that employees must not disclose, either directly or indirectly, any information, including any of the terms of this agreement, regarding salary, bonuses, or stock option allocations to any person, including other employees of the Company; provided, however, that you may discuss such terms with members of your immediate family 2 Rhonda Dibachi May 1, 1999 Page 2 and any legal, tax or accounting specialists who provide you with individual legal, tax or accounting advice. To accept the offer before the expiration date, you must sign and date this letter in the space provided below and return it to me, along with a signed and dated copy of the Confidentiality Agreement. This letter, together with the Confidentiality Agreement, sets forth the terms of your employment with the Company and supersede any prior representations or agreements, whether written or oral. This letter may not be modified or amended except by a written agreement, signed by the Company and by you. Sincerely, Niku Corporation BY: --------------------------------------- Cathy Bottarini, Office of the Chairman AGREED AND ACCEPTED: Rhonda Dibachi - -------------------------------------- Signature - -------------------------------------- Date enclosure: Duplicate Letter Confidential Information and Invention Assignment Agreement EX-10.16 28 EX-10.16 1 EXHIBIT 10.16 [NIKU CORPORATION LETTERHEAD] November 30, 1998 Ken Johnson 5 Creek Ledge Court Danville, CA 94506 Dear Ken: I am pleased to offer you a position with Niku Corporation as the Vice President of Sales reporting directly to Farzad Dibachi, commencing on January 4, 1998. You will receive a monthly salary of $16,666.67, which is equivalent to $200,000.00 on an annualized basis, less applicable withholding, payable twice monthly, in accordance with our normal payroll procedures. You are also eligible to receive certain employee benefits which will be outlined in the Company employee handbook. Like all Niku employees, you will be entitled to two weeks of vacation and eight holidays each year. On your start date of January 4, 1999, Farzad Dibachi and you will discuss and negotiate a sales commission plan for Niku's fiscal 1999 year (ending December 31). The commission plan will be reduced to writing, signed by both parties, and attached to this offer letter as Exhibit A. In connection with the commencement of your employment, the Company will recommend that the Board of Directors grant you the right to purchase 250,000 shares of the Company's Common Stock with an exercise price equal to the fair market value on the date of the grant. The option will vest at the rate of 1/4th after one year and 1/48th per month thereafter (so that the option is fully vested after four years). Vesting will, of course, depend on your continued employment with the Company. The option will be an incentive stock option to the maximum extent allowed by the tax code and will be subject to the terms of the Company's 1998 Stock Plan and the stock Option Agreement between you and the Company. We are very excited about the opportunity of working together and we know that you will be invaluable to our success. The next two paragraphs were written by Niku's lawyer. I apologize for their being so terse. Your employment is at-will and for no specified period, and either you or Niku may terminate this employment relationship at any time and for any reason. As an employee of Niku, you will be expected to abide by the company's rules and regulations and to devote all of your business time, skill, attention and best efforts to Niku business so as to fulfill the responsibilities assigned to you. Your acceptance of this offer and commencement of employment with the Company is 2 Ken Johnson November 30, 1998 Page 2 contingent upon the execution, and delivery to an officer of the Company, of the Company's Confidential Information and Invention Assignment Agreement, a copy of which is enclosed for your review and execution (the "Confidentiality Agreement"), prior to or on your Start Date. For purposes of federal immigration law, you will be required to provide to the Company documentary evidence of your identity and eligibility for employment in the United States. Such documentation must be provided within three (3) business days of your date of hire, or our employment relationship with you may be terminated. You agree to follow the Company's strict policy that employees must not disclose, either directly or indirectly, any information, including any of the terms of this agreement, regarding salary, bonuses, or stock option allocations to any person, including other employees of the Company; provided, however, that you may discuss such terms with members of your immediate family and any legal, tax or accounting specialists who provide you with individual legal, tax or accounting advice. This employment offer will expire if not accepted by December 28, 1998. To accept the offer before the expiration date, you must sign and date this letter in the space provided below and return it to me, along with a signed and dated copy of the Confidentiality Agreement. This letter, together with the Confidentiality Agreement, sets forth the terms of your employment with the Company and supersede any prior representations or agreements, whether written or oral. This letter may not be modified or amended except by a written agreement, signed by the Company and by you. Sincerely, Niku Corporation BY: --------------------------------------- Cathy Bottarini, Office of the Chairman 3 Ken Johnson November 30, 1998 Page 3 AGREED AND ACCEPTED: Ken Johnson - -------------------------------------- Signature - -------------------------------------- Date enclosure: Duplicate Letter Confidential Information and Invention Assignment Agreement EX-10.17 29 EX-10.17 1 EXHIBIT 10.17 [NIKU CORPORATION LETTERHEAD] January 12, 1998 Harold Slawik 2651 Debbie Place San Carlos, CA 94070 Dear Harold: I am pleased to offer you a position with Niku Corporation as the Vice President of Intellectual Property reporting directly to Farzad Dibachi, commencing on January 12, 1998. You will receive a monthly salary of $12,000.00, less applicable withholding, payable twice monthly, in accordance with Niku's normal payroll procedures. In addition, you will be eligible for a sign-on bonus of $50,000 (gross) to be paid at the end of the first quarter, assuming continued employment. As a founding employee of Niku, you are offered the opportunity to purchase 87,500 of the company's common stock for a nominal consideration, based on the Founder's common stock purchase plan. You will be granted options, contingent upon Board approval, for 350,000 shares of Niku stock to be vested over the next 4 years beginning on the first date of your employment. You are also eligible to receive certain employee benefits which will be outlined in the Niku employee handbook. Like all Niku employees, you will be entitled to two weeks of vacation and eight holidays each year. I am very excited about the opportunity of working together again and I know that you will be invaluable to Niku's success. The next two paragraphs were written by Niku's lawyer. I apologize that it is so terse. Your employment is at-will and for no specified period, and either you or Niku may terminate this employment relationship at any time and for any reason. The agreement in this letter sets forth our entire understanding regarding your employment and supersedes any other negotiations, written or oral. As an employee of Niku, you will be expected to abide by the company's rules and regulations and to devote all of your business time, skill, attention and best efforts to Niku business to fulfill the responsibilities assigned to you. You will be required to sign the Employee Confidentiality and Inventions Agreement, attached to this letter (I signed one of these as well), as a condition of 2 Harold Slawik January 12, 1998 Page 2 your employment. For purposes of federal immigration law, you will be required to provide to the Company documentary evidence of your identity and eligibility for employment in the United States. Such documentation must be provided within three (3) business days of your date of hire, or our employment relationship with you may be terminated. To accept this offer of employment, please sign a copy of this letter and return it to me in the enclosed stamped envelope. Sincerely, Niku Corporation BY: ---------------------------------------------- Cathy Bottarini, Office of the Chairman AGREED AND ACCEPTED: ----------------------------------------------- Proposed Commencement Date: -------------------------- enclosure: Duplicate Letter Confidential Information and Invention Assignment Agreement EX-10.18 30 EX-10.18 1 EXHIBIT 10.18 NIKU CORPORATION RESTRICTED STOCK PURCHASE AGREEMENT This Restricted Stock Purchase Agreement (the "Agreement") is made as of November 1, 1999 by and between Niku Corporation, a Delaware corporation (the "Company"), and JOSHUA PICKUS ("Purchaser"). 1. SALE OF STOCK. Subject to the terms and conditions of this Agreement, on the Purchase Date (as defined below) the Company will issue and sell to Purchaser, and Purchaser agrees to purchase from the Company, an aggregate of One Million Two Hundred Fifty Thousand (1,250,000) shares of the Company's Common Stock (the "Shares") at a purchase price of $1.00 per Share for a total purchase price of $1,250,000.00. The term "Shares" refers to the purchased Shares and all securities received in replacement of or in connection with the Shares pursuant to stock dividends or splits, all securities received in replacement of the Shares in a recapitalization, merger, reorganization, exchange or the like, and all new, substituted or additional securities or other properties to which Purchaser is entitled by reason of Purchaser's ownership of the Shares. 2. PURCHASE. The purchase and sale of the Shares under this Agreement shall occur at the principal office of the Company simultaneously with the execution of this Agreement by the parties (the "Purchase Date"). On the Purchase Date, the Company will deliver to Purchaser a certificate representing the Shares to be purchased by Purchaser (which shall be issued in Purchaser's name) against payment of the purchase price therefor by Purchaser, by delivery of $125 as payment of the par value and a Full Recourse Promissory Note, attached hereto as Exhibit D, in the amount of $1,249,875. 3. LIMITATIONS ON TRANSFER. In addition to any other limitation on transfer created by applicable securities laws, Purchaser shall not assign, encumber or dispose of any interest in the Shares while the Shares are subject to the Company's Repurchase Option (as defined below). After any Shares have been released from such Repurchase Option, Purchaser shall not assign, encumber or dispose of any interest in such Shares except in compliance with the provisions below and applicable securities laws. (a) REPURCHASE OPTION. (i) In the event of the voluntary or involuntary termination of Purchaser's employment or consulting relationship with the Company for any reason (including death or disability), with or without cause, the Company shall upon the date of such termination (the "Termination Date") have an irrevocable, exclusive option (the "Repurchase Option") for a period of 90 days from such date to repurchase all or any portion of the Shares held by Purchaser as of the Termination Date which have not yet been released from the Company's Repurchase Option at the original purchase price per Share specified in Section 1 (adjusted for any stock splits, stock dividends and the like). Shares subject to the Company's Repurchase Option are 2 referred to herein as "Unvested Shares" and shares that have been released from the Company's Repurchase Option are referred to as "Vested Shares". (ii) The Repurchase Option shall be exercised by the Company by written notice to Purchaser or Purchaser's executor and, at the Company's option, (A) by delivery to Purchaser or Purchaser's executor with such notice of a check in the amount of the purchase price for the Shares being purchased, or (B) in the event Purchaser is indebted to the Company (whether or not said indebtedness is then due and payable), by cancellation by the Company of an amount of such indebtedness equal to the purchase price for the Shares being repurchased, or (C) by a combination of (A) and (B) so that the combined payment and cancellation of indebtedness equals such purchase price. Upon delivery of such notice and payment of the purchase price in any of the ways described above, the Company shall become the legal and beneficial owner of the Shares being repurchased and all rights and interest therein or related thereto, and the Company shall have the right to transfer to its own name the number of Shares being repurchased by the Company, without further action by Purchaser. (iii) 100% of the Shares shall initially be subject to the Repurchase Option with one-third (1/3rd) of the total number of Shares being released from the Repurchase Option on the one year anniversary of the Vesting Commencement Date (as set forth on the signature page of this Agreement), and an additional 1/36th of the total number of Shares shall be released from the Repurchase Option each month thereafter, so that all shares are fully vested after three years. Fractional shares shall be rounded to the nearest whole share. (b) ADJUSTMENTS UPON CHANGE IN CONTROL. In the event of (i) a merger, reorganization, consolidation or other transaction in which the shareholders of the Company before such merger, reorganization, consolidation or other transaction own, as a result of their ownership of the Company's securities, less than fifty percent (50%) of the outstanding voting equity securities of the surviving corporation (or in the case of a triangular merger, the parent corporation of the surviving corporation), (ii) a sale or other transfer of all or substantially all of the assets of the Company, or (iii) a transfer of more than fifty percent (50%) of the outstanding voting equity securities of the Company in one transaction or a series of related transactions, any remaining Unvested Shares will immediately become Vested Shares. (c) RIGHT OF FIRST REFUSAL. Before any Vested Shares held by Purchaser or any transferee of Purchaser (either being sometimes referred to herein as the "Holder") may be sold or otherwise transferred (including transfer by gift or operation of law), the Company or its assignee(s) shall have a right of first refusal to purchase the Shares on the terms and conditions set forth in this Section 3(c) (the "Right of First Refusal"). Unvested Shares may not be transferred unless otherwise approved by the Company. (i) NOTICE OF PROPOSED TRANSFER. The Holder of the Shares shall deliver to the Company a written notice (the "Notice") stating: (A) the Holder's bona fide intention to sell or otherwise transfer such Shares; (B) the name of each proposed purchaser or other transferee ("Proposed Transferee"); (C) the number of Shares to be transferred to each Proposed Transferee; and (D) the terms and conditions of each proposed sale or transfer. The 2 3 Holder shall offer the Shares at the same price (the "Offered Price") and upon the same terms (or terms as similar as reasonably possible) to the Company or its assignee(s). (ii) EXERCISE OF RIGHT OF FIRST REFUSAL. At any time within 30 days after receipt of the Notice, the Company and/or its assignee(s) may, by giving written notice to the Holder, elect to purchase all, but not less than all, of the Shares proposed to be transferred to any one or more of the Proposed Transferees, at the purchase price determined in accordance with subsection (iii) below. (iii) PURCHASE PRICE. The purchase price ("Purchase Price") for the Shares purchased by the Company or its assignee(s) under this Section 3(c) shall be the Offered Price. If the Offered Price includes consideration other than cash, the cash equivalent value of the non-cash consideration shall be determined by the Board of Directors of the Company in good faith. (iv) PAYMENT. Payment of the Purchase Price shall be made, at the option of the Company or its assignee(s), in cash (by check), by cancellation of all or a portion of any outstanding indebtedness of the Holder to the Company (or, in the case of repurchase by an assignee, to the assignee), or by any combination thereof within 30 days after receipt of the Notice or in the manner and at the times set forth in the Notice. (v) HOLDER'S RIGHT TO TRANSFER. If all of the Shares proposed in the Notice to be transferred to a given Proposed Transferee are not purchased by the Company and/or its assignee(s) as provided in this Section 3(c), then the Holder may sell or otherwise transfer such Shares to that Proposed Transferee at the Offered Price or at a higher price, provided that such sale or other transfer is consummated within 60 days after the date of the Notice and provided further that any such sale or other transfer is effected in accordance with any applicable securities laws and the Proposed Transferee agrees in writing that the provisions of this Section 3 shall continue to apply to the Shares in the hands of such Proposed Transferee. If the Shares described in the Notice are not transferred to the Proposed Transferee within such period, or if the Holder proposes to change the price or other terms to make them more favorable to the Proposed Transferee, a new Notice shall be given to the Company, and the Company and/or its assignees shall again be offered the Right of First Refusal before any Shares held by the Holder may be sold or otherwise transferred. (vi) EXCEPTION FOR CERTAIN FAMILY TRANSFERS. Anything to the contrary contained in this Section 3(c) notwithstanding, the transfer of any or all of the Shares during Purchaser's lifetime or on Purchaser's death by will or intestacy to Purchaser's Immediate Family (as defined below) or to a trust for the benefit of Purchaser's Immediate Family shall be exempt from the provisions of this Section. "Immediate Family" as used herein shall mean spouse, lineal descendant or antecedent, father, mother, brother or sister. In such case, the transferee or other recipient shall receive and hold the Shares so transferred subject to the provisions of this Section, and there shall be no further transfer of such Shares except in accordance with the terms of this Section. 3 4 (d) INVOLUNTARY TRANSFER. (i) COMPANY'S RIGHT TO PURCHASE UPON INVOLUNTARY TRANSFER. In the event, at any time after the date of this Agreement, of any transfer by operation of law or other involuntary transfer (including divorce or death, but excluding, in the event of death, a transfer to Immediate Family as set forth in Section 3(c)(vi) above) of all or a portion of the Shares by the record holder thereof, the Company shall have the right to purchase all of the Shares transferred at the greater of the purchase price paid by Purchaser pursuant to this Agreement or the fair market value (as determined in good faith by the Company's Board of Directors) of the Shares on the date of transfer. Upon such a transfer, the person acquiring the Shares shall promptly notify the Secretary of the Company of such transfer. The right to purchase such Shares shall be provided to the Company for a period of 30 days following receipt by the Company of written notice by the person acquiring the Shares. (ii) PRICE FOR INVOLUNTARY TRANSFER. With respect to any stock to be transferred pursuant to Section 3(d)(i), the price per Share shall be a price set by the Board of Directors of the Company that will reflect the current value of the stock in terms of present revenues, earnings and future prospects of the Company. The Company shall notify Purchaser or his or her executor of the price so determined within 30 days after receipt by it of written notice of the transfer or proposed transfer of Shares. However, if Purchaser does not agree with the valuation as determined by the Board of Directors of the Company, Purchaser shall be entitled to have the valuation determined by an independent appraiser to be mutually agreed upon by the Company and Purchaser and whose fees shall be borne equally by the Company and Purchaser. (e) ASSIGNMENT. The right of the Company to purchase any part of the Shares may be assigned in whole or in part to any stockholder or stockholders of the Company or other persons or organizations; provided, however, that an assignee, other than a corporation that is the Parent (defined as a "parent corporation"; whether now or hereafter existing, as defined in Section 424(e) of the Internal Revenues Code) or a 100% owned subsidiary of the Company, must pay the Company, upon assignment of such right, cash equal to the difference between the original purchase price and Fair Market Value, if the original purchase price is less than the Fair Market Value of the Shares subject to the assignment. (f) RESTRICTIONS BINDING ON TRANSFEREES. All transferees of Shares or any interest therein will receive and hold such Shares or interest subject to the provisions of this Agreement, including, insofar as applicable, the Repurchase Option. Any sale or transfer of the Shares shall be void unless the provisions of this Agreement are satisfied. (g) TERMINATION OF RIGHTS. The Right of First Refusal and the Company's right to repurchase the Shares in the event of an involuntary transfer pursuant to Section 3(d) above shall terminate upon the first sale of Common Stock of the Company to the general public pursuant to a registration statement filed with and declared effective by the Securities and Exchange Commission under the Securities Act of 1933, as amended (the "Securities Act"). Upon termination of the Right of First Refusal and the expiration or exercise of the Repurchase 4 5 Option, a new certificate or certificates representing the Shares not repurchased shall be issued, on request, without the legend referred to in Section 6(a)(ii) below and delivered to Purchaser. 4. ESCROW OF UNVESTED SHARES. For purposes of facilitating the enforcement of the provisions of Section 3 above, Purchaser agrees, immediately upon receipt of the certificate(s) for the Shares subject to the Repurchase Option, to deliver such certificate(s), together with an Assignment Separate from Certificate in the form attached to this Agreement as Exhibit A executed by Purchaser and by Purchaser's spouse (if required for transfer), in blank, to the Secretary of the Company, or the Secretary's designee, to hold such certificate(s) and Assignment Separate from Certificate in escrow and to take all such actions and to effectuate all such transfers and/or releases as are in accordance with the terms of this Agreement. Purchaser hereby acknowledges that the Secretary of the Company, or the Secretary's designee, is so appointed as the escrow holder with the foregoing authorities as a material inducement to make this Agreement and that said appointment is coupled with an interest and is accordingly irrevocable. Purchaser agrees that said escrow holder shall not be liable to any party hereof (or to any other party). The escrow holder may rely upon any letter, notice or other document executed by any signature purported to be genuine and may resign at any time. Purchaser agrees that if the Secretary of the Company, or the Secretary's designee, resigns as escrow holder for any or no reason, the Board of Directors of the Company shall have the power to appoint a successor to serve as escrow holder pursuant to the terms of this Agreement. 5. INVESTMENT AND TAXATION REPRESENTATIONS. In connection with the purchase of the Shares, Purchaser represents to the Company the following: (a) Purchaser is aware of the Company's business affairs and financial condition and has acquired sufficient information about the Company to reach an informed and knowledgeable decision to acquire the Shares. Purchaser is purchasing the Shares for investment for his or her own account only and not with a view to, or for resale in connection with, any "distribution" thereof within the meaning of the Securities Act. (b) Purchaser understands that the Shares have not been registered under the Securities Act by reason of a specific exemption therefrom, which exemption depends upon, among other things, the bona fide nature of Purchaser's investment intent as expressed herein. (c) Purchaser understands that the Shares are "restricted securities" under applicable U.S. federal and state securities laws and that, pursuant to these laws, Purchaser must hold the Shares indefinitely unless they are registered with the Securities and Exchange Commission and qualified by state authorities, or an exemption from such registration and qualification requirements is available. Purchaser further acknowledges that if an exemption from registration or qualification is available, it may be conditioned on various requirements including, but not limited to, the time and manner of sale, the holding period for the Shares, and requirements relating to the Company which are outside of Purchaser's control, and which the Company is under no obligation and may not be able to satisfy. 5 6 (d) Purchaser understands that Purchaser may suffer adverse tax consequences as a result of Purchaser's purchase or disposition of the Shares. Purchaser represents that Purchaser has consulted any tax consultants Purchaser deems advisable in connection the purchase or disposition of the Shares and that Purchaser is not relying on the Company for any tax advice. 6. RESTRICTIVE LEGENDS AND STOP-TRANSFER ORDERS. (a) LEGENDS. The certificate or certificates representing the Shares shall bear the following legends (as well as any legends required by applicable state and federal corporate and securities laws): (i) THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AND HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF. NO SUCH SALE OR DISTRIBUTION MAY BE EFFECTED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL IN A FORM SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF 1933. (ii) THE SHARES REPRESENTED BY THIS CERTIFICATE MAY BE TRANSFERRED ONLY IN ACCORDANCE WITH THE TERMS OF AN AGREEMENT BETWEEN THE COMPANY AND THE STOCKHOLDER, A COPY OF WHICH IS ON FILE WITH THE SECRETARY OF THE COMPANY. (b) STOP-TRANSFER NOTICES. Purchaser agrees that, in order to ensure compliance with the restrictions referred to herein, the Company may issue appropriate "stop transfer" instructions to its transfer agent, if any, and that, if the Company transfers its own securities, it may make appropriate notations to the same effect in its own records. (c) REFUSAL TO TRANSFER. The Company shall not be required (i) to transfer on its books any Shares that have been sold or otherwise transferred in violation of any of the provisions of this Agreement or (ii) to treat as owner of such Shares or to accord the right to vote or pay dividends to any purchaser or other transferee to whom such Shares shall have been so transferred. 7. NO EMPLOYMENT RIGHTS. Nothing in this Agreement shall affect in any manner whatsoever the right or power of the Company, or a Parent or Subsidiary of the Company, to 6 7 terminate Purchaser's employment or consulting relationship, for any reason, with or without cause. 8. SECTION 83(B) ELECTION. Purchaser understands that Section 83(a) of the Internal Revenue Code of 1986, as amended (the "Code"), taxes as ordinary income the difference between the amount paid for the Shares and the Fair Market Value of the Shares as of the date any restrictions on the Shares lapse. In this context, "restriction" means the right of the Company to buy back the Shares pursuant to the Repurchase Option set forth in Section 3(a) of this Agreement. Purchaser understands that Purchaser may elect to be taxed at the time the Shares are purchased, rather than when and as the Repurchase Option expires, by filing an election under Section 83(b) (an "83(b) Election") of the Code with the Internal Revenue Service within 30 days from the date of purchase. Even if the Fair Market Value of the Shares at the time of the execution of this Agreement equals the amount paid for the Shares, the election must be made to avoid income under Section 83(a) in the future. Purchaser understands that failure to file such an election in a timely manner may result in adverse tax consequences for Purchaser. Purchaser further understands that an additional copy of such election form should be filed with his or her federal income tax return for the calendar year in which the date of this Agreement falls. Purchaser acknowledges that the foregoing is only a summary of the effect of United States federal income taxation with respect to purchase of the Shares hereunder, and does not purport to be complete. Purchaser further acknowledges that the Company has directed Purchaser to seek independent advice regarding the applicable provisions of the Code, the income tax laws of any municipality, state or foreign country in which Purchaser may reside, and the tax consequences of Purchaser's death. Purchaser agrees that he will execute and deliver to the Company with this executed Agreement a copy of the Acknowledgment and Statement of Decision Regarding Section 83(b) Election (the "Acknowledgment"), attached hereto as Exhibit B. Purchaser further agrees that Purchaser will execute and submit with the Acknowledgment a copy of the 83(b) Election, attached hereto as Exhibit C, if Purchaser has indicated in the Acknowledgment his or her decision to make such an election. 9. MARKET STANDOFF AGREEMENT. In connection with the initial public offering of the Company's securities and upon request of the Company or the underwriters managing such underwritten offering of the Company's securities, Purchaser agrees not to sell, make any short sale of, loan, grant any option for the purchase of, or otherwise dispose of any Shares (other than those included in the registration) without the prior written consent of the Company or such underwriters, as the case may be, for such period of time (not to exceed 180 days) from the effective date of such registration as may be requested by the Company or such managing underwriters and to execute an agreement reflecting the foregoing as may be requested by the underwriters at the time of the Company's initial public offering. 10. MISCELLANEOUS. (a) GOVERNING LAW. This Agreement and all acts and transactions pursuant hereto and the rights and obligations of the parties hereto shall be governed, construed and 7 8 interpreted in accordance with the laws of the State of California, without giving effect to principles of conflicts of law. (b) STOCK PLEDGE AGREEMENT. As a condition of entering into this Agreement, Purchaser agrees to enter into the Stock Pledge Agreement attached as Exhibit E. (c) ENTIRE AGREEMENT; ENFORCEMENT OF RIGHTS. This Agreement and the Exhibits hereto set forth the entire agreement and understanding of the parties relating to the subject matter herein and merges all prior discussions between them. No modification of or amendment to this Agreement, nor any waiver of any rights under this Agreement, shall be effective unless in writing signed by the parties to this Agreement. The failure by either party to enforce any rights under this Agreement shall not be construed as a waiver of any rights of such party. (d) SEVERABILITY. If one or more provisions of this Agreement are held to be unenforceable under applicable law, the parties agree to renegotiate such provision in good faith. In the event that the parties cannot reach a mutually agreeable and enforceable replacement for such provision, then (i) such provision shall be excluded from this Agreement, (ii) the balance of the Agreement shall be interpreted as if such provision were so excluded and (iii) the balance of the Agreement shall be enforceable in accordance with its terms. (e) CONSTRUCTION. This Agreement is the result of negotiations between and has been reviewed by each of the parties hereto and their respective counsel, if any; accordingly, this Agreement shall be deemed to be the product of all of the parties hereto, and no ambiguity shall be construed in favor of or against any one of the parties hereto. (f) NOTICES. Any notice required or permitted by this Agreement shall be in writing and shall be deemed sufficient when delivered personally or sent by telegram or fax or 48 hours after being deposited in the U.S. mail, as certified or registered mail, with postage prepaid, and addressed to the party to be notified at such party's address as set forth below or as subsequently modified by written notice. (g) COUNTERPARTS. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original and all of which together shall constitute one instrument. (h) SUCCESSORS AND ASSIGNS. The rights and benefits of this Agreement shall inure to the benefit of, and be enforceable by the Company's successors and assigns. The rights and obligations of Purchaser under this Agreement may only be assigned with the prior written consent of the Company. (i) CALIFORNIA CORPORATE SECURITIES LAW. THE SALE OF THE SECURITIES WHICH ARE THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF THE SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION THEREFOR PRIOR TO THE 8 9 QUALIFICATION IS UNLAWFUL, UNLESS THE SALE OF SECURITIES IS EXEMPT FROM QUALIFICATION BY SECTION 25100, 25102 OR 25105 OF THE CALIFORNIA CORPORATIONS CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY CONDITIONED UPON THE QUALIFICATION BEING OBTAINED, UNLESS THE SALE IS SO EXEMPT. [Signature Page Follows] 9 10 The parties have executed this Agreement as of the date first set forth above. NIKU CORPORATION By:________________________________________ Title:_____________________________________ Address: ___________________________________________ ___________________________________________ PURCHASER: JOSHUA PICKUS ___________________________________________ (Signature) Address: ___________________________________________ ___________________________________________ Vesting Commencement Date: November 1, 1999 I, ________________________________, spouse of Joshua Pickus, have read and hereby approve the foregoing Agreement. In consideration of the Company's granting my spouse the right to purchase the Shares as set forth in the Agreement, I hereby agree to be irrevocably bound by the Agreement and further agree that any community property or similar interest that I may have in the Shares shall be similarly bound by the Agreement. I hereby appoint my spouse as my attorney-in-fact with respect to any amendment or exercise of any rights under the Agreement. ____________________________________________ Spouse of Joshua Pickus 10 11 EXHIBIT A ASSIGNMENT SEPARATE FROM CERTIFICATE FOR VALUE RECEIVED and pursuant to that certain Restricted Stock Purchase Agreement between the undersigned ("Purchaser") and Niku Corporation (the "Company") dated November 1, 1999 (the "Agreement"), Purchaser hereby sells, assigns and transfers unto the Company _________________________________ (________) shares of the Common Stock of the Company, standing in Purchaser's name on the books of the Company and represented by Certificate No. ____, and hereby irrevocably constitutes and appoints ________________________________ __________________________ to transfer said stock on the books of the Company with full power of substitution in the premises. THIS ASSIGNMENT MAY ONLY BE USED AS AUTHORIZED BY THE AGREEMENT AND THE EXHIBITS THERETO. Dated: ______________________ Signature: --------------------------------------- Joshua Pickus --------------------------------------- Spouse of Joshua Pickus (if applicable) INSTRUCTION: PLEASE DO NOT FILL IN ANY BLANKS OTHER THAN THE SIGNATURE LINE. The purpose of this assignment is to enable the Company to exercise its repurchase option set forth in the Agreement without requiring additional signatures on the part of Purchaser. 12 EXHIBIT B ACKNOWLEDGMENT AND STATEMENT OF DECISION REGARDING SECTION 83(B) ELECTION The undersigned (which term includes the undersigned's spouse), a purchaser of 1,250,000 shares of Common Stock of Niku Corporation, a Delaware corporation (the "Company") by exercise of stock purchase right (the "Shares") granted to the undersigned, hereby states as follows: 1. The undersigned has carefully reviewed the stock purchase agreement pursuant to which the Shares were purchased. 2. The undersigned either [check and complete as applicable]: (a) ____ has consulted, and has been fully advised by, the undersigned's own tax advisor, regarding the federal, state and local tax consequences of purchasing shares under the Plan, and particularly regarding the advisability of making elections pursuant to Section 83(b) of the Internal Revenue Code of 1986, as amended (the "Code") and pursuant to the corresponding provisions, if any, of applicable state law; or (b) ____ has knowingly chosen not to consult such a tax advisor. 3. The undersigned hereby states that the undersigned has decided [check as applicable]: (a) ____ to make an election pursuant to Section 83(b) of the Code, and is submitting to the Company, together with the undersigned's executed Restricted Stock Purchase Agreement, an executed form entitled "Election Under Section 83(b) of the Internal Revenue Code of 1986;" or (b) ____ not to make an election pursuant to Section 83(b) of the Code. 13 4. Neither the Company nor any subsidiary or representative of the Company has made any warranty or representation to the undersigned with respect to the tax consequences of the undersigned's purchase of shares under the Plan or of the making or failure to make an election pursuant to Section 83(b) of the Code or the corresponding provisions, if any, of applicable state law. Date: -------------------------- ------------------------------- Joshua Pickus Date: -------------------------- ------------------------------- Spouse of Joshua Pickus 2 14 EXHIBIT C ELECTION UNDER SECTION 83(B) OF THE INTERNAL REVENUE CODE OF 1986 The undersigned Taxpayer hereby elects, pursuant to Section 83(b) of the Internal Revenue Code, as amended, to include in gross income for the Taxpayer's current taxable year the excess, if any, of the fair market value of the property described below at the time of transfer over the amount paid for such property, as compensation for services: 1. The name, address, taxpayer identification number and taxable year of the undersigned is as follows: NAME OF TAXPAYER: JOSHUA PICKUS ---------------------------------- ADDRESS: ---------------------------------- ---------------------------------- IDENTIFICATION NO. OF TAXPAYER: ------------------------------ TAXABLE YEAR: ------------------------------ 2. The property with respect to which the election is made is described as follows: 1,250,000 shares of the Common Stock ($0.0001 par value) of Niku Corporation, a Delaware corporation (the "Company"). 3. The date on which the property was transferred is: _______________ 4. The property is subject to the following restrictions: Repurchase option at cost in favor of the Company upon termination of taxpayer's employment or consulting relationship. 5. The fair market value at the time of transfer, determined without regard to any restriction other than a restriction which by its terms will never lapse, of such property is: $_______________. 6. The amount (if any) paid for such property: $______________ The undersigned has submitted a copy of this statement to the person for whom the services were performed in connection with the undersigned's receipt of the above-described property. The transferee of such property is the person performing the services in connection with the transfer of said property. The undersigned understands that the foregoing election may not be revoked except with the consent of the Commissioner. Dated: ----------------------------- ------------------------------------ Joshua Pickus 15 EXHIBIT D SECURED FULL RECOURSE PROMISSORY NOTE Redwood City, California $1,249,875.00 November 1, 1999 1. OBLIGATION. In exchange for the issuance to the undersigned ("Purchaser") of 1,250,000 shares (the "Shares") of the Common Stock of Niku Corporation, a Delaware corporation (the "Company"), receipt of which is hereby acknowledged, Purchaser hereby promises to pay to the order of the Company on November 1, 2002, or at such earlier dates as provided in Sections 3 and 6 below, at the Company's principal place of business at 305 Main Street, Redwood City, California, or at such other place as the Company may direct, the principal sum of One Million Two Hundred Forty-Nine Thousand Eight Hundred Seventy-Five Dollars ($1,249,875.00) together with interest compounded annually on the unpaid principal at the rate of 6.08%, which rate is not less than the minimum rate established pursuant to Section 1274(d) of the Internal Revenue Code of 1986, as amended, on the earliest date on which there was a binding contract in writing for the purchase of the Shares; provided, however, that the rate at which interest will accrue on unpaid principal under this Note will not exceed the highest rate permitted by applicable law. 2. SECURITY. Payment of this Note is secured by a security interest in the Shares granted to the Company by Purchaser under a Stock Pledge Agreement dated of even date herewith between the Company and Purchaser (the "Pledge Agreement"). This Note is being tendered by Purchaser to the Company as part of the purchase price of the Shares pursuant to that certain Restricted Stock Purchase Agreement between Purchaser and the Company dated of even date with this Note (the "Purchase Agreement"). 3. DEFAULT; ACCELERATION OF OBLIGATION. Purchaser will be deemed to be in default under this Note and the principal sum of this Note, together with all interest accrued thereon, will immediately become due and payable in full: (a) upon Purchaser's failure to make any payment when due under this Note; (b) upon the filing by or against Purchaser of any voluntary or involuntary petition in bankruptcy or any petition for relief under the federal bankruptcy code or any other state or federal law for the relief under the federal bankruptcy code or any other state or federal law for the relief of debtors; or (c) upon the execution by Purchaser of an assignment for the benefit of creditors or the appointment of a receiver, custodian, trustee or similar party to take possession of Purchaser's assets or property. In addition Purchaser will be deemed to be in default under this Note and the principal and interest will become due and payable in full (1) thirty (30) days following any transfer of the Shares (except (A) a transfer to the Company, or (B) a transfer to Immediate Family as set forth in Section 3(c)(vi) of the 16 Purchase Agreement), (ii) ninety (90) days following the date Purchaser voluntarily terminates his employment or consulting relationship with the Company or (iii) six (6) months following the date Purchaser's employment or consulting relationship with the Company is terminated (other than voluntarily) for any reason (including death or disability), with or without cause. Purchaser also agrees that in connection with any termination of Purchaser's employment or consulting relationship, for any reason, whether voluntary or involuntary, if the Company exercises its Repurchase Option to repurchase all or some of the Shares under the Purchase Agreement, then the Company may cancel the appropriate amount of indebtedness due under this Note as payment for such repurchased Shares. 4. REMEDIES ON DEFAULT. Upon any default of Purchaser under this Note, the Company will have, in addition to its rights and remedies under this Note and the Pledge Agreement, full recourse against any real, personal, tangible or intangible assets of Purchaser, and may pursue any legal or equitable remedies that are available to it. 5. RULE 144 HOLDING PERIOD. PURCHASER UNDERSTANDS THAT THE HOLDING PERIOD SPECIFIED UNDER RULE 144(d) OF THE SECURITIES AND EXCHANGE COMMISSION WILL NOT BEGIN TO RUN WITH RESPECT TO SHARES PURCHASED WITH THIS NOTE UNTIL EITHER (A) THE PURCHASE PRICE OF SUCH SHARES IS PAID IN FULL IN CASH OR BY OTHER PROPERTY ACCEPTED BY THE COMPANY, OR (B) THIS NOTE IS SECURED BY COLLATERAL, OTHER THAN THE SHARES, HAVING A FAIR MARKET VALUE AT LEAST EQUAL TO THE AMOUNT OF PURCHASER'S THEN OUTSTANDING OBLIGATION UNDER THIS NOTE (INCLUDING ACCRUED INTEREST). 6. PREPAYMENT. Prepayment of principal and/or interest due under this Note may be made at any time without penalty. Unless otherwise agreed in writing by the Company, all payments will be made in lawful tender of the United States and will be applied first to the payment of accrued interest, and the remaining balance of such payment, if any, will then be applied to the payment of principal. If Purchaser prepays all or a portion of the principal amount of this Note, the Shares paid for by the portion of principal so paid will continue to be held in pledge under the Pledge Agreement to serve as independent collateral for the outstanding portion of this Note for the purpose of commencing the holding period under Rule 144(d) of the Securities and Exchange Commission with respect to other Shares purchased with this Note, unless Purchaser notifies the Company in writing otherwise and the Company consents to release of the Shares from the Pledge Agreement. 7. GOVERNING LAW; WAIVER. The validity, construction and performance of this Note will be governed by the internal laws of the State of California, excluding that body of law pertaining to conflicts of law. Purchaser hereby waives presentment, notice of non-payment, notice of dishonor, protest, demand and diligence. 8. ATTORNEYS' FEES. If suit is brought for collection of this Note, Purchaser agrees to pay all reasonable expenses, including attorneys' fees, incurred by the holder in connection therewith whether or not such suit is prosecuted to judgment. 2 17 IN WITNESS WHEREOF, Purchaser has executed this Note as of the date and year first above written. - -------------------------------- ----------------------------- Purchaser's Name: Joshua Pickus Purchaser's Signature 3 18 EXHIBIT E STOCK PLEDGE AGREEMENT This Agreement is made and entered into as of November __, 1999 between Niku Corporation, a Delaware corporation (the "Company"), and Joshua Pickus ("Pledgor"). R E C I T A L S A. In exchange for Pledgor's Secured Full Recourse Promissory Note to the Company of even date herewith (the "Note") and $125.00 in cash, the Company has issued and sold to Pledgor One Million Two Hundred Fifty Thousand (1,250,000) shares of its Common Stock, par value $0.0001 per share, (the "Shares") pursuant to the terms and conditions of that Restricted Stock Purchase Agreement between the Company and Pledgor of even date herewith (the "Purchase Agreement"). B. Pledgor has agreed that repayment of the Note will be secured by the pledge of the Shares pursuant to this Agreement. NOW, THEREFORE, the parties agree as follows: 1. CREATION OF SECURITY INTEREST. Pursuant to the provisions of the California Commercial Code, Pledgor hereby grants to the Company, and the Company hereby accepts, a first and present security interest in the Shares as collateral to secure the payment of Pledgor's obligation to the Company under the Note. Pledgor herewith delivers to the Company Common Stock certificate(s) No(s). _________, representing all the Shares, together with one stock power for each certificate in the form attached as an Exhibit to the Purchase Agreement, duly executed (with the date and number of shares left blank) by Pledgor and Pledgor's spouse, if any. For purposes of this Agreement, the Shares pledged to the Company hereby, together with any additional collateral pledged pursuant to Section 5 hereof, will hereinafter be collectively referred to as the "Collateral." Pledgor agrees that the Collateral pledged to the Company will be deposited with and held by the Escrow Holder (as defined in the Purchase Agreement) and that, notwithstanding anything to the contrary in the Purchase Agreement, for purposes of carrying out the provisions of this Agreement, Escrow Holder will act solely for the Company as its agent. 2. REPRESENTATIONS AND WARRANTIES. Pledgor hereby represents and warrants to the Company that Pledgor has good title (both record and beneficial) to the Collateral, free and clear of all claims, pledges, security interests, liens or encumbrances of every nature whatsoever, and that Pledgor has the right to pledge and grant the Company the security interest in the Collateral granted under this Agreement. Pledgor further agrees that, except for transfers to Immediate Family as set forth in Section 3(c)(vi) of the Purchase Agreement, until the entire principal sum and all accrued interest due under the Note has been paid in full, Purchaser will not, without the Company's prior written consent, (i) sell, assign 19 or transfer, or attempt to sell, assign or transfer, any of the Collateral, or (ii) grant or create, or attempt to grant or create, any security interest, lien, pledge, claim or other encumbrance with respect to any of the Collateral. 3. RIGHTS ON DEFAULT. In the event of default (as defined in the Note) by Pledgor under the Note, the Company will have full power to sell, assign and deliver the whole or any part of the Collateral at any broker's exchange or elsewhere, at public or private sale, at the option of the Company, in order to satisfy any part of the obligations of Pledgor now existing or hereinafter arising under the Note. On any such sale, the Company or its assigns may purchase all or any part of the Collateral. In addition, at its sole option, the Company may elect to retain all the Collateral in full satisfaction of Pledgor's obligation under the Note, in accordance with the provisions and procedures set forth in the California Commercial Code. 4. ADDITIONAL REMEDIES. The rights and remedies granted to the Company herein upon default under the Note will be in addition to all the rights, powers and remedies of the Company under the California Commercial Code and applicable law and such rights, powers and remedies will be exercisable by the Company with respect to all of the Collateral. Pledgor agrees that the Company's reasonable expenses of holding the Collateral, preparing it for resale or other disposition, and selling or otherwise disposing of the Collateral, including attorneys' fees and other legal expenses, will be deducted from the proceeds of any sale or other disposition and will be included in the amounts Pledgor must tender to redeem the Collateral. All rights, powers and remedies of the Company will be cumulative and not alternative. Any forbearance or failure or delay by the Company in exercising any right, power or remedy hereunder will not be deemed to be a waiver of any such right, power or remedy and any single or partial exercise of any such right, power or remedy hereunder will not preclude the further exercise thereof. 5. DIVIDENDS; VOTING. All dividends hereinafter declared on or payable with respect to the Collateral during the term of this pledge (excluding only ordinary cash dividends, which will be payable to Pledgor so long as Pledgor is not in default under the Note) will be immediately delivered to the Company to be held in pledge under this Agreement. Notwithstanding this Agreement, so long as Pledgor owns the Shares and is not in default under the Note, Pledgor will be entitled to vote any shares comprising the Collateral, subject to any proxies granted by Pledgor. 6. ADJUSTMENTS. In the event that during the term of this pledge, any stock dividend, reclassification, readjustment, stock split or other change is declared or made with respect to the Collateral, or if warrants or any other rights, options or securities are issued in respect of the Collateral, then all new, substituted and/or additional shares or other securities issued by reason of such change or by reason of the exercise of such warrants, rights, options or securities, will be immediately pledged to the Company to be held under the terms of this Agreement in the same manner as the Collateral is held hereunder. 7. RIGHTS UNDER PURCHASE AGREEMENT. Pledgor understands and agrees that the Company's rights to repurchase the Collateral under the Purchase Agreement, if any, will continue for the periods and on the terms and conditions specified in the Purchase Agreement, whether or not the Note has been paid during such period of time, and that to the extent that the 2 20 Note is not paid during such period of time, the repurchase by the Company of the Collateral may be made by way of cancellation of all or any part of Pledgor's indebtedness under the Note. 8. REDELIVERY OF COLLATERAL. Upon payment in full of the entire principal sum and all accrued interest due under the Note, and subject to the terms and conditions of the Purchase Agreement, the Company will immediately redeliver the Collateral to Pledgor and this Agreement will terminate; provided, however, that all rights of the Company to retain possession of the Shares pursuant to the Purchase Agreement will survive termination of this Agreement. 9. SUCCESSORS AND ASSIGNS. This Agreement will inure to the benefit of the respective heirs, personal representatives, successors and assigns of the parties hereto. 10. GOVERNING LAW; SEVERABILITY. This Agreement will be governed by and construed in accordance with the internal laws of the State of California, excluding that body of law relating to conflicts of law. Should one or more of the provisions of this Agreement be determined by a court of law to be illegal or unenforceable, the other provisions nevertheless will remain effective and will be enforceable. 11. MODIFICATION; ENTIRE AGREEMENT. This Agreement will not be amended without the written consent of both parties hereto. This Agreement constitutes the entire agreement of the parties hereto with respect to the subject matter hereof and supersedes all prior agreements and understandings related to such subject matter. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date and year first above written. NIKU CORPORATION PLEDGOR By: ------------------------------ --------------------------------- (Signature) Joshua Pickus - --------------------------------- --------------------------------- (Please print name) (Please print name) - --------------------------------- (Please print title) 3 21 [SIGNATURE PAGE TO NIKU CORPORATION STOCK PLEDGE AGREEMENT] 4 EX-10.19 31 EX-10.19 1 EXHIBIT 10.19 NIKU CORPORATION RESTRICTED STOCK PURCHASE AGREEMENT This Restricted Stock Purchase Agreement (the "Agreement") is made as of November 18, 1999 by and between Niku Corporation, a Delaware corporation (the "Company"), and MARK NELSON ("Purchaser"). 1. SALE OF STOCK. Subject to the terms and conditions of this Agreement, on the Purchase Date (as defined below) the Company will issue and sell to Purchaser, and Purchaser agrees to purchase from the Company, an aggregate of Three Hundred Fifty Thousand (350,000) shares of the Company's Common Stock (the "Shares") at a purchase price of $1.00 per Share for a total purchase price of $350,000.00. The term "Shares" refers to the purchased Shares and all securities received in replacement of or in connection with the Shares pursuant to stock dividends or splits, all securities received in replacement of the Shares in a recapitalization, merger, reorganization, exchange or the like, and all new, substituted or additional securities or other properties to which Purchaser is entitled by reason of Purchaser's ownership of the Shares. 2. PURCHASE. The purchase and sale of the Shares under this Agreement shall occur at the principal office of the Company simultaneously with the execution of this Agreement by the parties (the "Purchase Date"). On the Purchase Date, the Company will deliver to Purchaser a certificate representing the Shares to be purchased by Purchaser (which shall be issued in Purchaser's name) against payment of the purchase price therefor by Purchaser, by delivery of $35.00 as payment of the par value and a Full Recourse Promissory Note, attached hereto as Exhibit D, in the amount of $349,965.00. 3. LIMITATIONS ON TRANSFER. In addition to any other limitation on transfer created by applicable securities laws, Purchaser shall not assign, encumber or dispose of any interest in the Shares while the Shares are subject to the Company's Repurchase Option (as defined below). After any Shares have been released from such Repurchase Option, Purchaser shall not assign, encumber or dispose of any interest in such Shares except in compliance with the provisions below and applicable securities laws. (a) REPURCHASE OPTION. (i) In the event of the voluntary or involuntary termination of Purchaser's employment or consulting relationship with the Company for any reason (including death or disability), with or without cause, the Company shall upon the date of such termination (the "Termination Date") have an irrevocable, exclusive option (the "Repurchase Option") for a period of 90 days from such date to repurchase all or any portion of the Shares held by Purchaser as of the Termination Date which have not yet been released from the Company's Repurchase Option at the original purchase price per Share specified in Section 1 (adjusted for any stock splits, stock dividends and the like). Shares subject to the Company's Repurchase Option are referred to herein as "Unvested Shares" and shares that have been released from the Company's Repurchase Option are referred to as "Vested Shares". 2 (ii) The Repurchase Option shall be exercised by the Company by written notice to Purchaser or Purchaser's executor and, at the Company's option, (A) by delivery to Purchaser or Purchaser's executor with such notice of a check in the amount of the purchase price for the Shares being purchased, or (B) in the event Purchaser is indebted to the Company (whether or not said indebtedness is then due and payable), by cancellation by the Company of an amount of such indebtedness equal to the purchase price for the Shares being repurchased, or (C) by a combination of (A) and (B) so that the combined payment and cancellation of indebtedness equals such purchase price. Upon delivery of such notice and payment of the purchase price in any of the ways described above, the Company shall become the legal and beneficial owner of the Shares being repurchased and all rights and interest therein or related thereto, and the Company shall have the right to transfer to its own name the number of Shares being repurchased by the Company, without further action by Purchaser. (iii) 100% of the Shares shall initially be subject to the Repurchase Option with one-fourth (1/4th) of the total number of Shares being released from the Repurchase Option on the one year anniversary of the Vesting Commencement Date (as set forth on the signature page of this Agreement), and an additional 1/48th of the total number of Shares shall be released from the Repurchase Option each month thereafter, so that all shares are fully vested after three years. Fractional shares shall be rounded to the nearest whole share. (b) ADJUSTMENTS UPON CHANGE IN CONTROL. In the event of (i) a merger, reorganization, consolidation or other transaction in which the shareholders of the Company before such merger, reorganization, consolidation or other transaction own, as a result of their ownership of the Company's securities, less than fifty percent (50%) of the outstanding voting equity securities of the surviving corporation (or in the case of a triangular merger, the parent corporation of the surviving corporation), (ii) a sale or other transfer of all or substantially all of the assets of the Company, or (iii) a transfer of more than fifty percent (50%) of the outstanding voting equity securities of the Company in one transaction or a series of related transactions, any remaining Unvested Shares will immediately become Vested Shares. (c) RIGHT OF FIRST REFUSAL. Before any Vested Shares held by Purchaser or any transferee of Purchaser (either being sometimes referred to herein as the "Holder") may be sold or otherwise transferred (including transfer by gift or operation of law), the Company or its assignee(s) shall have a right of first refusal to purchase the Shares on the terms and conditions set forth in this Section 3(c) (the "Right of First Refusal"). Unvested Shares may not be transferred unless otherwise approved by the Company. (i) NOTICE OF PROPOSED TRANSFER. The Holder of the Shares shall deliver to the Company a written notice (the "Notice") stating: (A) the Holder's bona fide intention to sell or otherwise transfer such Shares; (B) the name of each proposed purchaser or other transferee ("Proposed Transferee"); (C) the number of Shares to be transferred to each Proposed Transferee; and (D) the terms and conditions of each proposed sale or transfer. The Holder shall offer the Shares at the same price (the "Offered Price") and upon the same terms (or terms as similar as reasonably possible) to the Company or its assignee(s). 2 3 (ii) EXERCISE OF RIGHT OF FIRST REFUSAL. At any time within 30 days after receipt of the Notice, the Company and/or its assignee(s) may, by giving written notice to the Holder, elect to purchase all, but not less than all, of the Shares proposed to be transferred to any one or more of the Proposed Transferees, at the purchase price determined in accordance with subsection (iii) below. (iii) PURCHASE PRICE. The purchase price ("Purchase Price") for the Shares purchased by the Company or its assignee(s) under this Section 3(c) shall be the Offered Price. If the Offered Price includes consideration other than cash, the cash equivalent value of the non-cash consideration shall be determined by the Board of Directors of the Company in good faith. (iv) PAYMENT. Payment of the Purchase Price shall be made, at the option of the Company or its assignee(s), in cash (by check), by cancellation of all or a portion of any outstanding indebtedness of the Holder to the Company (or, in the case of repurchase by an assignee, to the assignee), or by any combination thereof within 30 days after receipt of the Notice or in the manner and at the times set forth in the Notice. (v) HOLDER'S RIGHT TO TRANSFER. If all of the Shares proposed in the Notice to be transferred to a given Proposed Transferee are not purchased by the Company and/or its assignee(s) as provided in this Section 3(c), then the Holder may sell or otherwise transfer such Shares to that Proposed Transferee at the Offered Price or at a higher price, provided that such sale or other transfer is consummated within 60 days after the date of the Notice and provided further that any such sale or other transfer is effected in accordance with any applicable securities laws and the Proposed Transferee agrees in writing that the provisions of this Section 3 shall continue to apply to the Shares in the hands of such Proposed Transferee. If the Shares described in the Notice are not transferred to the Proposed Transferee within such period, or if the Holder proposes to change the price or other terms to make them more favorable to the Proposed Transferee, a new Notice shall be given to the Company, and the Company and/or its assignees shall again be offered the Right of First Refusal before any Shares held by the Holder may be sold or otherwise transferred. (vi) EXCEPTION FOR CERTAIN FAMILY TRANSFERS. Anything to the contrary contained in this Section 3(c) notwithstanding, the transfer of any or all of the Shares during Purchaser's lifetime or on Purchaser's death by will or intestacy to Purchaser's Immediate Family (as defined below) or to a trust for the benefit of Purchaser's Immediate Family shall be exempt from the provisions of this Section. "Immediate Family" as used herein shall mean spouse, lineal descendant or antecedent, father, mother, brother or sister. In such case, the transferee or other recipient shall receive and hold the Shares so transferred subject to the provisions of this Section, and there shall be no further transfer of such Shares except in accordance with the terms of this Section. (d) INVOLUNTARY TRANSFER. (i) COMPANY'S RIGHT TO PURCHASE UPON INVOLUNTARY TRANSFER. In the event, at any time after the date of this Agreement, of any transfer by operation of law or 3 4 other involuntary transfer (including divorce or death, but excluding, in the event of death, a transfer to Immediate Family as set forth in Section 3(c)(vi) above) of all or a portion of the Shares by the record holder thereof, the Company shall have the right to purchase all of the Shares transferred at the greater of the purchase price paid by Purchaser pursuant to this Agreement or the fair market value (as determined in good faith by the Company's Board of Directors) of the Shares on the date of transfer. Upon such a transfer, the person acquiring the Shares shall promptly notify the Secretary of the Company of such transfer. The right to purchase such Shares shall be provided to the Company for a period of 30 days following receipt by the Company of written notice by the person acquiring the Shares. (ii) PRICE FOR INVOLUNTARY TRANSFER. With respect to any stock to be transferred pursuant to Section 3(d)(i), the price per Share shall be a price set by the Board of Directors of the Company that will reflect the current value of the stock in terms of present revenues, earnings and future prospects of the Company. The Company shall notify Purchaser or his or her executor of the price so determined within 30 days after receipt by it of written notice of the transfer or proposed transfer of Shares. However, if Purchaser does not agree with the valuation as determined by the Board of Directors of the Company, Purchaser shall be entitled to have the valuation determined by an independent appraiser to be mutually agreed upon by the Company and Purchaser and whose fees shall be borne equally by the Company and Purchaser. (e) ASSIGNMENT. The right of the Company to purchase any part of the Shares may be assigned in whole or in part to any stockholder or stockholders of the Company or other persons or organizations; provided, however, that an assignee, other than a corporation that is the Parent (defined as a "parent corporation"; whether now or hereafter existing, as defined in Section 424(e) of the Internal Revenues Code) or a 100% owned subsidiary of the Company, must pay the Company, upon assignment of such right, cash equal to the difference between the original purchase price and Fair Market Value, if the original purchase price is less than the Fair Market Value of the Shares subject to the assignment. (f) RESTRICTIONS BINDING ON TRANSFEREES. All transferees of Shares or any interest therein will receive and hold such Shares or interest subject to the provisions of this Agreement, including, insofar as applicable, the Repurchase Option. Any sale or transfer of the Shares shall be void unless the provisions of this Agreement are satisfied. (g) TERMINATION OF RIGHTS. The Right of First Refusal and the Company's right to repurchase the Shares in the event of an involuntary transfer pursuant to Section 3(d) above shall terminate upon the first sale of Common Stock of the Company to the general public pursuant to a registration statement filed with and declared effective by the Securities and Exchange Commission under the Securities Act of 1933, as amended (the "Securities Act"). Upon termination of the Right of First Refusal and the expiration or exercise of the Repurchase Option, a new certificate or certificates representing the Shares not repurchased shall be issued, on request, without the legend referred to in Section 6(a)(ii) below and delivered to Purchaser. 4. ESCROW OF UNVESTED SHARES. For purposes of facilitating the enforcement of the provisions of Section 3 above, Purchaser agrees, immediately upon receipt of the certificate(s) 4 5 for the Shares subject to the Repurchase Option, to deliver such certificate(s), together with an Assignment Separate from Certificate in the form attached to this Agreement as Exhibit A executed by Purchaser and by Purchaser's spouse (if required for transfer), in blank, to the Secretary of the Company, or the Secretary's designee, to hold such certificate(s) and Assignment Separate from Certificate in escrow and to take all such actions and to effectuate all such transfers and/or releases as are in accordance with the terms of this Agreement. Purchaser hereby acknowledges that the Secretary of the Company, or the Secretary's designee, is so appointed as the escrow holder with the foregoing authorities as a material inducement to make this Agreement and that said appointment is coupled with an interest and is accordingly irrevocable. Purchaser agrees that said escrow holder shall not be liable to any party hereof (or to any other party). The escrow holder may rely upon any letter, notice or other document executed by any signature purported to be genuine and may resign at any time. Purchaser agrees that if the Secretary of the Company, or the Secretary's designee, resigns as escrow holder for any or no reason, the Board of Directors of the Company shall have the power to appoint a successor to serve as escrow holder pursuant to the terms of this Agreement. 5. INVESTMENT AND TAXATION REPRESENTATIONS. In connection with the purchase of the Shares, Purchaser represents to the Company the following: (a) Purchaser is aware of the Company's business affairs and financial condition and has acquired sufficient information about the Company to reach an informed and knowledgeable decision to acquire the Shares. Purchaser is purchasing the Shares for investment for his or her own account only and not with a view to, or for resale in connection with, any "distribution" thereof within the meaning of the Securities Act. (b) Purchaser understands that the Shares have not been registered under the Securities Act by reason of a specific exemption therefrom, which exemption depends upon, among other things, the bona fide nature of Purchaser's investment intent as expressed herein. (c) Purchaser understands that the Shares are "restricted securities" under applicable U.S. federal and state securities laws and that, pursuant to these laws, Purchaser must hold the Shares indefinitely unless they are registered with the Securities and Exchange Commission and qualified by state authorities, or an exemption from such registration and qualification requirements is available. Purchaser acknowledges that the Company has no obligation to register or qualify the Shares for resale. Purchaser further acknowledges that if an exemption from registration or qualification is available, it may be conditioned on various requirements including, but not limited to, the time and manner of sale, the holding period for the Shares, and requirements relating to the Company which are outside of Purchaser's control, and which the Company is under no obligation and may not be able to satisfy. (d) Purchaser understands that Purchaser may suffer adverse tax consequences as a result of Purchaser's purchase or disposition of the Shares. Purchaser represents that Purchaser has consulted any tax consultants Purchaser deems advisable in connection the purchase or disposition of the Shares and that Purchaser is not relying on the Company for any tax advice. 5 6 6. RESTRICTIVE LEGENDS AND STOP-TRANSFER ORDERS. (a) LEGENDS. The certificate or certificates representing the Shares shall bear the following legends (as well as any legends required by applicable state and federal corporate and securities laws): (i) THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AND HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF. NO SUCH SALE OR DISTRIBUTION MAY BE EFFECTED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL IN A FORM SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF 1933. (ii) THE SHARES REPRESENTED BY THIS CERTIFICATE MAY BE TRANSFERRED ONLY IN ACCORDANCE WITH THE TERMS OF AN AGREEMENT BETWEEN THE COMPANY AND THE STOCKHOLDER, A COPY OF WHICH IS ON FILE WITH THE SECRETARY OF THE COMPANY. (b) STOP-TRANSFER NOTICES. Purchaser agrees that, in order to ensure compliance with the restrictions referred to herein, the Company may issue appropriate "stop transfer" instructions to its transfer agent, if any, and that, if the Company transfers its own securities, it may make appropriate notations to the same effect in its own records. (c) REFUSAL TO TRANSFER. The Company shall not be required (i) to transfer on its books any Shares that have been sold or otherwise transferred in violation of any of the provisions of this Agreement or (ii) to treat as owner of such Shares or to accord the right to vote or pay dividends to any purchaser or other transferee to whom such Shares shall have been so transferred. 7. NO EMPLOYMENT RIGHTS. Nothing in this Agreement shall affect in any manner whatsoever the right or power of the Company, or a Parent or Subsidiary of the Company, to terminate Purchaser's employment or consulting relationship, for any reason, with or without cause. 8. SECTION 83(b) ELECTION. Purchaser understands that Section 83(a) of the Internal Revenue Code of 1986, as amended (the "Code"), taxes as ordinary income the difference between the amount paid for the Shares and the Fair Market Value of the Shares as of the date any restrictions on the Shares lapse. In this context, "restriction" means the right of the 6 7 Company to buy back the Shares pursuant to the Repurchase Option set forth in Section 3(a) of this Agreement. Purchaser understands that Purchaser may elect to be taxed at the time the Shares are purchased, rather than when and as the Repurchase Option expires, by filing an election under Section 83(b) (an "83(b) Election") of the Code with the Internal Revenue Service within 30 days from the date of purchase. Even if the Fair Market Value of the Shares at the time of the execution of this Agreement equals the amount paid for the Shares, the election must be made to avoid income under Section 83(a) in the future. Purchaser understands that failure to file such an election in a timely manner may result in adverse tax consequences for Purchaser. Purchaser further understands that an additional copy of such election form should be filed with his or her federal income tax return for the calendar year in which the date of this Agreement falls. Purchaser acknowledges that the foregoing is only a summary of the effect of United States federal income taxation with respect to purchase of the Shares hereunder, and does not purport to be complete. Purchaser further acknowledges that the Company has directed Purchaser to seek independent advice regarding the applicable provisions of the Code, the income tax laws of any municipality, state or foreign country in which Purchaser may reside, and the tax consequences of Purchaser's death. Purchaser agrees that he will execute and deliver to the Company with this executed Agreement a copy of the Acknowledgment and Statement of Decision Regarding Section 83(b) Election (the "Acknowledgment"), attached hereto as Exhibit B. Purchaser further agrees that Purchaser will execute and submit with the Acknowledgment a copy of the 83(b) Election, attached hereto as Exhibit C, if Purchaser has indicated in the Acknowledgment his or her decision to make such an election. 9. MARKET STANDOFF AGREEMENT. In connection with the initial public offering of the Company's securities and upon request of the Company or the underwriters managing such underwritten offering of the Company's securities, Purchaser agrees not to sell, make any short sale of, loan, grant any option for the purchase of, or otherwise dispose of any Shares (other than those included in the registration) without the prior written consent of the Company or such underwriters, as the case may be, for such period of time (not to exceed 180 days) from the effective date of such registration as may be requested by the Company or such managing underwriters and to execute an agreement reflecting the foregoing as may be requested by the underwriters at the time of the Company's initial public offering. 10. MISCELLANEOUS. (a) GOVERNING LAW. This Agreement and all acts and transactions pursuant hereto and the rights and obligations of the parties hereto shall be governed, construed and interpreted in accordance with the laws of the State of California, without giving effect to principles of conflicts of law. (b) STOCK PLEDGE AGREEMENT. As a condition of entering into this Agreement, Purchaser agrees to enter into the Stock Pledge Agreement attached as Exhibit E. (c) ENTIRE AGREEMENT; ENFORCEMENT OF RIGHTS. This Agreement and the Exhibits hereto set forth the entire agreement and understanding of the parties relating to the 7 8 subject matter herein and merges all prior discussions between them. No modification of or amendment to this Agreement, nor any waiver of any rights under this Agreement, shall be effective unless in writing signed by the parties to this Agreement. The failure by either party to enforce any rights under this Agreement shall not be construed as a waiver of any rights of such party. (d) SEVERABILITY. If one or more provisions of this Agreement are held to be unenforceable under applicable law, the parties agree to renegotiate such provision in good faith. In the event that the parties cannot reach a mutually agreeable and enforceable replacement for such provision, then (i) such provision shall be excluded from this Agreement, (ii) the balance of the Agreement shall be interpreted as if such provision were so excluded and (iii) the balance of the Agreement shall be enforceable in accordance with its terms. (e) CONSTRUCTION. This Agreement is the result of negotiations between and has been reviewed by each of the parties hereto and their respective counsel, if any; accordingly, this Agreement shall be deemed to be the product of all of the parties hereto, and no ambiguity shall be construed in favor of or against any one of the parties hereto. (f) NOTICES. Any notice required or permitted by this Agreement shall be in writing and shall be deemed sufficient when delivered personally or sent by telegram or fax or 48 hours after being deposited in the U.S. mail, as certified or registered mail, with postage prepaid, and addressed to the party to be notified at such party's address as set forth below or as subsequently modified by written notice. (g) COUNTERPARTS. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original and all of which together shall constitute one instrument. (h) SUCCESSORS AND ASSIGNS. The rights and benefits of this Agreement shall inure to the benefit of, and be enforceable by the Company's successors and assigns. The rights and obligations of Purchaser under this Agreement may only be assigned with the prior written consent of the Company. (i) CALIFORNIA CORPORATE SECURITIES LAW. THE SALE OF THE SECURITIES WHICH ARE THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF THE SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION THEREFOR PRIOR TO THE QUALIFICATION IS UNLAWFUL, UNLESS THE SALE OF SECURITIES IS EXEMPT FROM QUALIFICATION BY SECTION 25100, 25102 OR 25105 OF THE CALIFORNIA CORPORATIONS CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY CONDITIONED UPON THE QUALIFICATION BEING OBTAINED, UNLESS THE SALE IS SO EXEMPT. [Signature Page Follows] 8 9 The parties have executed this Agreement as of the date first set forth above. NIKU CORPORATION By: -------------------------------------- Title: ----------------------------------- Address: ----------------------------------------- ----------------------------------------- PURCHASER: MARK NELSON ----------------------------------------- (Signature) Address: ----------------------------------------- ----------------------------------------- Vesting Commencement Date: August 11, 1999 I, ________________________________, spouse of Mark Nelson, have read and hereby approve the foregoing Agreement. In consideration of the Company's granting my spouse the right to purchase the Shares as set forth in the Agreement, I hereby agree to be irrevocably bound by the Agreement and further agree that any community property or similar interest that I may have in the Shares shall be similarly bound by the Agreement. I hereby appoint my spouse as my attorney-in-fact with respect to any amendment or exercise of any rights under the Agreement. ----------------------------------------- Spouse of Mark Nelson 9 10 EXHIBIT A ASSIGNMENT SEPARATE FROM CERTIFICATE FOR VALUE RECEIVED and pursuant to that certain Restricted Stock Purchase Agreement between the undersigned ("Purchaser") and Niku Corporation (the "Company") dated _____________, 1999 (the "Agreement"), Purchaser hereby sells, assigns and transfers unto the Company _________________________________ (________) shares of the Common Stock of the Company, standing in Purchaser's name on the books of the Company and represented by Certificate No. ____, and hereby irrevocably constitutes and appoints ________________________________________________ to transfer said stock on the books of the Company with full power of substitution in the premises. THIS ASSIGNMENT MAY ONLY BE USED AS AUTHORIZED BY THE AGREEMENT AND THE EXHIBITS THERETO. Dated: ______________________ Signature: ----------------------------------------- Mark Nelson ----------------------------------------- Spouse of Mark Nelson (if applicable) INSTRUCTION: PLEASE DO NOT FILL IN ANY BLANKS OTHER THAN THE SIGNATURE LINE. The purpose of this assignment is to enable the Company to exercise its repurchase option set forth in the Agreement without requiring additional signatures on the part of Purchaser. 11 EXHIBIT B ACKNOWLEDGMENT AND STATEMENT OF DECISION REGARDING SECTION 83(b) ELECTION The undersigned (which term includes the undersigned's spouse), a purchaser of 350,000 shares of Common Stock of Niku Corporation, a Delaware corporation (the "Company") by exercise of stock purchase right (the "Shares") granted to the undersigned, hereby states as follows: 1. The undersigned has carefully reviewed the stock purchase agreement pursuant to which the Shares were purchased. 2. The undersigned either [check and complete as applicable]: (a) ____ has consulted, and has been fully advised by, the undersigned's own tax advisor, regarding the federal, state and local tax consequences of purchasing shares under the Plan, and particularly regarding the advisability of making elections pursuant to Section 83(b) of the Internal Revenue Code of 1986, as amended (the "Code") and pursuant to the corresponding provisions, if any, of applicable state law; or (b) ____ has knowingly chosen not to consult such a tax advisor. 3. The undersigned hereby states that the undersigned has decided [check as applicable]: (a) ____ to make an election pursuant to Section 83(b) of the Code, and is submitting to the Company, together with the undersigned's executed Restricted Stock Purchase Agreement, an executed form entitled "Election Under Section 83(b) of the Internal Revenue Code of 1986;" or (b) ____ not to make an election pursuant to Section 83(b) of the Code. 12 4. Neither the Company nor any subsidiary or representative of the Company has made any warranty or representation to the undersigned with respect to the tax consequences of the undersigned's purchase of shares under the Plan or of the making or failure to make an election pursuant to Section 83(b) of the Code or the corresponding provisions, if any, of applicable state law. Date: ------------------------ -------------------------------- Mark Nelson Date: ------------------------ -------------------------------- Spouse of Mark Nelson 2 13 EXHIBIT C ELECTION UNDER SECTION 83(b) OF THE INTERNAL REVENUE CODE OF 1986 The undersigned Taxpayer hereby elects, pursuant to Section 83(b) of the Internal Revenue Code, as amended, to include in gross income for the Taxpayer's current taxable year the excess, if any, of the fair market value of the property described below at the time of transfer over the amount paid for such property, as compensation for services: 1. The name, address, taxpayer identification number and taxable year of the undersigned is as follows: NAME OF TAXPAYER: MARK NELSON -------------------------------------- ADDRESS: -------------------------------------- -------------------------------------- IDENTIFICATION NO. OF TAXPAYER: -------------------------------- TAXABLE YEAR: -------------------------------- 2. The property with respect to which the election is made is described as follows: 350,000 shares of the Common Stock ($0.0001 par value) of Niku Corporation, a Delaware corporation (the "Company"). 3. The date on which the property was transferred is: _______________. 4. The property is subject to the following restrictions: Repurchase option at cost in favor of the Company upon termination of taxpayer's employment or consulting relationship. 5. The fair market value at the time of transfer, determined without regard to any restriction other than a restriction which by its terms will never lapse, of such property is: $_______________. 6. The amount (if any) paid for such property: $______________. The undersigned has submitted a copy of this statement to the person for whom the services were performed in connection with the undersigned's receipt of the above-described property. The transferee of such property is the person performing the services in connection with the transfer of said property. The undersigned understands that the foregoing election may not be revoked except with the consent of the Commissioner. Dated: ------------------------ -------------------------------- Mark Nelson 14 EXHIBIT D SECURED FULL RECOURSE PROMISSORY NOTE Redwood City, California $349,965.00 ____________, 1999 1. OBLIGATION. In exchange for the issuance to the undersigned ("Purchaser") of 350,000 shares (the "Shares") of the Common Stock of Niku Corporation, a Delaware corporation (the "Company"), receipt of which is hereby acknowledged, Purchaser hereby promises to pay to the order of the Company on ____________, 2002, or at such earlier dates as provided in Sections 3 and 6 below, at the Company's principal place of business at 305 Main Street, Redwood City, California, or at such other place as the Company may direct, the principal sum of Three Hundred Forty-Nine Thousand Nine Hundred Sixty-Five Dollars ($349,965.00) together with interest compounded annually on the unpaid principal at the rate of 6.08%, which rate is not less than the minimum rate established pursuant to Section 1274(d) of the Internal Revenue Code of 1986, as amended, on the earliest date on which there was a binding contract in writing for the purchase of the Shares; provided, however, that the rate at which interest will accrue on unpaid principal under this Note will not exceed the highest rate permitted by applicable law. 2. SECURITY. Payment of this Note is secured by a security interest in the Shares granted to the Company by Purchaser under a Stock Pledge Agreement dated of even date herewith between the Company and Purchaser (the "Pledge Agreement"). This Note is being tendered by Purchaser to the Company as part of the purchase price of the Shares pursuant to that certain Restricted Stock Purchase Agreement between Purchaser and the Company dated of even date with this Note (the "Purchase Agreement"). 3. DEFAULT; ACCELERATION OF OBLIGATION. Purchaser will be deemed to be in default under this Note and the principal sum of this Note, together with all interest accrued thereon, will immediately become due and payable in full: (a) upon Purchaser's failure to make any payment when due under this Note; (b) upon the filing by or against Purchaser of any voluntary or involuntary petition in bankruptcy or any petition for relief under the federal bankruptcy code or any other state or federal law for the relief under the federal bankruptcy code or any other state or federal law for the relief of debtors; or (c) upon the execution by Purchaser of an assignment for the benefit of creditors or the appointment of a receiver, custodian, trustee or similar party to take possession of Purchaser's assets or property. In addition Purchaser will be deemed to be in default under this Note and the principal and interest will become due and payable in full (1) thirty (30) days following any transfer of the Shares (except (A) a transfer to the Company, or (B) a transfer to Immediate Family as set forth in Section 3(c)(vi) of the 15 Purchase Agreement), (ii) ninety (90) days following the date Purchaser voluntarily terminates his employment or consulting relationship with the Company or (iii) six (6) months following the date Purchaser's employment or consulting relationship with the Company is terminated (other than voluntarily) for any reason (including death or disability), with or without cause. Purchaser also agrees that in connection with any termination of Purchaser's employment or consulting relationship, for any reason, whether voluntary or involuntary, if the Company exercises its Repurchase Option to repurchase all or some of the Shares under the Purchase Agreement, then the Company may cancel the appropriate amount of indebtedness due under this Note as payment for such repurchased Shares. 4. REMEDIES ON DEFAULT. Upon any default of Purchaser under this Note, the Company will have, in addition to its rights and remedies under this Note and the Pledge Agreement, full recourse against any real, personal, tangible or intangible assets of Purchaser, and may pursue any legal or equitable remedies that are available to it. 5. RULE 144 HOLDING PERIOD. PURCHASER UNDERSTANDS THAT THE HOLDING PERIOD SPECIFIED UNDER RULE 144(d) OF THE SECURITIES AND EXCHANGE COMMISSION WILL NOT BEGIN TO RUN WITH RESPECT TO SHARES PURCHASED WITH THIS NOTE UNTIL EITHER (A) THE PURCHASE PRICE OF SUCH SHARES IS PAID IN FULL IN CASH OR BY OTHER PROPERTY ACCEPTED BY THE COMPANY, OR (B) THIS NOTE IS SECURED BY COLLATERAL, OTHER THAN THE SHARES, HAVING A FAIR MARKET VALUE AT LEAST EQUAL TO THE AMOUNT OF PURCHASER'S THEN OUTSTANDING OBLIGATION UNDER THIS NOTE (INCLUDING ACCRUED INTEREST). 6. PREPAYMENT. Prepayment of principal and/or interest due under this Note may be made at any time without penalty. Unless otherwise agreed in writing by the Company, all payments will be made in lawful tender of the United States and will be applied first to the payment of accrued interest, and the remaining balance of such payment, if any, will then be applied to the payment of principal. If Purchaser prepays all or a portion of the principal amount of this Note, the Shares paid for by the portion of principal so paid will continue to be held in pledge under the Pledge Agreement to serve as independent collateral for the outstanding portion of this Note for the purpose of commencing the holding period under Rule 144(d) of the Securities and Exchange Commission with respect to other Shares purchased with this Note, unless Purchaser notifies the Company in writing otherwise and the Company consents to release of the Shares from the Pledge Agreement. 7. GOVERNING LAW; WAIVER. The validity, construction and performance of this Note will be governed by the internal laws of the State of California, excluding that body of law pertaining to conflicts of law. Purchaser hereby waives presentment, notice of non-payment, notice of dishonor, protest, demand and diligence. 8. ATTORNEYS' FEES. If suit is brought for collection of this Note, Purchaser agrees to pay all reasonable expenses, including attorneys' fees, incurred by the holder in connection therewith whether or not such suit is prosecuted to judgment. 2 16 IN WITNESS WHEREOF, Purchaser has executed this Note as of the date and year first above written. - ----------------------------------- --------------------------------------- Purchaser's Name: Mark Nelson Purchaser's Signature 3 17 EXHIBIT E STOCK PLEDGE AGREEMENT This Agreement is made and entered into as of ___________, 1999 between Niku Corporation, a Delaware corporation (the "Company"), and Mark Nelson ("Pledgor"). R E C I T A L S A. In exchange for Pledgor's Secured Full Recourse Promissory Note to the Company of even date herewith (the "Note") and $35.00 in cash, the Company has issued and sold to Pledgor Three Hundred Fifty Thousand (350,000) shares of its Common Stock , par value $0.0001 per share, (the "Shares") pursuant to the terms and conditions of that Restricted Stock Purchase Agreement between the Company and Pledgor of even date herewith (the "Purchase Agreement"). B. Pledgor has agreed that repayment of the Note will be secured by the pledge of the Shares pursuant to this Agreement. NOW, THEREFORE, the parties agree as follows: 1. CREATION OF SECURITY INTEREST. Pursuant to the provisions of the California Commercial Code, Pledgor hereby grants to the Company, and the Company hereby accepts, a first and present security interest in the Shares as collateral to secure the payment of Pledgor's obligation to the Company under the Note. Pledgor herewith delivers to the Company Common Stock certificate(s) No(s). _________, representing all the Shares, together with one stock power for each certificate in the form attached as an Exhibit to the Purchase Agreement, duly executed (with the date and number of shares left blank) by Pledgor and Pledgor's spouse, if any. For purposes of this Agreement, the Shares pledged to the Company hereby, together with any additional collateral pledged pursuant to Section 5 hereof, will hereinafter be collectively referred to as the "Collateral." Pledgor agrees that the Collateral pledged to the Company will be deposited with and held by the Escrow Holder (as defined in the Purchase Agreement) and that, notwithstanding anything to the contrary in the Purchase Agreement, for purposes of carrying out the provisions of this Agreement, Escrow Holder will act solely for the Company as its agent. 2. REPRESENTATIONS AND WARRANTIES. Pledgor hereby represents and warrants to the Company that Pledgor has good title (both record and beneficial) to the Collateral, free and clear of all claims, pledges, security interests, liens or encumbrances of every nature whatsoever, and that Pledgor has the right to pledge and grant the Company the security interest in the Collateral granted under this Agreement. Pledgor further agrees that, except for transfers to Immediate Family as set forth in Section 3(c)(vi) of the Purchase Agreement, until the entire principal sum and all accrued interest due under the Note has been paid in full, Purchaser will not, without the Company's prior written consent, (i) sell, assign or transfer, or attempt to sell, assign 18 or transfer, any of the Collateral, or (ii) grant or create, or attempt to grant or create, any security interest, lien, pledge, claim or other encumbrance with respect to any of the Collateral. 3. RIGHTS ON DEFAULT. In the event of default (as defined in the Note) by Pledgor under the Note, the Company will have full power to sell, assign and deliver the whole or any part of the Collateral at any broker's exchange or elsewhere, at public or private sale, at the option of the Company, in order to satisfy any part of the obligations of Pledgor now existing or hereinafter arising under the Note. On any such sale, the Company or its assigns may purchase all or any part of the Collateral. In addition, at its sole option, the Company may elect to retain all the Collateral in full satisfaction of Pledgor's obligation under the Note, in accordance with the provisions and procedures set forth in the California Commercial Code. 4. ADDITIONAL REMEDIES. The rights and remedies granted to the Company herein upon default under the Note will be in addition to all the rights, powers and remedies of the Company under the California Commercial Code and applicable law and such rights, powers and remedies will be exercisable by the Company with respect to all of the Collateral. Pledgor agrees that the Company's reasonable expenses of holding the Collateral, preparing it for resale or other disposition, and selling or otherwise disposing of the Collateral, including attorneys' fees and other legal expenses, will be deducted from the proceeds of any sale or other disposition and will be included in the amounts Pledgor must tender to redeem the Collateral. All rights, powers and remedies of the Company will be cumulative and not alternative. Any forbearance or failure or delay by the Company in exercising any right, power or remedy hereunder will not be deemed to be a waiver of any such right, power or remedy and any single or partial exercise of any such right, power or remedy hereunder will not preclude the further exercise thereof. 5. DIVIDENDS; VOTING. All dividends hereinafter declared on or payable with respect to the Collateral during the term of this pledge (excluding only ordinary cash dividends, which will be payable to Pledgor so long as Pledgor is not in default under the Note) will be immediately delivered to the Company to be held in pledge under this Agreement. Notwithstanding this Agreement, so long as Pledgor owns the Shares and is not in default under the Note, Pledgor will be entitled to vote any shares comprising the Collateral, subject to any proxies granted by Pledgor. 6. ADJUSTMENTS. In the event that during the term of this pledge, any stock dividend, reclassification, readjustment, stock split or other change is declared or made with respect to the Collateral, or if warrants or any other rights, options or securities are issued in respect of the Collateral, then all new, substituted and/or additional shares or other securities issued by reason of such change or by reason of the exercise of such warrants, rights, options or securities, will be immediately pledged to the Company to be held under the terms of this Agreement in the same manner as the Collateral is held hereunder. 7. RIGHTS UNDER PURCHASE AGREEMENT. Pledgor understands and agrees that the Company's rights to repurchase the Collateral under the Purchase Agreement, if any, will continue for the periods and on the terms and conditions specified in the Purchase Agreement, whether or not the Note has been paid during such period of time, and that to the extent that the 2 19 Note is not paid during such period of time, the repurchase by the Company of the Collateral may be made by way of cancellation of all or any part of Pledgor's indebtedness under the Note. 8. REDELIVERY OF COLLATERAL. Upon payment in full of the entire principal sum and all accrued interest due under the Note, and subject to the terms and conditions of the Purchase Agreement, the Company will immediately redeliver the Collateral to Pledgor and this Agreement will terminate; provided, however, that all rights of the Company to retain possession of the Shares pursuant to the Purchase Agreement will survive termination of this Agreement. 9. SUCCESSORS AND ASSIGNS. This Agreement will inure to the benefit of the respective heirs, personal representatives, successors and assigns of the parties hereto. 10. GOVERNING LAW; SEVERABILITY. This Agreement will be governed by and construed in accordance with the internal laws of the State of California, excluding that body of law relating to conflicts of law. Should one or more of the provisions of this Agreement be determined by a court of law to be illegal or unenforceable, the other provisions nevertheless will remain effective and will be enforceable. 11. MODIFICATION; ENTIRE AGREEMENT. This Agreement will not be amended without the written consent of both parties hereto. This Agreement constitutes the entire agreement of the parties hereto with respect to the subject matter hereof and supersedes all prior agreements and understandings related to such subject matter. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date and year first above written. NIKU CORPORATION PLEDGOR By: ------------------------------ ---------------------------------------- (Signature) Mark Nelson - --------------------------------- ---------------------------------------- (Please print name) (Please print name) - --------------------------------- (Please print title) 3 EX-10.20 32 EX-10.20 1 EXHIBIT 10.20 FULL RECOURSE PROMISSORY NOTE Redwood City, California $200,000.00 November 11, 1999 1. OBLIGATION. In return for an advance of funds by NIKU Corporation ("Lender") to the undersigned borrower ("Borrower"), in the amount of Two Hundred Thousand ($200,000) (the "Principal"), the Borrower hereby promises to pay to the order of the Lender on November 11, 2002, or at such earlier dates as provided in Section 3 and 5 below, at the Lender's principal place of business at 305 Main Street, Redwood City, California, or at such other place as the Lender may direct, the Principal, together with interest compounded annually on the unpaid Principal at the rate of 6.08%, which rate is not less than the minimum rate established pursuant to Section 1274(d) of the Internal Revenue Code of 1986, as amended; provided, however, that the rate at which interest will accrue on unpaid principal under this Note will not exceed the highest rate permitted by applicable law. 2. PAYMENT. Both the Principal and interest due hereunder shall be paid in lawful money of the United States in immediately available funds or the equivalent at the Lender's principal place of business. 3. DEFAULT; ACCELERATION OF OBLIGATION. Borrower will be deemed to be in default under this Note and the principal sum of this Note, together with all interest accrued thereon, will immediately become due and payable in full: (a) upon Borrower's failure to make any payment when due under this Note; (b) upon the filing by or against Borrower of any voluntary or involuntary petition in bankruptcy or any petition for relief under the federal bankruptcy code or any other state or federal law for the relief under the federal bankruptcy code or any other state or federal law for the relief of debtors; or (c) upon the execution by Borrower of an assignment for the benefit of creditors or the appointment of a receiver, custodian, trustee or similar party to take possession of Borrower's assets or property. In addition, Borrower will be deemed to be in default under this Note and the principal and interest will become due and payable in full (i) ninety (90) days following the date Borrower voluntarily terminates his employment or consulting relationship with the Lender or (ii) six (6) months following the date Borrower's employment or consulting relationship with the Lender is terminated (other than voluntarily) for any reason (including death or disability), with or without cause. 4. REMEDIES ON DEFAULT. Upon any default of Borrower under this Note, the Lender will have, in addition to its rights and remedies under this Note, full recourse against any real, personal, tangible or intangible assets of Borrower, and may pursue any legal or equitable remedies that are available to it. 5. PREPAYMENT. Prepayment of principal and/or interest due under this Note may be made at any time without penalty. Unless otherwise agreed in writing by the 1 2 Lender, all payments will be made in lawful tender of the United States and will be applied first to the payment of accrued interest, and the remaining balance of such payment, if any, will then be applied to the payment of principal. 6. GOVERNING LAW; WAIVER. The validity, construction and performance of this Note will be governed by the internal laws of the State of California, excluding that body of law pertaining to conflicts of law. Borrower hereby waives presentment, notice of non-payment, notice of dishonor, protest, demand and diligence. 7. ATTORNEYS' FEES. If suit is brought for collection of this Note, Borrower agrees to pay all reasonable expenses, including attorneys' fees, incurred by the holder in connection therewith whether or not such suit is prosecuted to judgment. IN WITNESS WHEREOF, Borrower has executed this Note as of the date and year first above written. /s/ Joshua Pickus ------------------------ Borrower: Joshua Pickus 2 EX-21.01 33 EX-21.01 1 EXHIBIT 21.01 EXHIBIT 21.01 LIST OF SUBSIDIARIES Niku Australia Pty Ltd. Niku Canada Corporation Niku Europe B.V. Niku Acquisition Corp. EX-23.02 34 EX-23.02 1 EXHIBIT 23.02 CONSENT OF KPMG LLP, INDEPENDENT ACCOUNTANTS We consent to the use of our report included herein dated December 17, 1999, relating to the consolidated balance sheets of Niku Corporation and subsidiaries as of January 31, 1999, and October 31, 1999, and the related consolidated statements of operations, stockholders' equity (deficit), and cash flows for the year ended January 31, 1999, and the nine months ended October 31, 1999. We also consent to the use of our firm under the headings "Selected Consolidated Financial Data" and Experts." /s/ KPMG LLP Mountain View, California December 22, 1999 EX-23.03 35 EX-23.03 1 EXHIBIT 23.03 CONSENT OF KPMG LLP, INDEPENDENT ACCOUNTANTS We consent to the use of our report included herein dated December 20, 1999, relating to the consolidated balance sheets of Proamics Corporation and subsidiaries as of December 31, 1998 and September 30, 1999, and the relative consolidated statements of operations, shareholders' deficit and cash flows for each of the years in the two-year period ended December 31, 1998 and for the nine months ended September 30, 1999. We also consent to the reference of our firm under the heading "Experts." /s/ KPMG LLP - --------------------------------- Chicago, Illinois December 22, 1999 EX-27.01 36 EX-27.01
5 0001076641 NIKU CORPORATION 1,000 9-MOS JAN-31-2000 FEB-01-1999 OCT-31-1999 17,154 2,175 2,854 100 0 1,258 4,734 328 28,738 13,018 0 0 28,580 1 (13,829) 28,738 1,962 2,976 174 603 15,984 100 341 (13,533) 0 (13,533) 0 0 0 (13,533) 0.38 0.38
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