RedEnvelope, Inc. Initial Public Offering

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. o

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

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. o

If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. o


(1)	Estimated solely for the purpose of computing the amount of the registration fee pursuant to Rule 457(o) promulgated under the Securities Act of 1933, as amended.

RedEnvelope, Inc. hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until RedEnvelope, Inc. 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.

The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities, and it is not soliciting offers to buy these securities, in any state where the offer or sale is not permitted.


This is our initial offering of our shares to the public, and no public market currently exists for our shares. We expect that the public offering price will be between $ and $ per share. This price may not reflect the market price of our shares after our offering.


We have granted the underwriter the right to purchase up to additional shares from us within 30 days after the date of this prospectus to cover any over-allotments. The underwriter expects to deliver shares of common stock to purchasers on , 2003.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

RedEnvelope is a retailer of unique, upscale gifts for every occasion, every recipient, every lifestyle and every budget.

ANNIVERSARY ? BIRTHDAY? TUESDAY ?

WHETHER A GIFT IS A SMALL TOKEN OF GRATITUDE OR A GRAND GESTURE OF LOVE, WE CONSIDER ITS GIVING AND RECEIVING A CHERISHED OCCASION IN ITSELF.

We offer gifts across 15 different product categories. Many of our products are designed and sourced exclusively for RedEnvelope by manufacturers around the world.

You should rely only on the information contained in this prospectus. We have not, and the underwriter has not, authorized any other person to provide you with different information. If anyone provides you with different or inconsistent information, you should not rely on it. We are not, and the underwriter is not, making an offer to sell these securities in any jurisdiction where the offer or sale is not permitted. You should assume that the information appearing in this prospectus is accurate as of the date on the front cover of this prospectus only. Our business, financial condition, results of operations and prospects may have changed since that date.

RedEnvelope is a registered trademark of RedEnvelope, Inc. The RedEnvelope logo is also a registered trademark of RedEnvelope, Inc. Other service marks, trademarks and trade names referred to in this prospectus are property of their respective owners.

The following prospectus summary is qualified in its entirety by, and should be read in conjunction with, the more detailed information and our Financial Statements and Notes thereto appearing elsewhere in this prospectus. This summary does not contain all of the information that you should consider before investing in our common stock. You should read the entire prospectus carefully.

RedEnvelope is an online retailer of upscale gifts for every occasion, every day. RedEnvelope’s goal is to make gift giving — no matter what the occasion or circumstance — easy and fun. RedEnvelope offers an extensive collection of imaginative, original gifts for every occasion, recipient and budget. We strive to maintain the highest standards for customer service and delivery of gifts in an effort to provide our customers with the best possible gift giving experience and to encourage repeat business. We believe that no other online gift retailer offers the combination of ease of shopping, choice of unique high-quality gifts and superior customer service that we provide through our website and catalog. A cornerstone of our business strategy has been to develop, cultivate and satisfy an attractive and growing customer base. We have developed an internal database of over 1.3 million customer names, with approximately 450,000 new customers added in the twelve months ended March 30, 2003.

We offer a unique assortment of high-quality, thoughtful gifts, many of which are difficult to find elsewhere and are not easily replicated. Our merchants travel the world sourcing unique products and often commission artists and vendors to create exclusive gifts just for RedEnvelope shoppers. Our gift wrap is distinctive and closely associated with our brand. Gift-wrapped products are delivered to the recipient in a branded, high-quality red box with a hand-tied ivory ribbon. We offer a wide assortment of products in numerous categories, including cut flowers, jewelry, men’s accessories, gift baskets, gourmet foods, personal care, sports and games, gadget and tools, baby, home and garden, office, and bar, wine and cigar accessories. Our price points range from lower priced items in the $20 to $50 price range for a broader consumer appeal to higher priced items in the one to several hundred dollar price range with more targeted appeal. We believe that our merchandising strategy and product quality enhance our ability to achieve attractive margins on our products.

Through our website, www.redenvelope.com, customers can search for gifts by occasion, recipient, lifestyle and price point. Our website generally features approximately 550 products, increasing to approximately 750 products during the holiday shopping season. In addition, our customers can register for our gift reminder service, sign up to receive email promotions, view their order history, and request a catalog online. To order, customers click on the checkout button and are prompted to provide shipping and credit card details. Customers are offered a variety of delivery services, including overnight delivery. In fiscal 2003, approximately 70% of customer orders were placed through our website with the remainder placed through telephone orders.

We publish our full-color catalog several times during the year. The catalog generally features approximately 135 products, increasing to approximately 250 products during the holiday shopping season, and also serves as the primary advertising vehicle for our Internet operations. During fiscal 2002 and 2003, we mailed approximately 15.1 million and 18.7 million catalogs, respectively, to over 8 million individuals in each period. Our business is highly seasonal, with sales peaks in February for Valentine’s Day, May for Mother’s Day, June for Father’s Day and late November and December for the holiday shopping season.

We believe that substantial opportunities exist to grow our business, increase our revenues and achieve profitability by continuing to implement the following strategies:


	•	Improve marketing efficiency — by focusing on the retention of existing customers and emphasizing various online marketing programs

	•	Continue product innovation — by maintaining our mix of 50% new products each year


	•	Increase our scale to maximize cost efficiencies — by managing fixed costs and improving fulfillment processes

	•	Acquire new customers — by selective online marketing campaigns geared towards capitalizing on our brand recognition

In addition, we intend to leverage the experience of our management team in executing these strategies. Alison May, our Chief Executive Officer, and Hilary Billings, our Brand Strategist, have both separately demonstrated expertise in helping grow retail brands and businesses, including Pottery Barn, W Hotels, Patagonia, Esprit and Gymboree. We believe that our management team can apply their past experiences to RedEnvelope as we strive to grow and manage our business. We believe that our management team has developed an understanding of our customers’ tastes and purchasing habits, which assists us in executing our product design, sourcing and marketing strategies.

We have a limited operating history, a history of significant losses and we expect to encounter risks and uncertainties frequently faced by early stage companies. We experience significant seasonal fluctuations in our net sales, and our annual performance will depend largely on results from one quarter. If our vital information technology and sales processing systems were significantly damaged or interrupted, particularly during the holiday shopping season, it could seriously harm our business. We operate in a highly competitive environment, and if we are unable to maintain or increase our market share or compete effectively in the retail gift market our operating results would be adversely affected. Moreover, we have grown quickly, and if we fail to manage our growth successfully, our business, financial condition and results of operations would be seriously harmed.

RedEnvelope, Inc. was incorporated in California in June 1997 under the name “Giftworks Online, Inc.” and changed its name to “911 Gifts, Inc.” in December 1997. We reincorporated in the State of Delaware under the name “911 Gifts, Inc.” in March 1999 and changed our name to “RedEnvelope, Inc.” in September 1999. We made an election to be treated as an S Corporation for federal and state tax purposes, which remained in effect through February 1999, the day prior to our reincorporation in the State of Delaware.

Our principal executive offices are located at 201 Spear Street, 3rd Floor, San Francisco, California 94105, and our telephone number is (415)371-9100. Our website address is www.redenvelope.com. Information contained on our website and in our catalogs should not be considered a part of, nor incorporated into, this prospectus.

Except as otherwise noted, all information in this prospectus (1) gives effect to the conversion of all outstanding shares of preferred stock into 69,748,455 shares of common stock effective upon the closing of the offering, except for the information contained in our Financial Statements and the Notes related thereto, included elsewhere in this prospectus, and (2) assumes no exercise of the underwriter’s overallotment option. The number of shares of common stock to be outstanding after this offering is based on 73,694,009 shares outstanding as of March 30, 2003. This number does not include the following:


	•	9,295,390 shares of our common stock subject to outstanding options at a weighted average exercise price of $0.27 under our 1999 Stock Plan

	•	22,355,564 shares of our common stock available for future grant or issuance under our 1999 Stock Plan, as amended, our 2003 Directors’ Stock Option Plan and our 2003 Employee Stock Purchase Plan

	•	921,186 shares of our common stock issuable upon exercise of outstanding warrants with a weighted average exercise price of $0.58 per share

	•	up to shares that could be sold to the underwriter upon exercise of its option to purchase additional shares to cover over-allotments

This offering will be made through the OpenIPO process, in which the allocation of shares and the public offering price are primarily based on an auction in which prospective purchasers are required to bid for the shares. This process is described under “Plan of Distribution.”

The terms “RedEnvelope,” “we,” “us” and “our” as used in this prospectus refer to RedEnvelope, Inc.

The following table sets forth summary, as adjusted and other financial information of RedEnvelope. The following information does not give effect to the conversion of our outstanding preferred stock into common stock.

The as adjusted information above gives effect to our receipt of the estimated net proceeds from the sale of shares of common stock in this offering by us at the public offering price of $ per share after deducting estimated underwriting discounts and commissions and estimated offering expenses.

Any investment in our common stock involves a high degree of risk. You should consider carefully the risks and uncertainties described below, and all information contained in this prospectus, before you decide whether to purchase our common stock. Additional risks and uncertainties not currently known to us or that we currently do not deem material may also become important factors that may harm our business. The trading price of our common stock could decline due to any of these risks and uncertainties, and you may lose part or all of your investment.

We were originally incorporated in 1997 and began selling products in September 1997. As a result, we have limited historical financial data upon which to base planned operating expenses or forecast accurately our future operating results. Further, our limited operating history will make it difficult for investors and securities analysts to evaluate our business and prospects. You must consider our business and prospects in light of the risks and difficulties we may face as an early stage company with limited operating history. Our failure to address these risks and difficulties successfully would seriously harm our business.

We have a history of significant losses. If we do not achieve or sustain profitability, our financial condition and stock price could suffer.

We have a history of losses and we may continue to incur losses for the foreseeable future. We incurred net losses of $26.4 million, $14.1 million, and $7.7 million for the fiscal years ended April 1, 2001, March 31, 2002, and March 30, 2003. As of March 30, 2003, our accumulated deficit was $73.5 million. We have not achieved profitability. If our revenues grow more slowly than we anticipate, or if our operating expenses exceed our expectations, we may not be able to achieve profitability in the near future or at all. Even if we do achieve profitability, we may not be able to sustain or increase profitability on an annual basis in the future. If we are unable to achieve profitability within a short period of time, or at all, or if we are unable to sustain profitability at satisfactory levels, our financial condition and stock price could be adversely affected.

Because we experience seasonal fluctuations in our net sales, our quarterly results will fluctuate and our annual performance will depend largely on results from one quarter.

Our business is seasonal, reflecting the general pattern of peak sales for the retail industry during the holiday shopping season. Typically, a substantial portion of our net revenues occur during our third fiscal quarter ending around December 31. We generally experience lower net revenues during the first, second and fourth fiscal quarters and, as is typical in the retail industry, have incurred and may continue to incur losses in these quarters. The third fiscal quarter accounted for approximately 49% of net revenues in the fiscal year ended March 30, 2003. We cannot predict with certainty what percentage of our total net revenues for fiscal year 2004 will be represented by our third fiscal quarter revenues. In anticipation of increased sales activity during the third fiscal quarter, we incur significant additional expenses, including significantly higher inventory and staffing costs. If sales for the third fiscal quarter do not meet anticipated levels, then increased expenses may not be offset, which would adversely effect our financial condition. If we were to experience lower than expected sales during one of our third fiscal quarters, for whatever reason, it would have a disproportionately large impact on our annual operating results and financial condition for that fiscal year. If our sales during our third fiscal quarter were to fall below the expectations of securities analysts, our stock price could decline.

Our operating results are volatile and difficult to predict and may adversely affect our stock price.

Our annual and quarterly operating results have fluctuated in the past and may fluctuate significantly in the future due to a variety of factors, many of which are outside of our control. Further, because our

business is seasonal, our operating results may vary significantly from one quarter to the next as part of our normal business cycle. As a result, we believe that quarterly comparisons of our operating results are not necessarily meaningful and that you should not rely on the results of one quarter as an indication of our future performance. It is likely that in some future quarter our operating results may fall below the expectations of securities analysts and investors. In this event, the trading price of our common stock could decline significantly.

Factors that could cause our operating results to fluctuate include the following:


	•	the seasonality of our business

	•	decreases in the number of visitors to our website or our inability to convert those visitors into customers

	•	technical difficulties, including system or Internet failures

	•	fluctuations in the demand for our products

	•	the number of prior customers that make repeat purchases

	•	overstocking or understocking of our merchandise

	•	offering of new or enhanced services or products by our competitors

	•	fluctuations in the level of our product returns

	•	termination of existing marketing relationships or failure to develop successful new marketing relationships

	•	fluctuations in shipping costs, particularly during the holiday season

	•	fluctuations in advertising, marketing or catalog production and distribution costs

	•	the amount and timing of operating costs and capital expenditures relating to expansion of our operations

	•	changes in government regulations and taxation related to use of the Internet or otherwise applicable to our business

	•	economic conditions generally or economic conditions specific to the Internet, online commerce, the retail industry, the mail order industry or the gift industry

	•	changes in the mix of products that we sell

	•	fluctuations in levels of inventory theft, damage or obsolescence

Our computer and communications hardware and software systems are vulnerable to damage and interruption, which could harm our business.

Our ability to receive and fulfill orders successfully through our website is critical to our success and largely depends upon the efficient and uninterrupted operation of our computer and communications hardware and software systems. Our systems and operations are vulnerable to damage or interruption from power outages, computer and telecommunications failures, computer viruses, security breaches, catastrophic events, and errors in usage by our employees and customers. Further, our servers are located at the facilities of, and hosted by, a third-party service provider in Santa Clara, California. In the event that this service provider experiences any interruption in its operations or ceases operations for any reason or if we are unable to agree on satisfactory terms for a continued hosting relationship, we would be forced to enter into a relationship with another service provider or take over hosting responsibilities ourselves. We cannot assure you that, in the event it became necessary to switch hosting facilities, we would be successful in finding an alternative service provider on acceptable terms or in hosting the computer servers ourselves. Any significant interruption in the availability or functionality of our website, or our sales

If we fail to offer a broad selection of innovative merchandise that consumers find attractive, our revenues could decline or fail to reach anticipated levels and our stock price could be harmed.

In order to meet our strategic goals, we must successfully offer, on a continuous basis, a broad selection of appealing products. These products must satisfy the diverse tastes of our customers and potential customers for a variety of gift-giving occasions. To be successful, our product offerings must be affordable, well made, innovative and attractive to a wide range of consumers whose preferences may change regularly. We cannot predict with certainty that we will be successful in offering products that meet these requirements. If our products become less popular with consumers, our revenues may decline or fail to meet expected levels or we may decide to offer our products at lower prices. If customers or potential customers do not find our products attractive or if we are required to reduce our prices, our revenues and earnings may decline or fail to meet expected levels and our stock price could be affected adversely.

Failure to successfully manage or expand our fulfillment and distribution operation would have a material adverse effect on us.

Our fulfillment and distribution operation is located in Lockbourne, Ohio and is currently managed by and leased from a third party. Our agreement with the fulfillment services company that manages the operations at the Lockbourne, Ohio facility expires in August 2003, at which point we intend to assume direct control of fulfillment and distribution operations. We have no prior experience managing fulfillment and distribution operations and we cannot assure you that we will be successful in this endeavor. If we are unable to successfully manage our fulfillment and distribution operations or if we experience any significant disruptions in connection with the transition from our current service provider, our operations and financial condition could be seriously harmed. Any failure in managing our fulfillment and distribution operations would require us to find one or more parties to provide these services for us. If we are required to engage one or more service providers, we could incur higher fulfillment expenses than anticipated or incur additional costs for balancing merchandise inventories among multiple distribution facilities. Further, we may need to expand our distribution operations in the future to accommodate increases in customer orders. If we fail to successfully manage or expand our fulfillment and distribution operations it would have a material adverse effect on our business.

If we do not manage our inventory levels successfully, our operating results will be affected adversely.

We must maintain sufficient inventory levels to operate our business successfully. Rapidly changing trends in consumer tastes for gift items expose us to significant inventory risks, particularly during our third fiscal quarter when inventory levels are highest due to the holiday shopping season. Consumer preferences can change between the time we order a product and the time it is available for sale. We base our product selection on our projections of consumer tastes and preferences in a future period, and we cannot guarantee that our projections of consumer tastes and preferences will be accurate. It is critical to our success that we accurately predict consumer tastes and stock our product offerings in appropriate quantities. In the event that one or more products do not achieve widespread consumer acceptance, we may be required to take significant inventory markdowns, which could reduce our net sales and gross margins. This risk may be greatest in the third fiscal quarter of each year, after we have significantly increased inventory levels for the holiday season. In addition, to the extent that demand for our products increases over time, we may be forced to increase inventory levels. Any such increase would require the use of additional working capital and subject us to additional inventory risks. Further, our failure to stock sufficient quantities of popular products could cause our customers to become dissatisfied and look to our competitors for their gift items. If we fail to stock popular products in sufficient quantities or if we overstock products, our business, financial condition and operating results would be affected adversely.

Because we do not have long-term vendor contracts, we may not have continued access to popular products.

More than half of our products are unique designs manufactured by third-party suppliers. We enter into exclusive supply agreements for these products to maintain a competitive advantage. However, since we do not have long-term arrangements with any vendor or distributor that would guarantee the availability of products from year to year, we do not have a predictable or guaranteed supply of these products in the future. If we are unable to provide our customers with continued access to popular, exclusive products, our operating results could be harmed.

Our facilities and systems are vulnerable to natural disasters or other catastrophic events.

Our headquarters, customer service center and the majority of our infrastructure, including computer servers, are located in California, an area that is susceptible to earthquakes and other natural disasters. Our distribution facility, located in Lockbourne, Ohio, houses substantially all of our product inventory and is the location from which substantially all of our sales are shipped. A natural disaster or other catastrophic event, such as an earthquake, fire, flood, severe storm, break-in, terrorist attack or other comparable problems could cause interruptions or delays in our business and loss of data or render us unable to accept and fulfill customer orders in a timely manner, or at all. Further, California has in the recent past experienced power outages as a result of limited electrical power supplies. These outages may recur in the future and we cannot determine the effect, if any, that such outages would have on the operation of our business. In addition, as our inventory and distribution facility is located in an area that is susceptible to harsh weather, a major storm, heavy snowfall or other similar event could prevent us from delivering products in a timely manner. We have no formal disaster recovery plan and our business interruption insurance may not adequately compensate us for losses that may occur. In the event that an earthquake, natural disaster or other catastrophic event were to destroy any part of our facilities or interrupt our operations for any extended period of time, or if harsh weather conditions prevent us from delivering products in a timely manner, our business, financial condition and operating results would be seriously harmed.

We have grown quickly and if we fail to manage our growth, our business will suffer.

We have rapidly and significantly expanded our operations, and anticipate that further significant expansion, including the possible acquisition of third-party assets, technologies or businesses, will be required to address potential growth in our customer base and market opportunities. This expansion has placed, and is expected to continue to place, a significant strain on our management, operational and financial resources. Some of our officers or senior management personnel have no prior senior management experience at public companies. Our new employees include a number of key managerial, technical and operations personnel who have not yet been fully integrated into our operations. Additionally, we need to properly implement and maintain our financial and managerial controls, reporting systems and procedures, including the increased internal controls and procedures required by the recently enacted Sarbanes Oxley Act of 2002. Moreover, if we are presented with appropriate opportunities, we may in the future make investments in, or possibly acquire, assets, technologies or businesses that we believe are complementary to ours. Any such investment or acquisition may further strain our financial and managerial controls and reporting systems and procedures. These difficulties could disrupt our business, distract our management and employees or increase our costs. If we are unable to manage growth effectively or successfully integrate any assets, technologies or businesses that we may acquire, our business, financial condition and results of operations would be affected adversely.

We experience intense competition in the rapidly-changing retail gift market.

We operate in a highly competitive environment. We principally compete with a variety of department stores, Internet retailers, specialty retailers and other catalog merchandisers that offer products similar to or the same as our products. Increased competition is likely to result in price reductions, reduced gross margins and loss of market share, any of which could seriously harm our net revenues and results of

operations. We expect competition to intensify in the future because current and new competitors can enter our market with little difficulty and can launch new websites at a relatively low cost. We currently or potentially compete with a variety of other companies, including:


	•	other online retailers, such as Amazon.com

	•	major department stores, such as Macy’s and Bloomingdale’s

	•	physical and online stores and catalog retailers that sell popular gift items such as Pottery Barn, Brookstone, The Sharper Image, Tiffany’s, Harry & David, J Crew, and 1-800-Flowers

	•	Internet portals and online service providers that feature shopping services, such as AOL, Yahoo! and Lycos

Many of our traditional store-based, catalog-based and online competitors have longer operating histories, larger customer or user bases, greater brand recognition and significantly greater resources, particularly financial and marketing resources. Many of these competitors can devote substantially more resources to website development and catalog retailing than we can. In addition, larger, well-established and well-financed entities may join with online competitors in the future. Our competitors may be able to secure products from vendors on more favorable terms, provide popular products to which we do not have access, fulfill customer orders more efficiently and adopt more aggressive pricing or inventory availability policies than we can.

The U.S. retail industry, the specialty retail industry in particular, and the online commerce sector are highly competitive, dynamic in nature and have undergone significant changes over the past several years and will likely continue to undergo significant changes. Our ability to anticipate and respond successfully to these changes is critical to our long-term growth and we cannot assure you that we will anticipate and respond successfully to changes in the retail industry and online commerce sectors. If we are unable to maintain or increase our market share or compete effectively in the retail gift market, our business, financial condition and operating results would be adversely affected.

If we do not successfully expand our website and order processing systems or respond to rapid technological changes, we could lose customers and our net revenues could decline.

If we fail to upgrade our website in a timely manner to accommodate an increase in traffic, our website performance could suffer and we may lose customers. In addition, if we fail to expand the computer systems that we use to process and ship customer orders and process customer payments, we may not be able to fulfill customer orders successfully. As a result, we could lose customers and our net revenues could be reduced. Further, to remain competitive, we must continue to enhance and improve the functionality and features of our online store. The Internet and the online commerce industry are subject to rapid technological change. If competitors introduce new features and website enhancements embodying new technologies, or if new industry standards and practices emerge, our existing website and systems may become obsolete or unattractive. Developing our website and other systems entails significant technical and business risks. We may use new technologies ineffectively or we may fail to adapt our website, our transaction processing systems and our computer network to meet customer requirements or emerging industry standards. If we are unsuccessful in upgrading our systems to accommodate higher traffic or developing or implementing new technologies that enable us to meet evolving industry standards and remain competitive, our operating results would be seriously harmed.

Delivery of our merchandise could be delayed or disrupted by factors beyond our control, and we could lose customers as a result.

As timely gift delivery is essential to our customer’s satisfaction, any delay or disruption in order, fulfillment and shipping, particularly during the holiday shopping season, could cause us to lose customers and negatively affect our business. In addition, we rely upon third party carriers for timely delivery of our product shipments. As a result, we are subject to carrier disruptions and increased costs due to factors that are beyond our control, including employee strikes, inclement weather and increased fuel costs. Any failure

We also depend on temporary employees to adequately staff our distribution facility during busy periods such as the holiday shopping season. We cannot assure you that we will continue to receive adequate assistance from our temporary employees, or that we will continue to have access to sufficient numbers of competent and affordable temporary employees, particularly during the holiday shopping season. If we are unable to adequately staff our distribution and fulfillment facility during the holiday shopping season, our operations and sales during such period could suffer, and our reputation could be harmed. A successful holiday shopping season is critical to our business.

Increased merchandise returns and a failure to accurately predict merchandise returns could harm our business.

As part of our customer service commitment, we maintain a merchandise return policy that allows recipients to return most merchandise items received from us if they are dissatisfied with those items. We make allowances for merchandise returns in our financial statements based on historical return rates. We cannot assure you that actual merchandise returns will not significantly exceed our allowances for returns. In addition, because our allowances are based on historical return rates, we cannot assure you that the introduction of new merchandise in our catalogs, the introduction of new catalogs, increased sales over the Internet, changes in our merchandise mix, changes in the habits of our gift item recipients, or other factors will not cause actual returns to exceed return allowances, perhaps significantly. Any increase in merchandise returns that exceed our allowances would affect our business adversely.

If we are unable to successfully manage the costs of our catalog operations or our catalogs fail to produce sales at satisfactory levels it could adversely affect our business.

Historically, a significant portion of our revenues has been generated from purchases made by customers directed to our website by the RedEnvelope catalog. We believe that the success of our catalog operations depends on the following factors:


	•	effective management of costs associated with the production and distribution of our catalog

	•	achievement of adequate response rates to our mailings

	•	offering a merchandise mix that is attractive to our catalog customers

	•	cost-effective addition of new customers

	•	cost-effective production of appealing catalogs

	•	timely delivery of catalog mailings to our customers

Catalog production and mailings entail substantial paper, printing, postage and human labor costs. Increases in the costs of producing and distributing the RedEnvelope catalog, including increases in postage rates or paper, photography, or printing costs, may reduce the margin on sales derived from our catalog. Effective June 30, 2002, the U.S. Postal Service increased its rates, which significantly increased the aggregate cost of mailing catalogs to our customers. The U.S. Postal Service is likely to increase its postage rates in the future and other delivery and overnight courier services that we utilize to deliver our products also will likely raise their rates in the future. As we incur nearly all of the costs associated with our catalogs prior to mailing, we are unable to adjust the costs being incurred in connection with a particular mailing to reflect the actual performance of the catalog. In addition, response rates to our mailings and, as a result, revenues generated by each mailing are affected by factors such as consumer preferences, economic conditions, the timing and mix of catalog mailings, the timely delivery by the postal system of our catalog mailings, and changes in our merchandise mix, several or all of which may be outside of our control. If we were to experience an increase in the costs associated with producing our catalogs or our catalogs fail to produce sales at satisfactory levels, our operating results would be adversely affected.

We are dependent on the success of our advertising and marketing efforts which are costly and may not achieve desired results.

Our revenues depend on our ability to advertise and market our products effectively through the RedEnvelope catalog and our other advertising and marketing efforts. Increases in the cost of advertising and marketing, including paper and postage costs and the costs of complying with applicable regulations, may limit our ability to advertise and market our business without reducing our profitability. If we decrease our advertising or marketing efforts due to increased costs, restrictions enacted by regulatory agencies or for any other reason, our future operating results could be significantly harmed. We expect to increase spending on advertising and marketing in the future, and if such efforts do not produce a sufficient level of sales to cover their costs, it would harm our operating results.

If we are unable to provide satisfactory customer service, we could lose customers.

Our ability to provide satisfactory levels of customer service depends, to a large degree, on the efficient and uninterrupted operation of our call center. Any material disruption or slowdown in our order processing systems resulting from labor disputes, telephone or Internet failures, power or service outages, natural disasters or other events could make it difficult or impossible to provide adequate customer service and support. Further, we may be unable to attract and retain adequate numbers of competent customer service representatives, which is essential in creating a favorable interactive customer experience. Due to increased customer service needs during the holiday shopping season, we hire a relatively large number of temporary employees during our third fiscal quarter. As a result, we may have difficulty properly staffing our customer service operations during our peak sales season. Further, temporary employees may not have the same levels of training or professional responsibility as full-time employees and, as a result, may be more likely to provide unsatisfactory service to our customers and potential customers. If we are unable to continually provide adequate staffing for our customer service operations, our reputation could be seriously harmed. In addition, we cannot assure you that email and telephone call volumes will not exceed our present system capacities. If this occurs, we could experience delays in placing orders, responding to customer inquiries and addressing customer concerns. Also, our customer service facility currently accommodates customer service representatives at close to its capacity during our peak sales period, so we may be required to expand our customer service facility in the near future. We cannot assure you that we will be able to find additional suitable facilities on acceptable terms or at all, which could seriously hinder our ability to provide satisfactory levels of customer service. Because our success depends in large part on keeping our customers satisfied, any failure to provide high levels of customer service could impair our reputation and have an adverse effect on our business.

The loss of our senior management or other key personnel could harm our current and future operations and prospects.

Our performance is substantially dependent on the continued services and on the performance of our senior management and other key personnel, particularly Alison L. May, our President and Chief Executive Officer, and Hilary Billings, our Brand Strategist. Our performance also depends on our ability to retain and motivate other officers and key employees. We do not have long-term employment agreements with any of our key personnel. The loss of the services of Ms. May, Ms. Billings, any of our executive officers or other key employees for any reason could harm our business, financial condition and operating result. Our future success also depends on our ability to identify, attract, hire, train, retain and motivate other highly-skilled technical, managerial, editorial, merchandising, marketing and customer service personnel. Competition for such personnel is intense, particularly in the San Francisco Bay Area, and we cannot assure you that we will be able to successfully attract, assimilate or retain sufficiently qualified personnel. Our failure to attract and retain the necessary technical, managerial, editorial, merchandising, marketing and customer service personnel would harm our business, financial condition and results of operations.

If the protection of our trademarks and proprietary rights is inadequate, our brand and reputation could be impaired and we could lose customers.

We regard our copyrights, service marks, trademarks, trade dress, trade secrets and similar intellectual property as critical to our success. We rely on trademark and copyright law, trade secret protection and confidentiality agreements with our employees, consultants, partners, suppliers, and others to protect our proprietary rights. Nevertheless, the steps we take to protect our proprietary rights may be inadequate. Further, effective trademark, service mark, copyright and trade secret protection may not be available in every country in which we will sell our products and offer our services. In addition, the relationship between regulations governing domain names and laws protecting trademarks and similar proprietary rights is unclear. Therefore, we may be unable to prevent third parties from acquiring domain names that are similar to, infringe upon or otherwise decrease the value of our trademarks and other proprietary rights. If we are unable to protect or preserve the value of our trademarks, copyrights, trade secrets or other proprietary rights for any reason, our business would be harmed.

Intellectual property claims against us could be costly and could impair our business.

Other parties may assert infringement or unfair competition claims against us. In the past, third parties have sent us notice of claims of infringement of proprietary rights with respect to our trademarks and with respect to products that we offer. We have also, in the past, received a claim alleging that our Internet marketing program and website operations infringe patents held by a third party. We may receive other similar notices from third parties in the future. We cannot predict whether third parties will assert claims of infringement against us, or whether any past or future claims will prevent us from offering popular products or operating our business as planned. If we are forced to defend against thirty-party infringement claims, whether they are with or without merit or are determined in our favor, we could face expensive and time-consuming litigation, which could divert technical and management personnel, or result in product shipment delays. If an infringement claim is determined against us, we may be required to pay monetary damages or ongoing royalties. Further, as a result of infringement claims either against us or against those who license technology to us, we may be required to develop non-infringing intellectual property or enter into costly royalty or licensing agreements. Such royalty or licensing agreements, if required, may be unavailable on terms that are acceptable to us, or at all. If a third party successfully asserts an infringement claim against us and we are required to pay monetary damages or royalties or we are unable to develop suitable non-infringing alternatives or license the infringed or similar intellectual property on reasonable terms on a timely basis, it could significantly harm our business.

We are subject to the risk of inventory loss and theft. Although we believe that the levels of inventory shrinkage that we have suffered in the past are within an acceptable range, we cannot assure you that incidences of inventory loss and theft will not increase in the future or that the security measures we have taken in the past will effectively address the problem of inventory theft. If we were to suffer higher rates of inventory shrinkage or incur increased security costs to combat inventory theft, our financial condition could be affected adversely.

Poor economic conditions may constrain discretionary consumer spending on retail products such as ours.

Consumer spending patterns, particularly discretionary spending for products such as ours, are affected by, among other things, prevailing economic conditions, stock market volatility, wars, threats of war, acts of terrorism, wage rates, interest rates, inflation, taxation, and consumer confidence. General economic,

political and market conditions, such as recessions, may adversely affect our business results and the market price of our common stock. The terrorist attacks of September 11, 2001 and the wars in Afghanistan and Iraq have had a negative effect on an already slowing economy and on consumer confidence. Our business and revenues have been, and could continue to be, negatively affected by poor economic conditions and any related decline in consumer demand for discretionary items such as our products. We face uncertainty in the degree to which the continuing poor performance in the retail industry, decrease in consumer confidence and the current economic slowdown will negatively affect demand for our products. We may not be able to accurately anticipate the magnitude of these effects on future quarterly results, which could seriously harm our financial condition. As we do not have large cash reserves, we may not be able to survive an extended recession or sluggish economy.

We may need additional financing and may not be able to raise additional financing on favorable terms or at all, which could increase our costs, limit our ability to grow and dilute the ownership interests of existing stockholders.

We anticipate that we may need to raise additional capital in the future to continue our long-term expansion plans, to respond to competitive pressures or to respond to unanticipated requirements. We cannot be certain that we will be able to obtain additional financing on commercially reasonable terms or at all. If we raise additional funds through the issuance of equity, equity-related or debt securities, such securities may have rights, preferences or privileges senior to those of the rights of our common stock and our stockholders will experience dilution of their ownership interests. Our failure to obtain additional financing or our inability to obtain financing on acceptable terms could require us to limit our plans for expansion, incur indebtedness that has high rates of interest or substantial restrictive covenants, issue equity securities that will dilute the ownership interests of existing stockholders, or discontinue a portion of our operations. Since our inception, we have experienced negative cash flow from operations and expect to experience negative cash flow from operations for the foreseeable future. Although we believe that the net proceeds from the issuance of the common stock in this offering, together with current cash, cash equivalents and cash that may be generated from operations, will be sufficient to meet our anticipated cash needs for the next twelve months, there can be no assurance to that effect.

If we default on any secured loan, all or a portion of our assets could be subject to forfeiture.

We are currently party to a credit agreement that is secured by substantially all of our tangible and intangible assets, and we may enter into secured credit or loan agreements in the future. If we default on a secured loan and are unable to cure the default pursuant to the terms of the relevant agreement, our lenders could take possession of any or all assets in which they hold a security interest, including intellectual property, and dispose of those assets to the extent necessary to pay off our debts, which could seriously harm our business.

We may face product liability claims that are costly and create adverse publicity.

If any of the products that we sell causes harm to any of our customers, we could be vulnerable to product liability lawsuits. If we are found liable under product liability claims, we could be required to pay substantial monetary damages. Further, even if we successfully defend ourselves against this type of claim, we could be forced to spend a substantial amount of money in litigation expenses, our management could be required to spend valuable time in the defense against these claims and our reputation could suffer, any of which could harm our business.

New rules, including the Sarbanes-Oxley Act of 2002, may make it difficult for us to retain or attract officers, directors for the board and various board sub-committees.

As a result of the recent and currently proposed changes in SEC, Nasdaq and other rules and regulations related to publicly-held corporations, including those resulting from the Sarbanes-Oxley Act of 2002, we may be unable to attract and retain qualified officers, board members and members of board committees required to provide for our effective management. The perceived increased personal risk

associated with these recent changes may deter qualified individuals from wanting to participate in these roles. Further, certain of these recent and proposed changes heighten the requirements for board or committee membership, particularly with respect to an individual’s independence from the corporation and level of experience in finance and accounting matters, and we may have difficulty attracting board members with the requisite qualifications. If we are unable to attract and retain qualified officers and board members, our business could be adversely affected.

We may expand our operations to sell our products internationally, but we have relatively little experience in purchasing, marketing and distributing products or services for international markets. It will be costly to establish international facilities and operations, promote our brand internationally, and develop localized websites, catalog marketing and other systems. Governments in other countries may regulate Internet or other online services in such areas as content, privacy, network security, encryption or distribution, which could significantly affect our ability to conduct business in those countries. If we are unsuccessful in our attempts to expand our operations into other countries, our operating results could be harmed.

We may incur significant costs or experience delays in product availability due to regulations applicable to the sale of food products, which may hurt our business.

We currently offer certain food items for sale to our customers. Applicable federal, state or local regulations may cause us to incur substantial compliance costs or delay the availability of those consumables. In addition, any inquiry or investigation from a food regulatory authority could have a negative impact on our reputation. The occurrence of any of these events could adversely affect our financial condition.

If we fail to comply with the laws regulating the sale of tobacco products it may have a negative impact on our reputation and make us vulnerable to liability claims.

We are required to verify the age of purchasers of our tobacco products. If we fail to request or are unable to determine the proper identification from our purchasers, we could face substantial penalties and legal liability for sales of tobacco products to underage persons. Any inquiry or investigation from a regulatory authority could have a negative impact on our reputation and any liability claims could subject us to fines, mandatory damages or require us to spend significant time and money in litigation.

Our charter documents and Delaware law may make an acquisition of us more difficult, even if an acquisition would be beneficial to our stockholders.

We are a Delaware corporation and the Delaware General Corporation Law contains certain provisions that may make a change in control of our company or the removal of incumbent directors more difficult. In addition, our Amended and Restated Certificate of Incorporation and Bylaws, which will be effective upon the closing of this offering, contain provisions that may have the same effect, including the elimination of the ability of stockholders to call special meetings or vote by written consent, the elimination of cumulative voting for directors, and procedures requiring advance notification for stockholder proposals. The elimination of cumulative voting substantially reduces the ability of minority stockholders to obtain representation on the board of directors and may make it more difficult for a potential acquirer to replace our board of directors. These provisions may have a negative impact on the price of our common stock, may discourage potential acquirers from making a bid for our company, or make an acquisition of us or a tender offer to our stockholders more difficult, even if such acquisition or tender offer would be beneficial to our stockholders, and may reduce any premiums paid to stockholders for their common stock.

Our success is tied in large part to the continued use of the Internet by a large number of consumers.

Our future revenues and profits, if any, substantially depend upon the continued widespread use of the Internet as an effective medium of business and communication. Factors which could reduce the widespread use of the Internet include:


	•	actual or perceived lack of security of credit card information or privacy protection

	•	possible disruptions or other damage to the Internet or telecommunications infrastructure

	•	increased governmental regulation and taxation

	•	decreased use of personal computers

Any decrease or less than anticipated growth in Internet usage could significantly harm our business.

Approximately 70% of our products are currently purchased through our website. Our long-term prospects therefore depend upon the general public’s increasing willingness to use the Internet as a means to purchase goods. The failure of the Internet to continue to develop into an effective and reliable commercial tool would seriously damage our future operations. Online commerce is a relatively new concept, and online purchases may decline or fail to increase as projected. The future of online commerce is highly uncertain, many online commerce companies have ceased operations in recent years and most existing online commerce companies have a relatively short operating history. If consumers are unwilling to use the Internet to purchase retail products, our business will be harmed.

The security risks of online commerce, including credit card fraud, may discourage customers from purchasing goods from us which could harm our business.

In order for the online commerce market to develop successfully, we and other market participants must be able to transmit confidential information, including credit card information, securely over public networks. Third parties may have the technology or know-how to breach the security of customer transaction data. Any breach could cause consumers to lose confidence in the security of our website and choose not to purchase from us. If a person is able to circumvent our security measures, he or she could destroy or steal valuable information or disrupt our operations. Our security measures may not effectively prohibit others from obtaining improper access to our information. Any security breach could expose us to risks of data loss, litigation and liability and could seriously disrupt our operations and harm our reputation.

We do not carry insurance against the risk of credit card fraud, so the failure to control fraudulent credit card transactions adequately could reduce our net revenues and gross margin. In addition, we may in the future suffer losses as a result of orders placed with fraudulent credit card data even though the associated financial institution approved payment of the orders. Under current credit card practices, we may be liable for fraudulent credit card transactions because we do not obtain a cardholder’s signature. If we are unable to detect or control credit card fraud, our liability for these transactions could harm our business, operating results or financial condition.

If one or more states successfully assert that we should collect sales or other taxes on the sale of merchandise purchased from our website, our business could be harmed.

We do not currently collect sales or other similar taxes for physical shipments of goods into states other than California and Ohio. In the future, one or more local, state or foreign jurisdictions may seek to impose sales tax collection obligations on us. If sales tax obligations are imposed upon us by a state or other jurisdiction, we may suffer decreased sales into such state or jurisdiction as the effective cost of purchasing goods from us increases for those residing in such states or jurisdictions. Specifically, we may

also be subject to value added and other taxes if we sell merchandise to customers located in the European Union and we may incur significant financial and organizational burdens in order to set up the infrastructure required to comply with applicable tax regulations. If additional states or any other jurisdictions successfully assert that we should collect sales or other taxes on the sale of our merchandise into these jurisdictions our business could be affected adversely.

We are subject to the same federal, state and local laws as other companies conducting business on the Internet, including consumer protection laws, user privacy laws and regulations prohibiting unfair and deceptive trade practices. In particular, under federal and state financial privacy laws and regulations, we must provide notice to our customers of our policies on sharing non-public information with third parties, must provide advance notice of any changes to our privacy policies and, with limited exceptions, must give consumers the right to prevent sharing of their non-public personal information with unaffiliated third parties. Further, the growth of online commerce could result in more stringent consumer protection laws that impose additional compliance burdens on us. Today there are an increasing number of laws specifically directed at the conduct of business on the Internet. Moreover, due to the increasing use of the Internet, many additional laws and regulations relating to the Internet are being debated at the state and federal levels. These laws and regulations could cover issues such as freedom of expression, pricing, user privacy, fraud, quality of products and services, taxation, advertising, intellectual property rights and information security. Applicability of existing laws to the Internet relating to issues such as property ownership, copyrights and other intellectual property issues, taxation, libel, obscenity and personal privacy could also harm our business. For example, United States and international laws regulate our ability to use customer information and to develop, buy and sell mailing lists. The vast majority of these laws were adopted prior to the advent of the Internet, and do not contemplate or address the unique issues raised by the Internet. Those laws that do reference the Internet, such as the Digital Millennium Copyright Act, are only beginning to be interpreted by the courts and their applicability and reach are therefore uncertain. The restrictions imposed by, and costs of complying with, current and possible future laws and regulations related to our business could harm our operating results and financial condition.

Tax authorities in a number of states, as well as a Congressional advisory commission, are currently reviewing the appropriate tax treatment of companies engaged in online commerce, and new state tax regulations may subject us to additional state sales and income taxes, which could have an adverse effect on our cash flows and results of operations. Further, there is a possibility that we may be subject to significant fines or other payments for any past failures to comply with these requirements.

In addition, because our website is accessible over the Internet in multiple states and other countries, we may be subject to their laws and regulations or required to qualify to do business in those states and countries. We are qualified to business only in California and Ohio at present. Our failure to qualify in a jurisdiction where we are required to do so could subject us to taxes and penalties and we could be subject to legal actions and liability in those states and countries. The restrictions or penalties imposed by, and costs of complying with, these laws and regulations could harm our business, operating results and financial condition. Our ability to enforce contracts and other obligations in states and countries in which we are not qualified to do business could be hampered, which could have a material adverse effect on our business.

Laws or regulations relating to privacy and data protection may adversely affect the growth of our Internet business or our marketing efforts.

We are subject to increasing regulation relating to privacy and the use of personal user information. For example, we are subject to various telemarketing laws that regulate the manner in which we may solicit future suppliers and customers. Such regulations, along with increased governmental or private enforcement, may increase the cost of growing our business. In addition, several states have proposed legislation that would limit the uses of personal user information gathered online or require online services to establish privacy policies. The Federal Trade Commission has adopted regulations regarding the collection and use of personal identifying information obtained from children under 13 years of age. Bills

proposed in Congress would extend online privacy protections to adults. Moreover, proposed legislation in the United States and existing laws in other countries require companies to establish procedures to notify users of privacy and security policies, obtain consent from users for collection and use of personal information, and/or provide users with the ability to access, correct and delete personal information stored by companies. These data protection regulations and enforcement efforts may restrict our ability to collect demographic and personal information from users, which could be costly or harm our marketing efforts. Further, any violation of privacy or data protection laws and regulations may subject us to fines, penalties and damages and may otherwise have a material adverse effect on our business, results of operations and financial condition.

As a publisher of online content, we face potential liability for defamation, negligence, intellectual property infringement, or other claims based on the nature and content of materials that we publish or distribute. In the past, parties have brought these types of claims and sometimes successfully litigated them against online services. If we incur liability for our online content, our financial condition could be affected adversely and our reputation could suffer.

Our stock price may be volatile and you may lose all or a part of your investment.

There is currently no public market for our common stock. The market price of our common stock may be subject to significant fluctuations after our initial public offering. It is possible that in some future periods our results of operations may be below the expectations of securities analysts and investors. If this occurs, our stock price may decline. Factors that could affect our stock price include the following:


	•	changes in securities analysts’ recommendations or estimates of our financial performance or publication of research reports by analysts

	•	changes in market valuations of similar companies

	•	announcements by us or our competitors of significant contracts, acquisitions, commercial relationships, joint ventures or capital commitments

	•	general market conditions

	•	actual or anticipated fluctuations in our operating results

	•	litigation developments

	•	economic factors unrelated to our performance

In addition, the stock markets have experienced significant price and trading volume fluctuations, and the market prices of retail companies generally and online commerce companies in particular have been extremely volatile and have recently experienced sharp share price and trading volume changes. These broad market fluctuations may adversely affect the trading price of our common stock. In the past, following periods of volatility in the market price of a public company’s securities, securities class action litigation has often been instituted against that company. Such litigation could result in substantial costs to us and a likely diversion of our management’s attention. We cannot assure that you will receive a positive return on your investment when you sell your shares or that you will not lose the entire amount of your investment.

We have never declared or paid any cash dividends on our common stock and do not intend to pay dividends on our common stock for the foreseeable future. We intend to invest our future earnings, if any, to fund our growth. Therefore, you likely will not receive any dividends from us on our common stock.

Our management has broad discretion as to the use of the net proceeds from this offering.

Our management has broad discretion as to the use of the net proceeds that we will receive from this offering. We cannot assure you that management will apply these funds effectively, nor can we assure you that the net proceeds from this offering will be invested in a manner yielding a favorable return.

New investors in our common stock will experience immediate and substantial dilution of approximately $ per share.

The public offering price is substantially higher than the book value per share of our common stock. Investors purchasing common stock in this offering will, therefore, incur immediate dilution of $ in net tangible book value per share of common stock. This dilution figure deducts the estimated underwriting discounts and commissions and estimated offering expenses payable from the public offering price. Investors will incur additional dilution upon the exercise of outstanding stock options and warrants.

Securities analysts may not initiate coverage of our common stock or may issue negative reports, and this may have a negative impact on our common stock’s market price.

There is only one underwriter of this offering, and there is no guarantee that securities analysts will cover our common stock after the completion of this offering. If securities analysts do not cover our common stock after the completion of this offering, the lack of research coverage may adversely affect our common stock’s market price. As a result, you may be unable to sell your shares of common stock at or above the initial public offering price. The trading market for our common stock will rely in part on the research and reports that industry or financial analysts publish about us or our business. We do not control these analysts. If one or more of the analysts who cover us downgrades our stock, our stock price would likely decline rapidly. If one or more of these analysts ceases coverage of our company, we could lose visibility in the market, which in turn could cause our stock price to decline. In addition, recently-adopted rules mandated by the Sarbanes-Oxley Act of 2002, and a global settlement reached between the SEC, other regulatory analysts and a number of investment banks in April 2003 will lead to a number of fundamental changes in how analysts are reviewed and compensated. In particular, many investment banking firms will now be required to contract with independent financial analysts for their stock research. It may be difficult for companies with smaller market capitalizations, such as our company, to attract independent financial analysts that will cover our common stock.

Our directors, executive officers and significant stockholders will continue to hold a substantial portion of our stock after this offering, which may lead to conflicts with other stockholders over corporate transactions and other corporate matters.

Following the completion of this offering, our directors, executive officers and holders of 5% or more of our outstanding common stock will beneficially own approximately % of our outstanding common stock, including warrants and stock options exercisable within 60 days after March 30, 2003. These stockholders, acting together, will be able to influence significantly all matters requiring stockholder approval, including the election of directors and significant corporate transactions such as mergers or other business combinations. This control may delay, deter or prevent a third party from acquiring or merging with us, which could adversely affect the market price of our common stock.

There may be sales of substantial amounts of our common stock after this offering, which could cause our stock price to fall.

Our current stockholders hold a substantial number of shares, which they will be able to sell in the public market in the near future. Upon the closing of this offering, shares of common stock will be outstanding, excluding exercises of options or warrants subsequent to March 30, 2003. All of the shares sold in this offering will be freely tradable, except for shares purchased by holders subject to lock-up agreements or by any of our existing “affiliates,” as that term is defined in Rule 144 promulgated under

the Securities Act, which generally includes officers, directors and 10% or greater stockholders. A significant portion of the shares of our common stock outstanding after this offering will continue to be restricted as a result of securities laws, market stand-off agreements with us or lock-up agreements with WR Hambrecht+Co. The market stand-off and lock-up agreements restrict holders’ ability to transfer their stock for 180 days after the date of this prospectus. Of the outstanding shares, will be available for sale in the public market as of the date of this prospectus. Subject to Rule 144, an additional 73,651,794 will be available for sale in the public market 180 days after the date that the registration statement of which this prospectus forms a part is declared effective and the remaining 42,215 shares will be available for sale in the public market in March 2004. WR Hambrecht+Co may, however, waive the lock-up period at any time for any stockholder. Sales of a substantial number of shares of our common stock within a short period of time after this offering could cause our stock price to fall. In addition, the sale of these shares could impair our ability to raise capital through the sale of additional stock.

This prospectus contains forward-looking statements that involve risks and uncertainties. These forward-looking statements relate to future events or our future financial performance. These statements include, but are not limited to, statements concerning:


	•	the anticipated benefits and risks associated with our business strategy

	•	our future operating results and the future value of our common stock

	•	the anticipated size or trends of the markets in which we compete and the anticipated competition in those markets

	•	our ability to attract customers in a cost-efficient manner

	•	potential government regulation

	•	our future capital requirements and our ability to satisfy our capital needs

	•	the anticipated use of the proceeds realized from this offering

	•	the potential for additional issuances of our securities

	•	the possibility of future acquisitions of businesses

	•	possible expansion into international markets

Furthermore, in some cases, you can identify forward-looking statements by terminology such as may, could, should, expect, plan, intend, anticipate, believe, estimate, predict, potential or continue, the negative of such terms or other comparable terminology. These statements are only predictions. Actual events or results may differ materially. In evaluating these statements, you should specifically consider various factors, including the risks outlined in the Risk Factors section above. These factors may cause our actual results to differ materially from any forward-looking statement.

Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements.

We estimate that the net proceeds from the sale of our shares of common stock in this offering will be approximately $ million, based on the assumed public offering price of $ per share after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us, or $ million if the underwriters’ over-allotment option is exercised in full. We currently intend to use the net proceeds of this offering as follows:


	•	approximately $6 million to fund working capital, including the build up of inventory prior to the holiday season

	•	approximately $5 million to fund new capital equipment and information technology projects

	•	the remainder of the net proceeds will be used for other general corporate purposes

The amounts we actually expend for working capital and other general corporate purposes will vary significantly depending on a number of factors, including future revenue growth, if any, and the amount of cash that we generate from operations. As a result, we will retain broad discretion over the allocation of the net proceeds of this offering. Pending the uses listed above, we intend to invest the net proceeds of this offering in short-term, interest-bearing, investment-grade securities. We cannot predict whether the proceeds will yield a favorable return.

We have never declared or paid any cash dividends on shares of our common stock. We currently intend to retain our earnings for future growth and do not anticipate paying any cash dividends in the foreseeable future. Any future determination to pay dividends will be at the discretion of our board of directors and will depend on our results of operations, financial conditions, contractual and legal restrictions and other factors the board deems relevant.

The following table sets forth our capitalization at March 30, 2003 on an actual basis and on an as-adjusted basis to reflect the receipt of the estimated net proceeds from the sale of shares of common stock offered by us at the public offering price of $ per share, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. The following information does not give effect to the conversion of our outstanding preferred stock into common stock.

You should read the information below in conjunction with the Financial Statements and the related notes thereto and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere in this prospectus.

Our net tangible book value at March 30, 2003, was approximately $ million, or $ per share. Net tangible book value per share is equal to our total tangible assets less our total liabilities, divided by the total number of shares of our common stock outstanding.

After giving effect to the sale of shares of our common stock in this offering at the assumed public offering price of $ per share, and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us, our adjusted net tangible book value at March 30, 2003, would have been approximately $ per share. This represents an immediate increase in net tangible book value of $ per share to existing stockholders and an immediate dilution of approximately $ per share to new investors purchasing shares of our common stock in this offering.

If the underwriters exercise their over-allotment option in full, there will be an increase in as adjusted net tangible book value to $ per share to existing stockholders and an immediate dilution in as adjusted net tangible book value of $ to new investors.

The following table summarizes, on an as adjusted basis as of March 30, 2003, the total number of stockholders and new investors with respect to the number of shares of common stock purchased from us, the total consideration paid and the average price per share paid by the existing stockholders and by the new investors in this offering before deducting the underwriting commissions and discounts and estimated offering expenses payable by us:

If the underwriters exercise their over-allotment option in full, our existing stockholders would own % and our new investors would own % of the total number of shares of our common stock outstanding after this offering.

The assumed public offering price represents the middle of the filing range on .

Assuming the exercise in full of all options and warrants outstanding as of March 30, 2003, the average price per share paid by our existing stockholders would increase $ per share to $ per share.

The table below shows selected financial data for our last five fiscal years. The statement of operations data for each of the three fiscal years in the period ended March 30, 2003 and the balance sheet data at March 30, 2003 and March 31, 2002 are derived from our audited financial statements included elsewhere in this prospectus. The statements of operation data for the fiscal years ended March 28, 1999 and April 2, 2000 and the balance sheet data at March 28, 1999, April 2, 2000 and April 1, 2001 are derived from our audited financial statements not included in this prospectus. Our fiscal year is based on a 52 or 53 week year and ends on the Sunday closest to the last day in March. The following information does not give effect to the conversion of our outstanding preferred stock into common stock.

The following selected financial data should be read in conjunction with our financial statements and related notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere in this prospectus.

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with our Financial Statements and the related Notes thereto. This discussion contains forward-looking statements based upon current expectations that involve risks and uncertainties, such as our plans, objectives, expectations and intentions, as set forth under “Special Note Regarding Forward-Looking Statements.” Our actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of several factors, including those set forth in the following discussion and under “Risk Factors,” “Business” and elsewhere in this prospectus.

We are an online retailer of upscale gifts. Our fifteen product categories provide customers with a wide assortment of choices for all gift-giving occasions. Product revenues consist of sales made to individual consumers and businesses. We market our products through our website and our catalogs. Customers place orders with us through our website or the telephone. Telephone orders are taken at our customer service center. At the time an order is taken, we obtain the customer’s credit card information. When the order is shipped, the customer’s credit card is charged. We recognize revenue on the date on which we estimate that the product has been received by the customer. Product sales are recorded net of discounts and estimated returns.

Historically, revenues have been seasonal. Revenues have been higher in our third fiscal quarter, reflecting higher consumer holiday spending. We anticipate this trend will continue in the foreseeable future. We have achieved our historical growth from internal operations rather than through acquisitions. We have funded our operations primarily through private sales of equity securities and borrowings.

Our revenues are comprised of products sales, shipping revenue and gift-wrap revenue. Our shipping revenue represents the amounts we charge our customers for delivering the product. The delivery charge is based on the order value and the method of delivery. As the order value increases, the delivery charge increases as well. Similarly, expedited delivery costs more than standard delivery methods. Our gift wrap revenue consists of amounts we charge our customers for our signature red gift boxes. The customer has the option to purchase gift wrap if the product is offered with our special gift wrapping. The gift wrapping process occurs as part of the order fulfillment at the distribution center. No single customer accounts for more than 1% of our net revenues.

Cost of sales consists of the cost of the product sold, inbound and outbound freight and gift-wrap expense.

Fulfillment expenses consist of fees paid to our third party fulfillment service provider, wages and benefits for employees and seasonal hires working in our customer service facility, fees incurred to process credit card transactions and certain fixed costs, such as rent and utilities, incurred by our distribution center and customer service facility. Services performed by our third party fulfillment service provider include receiving, picking, packing, shipping and other warehousing activities. We intend to terminate our relationship with our third party fulfillment service provider and assume control of our fulfillment services in August 2002.

Marketing expenses consist primarily of online and catalog programs as well as advertising, public relations and other promotional expenditures.

General and administrative expenses consist of wages and benefits for all of our employees, except for fulfillment and customer service. These expenses also include costs incurred for technology, rent and utilities for our headquarters, travel, depreciation, and other general corporate expenditures.

We have recorded no provision for federal and state income taxes since inception. As of March 30, 2003, we had $96.3 million of net operating loss carryforwards, which may be impaired or limited in

certain circumstances. These net operating loss carryforwards will begin to expire in 2007. We have provided a valuation allowance on our deferred tax assets, consisting primarily of net operating loss carryforwards, because of the uncertainty regarding their realizability.

Our financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. Our critical accounting policies are set forth below.

Revenue recognition. We derive our revenues from merchandise sales made to consumers and businesses. We generally require payment by credit card prior to shipment. We recognize revenue on the date on which we estimate that the product has been received by the customer and any payments received prior to the estimated date of receipt of the goods by the customer are deferred. We use our third-party freight carrier information to estimate when delivery has occurred. Revenues are recorded net of estimated returns, coupons redeemed by customers, and other discounts. Significant management judgments and estimates must be made and used in connection with determining revenue recognized in any accounting period. Our management must make estimates of potential future product returns related to current period revenue. We analyze historical returns, current economic trends and changes in customer demand and acceptance of our products when evaluating the adequacy of the sales returns and other allowances in any accounting period. Actual returns may differ materially from our estimated reserve. As a result, our operating results and financial condition could be adversely affected. The reserve for returns was $0.1 million as of March 30, 2003.

Inventory. We write down inventory for estimated obsolescence or damage equal to the difference between the cost of inventory and the estimated market value based upon assumptions about future demand and market conditions. If actual market conditions or demand for our products are less favorable than projected by management, additional inventory write-downs may be required. For the fiscal years ended March 31, 2002 and March 30, 2003, we wrote down inventory of approximately $0.4 million and $0.6 million, respectively.

Accounting for income taxes. Significant management judgment is required in determining our deferred tax assets and liabilities and any valuation allowance recorded against our net deferred tax assets. As of March 30, 2003, we have recorded a valuation allowance of $25.9 million against our net deferred tax asset balance due to uncertainties related to our deferred tax assets as a result of our history of operating losses. The valuation allowance is based on our estimates of taxable income by jurisdiction in which we operate and the period over which our deferred tax assets will be recoverable. In the event that actual results differ from these estimates or we adjust these estimates in future periods, we may need to change the valuation allowance, which could materially impact our financial position and results of operations.

Catalog Amortization. Prepaid catalog costs consist of third party costs including paper, printing, postage and mailing costs for all of our direct response catalogs. Such costs are capitalized as prepaid catalog costs and are amortized over their expected period of future benefit. Such amortization is based upon the ratio of actual revenues to the total of actual and estimated future revenues on an individual catalog basis. Prepaid catalog costs are evaluated for realizability at each reporting period by comparing the carrying amount associated with each catalog to the estimated probable remaining future net benefit of the catalog (defined as net revenues) less merchandise cost of goods sold, selling expenses and catalog completion costs) associated with that catalog. If the carrying amount is in excess of the estimated probable remaining future net benefit of the catalog, the excess is expensed in the reporting period.

Valuation of long-lived assets. Long-lived assets held and used by us are reviewed for impairment whenever events or changes in circumstances indicate the net book value may not be recoverable. An impairment loss is recognized if the sum of the expected future cash flows from use of the asset is less than the net book value of the asset. The amount of the impairment loss will generally be measured as the difference between net book values of the assets and their estimated fair values. During fiscal 2002, we recorded a $1.2 million impairment charge related to abandoned software and website development costs.

The following table sets forth our results of operations expressed as a percentage of net revenues. The following discussion concerning results of operations should be read in conjunction with “Selected Financial Data,” the financial statements and accompanying notes and the other financial data included elsewhere in this prospectus. Our fiscal year is based on a 52 or 53-week year. The fiscal year ends on the Sunday closest to March 31.

During fiscal year 2003, net revenues increased 26.5% from $55.8 million to $70.1 million relative to the prior year. This was primarily due to increased demand for our products resulting from additional marketing efforts through our catalog campaigns. During fiscal year 2003, we increased our catalog circulation by approximately 3.6 million catalogs, or 23.3%. The number of orders increased approximately 17% and the revenue per order increased approximately 7%. Our customer base increased from approximately 853,000 to approximately 1.3 million. In addition, in the second quarter of fiscal year 2003, we began to base our delivery charge on the order value of the transaction. Prior to this change, the amount charged to the customer was a flat rate regardless of the order value. As a result of this change, our average shipping revenue per order increased approximately 24%.

Cost of sales increased from $31.4 million, or 56.4% of net revenues in fiscal 2002, to $36.6 million, or 52.2% of net revenues in the same period in fiscal 2003. The increase in dollars was mainly attributable to the 25.6% increase in net revenues. As a percentage of net revenues, the decrease in cost of sales in fiscal

Fulfillment. Fulfillment expenses increased from $9.0 million in fiscal 2002 to $10.8 million in fiscal 2003. As a percentage of net revenues, fulfillment was 16.2% in fiscal 2002 and 15.4% in fiscal 2003. The increase in dollars was primarily attributable to the 17% increase in the number of orders. The cost to fulfill orders through our third party distribution center increased approximately $0.9 million. There was an increase of approximately $0.2 million in salaries at our customer service center for additional employees hired to accommodate the increase in sales transactions. Our credit card processing fees increased approximately $0.3 million due to the increase in revenues. In addition, rent and utilities at our third party distribution center and our customer service facility increased approximately $0.4 million. The decrease as a percentage of net revenues was primarily attributable to economies of scale achieved through an increased number of sales transactions and higher average order value.

Marketing. Marketing expenses increased from $13.4 million in fiscal 2002 to $15.3 million in fiscal 2003. As a percentage of net revenues, marketing expenses were 24.0% in fiscal 2002 and 21.8% in fiscal 2003. The increase in dollars was primarily due to the increase in catalog circulation. We mailed approximately 15.1 million catalogs in fiscal 2002 and 18.7 million in fiscal 2003. As a result, costs for catalog printing, postage and lists increased approximately $2.4 million. This increase was partially offset by decreases in spending related to online marketing programs of approximately $0.6 million.

General and Administrative. General and administrative expenses decreased from $15.4 million in fiscal 2002, to $14.6 million in fiscal 2003. As a percentage of net revenues, general and administrative expenses were 27.7% in fiscal 2002 and 20.8% in fiscal 2003. The decreases were primarily due to an impairment charge of approximately $1.2 million incurred in fiscal 2002, as well as reductions in bonuses, travel, depreciation and recruiting costs of approximately $0.8 million. These decreases were offset in part by increases in salaries of approximately $1.0 million due to additional employees hired and severance paid to former employees.

Interest Income. Interest income was $0.5 million and $0.2 million in fiscal 2002 and 2003, respectively. The decrease was primarily due to lower average interest rates earned in fiscal 2003.

Interest Expense. Interest expense was $1.0 and $0.7 in fiscal 2002 and 2003, respectively. The decrease was primarily due to a reduction of approximately $4.8 million in our outstanding debt.

Net revenues increased 71.3%, from $32.6 million in fiscal 2001 to $55.8 million in fiscal 2002. This was primarily due to growth in our customer base and increased average order value. Our customer base increased from approximately 448,000 to approximately 853,000. We increased our catalog circulation by approximately 2.8 million catalogs, or 22.5%. The number of orders increased approximately 61% and the revenue per order increased approximately 6%.

Cost of sales increased from $19.8 million, or 60.8% of net revenues in fiscal 2001, to $31.4 million, or 56.4% of net revenues in fiscal 2002. The increase in dollars was mainly attributable to the 71.3% increase in net revenues. As a percentage of net revenues, the decrease in cost of sales in fiscal 2002 compared to fiscal 2001 was primarily due to our improved cost leverage with vendors due to increased volumes of merchandise that we purchased and the sale of higher margin products.

Fulfillment. Fulfillment expenses increased 45.2%, from $6.2 million in fiscal 2001 to $9.0 million in fiscal 2002. As a percentage of net revenues, fulfillment was 18.9% in fiscal 2001 compared to 16.2% in fiscal 2002. The increase in dollars was primarily attributable to an approximate 61% increase in the number of orders. The cost to fulfill orders through our third party distribution center increased approximately $1.3 million. There was an increase of approximately $0.3 million in salaries at our customer service center for additional employees hired to accommodate the increase in orders. Our credit card processing fees increased approximately $0.5 million due to the increase in revenues. In addition, rent and utilities at our third party distribution center and our customer service facility increased approximately $0.6 million. The decrease as a percentage of net revenues was primarily attributable to economies of scale achieved through an increased number of orders and higher average order value.

Marketing. Marketing expenses decreased from $21.6 million in fiscal 2001 to $13.4 million in fiscal 2002. As a percentage of net revenues, marketing expenses were 66.3% in fiscal 2001 and 24.0% in fiscal 2002. The decreases were primarily due to amounts spent in fiscal 2001 on print and general advertising campaigns as well as some of our online marketing programs. In fiscal 2002, print and general advertising campaigns were eliminated which resulted in approximately $6.9 million in cost savings. Also in fiscal 2002, we spent approximately $3.1 million less in online marketing programs. These decreases were offset partially by an increase in our catalog programs. We increased our catalog circulation by approximately 2.8 million catalogs. The additional catalogs resulted in an increased cost of approximately $2.2 million for production, printing, and postage.

General and Administrative. General and administrative expenses increased from $11.7 million in fiscal 2001, to $15.4 million in fiscal 2002. As a percentage of net revenues, general and administrative expenses were 36.1% in fiscal 2001 and 27.7% in fiscal 2002. The increase in dollars was due to expenditures to support our larger revenue base. These expenses included salaries and benefits for additional employees of approximately $1.4 million, increased depreciation expense resulting from capital expenditures for technology of approximately $1.4 million, and an impairment charge of approximately $1.2 million incurred for abandoned software and website development costs. These increases were offset partially by a reduction in the use of contractors for technology projects. The decrease in general and administrative expenses as a percentage of net revenues was a result of economies of scale achieved through increased sales volume and the allocation of general and administrative expenses over a larger revenue base.

Interest Income. Interest income was $1.4 million in fiscal 2001 and $0.5 million in fiscal 2002. The decrease was primarily due to lower average cash balances and lower average interest rates earned over fiscal 2002.

Interest Expense. Interest expense was $1.1 million in fiscal 2001 and $1.0 million in fiscal 2002.

The following tables set forth our unaudited quarterly results of operations data for the eight most recent quarters ended March 30, 2003, as well as such data expressed as a percentage of our net revenues for the periods presented. The information in the table below should be read in conjunction with our Financial Statements and the Notes thereto included elsewhere in this prospectus. We have prepared this information on the same basis as the Financial Statements and the information includes all adjustments, consisting only of normal recurring adjustments, that we consider necessary for a fair statement of our financial position and operating results for the quarters presented. Our quarterly operating results have varied substantially in the past and may vary substantially in the future. You should not draw any conclusions about our future results from the results of operations for any particular quarter.

Our net revenues have increased in every quarter on a year-over-year basis. This general increase was primarily due to our increased marketing activities which have resulted in the expansion of our customer base as well as repeat purchases from these customers. In addition, our number of orders and revenues per order have increased each quarter on a year-over-year basis. We have experienced significant seasonality in

Cost of sales as a percentage of net revenues has decreased each quarter on a year-over-year basis during the eight quarters ended March 30, 2003. This improvement resulted primarily from lower average per unit cost paid to suppliers due to higher purchase volumes and sale of higher margin products.

Total operating expenses as a percentage of net revenues have decreased on a year-over-year basis each quarter, except for the third quarter ended December 29, 2002, as a result of economies of scale achieved through increased sales volumes. In the near future, we expect to continue to devote resources to the expansion of our sales and marketing efforts and general and administrative efforts to support our planned growth. As a result, we expect that total operating expenses may increase in absolute dollars in future periods. These expenses as a percentage of net revenues will vary depending on the level of revenues obtained.

In one or more future quarters our operating results may fall below the expectations of securities analysts and investors. In such an event, the trading price of our common stock would likely be materially adversely affected.

In August 2001, the FASB issued SFAS No. 144 “Accounting for the Impairment or Disposal of Long-Lived Assets.” SFAS No. 144 establishes accounting and reporting standards for the impairment of long-lived assets and for long-lived assets to be disposed of. We adopted SFAS No. 144 on April 1, 2002. The initial adoption of SFAS No. 144 did not have a significant impact on our reporting for impairment or disposals of long-lived assets.

In June 2002, the FASB issued SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities”, which addresses accounting for restructuring and similar costs. SFAS No. 146 supersedes previous accounting guidance, principally Emerging Issues Task Force Issue No. 94-3. We have adopted the provisions of SFAS No. 146 for restructuring activities, if any, initiated after December 31, 2002. SFAS No. 146 requires that the liability for costs associated with an exit or disposal activity be recognized when the liability is incurred. Under Issue No. 94-3, a liability for an exit cost was recognized at the date of our commitment to an exit plan. SFAS No. 146 also establishes that the liability should initially be measured and recorded at fair value. Accordingly, SFAS No. 146 may affect the timing of recognizing future restructuring costs as well as the amounts recognized.

In December 2002, the FASB issued SFAS No. 148, “Accounting for Stock-Based Compensation — Transition and Disclosure.” SFAS No. 148 amends SFAS No. 123, “Accounting for Stock-Based Compensation,” to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, SFAS No. 148 amends the disclosure requirements of SFAS No. 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. The transition guidance and annual disclosure provisions of SFAS No. 148 are effective for our fiscal year ended March 30, 2003. The interim disclosure provisions are effective for the first quarter of the fiscal year ending April 3, 2004. We continue to account for stock-based compensation using the intrinsic value method in accordance with the provisions of APB Opinion No. 25, “Accounting for Stock Issued to Employees,” as allowed by SFAS No. 123. As a result, the adoption of SFAS No. 148 did not have any impact on our financial results.

June 15, 2003, except for mandatorily redeemable financial instruments of nonpublic entities which are subject to the provisions of SFAS No. 150 for the first period beginning after December 15, 2003. Upon the completion of our initial public offering, all of our mandatorily redeemable preferred stock will be converted into common stock. As a result, we do not expect this statement to have any impact on our financial statements.

We have funded our operations through March 30, 2003 primarily through private sales of equity securities and borrowings.

Net cash flow used in operations was ($25.8) million in fiscal 2001, ($11.5) million in fiscal 2002, and ($6.9) million in fiscal 2003. Uses of cash were primarily to fund net losses and changes in working capital.

Net cash flow provided by (used in) investing activities was ($11.5) million in fiscal 2001, $6.3 million in fiscal 2002, and ($1.5) million for fiscal 2003. Uses of cash flow for investing activities include capital expenditures for property and equipment and purchase of short-term investments. The uses of cash flow were offset by the sale of short-term investments.

Net cash flow provided by (used in) financing activities was $32.7 million in fiscal 2001, ($1.2) million in fiscal 2002, and $8.5 million in fiscal 2003. In fiscal 2001, cash from financing activities primarily consisted of net proceeds from the issuance of Series E convertible preferred stock. In fiscal 2002, cash used in financing activities consisted of payments of $1.2 million on outstanding working capital line of credit and capital lease obligations. In fiscal 2003 net cash provided by financing activities consisted of approximately $13.6 million of net proceeds from the issuance of Series F convertible preferred stock which was offset by debt repayments of approximately $5.1 million.

The following tables summarize our contractual obligations as of March 30, 2003, and the effect these obligations are expected to have on our liquidity and cash flows in future periods.


*	All of these series of preferred stock have redemption rights that will be eliminated upon conversion of the preferred stock into common stock upon completion of the offering.

Management believes that the cash currently on hand and the line of credit obtained on June 13, 2003 will be sufficient to continue operations through the next twelve months. The current credit facilities will allow us to borrow for working capital needs. However, there can be no assurance that if additional financing is necessary it will be available, or if available, that such financing can be obtained on satisfactory terms. Failure to generate sufficient revenues or raise additional capital could have a material

On June , 2003, we entered into a revolving credit and security agreement with CapitalSource Finance LLC pursuant to which CapitalSource Finance LLC has made available to us a credit facility under a revolving promissory note with a maximum principal amount of $11.0 million, subject to availability guidelines that specify the amount that can be borrowed under the facility at any given time, to refinance our existing indebtedness and provide working capital. Amounts borrowed under this facility bear interest at rates equal to the greater of 9.5% or the prime lending rate plus 5.75%, for advances up to a fluctuating base amount, and equal to the greater of 11.5% or the prime lending rate plus 7.75% for advances in excess of that base amount. Amounts borrowed under the facility are secured by substantially all of our tangible and intangible assets. The revolving credit and security agreement provides for certain events of default, sets forth a number of affirmative and negative covenants to which we must adhere and expires on April 15, 2006, unless extended, renewed or terminated pursuant to the terms of the agreement. RedEnvelope paid a non-refundable commitment fee of approximately $0.2 million in connection with this revolving credit and security agreement. We do not currently have any outstanding balance under the revolving promissory note.

We do not use derivative financial instruments in our investment portfolio and have no foreign exchange contracts. Our financial instruments consist of cash and cash equivalents, trade accounts receivable, accounts payable and long-term obligations. We consider investments in highly-liquid instruments purchased with a remaining maturity of 90 days or less at the date of purchase to be cash equivalents. Our exposure to market risk for changes in interest rates relates primarily to our short-term investments and short-term obligations; thus, fluctuations in interest rates would not have a material impact on the fair value of these securities.

At March 30, 2003, we had approximately $5.0 million in cash and cash equivalents. At that same date, we also had an outstanding balance on our working capital line of credit of approximately $1.2 million. A hypothetical 10% increase or decrease in interest rates would not have a material impact on our earnings or loss, or the fair market value or cash flows of these instruments.

RedEnvelope is a retailer of upscale gifts for every occasion, every day. RedEnvelope’s goal is to make gift giving — no matter what the occasion — easy and fun. We offer a unique assortment of high-quality, innovative gifts, many of which are exclusive to RedEnvelope. Our merchants travel the world for original, innovative products and often commission artists and vendors to create gifts exclusively for RedEnvelope shoppers. Our website, www.redenvelope.com, allows customers to shop for gifts by occasion, recipient, lifestyle and price, and, depending on the season, features between approximately 550 and 750 different gift items. Our website is continually updated to reflect changing gift occasions and new product offerings. We also publish a richly-photographed, full-color catalog several times during the year, which generally features approximately 135 products, increasing to approximately 250 products during the holiday shopping season. Our catalog serves as the primary advertising vehicle for our website.

We offer a wide variety of products in numerous product categories, including flowers and plants, jewelry, men’s and women’s accessories, gift baskets, gourmet foods, personal care, sports and games, gadget and tools, baby and kids, home and garden, office, and bar, wine and cigar accessories. We offer these items at a wide variety of price points, ranging from lower priced items having a broader consumer appeal in the $20 to $50 range to higher-priced items with more targeted appeal in the one to several hundred dollar range. We also offer our customers a gift wrapping option, whereby our gifts are delivered to the recipient in a branded, high-quality red box with a distinctive, hand-tied ivory ribbon. We strive to maintain the highest standards for customer service and delivery so as to provide our customers with the best possible gift-giving experience. We believe that RedEnvelope provides a compelling combination of unique, high-quality merchandise, shopping convenience and excellent customer service.

Growth of the Internet and Online Commerce. The Internet’s influence on communication, information and commerce continues to grow. Nielsen estimates that there were approximately 580 million Internet users worldwide and approximately 168.6 million Internet users in the United States at the end of 2002. The US Census Bureau estimates that $34.3 billion was spent on online retail in the United States in 2001, which is approximately 22% higher than the estimated $28.2 billion spent in 2000. We believe that growth in Internet usage and online commerce is being fueled by a number of factors including:


	•	growing awareness among consumers of the convenience and other benefits of online shopping

	•	a large installed base of personal computers in the workplace and home

	•	advances in the performance and speed of personal computers, modems and Internet connections

	•	improvements in network infrastructure and bandwidth

	•	easier and cheaper access to the Internet

	•	the rapidly expanding availability of online content and commerce sites

The unique characteristics of the Internet provide a number of advantages for online retailers. Online retailers are able to frequently adjust their featured selections, editorial content and pricing, providing significant merchandising flexibility. Online retailers also benefit from the lower cost of publishing on the Web as compared to traditional print media, the ability to reach a large group of customers from a central location, and the potential for low-cost customer interaction. Unlike traditional retail channels, online retailers do not have the burdensome costs of managing and maintaining a retail store infrastructure. Online retailers can also easily obtain demographic and behavioral data about customers, increasing opportunities for direct marketing and personalized services.

The Gift Market. Gifts are available through a wide variety of stores, catalogs and websites. Gift purchasing lends itself particularly well to online shopping because of the ease of viewing a wide selection

of products quickly. However, we believe there are very few places that a customer can go to purchase gifts for all occasions, from holidays to birthdays and anniversaries, and be assured of a consistent, thoughtful, innovative, high-quality product. Further, we believe there are very few places where consumers can purchase gifts by occasion or recipient.

We believe that we provide our customers a unique and enjoyable shopping experience that cannot be replicated easily elsewhere. By selling gifts for almost all occasions and people in one place, we make the gift-buying process easier for the giver. Furthermore, we believe we remove much of the anxiety of gift buying by organizing our products so that buyers can easily find high-quality gifts and have them sent on an expedited basis. Many of our products are either proprietary or developed specifically for RedEnvelope, which allows us to offer many products that cannot be found elsewhere. We believe that our commitment to customer service and providing a good customer experience further distinguishes us.

We believe that we have several competitive advantages that position us to be the premier gift-giving retailer, regardless of the occasion or holiday. These include the following:

Unique gift giving experience. We believe that our website and catalog provide customers with an easy and fun way to purchase gifts. Our catalogs are produced around the major gift giving holidays and offer a variety of products specific to the theme. Furthermore, our website allows customers to shop for gifts by occasion, recipient, lifestyle and price point. We strive to maintain the highest standards for customer service and delivery of gifts to provide our customers with the best possible gift giving experience.

Original product offerings at a wide variety of price points. We believe that we offer a unique assortment of high-quality, innovative gifts, many of which are difficult to find elsewhere and are not easily replicated. We obtain our products from sources around the world, and we often have products created exclusively for RedEnvelope shoppers. We also offer consumer gifts that are available at a wide range of prices — from $20 up to several hundred dollars.

High quality product presentation. We differentiate ourselves partially through our branded, high quality product presentation. For an added fee, we offer our customers a gift-wrapping option, whereby our gifts are delivered in a branded, high-quality red box with a distinctive, hand-tied ivory ribbon. Products that are not gift-wrapped are shipped in branded packaging so that all gifts will clearly identify RedEnvelope as the source of the merchandise. Gift certificates are delivered to customers in distinctive red envelopes. We believe that our packaging further reinforces our brand with the consumer and that our product presentation is one of our competitive advantages.

Continue to improve user experience. We seek to combine an upscale product selection with a simple, enjoyable purchasing process so that our customers will have an enjoyable gift-purchasing experience. We have built what we feel is an attractive, easy-to-navigate website that displays our products in a clear and informative manner and allows customers to complete their purchases quickly. We intend to continue upgrading and enhancing our website to keep pace with improving technology and changing customer demands. In addition, we intend to continue producing a richly-photographed, high-quality catalog that can effectively and attractively display our products in print for those individuals who prefer to browse through a catalog when selecting items for purchase. We also believe it is important to maintain a staff of courteous, knowledgeable and responsive customer service representatives to answer questions and otherwise assist our customers with their gift-purchasing experience.

Convenient shopping experience. Our online store provides customers with an easy-to-use website that is available 24 hours a day, seven days a week and may be reached from the shopper’s home or office. Our online store enables us to deliver a broad selection of products to customers in rural or other locations that do not have convenient access to physical stores. We also make the shopping experience convenient by allowing our customers to browse our products by category, key words or price range.

Our objective is to become the leading retailer of upscale consumer gifts for every occasion every day. To achieve this objective, we intend to continue to grow our customer base and provide those customers with a superior gift-buying experience to promote repeat purchases. Key elements of our strategy include the following:

Strengthening the RedEnvelope brand. We believe our brand and packaging are easily identified and associated with upscale consumer gift giving. We seek to build greater brand awareness through selective advertisements, customized promotions with strategic corporate partners, and continued production of distinctive, high-quality, richly-photographed catalogs. We will continue to leverage our brand name by selectively improving both our product offerings and direct marketing efforts.

Providing unique and innovative products. We are always searching for and designing new and exciting items to feature on our website and in our catalogs. We offer what we believe to be many unique and innovative products that are not found easily elsewhere. These products typically carry higher margins than branded or other products and thus may increase our operating margins and profits if we are able to sell more of them. In addition, we believe that by continually offering innovative, hard-to-find products, we can better differentiate RedEnvelope from our competitors and can provide a more satisfactory gift-purchasing experience for our target customers.

Increasing our scale to implement cost efficiencies. As we attempt to increase our revenues, we will subsequently attempt to create opportunities to reduce our costs associated with fulfillment, importing and general and administrative activities. Our warehouse fulfillment center currently has excess capacity that will allow us to increase our margins by increasing our product volume without a large commensurate increase in associated expense. Furthermore, purchasing more products overseas will allow us to obtain better pricing terms by buying items in bulk from importers. We believe that improved efficiencies in general and administrative expenses as we grow our revenues will also improve our margins.

Leveraging experience of proven management team. Alison May, our Chief Executive Officer, and Hilary Billings, our Brand Strategist, have both separately demonstrated expertise in helping grow retail brands and businesses, including Pottery Barn, the W Hotels, Patagonia, Esprit and Gymboree. We believe that our management team can apply their past experiences to RedEnvelope as we grow and manage our business. We believe that our management team has developed an understanding of our customers’ tastes and purchasing habits, which assists us in executing our product design, sourcing and marketing strategies. We intend to leverage our management team’s experience to effectively execute our business strategy.

Acquiring new customers and increasing repeat purchases through customer loyalty. A cornerstone of our business strategy is to develop, cultivate and satisfy our customer base. We have developed an internal database of approximately 1.3 million customer names, with approximately 450,000 new customers added in the twelve months ended March 30, 2003. Historically, 33% of customers who have purchased products within a 12 month period have made an additional purchase in the following 12 months. We intend to increase customer loyalty by providing a high-quality customer experience as well as by implementing promotional programs geared towards increasing repeat business, such as email campaigns and anniversary card programs.

Improving marketing efficiency. By improving the way that we spend our marketing dollars, we believe that we can lower our customer acquisition costs and effectively increase our margins. We intend to accomplish this by focusing our marketing efforts on the most efficient methods to acquire and maintain customers, including performance-based marketing arrangements with our marketing partners on the Internet. These programs usually only require us to pay fees to or share revenues with partners if customers come to our website from the marketing program and make a purchase.

Our merchandise mix consists of unique products available exclusively through RedEnvelope, items with broad gift-giving appeal that generally are available elsewhere and original and customized products generally not available in broad distribution. We adjust our merchandise mix to reflect market trends and customer buying habits. New products are selected or developed and brought into our merchandise mix based on criteria such as anticipated popularity, gross margin, uniqueness, value, competitive alternatives, exclusivity, quality and vendor performance.

Our goal is to offer a wide assortment of gifts with an emphasis on our exclusive products. Our exclusive products are produced for us on a contract basis, pursuant to product specifications that we provide to our manufacturers. We intend to continue offering products in the $20 to several hundred dollar range in an effort to appeal to a wide customer base. Development lead time is generally in the range of 11 months, although certain product introductions may require a shorter or longer lead-time.

We generate information frequently on merchandise orders and inventory, which is reviewed by our buyers, our merchandise planning staff and senior management. We average new offerings of approximately 300 products, approximately 40% of our product assortment, throughout the year. We carefully consider which products will not be offered in future months based on numerous factors, including revenues generated, gross margins, the cost of catalog and website space devoted to each product, product availability and quality.

Our merchandising group has been designing and developing new products since 2001, as well as finding new product ideas from outside sources. The merchandising group meets regularly with the merchandise planning staff to review product opportunities, product quality and customer feedback. From these meetings, product ideas are put into design, development and production. Examples of product introductions during that past three years include, among others, Spa in a Box, Framed Four Leaf Clover and Deluxe Men’s Valet.

In addition, we work with vendors to develop products focusing on unique and innovative features or concepts that distinguish us from competitors. We believe that the appeal of our exclusive products also serves as a key factor in broadening our customer base and strengthening and enhancing our brand appeal. Our goal is to continue to increase sales of these products through the introduction of new, exclusive RedEnvelope products.

In order to find new products, our buyers review product literature and travel extensively throughout the world to meet with vendors and attend trade shows. We purchase merchandise from numerous foreign and domestic manufacturers and importers. During the holiday season in fiscal 2003, we sourced from more than 300 vendors. We contract with seven agents throughout the world who negotiate pricing and oversee the development and quality control processes. We had a single supplier that provided approximately 4% of our net merchandise purchases in fiscal 2003.

More than half of our products are unique designs manufactured by third-party suppliers. We enter into exclusive supply agreements for these products to maintain a competitive advantage. However, since we do not have long-term arrangements with any vendor or distributor that guarantees the availability of products from year to year, we do not have a predictable or guaranteed supply of these products in the near future. If we are unable to provide our customers with continued access to popular, exclusive products, our operating results would be harmed.

We offer our products for sale through our website, www.redenvelope.com, and our full-color catalog. We ship our products from our distribution facility in Ohio and maintain a customer service facility that operates 24 hours a day, seven days a week to address customer concerns.

The RedEnvelope website. Our website is designed to make shopping easy and fun. Customers can shop by occasion, recipient, lifestyle and category. Each of the categories has sub-categories. For instance, under “recipient” a customer can shop for her, him, baby, kids and teens, couples, mother, father and business associate. Our goal is to provide a consistent “look and feel” between our website and catalog. We continue to update our website by incorporating advanced technologies to improve our product presentations and the ease of use of our website. Over the past three years, our website has garnered recognition from well-known, national periodicals as one of the Internet’s top retail shopping websites based on criteria established by such publications. For example, in 2002, Time Magazine named RedEnvelope as best gift site, and in 2001, the Wall Street Journal named RedEnvelope as one of their “favorite sites” and in 2001, Forbes named RedEnvelope as best gift site. In April 2003, we were nominated for a Webby Award® for the Best Commerce Website of 2003.

Our Internet operations benefit from our brand name, customer base, RedEnvelope catalogs and unique product offerings, as well as our approach to advertising. We believe that the catalog in particular is a significant factor in generating Internet sales. We send out periodic email campaigns to our list of Internet shoppers. These emails include products as seen in popular magazines and television shows. In addition, we offer the option of browsing through a simulated catalog on our website to those customers who prefer the catalog shopping experience, but also enjoy the convenience of online browsing.

The RedEnvelope catalog. The RedEnvelope catalog is a richly-photographed full-color catalog that is mailed to our customers six to eight times per year. The catalog is currently the primary advertising vehicle for all of our operations. The catalog uses photographic themes, detailed product descriptions and prominently features the most popular products. The catalog generally features approximately 135 products, which increases to more than 250 products during the holiday shopping season in our third quarter. The catalog is designed and produced by our in-house staff of writers, production artists and photographers, as well as occasional freelance specialists. This enables us to maintain quality control and shorten the lead-time needed to produce the catalog. Our production and distribution schedule permits frequent changes in the product selection to, which allows us to highlight holiday-appropriate gifts at specific times of the year. During fiscal year 2003, the catalog contained between 36 and 76 pages depending on the season.

We have developed a customer database of over 1.3 million names. We collect customer names through our catalog and Internet order processing. This provides a constant source of current information to help assess the catalog as a form of retail advertising, identify new customers that can be added to our in-house mailing lists without using customer lists from other catalogers, and identify our top purchasers.

Order fulfillment and distribution. We lease an approximately 200,000 square foot fulfillment and distribution facility in Lockbourne, Ohio from our third-party fulfillment service provider. Services performed by our third-party fulfillment service provider include receiving, picking, packing, shipping and other warehousing activities. Most of our merchandise is delivered to our customers directly from this distribution facility. Each order is received at the distribution facility after the order has been approved for shipment. Our goal is to ship the majority of orders within 24 hours after the order is received. Orders are fulfilled and audited for accuracy and quality before final processing. RedEnvelope’s signature gift box and gift-wrapping is performed as a final step when requested by our customers prior to shipment. For orders requiring personalization, most of the personalization work is performed at the Lockbourne, Ohio facility to maintain order integrity for the customer. Inventory management is performed through the use of Mail Order and Catalog System (MACS), which is our order, fulfillment and inventory management system.

Our agreement with the fulfillment services company that currently manages the operations at the Lockbourne, Ohio facility expires in August 2003, at which point we intend to assume direct control of

fulfillment and distribution operations. We have no prior experience managing fulfillment and distribution operations and we cannot assure you that we will be successful in this endeavor. If we are unable to successfully manage our fulfillment and distribution operations or if we experience any significant disruptions in connection with the transition from our current service provider, our operations and financial condition could be seriously harmed. Any failure in managing our fulfillment and distribution operations would require us to find one or more parties to provide these services for us. If we are required to engage one or more service providers, we could incur higher fulfillment expenses than anticipated or incur additional costs for balancing merchandise inventories among multiple distribution facilities. Further, we may need to expand our distribution operations in the future to accommodate increases in customer orders. If we fail to successfully manage or expand our fulfillment and distribution operations it would have a material adverse effect on our business.

Our fulfillment and distribution operations are subject to a number of additional risks, including disruptions in power supplies or computer systems, natural disasters, inability to timely deliver products due to carrier problems or other problems and an inability to maintain sufficient levels of competent staffing, the occurrence of any of which could seriously harm our operations. For a description of these and other risks related to our fulfillment and distribution operations, please see “Risk Factors.”

Customer service. We lease and operate an approximately 13,000 square foot customer service center in San Diego, California. We are committed to providing our customers with courteous, knowledgeable and prompt service 24 hours a day, seven days a week. Our customer service and catalog sales groups in San Diego provide personal attention to customers who call toll free, use Internet chat, or send emails to place orders or inquire about products. Our customer service group is also responsible for addressing customer concerns promptly in an attempt to achieve the customer’s complete satisfaction. We seek to provide a great customer experience and therefore, if a gift recipient is not satisfied with one of our products, they can return the product for repair, replacement or refund.

We seek to hire and retain qualified customer service representatives and train them thoroughly. Training for customer service representatives focuses primarily on acquiring a working knowledge of our products and of developing an understanding of our high customer service standards.

Our customer service operations are subject to a number of risks, including disruptions due to power outages, telecommunications or computer system failures, natural disasters or an inability to maintain proper levels of competent staffing, the occurrence of any of which could seriously harm our operations. For a description of these and other risks related to our customer service operations, please see “Risk Factors.”

Our catalog remains our primary advertising vehicle. However, we also use a variety of other forms of Internet advertising. Our Internet advertising is broken out into four main categories: portals, partnerships, banner advertising, and affiliates and search. We have been migrating our Internet advertising towards performance-based arrangements where we pay for advertising based on revenue or traffic produced by that specific advertisement or website. In our portal arrangements, we pay for advertising in a hybrid model of fixed placement fees and performance-based fees. In our partnerships, we use a model of sharing revenue with our partners as well as performance-based fees. Our banner advertising arrangements are paid for on a cost per impression (CPM) model which we manage to a targeted ad cost. Our affiliate and search advertising arrangements are a mixture of revenue sharing, performance-based fees and CPM fees. We intend to continue our strategy of growing our customer base through aggressive marketing programs while also keeping our advertising costs down. We continually reevaluate our advertising strategies to maximize the effectiveness of our advertising programs and their return on investment. For a description of these and other risks related to our advertising and promotional activities, please see “Risk Factors.”

We use third party information technology systems for order fulfillment, merchandising and financial reporting. In addition, we internally developed our webstore and integrated it with these other systems. We are continually making improvements to the overall technology infrastructure to improve the shopping experience and order fulfillment capabilities. We currently use Mail Order and Catalog System (MACS) as our back-end order and fulfillment system.

Our information technology systems are housed in a leased third-party facility in Santa Clara, California. Currently, we use 28 servers to run our website. Data is stored in a database that runs on a redundant server and storage array. We also have standby servers that provide for additional capacity as necessary. The facility hosting our servers provides redundant heating, ventilation, air conditioning, power and Internet connectivity.

Our ability to receive and fulfill orders successfully through our website is critical to our success and largely depends upon the efficient and uninterrupted operation of our computer and communications hardware and software systems. Our systems and operations are vulnerable to damage or interruption from power outages, computer and telecommunications failures, computer viruses, security breaches, catastrophic events, and errors in usage by our employees and customers. In the event that our service provider in Santa Clara has a disruption in its operations or ceases operations for any reason or if we are unable to agree on satisfactory terms for a continued hosting relationship, we would be forced to enter into a relationship with another service provider or take over hosting responsibilities ourselves. We cannot assure you that, in the event it became necessary to switch hosting facilities, we would be successful in finding an alternate service provider on acceptable terms or in hosting the computer servers ourselves. Any significant interruption in the availability or functionality of our website, or our sales processing, fulfillment or communications systems for any reason, particularly an interruption during the holiday season, could seriously harm our business. For a discussion of these and other risks related to our facilities and systems, see “Risk Factors.”

Our business is highly seasonal, reflecting the general pattern associated with the retail industry of peak sales and earnings in late November and December during the holiday shopping season. The secondary peak seasons for us are in February and May, reflecting gift buying for Valentine’s Day and Mother’s Day. A substantial portion of our net revenues occurs in the third fiscal quarter ending around December 31. We generally experience lower net revenues during the first, second and fourth fiscal quarters and, as is typical in the retail industry, have incurred and may continue to incur losses in these quarters. The third fiscal quarter accounted for approximately 49% of net revenues in the fiscal year ended March 30, 2002. We cannot predict with certainty what revenues in the third fiscal quarter of 2004 will be in terms of our net revenues. In anticipation of increased sales activity during the third fiscal quarter, we incur significant additional expenses, including significantly higher inventory and staffing costs. Due to the seasonality of our sales, our quarterly results will fluctuate, perhaps significantly. In addition, similar to many retailers, we make merchandising and inventory decisions for the holiday season well in advance of the holiday selling season. Accordingly, unfavorable economic conditions or deviations from projected demand for products during the third fiscal quarter could have a material adverse effect on our financial condition or results of operations for the entire fiscal year. For a discussion of these and other risks related to seasonality of our business, see “Risk Factors.”


	•	other online retailers, such as Amazon.com

	•	major department stores such as Macy’s and Bloomingdale’s

	•	physical and online stores and catalog retailers that sell popular gift items such as Pottery Barn, Brookstone, Sharper Image, Tiffany’s, Harry & David, J Crew and 1-800-Flowers

	•	Internet portals and online service providers that feature shopping services, such as AOL, Yahoo! and Lycos

Many of our traditional store-based, catalog-based and online competitors have longer operating histories, larger customer or user bases, greater brand recognition and significantly greater resources, particularly financial and marketing resources. Many of these competitors can devote substantially more resources to website development and catalog retailing than we can. In addition, larger, well-established and well-financed entities may join with online competitors in the future. Our competitors may be able to secure products from vendors on more favorable terms, offer popular products to which we do not have access, fulfill customer orders more efficiently and adopt more aggressive pricing or inventory availability policies than we can.

We believe that our registered trademark, “RedEnvelope,” and the brand name recognition that we have developed are of significant value. We strive to preserve the quality of our brand name and protect our trademark and other intellectual property rights to ensure that the value of our proprietary rights is maintained. We rely on various intellectual property laws and contractual restrictions to protect our proprietary rights. These include copyright and trade secret laws and confidentiality, invention assignment and nondisclosure agreements with our employees, contractors, suppliers and strategic partners. Despite these precautions, it may be possible for a third party to copy or otherwise obtain and use our intellectual property without our authorization. In addition, we pursue the registration of our trademarks and service marks in the U.S. and internationally. However, effective intellectual property protection may not be available in every country in which our products and services are made available online. If we are unable to protect or preserve the value of our intellectual property for any reason, our business would be harmed.

We also rely on technologies that we license from third parties. These licenses may not continue to be available to us on commercially reasonable terms, or at all, in the future. As a result, we may be required to develop or obtain substitute technology of lower quality or at greater cost, which could materially adversely affect our business, operating results and financial condition. Further, third parties may claim infringement by us with respect to our use of current or future technologies, whether developed by RedEnvelope or licensed from other parties. We expect that participants in our markets will be increasingly subject to infringement claims as the number of services and competitors in our industry segment grows. Any such claim, with or without merit, could be time-consuming, result in costly litigation, cause service upgrade delays or require us to enter into royalty or licensing agreements. Such royalty or licensing agreements might not be available on terms acceptable to us or at all. As a result, any such claim of infringement against us could have a material adverse effect upon our business, operating results and financial condition.

Our services are subject to federal, state and local consumer laws and regulations including consumer protection laws, user privacy laws and regulations prohibiting unfair and deceptive trade practices. In particular, under federal and state financial privacy laws and regulations, in certain circumstances we must provide notice to our customers of our policies on sharing non-public information with third parties, must provide advance notice of any changes to our privacy policies and, with limited exceptions, must give consumers the right to prevent sharing of their non-public personal information with unaffiliated third parties. Further, the growth of online commerce could result in more stringent consumer protection laws that impose additional compliance burdens on online companies. These consumer protection laws could result in substantial compliance costs and could interfere with the conduct of our business.

Moreover, there is currently great uncertainty whether or how existing laws governing issues such as property ownership, intellectual property issues, sales and other taxes, libel and personal privacy apply to the Internet and commercial online services. These issues may take years to resolve. For example, tax authorities in a number of states, as well as a Congressional advisory commission, are currently reviewing the appropriate tax treatment of companies engaged in online commerce, and new state tax regulations may subject us to additional state sales and income taxes. New legislation or regulation, the application of laws and regulations from jurisdictions whose laws do not currently apply to our business or the application of existing laws and regulations to the Internet and online commerce could result in significant additional taxes on our business. These taxes could have an adverse effect on our cash flows and results of operations. Further, there is a possibility that we may be subject to significant fines or other payments for any past failures to comply with these requirements.

In addition, because our website is accessible over the Internet in multiple states and other countries, other jurisdictions may claim that we are required to qualify to do business in that jurisdiction. We are qualified to do business only in California and Ohio at present. Our failure to qualify in a jurisdiction where we are required to do so could subject us to taxes and penalties. It could also hamper our ability to enforce contracts in those jurisdictions. The application of laws or regulations from jurisdictions whose laws do not currently apply to our business could have a material adverse effect on our business, operating results and financial condition.

As of March 31, 2003, we employed approximately 108 people, approximately 92% of whom were full time. We have never had a work stoppage, and none of our employees is represented by a labor union. We consider our employee relationships to be positive. If we are unable to retain our key employees or if we are unable to maintain adequate staffing of qualified employees, particularly during peak sales seasons, our business would be affected adversely. For a discussion of these and other risks related to our employees, see “Risk Factors.”

We lease approximately 16,500 square feet of office space for our corporate headquarters in San Francisco, California, and we lease an approximately 200,000 square foot warehouse and distribution facility operated by a third party in Lockbourne, Ohio. We also lease and operate an approximately 13,000 square foot customer service center in San Diego, California, which houses our call center. We believe these facilities will be sufficient for our needs for at least the next twelve months.

Our information technology systems are housed in a leased third-party facility in Santa Clara, California. Currently, we use 28 servers to run our website. These servers are configured for high availability and large volumes of Internet traffic and are located in our leased third-party facility. Data is stored in a database that runs on a redundant server and storage array. We also have standby servers that provide for additional capacity as necessary. The facility housing our servers provides redundant HVAC, power and Internet connectivity. For a discussion of the risks related to disruption in services at our third-party facility, See “Risk Factors.”

By its letter dated March 9, 2000, Red Letter Days Plc, a United Kingdom company (Red Letter Days), asserted trademark rights in RED LETTER, RED LETTER DAYS and the image of a red envelope in the United Kingdom. Red Letter Days offers experiential gifts in the United Kingdom. It claimed that if RedEnvelope were to use its name and REDENVELOPE service mark in the United Kingdom for its retail sales of gifts, it would infringe Red Letter Days’ trademark rights. RedEnvelope has made a number of attempts to reach an amicable resolution of this dispute, but Red Letter Days has declined to enter into settlement negotiations. There are several trademark opposition proceedings pending in the United Kingdom and European Community trademark offices. RedEnvelope’s opposition to the United Kingdom trademark application for RED LETTER and Red Letter Days’ opposition to RedEnvelope’s United Kingdom trademark applications for REDENVELOPE and the RedEnvelope logo are ready for submission and counter statements have been filed. In addition, oral argument took place at a hearing to address the substantive issues in the opposition. No decision has yet been reported. Red Letter Days has opposed RedEnvelope’s European Community trademark applications for REDENVELOPE and the RedEnvelope logo. Evidentiary submissions are being made by the parties in connection with those opposition proceedings and a decision is not expected for several months.

In addition, from time to time, we may be involved in other litigation relating to claims arising out of our ordinary course of business. For a discussion of risks related to litigation, see “Risk Factors.”

The following table sets forth information regarding our executive officers, directors and key employees.

Alison L. May has served as the President, Chief Executive Officer and a member of our Board of Directors since April 2002. Prior to joining RedEnvelope, from March 2001 to April 2002, Ms. May served as the Chief Operating Officer at Gymboree Corporation, a children’s specialty retailer. Ms. May held the positions of President and Business Consultant at ALM Consulting from February 2000 to March 2001. From January 1997 to February 2000, Ms. May served as the Chief Operating Officer at Esprit de Corp., a clothing retailer. Ms. May served as the President and Chief Financial Officer of Patagonia, Inc., an outdoor clothing and equipment retailer, from December 1991 to April 1996. Ms. May holds an MBA in Finance from the University of Southern California and a BA in Spanish, Education and History from Purdue University.

Hilary Billings has served as Brand Strategist of RedEnvelope since April 2003. She has served as a member of our Board of Directors since July 1999 and served as Chief Marketing Officer and Chairman of the Board from February 2000 to April 2003. She also served as Chief Executive Officer of RedEnvelope from June 1999 to February 2000 and Chief Merchandising Officer from May 1999 to June 1999. From July 1997 to May 1999, Ms. Billings was a Senior Vice President of Brand Design at Starwood Hotels and Resorts where she helped develop the W Hotels brand. Before joining Starwood, Ms. Billings was a Vice President of Product Development with Pottery Barn catalog and retail group from 1995 to 1997. Ms. Billings has served as a member of the Board of Directors at Peet’s Coffee and Tea, Inc., a coffee and tea retailer, since January 2002. Ms. Billings holds a BA from Brown University.

Eric C. Wong has served as Chief Financial Officer of RedEnvelope since April 2003. Prior to that, Mr. Wong served as our Vice President of Finance from February 2003 to April 2003 and as our Director of Finance from November 2002 to February 2003. From February 2000 to July 2002, Mr. Wong served as the Director of Finance at Network Associates, Inc., an enterprise software company. From December 1997 to February 2000, Mr. Wong served as a Finance Manager at Sanmina Corporation, an electronics manufacturer. Mr. Wong is a certified public accountant and received a BA in Economics from the University of California at Santa Cruz.

Kristel Craven has served as Vice President of Customer Experience at RedEnvelope since August 2002. Prior to joining RedEnvelope, from November 1998 to June 2002, Ms. Craven served as the Director of Wholesale Operations at Esprit de Corp., a clothing retailer. Ms. Craven also served as a Customer Service Operations Manager at Patagonia, Inc., an outdoor clothing and equipment retailer, from April 1995 to October 1998, a Dealer Service Manager at Patagonia from July 1993 to March 1995 and a Wholesale Shipping Manager at Patagonia from 1990 to June 1993.

Kristine Dang has served as General Merchandising Manager at RedEnvelope since April 2003. Prior to that, Ms Dang served as the Vice President of Merchandising at RedEnvelope from March 2000 to April 2003 and served as the Director of Merchandising at RedEnvelope from July 1998 to March 2000. Prior to joining RedEnvelope, from April 1997 to June 1998, Ms. Dang served as an Assistant Buyer at Williams-Sonoma, Inc., a specialty home furnishing retailer. Ms. Dang studied fashion design at San Francisco State University.

Kathy Herzog has served as our Vice President of Planning since April 2003 and served as our Director of Merchandise Planning from January 2002 to April 2003. Prior to joining RedEnvelope, from August 2001 to December 2001, Ms. Herzog served as a Project Manager with GlobalNetXchange, a retail technology company. Ms. Herzog also served as the Director of Planning at Bluelight.com L.L.C., an online retail unit of Kmart Corporation, from January 2001 to July 2001. From March 2000 to December 2000, Ms. Herzog served as a Group Manager at Escalate, Inc., a retail software company. Ms. Herzog also served as a Project Manager at Williams-Sonoma, Inc., a specialty home furnishing retailer, from February 1999 to February 2000, a Planning and Inventory Manager at Williams-Sonoma, Inc. from March 1998 to January 1999 and a Senior Planner at Williams-Sonoma, Inc. from August 1996 to February 1998. Ms. Herzog holds a BA in Business Marketing from Pacific Lutheran University and an MBA in Business Management from Pacific Lutheran University.

Pamela Knox has served as our Senior Vice President of Marketing since May 2003. Prior to joining RedEnvelope, from October 2000 to May 2003, Ms. Knox served as a Senior Vice President and the Chief Marketing Officer at 1-800-Flowers.com, an online flower retailer. From March 1997 to March 2000, Ms. Knox served as Vice President, Marketing Delivery Group at Citibank, N.A., a financial services company. Ms. Knox received a BA in Government from Wheaton College and an MBA from the University of California at Los Angeles.

John W. Roberts has served as Vice President of Information Technology and Operations at RedEnvelope since March 2003. Prior to joining RedEnvelope, from July 2002 to March 2003, Mr. Roberts served as Vice President of Information Technology at Bridgespan, Inc., a mortgage services company. From November 2000 to June 2002, Mr. Roberts served as a Senior Director and Chief Information Officer at DiCarta, Inc., an enterprise software company. Mr. Roberts also served as a Director of Information Technology Operations at Webvan Group, Inc., an online retail grocer, from January 1998 to August 2000. Mr. Roberts received a BA in English from San Francisco State University and an MS in Systems Management from the University of Denver.

Michael Moritz has served as a member of our Board of Directors since July 1999 and as Chairman of the Board since April 2003. Since 1988, Mr. Moritz has served as a general partner at Sequoia Capital, a venture capital firm. Mr. Moritz has served as a member of the board of directors of Saba Software, a provider of human capital development and management solutions, since August 1998. Since July 1993, Mr. Moritz has also served as a member of the board of directors of Flextronics, a contract electronics manufacturer. Mr. Moritz received an MA from Christ Church, University of Oxford.

Michael E. Dunn has served as a member of our Board of Directors since August 2000. Mr. Dunn served as the President of Prophet Brand Strategy, Inc., a brand consulting firm, since June 1998 and has served as President and Chief Executive Officer of Prophet Brand Strategy since January 2000. From March 1994 to May 1998, Mr. Dunn served as the Chief Executive Officer of Context Integration, a systems integrator. Mr. Dunn received a BA in Economics from Haverford College and an MBA/MA in Business and Asian Studies from the University of California at Berkeley.

Scott Galloway has served as a member of our Board of Directors since June 2002. Mr. Galloway also served as a Director of RedEnvelope from September 1997 to August 2000 and the Chairman of the Board of RedEnvelope from September 1997 to February 2000. From December 1999 to January 2002, Mr. Galloway served as the Chief Executive Officer and Chairman of the Board at Brand Farm, an e-commerce incubator. Mr. Galloway served as the Chief Executive Officer of Prophet Brand Strategy, Inc., a brand consulting firm, from June 1992 to January 2000. Mr. Galloway received an MBA from the University of California at Berkeley and a BA in Economics from the University of California at Los Angeles.

Claire Gruppo has served as a member of our Board of Directors since June 2000. Since December 1999, Ms. Gruppo has served as the Managing Director of Direct Equity Partners, L.P., as President of GLC Advisory Corp., as sole director of GLC Securities Corp. and as President and Manager of GLC Equity Investments, Inc., each an equity investment firm. Ms. Gruppo also served as the President and Managing Director at Gruppo, Levey & Co., since October 1999. From October 1992 to January 1999, Ms. Gruppo served as President and Director of Gruppo Levey & Cappell, Inc. Ms. Gruppo holds a BA in English from Wesleyan University.

Charles Heilbronn has served as a member of our Board of Directors since October 2002. Since 1987, Mr. Heilbronn has held the position of Vice President and General Counsel at Chanel Limited, a luxury goods company marketing women’s clothing, leather goods, fragrances and cosmetics, fine jewelry and watches. Mr. Heilbronn received a Master in Law from Universite de Paris V, Law School and an LLM from New York University Law School.

Jacqueline A. Macdonald has served as a member of our Board of Directors since March 1999. Since August 1995, Ms. Macdonald has served as a partner at Sippl Macdonald Ventures L.P., a venture capital firm. Ms. Macdonald received an MBA from Harvard University and a BS in Industrial Engineering from Stanford University.

Our Board of Directors currently consists of eight members, who are Michael Moritz, our Chairman, and Hilary Billings, Michael Dunn, Scott Galloway, Claire Gruppo, Charles Heilbronn, Jacqueline Macdonald and Alison May. We do not have a classified board. Ms. Billings and Ms. May are the only management members of our board of directors. Our preferred stockholders are parties to a voting agreement, pursuant to which our current directors have been elected and ratified, which agreement will terminate upon the closing of this offering, provided that the public offering price is not less than $0.80 per share if the offering closes on or prior to October 15, 2003, or $1.5952 per share if the offering closes thereafter, and the gross proceeds to us are not less than $20.0 million. Upon termination of the voting agreement, there will be no further contractual obligations regarding the election of our directors. Our directors hold office until their successors have been duly elected or qualified or until the earlier of their death, resignation, disqualification or removal. There are no family relationships among any of our directors and executive officers.

Our directors do not currently receive compensation for their services as members of the board of directors, although we reimburse our non-employee directors for out-of-pocket expenses incurred in connection with attending board and committee meetings. We also granted an option to purchase 15,000 shares of our common stock to Michael E. Dunn in his capacity as a director without any prior direct or indirect ownership interest in RedEnvelope. Employee directors are eligible to participate in our 1999 Stock Plan and will be eligible to participate in our 2003 Employee Stock Purchase Plan. Non-employee directors will be eligible to participate in our 1999 Stock Plan and our 2003 Directors’ Stock Option Plan.

We have established an audit committee, which consists of Claire Gruppo, Michael Dunn and Jacqueline Macdonald. The audit committee is responsible for reviewing and monitoring our financial

statements and internal accounting procedures, recommending the selection of independent auditors by our board, evaluating the scope of the annual audit, reviewing audit results, consulting with management and our independent auditor prior to presentation of financial statements to stockholders and, as appropriate, initiating inquiries into aspects of our internal accounting controls and financial affairs.

Our Compensation Committee consists of Charles Heilbronn and Michael Moritz. The Compensation Committee is responsible for establishing and reviewing salaries, incentives and other forms of compensation for our directors, President, Chief Executive Officer, other executive officers and other employees, and administering various incentive compensation and benefit plans. No interlocking relationship exists between any member of our Compensation Committee and any member of any other company’s board of directors or compensation committee.

The following table summarizes information concerning the compensation awarded to, earned by, or paid for services rendered to RedEnvelope in all capacities during the fiscal year ended March 30, 2003, by our Chief Executive Officer, our former Chief Executive Officer and our five other most highly compensated executive officers and former executive officers whose salary and bonus for fiscal 2003 exceeded $100,000. We refer to these executives and former executives as our named executive officers elsewhere in this prospectus.


	(1)	Ms. May received other compensation consisting of the payment of insurance premiums in the amount of $573.

	(2)	Ms. Billings received other compensation consisting of the payment of insurance premiums in the amount of $243 and a $3,923 matching contribution to our 401(k) plan on her behalf.

	(3)	Ms. Dang received other compensation consisting of the payment of insurance premiums in the amount of $159 and a $2,204 matching contribution to our 401(k) plan on her behalf.

	(4)	Ms. Herzog received other compensation consisting of the payment of insurance premiums in the amount of $88 and a $398 matching contribution to our 401(k) plan on her behalf.

	(5)	Mr. McClanan served as our Chief Executive Officer until April 8, 2002 and his employment relationship with RedEnvelope terminated on May 3, 2002.


	(6)	Mr. McClanan received other compensation consisting of a $100,000 cash severance payment, a $70,000 bonus payment, a severance payment of $30,000 payable in RedEnvelope’s Series F Preferred Stock, $800 as compensation for consulting services rendered by Mr. McClanan after his employment relationship with RedEnvelope terminated, a cash payment of accrued paid time off in the amount of $23,270, the payment of insurance premiums in the amount of $32, a $500 matching contribution to our 401(k) plan on his behalf and payment of other indirect expenses in the amount of $258.

	(7)	Mr. Blum served as an executive officer until April 11, 2003.

	(8)	Mr. Blum received other compensation consisting of the payment of insurance premiums in the amount of $342 and a $3,009 matching contribution to our 401(k) plan on his behalf.

	(9)	Mr. Akers served as an executive officer during the fiscal year ended March 30, 2003 but was not an executive officer at the end of the fiscal year ended March 30, 2003.


(10)	Mr. Akers received other compensation consisting of the payment of insurance premiums in the amount of $99 and a $1,927 matching contribution to our 401(k) plan on his behalf.

The following table summarizes the stock options granted to each named executive officer during the fiscal year ended March 30, 2003. No stock appreciation rights were granted during the year. All options were granted under the 1999 Stock Plan.


(1)	Ms. May’s option vests as to 25% of the shares one year after the vesting commencement date and as to 1/48 monthly thereafter. Ms. May’s options are subject to vesting acceleration provisions described under “Employment Agreements” below.

(2)	Ms. Billings’ option vests as to 1/48 of the shares monthly. Ms. Billings’ options are subject to vesting acceleration provisions described under “Employment Agreements” below.

(3)	Ms. Dang’s option vests as to 1/48 of the shares monthly.

(4)	Ms. Herzog’s option vests as to 25% of the shares one year after the vesting commencement date and as to 1/48 monthly thereafter.

(5)	Ms. Herzog’s option vests as to 7/48 of the shares seven months after the vesting commencement date and as to 1/48 monthly thereafter.

(6)	Mr. Blum’s option vests as to 5/48 of the shares five months after the vesting commencement date and as to 1/48 monthly thereafter. Mr. Blum’s employment has terminated effective as of April 11, 2003 and he has three months from the date of his termination to exercise his vested options.


(7)	Mr. Akers’ employment has terminated effective as of January 3, 2003. He had three months from the date of his termination to exercise his vested options, but did not do so. All options granted to Mr. Akers have been cancelled.

The following table sets forth certain information regarding exercised stock options during the fiscal year ended March 30, 2003 and unexercised options held as of March 30, 2003, by each of the named executive officers. There was no public trading market for our common stock as of March 30, 2003. Accordingly, these values have been calculated on the basis of the initial public offering price of $ , less the applicable exercise price per share, multiplied by the number of shares issued or issuable, as the case may be, on the exercise of the option. All options were granted under our 1999 Stock Plan.


(1)	All options granted to executive officers are early exercisable and, when and if exercised, will be subject to vesting.

Alison L. May’s employment offer letter dated May 12, 2002 provides that her option to purchase our common stock may be exercised by delivering a full recourse five-year term promissory note and that twenty-five percent of the remaining unvested shares held by Ms. May shall immediately vest upon a change of control of RedEnvelope. Under the Sarbanes-Oxley Act of 2002, we may not be able to extend any credit to Ms. May pursuant to her offer letter while she is a director or executive officer of RedEnvelope.

Hilary Billings’ letter agreement dated April 10, 2002 provides that if, at any time prior to the earlier to occur of the closing of our initial public offering or a change of control of RedEnvelope, her total option and shareholdings in RedEnvelope are below three percent of the total outstanding shares, options, warrants and other convertible securities on an as-converted-to-common stock basis (including unallocated stock options), then our management will recommend to the board of directors that additional options to purchase common stock be granted to her at the then fair market value of RedEnvelope Common Stock to ensure that her percentage increases to three percent. These rights will immediately terminate upon the closing of this offering.

In the event of a change of control of RedEnvelope, then twenty-five percent of Ms. Billings’ remaining unvested options or shares will become immediately vested. If Ms. Billings’ employment is terminated other than for cause within the twelve month period following a change of control of RedEnvelope, then an additional twenty-five percent of her remaining unvested options or shares will become immediately vested. In addition, in the event that Ms. Billings’ employment is constructively terminated or terminated other than for cause, she will receive severance payments equal to twelve months of her then current base salary, paid ratably over a twelve month period. Finally, Ms. Billings’ options provide that she may exercise them by delivering to us a full-recourse, five-year term promissory note, and

she has three years from the date of the termination of her employment with RedEnvelope to exercise her options. Under the Sarbanes-Oxley Act of 2002 we may not be able to extend any credit to Ms. Billings pursuant to her letter agreement while she is a director or executive officer of RedEnvelope.

Pamela Knox’s employment offer letter dated May 20, 2003 provides that she will receive severance payments totalling $125,000, paid ratably over a six month period, and six months of continued health coverage in the event her employment is terminated without cause and provided that she signs our standard general release of any claims against RedEnvelope.

John W. Roberts’ employment offer letter dated February 18, 2003 provides that he will receive severance payments totaling $44,250, paid ratably over a three month period, in the event his employment is terminated without cause and provided that he signs our standard general release of any claims against RedEnvelope.

1999 Stock Plan. Our Board of Directors initially adopted, and our stockholders approved, our 1999 Stock Plan in March 1999. The plan has been amended a number of times since then, including most recently in April 2003 when our Board of Directors approved amending and restating the plan, effective upon the date of this offering and subject to stockholder approval. We intend to obtain stockholder approval of this amendment prior to the date of this offering. The description of the plan’s features contained below reflects the April 2003 amendment and restatement that we expect to become effective on the date of this offering.

Our 1999 Stock Plan provides for the grant of incentive stock options, within the meaning of Section 422 of the Internal Revenue Code, of 1968, as amended (the “Code”), to our employees and for the grant of nonstatutory stock options, stock purchase rights and stock bonus awards to our employees, directors and consultants. We have reserved a total of 26,100,000 shares of our common stock for issuance pursuant to the 1999 Stock Plan. In addition, our 1999 Stock Plan provides for annual increases in the number of shares available for issuance under the plan on the first day of each of our fiscal years 2005, 2006, 2007, 2008 and 2009, equal to the lesser of 4% of the outstanding shares of common stock on the first day of the applicable fiscal year, 5,000,000 shares, or another amount as our Board of Directors may determine. As of March 30, 2003, we had issued 4,414,046 shares upon exercise of awards granted under the 1999 Stock Plan, there were outstanding options and other awards to purchase an aggregate of 9,295,390 shares of common stock with a weighted average exercise price of $0.27 per share, and, taking into account the additional shares that we expect to become available for issuance upon the date of this offering, 12,390,564 shares of common stock are available for grant. All share numbers reflected in this plan summary, as well as the exercise price applicable to outstanding awards, will be automatically proportionately adjusted in the event we undertake certain changes in our capital structure, such as a stock split, stock dividend or other similar transaction.

Our Board of Directors or, with respect to different groups of participants, different committees appointed by our Board of Directors, will administer the 1999 Stock Plan. In the case of options intended to qualify as “performance-based compensation” within the meaning of Section 162(m) of the Code, the committee will consist of two or more “outside directors” within the meaning of Section 162(m) of the Code. In addition, in administering the 1999 Stock Plan, we intend to comply with other applicable legal and regulatory requirements as may apply from time to time, including any Nasdaq listing requirements. The administrator has the power to determine the terms of the awards granted, including the exercise or purchase price, the number of shares subject to each award, the exercisability or vesting of the awards, the form of consideration payable upon exercise or purchase, and any forfeiture restrictions or vesting and exercisability acceleration provisions that apply to awards.

The plan administrator has broad discretion to determine the terms of options granted under our 1999 Stock Plan, including discretion to determine the exercise price applicable to options, which may be less than the fair market value of our common stock on the date of grant. Notwithstanding that discretion, with respect to nonstatutory stock options intended to qualify as “performance-based compensation” within

the meaning of Section 162(m) of the Code and all incentive stock options, the exercise price must be at least equal to the fair market value of our common stock on the date of grant. The term of incentive stock options may not exceed 10 years from the date of grant. No employee may be granted options to purchase more than 4,000,000 shares in any fiscal year. In addition, the Code imposes certain limitations on the value of shares that may be issued subject to incentive stock options. After termination of the service relationship of one of our employees, directors or consultants, he or she may exercise his or her option for the period of time stated in the option agreement. Generally, if termination is due to death or disability, the option will remain exercisable for 12 months. In all other cases, the option will generally remain exercisable for 3 months. However, an option may never be exercised later than the expiration of its term. Generally, options granted under our 1999 Stock Plan vest at the rate of 25% of the shares underlying the option on the first anniversary of the date of grant and as to 1/48th of the underlying shares each month thereafter, assuming service with us continues throughout such period.

The 1999 Stock Plan permits us to reprice outstanding options or to enter into an option exchange program with plan participants, pursuant to which we may affect a reduction in the exercise price of awards held by plan participants.

We may also issue stock purchase rights under our 1999 Stock Plan. These rights enable a participant to purchase shares of common stock on such terms as are determined by the administrator and set forth in an agreement between us and the participant. The administrator may establish a purchase price equal to less than fair market value with respect to stock purchase rights and may provide for us to have a repurchase option that applies to stock purchased that remains unvested at the time the participant ceases for any reason to be a service provider to RedEnvelope.

In addition, we may issue stock bonus awards under the 1999 Stock Plan. These awards typically will not require a participant to pay any amount to RedEnvelope in connection with the award (other than a nominal amount equal to par value for the stock). Stock bonus awards may or may not be subject to vesting, forfeiture or other restrictions. Such terms will be determined at the time the administrator grants a stock bonus award and will be set forth in the agreement between us and the participant.

Our 1999 Stock Plan provides that in the event of a change of control of RedEnvelope, the successor corporation may assume or substitute each outstanding award. If the successor corporation does not agree to assume, or substitute new awards for, outstanding awards in connection with the change of control, then the outstanding awards will terminate upon the close of the change of control. With respect to options granted prior to the date of this offering, participants are entitled to acceleration of vesting of 25% of the shares subject to the option in connection with a change of control of RedEnvelope. Following the date of this offering, plan awards will provide for acceleration of vesting of 25% of a participant’s then-unvested shares only in the event the participant’s service relationship with us is involuntarily terminated without cause, or the participant experiences a constructive termination, within 12 months following the change of control.

The 1999 Stock Plan will automatically terminate in March 2009 unless our Board of Directors either terminates it prior to that date or extends the plan term. Our Board of Directors has broad discretion to amend the 1999 Stock Plan, although such amendments may generally not adversely affect the rights of participants holding outstanding awards. We will seek stockholder approval of amendments to the 1999 Stock Plan to the extent required by applicable law or Nasdaq listing requirements and we will, in any event, seek stockholder approval of amendments that:


	•	Increase the number of shares reserved for issuance under the plan

	•	Increase the maximum number of shares that may be issued subject to options to any one employee during a fiscal year

	•	Increase the categories of eligible participants

2003 Directors’ Stock Option Plan. The 2003 Directors’ Stock Option Plan was adopted by the Board of Directors on April 11, 2003 to be effective upon the closing of this offering. RedEnvelope will be

submitting the 2003 Directors’ Stock Option Plan for approval by our stockholders prior to the closing of this offering. A total of 5,265,000 shares of common stock have been reserved for issuance under the 2003 Directors’ Stock Option Plan. All share numbers reflected in this plan summary will be automatically proportionately adjusted in the event we undertake certain changes in our capital structure, such as a stock split, stock dividend or other similar transaction.

The 2003 Directors Stock Option Plan is intended to be a formula award plan providing for the grant of nonstatutory stock options to non-employee members of our Board of Directors. It is designed to work automatically, without the need for administration by our Board of Directors or RedEnvelope. To the extent that active administration becomes necessary with respect to this plan and to the extent practicable based upon the composition of our Board of Directors, it will be performed by our Board of Directors without involvement of directors having a personal stake in any of the matters at issue. Unless terminated earlier by our Board of Directors, the 2003 Directors Stock Option Plan will terminate in April 2013. To the extent that it becomes necessary for us to amend the 2003 Directors Stock Option Plan, our Board of Directors may amend it as it determines appropriate, however such amendments may generally not adversely affect the rights of participants holding outstanding awards. We will seek stockholder approval of amendments to this plan to the extent required by applicable law or Nasdaq listing requirements and we will, in any event, seek stockholder approval of amendments that either increase the number of shares reserved for issuance under the plan or increase the categories of eligible participants.

Under the 2003 Directors’ Stock Option Plan, each non-employee director who first becomes a non-employee director after the effective date of the plan will receive an automatic initial grant of an option to purchase 468,000 shares of our common stock upon appointment or election. Initial grants to non-employee directors will vest and become exercisable as to 25% of the shares subject to the option on each of the first four anniversaries of the date of grant. The 2003 Directors’ Stock Option Plan also provides for annual grants, on the date of each annual meeting of our stockholders, to each non-employee director who has served on our Board of Directors for at least six months and who will continue to serve on our Board of Directors thereafter. The annual grant to non-employee directors will be an option to purchase 117,000 shares of common stock, which will vest and become exercisable as to 100% of shares subject to the option on the first anniversary of the date of grant. The exercise price of all stock options granted under the 2003 Directors’ Stock Option Plan shall be equal to the fair market value of a share of our common stock on the date of grant of the option. Options granted under the 2003 Directors’ Stock Option Plan have a term of ten years. However, unvested options will terminate when the optionee ceases to serve as a director and vested options will terminate if they are not exercised within 12 months after the director’s death or disability or within 3 months after the director ceases to serve as a director for any other reason.

In the event of a change of control of RedEnvelope, the 2003 Directors Stock Option Plan provides that any successor corporation will assume or substitute new awards for options outstanding under the plan. In the event that a successor corporation does not agree to assume or substitute new awards for outstanding options, then the options will terminate upon the close of the change of control. In the event of a change of control of RedEnvelope where a director’s service on our Board of Directors is being involuntarily terminated other than for cause following the transaction, his or her option will provide for acceleration of vesting of 25% of the then-unvested shares.

2003 Employee Stock Purchase Plan. The 2003 Employee Stock Purchase Plan was adopted by our Board of Directors in April, 2003 and will become effective on the date of this offering. RedEnvelope will be submitting the 2003 Employee Stock Purchase Plan for approval by our stockholders prior to the closing of this offering. A total of 4,700,000 shares of our common stock will be made available for issuance under this plan. In addition, our 2003 Employee Stock Purchase Plan provides for annual increases in the number of shares available for issuance under the 2003 Employee Stock Purchase Plan on the first day of each of our fiscal years 2005, 2006, 2007, 2008 and 2009, equal to the lesser of 1% of the outstanding shares of our common stock on the first day of the applicable fiscal year, 1,250,000 shares or another amount as our board may determine. All share numbers reflected in this plan summary will be

Our 2003 Employee Stock Purchase Plan is intended to qualify under Section 423 of the Code. It allows employees to purchase our common stock at a discount to market price through payroll deductions. The plan is structured through a series of consecutive six-month offering periods. Except for the first such offering period, these offering periods generally start on the first trading day on or after February 1st and August 1st of each year and end, respectively, on the last trading day of the next July and January. All eligible employees will automatically be granted an option to participate in the plan and thereby enrolled in the first offering period, but payroll deductions and continued participation in the first offering period will not be determined until after the effective date of the Form S-8 registration statement, which is intended to register the shares reserved for issuance under the 2003 Employee Stock Purchase Plan.

Our Board of Directors or a committee established by our Board of Directors will administer the 2003 Employee Stock Purchase Plan. In addition, in administering the 2003 Employee Stock Purchase Plan, we intend to comply with other applicable legal and regulatory requirements as may apply from time to time, including any Nasdaq listing requirements. Our Board of Directors or its committee has full and exclusive authority to interpret the terms of the 2003 Employee Stock Purchase Plan and determine eligibility. Our employees and employees of designated subsidiaries, if any, are eligible to participate in the 2003 Employee Stock Purchase Plan if they are customarily employed for at least 20 hours per week and more than 5 months in any calendar year. A participant may not transfer rights granted under the 2003 Employee Stock Purchase Plan other than by will, the laws of descent and distribution or as otherwise provided under the 2003 Employee Stock Purchase Plan. An employee may not be granted an option to purchase stock under the 2003 Employee Stock Purchase Plan if:


	•	the employee immediately after grant owns stock possessing 5% or more of the total combined voting power or value of all classes of our capital stock

	•	the employee’s rights to purchase stock under all of our employee stock purchase plans accrues at a rate that exceeds $25,000 worth of stock for each calendar year

Our 2003 Employee Stock Purchase Plan permits participants to purchase common stock through payroll deductions of up to 15% of their eligible compensation, which includes a participant’s base salary and commissions, but excludes all other compensation. A participant may purchase a maximum of 17,550 shares during a six-month offering period.

Amounts deducted and accumulated by the participant are used to purchase shares of our common stock at the end of each six-month offering period. The purchase price is 85% of the lower of the fair market value of our common stock at the beginning of the offering period or at the end of the offering period. Participants may end their participation at any time during an offering period prior to a purchase date, at which point their payroll deductions accumulated to date will be returned to them. Participation ends automatically upon termination of employment with us.

In the event of a change of control of RedEnvelope, the successor corporation may assume or substitute each right to purchase stock outstanding under the 2003 Employee Stock Option Plan. If the successor corporation refuses to assume or substitute new awards for these rights, the offering period then in progress will be shortened, and a new exercise date will be set. In such event, the administrator will provide notice of the new exercise date to each optionee at least 10 business days before the new exercise date.

The administrator has the authority to amend or terminate our 2003 Employee Stock Purchase Plan, except that, subject to certain exceptions described in the 2003 Employee Stock Purchase Plan (including amendments necessary to avoid our incurring adverse accounting charges), no such action may adversely affect any outstanding rights to purchase stock under our 2003 Employee Stock Purchase Plan.

401(k) Plan. Effective January 1999, we adopted the RedEnvelope, Inc. 401(k) plan covering employees. The 401(k) plan is intended to qualify under Section 401(k) of the Internal Revenue Code of

1986, as amended, so that contributions to the 401(k) plan by employees or by RedEnvelope, and the investment earnings thereon, are not taxable to employees until withdrawn from the 401(k) plan, and so that contributions by RedEnvelope, if any, will be deductible by RedEnvelope when made. Under the 401(k) plan, employees may elect to reduce their current compensation by up to the statutorily prescribed annual limit and to have the amount of such reduction contributed to the 401(k) plan. The 401(k) plan permits, but does not require, additional matching contributions to the 401(k) plan by RedEnvelope on behalf of all participants in the 401(k) plan. For fiscal year ended 2003, we made approximately $0.1 million in matching contributions to the 401(k) plan.

Our Amended and Restated Certificate of Incorporation limits the liability of our directors to the maximum extent permitted by Delaware law. Delaware law provides that directors of a corporation will not be personally liable for monetary damages for breach of their fiduciary duties as directors, except liability for any of the following acts:


	•	any breach of their duty of loyalty to the corporation or its stockholders

	•	acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law

	•	unlawful payments of dividends or unlawful stock repurchases or redemptions

	•	any transaction from which the director derived an improper personal benefit

Such limitation of liability does not apply to liabilities arising under the federal securities laws and does not affect the availability of equitable remedies such as injunctive relief or rescission.

Our Amended and Restated Certificate of Incorporation and Bylaws provide that we will indemnify our directors and executive officers and other corporate agents to the fullest extent permitted by law. We believe that indemnification under our Bylaws covers at least negligence and gross negligence on the part of indemnified parties. Our bylaws also permit us to secure insurance on behalf of any officer, director, employee or other agent for any liability arising out of his or her actions in such capacity, regardless of whether the bylaws would permit indemnification.

We have entered into agreements to indemnify our directors and executive officers, in addition to the indemnification provided for in our Amended and Restated Certificate of Incorporation and Bylaws. These agreements, among other things, provide for indemnification of our directors and executive officers for certain expenses (including attorneys’ fees), judgments, fines and settlement amounts incurred by them in any action or proceeding, including any action by or in the right of RedEnvelope, arising out of their services as a director or executive officer of ours, any subsidiary of ours or any other company or enterprise to which the person provided services at our request. We believe that these provisions and agreements are necessary to attract and retain qualified persons as directors and executive officers.

During the last two years, there has not been any transaction or series of similar transactions to which RedEnvelope was or is a party in which the amount involved exceeded or exceeds $60,000 and in which any director or executive officer of RedEnvelope, any holder of more than 5% of any class of RedEnvelope’s voting securities or any member of the immediate family of any of the foregoing persons had or will have a direct or indirect material interest, other than the compensation arrangements described in “Management” and the transactions set forth below.

We believe that we have executed all of the transactions set forth below on terms no less favorable to us than we could have obtained from unaffiliated third parties. It is our intention to ensure that all future transactions between us and our officers, directors and principal stockholders and their affiliates, are approved by a majority of the board of directors, including a majority of the independent and disinterested members of our Board of Directors, and are on terms no less favorable to us than those that we could obtain from unaffiliated third parties.

The shares of Series A preferred stock, Series B preferred stock, Series C preferred stock, Series D preferred stock, Series E preferred stock and Series F preferred stock outstanding immediately prior to the offering is convertible into 7,337,634 shares, 4,510,000 shares, 10,266,818 shares, 4,098,272 shares, 22,243,905 shares and 21,291,826 shares, respectively, of common stock. Upon closing of this offering, all outstanding shares of preferred stock will automatically convert into common stock and all share and per share amounts below have been adjusted to reflect this conversion.

From the inception of RedEnvelope through March 31, 2003, we have issued shares of preferred stock in private placement transactions as follows:


	•	an aggregate of 7,913,225 shares of Series A preferred stock at $0.001 per share in March 1999, in connection with our reincorporation in Delaware

	•	an aggregate of 4,510,000 shares of Series B preferred stock at $0.50 per share in March 1999(1)

	•	an aggregate of 10,038,684 shares of Series C preferred stock at $3.2350 per share in July 1999(2)

	•	an aggregate of 228,134 shares of Series C preferred stock at $3.2350 per share in September 1999

	•	an aggregate of 3,705,501 shares of Series D preferred stock at $4.853 per share in November 1999

	•	an aggregate of 18,917,990 shares of Series E preferred stock at $1.9801 per share in July 2000

	•	an aggregate of 2,441,029 shares of Series E preferred stock at $1.9801 per share in August 2000

	•	an aggregate of 481,783 shares of Series E preferred stock at $1.9801 per share in September 2000

	•	an aggregate of 403,103 shares of Series E preferred stock at $1.9801 per share to Experian Marketing Solutions in March 2001, September 2001, May 2002, December 2002 and March 2003

	•	an aggregate of 21,124,174 shares of Series F preferred stock at $0.63808 per share in April 2002

	•	an aggregate of 167,652 shares of Series F preferred stock at $0.63808 per share in August 2002


(1)	In connection with the Series B private placement, convertible promissory notes issued by RedEnvelope in an aggregate principal amount of $205,500 converted into shares of Series B preferred stock.

(2)	In connection with the Series C private placement, convertible promissory notes issued by RedEnvelope in an aggregate principal amount of $2,262,879 converted into shares of Series C preferred stock.

The following table summarizes the shares of preferred stock purchased by executive officers, directors and five-percent stockholders and their affiliated entities since our inception.


(1)	Unless otherwise noted, shares held by affiliated persons and entities have been added together for purposes of this chart. See “Principal Stockholders” for a chart of beneficial owners.

(2)	Holder of at least 5% of our common stock as of March 30, 2003.

(3)	Claire Gruppo, who is a member of our Board of Directors, is affiliated with Direct Equity Partners

(4)	Director of RedEnvelope.

(5)	Charles Heilbronn, who is a member of our Board of Directors, is affiliated with Moussenvelope, L.L.C.

(6)	Michael Moritz, who is a member of our Board of Directors, is affiliated with Sequoia Capital.

(7)	Jacqueline A. Macdonald, who is a member of our Board of Directors, is affiliated with Sippl MacDonald Ventures.

We have entered into letter agreements with certain of our executive officers, which contain vesting acceleration or severance benefits upon termination of employment or a change of control of RedEnvelope. See “Management — Employment Agreements” for a description of these letter agreements. Please see “Management — Aggregate Option Exercises and Option Values” and “Principal Stockholders” for a description of the option and stock holdings of our directors and executive officers. Please see “Management — Limitations on Directors’ Liability and Indemnification Agreements” for a description of our indemnification agreements with our directors and executive officers.

RedEnvelope entered into a Transition Agreement and Release, as amended, with Martin McClanan, the former Chief Executive Officer of RedEnvelope, on September 26, 2001 in connection with the termination of his employment. The Agreement provides for, among other things, a bonus and cash severance payment of $170,000, the issuance of 47,016 shares of Series F preferred stock and the extension of the exercise period on Mr. McClanan’s option to purchase common stock.

The Company entered into a Transition Agreement and Release with Christopher Cunningham, the Company’s former Chief Information Officer on August 22, 2002. The Agreement provides for, among other things, a cash severance payment of $125,000 and the extension of Mr. Cunningham’s option exercise period.

In July 1999, in connection with the exercise of an option to purchase common stock granted to Hilary Billings, our Brand Strategist and a member of our Board of Directors, pursuant to our 1999 Stock Plan, we provided a loan to Ms. Billings pursuant to two promissory notes with an interest rate of 5.74% and an outstanding aggregate principal amount of approximately $44,000. Each note is secured by a pledge agreement whereby the stock purchased with the notes is pledged as collateral for the notes. As amended in May 2002, the promissory notes are due on July 20, 2007.

We have entered into an agreement with the holders of our preferred stock, including entities with which certain of our directors are affiliated, which provides the holders of the preferred stock and certain holders of warrants to purchase our capital stock with rights relating to the registration of their shares of common stock issuable upon conversion of preferred stock, issuable upon exercise of warrants or issuable upon conversion of preferred stock issued upon exercise of warrants. See “Description of Capital Stock — Registration Rights.” These rights will survive this offering and will terminate at such time as Rule 144 or another similar exemption under the Securities Act is available for the sale of all such holders’ securities within a three month period, but in no event later than five years following the closing of this offering.

RedEnvelope has entered into indemnification agreements with its officers and directors containing provisions that may require RedEnvelope, among other things, to indemnify its officers and directors against certain liabilities that may arise by reason of their status or service as officers or directors (other than liabilities arising from willful misconduct) and to advance their expenses incurred as a result of any proceeding against them as to which they could be indemnified. See “Management — Limitation of Liability and Indemnification Matters.” We have also entered into employment agreements with certain of our officers. See “Management — Employment Agreements and Change of Control Arrangements.”

The following table sets forth information regarding the beneficial ownership of our common stock as of March 30, 2003, and as adjusted to reflect the sale of shares of common stock in the offering, of:


	•	each person or entity who is known by us to own beneficially more than 5% of our outstanding common stock

	•	each of the named executive officers

	•	each of our directors

	•	all directors and executive officers as a group

As of March 30, 2003, there were 73,694,009 shares of common stock outstanding and 136 stockholders of RedEnvelope, assuming the conversion of all outstanding preferred stock into common stock. The table is based upon information supplied by officers, directors and principal stockholders. Beneficial ownership is determined in accordance with the rules of the Securities Exchange Commission. In computing the number of shares beneficially owned by a person and the percentage ownership of that person, shares of common stock subject to options or warrants held by that person that are currently exercisable or will become exercisable within 60 days after March 30, 2003 are deemed outstanding, while such shares shall not be deemed outstanding for purposes of computing percentage ownership of any other person. Except as otherwise indicated, and subject to applicable community property laws, the persons named in the table have sole voting and investment power with respect to all shares of common stock held by them. Except as otherwise noted, the address for each holder of more than 5% of our common stock is c/o RedEnvelope, Inc., 201 Spear Street, 3rd Floor, San Francisco, California.


	*	less than one percent of the outstanding shares of common stock.

	(1)	Includes 688,436 shares held by Sequoia Capital Entrepreneurs Fund, 5,256,641 shares held by Sequoia Capital Franchise Fund, 621,738 shares held by Sequoia Capital Franchise Partners, 4,472,437 shares held by Sequoia Capital IX and 825,524 shares held by Sequoia Capital IX Principals Fund.

	(2)	Includes 9,635,648 shares held by Direct Equity Partners I, L.P. and 38,731 shares held by Direct Equity Partners, L.P.

	(3)	Includes 722,377 shares held by Galloway & Chaplin Capital, G.P. and 3,098,514 shares held by GCC RedEnvelope, of which Mr. Chaplin is a general partner of each entity. Mr. Chaplin disclaims beneficial ownership of the shares, except to the extent of his pecuniary interest therein. Also includes 3,628,817 shares held by Mr. Chaplin, of which Mr. Chaplin has granted options to purchase 392,656 shares to certain individuals.

	(4)	Includes 5,096,529 shares held by Weston Presidio Capital III, L.P. and 253,175 shares held by WPC Entrepreneur Fund, L.P.

	(5)	Represents 3,467,950 shares issuable upon exercise of options exercisable within 60 days of March 30, 2003, of which 939,236 shares are vested at that time.

	(6)	Includes 888,888 shares, of which 16,298 shares are subject to repurchase by RedEnvelope, and 1,712,075 shares issuable upon exercise of options exercisable within 60 days of March 30, 2003, of which 1,704,215 shares are vested at that time.

	(7)	Includes 152,326 shares and 156,000 shares issuable upon exercise of options exercisable within 60 days of March 30, 2003, of which 66,540 shares are vested at that time.

	(8)	Represents 120,000 shares issuable upon exercise of options exercisable within 60 days of March 30, 2003, of which 37,499 shares are vested at that time.

	(9)	Includes 46,478 shares and 781,249 shares issuable upon exercise of options exercisable within 60 days of March 30, 2003, all of which shares are vested.


(10)	Represents 71,666 shares issuable upon exercise of options exercisable within 60 days of March 30, 2003, all of which option shares will expire if not exercised prior to that time.


(11)	Represents 180,000 shares issuable upon exercise of options exercisable within 60 days of March 30, 2003, of which 62,500 shares are vested at that time.

(12)	Includes 688,436 shares held by Sequoia Capital Entrepreneurs Fund, 5,256,641 shares held by Sequoia Capital Franchise Fund, 621,738 shares held by Sequoia Capital Franchise Partners, 4,472,437 shares held by Sequoia Capital IX and 825,524 shares held by Sequoia Capital IX Principals Fund, of which entities Mr. Moritz is a general partner. Mr. Moritz disclaims beneficial ownership of the shares, except to the extent of his pecuniary interest therein.

(13)	Represents 15,000 shares issuable upon exercise of options exercisable within 60 days of March 30, 2003, of which 2,187 are vested at that time and 146,753 shares issuable upon exercise of options granted to Mr. Dunn by R. Ian Chaplin and Scott Galloway.

(14)	Includes 722,377 shares held by Galloway & Chaplin Capital, G.P. and 3,098,514 shares held by GCC RedEnvelope, of which Mr. Galloway is a general partner of each entity. Mr. Galloway disclaims beneficial ownership of the shares, except to the extent of his pecuniary interest therein. Also includes 3,628,817 shares held by Mr. Galloway, of which shares, Mr. Galloway has granted options to purchase 392,656 shares to certain individuals.

(15)	Represents 9,635,648 shares held by Direct Equity Partners I, L.P. and 38,731 shares held by Direct Equity Partners, L.P., of which entities Ms. Gruppo is a limited partner. Ms. Gruppo disclaims beneficial ownership of the shares, except to the extent of her pecuniary interest therein.

(16)	Represents 8,520,914 shares held by Moussenvelope, LLC. Mr. Heilbronn is a director of Moussescribe LLC, the general partner of Moussescapade, L.P., which is the managing member of Moussenvelope LLC. Mr. Heilbronn disclaims beneficial ownership of the shares, except to the extent of his pecuniary interest therein.

(17)	Includes 932,928 shares held by Sippl Macdonald Ventures II, L.P. and 1,107,154 shares held by Sippl Macdonald Ventures III, L.P., of which entities Ms. Macdonald is a general partner. Ms. Macdonald disclaims beneficial ownership of the shares, except to the extent of her pecuniary interest therein.

(18)	See footnotes (5) through (17). Also includes 75,000 shares held by Eric Wong issuable upon exercise of options exercisable within 60 days of March 30, 2003, none of which shares are vested at that time, 125,000 shares held by Kristel Craven issuable upon exercise of options exercisable within 60 days of March 30, 2003, none of which shares are vested at that time, and no shares held by John W. Roberts or Pamela Knox.

Upon the completion of this offering, RedEnvelope will be authorized to issue shares of common stock, $0.001 par value per share, and 2,000,000 shares of undesignated preferred stock, $0.001 par value per share. All currently outstanding shares of preferred stock will be converted into common stock upon the closing of this offering.

As of March 30, 2003, there were 73,694,009 shares of common stock outstanding, as adjusted to reflect the conversion of all outstanding shares of preferred stock held of record by 136 stockholders. In addition, options to purchase 9,295,390 shares of common stock and warrants exercisable for 921,186 shares of common stock were also outstanding. After this offering, there will be shares of common stock outstanding (assuming no exercise of the underwriter’s overallotment option or exercise of outstanding options under RedEnvelope’s stock plans).

The holders of common stock are entitled to one vote for each share held of record on all matters submitted to a vote of the stockholders. Subject to preferences that may be applicable to any outstanding preferred stock, holders of common stock are entitled to receive ratably such dividends as may be declared by our Board of Directors out of funds legally available for that purpose. See “Dividend Policy.” In the event of liquidation, dissolution or winding up of RedEnvelope, the holders of common stock are entitled to share ratably in all assets remaining after payment of liabilities, subject to the prior distribution rights of any outstanding preferred stock. The common stock has no preemptive or conversion rights or other subscription rights. The outstanding shares of common stock are, and the shares of common stock to be issued upon completion of this offering will be, fully paid and non-assessable.

Upon the closing of this offering, all outstanding shares of preferred stock will be converted into 69,748,455 shares of common stock and the preferred stock will automatically be retired. Thereafter, our Board of Directors will have the authority, without further action by the stockholders, to issue up to 2,000,000 shares of preferred stock, $0.001 par value, in one or more series. Our Board of Directors will also have the authority to designate the rights, preferences, privileges and restrictions of each such series, including dividend rights, dividend rates, conversion rights, voting rights, terms of redemption, redemption prices, liquidation preferences and the number of shares constituting any series. The issuance of preferred stock may have the effect of delaying, deferring or preventing a change in control of RedEnvelope without further action by the stockholders. The issuance of preferred stock with voting and conversion rights may also adversely affect the voting power of the holders of common stock. In certain circumstances, an issuance of preferred stock could have the effect of decreasing the market price of the common stock. Upon the closing of this offering, no shares of preferred stock will be outstanding. RedEnvelope currently has no plans to issue any shares of preferred stock.

As of March 30, 2003, there was a warrant outstanding to purchase an aggregate of 9,272 shares of common stock at an exercise price of $4.85 per share, which will expire upon the consummation of this offering. In addition, there was a warrant outstanding to purchase an aggregate of 200,000 shares of common stock at an exercise price of $0.14 per share, which survives the closing of this offering. Finally, there were warrants outstanding to purchase an aggregate of 720,160 shares of preferred stock at a weighted average exercise price of $0.64 per share, which survive the closing of this offering and which will convert into warrants to purchase 711,914 shares of common stock at a weighted average exercise price of $0.65 per share on the closing of this offering.

The holders of 69,851,678 shares of common stock and warrants to purchase 711,914 shares of common stock or their transferees are entitled to certain rights with respect to the registration of such shares under the Securities Act. These rights are provided under the terms of an agreement between RedEnvelope and the holders of these securities. Subject to limitations in the agreement, the holders of at least 40% of these securities then outstanding may require, on three occasions beginning six months after the date of this prospectus, that RedEnvelope use its best efforts to register these securities for public resale if Form S-3 is not available. If RedEnvelope registers any of its common stock either for its own account or for the account of other security holders, the holders of these securities are entitled to include their shares of common stock in that registration, subject to the ability of the underwriters to limit the number of shares included in the offering. The holders of at least 20% of these securities then outstanding may also require RedEnvelope, on four occasions but not more than twice in any twelve-month period, to register all or a portion of these securities on Form S-3 when the use of that form becomes available to RedEnvelope, provided, among other limitations, that the proposed aggregate selling price is at least $2,000,000, net of any underwriters’ discounts or commissions. RedEnvelope will be responsible for paying all registration expenses, and the holders selling their shares will be responsible for paying all selling expenses.

Delaware Anti-Takeover Law and Certain Provisions of our Amended and Restated Certificate of Incorporation and Bylaws

Provisions of Delaware law and RedEnvelope’s Amended and Restated Certificate of Incorporation and Bylaws to be effective upon the closing of this offering could make the acquisition of RedEnvelope and the removal of incumbent directors more difficult. These provisions are expected to discourage certain types of coercive takeover practices and inadequate takeover bids and to encourage persons seeking to acquire control of RedEnvelope to negotiate with us first. We believe that the benefits of increased protection of its potential ability to negotiate with the proponent of an unfriendly or unsolicited proposal to acquire or restructure RedEnvelope outweigh the disadvantages of discouraging such proposals because, among other things, negotiation of such proposals could result in an improvement of their terms.

RedEnvelope is subject to the provisions of Section 203 of the Delaware law. In general, the statute prohibits a publicly-held Delaware corporation from engaging in a “business combination” with an “interested stockholder” for a period of three years after the date that the person became an interested stockholder unless, subject to exceptions, the business combination or the transaction in which the person became an interested stockholder is approved in a prescribed manner. Generally, a “business combination” includes a merger, asset or stock sale, or other transaction resulting in a financial benefit to the stockholder. Generally, an “interested stockholder” is a person who, together with affiliates and associates, owns, or within three years prior, did own, 15% or more of the corporation’s voting stock. These provisions may have the effect of delaying, deferring or preventing a change in control of RedEnvelope without further action by the stockholders.

RedEnvelope’s Amended and Restated Certificate of Incorporation to be effective upon the closing of this offering provides that stockholder action can be taken only at an annual or special meeting of stockholders and may not be taken by written consent. In addition, our Amended and Restated Certificate of Incorporation authorizes undesignated preferred stock, making it possible for our Board of Directors to issue, without further stockholder action, preferred stock having voting or other rights or preferences that could prevent or make more difficult an attempted hostile takeover of RedEnvelope. Our Bylaws to be effective upon the closing of this offering provide that special meetings of stockholders can be called only by our Board of Directors, the Chairman of our Board, if any, or our President. Moreover, the business permitted to be conducted at any special meeting of stockholders is limited to the business brought before the meeting by our Board of Directors, the Chairman of our Board, if any, or our President. The Bylaws set forth an advance notice procedure with regard to the nomination, other than by or at the direction of

Our shares will be listed on the Nasdaq National Market under the symbol “REDE.”

The Transfer Agent and Registrar for our common stock is expected to be American Stock Transfer & Trust Co. The transfer agent’s address is 59 Maiden Lane, Plaza Level, New York, NY 10038.

Prior to this offering, there has been no public market for our common stock. 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 or warrants after March 30, 2003. Of these 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 73,694,009 shares of our common stock will continue to 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 or Rule 701 promulgated under the Securities Act, which are summarized below. In addition, all of our stockholders have entered into market stand-off agreements with us and/or lock-up agreements with WR Hambrecht+Co whereby they have agreed not to sell any of their stock for 180 days following the date of this prospectus. Subject to the provisions of Rule 144 and Rule 701, additional shares will be available for sale in the public market as follows:


	•	beginning on the effective date of the registration statement, the shares sold in this offering will be immediately available for sale in the public market

	•	after 180 days following the date of this prospectus 73,651,794 additional shares will become eligible for sale in the public market, subject to compliance with Rule 144 and Rule 701 as described below

	•	the remaining 42,215 shares will be eligible for sale in March 2004, subject to compliance with Rule 144

Each of our officers, directors and one percent stockholders have agreed, subject to specified exceptions, that, without prior written consent of WR Hambrecht+Co, they will not offer, sell, contract to sell, pledge, grant any option to sell, or otherwise dispose of, directly or indirectly, any shares of our common stock or securities convertible into or exercisable for shares of our common stock, or warrants or other rights to purchase our common stock during the 180-day period following the date of this prospectus. Certain other stockholders have also agreed, subject to specified exceptions, that, without prior written consent of WR Hambrecht+Co, they will not offer, sell, contract to sell, pledge, grant any option to sell, or otherwise dispose of, directly or indirectly, any shares of our common stock or securities convertible into or exercisable for shares of our common stock, or warrants or other rights to purchase our common stock during the 180-day period following the date of this prospectus. WR Hambrecht+Co, may, in its sole discretion, permit early release of shares subject to the lock-up agreements. In considering any request to release shares subject to a lock-up agreement WR Hambrecht+Co will consider the possible impact of the release of the shares on the trading price of the stock sold in the offering. WR Hambrecht+Co does not have any present intention or any understandings, implicit or explicit, to release any of the shares subject to the lock-up agreements prior to the expiration of these lock-up periods.

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 RedEnvelope who has beneficially owned shares for at least one year, is entitled to sell within any three-month period, a number of shares that does not exceed

the greater of one percent of the then outstanding shares of our common stock, 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 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 those shares under Rule 144(k) without regard to the requirements described above. When a person acquires shares from one of our affiliates, that person’s holding period for the purpose of effecting a sale under Rule 144 would commence on the date of transfer from the affiliate.

In general, under Rule 701 of the Securities Act, an employee, officer, director, consultant or advisor who purchased shares from us in connection with a compensatory stock or option plan or other written agreement is eligible to resell those shares in reliance on Rule 144, but without compliance with certain restrictions, including the holding period contained in Rule 144. However, the shares issued pursuant to Rule 701 are subject to the lock-up agreements described above and under “Plan of Distribution” and will only become eligible for sale at the expiration of those agreements.

We intend to file registration statements under the Securities Act as promptly as possible after the effective date of this offering to register shares to be issued pursuant to our employee benefit plans. As a result, any options or rights exercised under our 1999 Stock Plan, our 2003 Employee Stock Purchase Plan, our 2003 Directors’ Stock Option Plan or any other benefit plan after the effectiveness of the registration statements will also be freely tradable in the public market, subject to the market stand-off and lock-up agreements discussed above. However, such shares held by affiliates will still be subject to the volume limitation, manner of sale, notice and public information requirements of Rule 144. As of March 30, 2003, there were outstanding options for the purchase of 9,295,390 shares of common stock, with an average exercise price of $0.27, each of which options were exercisable and subject to a standard repurchase option in favor of RedEnvelope.

In accordance with the terms of the underwriting agreement between WR Hambrecht+Co, LLC, as representative of the underwriter, and us, the underwriter has agreed to purchase from us that number of shares of common stock set forth opposite the underwriter’s name below at the public offering price less the underwriting discounts and commissions described on the cover page of this prospectus.

The underwriting agreement provides that the obligations of the underwriter are subject to conditions, including the absence of any material adverse change in our business, and the receipt of certificates, opinions and letters from us, counsel and independent accountants. Subject to those conditions, the underwriter is committed to purchase all of the shares of our common stock offered by this prospectus if any of the shares are purchased.

The underwriter proposes to offer the shares of our common stock directly to the public at the offering price set forth on the cover page of this prospectus, as this price is determined by the OpenIPO process described below, and to certain dealers at this price less a concession not in excess of $ per share. The underwriter may allow, and dealers may reallow, a concession not to exceed $ per share on sales to other dealers. Any dealers that participate in the distribution of our common stock may be deemed to be underwriters within the meaning of the Securities Act, and any discount, commission or concession received by them and any provided by the sale of the shares by them may be deemed to be underwriting discounts and commissions under the Securities Act. After completion of the initial public offering of the shares, the public offering price and other selling terms may be changed by the underwriter.

The following table shows the per share and total underwriting discount to be paid to the underwriter by us in connection with this offering. The underwriting discount has been determined through negotiations between us and the underwriter, and has been calculated as a percentage of the offering price. These amounts are shown assuming both no exercise and full exercise of the over-allotment option.

The expenses of the offering, exclusive of the underwriting discounts, will be approximately $ . These fees and expenses are payable entirely by us. These fees include, among other things, our legal and accounting fees, printing expenses, expenses incurred in connection with meetings with potential investors, filing fees of the Securities and Exchange Commission and the National Association of Securities Dealers, Inc., fees of our transfer agent and registrar and the listing fees of the Nasdaq National Market.

An electronic prospectus is available on the website maintained by WR Hambrecht+Co, and may also be made available on websites maintained by selected dealers and selling group members participating in this offering. Other than the prospectus in electronic format, the information on these websites is not part of this prospectus and has not been approved or endorsed by us.

The distribution method being used in this offering is known as the OpenIPO auction, which differs from methods traditionally used in underwritten public offerings. In particular, the public offering price and the allocation of shares are determined primarily by an auction conducted by the underwriter. All qualified individual and institutional investors may place bids in an OpenIPO auction and investors submitting valid bids have an equal opportunity to receive an allocation of shares.

The following describes how the underwriter and some selected dealers conduct the auction process and confirm bids from prospective investors:


	•	Before the registration statement relating to this offering becomes effective, the underwriter and participating dealers solicit bids from prospective investors through the Internet and by telephone and facsimile. The bids specify the number of shares of our common stock the potential investor proposes to purchase and the price the potential investor is willing to pay for the shares. These bids may be above or below the range set forth on the cover page of the prospectus. The minimum size of any bid is 100 shares.

	•	The shares offered by this prospectus may not be sold, nor may offers to buy be accepted, prior to the time that the registration statement filed with the Securities and Exchange Commission becomes effective. A bid received by the underwriter or a dealer involves no obligation or commitment of any kind prior to the closing of the auction. Bids can be modified or revoked at any time prior to the closing of the auction.

	•	Approximately two business days prior to the registration statement being declared effective, prospective investors receive, by e-mail, telephone or facsimile, a notice indicating the proposed effective date.

	•	After the registration statement relating to this offering has become effective, potential investors who have submitted bids to the underwriter or a dealer are contacted by e-mail, telephone or facsimile. Potential investors are advised that the registration statement has been declared effective and are requested to confirm their bids.

	•	The auction will close after the registration statement becomes effective at a time agreed to by us and WR Hambrecht+Co, which we anticipate will be immediately after the close of trading on the Nasdaq National Market on the same day on which the registration statement is declared effective. However, the date on which the auction will close cannot currently be predicted and will be determined by us and WR Hambrecht+Co based on general market conditions during the period after the registration statement is declared effective. If we are unable to determine a public offering price, close the auction and file a final prospectus with the Securities and Exchange Commission within 15 days after the registration statement is initially declared effective, we will be required to file with the Commission and have declared effective a post- effective amendment to the registration statement before the auction may be closed and before any bids may be accepted. If we are unable to close the auction within 15 days after the registration statement is initially declared effective, the underwriter or dealers will reconfirm all bids by either telephone or email following the filing and effectiveness of the post-effective amendment. After the registration statement has been declared effective, the public offering price of the common stock may be set at a price that is outside the range set forth on the cover of the prospectus.

	•	All bids that are not confirmed before the time specified by WR Hambrecht+Co, or if the time is not specified, by the close of the auction, are deemed withdrawn.

	•	Once a potential investor affirmatively confirms its previous bid, the confirmation remains valid unless subsequently withdrawn by the potential investor. Potential investors are able to withdraw their bids at any time before the close of the auction by notifying the underwriter or a participating dealer.

	•	If the public offering price range is changed before or after a potential investor affirmatively confirms a bid, or if the public offering price is outside the public offering range previously provided to the potential investor in the prospectus, the underwriter and participating dealers notify potential investors of the change and that offers will not be accepted until the potential investor has again reconfirmed its bid regardless of whether the potential investor’s initial bid was above, below or at the public offering price.


	•	Following the closing of the auction, the underwriter determines the highest price at which all of the shares offered, including shares that may be purchased by the underwriter to cover any over-allotments, may be sold to potential investors. This price, which is called the “clearing price,” is determined based on the results of all valid bids at the time the auction is closed. The clearing price is not necessarily the public offering price, which is set as described in “Determination of Public Offering Price” below. The public offering price determines the allocation of shares to potential investors, with all bids submitted at or above the public offering price receiving a pro rata portion of the shares bid for.

	•	Once the auction closes and a clearing price is set as described below, the underwriter or a participating dealer accept the bids from those bidders whose bid is at or above the public offering price but may allocate to a prospective investor fewer shares than the number included in the investor’s bid.

	•	Bidders receiving a pro rata portion of the shares bid receive an allocation of shares on a round lot basis, rounded to multiples of 100 or 1000 shares, depending on the size of the bid. No bids are rounded to a round lot higher than the original bid size. Because bids may be rounded down to round lots in multiples of 100 or 1000 shares, some bidders may receive allocations of shares that reflect a greater percentage decrease in their original bid than the average pro rata decrease. Thus, for example, if a bidder has confirmed a bid for 200 shares, and there is an average pro rata decrease of all bids of 30%, the bidder may receive an allocation of 100 shares (a 50% decrease from 200 shares) rather than receiving an allocation of 140 shares (a 30% decrease from 200 shares). In addition, some bidders may receive allocations of shares that reflect a lesser percentage decrease in their original bid than the average pro rata decrease. For example, if a bidder has confirmed a bid for 100 shares, and there is an average pro rata decrease of all bids of 30%, the bidder may receive an allocation of all 100 shares to avoid having the bid rounded down to zero.

	•	The underwriter or a participating dealer notifies successful bidders by e-mail, telephone or facsimile or mail that the auction has closed and that their confirmed bids have been accepted. Other bidders are notified that their bids have not been accepted.

	•	Potential investors may at any time expressly request that all, or any specific, communications between them and the underwriter and participating dealers be made by specific means of communication, including e-mail, telephone and facsimile.

The underwriter and selected dealers that participate in this offering may request prospective investors to confirm their bids prior to the effective date of the registration statement, if that practice is used by these institutions in connection with initial public offerings that are not conducted using the OpenIPO process. Bidders should carefully review the procedures of, and communications from, the institution through which they bid to purchase our shares. In general, approximately two business days before the registration statement is declared effective, the underwriter and dealers will request potential investors to reconfirm the bids that they have submitted. If a bid is not reconfirmed prior to the close of the auction, it is rejected. If a bid is reconfirmed, it may still be modified or revoked prior to the auction closing; however, if the reconfirmed bid is not revoked prior to the effectiveness of the registration statement and the closing of the auction, it is considered a firm bid and may be accepted at the closing of the auction. The underwriter and these dealers will also seek reconfirmation of bids in the event that the price range of the offering is changed, or if the initial public offering price is set at a price that is outside the range that has previously been provided to potential investors.

The public offering price for this offering is ultimately determined by negotiation between the underwriter and us after the auction closes and does not necessarily bear any direct relationship to our assets, current earnings or book value or to any other established criteria of value, although these factors are considered in establishing the initial public offering price. Prior to the offering, there has been no

The clearing price is the highest price at which all of the shares offered, including the shares that may be purchased by the underwriter to cover any over-allotments, may be sold to potential investors, based on the valid bids at the time the auction is run. The shares subject to the underwriter’s over-allotment option are used to calculate the clearing price whether or not the option is actually exercised.

Factors considered in determining the initial public offering price include an assessment of our management, operating results, capital structure and business potential and the demand for similar securities of comparable companies. Changes, if any, in the public offering price are based primarily on the bids received.

The public offering price may be lower, but will not be higher, than the clearing price based on negotiations between the underwriter and us. The public offering price always determines the allocation of shares to potential investors. Therefore, if the public offering price is below the clearing price, all bids that are at or above the public offering price receive a pro rata portion of the shares bid for. If sufficient bids are not received, or if we do not consider the clearing price to be adequate, or if we and the underwriter are not able to reach agreement on the public offering price, then we and the underwriter will either postpone or cancel this offering. Alternatively, we may file a post-effective amendment to the registration statement in order to conduct a new auction.

The following simplified example illustrates how the public offering price is determined through the auction process:


	Company X offers to sell 1,000 shares in its public offering through the auction process. The underwriter, on behalf of Company X, receives five bids to purchase, all of which are kept confidential until the auction closes.

	The first bid is to pay $10.00 per share for 200 shares. The second bid is to pay $9.00 per share for 300 shares. The third bid is to pay $8.00 per share for 600 shares. The fourth bid is to pay $7.00 per share for 400 shares. The fifth bid is to pay $6.00 per share for 800 shares.

	Assuming that all of these bids are confirmed and not withdrawn or modified before the auction closes, and assuming that no additional bids are received, the clearing price used to determine the public offering price would be $8.00 per share, which is the highest price at which all 1,000 shares offered may be sold to potential investors who have submitted valid bids. However, the shares may be sold at a price below $8.00 per share based on negotiations between Company X and the underwriter.

	If the public offering price is the same as the $8.00 per share clearing price, the underwriter would confirm bids at or above $8.00 per share. Because 1,100 shares were bid for at or above the clearing price, each of the three potential investors who bid $8.00 per share or more would receive approximately 90% of the shares for which bids were made. The two potential investors whose bids were below $8.00 per share would not receive any shares in this example.

	If the public offering price is $7.00 per share, the underwriter would confirm bids that were made at or above $7.00 per share. No bids made at a price of less than $7.00 per share would be accepted. The four potential investors with the highest bids would receive a pro rata portion of the 1,000 shares offered, based on the 1,500 shares they requested, or two-thirds of the shares for which bids were made. The potential investor with the lowest bid would not receive any shares in this example.

	Because bids that are reduced on a pro rata basis may be rounded down to round lots, a potential investor may be allocated less than two-thirds of the shares bid for. Thus, the potential investor who bid for 200 shares may receive a pro rata allocation of 100 shares (one-half of the shares bid for), rather than receiving a pro rata allocation of 133 shares (two-thirds of the shares bid for).

The following table illustrates the example described above, before rounding down any bids to the nearest round lot, assuming that the initial public offering price is set at $8.00 per share. The table also

Valid bids are those that meet the requirements, including eligibility, account status and size, established by the underwriter or participating dealers. In order to open a brokerage account with WR Hambrecht+Co, a potential investor must deposit $2,000 in its account. This brokerage account will be a general account subject to WR Hambrecht+Co’s customary rules, and will not be limited to this offering. In addition, once the registration statement becomes effective and the auction closes, a prospective investor submitting a bid through a WR Hambrecht+Co brokerage account must have an account balance equal to or in excess of the amount of its bid or its bid is not accepted by WR Hambrecht+Co. However, other than the $2,000 described above, prospective investors are not required to deposit any money into their accounts until after the registration statement becomes effective. No funds will be transferred to WR Hambrecht+Co, and any amounts in excess of $2,000 may be withdrawn at any time until the acceptance of the bid and the subsequent closing of this offering. Conditions for valid bids, including eligibility standards and account funding requirements of other participating dealers other than WR Hambrecht+Co, may vary.

The auction closes on a date estimated and publicly disclosed in advance by the underwriter on the website of the underwriter at www.wrhambrecht.com and www.openipo.com. The shares offered by this prospectus, or shares if the underwriter’s over-allotment option is exercised in full, will be purchased from us by the underwriter and sold through the underwriter and participating dealers to investors who have submitted valid bids at or higher than the public offering price. These investors are notified by e-mail, telephone, voice mail, facsimile or mail as soon as practicable following the closing of the auction that their bids have been accepted.

Each participating dealer has agreed with the underwriter to sell the shares it purchases from the underwriter in accordance with the auction process described above, unless the underwriter otherwise consents. The underwriter reserves the right to reject bids that the underwriter deems manipulative or disruptive in order to facilitate the orderly completion of this offering, and the underwriter reserves the right, in exceptional circumstances, to alter this method of allocation as the underwriter deems necessary to ensure a fair and orderly distribution of the shares of our common stock. For example, large orders may be reduced to ensure a public distribution and bids may be rejected or reduced by the underwriter or participating dealers based on eligibility or creditworthiness criteria. In addition, the underwriter or the participating dealers may reject or reduce a bid by a prospective investor who has engaged in practices that could have a manipulative, disruptive or otherwise adverse effect on the offering.

Some dealers participating in the selling group may submit firm bids that reflect indications of interest from their customers that they have received at prices within the initial public offering price range. In these cases, the dealer submitting the bid is treated as the bidder for the purposes of determining the clearing price and allocation of shares.

Price and volume volatility in the market for our common stock may result from the somewhat unique nature of the proposed plan of distribution. Price and volume volatility in the market for our common stock after the completion of this offering may adversely affect the market price of our common stock.

We have granted to the underwriter an option, exercisable no later than 30 days after the date of this prospectus, to purchase up to an aggregate of additional shares of our common stock from us at the offering price, less the underwriting discounts and commissions set forth on the cover page of this prospectus. To the extent that the underwriter exercises this option, they will have a firm commitment to purchase the additional shares and we will be obligated to sell the additional shares to the underwriter. The underwriter may exercise the option only to cover over-allotments made in connection with the sale of shares offered. The underwriting agreement provides that we will indemnify the underwriter against specified liabilities, including liabilities under the Securities Act, or contribute to payments that the underwriter may be required to make.

We have agreed not to offer, sell, contract to sell, pledge, grant any option to purchase, make any short sale or otherwise dispose of any shares of common stock, or any options or warrants to purchase common stock other than the shares of common stock or options to acquire common stock issued under our stock plans, for a period of 180 days after the date of this prospectus, except with the prior written consent of WR Hambrecht+Co. Each of our officers, directors and one percent stockholders have agreed, subject to specified exceptions, that, without prior written consent of WR Hambrecht+Co, they will not offer, sell, contract to sell, pledge, grant any option to sell, or otherwise dispose of, directly or indirectly, any shares of our common stock or securities convertible into or exercisable for shares of our common stock, or warrants or other rights to purchase our common stock during the 180-day period following the date of this prospectus. Certain other stockholders have also agreed, subject to specified exceptions, that, without prior written consent of WR Hambrecht+Co, they will not offer, sell, contract to sell, pledge, grant any option to sell, or otherwise dispose of, directly or indirectly, any shares of our common stock or securities convertible into or exercisable for shares of our common stock, or warrants or other rights to purchase our common stock during the 180-day period following the date of this prospectus. WR Hambrecht+Co, may, in its sole discretion, permit early release of shares subject to the lock-up agreements. In considering any request to release shares subject to a lock-up agreement WR Hambrecht+Co will consider the possible impact of the release of the shares on the trading price of the stock sold in the offering. WR Hambrecht+Co does not have any present intention or any understandings, implicit or explicit, to release any of the shares subject to the lock-up agreements prior to the expiration of these lock-up periods.

In connection with the offering, the underwriter 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 underwriter of a greater number of shares than they are required to purchase in the offering. “Covered” short sales are sales made in an amount not greater than the underwriter’s option to purchase additional shares from us in the offering. The underwriter may close out any covered short position by either exercising its option to purchase additional shares or purchasing shares in the open market. In determining the source of shares to close out the covered short position, the underwriter will consider, among other things, the price of shares available for purchase in the open market as compared to the price at which they may purchase shares through the over-allotment option. “Naked” short sales are any sales in excess of such option. The underwriter must close out any naked short position by purchasing shares in the open market. A naked short position is more likely to be created if the underwriter is concerned that there may be downward pressure on the price of the common stock in the open market after pricing that could adversely affect investors who

These activities by the underwriter may stabilize, maintain or otherwise affect the market price of the common stock. As a result, the price of the common stock may be higher than the price that otherwise might exist in the open market. If these activities are commenced, they may be discontinued by the underwriter at any time. These transactions may be effected on the Nasdaq National Market, in the over-the-counter market or otherwise.

The underwriter currently intends to act as a market maker for the common stock following this offering. However, the underwriter is not obligated to do so and may discontinue any market making at any time.

The underwriting agreement contains covenants of indemnity between the underwriter and us against certain civil liabilities, including liabilities under the Securities Act, and liabilities arising from breaches of representations and warranties contained in the underwriting agreement.

We have applied to list our common stock on Nasdaq National Market under the proposed trading symbol “REDE.”

The validity of the shares of common stock offered by this prospectus will be passed upon for us by Venture Law Group, A Professional Corporation, Menlo Park, California. Certain legal matters in connection with this offering will be passed upon for the underwriter by Morrison & Foerster LLP, San Francisco, California. As of the date of this prospectus, certain attorneys of Venture Law Group and an investment entity affiliated with Venture Law Group own an aggregate of 138,392 shares of our common stock.

The financial statements as of March 31, 2002 and March 30, 2003 and for each of the three years in the period ended March 30, 2003 included in this prospectus have been audited by Deloitte & Touche LLP, independent auditors, as stated in their report appearing herein, and are included in reliance upon the report of such firm given upon their authority as experts in accounting and auditing.

We have filed with the SEC a registration statement on Form S-1, of which this prospectus is a part, under the Securities Act with respect to the common stock offered in this offering. This prospectus, which is part of the registration statement, does not contain all of the information included in the registration statement or the accompanying exhibits and schedules. For additional information about us and our common stock, you should refer to the registration statement and the accompanying exhibits and schedules. Statements contained in this prospectus regarding the contents of any contract, agreement or other document to which we make reference are not necessarily complete. In each instance, we make reference to the copy of the contract, agreement or other document filed as an exhibit to the registration statement, of which this prospectus is a part.

You may also read and copy the registration statement, the related exhibits and the other materials we file with the SEC at its public reference facilities at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549; Suite 1400, 500 West Madison Street, Chicago, Illinois 60661. You may

also obtain copies of those documents at prescribed rates by writing to the Public Reference Section of the SEC at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information on the operation of the public reference facilities. The SEC also maintains a website that contains reports, proxy and information statements and other information regarding issuers that file with the SEC. The site’s address is www.sec.gov.

Upon completion of this offering, we will become subject to the information and periodic reporting requirements of the Securities and Exchange Act of 1934 and, accordingly, will file periodic reports, proxy statements and other information with the SEC. Our periodic reports, proxy statements and other information will be available for inspection and copying at the SEC’s public reference rooms and on the SEC’s website.

We have audited the accompanying balance sheets of RedEnvelope, Inc. as of March 31, 2002 and March 30, 2003 and the related statements of operations, stockholders’ deficit and cash flows for each of the three years in the period ended March 30, 2003. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such financial statements present fairly, in all material respects, the financial position of RedEnvelope, Inc. as of March 31, 2002 and March 30, 2003 and the results of its operations and its cash flows for each of the three years in the period ended March 30, 2003 in conformity with accounting principles generally accepted in the United States of America.

Description of Business — RedEnvelope, Inc. (the “Company”) is an internet and catalog retailer of upscale gifts. The Company publishes full-color catalogs several times during the year. The Company operates as a single business segment.

Liquidity — The Company has incurred substantial losses and negative cash flows from operations in every fiscal period since inception. The Company funded these losses through several rounds of private equity financing, totaling $82.8 million, net of issuance costs. Management believes that its cash balance and available credit will be sufficient to fund operations through March 28, 2004.

Fiscal Year — The Company’s fiscal year ends on the Sunday closest to March 31, based on a 52/53-week year. Fiscal years 2001, 2002, and 2003, all 52-week periods, ended on April 1, 2001, March 31, 2002, and March 30, 2003, respectively.

Use of Estimates — The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates and such differences could affect the results of operations reported in future periods.

Cash and Cash Equivalents — The Company considers all highly liquid investments purchased with an original or remaining maturity of three months or less to be cash equivalents.

Concentration of Credit Risk — Financial instruments that potentially subject the Company to a concentration of credit risk consist of cash, cash equivalents, and accounts receivable. Cash and cash equivalents are deposited with high credit quality financial institutions. The Company’s accounts receivable are derived from credit card purchases from customers and are typically settled within two to three days.

Allowance for Doubtful Accounts — A summary of changes in the allowance for doubtful accounts is as follows:

Inventory — Inventories are stated at the lower of cost or market, cost being determined using the first in, first out method.

Prepaid Catalog Costs — Prepaid catalog costs consist of paper, printing, postage and mailing costs for all Company catalogs. These costs are capitalized and are amortized over their expected period of future benefit. Each catalog is generally fully amortized within two months. At March 31, 2002 and March 30, 2003, the Company had prepaid catalog costs of $1.5 million and $1.2 million, respectively, recorded as prepaid advertising and other assets.

Property and Equipment, including leasehold improvements, are stated at historical cost, less accumulated depreciation and amortization. Depreciation and amortization are computed using the straight-line method over the estimated useful lives of these assets, ranging from three to five years, or, in the case of leasehold improvements, over the lease period or estimated useful life, whichever is shorter.

Capitalized Software and Website Development Costs — The Company capitalizes internally developed software costs and website development costs in accordance with the provisions of Statement of Position (“SOP”) 98-1, Accounting for Costs of Computer Software Developed or Obtained for Internal Use and Emerging Issues Task Force (“EITF”) No. 00-2, Accounting for Website Development Costs. Capitalized costs are amortized on a straight-line basis over the useful life of the software once it is available for use.

Long-Lived Assets held and used by the Company are reviewed for impairment whenever events or changes in circumstances indicate that their net book value may not be recoverable. An impairment loss is recognized if the sum of the expected future cash flows (undiscounted and before interest) from the use of the asset is less than the net book value of the asset. The amount of the impairment loss will generally be measured as the difference between net book values of the assets and their estimated fair values. During fiscal year 2002, the Company recorded a $1.2 million impairment charge related to abandoned software and website development costs, which is included in general and administrative expenses in the statements of operations.

Restricted Cash — At March 31, 2002 and March 30, 2003, the Company had restricted cash of $240,000 and $160,000, respectively, related to an operating lease.

Revenue Recognition — Net sales, which consist primarily of products sold via the Internet and through catalogs, including shipping revenue, are recognized at the estimated time of receipt by the customer. Shipping revenues for fiscal years 2001, 2002, and 2003 were $3.7 million, $7.1 million, and $10.4 million, respectively.

Revenues are recorded net of estimated returns and promotional discounts. The Company’s policy is to record a sales return allowance for anticipated future returns in the period of sale. The Company generally does not extend credit to customers, except through third-party credit cards. Credit card sales account for the majority of net revenues.

Advertising Expense — The Company expenses the costs of producing advertisements at the time production occurs and expenses the cost of communicating advertising in the period in which the advertising space or airtime is used. Internet advertising expenses are recognized either on a straight-line basis over the term of the contract or in accordance with the actual number of clicks-through to the RedEnvelope website. Advertising expenses for fiscal years 2001, 2002, and 2003 were $15.0 million, $4.7 million, and $4.1 million, respectively.

Loss Per Share — For all periods presented, basic net loss per share equals diluted net loss per share because the effect of stock options and warrants outstanding would have been antidilutive. The number of stock options and warrants excluded from the calculation for fiscal years 2001, 2002, and 2003, were approximately 4.5 million, 5.4 million, and 9.5 million, respectively.

Income Taxes — The Company accounts for income taxes under the asset and liability approach whereby the expected future tax consequences of temporary differences between the book and tax basis of assets and liabilities are recognized as deferred tax assets and liabilities. A valuation allowance is established for any deferred tax assets for which realization is uncertain.

Stock-Based Compensation — The Company accounts for stock-based employee compensation arrangements in accordance with provisions of Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (“APB No. 25”), and complies with the disclosure provisions of Statement of Financial Accounting Standards (“SFAS”) No. 123, Accounting for Stock-Based Compensation (“SFAS No. 123”). Under APB No. 25, compensation cost is recognized based on the difference, if any, between the fair market value of the Company’s stock on the date of grant and the amount an employee

must pay to acquire the stock. Equity instruments issued to non-employees are accounted for in accordance with the provision of SFAS No. 123 and Emerging Issues Task Force Issue No. 96-18.

Had compensation cost for the Company’s stock options been determined based on the fair value of the options at the date of grant for options granted in fiscal years 2001, 2002, and 2003 consistent with the provisions of SFAS No. 123 the Company’s pro forma net loss would have been as follows:

New Accounting Pronouncements — In August 2001, the FASB issued SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” SFAS No. 144 addresses financial accounting and reporting for the impairment or disposal of long-lived assets and for long-lived assets to be disposed of. The Company adopted SFAS No. 144 on April 1, 2002. The initial adoption of SFAS No. 144 did not have a significant impact on the Company’s reporting for impairment or disposals of long-lived assets.

In June 2002, the FASB issued SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities,” which addresses accounting for restructuring and similar costs. SFAS No. 146 supersedes previous accounting guidance, principally Emerging Issues Task Force Issue No. 94-3. The Company has adopted the provisions of SFAS No. 146 for restructuring activities, if any, initiated after December 31, 2002. SFAS No. 146 requires that the liability for costs associated with an exit or disposal activity be recognized when the liability is incurred. Under Issue 94-3, a liability for an exit cost was recognized at the date of the Company’s commitment to an exit plan. SFAS No. 146 also establishes that the liability should be measured and recorded at fair value. Accordingly, SFAS No. 146 may affect the timing of recognizing future restructuring costs as well as the amounts recognized.

In December 2002, the FASB issued SFAS No. 148, “Accounting for Stock-Based Compensation — Transition and Disclosure.” SFAS No. 148 amends SFAS No. 123, Accounting for Stock-Based Compensation, to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, SFAS No. 148 amends the disclosure requirements of SFAS No. 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. The transition guidance and annual disclosure provisions of SFAS No. 148 are effective for the Company’s fiscal year ended March 30, 2003. The interim disclosure provisions are effective for the first quarter of the fiscal year ending April 3, 2004. The Company continues to account for stock-based compensation using the intrinsic value method in accordance with the provisions of APB Opinion No. 25, “Accounting for Stock Issued to Employees,” as allowed by SFAS No. 123. As a result, the adoption of SFAS No. 148 did not have any impact on the Company’s financial results.

In May 2003, the FASB issued SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity.” SFAS No. 150 requires instruments that are mandatorily redeemable, among other financial instruments, which embody an unconditional obligation requiring the issuer to redeem them by transferring its assets at a specified or determinable date or upon an event that is certain to occur, be classified as liabilities. SFAS No. 150 is effective for financial instruments entered into or modified after May 31, 2003 and is effective at the beginning of the first interim period beginning after June 15, 2003, except for mandatorily redeemable financial instruments of nonpublic which are subject to the provisions of this Statement for the first period beginning after December 15, 2003. Upon the completion of the Company’s initial public offering, all of the Company’s mandatorily redeemable preferred stock will be converted into common stock. As a result, the Company does not expect this statement to have any impact on its financial statements.

The cost of property and equipment under capital leases was $1.0 million and $2.6 million at March 31, 2002 and March 30, 2003, respectively. Depreciation expense for assets under capital leases was $0.4 million, $0.7 million and $1.1 million, at April 1, 2001, March 31, 2002 and March 30, 2003, respectively.

The Company has not recorded a tax benefit for all periods presented due to losses incurred and uncertainty of realizing the net operating loss carryforwards.

The Company believes that, based on a number of factors, the available objective evidence creates sufficient uncertainty regarding the realizability of the deferred tax assets such that a full valuation allowance has been recorded. A valuation allowance is provided when it is more likely than not that some

portion of the deferred tax asset will not be realized. The Company established a 100% valuation allowance at March 30, 2003, and March 31, 2002 due to the uncertainty of realizing future tax benefits from its net operating loss carryforward and other deferred tax assets.

At March 30, 2003, the Company had net operating loss carryforwards for federal and state income tax purposes of approximately $67.6 million and $28.7 million respectively, which expire at various dates through 2019 and 2007, respectively. Under the Tax Reform Act of 1986, the amounts of and benefits from net operating loss and tax carryforwards may be impaired or limited in certain circumstances. Events which could cause limitations in the amount of net operating losses that the Company may utilize in any one year include, but are not limited to, a cumulative ownership change of more than 50%, as defined, over a three year period. The Company’s preferred stock issuances have created an ownership change of more than 50% which caused annual limitations in the amount of net operating losses that the Company may utilize for both federal and state purposes.

As of March 30, 2003, the Company has a loan and security agreement as amended through September 6, 2002 for borrowings, under which it had borrowed $6.0 million as of March 31, 2002. Borrowings bear interest at 10.5% and are secured by substantially all of the Company’s assets.

A total of $4.8 million was paid on December 23, 2002. In September 2002, the maturity date of $1.2 million of principal was extended to December 31, 2003. As consideration for the extension of the maturity date and in consideration for not converting the debt to equity, the lender received warrants to purchase 470,160 shares of Series F preferred stock at an exercise price of $0.63808 per share. In addition, the exercise price of the warrant originally issued to lender for the purchase of 200,000 shares of common stock was reduced to a price per share equal to $0.14.

The fair value of the warrants of $161,000, as determined using Black-Scholes option pricing model, was recorded as a discount on notes payable and is being amortized as additional interest expense using the effective interest rate method over the term of the note. For fiscal year 2003, amortization of debt discount was $64,000.

Leases — The Company leases office space and equipment under noncancelable operating and capital leases with various expiration dates through 2005. Rent expense for the fiscal years 2001, 2002, and 2003 was approximately $1.4 million, $2.0 million, and $2.4 million, respectively, net of sub-rental income of $166,000, $146,000, and $0, respectively.

Future minimum lease payments under noncancelable operating and capital leases are as follows:

Litigation — From time to time, the Company is subject to legal proceedings and claims in the ordinary course of business, including claims of alleged infringement of trademarks and other intellectual property rights. The Company is not currently aware of any such legal proceedings or claims that it believes will have, individually or in the aggregate, a material adverse effect on its financial position or results of operations.

Redemption — If at any time on or after July 17, 2006, the Company shall have received, between 60 and 120 days prior to such date, a written request from a holder of Series B, C, D, E or F preferred stock that a portion or all of the shares of such series held by such holder be redeemed, the Company shall, to the extent it may lawfully do so, redeem the shares by paying in cash a sum per share equal to $0.50, $3.235, $4.853, $1.9801 and $0.63808 per share for Series B, C, D, E and F preferred stock, respectively, plus declared but unpaid dividends (in each case as adjusted for stock splits, stock dividends or recapitalizations).

If the funds that the Company deems available for redemption of preferred stock are insufficient to redeem the total number of shares, those funds which are available will be used to redeem the maximum possible number of such shares ratably among the holders of such shares based upon the total redemption price applicable to all shares upon which redemption has been requested. The shares of preferred stock not redeemed shall remain outstanding and entitled to all the normal rights and preferences.

Conversion — Each share of Series A and B preferred stock outstanding is convertible into common stock at any time at the option of the holder based on a formula which as of March 30, 2003 results in a one-for-one exchange ratio of common for preferred. Each share of Series C, D, E, and F preferred stock outstanding is convertible into common stock at any time at the option of the holder based on a formula which as of March 30, 2003 results in an exchange ratio of common for preferred of 1.58158, 1.79828, 1.27197 and 0.98855, respectively. This formula is subject to adjustments for stock splits, stock dividends, recapitalizations, and other similar transactions. Each share of Series A preferred stock is automatically

convertible into shares of common stock upon the earlier of (a) the closing of an underwritten public offering pursuant to a registration statement under the Securities Act of 1933, as amended, the public offering price of which is not less than $1.5952 per share (adjusted to reflect subsequent stock dividends, stock splits, recapitalizations or the like) and which results in aggregate cash proceeds to the Company of at least $20.0 million (gross proceeds before deducting underwriting discounts and commissions) (a “Qualified Public Offering”) (b) the date specified by written consent or agreement of the holders of at least two-thirds of the then outstanding shares of Series A preferred stock, voting together as a class or (c) the conversion of all the then outstanding Series B preferred stock, Series C preferred stock, Series D preferred stock, Series E preferred stock and Series F preferred stock into common stock. Each share of Series B preferred stock is automatically convertible into shares of common stock upon the earlier of (a) the Corporation’s sale of its common stock in a Qualified Public Offering or (b) the written consent or agreement of the holders of at least two-thirds of the outstanding shares of Series B preferred stock, voting together as a class. Each share of Series C preferred stock and Series D preferred stock is automatically convertible into shares of common stock upon the earlier of (a) the Corporation’s sale of its common stock in a Qualified Public Offering or (b) the written consent or agreement of the holders of at least a majority of the outstanding shares of Series C preferred stock and Series D preferred stock, respectively, voting together as a class. Each share of Series E preferred stock and Series F preferred stock is automatically convertible into shares of common stock upon the earlier of (a) the Corporation’s sale of its common stock in a Qualified Public Offering or (b) the written consent or agreement of the holders of at least two-thirds of the outstanding shares of Series E preferred stock and Series F preferred stock, respectively, voting together as a class.

Dividends — Noncumulative dividends at the annual rate of $0.005, $0.04, $0.2588, $0.3882, $0.1584, and $0.0510 per share for Series A, B, C, D, E and F preferred stock, respectively, as declared by the Board of Directors of the Company, are payable to the holders of preferred stock in preference to any dividends for common stock declared by the Board of Directors of the Company. No dividends have been declared to date.

Liquidation — In the event of any liquidation, dissolution or winding up of the Company, either voluntary or involuntary, the holders of Series F preferred stock shall be entitled to receive out of assets, prior and in preference to any distribution of any of the assets of the Company to the holders of the Series A preferred stock, Series B preferred stock, Series C preferred stock, Series D preferred stock, Series E preferred stock and common stock, an amount equal to $0.95712 per share (as adjusted for stock splits, stock dividends, recapitalizations and the like) for each share of Series F preferred stock then held by them, plus declared but unpaid dividends. If upon the occurrence of such event, the assets and funds thus distributed among the holders of the Series F preferred stock shall be insufficient to permit the payment to such holders of the full preferential amounts, then the entire assets of the Company shall be distributed ratably among the holders of the Series F preferred stock, in proportion to the preferential amount each such holder is otherwise entitled to receive. Upon the completion of this distribution, if any assets remain in the Company, the holders of the Series B, C, D and E preferred stock shall be entitled to receive a per share distribution in preference to holders of Series A preferred stock and common stock equal to $0.50, $3.235, $4.853 and $1.9801 for Series B, C, D and E preferred stock, respectively (adjusted for stock splits, stock dividends, recapitalizations and similar events), plus any declared but unpaid dividends. If upon the occurrence of such event, the assets and funds thus distributed among the holders of the Series B, C, D, and E preferred stock shall be insufficient to permit the payment to such holders of the full preferential amounts, then the entire assets of the Company shall be distributed ratably among the holders of the Series B, C, D, and E preferred stock, in proportion to the preferential amount each such holder is otherwise entitled to receive. After payment to the holders of Series B, C, D and E preferred stock, the holders of Series A preferred stock shall be entitled to a per share distribution of $0.13, plus any declared but unpaid dividends. If upon the occurrence of such event, the assets and funds thus distributed among the holders of the Series A preferred stock shall be insufficient to permit the payment to such

holders of the full preferential amounts, then the entire assets of the Company shall be distributed ratably among the holders of the Series A preferred stock, in proportion to the preferential amount each such holder is otherwise entitled to receive. Upon the completion of this distribution, if any assets remain in the Company, the holders of the Series F preferred stock shall be entitled to receive, prior and in preference to any distribution of any assets of the Company to the holders of common stock, an amount equal to the greater of (i) the amount by which the quotient determined by dividing total distributable assets by the total number of shares of common stock of the Company calculated on a fully-diluted, as-converted-to-common stock basis exceeds $0.95712 (as adjusted for stock splits, stock dividends, recapitalizations and the like), for each share of Series F preferred stock then held by them, or (ii) $0.31904 (as adjusted for stock splits, stock dividends, recapitalizations and the like), for each share of Series F preferred stock then held by them. If upon the occurrence of such event, the assets and funds thus distributed among the holders of the Series F preferred stock shall be insufficient to permit the payment to such holders of the full preferential amounts, then the entire assets of the Company shall be distributed ratably among the holders of the Series F preferred stock, in proportion to the preferential amount each such holder is otherwise entitled to receive. Upon the completion of this distribution, if any assets remain in the Company, the holders of the common stock of the Company shall receive all of the remaining assets.

A liquidation shall be deemed to occur if the Company shall sell or dispose of substantially all of its property, stock or business or merge with or into or consolidate with any other company, provided that none of the following occurs: (1) a merger effected exclusively for the purpose of changing the domicile of the Company, (ii) an equity financing in which the Company is the surviving company, or (iii) a transaction in which the stockholders of the Company immediately prior to the transaction own 50% or more of the voting power of the surviving company following the transaction.

Voting Rights — The holders of common stock and the holders of Series A preferred stock, voting together as a single class, shall be entitled to elect one of the Company’s eight directors. The holders of Series B preferred stock, Series C preferred stock, Series E preferred stock and Series F preferred stock are entitled to elect one each of the Company’s eight directors. The holders of Series D preferred stock are not entitled to elect a member of the Company’s Board of Directors, voting as a separate class. The remaining directors shall be elected by the holders of common stock and preferred stock, voting as a single class. Each share of preferred stock is entitled to one vote for each share of common stock in to which the preferred stock is convertible. In the event of a class vote, holders of Series A preferred stock shall either (i) vote in accordance with the vote of a majority of the Series B, C, D, E and F preferred stock voting together as a single class or (ii) convert shares of Series A preferred stock to common stock and vote as common stock. In any case, Series B, C, D, E and F preferred stock shall vote prior to the Series A preferred stock.

Preferred Stock Warrants — In connection with an unused credit facility, in November 2001 the Company issued a Series F preferred stock purchase warrant entitling the holder to purchase 250,000 shares of preferred stock, at $0.6381 per share. The warrants are fully exercisable and expire upon the earlier of November 13, 2011 or two years after the closing of the Company’s initial public offering. The fair value of the warrants, $115,000, as determined using the Black-Scholes option pricing method, was recognized as interest expense over the term of the credit facility in 2001.

As discussed in Note 4, as consideration for the extension of the maturity date and in consideration for not converting the debt to equity, the lender received warrants to purchase 470,160 shares of Series F preferred stock at an exercise price of $0.63808 per share. The fair value of the warrants was $161,000.

The assumptions used to calculate the fair value of warrants as determined using the Black-Scholes option pricing model are as follows:

The Company’s Amended and Restated Certificate of Incorporation authorize the Company to issue 110 million shares of $0.001 par value common stock. A portion of the shares outstanding are subject to repurchase by the Company over a four-year period from the earlier of the issuance date or employee hire date, as applicable. As of March 31, 2002 and March 30, 2003, there were 335,874 and 56,149 shares outstanding, respectively, subject to repurchase rights at an average price of $0.03 and $0.04, respectively, per share. During fiscal years 2001, 2002, and 2003, the Company repurchased 90,419, 2,855, and 244,444 shares, respectively, at an average price of $0.05, $0.05, and $0.05, respectively, per share.

As of March 30, 2003, the Company has reserved the following number of shares of common stock for future issuance in connection with:

Common Stock Warrants — During fiscal 2001, in connection with a lease financing, the Company issued detachable warrants to purchase 9,272 shares of common stock at an exercise price of $4.853 per share. The warrants are fully exercisable and expire (a) upon sale, conveyance or disposal of all or substantially all of the Company’s property or business or any other transaction or series of transactions in which 50% of the voting power of the Company is disposed of, (b) immediately upon the effective date of the Company’s initial public offering, or (c) February 2007. The fair value of the warrants of $9,000, as determined using the Black-Scholes option pricing model, was recorded as a discount on capital lease obligations and is being amortized as additional interest expense using the effective interest rate method over the term of the lease.

In connection with a line of credit (Note 4), the Company issued detachable warrants to purchase 200,000 shares of common stock in March 2000 with an exercise price of $0.50 per share, later reduced to $0.14 per share. The warrants are fully exercisable and expire on (a) March 2007 or (b) upon sale, conveyance or disposal of all or substantially all of the Company’s property or business or any other transaction or series of transactions in which 50% of the voting power of the Company is disposed of,

whichever is earlier. The fair value of the warrants of $386,000, as determined using Black-Scholes option pricing model, was recorded as a discount on notes payable and was amortized as additional interest expense using the effective interest rate method over the term of the note.

The Company maintains a stock option plan, as amended (the “1999 Plan”), which authorizes the Board of Directors to grant incentive stock options and nonstatutory stock options to employees, directors and consultants for up to 17,115,632 shares of common stock.

Generally, options vest 25% on the first anniversary of the date of grant and thereafter become exercisable in equal monthly installments over the remaining 36 months. Options are exercisable for a term of ten years after the date of grant. No options will be granted to any individual who owns more than 10% of total combined voting power of all classes of stock.

In fiscal year 2000, the Company granted approximately 4.4 million options to employees at an exercise price that was less than the fair market value of the Company’s stock on the date of grant. The Company recorded $1.8 million of deferred compensation related to these option grants, which is included as a separate component of stockholders’ equity, and is being amortized over the vesting period of the awards. The Company recorded amortization expense of $425,000, $406,000, and $359,000 in the fiscal years 2001, 2002, and 2003, respectively, which is included in general and administrative expenses in the statements of operations.

The following table summarizes information about stock options outstanding at March 30, 2003:

The fair value of each option grant is estimated on the date of grant using the minimum value method assuming an expected life of four years, dividend yield and volatility of 0% and a weighted average risk-free interest rate of 2.9% to 5.8%.

See Note 1 for pro forma effect of accounting for stock options using the fair value method.

401(k) Savings Plan — The Company sponsors a 401(k) Savings Plan which allows all employees to make salary deferral contributions ranging from 1% to 15% of their eligible earnings. The Company can make discretionary matching contributions to the Plan. During fiscal years 2001, 2002, and 2003, the Company contributed $71,000, $98,000, and $69,000, respectively, to the Plan.

Notes Receivable from Stockholders — Notes receivable from stockholders represent amounts owed to the Company from the exercise of stock options. These full recourse notes are collateralized by common stock and bear interest at a rate of 5.74% per annum. Interest and principal is due and payable on July 10, 2003 through 2007. At March 31, 2002 and March 30, 2003, notes receivable were approximately $68,000 and $44,000, respectively.

On June 13, 2003, the Company obtained a revolving line of credit and security agreement to provide borrowings up to $11 million, subject to availability limitations. The agreement expires on April 15, 2006. Borrowings will bear interest at the greater of 9.5% or the prime rate plus 5.75% for advances up to a fluctuating base amount and the greater of 11.5% or the prime rate plus 7.75% for advances in excess of the base amount. Borrowings are secured by substantially all assets of the Company.

On May 30, 2003, the Company filed its Eighth Amended and Restated Certificate of Incorporation with the Secretary of State of the State of Delaware. This amendment changed the public offering price at which all preferred stock of the Company will be converted into common stock from $1.5952 per share to $0.80 per share, provided that the Company closes an underwritten public offering pursuant to a registration statement under the Securities Act of 1933 prior to October 15, 2003.

Until (25 days after the date of this offering), all dealers that effect transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealers’ obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.

The following table sets forth the costs and expenses, other than underwriting discounts and commissions, payable by RedEnvelope in connection with the sale of common stock being registered. All amounts are estimates except the SEC registration fee, the NASD filing fee and the Nasdaq National Market listing fee.

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”). Article VII of RedEnvelope’s Amended and Restated Certificate of Incorporation (Exhibit 3.1 hereto) and Article VI of RedEnvelope’s Bylaws (Exhibit 3.3 hereto) provide for indemnification of RedEnvelope’s directors, officers, employees and other agents to the maximum extent permitted by Delaware law. In addition, RedEnvelope has entered into Indemnification Agreements (Exhibits 10.1 and 10.3 hereto) with its officers and directors. The Underwriting Agreement (Exhibit 1.1) also provides for cross-indemnification among RedEnvelope and the underwriter with respect to certain matters, including matters arising under the Securities Act.

During the last three years, we have issued unregistered securities to a limited number of persons, as described below. All share amounts below have been adjusted to reflect the conversion of all outstanding preferred stock into common stock. As indicated below, we have relied on Regulation D, Rule 506 thereof, Rule 701 or Section 4(2) of the Securities Act with respect to the issuance of these securities:


	1. In March 2000, RedEnvelope issued a warrant to purchase 200,000 shares of common stock in connection with a working capital credit line.

	2. In July 2000, RedEnvelope issued and sold an aggregate of 18,917,990 shares of its Series E preferred stock to 30 investors for an aggregate cash consideration of $29,449,991.

	3. In August 2000, RedEnvelope issued and sold an aggregate of 2,441,029 shares of its Series E preferred stock to three investors for an aggregate cash consideration of $3,799,998.

	4. In September 2000, RedEnvelope issued and sold an aggregate of 481,783 shares of its Series E preferred stock to one investor for a cash consideration of $750,000.


	5. In March 2001, September 2001, May 2002, December 2002 and March 2003, RedEnvelope issued and sold an aggregate of 403,103 shares of its Series E preferred stock to an investor in satisfaction of its payment obligations under a commercial partnership agreement for an aggregate consideration of $627,519.

	6. In February 2002, RedEnvelope issued a warrant to purchase 9,272 shares of common stock in connection with an equipment lease line.

	7. In April 2002, RedEnvelope issued a warrant to purchase shares of Series F preferred stock convertible into 247,138 shares of common stock in connection with an equipment lease line.

	8. In April 2002, RedEnvelope issued and sold an aggregate of 21,124,174 shares of its Series F preferred stock to 46 investors for an aggregate cash consideration of $13,635,033.

	9. In August 2002, RedEnvelope issued and sold an aggregate of 167,652 shares of its Series F preferred stock to three investors for an aggregate cash consideration of $108,214.

	10. In September 2002, RedEnvelope issued a warrant to purchase shares of Series F preferred stock convertible into 232,388 shares of common stock in connection with a working capital credit line.

	11. In October 2002, RedEnvelope issued a warrant to purchase shares of Series F preferred stock convertible into 232,388 shares of common stock in connection with a working capital credit line.

	12. From April 1, 2000 through March 30, 2003, RedEnvelope has granted options to purchase an aggregate of 11,665,795 shares of its common stock with a weighted average price of $0.29 per share to a number of employees and directors of, and consultants to, RedEnvelope.

The issuances of the above securities were deemed to be exempt from registration under the Securities Act in reliance on Section 4(2) of such Securities Act as transactions by an issuer not involving any public offering. In addition, certain issuances described above were deemed exempt from registration under the Securities Act in reliance upon Rule 701 promulgated under the Securities Act. The recipients of securities in each such 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 thereof and appropriate legends were affixed to the share certificates and warrants issued in such transactions. All recipients had adequate access, through their relationships with RedEnvelope, to information about RedEnvelope. None of the foregoing transactions involved any underwriters, underwriting discounts or commissions, or any public offering.

Schedules not listed above have been omitted because the information required to be set forth therein is not applicable or is shown in the financial statements or notes thereto.

The undersigned registrant hereby undertakes to provide to the underwriters at the closing specified in the underwriting agreements 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 of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, 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 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, 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 Act and will be governed by the final adjudication of such issue.


	(1) For purposes of determining any liability under the Securities Act of 1933, 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.

	(2) For the purpose of determining any liability under the Securities Act of 1933, 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.

Pursuant to the requirements of the Securities Act of 1933, the undersigned Registrant has duly caused this Registration Statement on Form S-1 to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of San Francisco, State of California on June 13, 2003.

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below hereby constitutes and appoints, jointly and severally, Alison L. May and Eric C. Wong, and each of them, as his attorney-in-fact, with full power of substitution, for him in any and all capacities, to sign any and all amendments to this Registration Statement (including post-effective amendments), and any and all Registration Statements filed pursuant to Rule 462 under the Securities Act of 1933, as amended, in connection with or related to the offering contemplated by this Registration Statement and its amendments, if any, and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming our signatures as they may be signed by our said attorney to any and all amendments to said Registration Statement.

Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated:


†	Confidential treatment requested.

EX-3.1 3 f89225orexv3w1.txt EXHIBIT 3.1 EXHIBIT 3.1 EIGHTH AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF REDENVELOPE, INC. The undersigned, Alison May and Eric Wong, hereby certify that: 1. They are the duly elected and acting Chief Executive Officer and Secretary, respectively, of RedEnvelope, Inc., a Delaware corporation. 2. The Certificate of Incorporation of this corporation was originally filed with the Secretary of State of Delaware on October 21, 1998 under the name 911Gifts, Inc. 3. The Certificate of Incorporation of this corporation shall be amended and restated to read in full as follows: ARTICLE I The name of the corporation is RedEnvelope, Inc. (the "Corporation"). ARTICLE II The address of the Corporation's registered office in the State of Delaware is 2711 Centerville Road, Suite 500, Wilmington, Delaware 19808, County of New Castle. The name of its registered agent at such 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 Delaware. ARTICLE IV (A) CLASSES OF STOCK. The 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 seventy two million five hundred sixty nine thousand five hundred seventy-six (172,569,576) shares, each with a par value of $0.001 per share. One hundred ten million (110,000,000) shares shall be Common Stock and sixty two million five hundred sixty nine thousand five hundred seventy six (62,569,576) shares shall be Preferred Stock. (B) RIGHTS, PREFERENCES AND RESTRICTIONS OF PREFERRED STOCK. The Preferred Stock authorized by this Amended and Restated Certificate of Incorporation may be issued from time to time in one or more series. The first series of Preferred Stock shall be designated "Series A Preferred Stock" and shall consist of seven million six hundred ninety-four thousand, eight hundred nine (7,694,809) shares. The second series of Preferred Stock shall be designated "Series B Preferred Stock" and shall consist of four million, five hundred ten thousand (4,510,000) shares. The third series of Preferred Stock shall be designated "Series C Preferred Stock" and shall consist of six million four hundred ninety-one thousand four hundred ninety-eight (6,491,498) shares. The fourth series of Preferred Stock shall be designated "Series D Preferred Stock" and shall consist of two million two hundred seventy-eight thousand nine hundred ninety-six (2,278,996) shares. The fifth series of Preferred Stock shall be designated "Series E Preferred Stock" and shall consist of seventeen million six hundred thirty-six thousand two hundred forty-nine (17,636,249) shares. The sixth series of Preferred Stock shall be designated "Series F Preferred Stock" and shall consist of twenty-three million nine hundred fifty eight thousand twenty-four (23,958,024) shares. The rights, preferences, privileges, and restrictions granted to and imposed on the Series A Preferred Stock, the Series B Preferred Stock, the Series C Preferred Stock, the Series D Preferred Stock, the Series E Preferred Stock and the Series F Preferred Stock are as set forth below in this Article IV(B). 1. DIVIDEND PROVISIONS. The holders of shares of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock, Series E Preferred Stock and Series F Preferred Stock shall be entitled to receive dividends, at the rate of $.005, $.04, $.2588, $.3882, $0.1584 and $0.0510464 respectively (as adjusted for stock splits, stock dividends, recapitalizations, and the like) per annum, out of any assets legally available therefor, prior and in preference to any declaration or payment of any dividend on the Common Stock of the Corporation (payable other than in Common Stock or other securities and rights convertible into or entitling the holder thereof to receive, directly or indirectly, additional shares of Common Stock of the Corporation). Dividends may be declared and paid upon shares of Common Stock in any fiscal year of the Corporation only if dividends shall have been paid on or declared and set apart upon all shares of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock, Series E Preferred Stock and Series F Preferred Stock at each respective annual rate, and if such Common Stock dividends are paid to all stockholders of the Corporation on a pro rata basis. All dividends shall be payable only when, as and if declared by the Board of Directors and shall not be cumulative. 2. LIQUIDATION PREFERENCE. (a) In the event of any liquidation, dissolution or winding up of the Corporation, either voluntary or involuntary, the holders of the Series F Preferred Stock shall be entitled to receive out of assets legally available for distribution, prior and in preference to any distribution of any of the assets of the Corporation to the holders of the Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock, Series E Preferred Stock and Common Stock by reason of their ownership thereof, an amount equal to $0.95712 per share (as adjusted for stock splits, stock dividends, recapitalizations and the like) for each share of Series F Preferred Stock then held by them, plus declared but unpaid dividends thereon. If, upon the occurrence of such event, the assets and funds thus distributed among the holders of the Series F Preferred Stock 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 under this Section 2 (the "Total Distributable Assets") shall be -2- distributed ratably among the holders of the Series F Preferred Stock, in proportion to the preferential amount each such holder is otherwise entitled to receive. (b) Upon the completion of the distribution required by Section 2(a) above, if assets legally available for distribution remain in the Corporation, the holders of the Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock and Series E Preferred Stock shall be entitled to receive, prior and in preference to any distribution of any of the assets of the Corporation to the holders of Series A Preferred Stock and Common Stock by reason of their ownership thereof, an amount per share equal to (i) $0.50 per share for each share of Series B Preferred Stock then held by them, (ii) $3.2350 per share for each share of Series C Preferred Stock then held by them, (iii) $4.853 per share for each share of Series D Preferred Stock then held by them, and (iv) $1.9801 per share for each share of Series E Preferred Stock then held by them, plus declared but unpaid dividends (in each case as adjusted for stock splits, stock dividends, recapitalizations and the like). If, upon the occurrence of such event, the assets and funds thus distributed among the holders of the Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock and Series E Preferred Stock 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 pursuant to this Section 2(b) shall be distributed ratably among the holders of the Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock and Series E Preferred Stock in proportion to the preferential amount each such holder is otherwise entitled to receive. (c) Upon the completion of the distributions required by Sections 2(a) and 2(b) above, if assets legally available for distribution remain in the Corporation, the holders of the Series A Preferred Stock shall be entitled to receive, prior and in preference to any distribution of any of the assets of the Corporation to the holders of Common Stock by reason of their ownership thereof, an amount equal to $0.13 per share (as adjusted for stock splits, stock dividends, recapitalizations and the like) for each share of Series A Preferred Stock then held by them, plus declared but unpaid dividends thereon. If, upon the occurrence of such event, the assets and funds thus distributed among the holders of the Series A Preferred Stock 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 pursuant to this Section 2(c) shall be distributed ratably among the holders of the Series A Preferred Stock, in proportion to the preferential amount each such holder is otherwise entitled to receive. (d) Upon the completion of the distributions required by Sections 2(a), 2(b) and 2(c) above, if assets legally available for distribution remain in the Corporation, the holders of the Series F Preferred Stock shall be entitled to receive, prior and in preference to any distribution of any of the assets of the Corporation to the holders of Common Stock by reason of their ownership thereof, an amount per share equal to the greater of (i) the amount by which (A) the Conversion Ratio then in effect for the Series F Preferred Stock, multiplied by (B) the quotient determined by dividing (1) the Total Distributable Assets by (2) the total number of shares of Common Stock of the Corporation calculated on a fully-diluted, as-converted-to-Common Stock basis (which includes then-outstanding Common Stock, Common Stock issuable upon conversion of all then-outstanding Preferred Stock, and any other shares of Common Stock of the Corporation issuable upon the exercise or conversion of any then-outstanding options, -3- warrants or other exercisable or convertible securities of the Corporation) exceeds $0.95712 (as adjusted for stock splits, stock dividends, recapitalizations and the like), for each share of Series F Preferred Stock then held by them, or (ii) $0.31904 (as adjusted for stock splits, stock dividends, recapitalizations and the like), for each share of Series F Preferred Stock then held by them. If, upon the occurrence of such event, the assets and funds thus distributed among the holders of the Series F Preferred Stock 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 pursuant to this Section 2(d) shall be distributed ratably among the holders of the Series F Preferred Stock, in proportion to the preferential amount each such holder is otherwise entitled to receive. (e) Upon the completion of the distributions required by Sections 2(a), 2(b), 2(c) and 2(d) above and any other distribution that may be required with respect to any series of Preferred Stock that may from time to time come into existence, if assets legally available for distribution remain in the Corporation, the holders of the Common Stock of the Corporation shall receive all of the remaining assets of the Corporation. (f) For purposes of this Section 2, a liquidation, dissolution, or winding up of the Corporation shall be deemed to occur if the Corporation shall sell, convey, or otherwise dispose of all or substantially all of its property, stock or business or merge with or into or consolidate with any other corporation, limited liability company or other entity (other than a wholly-owned subsidiary of the Corporation) (any such transaction, a "Liquidation Transaction"), provided that none of the following shall be considered a Liquidation Transaction: (i) a merger effected exclusively for the purpose of changing the domicile of the Corporation, (ii) an equity financing in which the Corporation is the surviving corporation, or (iii) a transaction in which the stockholders of the Corporation immediately prior to the transaction own 50% or more of the voting power of the surviving corporation following the transaction. (g) In the event of a deemed liquidation as described in Section 2(f) above, if the consideration received by the Corporation is other than cash, its value will be deemed its fair market value. Any securities shall be valued as follows: (i) Securities not subject to investment letter or other similar restrictions on free marketability: (1) If traded on a securities exchange or The Nasdaq Stock Market ("Nasdaq"), the value shall be based on a formula approved by the Board of Directors and derived from the closing prices of the securities on such exchange or Nasdaq over a specified time period; (2) If actively traded over-the-counter, the value shall be based on a formula approved by the Board of Directors and derived from the closing bid or sales prices (whichever is applicable) of such securities over a specified time period; 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. -4- (ii) The method of valuation of 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 to make an appropriate discount from the market value determined as specified above in Section 2(g)(i)(A) to reflect the approximate fair market value thereof, as determined in good faith by the Board of Directors. 3. REDEMPTION. (a) REDEMPTION DATE AND PRICE. If at any time on or after July 17, 2006, (the "Redemption Date") the Corporation shall have received, at least sixty (60) days but no more than one hundred twenty (120) days prior to such date, a written request (a "Redemption Election") from a holder of Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock, Series E Preferred Stock or Series F Preferred Stock then outstanding that a portion or all of the shares of such series held by such holder be redeemed, the Corporation shall, to the extent it may lawfully do so, redeem up to that number of shares specified for redemption in the Redemption Election in accordance with the procedures set forth in this Section 3 by paying in cash therefor a sum per share equal to (i) $0.50 per share for each share of Series B Preferred Stock then held by them, (ii) $3.2350 per share for each share of Series C Preferred Stock then held by them, (iii) $4.853 per share for each share of Series D Preferred Stock then held by them, (iv) $1.9801 per share for each share of Series E Preferred Stock then held by them and (iv) $0.63808 per share for each share of Series F Preferred Stock then held by them, plus declared but unpaid dividends (in each case as adjusted for stock splits, stock dividends, recapitalization and the like) (for each such series, the "Redemption Price"). (b) PROCEDURE. The Corporation shall mail a written notice, first class postage prepaid, (i) within fifteen (15) days following its receipt of a Redemption Election, to each holder of the Series B, Series C, Series D, Series E or Series F Preferred Stock that has delivered a Redemption Election to the Corporation (as set forth above) at the address last shown on the records of the Corporation for such holder, notifying such holder of the redemption to be effected, specifying the number of shares requested to be redeemed from such holder, the Redemption Date, the applicable Redemption Price, the place at which payment may be obtained and calling upon such holder to surrender to the Corporation, in the manner and at the place designated, such holder's certificate or certificates representing the shares to be redeemed (the "Redemption Notice") and (ii) within seven (7) days following the date on which the Corporation has received the first Redemption Election, to each holder of the Series B, Series C, Series D, Series E or Series F Preferred Stock from which a Redemption Election has not been received by the Corporation, at the address last shown on the records of the Corporation for such holder, notifying such holder of the Redemption Date, that a Redemption Election has been received by the Corporation and the manner in which such holder's redemption rights, if any, may be effected. On or after the Redemption Date, each holder of Preferred Stock that has elected to have shares of Preferred Stock redeemed shall surrender to the Corporation the certificate or certificates representing such shares, in the manner and at the place designated in the Redemption Notice, and thereupon the Redemption Price of such shares shall be payable to the order of the person whose name appears on such certificate or certificates as the owner thereof and each surrendered certificate shall be cancelled. As promptly as practicable after receipt of the -5- surrendered certificate or certificates (subject to Section 3(c) below) the Corporation shall issue and deliver to or upon the written order of such holder, at such office or other place designated by the holder, a check for cash with respect the shares so redeemed. In the event less than all the shares represented by any such certificate are redeemed, a new certificate shall be issued representing the unredeemed shares. (c) EFFECT OF REDEMPTION; INSUFFICIENT FUNDS. From and after the Redemption Date, unless there shall have been a failure to pay the Redemption Price, all rights of the holders of shares of Preferred Stock designated for redemption in a Redemption Election (except the right to receive the Redemption Price without interest upon surrender of their share certificate or certificates) shall cease with respect to such shares, and such shares shall not thereafter be transferred on the books of the Corporation or be deemed to be outstanding for any purpose whatsoever. If the Corporation fails to redeem such shares of Preferred Stock within 90 days of the applicable Redemption Date, dividends on the Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock, Series E Preferred Stock and Series F Preferred Stock shall immediately begin to accrue at the rate of 10% per annum, with the rate increasing by 1% for each additional 90 days that the Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock, Series E Preferred Stock and Series F Preferred Stock have not been redeemed; provided, however, the maximum rate of accrual shall not exceed 14% per annum. If the funds that the Corporation deems available for redemption of shares of Preferred Stock on the applicable Redemption Date are insufficient to redeem the total number of shares of Preferred Stock to be redeemed on such date, those funds which are available will be used to redeem the maximum possible number of such shares ratably among the holders of such shares to be redeemed based upon the total Redemption Price applicable to the shares of Preferred Stock for which each holder has requested redemption on such date pursuant to a Redemption Election. The shares of Preferred Stock not redeemed shall remain outstanding and entitled to all the rights and preferences provided herein. At any time thereafter when additional funds of the Corporation are available for the redemption of shares of Preferred Stock, such funds will immediately be used to redeem the balance of the shares pursuant to this Section 3(c) which the Corporation has become obliged to redeem on the applicable Redemption Date but which it has not redeemed (which shall be applied ratably as set forth above to the extent such additional funds, do not permit redemption of the full number of shares remaining to be redeemed). 4. CONVERSION. The holders of Preferred Stock shall have conversion rights as follows (the "Conversion Rights"): (a) RIGHT TO CONVERT. Subject to Section 4(c), 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 and on or prior to the fifth day prior to the Redemption Date, if any, as may have been fixed in any Redemption Notice with respect to such series of Preferred Stock to be redeemed at the office of the 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 (i) $0.13 in the case of Series A Preferred Stock, (ii) $0.50 in the case of the Series B Preferred Stock, (iii) $3.2350 in the case of Series C Preferred Stock, (iv) $4.853 in the case of Series D Preferred Stock and (v) $1.9801 in the case of Series E Preferred Stock, (vi) $0.63808 in the case -6- of Series F Preferred Stock, by the Conversion Price applicable to such shares, determined as hereafter provided, in effect on the date the certificate is surrendered for conversion. As of the Adjustment Date, (as defined in Section 4(d)(i) below), the Conversion Price per share shall be $0.13 for shares of Series A Preferred Stock, $0.50 for shares of Series B Preferred Stock, $2.04542 for shares of Series C Preferred Stock, $2.69869 for shares of Series D Preferred Stock, $1.55672 for shares of Series E Preferred Stock and $0.64547 for shares of Series F Preferred Stock. Such Conversion Price shall be subject to adjustment as set forth in Section 4(d) below. (b) AUTOMATIC CONVERSION. (i) Series A Preferred Stock. Each share of Series A Preferred Stock shall automatically be converted into shares of Common Stock at the Conversion Price at the time in effect for such share immediately upon the earlier of (A) except as provided below in Section 4(c), the Corporation's sale of its Common Stock in a firm commitment underwritten public offering pursuant to a registration statement under the Securities Act of 1933, as amended, the public offering price of which is not less than (x) $0.80 per share, if such sale shall occur on or prior to October 15, 2003, or (y) $1.5952 per share, if such sale shall occur after October 15, 2003 (in either case, such minimum price adjusted to reflect subsequent stock dividends, stock splits, recapitalizations or the like) and which results in either case in aggregate cash proceeds to the Corporation of at least $20,000,000 (gross proceeds before deducting underwriting discounts and commissions) (a "Qualified Public Offering"); (B) the date specified by written consent or agreement of the holders of at least two-thirds of the then outstanding shares of the Series A Preferred Stock, voting together as a class or (C) the conversion of all of the then-outstanding Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock, Series E Preferred Stock and Series F Preferred Stock into Common Stock. (ii) Series B Preferred Stock. Each share of Series B Preferred Stock shall automatically be converted into shares of Common Stock at the Conversion Price at the time in effect for such share immediately upon the earlier of (A) except as provided below in Section 4(c), the Corporation's sale of its Common Stock in a Qualified Public Offering or (B) the date specified by written consent or agreement of the holders of at least two-thirds of the then outstanding shares of Series B Preferred Stock, voting together as a class. (iii) Series C Preferred Stock. Each share of Series C Preferred Stock shall automatically be converted into shares of Common Stock at the Conversion Price at the time in effect for such share immediately upon the earlier of (A) except as provided below in Section 4(c), the Corporation's sale of its Common Stock in a Qualified Public Offering or (B) the date specified by written consent or agreement of the holders of at least a majority of the outstanding shares of Series C Preferred Stock, voting together as a class. (iv) Series D Preferred Stock. Each share of Series D Preferred Stock shall automatically be converted into shares of Common Stock at the Conversion Price at the time in effect for such share immediately upon the earlier of (A) except as provided below in Section 4(c), the Corporation's sale of its Common Stock in a Qualified Public Offering or (B) the date specified by written consent or agreement of the holders of at least a majority of the outstanding shares of Series D Preferred Stock, voting together as a class. -7- (v) Series E Preferred Stock. Each share of Series E Preferred Stock shall automatically be converted into shares of Common Stock at the Conversion Price at the time in effect for such share immediately upon the earlier of (A) except as provided below in Section 4(c), the Corporation's sale of its Common Stock in a Qualified Public Offering; or (B) the date specified by written consent or agreement of the holders of at least two-thirds of the then outstanding shares of the Series E Preferred Stock, voting together as a class. (vi) Series F Preferred Stock. Each share of Series F Preferred Stock shall automatically be converted into shares of Common Stock at the Conversion Price at the time in effect for such share immediately upon the earlier of (A) except as provided below in Section 4(c), the Corporation's sale of its Common Stock in a Qualified Public Offering; or (B) the date specified by written consent or agreement of the holders of at least two-thirds of the then outstanding shares of the Series F Preferred Stock, voting together as a class. (c) MECHANICS OF CONVERSION. Before any holder of Preferred Stock shall be entitled to convert the same into shares of Common Stock, he shall surrender the certificate or certificates therefor, duly endorsed, at the office of the Corporation or of any transfer agent for the Preferred Stock, and shall give written notice to the 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. The 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 public offering of securities registered pursuant to the Securities Act of 1933, the conversion may, at the option of any holder tendering Preferred Stock for conversion, be conditioned upon the closing with the underwriters of the sale of securities pursuant to such offering, in which event any persons entitled to receive Common Stock upon conversion of such 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 AND COMBINATIONS. The Conversion Price of the Preferred Stock shall be subject to adjustment from time to time as follows: (i) ISSUANCE OF ADDITIONAL STOCK BELOW PURCHASE PRICE. If the Corporation shall issue, after March 31, 2003 (the "Adjustment Date"), any Additional Stock (as defined below) without consideration or for a consideration per share less than the applicable Conversion Price per share for shares of Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock, Series E -8- Preferred Stock or Series F Preferred Stock in effect immediately prior to the issuance of such Additional Stock, the Conversion Price for such shares of Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock, Series E Preferred Stock or Series F Preferred Stock, as applicable, in effect immediately prior to each such issuance shall automatically be adjusted as set forth in this Section 4(d)(i), unless otherwise provided in this Section 4(d)(i). (A) ADJUSTMENT FORMULA. With respect to the Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock, Series E Preferred Stock and Series F Preferred Stock, whenever the Conversion Price is adjusted pursuant to this Section (4)(d)(i), the new Conversion Price shall be determined by multiplying the Conversion Price then in effect by a fraction, (x) the numerator of which shall be the number of shares of Common Stock outstanding immediately prior to such issuance (the "Outstanding Common") plus the number of shares of Common Stock that the aggregate consideration received by the Corporation for such issuance would purchase at such Conversion Price; and (y) the denominator of which shall be the number of shares of Outstanding Common plus the number of shares of such Additional Stock. For purposes of the foregoing calculation, the term "Outstanding Common" shall include shares of Common Stock deemed issued pursuant to Section 4(d)(i)(E) below. (B) DEFINITION OF "ADDITIONAL STOCK". For purposes of this Section 4(d)(i), "Additional Stock" shall mean any shares of Common Stock issued (or deemed to have been issued pursuant to Section 4(d)(i)(E)) by the Corporation after the Adjustment Date other than: (1) Common Stock issued pursuant to stock dividends, stock splits or similar transactions, as described in Section 4(d)(ii) hereof; (2) Up to 3,406,196 shares of Common Stock, or options therefor, issued after the Adjustment Date to employees, consultants or directors of the Corporation directly or pursuant to a stock option plan or restricted stock plan approved by the Board of Directors of the Corporation, increased by (i) the number of option shares that are outstanding as of the Adjustment Date and cancelled thereafter, and (ii) such additional shares as are approved for issuance by the Corporation's Board of Directors, including a director nominated by the holders of the Series E Preferred Stock; (3) Capital stock, or options or warrants to purchase capital stock, issued to financial institutions or lessors in connection with commercial credit arrangements, equipment financings, commercial property lease transactions or similar transactions, approved by the Board of Directors of the Corporation; (4) Shares of Common Stock or Preferred Stock issued or issuable upon exercise of warrants and options outstanding as of the Adjustment Date; (5) Capital stock or warrants or options 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; -9- (6) Shares of Common Stock issued or issuable upon conversion of the Series F Preferred Stock, Series E Preferred Stock, Series D Preferred Stock, Series C Preferred Stock, Series B Preferred Stock or Series A Preferred Stock; and (7) Shares of Common Stock issued or issuable in a Qualified Public Offering prior to or in connection with which all outstanding shares of Series F Preferred Stock, Series E Preferred Stock, Series D Preferred Stock, Series C Preferred Stock, Series B Preferred Stock and Series A Preferred Stock will be converted to Common Stock. (C) NO FRACTIONAL ADJUSTMENTS. No adjustment of the Conversion Price for the Series F Preferred Stock, Series E Preferred Stock, Series D Preferred Stock, Series C Preferred Stock or Series B 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. (D) DETERMINATION OF CONSIDERATION. 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. 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 Board of Directors irrespective of any accounting treatment. (E) DEEMED ISSUANCES OF COMMON STOCK. In the case of the issuance (whether before, at or after the Adjustment Date) of securities or rights convertible into, or entitling the holder thereof to receive directly or indirectly, additional shares of Common Stock (the "Common Stock Equivalents"), the following provisions shall apply for all purposes of this Section 4(d)(i): (1) The aggregate maximum number of shares of Common Stock deliverable upon conversion, exchange or exercise (assuming the satisfaction of any conditions to convertibility, exchangeability or exercisability, including, without limitation, the passage of time, but without taking into account potential antidilution adjustments) of any Common Stock Equivalents and subsequent conversion, exchange or exercise thereof shall be deemed to have been issued at the time such securities were issued or such Common Stock Equivalents were issued and for a consideration equal to the consideration, if any, received by the Corporation for any such securities and related Common Stock Equivalents (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, exchange or exercise of any Common Stock Equivalents (the consideration in each case to be determined in the manner provided in Section 4(d)(i)(D). -10- (2) In the event of any change in the number of shares of Common Stock deliverable or in the consideration payable to the Corporation upon conversion, exchange or exercise of any Common Stock Equivalents other than a change resulting from the antidilution provisions thereof, the Conversion Price of any series of Preferred Stock, to the extent in any way affected by or computed using such Common Stock Equivalents, 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 conversion, exchange or exercise of such Common Stock Equivalents. (3) Upon the termination or expiration of the convertibility, exchangeability or exercisability of any Common Stock Equivalents, the Conversion Price of any series of Preferred Stock, to the extent in any way affected by or computed using such Common Stock Equivalents, shall be recomputed to reflect the issuance of only the number of shares of Common Stock (and Common Stock Equivalents that remain convertible, exchangeable or exercisable) actually issued upon the conversion, exchange or exercise of such Common Stock Equivalents. (4) The number of shares of Common Stock deemed issued and the consideration deemed paid therefor pursuant to Section 4(d)(i)(E)(1) shall be appropriately adjusted to reflect any change, termination or expiration of the type described in either Section 4(d)(i)(E)(2) or 4(d)(i)(E)(3). (F) NO INCREASED CONVERSION PRICE. Notwithstanding any other provisions of this Section (4)(d)(i), except to the limited extent provided for in Sections 4(d)(i)(E)(2) and 4(d)(i)(E)(3), no adjustment of the Conversion Price pursuant to this Section 4(d)(i) shall have the effect of increasing the Conversion Price above the Conversion Price in effect immediately prior to such adjustment. (ii) STOCK SPLITS AND DIVIDENDS. In the event the Corporation should at any time or from time to time after the Adjustment Date fix a record date for the effectuation of a split or subdivision of the outstanding shares of Common Stock or the determination of holders of Common Stock entitled to receive a dividend or other distribution payable in additional shares of Common Stock or Common Stock Equivalents without payment of any consideration by such holder for the additional shares of Common Stock or the Common Stock Equivalents (including the additional shares of Common Stock issuable upon conversion or exercise thereof), 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 the Series F Preferred Stock, Series E Preferred Stock, Series D Preferred Stock, Series C Preferred Stock, Series B Preferred Stock and Series A 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 and those issuable with respect to such Common Stock Equivalents with the number of shares issuable with respect to Common Stock Equivalents determined from time to time in the manner provided for deemed issuances in Section 4(d)(i)(E) above. -11- (iii) REVERSE STOCK SPLITS. If the number of shares of Common Stock outstanding at any time after the Adjustment Date is decreased by a combination of the outstanding shares of Common Stock, then, following the record date of such combination, the Conversion Price for the Series F Preferred Stock, Series E Preferred Stock, Series D Preferred Stock, Series C Preferred Stock, Series B Preferred Stock and the Series A 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 the Corporation or other persons, assets (excluding cash dividends) or options or rights not referred to in Section 4(d)(ii), then, in each such case for the purpose of this Section 4(e), the holders of Series F Preferred Stock, Series E Preferred Stock, Series D Preferred Stock, Series C Preferred Stock, Series B Preferred Stock and Series A 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 4 or in Section 2) provision shall be made so that the holders of Series F Preferred Stock, Series E Preferred Stock, Series D Preferred Stock, Series C Preferred Stock, Series B Preferred Stock and Series A Preferred Stock shall thereafter be entitled to receive upon conversion of such Preferred Stock the number of shares of stock or other securities or property of the Corporation or otherwise, to which a holder of Common Stock deliverable upon conversion would have been entitled on such recapitalization. In any such case, appropriate adjustment shall be made in the application of the provisions of this Section 4 with respect to the rights of the holders of such Preferred Stock after the recapitalization to the end that the provisions of this Section 4 (including adjustment of the Conversion Price then in effect and the number of shares purchasable upon conversion of such Preferred Stock) shall be applicable after that event and be as nearly equivalent as practicable. (g) NO IMPAIRMENT. The Corporation will not, other than with the consent of the holders of the outstanding Preferred Stock in accordance with Section 6 of this Article IV and applicable law, 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 4 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 Preferred Stock against impairment. -12- (h) NO FRACTIONAL SHARES AND CERTIFICATE AS TO ADJUSTMENTS. (i) No fractional shares shall be issued upon the conversion of any share or shares of Series F Preferred Stock, Series E Preferred Stock, Series D Preferred Stock, Series C Preferred Stock, Series B Preferred Stock or Series A Preferred Stock, and the number of shares of Common Stock to be issued shall be rounded down to the nearest whole share. The number of shares issuable upon such conversion shall be determined on the basis of the total number of shares of Series F Preferred Stock, Series E Preferred Stock, Series D Preferred Stock, Series C Preferred Stock, Series B Preferred Stock or Series A 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 Series F Preferred Stock, Series E Preferred Stock, Series D Preferred Stock, Series C Preferred Stock, Series B Preferred Stock or Series A Preferred Stock pursuant to this Section 4, 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 Preferred Stock a certificate executed by the Corporation's President or Chief Financial Officer setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based. The Corporation shall, upon the written request at any time of any holder of Series F Preferred Stock, Series E Preferred Stock, Series D Preferred Stock, Series C Preferred Stock, Series B Preferred Stock or Series A 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 such 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 such series of Preferred Stock. (i) NOTICES OF RECORD DATE. In the event of any taking by the Corporation of a record of the holders of any class of securities for the purpose of determining the holders thereof who are entitled to receive any dividend or other distribution, 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, the Corporation shall mail to each holder of Series F Preferred Stock, Series E Preferred Stock, Series D Preferred Stock, Series C Preferred Stock, Series B Preferred Stock or Series A Preferred Stock, at least ten (10) days prior to the date specified therein, a notice specifying the date on which any such record is to be taken for the purpose of such dividend, distribution or right, and the amount and character of such dividend, distribution or right. (j) RESERVATION OF STOCK ISSUABLE UPON CONVERSION. The Corporation shall at all times reserve and keep available out of its authorized but unissued shares of Common Stock, solely for the purpose of effecting the conversion of the shares of the Series F Preferred Stock, Series E Preferred Stock, Series D Preferred Stock, Series C Preferred Stock, Series B Preferred Stock and Series A 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 such series of 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 -13- such series of 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 stockholder approval of any necessary amendment to this Certificate of Incorporation. (k) NOTICES. Any notice required by the provisions of this Section 4 to be given to the holders of shares of Series F Preferred Stock, Series E Preferred Stock, Series D Preferred Stock, Series C Preferred Stock, Series B Preferred Stock or Series A 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. 5. VOTING RIGHTS. (a) GENERAL. The holder of each share of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock, Series E Preferred Stock and Series F Preferred Stock, shall have the right to one vote for each share of Common Stock into which such Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock, Series E Preferred Stock or Series F Preferred Stock could then be converted, and with respect to such vote, such holder shall have full voting rights and powers equal to the voting rights and powers of the holders of Common Stock, and shall be entitled, notwithstanding any provision hereof, to notice of any stockholders' meeting in accordance with the Bylaws of the Corporation, and shall be entitled to vote, together with holders of Common Stock, with respect to any question upon which holders of Common Stock have the right to vote. Fractional votes shall not, however, be permitted and any fractional voting rights available on an as-converted basis (after aggregating all shares into which shares of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock, Series E Preferred or Series F Preferred Stock held by each holder could be converted) shall be rounded to the nearest whole number (with one-half being rounded upward). Notwithstanding the foregoing, if a class vote is required by law, a holder of Series A Preferred Stock shall either (i) vote such shares of Series A Preferred Stock in accordance with the vote of a majority of the Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock, Series E Preferred Stock and Series F Preferred Stock, voting together as a single class, or (ii) convert such shares of Series A Preferred Stock to Common Stock pursuant to Section 4(a) hereof and vote as Common Stock. In order to effectuate the foregoing, in the event of a class vote, the Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock, Series E Preferred Stock and Series F Preferred Stock shall vote prior to the Series A Preferred Stock and the Corporation shall, after tabulating the votes or proxies of the Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock, Series E Preferred Stock and Series F Preferred Stock, solicit the votes or proxies of the Series A Preferred Stock, notifying the holders of Series A Preferred Stock that they may only elect as indicated in subsections (i) or (ii) of this Section 5(a). (b) ELECTION OF DIRECTORS. The Board of Directors shall consist of nine (9) members. The holders of Series F Preferred Stock, voting as a separate class, shall be entitled to elect one (1) member of the Corporation's Board of Directors. The holders of Series E -14- Preferred Stock, voting as a separate class, shall be entitled to elect one (1) member of the Corporation's Board of Directors. The holders of Series C Preferred Stock, voting as a separate class, shall be entitled to elect one (1) member of the corporation's Board of Directors. The holders of Series B Preferred Stock, voting as a separate class, shall be entitled to elect one (1) member of the Corporation's Board of Directors. The holders of the Series A Preferred Stock and the holders of the Common Stock, voting together as a single class, shall be entitled to elect one (1) member of the Corporation's Board of Directors. The remaining members of the Corporation's Board of Directors shall be elected by the holders of Common Stock and Preferred Stock, voting as a single class. 6. PROTECTIVE PROVISIONS. (a) So long as any shares of Series B Preferred Stock are outstanding, this corporation shall not, without first obtaining the approval (by vote or written consent, as provided by law) of a majority of the voting power of the then outstanding shares of Series B Preferred Stock, voting as a separate class, alter or change the rights, preferences or privileges of the shares of Series B Preferred Stock so as to affect adversely the shares of such series. (b) So long as any shares of Series C Preferred Stock, Series D Preferred Stock, Series E Preferred Stock or Series F Preferred Stock are outstanding, the Corporation shall not without first obtaining the approval (by vote or written consent, as provided by law) of a majority of the voting power of the then-outstanding shares of Series C Preferred Stock, Series D Preferred Stock, Series E Preferred Stock and Series F Preferred Stock, voting together as a single class: (i) effect a Liquidation Transaction; (ii) authorize or issue, or obligate itself to issue, or reclassify any outstanding securities into, any other equity security, including any other security convertible into or exercisable for any equity security having a preference over, or being on a parity with, the Series C Preferred Stock, Series D Preferred Stock, Series E Preferred Stock or Series F Preferred Stock as to dividend rights, redemption rights, antidilution rights, voting rights or liquidation preference; (iii) redeem, repurchase or otherwise acquire (or pay into or set aside for a sinking fund for such purpose) any share or shares of Preferred Stock or Common Stock; provided, however, that this restriction shall not apply to the repurchase of shares of Common Stock from employees, officers, directors, consultants or other persons performing services for the Corporation or any subsidiary in connection with the termination of employment, consulting relationship or director relationship of such persons or redemptions effected in accordance with Section 3 of this Article IV; (iv) declare or pay any dividend on any shares of the Corporation's Common Stock or Preferred Stock; -15- (v) amend the Corporation's Certificate of Incorporation or Bylaws; (vi) alter the authorized number of directors of the Company. (c) So long as any shares of Series C Preferred Stock are outstanding, this corporation shall not, without first obtaining the approval (by vote or written consent, as provided by law) of a majority of the voting power of the then outstanding shares of Series C Preferred Stock, voting as a separate class, alter or change the powers, preferences, or special rights of the shares of Series C Preferred Stock so as to affect adversely the shares of such series. (d) So long as any shares of Series D Preferred Stock are outstanding, this corporation shall not, without first obtaining the approval (by vote or written consent, as provided by law) of a majority of the voting power of the then outstanding shares of Series D Preferred Stock, voting as a separate class alter, or change the powers, preferences, or special rights of the shares of Series D Preferred Stock so as to affect adversely the shares of such series. (e) So long as any shares of Series E Preferred Stock are outstanding, this corporation shall not, without first obtaining the approval (by vote or written consent, as provided by law) of at least 66 2/3% of the voting power of the then outstanding shares of Series E Preferred Stock, voting as a separate class, alter or change the powers, preferences, or special rights of the shares of Series E Preferred Stock so as to affect adversely the shares of such series. (f) So long as any shares of Series F Preferred Stock are outstanding, this corporation shall not, without first obtaining the approval (by vote or written consent, as provided by law) of at least 66 2/3% of the voting power of the then outstanding shares of Series F Preferred Stock, voting as a separate class, alter or change the powers, preferences, or special rights of the shares of Series F Preferred Stock so as to affect adversely the shares of such series. 7. STATUS OF REDEEMED OR CONVERTED STOCK. In the event any shares of Preferred Stock shall be redeemed pursuant to Section 3 hereof or converted pursuant to Section 4 hereof, the shares so redeemed or converted shall be canceled and shall not 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. (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 or the occurrence of a Liquidation Transaction, the assets of the Corporation shall be distributed as provided in Section 2 of Division (B) of this Article IV. -16- 3. REDEMPTION. The Common Stock is not redeemable. 4. VOTING RIGHTS. Each holder of each share of Common Stock shall have the right to one vote per share of Common Stock and shall be entitled to notice of any stockholders' meeting in accordance with the Bylaws of the Corporation, and shall be entitled to vote upon such matters and in such manner as may be provided by law. ARTICLE V The Board of Directors of the Corporation is expressly authorized to make, alter or repeal Bylaws of the Corporation; provided however, that the Board may not amend Article III, Section 3.2 of the Bylaws of the Corporation to increase or decrease the size of the Board by operation of this provision. ARTICLE VI Elections of directors need not be by written ballot unless otherwise provided in the Bylaws of the Corporation. ARTICLE VII (A) To the fullest extent permitted by the Delaware General Corporation Law, as the same exists or as may hereafter be amended, a director of the Corporation shall not be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director. (B) The Corporation shall indemnify to the fullest extent permitted by law any person made or threatened to be made a party to an action or proceeding, whether criminal, civil, administrative or investigative, by reason of the fact that he, his testator or intestate is or was a director or officer of the Corporation or any predecessor of the Corporation, or serves or served at any other enterprise as a director or officer at the request of the Corporation or any predecessor to the Corporation. (C) Neither any amendment nor repeal of this Article VII, nor the adoption of any provision of the Corporation's Certificate of Incorporation inconsistent with this Article VII, shall eliminate or reduce the effect of this Article VII in respect of any matter occurring, or any action or proceeding accruing or arising or that, but for this Article VII, would accrue or arise, prior to such amendment, repeal or adoption of an inconsistent provision." * * * -17- The foregoing Amended and Restated Certificate of Incorporation has been duly adopted by this Corporation's Board of Directors and stockholders in accordance with the applicable provisions of Section 228, 242 and 245 of the General Corporation Law of the State of Delaware. Executed at San Francisco, California, on May 30, 2003. /s/ Alison May ____________________________________________ Alison May President and Chief Executive Officer /s/ Eric Wong ____________________________________________ Eric Wong Secretary -18- EX-3.3 4 f89225orexv3w3.txt EXHIBIT 3.3 EXHIBIT 3.3 AMENDED AND RESTATED BYLAWS OF REDENVELOPE, INC. TABLE OF CONTENTS

TABLE OF CONTENTS (CONTINUED)

-ii- TABLE OF CONTENTS (CONTINUED)

-iii- AMENDED AND RESTATED BYLAWS OF REDENVELOPE, INC. 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 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 (if any), 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. Without limiting the manner by which notice otherwise may be given effectively to stockholders, any notice to stockholders may be given by electronic mail or other electronic transmission, in the manner provided in Section 232 of the Delaware General Corporation Law. 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 shares of 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) holders of a majority of the shares of stock entitled to vote who are present, in person or by proxy, shall have power to adjourn the meeting to another place (if any), date or time. 2.7 ADJOURNED MEETING; NOTICE. When a meeting is adjourned to another place (if any), date or time, unless these Bylaws otherwise require, notice need not be given of the adjourned meeting if the time and place (if any), thereof and the means of remote communications, if any, by which stockholders and proxyholders may be deemed to be present and vote at such adjourned meeting, -2- 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 a new record date is affixed for the adjourned meeting, notice of the place (if any), date and time of the adjourned meeting and the means of remote communications, if any, by which stockholders and proxy holders may be deemed to be present in person and vote at such adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. 2.8 ORGANIZATION; CONDUCT OF BUSINESS. (a) Such person as the Board of Directors may have designated or, in the absence of such a person, the President of the Corporation or, in his or her absence, such person as may be chosen by the holders of a majority of the shares entitled to vote who are present, in person or by proxy, shall call to order any meeting of the stockholders and act as Chairman of the meeting. In the absence of the Secretary of the Corporation, the Secretary of the meeting shall be such person as the Chairman of the meeting appoints. (b) 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. The date and time of opening and closing of the polls for each matter upon which the stockholders will vote at the meeting shall be announced at the meeting. 2.9 VOTING. The stockholders entitled to vote at any meeting of stockholders shall be determined in accordance with the provisions of Section 2.12 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. All elections shall be determined by a plurality of the votes cast, and except as otherwise required by law, all other matters shall be determined by a majority of the votes cast affirmatively or negatively. 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, or waiver by electronic mail or other electronic transmission by such person, 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, -3- 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, and delivered to the Corporation in accordance with Section 228(a) of the Delaware General Corporation Law. Every written consent shall bear the date of signature of each stockholder who signs the consent and no written consent shall be effective to take the corporate action referred to therein unless, within sixty (60) days of the date the earliest dated consent is delivered to the Corporation, a written consent or consents signed by a sufficient number of holders to take action are delivered to the Corporation in the manner prescribed in this Section. A telegram, cablegram, electronic mail or other electronic transmission consenting to an action to be taken and transmitted by a stockholder or proxyholder, or by a person or persons authorized to act for a stockholder or proxyholder, shall be deemed to be written, signed and dated for purposes of this Section to the extent permitted by law. Any such consent shall be delivered in accordance with Section 228(d)(1) of the Delaware General Corporation Law. Any copy, facsimile or other reliable reproduction of a consent in writing may be substituted or used in lieu of the original writing for any and all purposes for which the original writing could be used, provided that such copy, facsimile or other reproduction shall be a complete reproduction of the entire original writing. 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 (including by electronic mail or other electronic transmission as permitted by law). 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 if 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 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 -4- 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 (including consent by electronic mail or other electronic transmission as permitted by law) 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, if such adjournment is for thirty (30) days or less; 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 an instrument in writing or by an electronic transmission permitted by law 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. 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 -5- 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 nine (9). 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. (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, -6- 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 other 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 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 by facsimile, by electronic transmission, by telephone or by telegram, it shall be delivered 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 -7- 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. Unless otherwise indicated in the notice thereof, any and all business may be transacted at a special meeting. 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, or waiver by electronic mail or other electronic transmission by such person, 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 or by electronic transmission, and the writing or writings or electronic transmission or transmissions are filed with the minutes of proceedings of the board or committee. Such filing shall be in paper form if the minutes are maintained in paper form and shall be in electronic form if the minutes are maintained in electronic form. 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 -8- 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 1 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, 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 -9- 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 the General Corporate Law of Delaware 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 president, a secretary, and a chief financial officer. The corporation may also have, at the discretion of the Board of Directors, a chief executive officer, 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. 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. -10- 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 the power of removal is conferred by the Board of Directors. Any officer may resign at any time by giving written notice to the corporation. Any resignation shall take effect at the date of the receipt of that notice or at any later time specified in that notice; and, unless otherwise specified in that notice, the acceptance of the resignation shall not be necessary to make it effective. Any resignation is without prejudice to the rights, if any, of the corporation under any contract to which the officer is a party. 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 (if such an officer is appointed) 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. 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. -11- 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. 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 -12- 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. 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 -13- 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 by final judicial decision from which there is no further right to appeal 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 stockholders 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. 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 -14- (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. A complete list of stockholders entitled to vote at any meeting of stockholders, arranged in alphabetical order for each class of stock and showing the address of each such stockholder and the number of shares registered in each such stockholder's name, shall be open to the examination of any such stockholder for a period of at least ten (10) days prior to the meeting in the manner provided by law. The stock list shall also be open to the examination of any stockholder during the whole time of the meeting as provided by law. This list shall presumptively determine the identity of the stockholders entitled to vote at the meeting and the number of shares held by each of them. 7.2 INSPECTION BY DIRECTORS. Any director shall have the right to examine the corporation's stock ledger, a list of its stockholders, and its other books and records for a purpose reasonably related to his 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. -15- 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 otherwise provided in these Bylaws, may authorize any officer or officers, or agent or agents, to enter into any contract or execute any instrument in the name of and on behalf of the corporation; such authority may be general or confined to specific instances. Unless so authorized or ratified by the Board of Directors or within the agency power of an officer, no officer, agent or employee shall have any power or authority to bind the corporation by any contract or engagement or to pledge its credit or to render it liable for any purpose or for any amount. 8.3 STOCK CERTIFICATES; PARTLY PAID SHARES. The shares of a corporation shall be represented by certificates, provided that the Board of Directors of the corporation may provide by resolution or resolutions that some or all of any or all classes or series of its stock shall be uncertificated shares. Any such resolution shall not apply to shares represented by a certificate until such certificate is surrendered to the corporation. Notwithstanding the adoption of such a resolution by the Board of Directors, every holder of stock represented by certificates and upon request every holder of uncertificated shares shall be entitled to have a certificate signed by, or in the name of the corporation by the chairman or vice-chairman of the Board of Directors, or the president or vice-president, and by the chief financial officer or 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 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 -16- 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 furnish without charge to each stockholder who so requests the powers, the designations, the preferences, and the relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights. 8.5 LOST CERTIFICATES. Except as provided in this Section 8.5, no new certificates for shares shall be issued to replace a previously issued certificate unless the latter is surrendered to the corporation and 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. 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 -17- any such reserve. Such purposes shall include but not be limited to equalizing dividends, repairing or maintaining any property of the corporation, and meeting contingencies. 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. 8.13 FACSIMILE SIGNATURE In addition to the provisions for use of facsimile signatures elsewhere specifically authorized in these Bylaws, facsimile signatures of any officer or officers of the Corporation may be used whenever and as authorized by the Board of Directors or a committee thereof. -18- 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 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. -19- EX-4.2 5 f89225orexv4w2.txt EXHIBIT 4.2 EXHIBIT 4.2 REDENVELOPE, INC. AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT REDENVELOPE, INC. AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT This Amended and Restated Investors' Rights Agreement (the "Agreement") is made as of April 17, 2002, by and among RedEnvelope, Inc., a Delaware corporation (the "Company"), the individuals listed on Exhibit A hereto (each, a "Founder" and collectively, the "Founders") the prior investors listed on Exhibit B hereto (the "Prior Investors"), and the new investors listed on Exhibit C (the "New Investors"). The Prior Investors and the New Investors are referred to herein collectively as the "Investors" and each individually as an "Investor". RECITALS The Company, the Founders and the Prior Investors entered into an Amended and Restated Investors' Rights Agreement on July 17, 2000 (the "Existing Agreement"). The Company and the New Investors have entered into a Series F Preferred Stock Purchase Agreement (the "Purchase Agreement") of even date herewith pursuant to which the Company desires to sell to the New Investors and the New Investors desire to purchase from the Company shares of the Company's Series F Preferred Stock. A condition to the New Investors' obligations under the Purchase Agreement is that the Company, the Founders and the Prior Investors enter into this Agreement in order to provide the New Investors with (i) certain rights to register shares of the Company's Common Stock issuable upon conversion of the Series F Preferred Stock held by the New Investors, (ii) certain rights to receive or inspect information pertaining to the Company, and (iii) a right of first offer with respect to certain issuances by the Company of its securities. The Company, the Prior Investors and the Founders each desire to induce the New Investors to purchase shares of Series F Preferred Stock pursuant to the Purchase Agreement by agreeing to amend and restate the Existing Agreement in its entirety as set forth herein. AGREEMENT The parties hereby agree as follows: 1. REGISTRATION RIGHTS. The Company and the Investors covenant and agree as follows: 1.1 DEFINITIONS. For purposes of this Section 1: (a) 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 of 1933, as amended (and any successor thereto) and the rules and regulations promulgated thereunder (the "Act"), and the declaration or ordering of effectiveness of such registration statement or document; (b) The term "Registrable Securities" means (i) the shares of Common Stock issuable or issued upon conversion of the Company's Series B Preferred Stock, -1- (ii) the shares of Common Stock issuable or issued upon conversion of the Company's Series C Preferred Stock, (iii) the shares of Common Stock issuable or issued upon conversion of the Company's Series D Preferred Stock, (iv) the shares of Common Stock issuable or issued upon conversion of the Company's Series E Preferred Stock, (v) the shares of Common Stock issuable or issued upon conversion of the Company's Series F Preferred Stock (together with the Series B, the Series C, the Series D and the Series E Preferred Stock, the "Stock"), (vi) the shares of Common Stock issuable or issued upon conversion of the Company's Series A Preferred Stock (the "Founders' Stock"); provided, however, that for the purposes of Sections 1.2 and 1.12 hereof, the Founders' Stock shall not be deemed Registrable Securities and the Founders shall not be deemed Holders, (vii) any other shares of 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 Stock or the Founders' Stock, and (viii) 209,104 shares of Common Stock issued or issuable upon exercise of outstanding warrants held by certain of the Prior Investors, issued in connection with the Series B Preferred Stock, (ix) 9,282 shares of Common Stock issued or issuable upon exercise of a warrant held by Comdisco, Inc., (x) 200,000 shares of Common Stock issued or issuable upon exercise of a warrant held by Lighthouse Capital Partners, provided, however, that the foregoing definition shall exclude in all cases any Registrable Securities sold by a person in a transaction in which such person's rights under this Agreement are not assigned. Notwithstanding the foregoing, shares of Common Stock or other securities shall only be treated as Registrable Securities if and so long as (A) they have not been sold to or through a broker or dealer or underwriter in a public distribution or a public securities transaction, or (B) they have not been sold in a transaction exempt from the registration and prospectus delivery requirements of the Act under Section 4(1) thereof so that all transfer restrictions, and restrictive legends with respect thereto, if any, are removed upon the consummation of such sale, or (C) the registration rights with respect to such securities have not terminated pursuant to Section 1.15; (c) 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; (d) The term "Holder" means any person owning or having the right to acquire Registrable Securities or any assignee thereof in accordance with Section 1.13 hereof; (e) The term "Qualified Public Offering" shall mean the Company's sale of its Common Stock in a firm commitment underwritten public offering pursuant to a registration statement under the Securities Act of 1933, as amended, the public offering price of which is not less than $1.5952 per share (adjusted to reflect subsequent stock dividends, stock splits, recapitalizations or the like) and which results in aggregate cash proceeds to the Company of at least $20,000,000 (before deduction of underwriting discounts and commissions). -2- (f) "Initial Public Offering" shall mean the Company's first firmly underwritten public offering on Registration Statement Form S-1 or Form SB-2 (or successor form(s)). (g) The term "Form S-3" means such form under the Act as in effect on the date hereof or any successor form under the Act; and (h) The term "SEC" means the Securities and Exchange Commission. 1.2 REQUESTED REGISTRATION. (a) If the Company shall receive at any time after the earlier of (i) the thirty (30) month anniversary of the date of this Agreement, or (ii) six (6) months after the effective date of the first registration statement for a Qualified Public Offering (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 an SEC Rule 145 transaction), a written request from the Holders of at least 40% of the Registrable Securities then outstanding that the Company file a registration statement under the Act covering the registration of the lesser of (x) at least twenty-five percent (25%) of the Registrable Securities then outstanding or (y) Registrable Securities having an estimated aggregate public offering price of at least $15 million, then the Company shall, within ten (10) days of the receipt thereof, give written notice of such request to all Holders and shall, subject to the limitations of subsection 1.2(b), use its best efforts to effect as soon as practicable, and in any event within sixty (60) days of the receipt of such request, the registration under the Act of all Registrable Securities which the Holders request to be registered within twenty (20) days of the mailing of such notice by the Company in accordance with Section 3.5. (b) If the Holders initiating the registration request hereunder ("Initiating Holders") intend to distribute the Registrable Securities covered by their request by means of an underwriting, they shall so advise the Company as a part of their request made pursuant to this Section 1.2 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 his 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 their securities through such underwriting shall (together with the Company as provided in subsection 1.4(e)) enter into an underwriting agreement in customary form with the underwriter or underwriters selected for such underwriting by the Company. Notwithstanding any other provision of this Section 1.2, if the underwriter advises 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 which would otherwise be underwritten pursuant hereto, and the number of shares of Registrable Securities that may be included in the underwriting shall be allocated among all participating Holders thereof, including -3- the Initiating Holders, in proportion (as nearly as practicable) to the amount of Registrable Securities of the Company owned by each participating Holder; provided, however, that the number of shares of Registrable Securities to be included in such underwriting shall not be reduced unless all other securities are first entirely excluded from the underwriting. (c) If any Holder of Registrable Securities disapproves of the terms of the underwriting, such person may elect to withdraw therefrom by written notice to the Company, the managing underwriter and the Initiating Holders. The Registrable Securities or other securities so withdrawn shall also be withdrawn from registration, and such Registrable Securities shall not be transferred in a public distribution prior to ninety (90) days (one hundred eighty (180) days in the case of the Company's Initial Public Offering) after the date of the final prospectus used in such public offering. (d) Notwithstanding the foregoing, if the Company shall furnish to Holders requesting a registration statement pursuant to this Section 1.2, 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 and its stockholders 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 such filing for a period of not more than 120 days after receipt of the request of the Initiating Holders; provided, however, that the Company may not utilize this right more than once in any twelve-month period. (e) In addition, the Company shall not be obligated to effect, or to take any action to effect, any registration pursuant to this Section 1.2: (i) After the Company has effected three (3) registrations pursuant to this Section 1.2 and such registrations have been declared or ordered effective; (ii) During the period starting with the date sixty (60) days prior to the Company's good faith estimate of the date of filing of, and ending on a date one hundred eighty (180) days after the effective date of, a registration subject to Section 1.3 hereof; provided that the Company will use best efforts to cause such registration statement to be filed and to become effective as expeditiously as shall be reasonably possible; or (iii) If the Initiating Holders propose to dispose of shares of Registrable Securities that may be immediately registered on Form S-3 pursuant to a request made pursuant to Section 1.12 below. 1.3 COMPANY REGISTRATION. (a) Request for Registration. If (but without any obligation to do so) the Company proposes to register (including for this purpose a registration effected by the Company for stockholders other than the Holders) any of its stock, either for its own account or the account of a securityholder, under the 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 -4- participants in a Company stock plan or a transaction covered by Rule 145 under the Act, a registration in which the only stock being registered is Common Stock issuable upon conversion of debt securities which are also being registered, or any 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 twenty (20) days after mailing of such notice by the Company in accordance with Section 3.5, the Company shall, subject to the provisions of Section 1.8, cause to be registered under the 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 a part of the written notice given pursuant to Section 1.3(a). In such event, the right of any Holder to registration pursuant to 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 in Section 1.8. If any Holder or other holder disapproves of the terms of any such underwriting, he or she may elect to withdraw by written notice to the Company and the managing underwriter. Any securities excluded or withdrawn from such underwriting shall be withdrawn from such registration, and shall not be transferred in a public distribution prior to ninety (90) days (one hundred eighty (180) days in the case of the Company's Initial Public Offering) after the date of the final prospectus included in the registration statement relating thereto. 1.4 OBLIGATIONS OF THE COMPANY. Whenever required under this Section 1 to effect the registration of any Registrable Securities, the Company shall use its best efforts in good faith to effect promptly the registration and sale of such Registrable Securities in accordance with the intended method of distribution thereof and, in connection therewith, the Company shall, as expeditiously as reasonably possible: (a) Prepare and file with the SEC a registration statement with respect to such Registrable Securities and use its reasonable best efforts to cause such registration statement to become effective, and, upon the request of the Holders of a majority of the Registrable Securities registered thereunder, keep such registration statement effective for a period equal to the lesser of one hundred twenty (120) days or until the distribution contemplated in the Registration Statement has been completed; provided, however, that such 120-day period shall be extended for a period of time equal to the period the Holder refrains from selling any securities included in such registration at the request of an underwriter of Common Stock (or other securities) of the Company. (b) Notify each Holder of Registrable Securities of the effectiveness of each registration statement filed hereunder and prepare and file with the SEC such amendments and supplements to such registration statement and the prospectus used in connection with such registration statement as may be necessary to comply with the provisions of the Act with respect to the disposition of all securities covered by such registration statement for -5- up to one hundred twenty (120) days or until the distribution described in such registration statement is completed, if earlier. (c) The Company will furnish or make available to each participating Holder, its counsel and each underwriter, if any, such number of copies of such registration statement, each amendment and supplement thereto (in each case including all exhibits thereto and documents incorporated by reference therein), the prospectus included in such registration statement (including each preliminary prospectus) and such other documents as such Holder or underwriter may reasonably request in order to facilitate the disposition of the Registrable Securities owned by such Holder. (d) Use its best efforts to register and qualify the securities covered by such registration statement under such other securities or blue sky laws of such jurisdictions as shall be reasonably requested by the Holders, provided that the Company shall not be required in connection therewith or as a condition thereto to qualify to do business or to file a general consent to service of process in any such states or jurisdictions. (e) In the event of any underwritten public offering, enter into and perform its obligations under an underwriting agreement, in usual and customary form, with the managing underwriter of such offering. The Holders may, at their option, require that any or all of the representations, warranties and covenants of the Company to or for the benefit of such underwriters also be made to and for the benefit of such Holders, where applicable. Each Holder participating in such underwriting shall also enter into and perform its obligations under such an agreement. (f) Notify each Holder of Registrable Securities covered by such registration statement at any time when a prospectus relating thereto is required to be delivered under the Act of the happening of any event as a result of which the prospectus included in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing, and at the request of any such Holder, prepare and furnish a reasonable number of copies of a supplement or an amendment of such prospectus as may be necessary so that, as thereafter delivered to purchasers of such shares, such prospectus shall not include an untrue statement of material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading (which supplementation or amendment may be delayed for such period of time as the Company's Board of Directors reasonably determine is necessary to protect the interests of the Company and its stockholders), such obligation to continue for one hundred twenty (120) days. (g) Cause all such Registrable Securities registered pursuant hereunder to be listed on each securities exchange on which similar securities issued by the Company are then listed. -6- (h) Provide a transfer agent and registrar for all Registrable Securities registered pursuant hereunder and a CUSIP number for all such Registrable Securities, in each case not later than the effective date of such registration. (i) Use its best efforts to furnish, at the request of any Holder requesting registration of Registrable Securities pursuant to this Section 1, on the date that such Registrable Securities are delivered to the underwriters for sale in connection with a registration pursuant to this Section 1, if such securities are being sold through underwriters, or, if such securities are not being sold through underwriters, on the date that the registration statement with respect to such securities becomes effective, (i) an opinion, dated such date, of the counsel representing the Company for the purposes of such registration, in form and substance as is customarily given to underwriters in an underwritten public offering, addressed to the underwriters, if any, and to the Holders requesting registration of Registrable Securities and (ii) a letter dated such date, from the independent certified public accountants of the Company, in form and substance as is customarily given by independent certified public accountants to underwriters in an underwritten public offering, addressed to the underwriters, if any, and to the Holders requesting registration of Registrable Securities. (j) The Company will cause members of its senior management (including the Chief Executive Officer) to participate on a reasonable basis in presentations concerning the Company and its securities in connection with the Company's efforts to market the Registrable Securities pursuant to Section 1.2 hereof, including, without limitation, participation in meetings with potential investors and preparation of all reasonably necessary materials for such investors. 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 REQUESTED REGISTRATION. All expenses other than underwriting discounts and commissions incurred in connection with registrations, filings or qualifications pursuant to Section 1.2 shall be borne by the Company, including (without limitation) all registration, filing and qualification fees, printers' and accounting fees, fees and disbursements of counsel for the Company, and the reasonable fees and disbursements of one counsel for the selling Holders selected by them; provided, however, that the Company shall not be required to pay for any expenses of any registration proceeding begun pursuant to Section 1.2 if the registration request is subsequently withdrawn at the request of the Holders of a majority of the Registrable Securities to be registered (in which case all participating Holders shall bear such expenses), unless the Holders of a majority of the Registrable Securities agree to forfeit their right to one demand registration pursuant to Section 1.2; provided further, however, that if at the time of such withdrawal, the Holders (i) have learned of a material adverse change in the condition or business of the Company that was not known to the Holders at the time of their request and (ii) have withdrawn the request with reasonable promptness following disclosure by -7- the Company of such material adverse change, then the Holders shall not be required to pay any of such expenses and shall not forfeit their rights pursuant to Section 1.2. 1.7 EXPENSES OF COMPANY 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 Section 1.3 for each Holder (which right may be assigned as provided in Section 1.13), including (without limitation) all registration, filing, and qualification fees, printers' and accounting fees relating or apportionable thereto and the reasonable fees and disbursements of one counsel for the selling Holders selected by them, but excluding underwriting discounts and commissions relating to Registrable Securities. 1.8 UNDERWRITING REQUIREMENTS. In connection with any offering involving an underwriting of shares of the Company's capital stock, the Company shall not be required under Section 1.3 to include any of the Holders' securities in such underwriting unless they accept the terms of the underwriting (and enter into an underwriting agreement in customary form of the underwriter or underwriters selected for such underwriting) as agreed upon between the Company and the underwriters selected by it (or by other persons entitled to select the underwriters), and then only in such quantity as the underwriters determine in their sole discretion will not jeopardize the success of the offering by the Company. If the total amount of securities, including Registrable Securities, requested by stockholders to be included in such offering exceeds the amount of securities sold other than by the Company that the underwriters determine in their sole discretion is compatible with the success of the offering, then the Company shall be required to include in the offering only that number of such securities, including Registrable Securities, which the underwriters determine in their sole discretion will not jeopardize the success of the offering (the securities so included to be apportioned pro rata among the selling stockholders according to the total amount of securities entitled to be included therein owned by each selling stockholder), provided that (i) the number of shares of Registrable Securities to be included in such underwriting shall not be reduced unless all other securities held by persons other than the Holders or the Company are first entirely excluded from the underwriting, (ii) the amount of securities of the Holders included in the offering shall not be reduced below twenty-five percent (25%) of the total amount of securities included in such offering, unless such offering is the initial public offering of the Company's securities, in which case the Company shall not be required to include any securities of the Holders so long as all other securities held by persons other than the Holders or the Company are first entirely excluded from the underwriting and (iii) no Registrable Securities held by a Founder shall be included in such underwriting if any Registrable Securities held by an Investor are excluded therefrom. For purposes of the preceding parenthetical concerning apportionment, for any selling stockholder which is a holder of Registrable Securities and which is a partnership or corporation, the partners, retired partners and stockholders of such holder, or the estates and family members of any such partners and retired partners and any trusts for the benefit of any of the foregoing persons shall be deemed to be a single "selling stockholder," and any pro rata reduction with respect to such "selling stockholder" shall be based upon the aggregate amount of shares carrying registration rights owned by all entities and individuals included in such "selling stockholder," as defined in this sentence. -8- 1.9 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. 1.10 INDEMNIFICATION. (a) The Company will indemnify each Holder, each of its officers and directors and partners, each underwriter (as defined in the Act) for such Holder and each person controlling such Holder or underwriter within the meaning of Section 15 of the Securities Act, with respect to which registration, qualification or compliance has been effected pursuant to this Section l, and each underwriter, if any, and each person who controls any underwriter within the meaning of Section 15 of the Act, against all expenses, claims, losses, damages or liabilities (or actions in respect thereof), including any of the foregoing incurred in settlement of any litigation, commenced or threatened, arising out of or based on any untrue statement (or alleged untrue statement) of a material fact contained in any registration statement, prospectus, offering circular or other document, or any amendment or supplement thereto, incident to any such registration, qualification or compliance, or based on any omission (or alleged omission) to state therein a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances in which they were made, not misleading, or any violation by the Company of any rule or regulation promulgated under the Securities Act, the Securities Exchange Act of 1934, as amended (the "Exchange Act") or any state securities laws applicable to the Company in connection with any such registration, qualification or compliance, and the Company will reimburse each such Holder, each of its officers and directors, and each person controlling such Holder, each such underwriter and each person who controls any such underwriter, for any legal and any other expenses reasonably incurred in connection with investigating, preparing or defending any such claim, loss, damage, liability or action, as such expenses are incurred, provided that the Company will not be liable in any such case to the extent that any such claim, loss, damage, liability or expense arises out of or is based on (i) any untrue statement or omission or alleged untrue statement or omission, made in reliance upon and in conformity with written information furnished to the Company by such Holder, controlling person or underwriter and stated to be specifically for use therein or (ii) the use or delivery by such Holder, controlling person or underwriter of a prospectus other than the most current prospectus delivered to such Holder, controlling person or underwriter by the Company, and provided further that the indemnity agreement set forth in this Section 1.10(a) shall not apply to amounts paid in a settlement if such settlement is effected without the consent of the Company (which consent shall not be unreasonably withheld or delayed). (b) Each Holder, severally and not jointly, will, if Registrable Securities held by such Holder are included in the securities as to which such registration, qualification or compliance is being effected, indemnify the Company, each of its directors and officers, each underwriter, if any, of the Company's securities covered by such a registration statement, each person who controls the Company or such underwriter within the meaning of Section 15 of the Act, and each other such Holder, each of its officers and directors and each person controlling such Holder within the meaning of Section 15 of the Act, against all claims, losses, damages and liabilities (or actions in respect thereof) arising out of or based on (i) any -9- untrue statement (or alleged untrue statement) of a material fact contained in any such registration statement, prospectus, offering circular or other document, or any omission (or alleged omission) to state therein a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances in which they were made, not misleading (in each case to the extent, but only to the extent, that such untrue statement (or alleged untrue statement) or omission (or alleged omission) is made in such registration statement, prospectus, offering circular or other document in reliance upon and in conformity with written information furnished to the Company by such Holder and stated to be specifically for use therein), or (ii) the use or delivery by such Holder, controlling person or underwriter of a prospectus other than the most current prospectus delivered to such Holder, controlling person or underwriter by the Company; and will reimburse the Company, such Holders, such directors, officers, persons, underwriters or control persons for any legal or other expenses reasonably incurred in connection with investigating or defending any such claim, loss, damage, liability or action, as such expenses are incurred; provided further that the indemnity agreement set forth in this Section 1.10(b) shall not apply to amounts paid in a settlement if such settlement is effected without the consent such Holder (which consent shall not be unreasonably withheld or delayed) that in no event shall any indemnity under this Section 1.10(b) exceed the net proceeds from the offering received by such Holder except in the case of willful fraud by such Holder, provided that such willful fraud is determined to exist in a final, non-appealable judgment by a court of law. Further, in no event shall any of the foregoing provisions related to willful fraud affect any indemnity set forth herein until such final, non-appealable judgment shall be rendered. (c) Each party entitled to indemnification under this Section 1.10 (the "Indemnified Party") shall give written notice to the party required to provide indemnification (the "Indemnifying Party") promptly after such Indemnified Party has actual knowledge of any claim as to which indemnity may be sought, and shall permit the Indemnifying Party (at its expense) to assume the defense of any such claim or any litigation resulting therefrom, provided that counsel for the Indemnifying Party, who shall conduct the defense of such claim or litigation, shall be approved by the Indemnified Party (whose approval shall not unreasonably be withheld), and the Indemnified Party may participate in such defense at such party's expense; 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 of any Indemnified Party to give notice as provided herein shall not relieve the Indemnifying Party of its obligations under this Section 1.10 unless the failure to give such notice is materially prejudicial to an Indemnifying Party's ability to defend such action. No Indemnifying Party, in the defense of any such claim or litigation, shall, except with the consent of each Indemnified Party, consent to entry of any judgment or enter into any settlement which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such Indemnified Party of a release from all liability in respect of such claim or litigation. (d) If the indemnification provided for in this Section 1.10 is held by a court of competent jurisdiction to be unavailable to an Indemnified Party with respect -10- 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 contribution by a Holder under this subsection 1.10(d) exceed the net proceeds from the offering received by such Holder, except in the case of willful fraud by such Holder. 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. (f) The obligations of the Company and Holders under this Section 1.10 shall survive the completion of any offering of Registrable Securities in a registration statement under this Section 1, and otherwise. 1.11 REPORTS UNDER SECURITIES EXCHANGE ACT OF 1934. 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, after the effective date of the first registration statement filed by the Company for the offering of its securities to the general public so long as the Company remains subject to the periodic reporting requirements under Sections 13 or 15(d) of the Exchange Act; (b) file with the SEC in a timely manner all reports and other documents required of the Company under the 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 Act and the Exchange Act (at any time after it has become subject to such reporting requirements), or that it qualifies as a registrant whose securities may be resold pursuant to Form S-3 (at any time after it so qualifies), (ii) a copy of the most recent annual or quarterly report of the Company and such -11- 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 or pursuant to such form. 1.12 FORM S-3 REGISTRATION. After its initial public offering, the Company shall use its best efforts to qualify for registration on Form S-3 or any comparable or successor form or forms. In case the Company shall receive from any Holder or Holders of not less than twenty percent (20%) of the Registrable Securities then outstanding 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: (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 twenty (20) 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 1.12: (i) if Form S-3 is not available for such offering by the Holders; (ii) if the Holders, together with the holders of any other securities of the Company to be included in such registration, propose to sell Registrable Securities and such other securities (if any) having an aggregate price to the public (net of any underwriters' discounts or commissions) of less than $2,000,000; (iii) 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 and its stockholders for such Form S-3 Registration to be effected at such time, in which event the Company shall have the right to defer the filing of the Form S-3 registration statement for a period of not more than sixty (60) days after receipt of the request of the Holder or Holders under this Section 1.12; provided, however, that the Company shall not utilize this right more than once in any twelve month period; (iv) if the Company has, within the twelve (12) month period preceding the date of such request, already effected two registrations on Form S-3 for the Holders pursuant to this Section 1.12; (v) 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; (vi) if the Company has already effected four registrations on Form S-3 for the Holders pursuant to this Section 1.12 or (vii) during the period ending one hundred eighty (180) days after the effective date of a registration statement subject to Section 1.3. (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. All expenses incurred in connection with a registration requested pursuant to this Section 1.12, -12- including (without limitation) all registration, filing, qualification, printers' and accounting fees and the reasonable fees and disbursements of one special counsel for the selling Holder or Holders selected by them with the approval of the Company (which approval shall not be unreasonably withheld) and counsel for the Company, but excluding any underwriters' discounts or commissions associated with Registrable Securities, shall be borne by the Company. Registrations effected pursuant to this Section 1.12 shall not be counted as demands for registration or registrations effected pursuant to Sections 1.2 or 1.3, respectively. 1.13 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 provided (i) at least 250,000 shares of such Registrable Securities (subject to adjustment for stock splits, stock dividends, reclassification or the like) (or if the transferring Holder owns less than 250,000 shares of such Registrable Securities, then all Registrable Securities held by the transferring Holder), and (ii) the Company is, within a reasonable time after 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; provided that the transferee or assignee agrees in writing to be bound by all obligations under this Agreement; and provided, further, that such assignment shall be effective only if the transferee agrees to be bound by this Agreement and immediately following such transfer the further disposition of such securities by the transferee or assignee is restricted under the Act. Notwithstanding anything to the contrary provided herein, rights to cause the Company to register Registrable Securities may be assigned by a Holder to any partner, retired partner (including spouses and ancestors, lineal descendants and siblings of such partners or spouses who acquire Registrable Securities by gift, will or intestate succession) or affiliate of such Holder, without regard to the number of shares of Registrable Securities transferred to such partner, retired partner, member of a limited liability company, or affiliate; provided that all assignees and transferees who would not qualify individually for assignment of registration rights shall have a single attorney-in-fact for the purpose of exercising any rights, receiving notices or taking any action under Section 1. 1.14 "MARKET STAND-OFF" AGREEMENT. Each Holder hereby agrees that, during the period of duration (up to, but not exceeding, 180 days) specified by the Company and an underwriter of Common Stock or other securities of the Company, following the date of the final prospectus distributed in connection with a registration statement of the Company filed under the 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 at any time during such period except Common Stock included in such registration; provided, however, that: (a) such agreement shall be applicable only to the first such registration statement of the Company which covers Common Stock (or other securities) to be sold on its behalf to the public in an underwritten offering; (b) all officers, directors and holders of more than 1% of the outstanding equity securities of the Company and all other persons with registration rights -13- (whether or not pursuant to this Agreement) enter agreements in the same form as the agreement executed by each Holder; and (c) such agreement shall not apply to any shares of the Company's Common Stock purchased by such Holder in the public securities market following the Company's initial public offering of its Common Stock pursuant to a registration statement filed under the Act. In order to enforce the foregoing covenant, the Company may impose stop-transfer instructions with respect to the Registrable Securities of each Holder (and the shares or securities of every other person subject to the foregoing restriction) until the end of such period, and each Holder agrees that, if so requested, such Holder will execute an agreement in the form provided by the underwriter containing terms which are essentially consistent with the provisions of this Section 1.14. Notwithstanding the foregoing, the obligations described in this Section 1.14 shall not apply to a registration relating solely to employee benefit plans on Form S-1 or Form S-8 or similar forms which may be promulgated in the future, or a registration relating solely to an SEC Rule 145 transaction on Form S-4 or similar forms which may be promulgated in the future. 1.15 TERMINATION OF REGISTRATION RIGHTS. No Holder shall be entitled to exercise any right provided for in this Section 1 after the earlier of (i) five (5) years following the closing of the initial Qualified Public Offering, (ii) such time as Rule 144 or another similar exemption under the Act is available for the sale of all of such Holder's shares during a three (3)-month period without registration or (iii) upon termination of the Agreement, as provided in Section 3.11. 1.16 OTHER REGISTRATION RIGHTS. The Company represents and warrants that there is no outstanding agreement, arrangement or understanding with respect to its securities which is inconsistent or otherwise interferes with the rights granted to the holders of Registrable Securities under this Agreement, and further covenants and agrees that it will not, without the prior consent of the holders of a majority of the shares of Common Stock issuable or issued upon conversion of the Series B, Series C, Series D, Series E and Series F Preferred Stock, grant any registration or other rights which would permit any other person or entity to participate in any registration effected pursuant to Section 1.2 hereof. 2. COVENANTS OF THE COMPANY. 2.1 DELIVERY OF FINANCIAL STATEMENTS. The Company shall deliver to each Investor, and transferees thereof holding at least 250,000 shares of Registrable Securities (as adjusted for stock splits, stock dividends, recapitalizations and the like): (i) within ninety (90) days after the end of each fiscal year of the Company, an income statement for such fiscal year and statement of stockholder's 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 -14- accounting principles ("GAAP"), and audited and certified by an independent public accounting firm of nationally recognized standing selected by the Company; (ii) as soon as practicable, but in any event within forty-five (45) 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; (iii) as soon as practicable after the end of each month, an unaudited profit or loss statement and statement of cash flows for such month and an unaudited balance sheet as of the end of such month; and (iv) at least thirty (30) days prior to the end of each fiscal year of the Company, a summary copy of the Company's annual operating plan for the following fiscal year and, if and when amended, as soon as practicable, all amendments thereto. 2.2 INSPECTION. The Company shall permit each Investor, and transferees thereof, holding at least 250,000 shares of Registrable Securities (as adjusted for stock splits, stock dividends and the like), at such Investor'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 Investor; provided, however, that the Company shall not be obligated pursuant to this Section 2.2 to provide access to any information which it reasonably considers to be a trade secret or similar confidential information. The inspection rights referred to in this Section 2.2 may be assigned (but only with all related obligations) by a Holder to a transferee or assignee of at least 250,000 shares of such securities (as adjusted for stock splits, stock dividends, recapitalizations and the like), provided the Company is, within a reasonable time after 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; and provided, further, that 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 Act. 2.3 TERMINATION OF INFORMATION AND INSPECTION COVENANTS. The covenants set forth in Sections 2.1 and 2.2 shall terminate as to Investors and be of no further force or effect upon (i) the closing of a Qualified Public Offering; (ii) when the Company first becomes subject to the periodic reporting requirements of Sections 13 or 15(d) of the Exchange Act; (iii) when the Company shall consummate a transaction or series of related transactions deemed to be a liquidation, dissolution or winding up of the Company pursuant to the Company's Restated Certificate of Incorporation, as such Restated Certificate of Incorporation may be amended from time to time (a "Liquidation Transaction"). 2.4 RIGHT OF FIRST OFFER. Subject to the terms and conditions specified in this Section 2.4, the Company hereby grants to each Investor who holds at least 250,000 shares of the Company's Preferred Stock or the Common Stock issued upon conversion thereof (subject to adjustment for stock splits, stock dividends, reclassifications or the like) (each, -15- a "Major Investor") a right of first offer with respect to future sales by the Company of its Shares (as hereinafter defined). A Major Investor who chooses to exercise the right of first offer may designate as purchasers under such right itself or its partners or affiliates in such proportions as it deems appropriate. Each time the Company proposes to offer any shares of, or securities convertible into or exercisable for any shares of, any class of its capital stock ("Shares"), the Company shall first make an offering of such Shares to each Investor in accordance with the following provisions: (a) The Company shall deliver a notice ("Notice") to each Investor stating (i) its bona fide intention to offer such Shares, (ii) the number of such Shares to be offered, and (iii) the price and terms upon which it proposes to offer such Shares. (b) Within 20 calendar days after delivery of the Notice, the Investor may elect to purchase or obtain, at the price and on the terms specified in the Notice, up to that portion of such Shares which equals the proportion that the number of shares of the Company's Common Stock issued and held, or issuable upon conversion of all Company Preferred Stock then held, by such Investor bears to the total number of shares of Company Common Stock then outstanding (assuming conversion of any Company Preferred Stock and exercise of any outstanding options or warrants to purchase the Company's capital stock (and conversion of any Preferred Stock issuable upon such exercise)). The Company shall promptly, in writing, inform each Investor that purchases all the shares available to it (each, a "Fully-Exercising Investor") of any other Investor's failure to do likewise. During the ten (10)-day period commencing after receipt of such information, each Fully-Exercising Investor shall be entitled to obtain that portion of the Shares for which Investors were entitled to subscribe but which were not subscribed for by the Investors that is equal to the proportion that the number of shares of the Company's Common Stock issued and held, or issuable upon conversion of all Company Preferred Stock then held, by such Fully-Exercising Investor bears to the total number of shares of Company Common Stock issued and held, or issuable upon conversion of all Company Preferred Stock then held, by all Fully-Exercising Investors. (c) The Company may, during the 45-day period following the expiration of the period provided in subsection 2.4(b) hereof, offer the remaining unsubscribed portion of the Shares to any person or persons at a price not less than, and upon terms no more favorable to the offeree than those specified in the Notice. If the Company does not enter into an agreement for the sale of the Shares within such period, or if such agreement is not consummated within 60 days of the execution thereof, the right provided hereunder shall be deemed to be revived and such Shares shall not be offered unless first reoffered to the Investors in accordance herewith. (d) The right of first offer in this Section 2.4 shall not be applicable (i) to the issuance or sale of shares of Common Stock, or options therefor, to employees, consultants and directors of the Company, pursuant to plans or agreements approved by the Board of Directors for the primary purpose of soliciting or retaining their services, (ii) to or after consummation of the sale of securities pursuant to a Qualified Public Offering, (iii) to the - 16 - issuance of securities pursuant to the conversion or exercise of convertible or exercisable securities, (iv) to the issuance of securities in connection with a bona fide business acquisition of or by the Company approved by the Board of Directors, in which the Company shall sell, convey, or otherwise dispose of all or substantially all of its property or business or merge with or into or consolidate with any other corporation, limited liability company or other entity (other than a wholly-owned subsidiary of the Company) (a "Change in Control Transaction), but excluding: (x) a merger effected exclusively for the purpose of changing the domicile of the Company, (y) an equity financing in which the Company is the surviving corporation, or (z) a transaction in which the stockholders of the Company immediately prior to the transaction own 50% or more of the voting power of the surviving corporation following the transaction, (v) to the issuance of securities to financial institutions or lessors in connection with commercial credit arrangements, equipment financings, commercial property lease transactions or similar transactions approved by the Board of Directors, (vi) upon and subsequent to the closing of a Change in Control Transaction, (vii) to the issuance of additional shares of Series F Preferred Stock pursuant to Section 1.2(c) of the Purchase Agreement or (viii) to the issuance of securities pursuant to a Board-approved stock split or stock dividend. 2.5 INCURRENCE OF DEBT. So long as shares of Series C Preferred Stock, Series D Preferred Stock, Series E Preferred Stock or Series F Preferred Stock of the Company are outstanding, the Company shall not without first obtaining the approval of at least 50% of the then outstanding shares of Series C Preferred Stock, Series D Preferred Stock, Series E Preferred Stock and Series F Preferred Stock, voting together as a single class: (a) incur, or agree to incur, any indebtedness for borrowed money in connection with the issuance of debt securities in excess of $15,000,000; (b) fundamentally change the nature of the Company's principal line of business; (c) acquire or purchase the assets or stock of any business, corporation, partnership, association or other business organization or division thereof having an aggregate purchase price exceeding (i) $5 million (if the consideration is in cash or property other than the Company's capital stock) or a combination of cash and capital stock exceeding a value of $5 million; or (ii) five percent (5%) of the Company's fully-diluted capitalization prior to the closing of such acquisition (if the consideration is in Company capital stock). 3. MISCELLANEOUS. 3.1 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 of the Preferred Stock or any Common Stock issued upon conversion thereof). 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. -17- 3.2 GOVERNING LAW. This Agreement and all acts and transactions pursuant 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 laws. 3.3 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. 3.4 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. 3.5 NOTICES. Unless otherwise provided, any notice required or permitted by this Agreement shall be in writing and shall be deemed sufficient upon delivery, when delivered personally, or 24 hours after prepaid deposit, by overnight courier or sent by telegram or fax after confirmation of receipt of such transmission, or as of 5 business days after being deposited in the U.S. mail, as certified or registered mail, with postage prepaid, addressed to the party to be notified at such party's address as set forth below or on Exhibit A hereto, or as subsequently modified by written notice, if such notice is sent to the Company, with a copy to Keith A. Miller, Venture Law Group, 2775 Sand Hill Road, Menlo Park, California 94025. 3.6 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. 3.7 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 shares of Common Stock issuable or issued upon conversion of the Series B, Series C, Series D, Series E and Series F Preferred Stock; provided that if such amendment or waiver has the effect of affecting the Founders' Stock (i) in a manner different than securities issued to the Investors and (ii) in a manner adverse to the interests of the holders of the Founders' Stock, then such amendment shall also require the consent of the holders of a majority of the Founders' Stock. Notwithstanding anything contained in this Section 3.7, Section 2.5 herein may only be amended or waived with the written consent of the Company and the holders of a majority of the shares of Common Stock issuable or issued upon conversion of the Series C, Series D, Series E and Series F Preferred Stock. 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. 3.8 SEVERABILITY. Any provision of this Agreement which is held to be invalid or unenforceable in any jurisdiction shall be ineffective to the extent of such invalidity or unenforceability without invalidating or rendering unenforceable the remaining provisions hereof, and any such invalidity or unenforceability in any jurisdiction shall not invalidate or -18- render unenforceable such provision in any other jurisdiction. If any provision is held to be invalid or unenforceable, such provision shall be construed by the appropriate judicial body by limiting or reducing it to the minimum extent necessary to make it legally enforceable. 3.9 ENTIRE AGREEMENT. This Agreement constitutes the entire agreement between the parties hereto pertaining to the subject matter hereof, and any and all other written or oral agreements relating to the subject matter hereof existing between the parties hereto are expressly canceled. 3.10 ADDITION OF INVESTORS. Notwithstanding anything to the contrary contained herein, if the Company shall issue additional shares of its Series F Preferred Stock pursuant to Section 1.2(c) of the Purchase Agreement, any acquiror of such shares of Series F Preferred Stock shall become a party to this Agreement by executing and delivering an additional counterpart signature page to this Agreement. In such event, such purchaser shall be deemed an "Investor" and a "Holder", such shares purchased shall be deemed "Series F Preferred Stock", and the shares of Common Stock issuable or issued upon conversion of such shares of Series F Preferred Stock shall be deemed to be "Registrable Securities", for all purposes of this Agreement. 3.11 TERMINATION OF EXISTING AGREEMENT. This Agreement contains the entire understanding of the parties, and there are no further or other agreements or understandings, written or oral, in effect between the parties relating to the subject matter hereof. The signatories to this Agreement (other than the Company), as the holders of at least 55% of the Common Stock issuable upon conversion of each of the Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock and Series E Preferred Stock, hereby agree that the Existing Agreement is hereby amended and restated in its entirety by this Agreement, and the Existing Agreement shall be of no further force or effect. [SIGNATURE PAGES FOLLOW] -19- The parties have executed this Amended and Restated Investors' Rights Agreement as of the date first above written. COMPANY: REDENVELOPE, INC. By: /s/ Alison L. May __________________________________ Name: Alison L. May ________________________________ Title: President & CEO _______________________________ SIGNATURE PAGE TO AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT FOUNDERS: /s/ R. Ian Chaplin _____________________________________ R. IAN CHAPLIN /s/ Scott Galloway _____________________________________ SCOTT GALLOWAY /s/ Pete Baltaxe _____________________________________ PETE BALTAXE INVESTOR: MOUSSENVELOPE, L.L.C. By: Moussescapade, L.P., Managing Member By: Moussescribe, its General Partner By: /s/ Charles Heilbronn _____________________ Charles Heilbronn President Address: c/o Mousse Partners Limited 9 West 57th Street New York, New York 10019 WESTON PRESIDIO CAPITAL III, L.P. By: /s/ James B. McElwee _________________________________ Name: James B. McElwee _______________________________ Title: General Partner ______________________________ Address: 2420 Sand Hill Road Suite 206 Menlo Park, CA 94025 WPC ENTREPRENEUR FUND, L.P. By: /s/ James B. McElwee _________________________________ Name: James B. McElwee _______________________________ Title: General Partner ______________________________ Address: 2420 Sand Hill Road Suite 206 Menlo Park, CA 94025 SIGNATURE PAGE TO SERIES F PREFERRED STOCK INVESTORS' RIGHTS AGREEMENT SEQUOIA CAPITAL IX SEQUOIA CAPITAL ENTREPRENEURS FUND SEQUOIA CAPITAL IX PRINCIPALS FUND By: SC IX Management, LLC A Delaware Limited Liability Company General Partner of Each By: /s/ (Illegible) _____________________ Managing Member Address: SEQUOIA CAPITAL FRANCHISE FUND SEQUOIA CAPITAL FRANCHISE PARTNERS By: SCFF Management, LLC A Delaware Limited Liability Company General Partner of Each By: /s/ (Illegible) _____________________ Managing Member Address: ATRIUM VENTURE PARTNERS, L.P. By Atrium Ventures LLC, General Partner By: /s/ Jonathan E. Rattner _________________________________ Name: Jonathan E. Rattner _______________________________ Title: Chief Operating Officer ______________________________ Address: 3000 Sand Hill Rd #2-240 Menlo Park, CA 94025 CAMELOT VENTURES LLC By: /s/ Nicholas Pyett _________________________________ Name: Nicholas Pyett _______________________________ Title: CFO ______________________________ Address: SIPPL MACDONALD VENTURES II, L.P. By: /s/ Glenn C. Myers _________________________________ Name: Glenn C. Myers _______________________________ Title: CFO ______________________________ Address: 1422 EL CAMINO REAL MENLO PARK, CA 94025 SIPPL MACDONALD VENTURES III, L.P. By: Glenn C. Myers _________________________________ Name: Glenn C. Myers _______________________________ Title: CFO ______________________________ Address: SIGNATURE PAGE TO SERIES F PREFERRED STOCK INVESTORS' RIGHTS AGREEMENT /s/ Douglas Bertozzi ______________________________________ DOUGLAS BERTOZZI Address: /s/ Peter Baltaxe ______________________________________ PETER BALTAXE Address: /s/ Patrick Connolly ______________________________________ PATRICK CONNOLLY Address: /s/ Michael P. Lazarus ______________________________________ MICHAEL P. LAZARUS Address: /s/ David Markman ______________________________________ DAVID MARKMAN Address: /s/ Anthony P. Brenner ______________________________________ ANTHONY P. BRENNER Address: 1466 Greenwich St. San Francisco, CA 94109 SIGNATURE PAGE TO SERIES F PREFERRED STOCK INVESTORS' RIGHTS AGREEMENT CAPITAL RESEARCH & MANAGEMENT COMPANY, ON BEHALF OF SMALL CAP WORLD FUND, INC. By: /s/ [Signature illegible] _________________________________ Name: _______________________________ Title: ______________________________ Address: GCC REDENVELOPE By: /s/ R. Ian Chaplin _________________________________ Name: R. Ian Chaplin _______________________________ Title: Partner ______________________________ Address: 716 La Canada St. La Jolla, CA 92037 By: /s/ Jamie Cheng _________________________________ Name: Jamie Cheng _______________________________ Address: 96 Outlook Circle Pacifica, CA 94044 DOUGERY VENTURES By: /s/ John R. Dougery _________________________________ Name: _______________________________ Title: Trustee ______________________________ Address: JOHN R. DOUGERY AND MARILYN R. DOUGERY, TRUSTEES FOR THE DOUGERY REVOCABLE TRUST By: /s/ John R. Dougery _________________________________ Name: Marilyn R. Dougery _______________________________ Title: Trustee ______________________________ Address: JOHN R. DOUGERY, TRUSTEE FOR THE JOHN R. DOUGERY JR. TRUST By: /s/ John R. Dougery _________________________________ Name: _______________________________ Title: Trustee ______________________________ Address: SIGNATURE PAGE TO SERIES F PREFERRED STOCK INVESTORS' RIGHTS AGREEMENT JOHN R. DOUGERY, TRUSTEE FOR THE KATHRYN ANN DOUGERY TRUST By: /s/ John R. Dougery _________________________________ Name: _______________________________ Title: Trustee ______________________________ Address: JOHN R. DOUGERY, TRUSTEE FOR THE SHELLEY DOUGERY TRUST By: /s/ John R. Dougery _________________________________ Name: _______________________________ Title: Trustee ______________________________ Address: MARILYN R. DOUGERY, TRUSTEE FOR THE MARILYN R. DOUGERY SEPARATE PROPERTY TRUST By: /s/ Marilyn R. Dougery _________________________________ Name: _______________________________ Title: Trustee ______________________________ Address: MARILYN R. DOUGERY, TRUSTEE OF THE ROLAPP TRUST By: /s/ Marilyn R. Dougery _________________________________ Name: _______________________________ Title: Trustee ______________________________ Address: /s/ Craig Foley _____________________________________ Craig Foley Address: FOLEY 7 LOCUST LANE BRONXVILLE, NY 10708 /s/ SEYMOUR F. KAUFMAN _____________________________________ SEYMOUR F. KAUFMAN Address: Crosslink Capital #2 Embarcadero Center Ste. 2200 San Francisco, CA 94111 SIGNATURE PAGE TO SERIES F PREFERRED STOCK INVESTORS' RIGHTS AGREEMENT THE ADAM AND REBECCA MARKMAN TRUST, ADAM AND REBECCA MARKMAN AS TTEE U/A/T DATED 5/12/99 By: /s/ Adam Markman _________________________________ Name: Adam Markman _______________________________ Title: Trustee ______________________________ Address: MICHAEL L. MEYER LIVING TRUST By: /s/ Michael L. Meyer _________________________________ Name: Michael L. Meyer Living Trust _______________________________ Title: Trustee ______________________________ Address: 1757 Ocean Way Laguna Beach, CA 92651 W. DEXTER PAINE, III AND SUSAN L. PAINE, TRUSTEES OF PAINE FAMILY TRUST, UDT DATED 10/13/94, AS AMENDED By: Paine Family Trust _________________________________ Name: Illegible _______________________________ Title: Trustee ______________________________ Address: /s/ William D. Michelini _____________________________________ William D. Michelini Address: /s/ Jarom Smith _____________________________________ Jarom Smith Address: PHILLIPS-SMITH SPECIALTY RETAIL GROUP III, L.P. By: Phillips-Smith Management Company, L.P., its General Partner By: Cece Smith _________________________________ Name: Cece Smith _______________________________ Title: Managing General Partner ______________________________ Address: 5080 Spectrum Drive Suite 805 West Addison, TX 75001 SIGNATURE PAGE TO SERIES F PREFERRED STOCK INVESTORS' RIGHTS AGREEMENT /s/ Paul Sagan _____________________________________ Paul Sagan Address: 5 Sunset Ridge Lexington, MA 02421 SENIORTRAK, INC. By: /s/ Lee M. Caudill _________________________________ Name: Lee M. Caudill _______________________________ Title: President ______________________________ Address: 1080 Chestnut St., #16A San Francisco, CA 94109 /s/ Michael Stark _____________________________________ Michael Stark Address: CROSSLINK CAPITAL Two Embarcadero Center, Suite 2200 San Francisco, CA 94111 /s/ Barry S. Sternlicht _____________________________________ Barry S. Sternlicht Address: BARRY S. STERNLICHT FAMILY SPRAY TRUST I By: /s/ Barry S. Sternlicht _________________________________ Name: _______________________________ Title: ______________________________ Address: BARRY S. STERNLICHT FAMILY SPRAY TRUST II By: /s/ Barry S. Sternlicht _________________________________ Name: _______________________________ Title: ______________________________ Address: BARRY S. STERNLICHT FAMILY SPRAY TRUST III By: /s/ Barry S. Sternlicht _________________________________ Name: _______________________________ Title: ______________________________ Address: SIGNATURE PAGE TO SERIES F PREFERRED STOCK INVESTORS' RIGHTS AGREEMENT /s/ Warren Struhl _____________________________________ Address: 21 Chestnut Court Englewood, NJ 07631 WILLIAM OBERNDORF, TRUSTEE OF THE WILDER FAMILY FUND DATED APRIL 5, 1999 By: /s/ William Oberndorf _________________________________ Name: William Oberndorf _______________________________ Title: Trustee, Wilder Family Fund ______________________________ Address: 591 Redwood Hwy., #3215 Mill Valley, CA 94941 /s/ Henry L. Wilder ______________________________________ Henry L. Wilder Address: DIRECT EQUITY PARTNERS, L.P. By: /s/ Claire Gruppo _________________________________ Name: Claire Gruppo _______________________________ Title: President ______________________________ Address: Attn: Claire Gruppo Direct Equity Partners 60 East 42nd Street Suite 3810 New York, NY 10165 /s/ Martin McClanan _____________________________________ Martin McClanan Address: 128 3rd Avenue San Francisco, CA 94118 Address: 1230 18th Street San Francisco, CA 94107 SIGNATURE PAGE TO SERIES F PREFERRED STOCK INVESTORS' RIGHTS AGREEMENT EXHIBIT A LIST OF FOUNDERS R. Ian Chaplin 716 La Canada La Jolla, CA 92037 Scott Galloway 3467 21st Street San Francisco, CA 94110 Pete Baltaxe 2425 Buchanan Street, Apt. 201 San Francisco, CA 94115 A-1 EXHIBIT B SCHEDULE OF PRIOR INVESTORS SERIES B, SERIES C, SERIES D AND SERIES E PREFERRED STOCK Henry L. B. Wilder 3301 Tripp Road Woodside, CA 94062 Sippl Macdonald Ventures II, L.P. c/o Jacqueline A. Macdonald 4600 Bohannon Drive, Suite 110 Menlo Park, CA 94025 John R. Dougery and Marilyn R. Dougery, Trustees for the Dougery Revocable Trust c/o John R. Dougery Dougery Ventures 165 Santa Ana Avenue San Francisco, CA 94125 Dougery Ventures, LLC c/o John R. Dougery Dougery Ventures, LLC 165 Santa Ana Avenue San Francisco, CA 94125 John R. Dougery, Trustee for the Shelley Dougery Trust c/o John R. Dougery Dougery Ventures 165 Santa Ana Avenue San Francisco, CA 94125 John R. Dougery, Trustee for the John R. Dougery, Jr. Trust c/o John R. Dougery Dougery Ventures 165 Santa Ana Avenue San Francisco, CA 94125 John R. Dougery, Trustee for the Kathryn Ann Dougery Trust c/o John R. Dougery Dougery Ventures 165 Santa Ana Avenue San Francisco, CA 94125 B-1 Marilyn R. Dougery, Trustee for the Marilyn R. Dougery Separate Property Trust c/o John R. Dougery Dougery Ventures 165 Santa Ana Avenue San Francisco, CA 94125 Marilyn R. Dougery, Trustee of the Rolapp Trust c/o John R. Dougery Dougery Ventures 165 Santa Ana Avenue San Francisco, CA 94125 Michael L. Meyer Living Trust c/o Michael L. Meyer 660 Newport Center Drive, Suite 800 Newport Beach, CA 92660 Warren Hellman Hellman & Friedman One Maritime Plaza, 12th Floor San Francisco, CA 94111 William D. Michelini Director, Business Development 911Gifts, Inc. 832 Sansome Street, Suite 300 San Francisco, CA 94111 5 S Ventures LLC c/o K. B. Chandrasekhar 21591 Regnart Road Cupertino, CA 95014 M. Hannah Sullivan 41 Nevada Street San Francisco, CA 94110 Ellen Hancock President and CEO Exodus Communications 2831 Mission College Boulevard Santa Clara, CA 95054 Kanwal S. Rekhi and Ann H. Rekhi, As the Trustees of the Rekhi Family Trust Dated 12/15/89 16150 Hillvale Avenue Monte Sereno, CA 95030 Pat Connolly Williams Sonoma, Inc. 3250 Van Ness Avenue San Francisco, CA 94109 B-2 Robert May 1230 18th Street San Francisco, CA 94107 Adam Markman Green Street Advisors 567 San Nicholas Drive, Suite 203 Newport Beach, CA 92660 David Markman 4223 West Redondo Beach Boulevard Suite A Lawndale, CA 90260 Paul Sagan Akamai Technologies, Inc. 201 Broadway, 4th Floor Cambridge, MA 02139 Gregory J. Hartman and Sally Upjohn Hartman Westbrook Partners 155 Prospect Avenue Woodside, CA 94062 W. Dexter Paine, III and Susan L. Paine, Trustees of Paine Family Trust, UDT dated October 13, 1994, as amended c/o Fox, Paine & Company 950 Tower Lane, Suite 1950 Foster City, CA 94404 VLG INVESTMENTS 1999 Elias J. Blawie c/o Venture Law Group 2800 Sand Hill Road Menlo Park, CA 94025 The Community Trust Under the Green Family Trust U/T/A Dated November 6, 1995, Trustee Joshua L. Green c/o Joshua L. Green 25 Magnolia Drive Atherton, CA 94027 Paul H. Stephens and Eleanor M. Stephens, Trustees U/T/A dated 7/6/98 c/o RS Investment Management 555 California Street, Suite 2500 San Francisco, CA 94104 George R. Hecht TTEE FBO P. Bart Stephens UTA dated 12/22/83 c/o RS Investment Management 555 California Street, Suite 2500 San Francisco, CA 94104 B-3 George R. Hecht TTEE FBO W. Brad Stephens UTA dated 12/22/83 c/o RS Investment Management 555 California Street, Suite 2500 San Francisco, CA 94104 Sequoia Capital IX Sequoia Capital Angel Fund Sequoia Capital IX Partners Fund Sequoia Capital Franchise Fund Sequoia Capital Franchise Partners c/o Michael Moritz Sequoia Capital 3000 Sand Hill Road Building 4, Suite 280 Menlo Park, CA 94025 AMB Property, L.P. 505 Montgomery San Francisco, CA 94111 Attn: Tamra Browne Angel (Q) Investors, L.P. c/o Casey McGlynn Wilson Sonsini 650 Page Mill Road Palo Alto, CA 94304 Barry Sternlicht Starwood Hotels & Resorts Worldwide 777 Westchester Avenue White Plaines, NY 10604 Anthony P. Brennar Omega Venture Partners, Inc. 555 California Street Suite 2350 San Francisco, CA 94104 Seymour F. Kaufman Omega Venture Partners, Inc. 555 California Street Suite 2350 San Francisco, CA 94104 Michael Stark Omega Venture Partners, Inc. 555 California Street Suite 2350 San Francisco, CA 94104 B-4 Tom Bliska Omega Venture Partners, Inc. 555 California Street Suite 2350 San Francisco, CA 94104 Dan Dunn Omega Venture Partners, Inc. 555 California Street Suite 2350 San Francisco, CA 94104 Jason Sanders Omega Venture Partners, Inc. 555 California Street Suite 2350 San Francisco, CA 94104 Jason Duckworth Omega Venture Partners, Inc. 555 California Street Suite 2350 San Francisco, CA 94104 Gerri Holt Omega Venture Partners, Inc. 555 California Street Suite 2350 San Francisco, CA 94104 John S. Perkins Omega Venture Partners, Inc. 555 California Street Suite 2350 San Francisco, CA 94104 James B. McElwee Weston Presidio Capital 343 Sansome Street, Suite 120 San Francisco, CA 94104-1316 Michael P. Lazarus Weston Presidio Capital 343 Sansome Street, Suite 120 San Francisco, CA 94104-1316 Barry S. Sternlicht Family Spray Trust I Barry S. Sternlicht Family Spray Trust II Barry S. Sternlicht Family Spray Trust III Phillips-Smith Specialty Retail Group III, L.P. B-5 Craig J. Foley Weston Presidio Capital III, L.P. WPC Entrepreneur Fund, L.P. Stephen J. Brownell Mark W. Lindsay RE General Partnership Tsakopoulos Family Partnership Galloway & Chaplin Capital Sippl Macdonald Ventures III, L.P. Angel (Q) Investors II, L.P. Angel Investors II, L.P. The K.B. and Sukanya Chandrasekhar Living Trust dated August 26, 1998 Anthony Brenner Mary M. Sullivan Trust Sequoia Capital Entrepreneurs Fund Sequoia Capital IX Principals Fund Hybrid Venture Partners, L.P. Direct Equity Partners I, L.P. SMALLCAP World Fund, Inc. Atrium Venture Partners L.P. Warren Struhl Crown Technologies Partners Camelot Ventures, LLC B-6 EXHIBIT C LIST OF NEW INVESTORS Moussenvelope, L.L.C. Weston Presidio Capital III, L.P. WPC Entrepreneur Fund, L.P. Sequoia Capital Entrepreneurs Fund Sequoia Capital Franchise Fund Sequoia Capital Franchise Partners Sequoia Capital IX Sequoia Capital IX Principals Fund Atrium Venture Partners, L.P. Camelot Ventures LLC Sippl Macdonald Ventures II, L.P. Sippl Macdonald Ventures III, L.P. Peter Baltaxe Douglas Bertozzi Anthony P. Brenner Clipperbay & Co., Nominee for SMALLCAP World Fund, Inc. Patrick Connolly GCC RedEnvelope Jamie Cheng Dougery Ventures John R. Dougery and Marilyn R. Dougery, Trustees for the Dougery Revocable Trust John R. Dougery, Trustee for the John R. Dougery Jr. Trust C-1 John R. Dougery, Trustee for the Kathryn Ann Dougery Trust John R. Dougery, Trustee for the Shelley Dougery Trust Marilyn R. Dougery, Trustee for the Marilyn R. Dougery Separate Property Trust Marilyn R. Dougery, Trustee of the Rolapp Trust Craig Foley Seymour F. Kaufman Michael P. Lazarus The Adam and Rebecca Markman Trust, Adam and Rebecca Markman as TTEE U/A/T dated 5/12/99 David Markman Michael L. Meyer Living Trust William D. Michelini W. Dexter Paine, III and Susan L. Paine, Trustees of Paine Family Trust, UDT dated 10/13/94, as amended Phillips-Smith Specialty Retail Group III, L.P. Paul Sagan SeniorTrak, Inc. Jarom Smith Michael Stark Barry S. Sternlicht Barry S. Sternlicht Family Spray Trust I Barry S. Sternlicht Family Spray Trust II Barry S. Sternlicht Family Spray Trust III Warren Struhl Henry L. Wilder C-2 William Oberndorf, Trustee of the Wilder Family Fund dated April 5, 1999 Direct Equity Partners, L.P. Martin McClanan Robert May C-3 EX-4.3 6 f89225orexv4w3.txt EXHIBIT 4.3 EXHIBIT 4.3 REDENVELOPE, INC. OMNIBUS AMENDMENT TO INVESTORS' RIGHTS AGREEMENT, RIGHT OF FIRST REFUSAL AND CO-SALE AGREEMENT AND VOTING AGREEMENT This Omnibus Amendment to Investors' Rights Agreement, Right of First Refusal and Co-Sale Agreement and Voting Agreement (this "Amendment") is made as of is made as of May 29, 2003 by and among RedEnvelope, Inc., a Delaware corporation (the "Company"), and the undersigned parties hereto. This Amendment amends the Company's Amended and Restated Investors' Rights Agreement (the "Rights Agreement"), Amended and Restated Right of First Refusal and Co-Sale Agreement (the "Co-Sale Agreement") and Amended and Restated Voting Agreement (the "Voting Agreement", and together with the Rights Agreement and the Co-Sale Agreement, the "Agreements") each dated as of April 17, 2002. RECITALS WHEREAS, the Company and the undersigned parties hereto wish to amend the Agreements as set forth below; WHEREAS, under Section 3.7 of the Rights Agreement, the Company may amend the Agreement as contemplated hereunder only with the written consent of the Company and the holders of a majority of the shares of Common Stock issuable or issued upon conversion of the Series B, Series C, Series D, Series E and Series F Preferred Stock; WHEREAS, under Section 3.5 of the Co-Sale Agreement, the Company may amend the Agreement as contemplated hereunder only with the written consent of the Company, the Founders (as defined in the Co-Sale Agreement) holding a majority of the Company Common Stock held, or issuable upon conversion of Preferred Stock held, by all Founders and the holders of a majority of the Series B, Series C, Series D, Series E and Series F Preferred Stock voting together (including any Common Stock then held by the such holders issued upon conversion of such Series B, Series C, Series D, Series E and Series F Preferred Stock); WHEREAS, under Section 2.6 of the Voting Agreement, the Company may amend the Agreement as contemplated hereunder only with the written consent of the Company and the holders of a majority of the Preferred Stock of the Company; and WHEREAS, the foregoing requirements will be satisfied by execution of this Amendment by the undersigned parties. NOW, THEREFORE, IT IS AGREED THAT: 1. Amendments to Rights Agreement. 1.1 Section 1.1(b) of the Rights Agreement is hereby amended by deleting such sub-section in its entirety and replacing it with the following: "(b) The term "Registrable Securities" means (i) the shares of Common Stock issuable or issued upon conversion of the Company's Series B Preferred Stock, (ii) the shares of Common Stock issuable or issued upon conversion of the Company's Series C Preferred Stock, (iii) the shares of Common Stock issuable or issued upon conversion of the Company's Series D Preferred Stock, (iv) the shares of Common Stock issuable or issued upon conversion of the Company's Series E Preferred Stock, (v) the shares of Common Stock issuable or issued upon conversion of the Company's Series F Preferred Stock (together with the Series B, the Series C, the Series D and the Series E Preferred Stock, the "Stock"), (vi) the shares of Common Stock issuable or issued upon conversion of the Company's Series A Preferred Stock (the "Founders' Stock"); provided, however, that for the purposes of Sections 1.2 and 1.12 hereof, the Founders' Stock shall not be deemed Registrable Securities and the Founders shall not be deemed Holders, (vii) any other shares of 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 Stock or the Founders' Stock, (viii) 209,104 shares of Common Stock issued or issuable upon exercise of outstanding warrants held by certain of the Prior Investors, issued in connection with the Series B Preferred Stock, (ix) 9,282 shares of Common Stock issued or issuable upon exercise of a warrant held by Comdisco, Inc., (x) 200,000 shares of Common Stock issued or issuable upon exercise of a warrant held by Lighthouse Capital Partners, (xi) the shares of Common Stock issuable or issued upon conversion of the Series F Preferred Stock issuable or issued upon exercise of a warrant dated as of April 17, 2002 held by Camelot Ventures LLC, (xii) the shares of Common Stock issuable or issued upon conversion of the Series F Preferred Stock issuable or issued upon exercise of a warrant dated as of September 6, 2002 held by Lighthouse Capital Partners, provided, however, that the foregoing definition shall exclude in all cases any Registrable Securities sold by a person in a transaction in which such person's rights under this Agreement are not assigned. Notwithstanding the foregoing, shares of Common Stock or other securities shall only be treated as Registrable Securities if and so long as (A) they have not been sold to or through a broker or dealer or underwriter in a public distribution or a public securities transaction, or (B) they have not been sold in a transaction exempt from the registration and prospectus delivery requirements of the Act under Section 4(1) thereof so that all transfer restrictions, and restrictive legends with respect thereto, if any, are removed upon the consummation of such sale, or (C) the registration rights with respect to such securities have not terminated pursuant to Section 1.15;" 1.2 Section 1.1(e) of the Rights Agreement is hereby amended by deleting such sub-section in its entirety and replacing it with the following: "(e) The term "Qualified Public Offering" shall mean the Company's sale of its Common Stock in a firm commitment underwritten public offering pursuant to a registration statement under the Securities Act of 1933, as amended, the public offering price of which is not less than (x) $0.80 per share, if such sale shall occur on or prior to October 15, 2003, or (y) $1.5952 per share, if such sale shall occur after October 15, 2003 (in either case, such minimum price adjusted to reflect subsequent stock dividends, stock splits, combinations, recapitalizations or the like) and which results in either case in aggregate cash proceeds to the Company of at least $20,000,000 (gross proceeds before deducting of underwriting discounts and commissions)." 1.3 Section 2.4(d) of the Rights Agreement is hereby amended by deleting such sub-section in its entirety and replacing it with the following: "(d) The right of first offer in this Section 2.4 shall not be applicable (i) to the issuance or sale of shares of Common Stock, or options therefor, to employees, consultants and directors of the Company, pursuant to plans or agreements approved by the Board of Directors for the primary purpose of soliciting or retaining their services, (ii) to or after consummation of the sale of securities pursuant to a Qualified Public Offering, (iii) to the issuance of securities pursuant to the conversion or exercise of convertible or exercisable securities, (iv) capital stock or warrants or options to purchase capital stock issued as consideration for bona fide acquisitions, mergers or similar transactions, the terms of which are approved by the Board of Directors of the Company, (v) to the issuance of securities to financial institutions or lessors in connection with commercial -2- credit arrangements, equipment financings, commercial property lease transactions or similar transactions approved by the Board of Directors, (vi) upon and subsequent to the closing of a Liquidation Transaction, (vii) to the issuance of additional shares of Series F Preferred Stock pursuant to Section 1.2(c) of the Purchase Agreement or (viii) to the issuance of securities pursuant to a Board-approved stock split or stock dividend." 2. Amendment to Co-Sale Agreement. Section 1.4 of the Co-Sale Agreement is hereby amended by deleting such section in its entirety and replacing it with the following: "Section 1.4 Termination of Right of First Refusal and Co-Sale Right. The Investors' Right of First Refusal and Co-Sale Right shall terminate and be of no further force and effect immediately upon: (a) the effectiveness of a Qualified Public Offering (as defined in the Investors' Rights Agreement dated as of April 17, 2002 by and between the Company, the Investors and the Founders, as such agreement may be amended, modified or supplemented from time to time, the "Investors' Rights Agreement"); or (b) the closing of a Liquidation Transaction (as defined in the Investors' Rights Agreement) of the Company." 3. Amendment to Voting Agreement. Section 1.4 of the Voting Agreement is hereby amended by deleting such section in its entirety and replacing it with the following: "1.4 Termination of Voting Agreement. The provisions of this Agreement shall terminate and be of no further force and effect upon the effective date of a Qualified Public Offering (as defined in the Investors' Right Agreement dated as of April 17, 2002 herewith by and between the Company, the Investors and the Founders, as such agreement may be amended, modified or supplemented from time to time, the "Investors' Rights Agreement") or upon a Liquidation Transaction (as defined in the Investors' Rights Agreement) of the Company." 4. 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. 5. Effect of Amendment. Except as amended as set forth above, the Agreements shall continue in full force and effect. [SIGNATURE PAGES FOLLOW] -3- IN WITNESS WHEREOF, the parties have executed this Omnibus Amendment to Investors' Rights Agreement, Right of First Refusal and Co-Sale Agreement and Voting Agreement as of the date first written above. COMPANY: REDENVELOPE, INC. By: _____________________________________ Name: ___________________________________ Title: __________________________________ PURCHASER: MOUSSENVELOPE, L.L.C. By: Moussescapade, L.P., Managing Member By: Moussescribe, its General Partner By: ____________________________________ Charles Heilbronn President Address: c/o Mousse Partners Limited 9 West 57th Street New York, New York 10019 WESTON PRESIDIO CAPITAL III, L.P. By: ____________________________________ Name: __________________________________ Title: _________________________________ Address: WPC ENTREPRENEUR FUND, L.P. By: ____________________________________ Name: __________________________________ Title: _________________________________ Address: SEQUOIA CAPITAL IX SEQUOIA CAPITAL ENTREPRENEURS FUND SEQUOIA CAPITAL IX PRINCIPALS FUND By: SC IX Management, LLC A Delaware Limited Liability Company General Partner of Each By: ____________________________________ Managing Member Address: SEQUOIA CAPITAL FRANCHISE FUND SEQUOIA CAPITAL FRANCHISE PARTNERS By: SCFF Management, LLC A Delaware Limited Liability Company General Partner of Each By: ____________________________________ Managing Member Address: ATRIUM VENTURE PARTNERS, L.P. By: ____________________________________ Name: __________________________________ Title: _________________________________ Address: CAMELOT VENTURES LLC By: ____________________________________ Name: __________________________________ Title: _________________________________ Address: SIPPL MACDONALD VENTURES II, L.P. By: ____________________________________ Name: __________________________________ Title: _________________________________ Address: SIPPL MACDONALD VENTURES III, L.P. By: ____________________________________ Name: __________________________________ Title: _________________________________ Address: DIRECT EQUITY PARTNERS, L.P. By: ____________________________________ Name: __________________________________ Title: _________________________________ Address: Attn: Claire Gruppo Direct Equity Partners 60 East 42nd Street Suite 3810 New York, NY 10165 ________________________________________ ROBERT MAY Address: ________________________________________ MARTIN McCLANAN Address: ________________________________________ PETER BALTAXE Address: ________________________________________ DOUGLAS BERTOZZI Address: ________________________________________ ANTHONY P. BRENNER Address: CAPITAL RESEARCH & MANAGEMENT COMPANY, ON BEHALF OF SMALL CAP WORLD FUND, INC. By: ____________________________________ Name: __________________________________ Title: _________________________________ Address: ________________________________________ PATRICK CONNOLLY Address: GALLOWAY & CHAPLIN CAPITAL, G.P. By: ____________________________________ Name: __________________________________ Title: _________________________________ Address: ________________________________________ JAMIE CHENG Address: DOUGERY VENTURES By: ____________________________________ Name: __________________________________ Title: _________________________________ Address: JOHN R. DOUGERY AND MARILYN R. DOUGERY, TRUSTEES FOR THE DOUGERY REVOCABLE TRUST By: ____________________________________ Name: __________________________________ Title: _________________________________ Address: JOHN R. DOUGERY, TRUSTEE FOR THE JOHN R. DOUGERY JR. TRUST By: ____________________________________ Name: __________________________________ Title: _________________________________ Address: JOHN R. DOUGERY, TRUSTEE FOR THE KATHRYN ANN DOUGERY TRUST By: ____________________________________ Name: __________________________________ Title: _________________________________ Address: JOHN R. DOUGERY, TRUSTEE FOR THE SHELLEY DOUGERY TRUST By: ____________________________________ Name: __________________________________ Title: _________________________________ Address: MARILYN R. DOUGERY, TRUSTEE FOR THE MARILYN R. DOUGERY SEPARATE PROPERTY TRUST By: ____________________________________ Name: __________________________________ Title: _________________________________ Address: MARILYN R. DOUGERY, TRUSTEE OF THE ROLAPP TRUST By: ____________________________________ Name: __________________________________ Title: _________________________________ Address: ________________________________________ CRAIG FOLEY Address: ________________________________________ SEYMOUR F. KAUFMAN Address: ________________________________________ MICHAEL P. LAZARUS Address: THE ADAM AND REBECCA MARKMAN TRUST, ADAM AND REBECCA MARKMAN AS TTEE U/A/T DATED 5/12/99 By: ____________________________________ Name: __________________________________ Title: _________________________________ Address: ________________________________________ DAVID MARKMAN Address: MICHAEL L. MEYER LIVING TRUST By: ____________________________________ Name: __________________________________ Title: _________________________________ Address: ________________________________________ WILLIAM D. MICHELINI Address: W. DEXTER PAINE, III AND SUSAN L. PAINE, TRUSTEES OF PAINE FAMILY TRUST, UDT DATED 10/13/94, AS AMENDED By: ____________________________________ Name: __________________________________ Title: _________________________________ Address: PHILLIPS-SMITH SPECIALITY RETAIL GROUP III, L.P. By: ____________________________________ Name: __________________________________ Title: _________________________________ Address: ________________________________________ PAUL SAGAN Address: SENIORTRAK, INC. By: ____________________________________ Name: __________________________________ Title: _________________________________ Address: ________________________________________ JAROM SMITH Address: ________________________________________ MICHAEL STARK Address: ________________________________________ BARRY S. STERNLICHT Address: BARRY S. STERNLICHT FAMILY SPRAY TRUST I By: ____________________________________ Name: __________________________________ Title: _________________________________ Address: BARRY S.STERNLICHT FAMILY SPRAY TRUST II By: ____________________________________ Name: __________________________________ Title: _________________________________ Address: BARRY S. STERNLICHT FAMILY SPRAY TRUST III By: ____________________________________ Name: __________________________________ Title: _________________________________ Address: ________________________________________ WARREN STRUHL Address: ________________________________________ HENRY L. WILDER Address: WILLIAM OBERNDORF, TRUSTEE OF THE WILDER FAMILY FUND DATED APRIL 5, 1999 By: ____________________________________ Name: __________________________________ Title: _________________________________ Address: EX-4.4 7 f89225orexv4w4.txt EXHIBIT 4.4 EXHIBIT 4.4 THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "1933 ACT"), OR ANY APPLICABLE STATE SECURITIES LAWS, AND MAY NOT BE SOLD OR TRANSFERRED UNLESS SUCH SALE OR TRANSFER IS IN ACCORDANCE WITH THE REGISTRATION REQUIREMENTS OF SUCH ACT AND APPLICABLE LAWS OR SOME OTHER EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF SUCH ACT AND APPLICABLE LAWS IS AVAILABLE WITH RESPECT THERETO. COMMON STOCK PURCHASE WARRANT Warrant No. __________ Number of Shares: 200,000 REDENVELOPE, INC. Void after February 28, 2007 1. ISSUANCE. This Warrant is issued to LIGHTHOUSE CAPITAL PARTNERS III , L.P. by REDENVELOPE, INC., a Delaware corporation (hereinafter with its successors called the "Company"). 2. PURCHASE PRICE; NUMBER OF SHARES. The registered holder of this Warrant (the "Holder"), commencing on the date hereof, is entitled upon surrender of this Warrant with the subscription form annexed hereto duly executed, at the principal office of the Company, to purchase from the Company the following securities (collectively, the "Shares"): (a) One Hundred and Fifty Thousand (150,000) fully paid and nonassessable shares of Common Stock, $0.001 par value, of the Company (the "Common Stock") at a price per share equal to $0.50; and (b) Fifty Thousand (50,000) fully paid and nonassessable shares of Common Stock at a price per share equal to the lesser of (i) the price per share equal to the Fair Market Value (as defined in SECTION 4 below) of one share of Common Stock, determined as of the closing of the Company's next round of preferred stock equity financing raising at least $10,000,000 (the "Next Round of Financing") on or before September 30, 2000 or (ii) $1.00 per share; provided, however, that if the Company has not closed the Next Round of Financing at the time of exercise or if the Company undergoes a Reorganization (as defined in SECTION 11 below), the price per share pursuant to this SECTION 2(b) shall be $1.00. The prices per share referred to in SECTIONS 2(a) and 2(b) above shall collectively be referred to herein as the "Purchase Price." Until such time as this Warrant is exercised in full or expires, the Purchase Price and the securities issuable upon exercise of this Warrant are subject to adjustment as hereinafter provided. The person or persons on whose name or names any certificate representing shares of Common Stock is issued hereunder shall be deemed to have become the holder of record of the shares represented thereby as at the close of business on the date this Warrant is exercised with respect to such shares, whether or not the transfer books of the Company shall be closed. 3. PAYMENT OF PURCHASE PRICE. The Purchase Price may be paid (i) in cash or by check, (ii) by the surrender by the Holder to the Company of any promissory notes or other obligations issued by the Company, with all such notes and obligations so surrendered being credited against the Purchase Price in an amount equal to the principal amount thereof plus accrued interest to the date of surrender, or (iii) by any combination of the foregoing. 4. NET ISSUE ELECTION. The Holder may elect to receive, without the payment by the Holder of any additional consideration, shares of Common Stock equal to the net value of this Warrant or any portion hereof by the surrender of this Warrant or such portion to the Company, with the duly executed net issue election notice annexed hereto specifying whether the Shares for which such net issue election is made shall be for Shares under SECTION 2(a) or SECTION 2(b) above, at the principal office of the Company. Thereupon, the Company shall issue to the Holder such number of fully paid and nonassessable shares of Common Stock as is computed using the following formula: Y (A-B) X = ------- A where: X = the number of shares of Common Stock to be issued to the Holder pursuant to this SECTION 4. Y = the number of shares of Common Stock covered by this Warrant in respect of which the net issue election is made pursuant to this SECTION 4. A = the Fair Market Value (defined below) of one share of Common Stock as determined at the time the net issue election is made pursuant to this SECTION 4. B = the Purchase Price in effect under this Warrant (for the shares for which the net issue election is made) at the time the net issue election is made pursuant to this SECTION 4. "Fair Market Value" of a share of Common Stock as of a particular date (the "Determination Date") shall mean: (i) If the net issue election is made in connection with and contingent upon the closing of the sale of the Company's Common Stock to the public in a public offering pursuant to a Registration Statement under the 1933 Act (a "Public Offering"), and if the Company's Registration Statement relating to such Public Offering ("Registration Statement") has been declared effective by the Securities and Exchange Commission, then the initial "Price to Public" specified in the final prospectus with respect to such offering. (ii) If the net issue election is not made in connection with and contingent upon a Public Offering, then as follows: (A) If traded on a securities exchange or the Nasdaq National Market, the fair market value of the Common Stock shall be deemed to be the average of the closing or last reported sale prices of the Common Stock on such exchange or market over the five day period ending five business days prior to the Determination Date; (B) If otherwise traded in an over-the-counter market, the fair market value of the Common Stock shall be deemed to be the average of the closing ask prices of the Common Stock over the five day period ending five business days prior to the Determination Date; and (C) If there is no public market for the Common Stock, then fair market value shall be determined in good faith by the Company's Board of Directors. 5. PARTIAL EXERCISE. This Warrant may be exercised in part, and the Holder shall be entitled to receive a new warrant, which shall be dated as of the date of this Warrant, covering the number of shares in respect of which this Warrant shall not have been exercised. 6. FRACTIONAL SHARES. In no event shall any fractional share of Common Stock be issued upon any exercise of this Warrant. In lieu of any fractional shares which would otherwise be issuable, the Company shall pay cash equal to the product of such fraction multiplied by the fair market value of one share of Common Stock on the date of exercise, as determined in good faith by the Company's Board of Directors. 7. EXPIRATION DATE; AUTOMATIC EXERCISE; ACCELERATION OF TERM UPON SALE OR MERGER OF THE COMPANY. (a) AUTOMATIC EXERCISE. This Warrant shall expire at the close of business on March 31, 2007, and shall be void thereafter. Notwithstanding the foregoing, this Warrant shall automatically be deemed to be exercised in full pursuant to the provisions of Section 4 hereof, without any further action on behalf of the Holder, immediately prior to the time this Warrant would otherwise expire pursuant to the preceding sentence. -2- (b) ACCELERATION OF TERM UPON SALE OR MERGER OF THE COMPANY. Notwithstanding the term of this Common Stock Purchase Warrant fixed pursuant to Section 7(a) hereof and provided Holder has received advance notice of at least ten (10) days and has not earlier exercised, this Warrant shall automatically be exercised in full pursuant to Section 4 hereof, without any action by Holder immediately prior to the sale or other conveyance of all or substantially all of the Company's assets, or the merger or consolidation of the Company with or into another corporation (other than a merger or consolidation for the principle purpose of changing the domicile of Company), that results in the transfer of fifty percent (50%) or more of the outstanding voting power of the Company (a "Sale of the Company"). 8. RESERVED SHARES; VALID ISSUANCE. The Company covenants that it will at all times from and after the date hereof reserve and keep available such number of its authorized shares of Common Stock, free from all preemptive or similar rights therein, as will be sufficient to permit the exercise of this Warrant in full. The Company further covenants that such shares as may be issued pursuant to such exercise will, upon issuance, be duly and validly issued, fully paid and nonassessable and free from all taxes, liens and charges with respect to the issuance thereof. 9. STOCK SPLITS AND DIVIDENDS. If after the date hereof the Company shall subdivide the Common Stock, by split-up or otherwise, or combine the Common Stock, or issue additional shares of Common Stock in payment of a stock dividend on the Common Stock, the number of shares of Common Stock issuable on the exercise of this Warrant shall forthwith be proportionately increased in the case of a subdivision or stock dividend, or proportionately decreased in the case of a combination, and the Purchase Price shall forthwith be proportionately decreased in the case of a subdivision or stock dividend, or proportionately increased in the case of a combination. 10. ANTIDILUTION RIGHTS. The other antidilution rights applicable to the Common Stock of the Company, if any, are set forth in the Third Amended and Restated Certificate of Incorporation, as amended from time to time (the "Certificate"), a true and complete copy in its current form which is attached hereto as EXHIBIT A. Such rights shall not be restated, amended or modified in any manner which affects the Holder differently than the holders of Common Stock without such Holder's prior written consent. The Company shall promptly provide the Holder hereof with any restatement, amendment or modification to the Certificate promptly after the same has been made. 11. MERGERS AND RECLASSIFICATIONS. Subject to Section 7(b), if after the date hereof the Company shall enter into any Reorganization (as hereinafter defined), then, as a condition of such Reorganization, lawful provisions shall be made, and duly executed documents evidencing the same from the Company or its successor shall be delivered to the Holder, so that the Holder shall thereafter have the right to purchase, at a total price not to exceed that payable upon the exercise of this Warrant in full, the kind and amount of shares of stock and other securities and property receivable upon such Reorganization by a holder of the number of shares of Common Stock which might have been purchased by the Holder immediately prior to such Reorganization, and in any such case appropriate provisions shall be made with respect to the rights and interest of the Holder to the end that the provisions hereof (including without limitation, provisions for the adjustment of the Purchase Price and the number of shares issuable hereunder and the provisions relating to the net issue election) shall thereafter be applicable in relation to any shares of stock or other securities and property thereafter deliverable upon exercise hereof. For the purposes of this Section 11, the term "Reorganization" shall include without limitation any reclassification, capital reorganization or change of the Common Stock (other than as a result of a subdivision, combination or stock dividend provided for in Section 9 hereof), or any consolidation of the Company with, or merger of the Company into, another corporation or other business organization (other than a merger in which the Company is the surviving corporation and which does not result in any reclassification or change of the outstanding Common Stock), or any sale or conveyance to another corporation or other business organization of all or substantially all of the assets of the Company or, a Sale of the Company. -3- 12. CERTIFICATE OF ADJUSTMENT. Whenever the Purchase Price is adjusted, as herein provided, the Company shall promptly deliver to the Holder a certificate of the Company's chief financial officer setting forth the Purchase Price after such adjustment and setting forth a brief statement of the facts requiring such adjustment. 13. NOTICES OF RECORD DATE, ETC. In the event of: (a) any taking by the Company of a record of the holders of any class of securities for the purpose of determining the holders thereof who are entitled to receive any dividend or other distribution, or any right to subscribe for, purchase, sell or otherwise acquire or dispose of any shares of stock of any class or any other securities or property, or to receive any other right; (b) any reclassification of the capital stock of the Company, capital reorganization of the Company, consolidation or merger involving the Company, or sale or conveyance of all or substantially all of its assets then in each such event the Company will provide or cause to be provided to the Holder a written notice thereof. Such notice shall be provided at least ten (10) business days prior to the date specified in such notice on which any such action is to be taken; or (c) any voluntary or involuntary dissolution, liquidation or winding-up of the Company; then in each such event (unless otherwise stated above) the Company will provide or cause to be provided to the Holder a written notice thereof. Such notice shall be provided at least ten (10) days prior to the date specified in such notice on which any such action is to be taken. 14. REPRESENTATIONS, WARRANTIES AND COVENANTS. This Warrant is issued and delivered by the Company and accepted by the Holder on the basis of the following representations, warranties and covenants made by the Company: (a) The Company has all necessary authority to issue, execute and deliver this Warrant and to perform its obligations hereunder. This Warrant has been duly authorized, issued, executed and delivered by the Company and is the valid and binding obligation of the Company, enforceable in accordance with its terms. (b) The shares of Common Stock issuable upon the exercise of this Warrant have been duly authorized and reserved for issuance by the Company and, when issued in accordance with the terms hereof, will be validly issued, fully paid and nonassessable. (c) The issuance, execution and delivery of this Warrant do not, and the issuance of the shares of Common Stock upon the exercise of this Warrant in accordance with the terms hereof will not, (i) violate or contravene the Company's Certificate or by-laws, or any law, statute, regulation, rule, judgment or order applicable to the Company, (ii) violate, contravene or result in a breach or default under any contract, agreement or instrument to which the Company is a party or by which the Company or any of its assets are bound or (iii) require the consent or approval of or the filing of any notice or registration with any person or entity. (d) As long as this Warrant is, or any shares of Common Stock issued upon exercise of this Warrant are, issued and outstanding, the Company will provide to the Holder the financial and other information described in SECTION 6.3 of that certain Loan and Security Agreement between the Company and Lighthouse Capital Partners III, L.P. dated as of March 6, 2000. (e) As of the date hereof, the authorized capital stock of the Company consists of (i) 35,000,000 shares of Common Stock, of which [3,980,831] shares are issued and outstanding and 200,000 shares are reserved for issuance upon the exercise of this Warrant, (ii) 7,913,224 shares of Series A Preferred Stock, of which 7,694,809 are issued and outstanding shares, (iii) 4,510,000 shares of Series B Preferred Stock, of which 4,510,000 are issued and outstanding shares, (iv) 6,491,498 shares of Series C Preferred Stock, of which 6,491,498 are issued and outstanding shares, and (v) 3,000,000 shares of Series D Preferred Stock, of which 2,278,996 are issued and -4- outstanding shares. Attached hereto as EXHIBIT B is a capitalization table summarizing the capitalization of the Company. 15. REGISTRATION RIGHTS. The Company agrees to use its best efforts to amend the Company's Amended and Restated Investors' Rights Agreement dated as of November 2, 1999 (the "Registration Rights Agreement") as soon as reasonably practicable following the date hereof, so that (i) the shares of Common Stock issuable upon exercise of this Warrant shall be "Registrable Securities," and (ii) the Holder shall be a "Holder" for all purposes of such Registration Rights Agreement provided, however, that the Holder executes and becomes subject to the terms and conditions of the Registration Rights Agreement as a Holder thereunder. 16. AMENDMENT. The terms of this Warrant may be amended, modified or waived only with the written consent of the Holder and the Company. 17. REPRESENTATIONS AND COVENANTS OF THE HOLDER. This Common Stock Purchase Warrant has been entered into by the Company in reliance upon the following representations and covenants of the Holder, which by its execution hereof the Holder hereby confirms: (a) INVESTMENT PURPOSE. This Warrant and the Common Stock issuable upon exercise hereof (the "Securities") are being acquired for investment for the Holder's own account and not with a view to the sale or distribution of any part thereof, and the Holder has no present intention of selling or engaging in any public distribution of the same. (b) ACCREDITED INVESTOR. Holder is an "accredited investor" within the meaning of the Securities and Exchange Rule 501 of Regulation D, as presently in effect. (c) PRIVATE ISSUE. The Holder understands (i) that the Common Stock issuable upon exercise of the Holder's rights contained herein is not registered under the 1933 Act or qualified under applicable state securities laws on the ground that the issuance contemplated by this Warrant will be exempt from the registration and qualifications requirements thereof, and (ii) that the Company's reliance on such exemption is predicated on the representations set forth in this SECTION 17. (d) FINANCIAL RISK. The Holder has such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of its investment, has acquired sufficient information about the Company to reach an informed and knowledgeable decision to acquire the Securities and has the ability to bear the economic risks of its investment. (e) RESTRICTED SECURITIES. The Holder understands that the Securities are "restricted securities" under applicable U.S. federal and state securities laws and that, pursuant to these laws, the Holder must hold the Securities 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. The Holder acknowledges that the Company has no obligation to register or qualify the Securities for resale except as set forth in the Investors' Rights Agreement with respect to Registrable Securities. The Holder 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 Securities, and on requirements relating to the Company which are outside of the Holder's control, and which the Company is under no obligation and may not be able to satisfy. (f) NO PUBLIC MARKET. The Holder understands that no public market now exists for any of the securities issued by the Company, that the Company has made no assurances that a public market will ever exist for the Securities. (g) LEGENDS. The Holder understands that the Common Stock issuable upon exercise of this Warrant, and any securities issued in respect thereof or exchange therefor, may bear one or all of the following legends: -5- (i) "THE SECURITIES 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) Any legend required by the Blue Sky laws of any state to the extent such laws are applicable to the shares represented by the certificate so legended. 18. NOTICES, TRANSFERS, ETC. (a) Any notice or written communication required or permitted to be given to the Holder may be given by certified mail or delivered to the Holder at the address most recently provided by the Holder to the Company. (b) Subject to compliance with applicable federal and state securities laws, this Warrant may be transferred by the Holder with respect to any or all of the shares purchasable hereunder. Upon surrender of this Warrant to the Company, together with the assignment notice annexed hereto duly executed, for transfer of this Warrant as an entirety by the Holder, the Company shall issue a new warrant of the same denomination to the assignee. Upon surrender of this Warrant to the Company, together with the assignment hereof properly endorsed, by the Holder for transfer with respect to a portion of the shares of Common Stock purchasable hereunder, the Company shall issue a new warrant to the assignee, in such denomination as shall be requested by the Holder hereof, and shall issue to such Holder a new warrant covering the number of shares in respect of which this Warrant shall not have been transferred. In no event, however, shall the Company be required to transfer this Warrant in part unless the transferee acquires the right to purchase at least 10,000 shares of stock hereunder (as adjusted pursuant to SECTION 9 and 11 above). (c) In case this Warrant shall be mutilated, lost, stolen or destroyed, the Company shall issue a new warrant of like tenor and denomination and deliver the same (i) in exchange and substitution for and upon surrender and cancellation of any mutilated Warrant, or (ii) in lieu of any Warrant lost, stolen or destroyed, upon receipt of an affidavit of the Holder or other evidence reasonably satisfactory to the Company of the loss, theft or destruction of such. 19. NO IMPAIRMENT. The Company will not, by amendment of its Certificate or through any reclassification, capital reorganization, consolidation, merger, sale or conveyance of assets, dissolution, liquidation, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance of performance of any of the terms of this Warrant, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such action as may be necessary or appropriate in order to protect the rights of the Holder. 20. GOVERNING LAW. The provisions and terms of this Warrant shall be governed by and construed in accordance with the internal laws of the State of California without regard to its principles governing conflicts of laws. 21. SUCCESSORS AND ASSIGNS. This Warrant shall be binding upon the Company's successors and assigns and shall inure to the benefit of the Holder's successors, legal representatives and permitted assigns. 22. BUSINESS DAYS. If the last or appointed day for the taking of any action required of the expiration of any rights granted herein shall be a Saturday or Sunday or a legal holiday in California, then such action may be taken or right may be exercised on the next succeeding day which is not a Saturday or Sunday or such a legal holiday. 23. VALUE. The Company and the Holder agree that the value of this Warrant on the date of grant is $100. -6- 24. NO RIGHTS AS STOCKHOLDER. Until the exercise of this Warrant, the Holder of this Warrant shall not have or exercise any rights by virtue hereof as a stockholder of the Company. 25. MARKET STAND-OFF AGREEMENT. Holder hereby agrees that, during the period of duration (up to, but not exceeding, 180 days) specified by the Company and an underwriter of Common Stock or other securities of the Company, following the date of the final prospectus distributed in connection with a registration statement of the Company filed under the 1933 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 at any time during such period except Common Stock included in such registration; provided, however, that: (a) such agreement shall be applicable only to the first such registration statement of the Company which covers Common Stock (or other securities) to be sold on its behalf to the public in an underwritten offering; and (b) all officers, directors and holders of more than 1% of the outstanding equity securities of the Company and all other persons with registration rights (whether or not pursuant to this Agreement) enter agreements in the same form as the agreement executed by the Holder. In order to enforce the foregoing covenant, the Company may impose stop-transfer instructions with respect to the securities of every person subject to the foregoing restriction until the end of such period, and the Holder agrees that, if so requested, Holder will execute an agreement in the form provided by the underwriter containing terms which are essentially consistent with the provisions of this Section 25. Notwithstanding the foregoing, the obligations described in this Section 25 shall not apply to a registration relating solely to employee benefit plans on Form S-1 or Form S-8 or similar forms which may be promulgated in the future, or a registration relating solely to an SEC Rule 145 transaction on Form S-4 or similar forms which may be promulgated in the future. Dated: March 9, 2000 REDENVELOPE, INC. By: /s/ Tom Bazzone ------------------------- Name: Tom Bazzone Title: Chief operating officer [CORPORATE SEAL] Attest: ____________________________________ -7- LIGHTHOUSE CAPITAL PARTNERS III, L.P. By: LIGHTHOUSE MANAGEMENT PARTNERS III, L.L.C., its general partner By: _____________________________________ Name: ___________________________________ Title: Managing Member Counterpart Signature Page to Lighthouse Warrant SUBSCRIPTION To: ___________________________ Date: ________________ The undersigned hereby subscribes for _________________shares of Common Stock covered by this Warrant. The certificate(s) for such shares shall be issued in the name of the undersigned or as otherwise indicated below: _______________________________ Signature _______________________________ Name for Registration _______________________________ Mailing Address NET ISSUE ELECTION NOTICE To: ___________________________ Date: ________________ The undersigned hereby elects under SECTION 4 to surrender the right to purchase ______________shares of Common Stock under SECTION ___ of this Warrant. The certificate(s) for such shares issuable upon such net issue election shall be issued in the name of the undersigned or as otherwise indicated below: _______________________________ Signature _______________________________ Name for Registration _______________________________ Mailing Address 1 ASSIGNMENT For value received ______________________________________________hereby sells, assigns and transfers unto ______________________________________________ ________________________________________________________________________________ [Please print or typewrite name and address of Assignee] the within Warrant, and does hereby irrevocably constitute and appoint__________ __________________ its attorney to transfer the within Warrant on the books of the within named Company with full power of substitution on the premises. Dated: _____________________________ In the Presence of: ____________________________________ 2 EX-4.5 8 f89225orexv4w5.txt EXHIBIT 4.5 EXHIBIT 4.5 THE SECURITIES REPRESENTED BY THIS WARRANT 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. - ------------------------------------------------------------------------------- Warrant No. PSF-2 Number of Shares: 235,080 Date of Issuance: September 6, 2002 (subject to adjustment) REDENVELOPE, INC. SERIES F PREFERRED STOCK PURCHASE WARRANT RedEnvelope, Inc. (the "Company"), for value received, hereby certifies that Lighthouse Capital Partners III, L.P., or its registered assigns (the "Registered Holder"), is entitled, subject to the terms set forth below, to purchase from the Company, at any time after the date hereof and on or before the Expiration Date (as defined in Section 7 below), up to 235,080 shares of Series F Preferred Stock of the Company ("Series F Preferred Stock"), at a purchase price of $0.63808 per share. The shares purchasable upon exercise of this Warrant and the purchase price per share, as adjusted from time to time pursuant to the provisions of this Warrant, are hereinafter referred to as the "Warrant Stock" and the "Purchase Price," respectively. 1. EXERCISE. (a) MANNER OF EXERCISE. This Warrant may be exercised by the Registered Holder, in whole or in part, by surrendering this Warrant, with the purchase/exercise form appended hereto as Exhibit A duly executed by such Registered Holder or by such Registered Holder's duly authorized attorney, at the principal office of the Company, or at such other office or agency as the Company may designate, accompanied by payment in full of the Purchase Price payable in respect of the number of shares of Warrant Stock purchased upon such exercise. The Purchase Price may be paid by cash, check, wire transfer or by the surrender of promissory notes or other instruments representing indebtedness of the Company to the Registered Holder. (b) EFFECTIVE TIME OF EXERCISE. Each exercise of this Warrant shall be deemed to have been effected immediately prior to the close of business on the day on which this Warrant shall have been surrendered to the Company as provided in Section 1(a) above. Notwithstanding the foregoing, in the event that this Warrant is submitted for exercise in connection with an underwritten public offering pursuant to a registration statement under the Securities Act of 1933, as amended (the "Securities Act") or a Disposition Event (as defined in Section 7(b) below), the exercise will be conditioned on, and will be effected immediately prior to, the occurrence of such public offering or Disposition Event. At such time, the person or persons in whose name or names any certificates for Warrant Stock shall be issuable upon such exercise as provided in Section 1(d) below shall be deemed to have become the holder or holders of record of the Warrant Stock represented by such certificates. (c) NET ISSUE EXERCISE. (i) In lieu of exercising this Warrant in the manner provided above in Section 1(a), the Registered Holder may elect to receive shares equal to the value of this Warrant (or the portion thereof being canceled) by surrender of this Warrant at the principal office of the Company together with notice of such election on the purchase/exercise form appended hereto as Exhibit A duly executed by such Registered Holder or such Registered Holder's duly authorized attorney, in which event the Company shall issue to such Registered Holder a number of shares of Warrant Stock computed using the following formula: X = Y (A - B) --------- A Where X = The number of shares of Warrant Stock to be issued to the Registered Holder. Y = The number of shares of Warrant Stock purchasable under this Warrant (at the date of such calculation). A = The fair market value of one share of Warrant Stock (at the date of such calculation). B = The Purchase Price (as adjusted to the date of such calculation). (ii) For purposes of this Section 1(c), the fair market value of Warrant Stock on the date of calculation shall mean with respect to each share of Warrant Stock: (A) if the exercise is in connection with an initial public offering of the Common Stock of the Company (the "Common Stock"), and if the Company's Registration Statement relating to such public offering has been declared effective by the Securities and Exchange Commission, then the fair market value shall be the product of (x) the initial "Price to Public" per share specified in the final prospectus with respect to the offering and (y) the number of shares of Common Stock into which each share of Warrant Stock is convertible at the date of calculation; (B) if this Warrant is exercised after, and not in connection with, the Company's initial public offering, and the Company's Common Stock is traded on a securities exchange or The Nasdaq Stock market or actively traded over the counter: (1) if the Company's Common Stock is traded on a securities exchange or The Nasdaq Stock Market, the fair market value shall be deemed to be the product of (x) the average of the closing prices over a 30-day period ending three days before the date of calculation and (y) the number of shares of Common Stock into which each share of Warrant Stock is convertible on such date; or -2- (2) if the Company's Common Stock is actively traded over the counter, the fair market value shall be deemed to be the product of (x) the average of the closing bid or sales price (whichever is applicable) over the 30-day period ending three days before the date of calculation and (y) the number of shares of Common Stock into which each share of Warrant Stock is convertible on such date; or (C) if neither (A) nor (B) is applicable, the fair market value of Warrant Stock shall be at the highest price per share which the Company could obtain on the date of calculation from a willing buyer (not a current employee or director) for shares of Warrant Stock sold by the Company, from authorized but unissued shares, as determined in good faith by the Board of Directors, unless the Company is at such time subject to an acquisition as described in Section 7(b) below, in which case the fair market value of Warrant Stock shall be deemed to be the value received by the holders of such stock pursuant to such acquisition. (d) DELIVERY TO REGISTERED HOLDER. As soon as practicable after the exercise of this Warrant in whole or in part, and in any event within ten (10) days thereafter, the Company at its expense will cause to be issued in the name of, and delivered to, the Registered Holder, or as such Registered Holder (upon payment by such Registered Holder of any applicable transfer taxes) may direct: (i) a certificate or certificates for the number of shares of Warrant Stock to which such Registered Holder shall be entitled, and (ii) in case such exercise is in part only, a new warrant or warrants (dated the date hereof) of like tenor, calling in the aggregate on the face or faces thereof for the number of shares of Warrant Stock equal (without giving effect to any adjustment therein) to the number of such shares called for on the face of this Warrant minus the number of such shares purchased by the Registered Holder upon such exercise as provided in Section 1(a) or 1(c) above. 2. ADJUSTMENTS. (a) REDEMPTION OR CONVERSION OF PREFERRED STOCK. If all of the Series F Preferred Stock is redeemed or converted into shares of Common Stock, then this Warrant shall automatically become exercisable for that number of shares of Common Stock equal to the number of shares of Common Stock that would have been received if this Warrant had been exercised in full and the shares of Preferred Stock received thereupon had been simultaneously converted into shares of Common Stock immediately prior to such event, and the Exercise Price shall be automatically adjusted to equal the number obtained by dividing (i) the aggregate Purchase Price of the shares of Preferred Stock for which this Warrant was exercisable immediately prior to such redemption or conversion, by (ii) the number of shares of Common Stock for which this Warrant is exercisable immediately after such redemption or conversion. (b) STOCK SPLITS AND DIVIDENDS. If outstanding shares of the Company's Series F Preferred Stock shall be subdivided into a greater number of shares or a dividend in Series F Preferred Stock shall be paid in respect of Series F Preferred Stock, the Purchase Price in effect immediately prior to such subdivision or at the record date of such dividend shall -3- simultaneously with the effectiveness of such subdivision or immediately after the record date of such dividend be proportionately reduced. If outstanding shares of Series F Preferred Stock shall be combined into a smaller number of shares, the Purchase Price in effect immediately prior to such combination shall, simultaneously with the effectiveness of such combination, be proportionately increased. When any adjustment is required to be made in the Purchase Price, the number of shares of Warrant Stock purchasable upon the exercise of this Warrant shall be changed to the number determined by dividing (i) an amount equal to the number of shares issuable upon the exercise of this Warrant immediately prior to such adjustment, multiplied by the Purchase Price in effect immediately prior to such adjustment, by (ii) the Purchase Price in effect immediately after such adjustment. (c) RECLASSIFICATION, ETC. In case there occurs any reclassification or change of the outstanding securities of the Company or of any reorganization of the Company (or any other corporation the stock or securities of which are at the time receivable upon the exercise of this Warrant) or any similar corporate reorganization on or after the date hereof, then and in each such case the Registered Holder, upon the exercise hereof at any time after the consummation of such reclassification, change, or reorganization shall be entitled to receive, in lieu of the stock or other securities and property receivable upon the exercise hereof prior to such consummation, the stock or other securities or property to which such Registered Holder would have been entitled upon such consummation if such Registered Holder had exercised this Warrant immediately prior thereto, all subject to further adjustment pursuant to the provisions of this Section 2. (d) ADJUSTMENT CERTIFICATE. When any adjustment is required to be made in the Warrant Stock or the Purchase Price pursuant to this Section 2, the Company shall promptly mail to the Registered Holder a certificate setting forth (i) a brief statement of the facts requiring such adjustment, (ii) the Purchase Price after such adjustment and (iii) the kind and amount of stock or other securities or property into which this Warrant shall be exercisable after such adjustment. (e) ACKNOWLEDGEMENT. In order to avoid doubt, it is acknowledged that the holder of this Warrant shall be subject to all adjustments in the number of shares of Common Stock of the Company issuable upon conversion of the Series F Preferred Stock of the Company which occur prior to the exercise of this Warrant, including without limitation, any change in the number of shares of Common Stock issuable upon conversion of the Series F Preferred Stock as a result of a change in the Series F Conversion Price as set forth in the Company's Amended and Restated Certificate of Incorporation. 3. TRANSFERS. (a) UNREGISTERED SECURITY. Each holder of this Warrant acknowledges that this Warrant, the Warrant Stock and the Common Stock of the Company have not been registered under the Securities Act, and agrees not to sell, pledge, distribute, offer for sale, transfer or otherwise dispose of this Warrant, any Warrant Stock issued upon its exercise or any Common Stock issued upon conversion of the Warrant Stock in the absence of (i) an effective registration statement under the Securities Act as to this Warrant, such Warrant Stock or such -4- Common Stock and registration or qualification of this Warrant, such Warrant Stock or such Common Stock under any applicable U.S. federal or state securities law then in effect, or (ii) an opinion of counsel, satisfactory to the Company, that such registration and qualification are not required. Each certificate or other instrument for Warrant Stock issued upon the exercise of this Warrant shall bear a legend substantially to the foregoing effect. (b) TRANSFERABILITY. Subject to the provisions of Sections 3(a) and 6 hereof, this Warrant and all rights hereunder are transferable, in whole or in part, upon surrender of the Warrant with a properly executed assignment (in the form of Exhibit B hereto) at the principal office of the Company; provided, however, that this Warrant may not be transferred in whole or in part without the prior written consent of the Company. (c) WARRANT REGISTER. The Company will maintain a register containing the names and addresses of the Registered Holders of this Warrant. Until any transfer of this Warrant is made in the warrant register, the Company may treat the Registered Holder of this Warrant as the absolute owner hereof for all purposes; provided, however, that if this Warrant is properly assigned in blank, the Company may (but shall not be required to) treat the bearer hereof as the absolute owner hereof for all purposes, notwithstanding any notice to the contrary. Any Registered Holder may change such Registered Holder's address as shown on the warrant register by written notice to the Company requesting such change. 4. NO IMPAIRMENT. The Company will not, by amendment of its charter or through reorganization, consolidation, merger, dissolution, sale of assets or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, but will (subject to Section 14 below) at all times in good faith assist in the carrying out of all such terms and in the taking of all such action as may be necessary or appropriate in order to protect the rights of the holder of this Warrant against impairment. 5. REPRESENTATIONS AND WARRANTIES OF THE REGISTERED HOLDER. The Registered Holder hereby represents and warrants to the Company that: (a) AUTHORIZATION. The Registered Holder has full power and authority to enter into this Warrant. The Warrant, when executed and delivered by the Registered Holder, will constitute a valid and legally binding obligation of the Registered Holder, enforceable in accordance with its terms, except as limited by applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance, and any other laws of general application affecting enforcement of creditors' rights generally, and as limited by laws relating to the availability of specific performance, injunctive relief, or other equitable remedies. (b) PURCHASE ENTIRELY FOR OWN ACCOUNT. This Warrant is issued to the Registered Holder in reliance upon the Registered Holder's representation to the Company, which by the Registered Holder's acceptance of this Warrant, the Registered Holder hereby confirms, that the Warrant to be acquired by the Registered Holder, the Warrant Stock and the Common Stock to be issued upon the conversion of the Warrant Stock (collectively, the "Securities") will be acquired for investment for the Registered Holder'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 -5- the Registered Holder has no present intention of selling, granting any participation in, or otherwise distributing the same. By accepting this Warrant, the Registered Holder further represents that the Registered Holder does not presently 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. The Registered Holder has not been formed for the specific purpose of acquiring the Securities. (c) Disclosure of Information. The Registered Holder has had an opportunity to discuss the Company's business, management, financial affairs and the terms and conditions of the offering of the Securities with the Company's management and has had an opportunity to review the Company's facilities. The Registered Holder understands that such discussions, as well as any written information delivered by the Company to the Registered Holder, were intended to describe the aspects of the Company's business which it believes to be material. (d) Restricted Securities. The Registered Holder understands that the Securities have not been, and will not be, registered under the Securities Act, by reason of a specific exemption from the registration provisions of the Securities Act which depends upon, among other things, the bona fide nature of the investment intent and the accuracy of the Registered Holder's representations as expressed herein. The Registered Holder understands that the Securities are "restricted securities" under applicable U.S. federal and state securities laws and that, pursuant to these laws, the Registered Holder must hold the Securities 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. The Registered Holder acknowledges that the Company has no obligation to register or qualify the Securities for resale, except as may be set forth in the Company's Amended and Restated Investors' Rights Agreement, with respect to the Common Stock issuable upon conversion of the Series F Preferred Stock issuable upon exercise of this Warrant. The Registered Holder 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 Securities, and on requirements relating to the Company which are outside of the Registered Holder's control, and which the Company is under no obligations and may not be able to satisfy. (e) No Public Market. The Registered Holder understands that no public market now exists for any of the securities issued by the Company, and that the Company has made no assurances that a public market will ever exist for the Securities. (f) Accredited Investor. The Registered Holder is an accredited investor as defined in Rule 501(a) of Regulation D promulgated under the Securities Act. 6. Lock-up Agreement. (a) Lock-up Period; Agreement. In connection with the initial public offering of the Company's securities and upon request of the Company or the underwriters managing such offering of the Company's securities, the Registered Holder agrees not to sell, -6- make any short sale of, loan, grant any option for the purchase of, or otherwise dispose of any securities of the Company (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. (b) STOP-TRANSFER INSTRUCTIONS. In order to enforce the foregoing covenants, the Company may impose stop-transfer instructions with respect to the securities of the Registered Holder (and the securities of every other person subject to the restrictions in Section 6(a)). (c) TRANSFEREES BOUND. The Registered Holder agrees that it will not transfer securities of the Company unless each transferee agrees in writing to be bound by all of the provisions of this Warrant, including without limitation Section 6. 7. TERMINATION. This Warrant (and the right to purchase securities upon exercise hereof) shall terminate upon the earliest to occur of the following (the "Expiration Date"): (a) August __, 2007, (b) the sale, conveyance or disposal of all or substantially all of the Company's property or business or the Company's merger with or into or consolidation with any other corporation (other than a wholly-owned subsidiary of the Company) or any other transaction or series of related transactions in which more than fifty percent (50%) of the voting power of the Company is disposed of, provided that this Section 7 shall not apply to a merger effected exclusively for the purpose of changing the domicile of the Company or to an equity financing in which the Company is the surviving corporation (any such event, a "Disposition Event"), or (c) two (2) years following the closing of a firm commitment underwritten public offering pursuant to a registration statement under the Securities Act. 8. NOTICES OF CERTAIN TRANSACTIONS. In case: (a) the Company shall take a record of the holders of its Preferred Stock (or other stock or securities at the time deliverable upon the exercise of this Warrant) for the purpose of entitling or enabling them to receive any dividend or other distribution, or to receive any right to subscribe for or purchase any shares of stock of any class or any other securities, or to receive any other right, or (b) of any capital reorganization of the Company, any reclassification of the capital stock of the Company, any consolidation or merger of the Company with or into another corporation (other than a consolidation or merger in which the Company is the surviving entity), or any transfer of all or substantially all of the assets of the Company, or (c) of the voluntary or involuntary dissolution, liquidation or winding-up of the Company, or (d) of any redemption of the Preferred Stock or mandatory conversion of the Preferred Stock into Common Stock of the Company, -7- then, and in each such case, the Company will mail or cause to be mailed to the Registered Holder of this Warrant a notice specifying, as the case may be, (i) the date on which a record is to be taken for the purpose of such dividend, distribution or right, and stating the amount and character of such dividend, distribution or right, or (ii) the effective date on which such reorganization, reclassification, consolidation, merger, transfer, dissolution, liquidation, winding-up, redemption or conversion is to take place, and the time, if any is to be fixed, as of which the holders of record of Preferred Stock (or such other stock or securities at the time deliverable upon such reorganization, reclassification, consolidation, merger, transfer, dissolution, liquidation, winding-up, redemption or conversion) are to be determined. Such notice shall be mailed at least ten (10) days prior to the record date or effective date for the event specified in such notice. 9. RESERVATION OF STOCK. The Company will at all times reserve and keep available, solely for the issuance and delivery upon the exercise of this Warrant, such shares of Warrant Stock and other stock, securities and property, as from time to time shall be issuable upon the exercise of this Warrant. 10. EXCHANGE OF WARRANTS. Upon the surrender by the Registered Holder of any Warrant or Warrants, properly endorsed, to the Company at the principal office of the Company, the Company will, subject to the provisions of Section 3 hereof, issue and deliver to or upon the order of such Registered Holder, at the Company's expense, a new Warrant or Warrants of like tenor, in the name of such Registered Holder or as such Registered Holder (upon payment by such Registered Holder of any applicable transfer taxes) may direct, calling in the aggregate on the face or faces thereof for the number of shares of Preferred Stock called for on the face or faces of the Warrant or Warrants so surrendered. 11. REPLACEMENT OF WARRANTS. Upon receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant and (in the case of loss, theft or destruction) upon delivery of an indemnity agreement (with surety if reasonably required) in an amount reasonably satisfactory to the Company, or (in the case of mutilation) upon surrender and cancellation of this Warrant, the Company will issue, in lieu thereof, a new Warrant of like tenor. 12. NO RIGHTS AS STOCKHOLDER. Until the exercise of this Warrant, the Registered Holder of this Warrant shall not have or exercise any rights by virtue hereof as a stockholder of the Company. 13. NO FRACTIONAL SHARES. No fractional shares of Series F Preferred Stock (or Common Stock, as the case may be) will be issued in connection with any exercise hereunder. In lieu of any fractional shares which would otherwise be issuable, the Company shall pay cash equal to the product of such fraction multiplied by the fair market value of one share of Series F Preferred Stock (or Common Stock, as the case may be) on the date of exercise, as determined in good faith by the Company's Board of Directors. -8- 14. AMENDMENT OR WAIVER. Any term of this Warrant may be amended or waived only by an instrument in writing signed by the party against which enforcement of the amendment or waiver is sought. 15. HEADINGS. The headings in this Warrant are for purposes of reference only and shall not limit or otherwise affect the meaning of any provision of this Warrant. 16. VOTING AGREEMENT. At the request of the Company, the Registered Holder agrees to become a party to the Company's Amended and Restated Voting Agreement upon exercise of the Warrant. 17. GOVERNING LAW. This Warrant 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. 18. SURVIVAL OF REPRESENTATIONS. Unless otherwise set forth in this Warrant, the warranties, representations and covenants of the Company and the Purchasers contained in or made pursuant to this Warrant shall survive the execution and delivery of this Warrant. 19. TRANSFER; SUCCESSORS AND ASSIGNS. The terms and conditions of this Warrant shall inure to the benefit of and be binding upon the respective successors and assigns of the parties. Nothing in this Warrant, 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 Warrant, except as expressly provided in this Warrant. 20. COUNTERPARTS. This Warrant 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. 21. ATTORNEY'S FEES. If any action at law or in equity (including arbitration) is necessary to enforce or interpret the terms of any of this Warrant, 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. 22. SEVERABILITY. If one or more provisions of this Warrant 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 Warrant, (b) the balance of this Warrant shall be interpreted as if such provision were so excluded and (c) the balance of this Warrant shall be enforceable in accordance with its terms. 23. DELAYS OR OMISSIONS. No delay or omission to exercise any right, power or remedy accruing to any party under this Warrant, upon any breach or default of any other party under this Warrant, shall impair any such right, power or remedy of such non-breaching or non-defaulting party nor shall it be construed to be a waiver of any such breach or default, or an acquiescence therein, or of or in any similar breach or default thereafter occurring; nor shall any -9- waiver of any single breach or default be deemed a waiver of any other breach or default theretofore or thereafter occurring. Any waiver, permit, consent or approval of any kind or character on the part of any party of any breach or default under this Warrant, or any waiver on the part of any party of any provisions or conditions of this Warrant, must be in writing and shall be effective only to the extent specifically set forth in such writing. All remedies, either under this Warrant or by law or otherwise afforded to any party, shall be cumulative and not alternative. 24. NOTICES. Any notice required or permitted by this Warrant shall be in writing and shall be deemed sufficient upon delivery, when delivered personally or by overnight courier or sent by facsimile, or 48 hours after being deposited in the U.S. mail, as certified or registered mail, with postage prepaid, addressed to the party to be notified at such party's address as set forth on the signature page, or as subsequently modified by written notice. 25. ENTIRE AGREEMENT. This Warrant, and the documents referred to herein constitute the entire agreement between the parties hereto pertaining to the subject matter hereof, and any and all other written or oral agreements relating to the subject matter hereof existing between the parties hereto are expressly canceled. REDENVELOPE, INC. By: /s/ illegible -------------------------------- Address: 201 Spear Street 3rd Floor San Francisco, CA 94105 Fax Number: (415) 371-1134 Accepted and Agreed: REGISTERED HOLDER LIGHTHOUSE CAPITAL PARTNERS III, L.P. By: LIGHTHOUSE MANAGEMENT PARTNERS III, L.L.C., its general partner - ------------------------------------ LIGHTHOUSE CAPITAL PARTNERS III, L.P. By: /s/ Dennis Ryan --------------------------- Address: Name: Dennis Ryan ---------------------------- -------------------------- Fax Number: Chief Operating Officer ------------------------- -------------------------- -10- EXHIBIT A PURCHASE/EXERCISE FORM To: REDENVELOPE, INC. Dated: The undersigned, pursuant to the provisions set forth in the attached Warrant No. PSF-2, hereby irrevocably elects to (a) purchase shares of the Preferred Stock covered by such Warrant and herewith makes payment of $ , representing the full purchase price for such shares at the price per share provided for in such Warrant, or (b) exercise such Warrant for shares purchasable under the Warrant pursuant to the Net Issue Exercise provisions of Section 1(c) of the Warrant. The undersigned acknowledges that it has reviewed the representations and warranties contained in Section 5 of the Warrant and by its signature below hereby makes such representations and warranties to the Company as of the date hereof. Signature: --------------------------------- Name (print): ------------------------------ Title (if applic.): ------------------------ Company (if applic.): ---------------------- EX-4.6 9 f89225orexv4w6.txt EXHIBIT 4.6 EXHIBIT 4.6 THE SECURITIES REPRESENTED BY THIS WARRANT 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. Warrant No. PSF-3 Number of Shares: 235,080 Date of Issuance: October 15, 2002 (subject to adjustment) REDENVELOPE, INC. SERIES F PREFERRED STOCK PURCHASE WARRANT RedEnvelope, Inc. (the "Company"), for value received, hereby certifies that Lighthouse Capital Partners III, L.P., or its registered assigns (the "Registered Holder"), is entitled, subject to the terms set forth below, to purchase from the Company, at any time after the date hereof and on or before the Expiration Date (as defined in Section 7 below), up to 235,080 shares of Series F Preferred Stock of the Company ("Series F Preferred Stock"), at a purchase price of $0.63808 per share. The shares purchasable upon exercise of this Warrant and the purchase price per share, as adjusted from time to time pursuant to the provisions of this Warrant, are hereinafter referred to as the "Warrant Stock" and the "Purchase Price," respectively. 1. EXERCISE. (a) MANNER OF EXERCISE. This Warrant may be exercised by the Registered Holder, in whole or in part, by surrendering this Warrant, with the purchase/exercise form appended hereto as Exhibit A duly executed by such Registered Holder or by such Registered Holder's duly authorized attorney, at the principal office of the Company, or at such other office or agency as the Company may designate, accompanied by payment in full of the Purchase Price payable in respect of the number of shares of Warrant Stock purchased upon such exercise. The Purchase Price may be paid by cash, check, wire transfer or by the surrender of promissory notes or other instruments representing indebtedness of the Company to the Registered Holder. (b) EFFECTIVE TIME OF EXERCISE. Each exercise of this Warrant shall be deemed to have been effected immediately prior to the close of business on the day on which this Warrant shall have been surrendered to the Company as provided in Section 1(a) above. Notwithstanding the foregoing, in the event that this Warrant is submitted for exercise in connection with an underwritten public offering pursuant to a registration statement under the Securities Act of 1933, as amended (the "Securities Act") or a Disposition Event (as defined in Section 7(b) below), the exercise will be conditioned on, and will be effected immediately prior to, the occurrence of such public offering or Disposition Event. At such time, the person or persons in whose name or names any certificates for Warrant Stock shall be issuable upon such exercise as provided in Section 1(d) below shall be deemed to have become the holder or holders of record of the Warrant Stock represented by such certificates. (c) NET ISSUE EXERCISE. (i) In lieu of exercising this Warrant in the manner provided above in Section 1(a), the Registered Holder may elect to receive shares equal to the value of this Warrant (or the portion thereof being canceled) by surrender of this Warrant at the principal office of the Company together with notice of such election on the purchase/exercise form appended hereto as Exhibit A duly executed by such Registered Holder or such Registered Holder's duly authorized attorney, in which event the Company shall issue to such Registered Holder a number of shares of Warrant Stock computed using the following formula: Y (A - B) X = --------- A Where X = The number of shares of Warrant Stock to be issued to the Registered Holder. Y = The number of shares of Warrant Stock purchasable under this Warrant (at the date of such calculation). A = The fair market value of one share of Warrant Stock (at the date of such calculation). B = The Purchase Price (as adjusted to the date of such calculation). (ii) For purposes of this Section 1(c), the fair market value of Warrant Stock on the date of calculation shall mean with respect to each share of Warrant Stock: (A) if the exercise is in connection with an initial public offering of the Common Stock of the Company (the "Common Stock"), and if the Company's Registration Statement relating to such public offering has been declared effective by the Securities and Exchange Commission, then the fair market value shall be the product of (x) the initial "Price to Public" per share specified in the final prospectus with respect to the offering and (y) the number of shares of Common Stock into which each share of Warrant Stock is convertible at the date of calculation; (B) if this Warrant is exercised after, and not in connection with, the Company's initial public offering, and the Company's Common Stock is traded on a securities exchange or The Nasdaq Stock Market or actively traded over the counter: (1) if the Company's Common Stock is traded on a securities exchange or The Nasdaq Stock Market, the fair market value shall be deemed to be the product of (x) the average of the closing prices over a 30-day period ending three days before the date of calculation and (y) the number of shares of Common Stock into which each share of Warrant Stock is convertible on such date; or (2) if the Company's Common Stock is actively traded over the counter, the fair market value shall be deemed to be the product of (x) the average of the -2- closing bid or sales price (whichever is applicable) over the 30-day period ending three days before the date of calculation and (y) the number of shares of Common Stock into which each share of Warrant Stock is convertible on such date; or (C) if neither (A) nor (B) is applicable, the fair market value of Warrant Stock shall be at the highest price per share which the Company could obtain on the date of calculation from a willing buyer (not a current employee or director) for shares of Warrant Stock sold by the Company, from authorized but unissued shares, as determined in good faith by the Board of Directors, unless the Company is at such time subject to an acquisition as described in Section 7(b) below, in which case the fair market value of Warrant Stock shall be deemed to be the value received by the holders of such stock pursuant to such acquisition. (d) DELIVERY TO REGISTERED HOLDER. As soon as practicable after the exercise of this Warrant in whole or in part, and in any event within ten (10) days thereafter, the Company at its expense will cause to be issued in the name of, and delivered to, the Registered Holder, or as such Registered Holder (upon payment by such Registered Holder of any applicable transfer taxes) may direct: (i) a certificate or certificates for the number of shares of Warrant Stock to which such Registered Holder shall be entitled, and (ii) in case such exercise is in part only, a new warrant or warrants (dated the date hereof) of like tenor, calling in the aggregate on the face or faces thereof for the number of shares of Warrant Stock equal (without giving effect to any adjustment therein) to the number of such shares called for on the face of this Warrant minus the number of such shares purchased by the Registered Holder upon such exercise as provided in Section 1(a) or 1(c) above. 2. ADJUSTMENTS. (a) REDEMPTION OR CONVERSION OF PREFERRED STOCK. If all of the Series F Preferred Stock is redeemed or converted into shares of Common Stock, then this Warrant shall automatically become exercisable for that number of shares of Common Stock equal to the number of shares of Common Stock that would have been received if this Warrant had been exercised in full and the shares of Preferred Stock received thereupon had been simultaneously converted into shares of Common Stock immediately prior to such event, and the Exercise Price shall be automatically adjusted to equal the number obtained by dividing (i) the aggregate Purchase Price of the shares of Preferred Stock for which this Warrant was exercisable immediately prior to such redemption or conversion, by (ii) the number of shares of Common Stock for which this Warrant is exercisable immediately after such redemption or conversion. (b) STOCK SPLITS AND DIVIDENDS. If outstanding shares of the Company's Series F Preferred Stock shall be subdivided into a greater number of shares or a dividend in Series F Preferred Stock shall be paid in respect of Series F Preferred Stock, the Purchase Price in effect immediately prior to such subdivision or at the record date of such dividend shall simultaneously with the effectiveness of such subdivision or immediately after the record date of such dividend be proportionately reduced. If outstanding shares of Series F Preferred Stock shall -3- be combined into a smaller number of shares, the Purchase Price in effect immediately prior to such combination shall, simultaneously with the effectiveness of such combination, be proportionately increased. When any adjustment is required to be made in the Purchase Price, the number of shares of Warrant Stock purchasable upon the exercise of this Warrant shall be changed to the number determined by dividing (i) an amount equal to the number of shares issuable upon the exercise of this Warrant immediately prior to such adjustment, multiplied by the Purchase Price in effect immediately prior to such adjustment, by (ii) the Purchase Price in effect immediately after such adjustment. (c) RECLASSIFICATION, ETC. In case there occurs any reclassification or change of the outstanding securities of the Company or of any reorganization of the Company (or any other corporation the stock or securities of which are at the time receivable upon the exercise of this Warrant) or any similar corporate reorganization on or after the date hereof, then and in each such case the Registered Holder, upon the exercise hereof at any time after the consummation of such reclassification, change, or reorganization shall be entitled to receive, in lieu of the stock or other securities and property receivable upon the exercise hereof prior to such consummation, the stock or other securities or property to which such Registered Holder would have been entitled upon such consummation if such Registered Holder had exercised this Warrant immediately prior thereto, all subject to further adjustment pursuant to the provisions of this Section 2. (d) ADJUSTMENT CERTIFICATE. When any adjustment is required to be made in the Warrant Stock or the Purchase Price pursuant to this Section 2, the Company shall promptly mail to the Registered Holder a certificate setting forth (i) a brief statement of the facts requiring such adjustment, (ii) the Purchase Price after such adjustment and (iii) the kind and amount of stock or other securities or property into which this Warrant shall be exercisable after such adjustment. (e) ACKNOWLEDGEMENT. In order to avoid doubt, it is acknowledged that the holder of this Warrant shall be subject to all adjustments in the number of shares of Common Stock of the Company issuable upon conversion of the Series F Preferred Stock of the Company which occur prior to the exercise of this Warrant, including without limitation, any change in the number of shares of Common Stock issuable upon conversion of the Series F Preferred Stock as a result of a change in the Series F Conversion Price as set forth in the Company's Amended and Restated Certificate of Incorporation. 3. TRANSFERS. (a) UNREGISTERED SECURITY. Each holder of this Warrant acknowledges that this Warrant, the Warrant Stock and the Common Stock of the Company have not been registered under the Securities Act, and agrees not to sell, pledge, distribute, offer for sale, transfer or otherwise dispose of this Warrant, any Warrant Stock issued upon its exercise or any Common Stock issued upon conversion of the Warrant Stock in the absence of (i) an effective registration statement under the Securities Act as to this Warrant, such Warrant Stock or such Common Stock and registration or qualification of this Warrant, such Warrant Stock or such Common Stock under any applicable U.S. federal or state securities law then in effect, or (ii) an opinion of counsel, satisfactory to the Company, that such registration and qualification are not -4- required. Each certificate or other instrument for Warrant Stock issued upon the exercise of this Warrant shall bear a legend substantially to the foregoing effect. (b) TRANSFERABILITY. Subject to the provisions of Sections 3(a) and 6 hereof, this Warrant and all rights hereunder are transferable, in whole or in part, upon surrender of the Warrant with a properly executed assignment (in the form of Exhibit B hereto) at the principal office of the Company; provided, however, that this Warrant may not be transferred in whole or in part without the prior written consent of the Company. (c) WARRANT REGISTER. The Company will maintain a register containing the names and addresses of the Registered Holders of this Warrant. Until any transfer of this Warrant is made in the warrant register, the Company may treat the Registered Holder of this Warrant as the absolute owner hereof for all purposes; provided, however, that if this Warrant is properly assigned in blank, the Company may (but shall not be required to) treat the bearer hereof as the absolute owner hereof for all purposes, notwithstanding any notice to the contrary. Any Registered Holder may change such Registered Holder's address as shown on the warrant register by written notice to the Company requesting such change. 4. NO IMPAIRMENT. The Company will not, by amendment of its charter or through reorganization, consolidation, merger, dissolution, sale of assets or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, but will (subject to Section 14 below) at all times in good faith assist in the carrying out of all such terms and in the taking of all such action as may be necessary or appropriate in order to protect the rights of the holder of this Warrant against impairment. 5. REPRESENTATIONS AND WARRANTIES OF THE REGISTERED HOLDER. The Registered Holder hereby represents and warrants to the Company that: (a) AUTHORIZATION. The Registered Holder has full power and authority to enter into this Warrant. The Warrant, when executed and delivered by the Registered Holder, will constitute a valid and legally binding obligation of the Registered Holder, enforceable in accordance with its terms, except as limited by applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance, and any other laws of general application affecting enforcement of creditors' rights generally, and as limited by laws relating to the availability of specific performance, injunctive relief, or other equitable remedies. (b) PURCHASE ENTIRELY FOR OWN ACCOUNT. This Warrant is issued to the Registered Holder in reliance upon the Registered Holder's representation to the Company, which by the Registered Holder's acceptance of this Warrant, the Registered Holder hereby confirms, that the Warrant to be acquired by the Registered Holder, the Warrant Stock and the Common Stock to be issued upon the conversion of the Warrant Stock (collectively, the "Securities") will be acquired for investment for the Registered Holder'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 the Registered Holder has no present intention of selling, granting any participation in, or otherwise distributing the same. By accepting this Warrant, the Registered Holder further represents that the Registered Holder does not presently have any contract, undertaking, -5- 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. The Registered Holder has not been formed for the specific purpose of acquiring the Securities. (c) DISCLOSURE OF INFORMATION. The Registered Holder has had an opportunity to discuss the Company's business, management, financial affairs and the terms and conditions of the offering of the Securities with the Company's management and has had an opportunity to review the Company's facilities. The Registered Holder understands that such discussions, as well as any written information delivered by the Company to the Registered Holder, were intended to describe the aspects of the Company's business which it believes to be material. (d) RESTRICTED SECURITIES. The Registered Holder understands that the Securities have not been, and will not be, registered under the Securities Act, by reason of a specific exemption from the registration provisions of the Securities Act which depends upon, among other things, the bona fide nature of the investment intent and the accuracy of the Registered Holder's representations as expressed herein. The Registered Holder understands that the Securities are "restricted securities" under applicable U.S. federal and state securities laws and that, pursuant to these laws, the Registered Holder must hold the Securities 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. The Registered Holder acknowledges that the Company has no obligation to register or qualify the Securities for resale, except as may be set forth in the Company's Amended and Restated Investors' Rights Agreement, with respect to the Common Stock issuable upon conversion of the Series F Preferred Stock issuable upon exercise of this Warrant. The Registered Holder 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 Securities, and on requirements relating to the Company which are outside of the Registered Holder's control, and which the Company is under no obligation and may not be able to satisfy. (e) NO PUBLIC MARKET. The Registered Holder understands that no public market now exists for any of the securities issued by the Company, and that the Company has made no assurances that a public market will ever exist for the Securities. (f) ACCREDITED INVESTOR. The Registered Holder is an accredited investor as defined in Rule 501(a) of Regulation D promulgated under the Securities Act. 6. LOCK-UP AGREEMENT. (a) LOCK-UP PERIOD; AGREEMENT. In connection with the initial public offering of the Company's securities and upon request of the Company or the underwriters managing such offering of the Company's securities, the Registered Holder agrees not to sell, make any short sale of, loan, grant any option for the purchase of, or otherwise dispose of any securities of the Company (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 -6- 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. (b) STOP-TRANSFER INSTRUCTIONS. In order to enforce the foregoing covenants, the Company may impose stop-transfer instructions with respect to the securities of the Registered Holder (and the securities of every other person subject to the restrictions in Section 6(a)). (c) TRANSFEREES BOUND. The Registered Holder agrees that it will not transfer securities of the Company unless each transferee agrees in writing to be bound by all of the provisions of this Warrant, including without limitation Section 6. 7. TERMINATION. This Warrant (and the right to purchase securities upon exercise hereof) shall terminate upon the earliest to occur of the following (the "Expiration Date"): (a) October 15, 2007, (b) the sale, conveyance or disposal of all or substantially all of the Company's property or business or the Company's merger with or into or consolidation with any other corporation (other than a wholly-owned subsidiary of the Company) or any other transaction or series of related transactions in which more than fifty percent (50%) of the voting power of the Company is disposed of, provided that this Section 7 shall not apply to a merger effected exclusively for the purpose of changing the domicile of the Company or to an equity financing in which the Company is the surviving corporation (any such event, a "Disposition Event"), or (c) two (2) years following the closing of a firm commitment underwritten public offering pursuant to a registration statement under the Securities Act. 8. NOTICES OF CERTAIN TRANSACTIONS. In case: (a) the Company shall take a record of the holders of its Preferred Stock (or other stock or securities at the time deliverable upon the exercise of this Warrant) for the purpose of entitling or enabling them to receive any dividend or other distribution, or to receive any right to subscribe for or purchase any shares of stock of any class or any other securities, or to receive any other right, or (b) of any capital reorganization of the Company, any reclassification of the capital stock of the Company, any consolidation or merger of the Company with or into another corporation (other than a consolidation or merger in which the Company is the surviving entity), or any transfer of all or substantially all of the assets of the Company, or (c) of the voluntary or involuntary dissolution, liquidation or winding-up of the Company, or (d) of any redemption of the Preferred Stock or mandatory conversion of the Preferred Stock into Common Stock of the Company, then, and in each such case, the Company will mail or cause to be mailed to the Registered Holder of this Warrant a notice specifying, as the case may be, (i) the date on which a record is to be taken for the purpose of such dividend, distribution or right, and stating the amount and -7- character of such dividend, distribution or right, or (ii) the effective date on which such reorganization, reclassification, consolidation, merger, transfer, dissolution, liquidation, winding-up, redemption or conversion is to take place, and the time, if any is to be fixed, as of which the holders of record of Preferred Stock (or such other stock or securities at the time deliverable upon such reorganization, reclassification, consolidation, merger, transfer, dissolution, liquidation, winding-up, redemption or conversion) are to be determined. Such notice shall be mailed at least ten (10) days prior to the record date or effective date for the event specified in such notice. 9. RESERVATION OF STOCK. The Company will at all times reserve and keep available, solely for the issuance and delivery upon the exercise of this Warrant, such shares of Warrant Stock and other stock, securities and property, as from time to time shall be issuable upon the exercise of this Warrant. 10. EXCHANGE OF WARRANTS. Upon the surrender by the Registered Holder of any Warrant or Warrants, properly endorsed, to the Company at the principal office of the Company, the Company will, subject to the provisions of Section 3 hereof, issue and deliver to or upon the order of such Registered Holder, at the Company's expense, a new Warrant or Warrants of like tenor, in the name of such Registered Holder or as such Registered Holder (upon payment by such Registered Holder of any applicable transfer taxes) may direct, calling in the aggregate on the face or faces thereof for the number of shares of Preferred Stock called for on the face or faces of the Warrant or Warrants so surrendered. 11. REPLACEMENT OF WARRANTS. Upon receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant and (in the case of loss, theft or destruction) upon delivery of an indemnity agreement (with surety if reasonably required) in an amount reasonably satisfactory to the Company, or (in the case of mutilation) upon surrender and cancellation of this Warrant, the Company will issue, in lieu thereof, a new Warrant of like tenor. 12. NO RIGHTS AS STOCKHOLDER. Until the exercise of this Warrant, the Registered Holder of this Warrant shall not have or exercise any rights by virtue hereof as a stockholder of the Company. 13. NO FRACTIONAL SHARES. No fractional shares of Series F Preferred Stock (or Common Stock, as the case may be) will be issued in connection with any exercise hereunder. In lieu of any fractional shares which would otherwise be issuable, the Company shall pay cash equal to the product of such fraction multiplied by the fair market value of one share of Series F Preferred Stock (or Common Stock, as the case may be) on the date of exercise, as determined in good faith by the Company's Board of Directors. 14. AMENDMENT OR WAIVER. Any term of this Warrant may be amended or waived only by an instrument in writing signed by the party against which enforcement of the amendment or waiver is sought. -8- 15. HEADINGS. The headings in this Warrant are for purposes of reference only and shall not limit or otherwise affect the meaning of any provision of this Warrant. 16. VOTING AGREEMENT. At the request of the Company, the Registered Holder agrees to become a party to the Company's Amended and Restated Voting Agreement upon exercise of the Warrant. 17. GOVERNING LAW. This Warrant 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. 18. SURVIVAL OF REPRESENTATIONS. Unless otherwise set forth in this Warrant, the warranties, representations and covenants of the Company and the Purchasers contained in or made pursuant to this Warrant shall survive the execution and delivery of this Warrant. 19. TRANSFER; SUCCESSORS AND ASSIGNS. The terms and conditions of this Warrant shall inure to the benefit of and be binding upon the respective successors and assigns of the parties. Nothing in this Warrant, 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 Warrant, except as expressly provided in this Warrant. 20. COUNTERPARTS. This Warrant 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. 21. ATTORNEY'S FEES. If any action at law or in equity (including arbitration) is necessary to enforce or interpret the terms of any of this Warrant, 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. 22. SEVERABILITY. If one or more provisions of this Warrant 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 Warrant, (b) the balance of this Warrant shall be interpreted as if such provision were so excluded and (c) the balance of this Warrant shall be enforceable in accordance with its terms. 23. DELAYS OR OMISSIONS. No delay or omission to exercise any right, power or remedy accruing to any party under this Warrant, upon any breach or default of any other party under this Warrant, shall impair any such right, power or remedy of such non-breaching or non-defaulting party nor shall it be construed to be a waiver of any such breach or default, or an acquiescence therein, or of or in any similar breach or default thereafter occurring; nor shall any waiver of any single breach or default be deemed a waiver of any other breach or default theretofore or thereafter occurring. Any waiver, permit, consent or approval of any kind or character on the part of any party of any breach or default under this Warrant, or any waiver on the part of any party of any provisions or conditions of this Warrant, must be in writing and shall -9- be effective only to the extent specifically set forth in such writing. All remedies, either under this Warrant or by law or otherwise afforded to any party, shall be cumulative and not alternative. 24. NOTICES. Any notice required or permitted by this Warrant shall be in writing and shall be deemed sufficient upon delivery, when delivered personally or by overnight courier or sent by facsimile, or 48 hours after being deposited in the U.S. mail, as certified or registered mail, with postage prepaid, addressed to the party to be notified at such party's address as set forth on the signature page, or as subsequently modified by written notice. 25. ENTIRE AGREEMENT. This Warrant, and the documents referred to herein constitute the entire agreement between the parties hereto pertaining to the subject matter hereof, and any and all other written or oral agreements relating to the subject matter hereof existing between the parties hereto are expressly canceled. REDENVELOPE, INC. By: /s/ Alison L. May ------------------------------- Address: 201 Spear Street 3rd Floor San Francisco, CA 94105 Fax Number: (415) 371-1134 Accepted and Agreed: REGISTERED HOLDER By: Lighthouse Management Partners III, LLC., its general partner By: /s/ Dennis Ryan ---------------------------- Name: Dennis Ryan Chief Operating Officer -10- EXHIBIT A PURCHASE/EXERCISE FORM To: REDENVELOPE, INC._ Dated: The undersigned, pursuant to the provisions set forth in the attached Warrant No. PSF-3, hereby irrevocably elects to (a) purchase _______ shares of the Preferred Stock covered by such Warrant and herewith makes payment of $_________, representing the full purchase price for such shares at the price per share provided for in such Warrant, or (b) exercise such Warrant for _______ shares purchasable under the Warrant pursuant to the Net Issue Exercise provisions of Section 1(c) of the Warrant. The undersigned acknowledges that it has reviewed the representations and warranties contained in Section 5 of the Warrant and by its signature below hereby makes such representations and warranties to the Company as of the date hereof. Signature: ____________________________ Name (print): _________________________ Title (if applic.): ___________________ Company (if applic.): _________________ EXHIBIT B ASSIGNMENT FORM FOR VALUE RECEIVED, _________________________________________ hereby sells, assigns and transfers all of the rights of the undersigned under the attached Warrant with respect to the number of shares of Series F Preferred Stock covered thereby set forth below, unto:

Dated: _____________________ Signature: ___________________________ ___________________________ Witness: _____________________________ EX-4.7 10 f89225orexv4w7.txt EXHIBIT 4.7 EXHIBIT 4.7 REDENVELOPE, INC. WARRANT PURCHASE AGREEMENT This Warrant Purchase Agreement (the "Agreement") is made as of November 13, 2001 by and between RedEnvelope, Inc., a Delaware corporation (the "Company"), and Camelot Ventures, LLC, a Michigan limited liability company (the "Lender"). RECITALS A. The Company and the Lender have entered into a Credit Agreement dated as of even date herewith (the "Credit Agreement"); and B. As a condition to the Lender's execution of the Credit Agreement, the Company has agreed to issue to the Lender a warrant or warrants to purchase shares of its capital stock in accordance with the terms of this Agreement (each, a "Warrant" and collectively, the "Warrants"). AGREEMENT In consideration of the mutual promises contained herein and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties to this Agreement hereby agree as follows: 1. PURCHASE AND SALE OF WARRANT(S). 1.1 SALE AND ISSUANCE OF INITIAL WARRANT. Subject to the terms and conditions of this Agreement and upon the execution by the Company and Lender of the Credit Agreement whereby the Lender provides a $2,000,000 credit facility to the Company, the Company shall sell and issue to the Lender, and the Lender shall purchase from the Company, for a purchase price of $0.01, a Warrant, in substantially the form attached as Exhibit A hereto, to purchase 250,000 shares of the Company's Preferred Stock (as such term is defined in the Warrants). 1.2 SALE AND ISSUANCE OF SUBSEQUENT WARRANTS. (a) Subject to the terms and conditions of this Agreement and following the date of the initial Advance (as such term is defined in the Credit Agreement), if any, of funds to the Company under the Credit Agreement, the Company shall sell and issue to the Lender, and the Lender shall purchase from the Company, for a purchase price of $0.01, a Warrant, in substantially the form attached as Exhibit A hereto, to purchase an additional 250,000 shares of the Company's Preferred Stock. (b) In the event that the aggregate of all Advances (as such term is defined in the Credit Agreement) made to the Company by the Lender pursuant to the Credit Agreement exceeds $1,000,000, the Company shall, subject to the terms and conditions of this Agreement, sell and issue to the Lender, and the Lender shall purchase from the Company, for a purchase price of $0.01, a Warrant, in substantially the form attached as Exhibit A hereto, to purchase an additional 250,000 shares of the Company's Preferred Stock. In the event that the aggregate Advances to the Company pursuant to the Credit Agreement exceed $1,000,000, the Company may, in its discretion, issue to Lender pursuant to this Section 1.2 one Warrant exercisable for 500,000 shares of Preferred Stock in lieu of two Warrants each exercisable for 250,000 shares of Preferred Stock. In no event shall the Company be obligated to issue Warrants to purchase in excess of an aggregate of 750,000 shares of Preferred Stock (as adjusted for stock splits and the like occurring after the date hereof) pursuant to the terms of this Agreement. The Warrant(s) and the equity securities issuable upon exercise of the Warrant(s) (and the securities issuable upon conversion of such equity securities) are collectively referred to herein as the "Securities." 2. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE COMPANY. The Company hereby represents and warrants to the Lender that, except as set forth on a Schedule of Exceptions attached as Exhibit B hereto, which exceptions shall be deemed to be representations and warranties as if made hereunder. 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 and legal right to own and operate its assets and to carry on its business as now conducted and as proposed to be conducted, and to execute and deliver this Agreement and to consummate the transactions contemplated hereby. The Company is duly qualified to transact business and is in good standing in each jurisdiction in which the failure so to qualify would reasonably be expected to have a material adverse effect on its business or properties. 2.2 CAPITALIZATION. The authorized capital of the Company consists of: (a) 41,975,303 shares of Preferred Stock, $0.001 par value per share, of which (i) 7,694,809 shares have been designated Series A Preferred Stock, 7,337,634 of which are issued and outstanding as of the date hereof, (ii) 4,510,000 shares have been designated Series B Preferred Stock, all of which are issued and outstanding as of the date hereof, (iii) 6,491,498 shares have been designated Series C Preferred Stock, all of which are issued and outstanding as of the date hereof, (iv) 2,278,996 shares have been designated Series D Preferred Stock, all of which are issued and outstanding as of the date hereof, and (v) 21,000,000 shares have been designated Series E Preferred Stock, 17,291,788 of which are issued and outstanding as of the date hereof. The rights, privileges and preferences of the Preferred Stock are as stated in the Company's Amended and Restated Certificate of Incorporation. (b) 80,000,000 shares of Common Stock, $0.001 par value per share, 3,804,333 shares of which are issued and outstanding. The Company has reserved sufficient shares of Common Stock for issuance upon conversion of the issued and outstanding Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock and Series E Preferred Stock. -2- (c) The Company has reserved 9,636,959 shares of Common Stock for issuance to officers, directors, employees and consultants of the Company pursuant to its 1999 Stock Plan duly adopted by the Board of Directors and approved by the Company stockholders (the "Stock Plan"). Of such reserved shares of Common Stock, options to purchase 4,649,339 shares have been granted and are currently outstanding, options to purchase 445,000 shares have been committed for issuance and 327,532 shares of Common Stock remain available for issuance to officers, directors, employees and consultants pursuant to the Stock Plan. (d) Except as set forth above and as set forth in the Investor Agreements (as such term is defined in Section 6 below), there are no outstanding options, warrants, rights (including conversion or preemptive rights and rights of first refusal or similar rights) or agreements, orally or in writing, for the purchase or acquisition from the Company of any shares of its capital stock. (e) All outstanding shares have been duly authorized and validly issued, are fully paid and nonassessable, and have been issued in compliance with applicable state and federal securities laws. The issuance of such shares by the Company did not violate any preemptive rights or rights of first refusal held by third parties (other than rights that were previously waived by such parties). (f) Except for the Investor Agreements, 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 persons that modifies, restricts or otherwise affects the right of a Company stockholder to vote its shares of the Company's capital stock in accordance with the Company's Amended and Restated Certificate of Incorporation. 2.3 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 authorization, sale, issuance and delivery of the Warrants and the performance of all obligations of the Company hereunder and thereunder has been taken, and the Agreement, when executed and delivered by the Company, shall constitute a valid and legally binding obligation of the Company, enforceable against the Company in accordance with its terms except as limited by applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance, and other laws of general application affecting enforcement of creditors' rights generally, as limited by laws relating to the availability of specific performance, injunctive relief, or other equitable remedies. Notwithstanding the foregoing, the parties acknowledge that the Company has not yet authorized, or reserved for issuance, the Preferred Stock issuable upon exercise of the Warrants or the Common Stock issuable upon conversion thereof. 2.4 FINANCIAL STATEMENTS. The Company has delivered to Lender (a) unaudited financial statements of the Company as at and for the fiscal year ended April 1, 2001, (b) unaudited financial statements of the Company, as applicable for the six (6) month period ended September 30, 2001, and (c) weekly sales updates comparing actual sales to the Company's plan, forecast and sales for the same period during the preceding fiscal year, for each week beginning October 10, 2001 through and including the Closing. The financial statements referred to in clause (a) of this Section 2.4 are true and correct in all material respects, have been -3- prepared in accordance with GAAP, and fairly present both the financial condition of the Company, as of April 1, 2001 and the results of the Company's operations for the fiscal year ended therein. The financial statements referred to in clause (b) of this Section 2.4 are true and correct in all material respects, have been prepared in accordance with GAAP (except as otherwise noted therein and, except for the absence of footnotes and normal year end adjustments), and fairly present both the financial condition of the Company, as of the dates indicated therein and the results of the Company's operations for the period indicated therein. At September 30, 2001, the Company has no liabilities or obligations (absolute, accrued, contingent or otherwise) of any nature, whether or not required by GAAP to be reflected in such financial statements, which are, individually or in the aggregate, material to the condition, financial or otherwise, or operations of the Company as of that date which are not reflected on such financial statements. There has been no adverse change in the condition, financial or otherwise, or operations of the Company since September 30, 2001, nor has there otherwise occurred a Material Adverse Effect, subsequent to such date. 2.5 DEFAULT. There are no payment defaults by the Company and no other defaults which could reasonably be expected to have, either individually or in the aggregate, a Material Adverse Effect under any loan agreement, indenture, mortgage, security agreement, lease, franchise, permit, license or other material agreement or material obligation to which it is a party or by which any of its properties may be bound. The Company is paying its debts as they become due except for debts the Company is contesting in good faith by appropriate actions and/or proceedings diligently pursued and for which it has established adequate reserves in conformity with GAAP and to the reasonable satisfaction of Lender. 2.6 COMPLIANCE WITH LAWS AND MATERIAL AGREEMENTS. The execution, delivery and performance by the Company of this Agreement and the Warrants issuable hereunder, do not and will not violate its Certificate of Incorporation or Bylaws or any law or any order of any court, governmental authority or arbitrator, and do not and will not conflict with, result in a breach of, or constitute a default under, or result in the imposition of any Lien (except Permitted Liens) upon any assets of the Company pursuant to the provisions of any loan agreement, indenture, mortgage, security agreement, franchise, permit, license or other instrument or agreement by which the Company or any of its properties is bound. No authorization, approval or consent of, and no filing or registration with, any court, governmental authority or third Person is or will be necessary for the execution, delivery or performance by the Company of this Agreement or the Warrants issuable hereunder or the validity or enforceability thereof, except for filings required under applicable state securities laws. All authorizations, approvals, consents, filings and registrations described under Section 2.6 of the Schedule of Exceptions have been obtained. The Company is not in violation of any term of its (i) Certificate of Incorporation or Bylaws or (ii) any contract, agreement, judgment or decree, and (iii) is in full compliance with all applicable laws, regulations and rules, except with respect to any item in clause (ii) or (iii) when such violation or non-compliance could not reasonably be expected to have, either individually or in the aggregate, a Material Adverse Effect. 2.7 ENVIRONMENTAL CONDITION OF THE PROPERTY. To the best of the Company's knowledge: -4- (a) The location, construction, occupancy, operation and use of the Property do not violate any applicable law, statute, ordinance, rule, regulation, order or determination of any governmental authority or other body exercising similar functions, or any restrictive covenant or deed restriction (recorded or otherwise) affecting the Property, including, without limitation, all applicable zoning ordinances and building codes, flood disaster, occupational health and safety laws and Environmental Laws and regulations (as referred to in this Section 2.7, collectively, "applicable laws"); (b) Without limitation of clause (a) of this Section 2.7, neither the Company nor the Property is subject to any existing, pending or threatened investigation or inquiry by any governmental authority or subject to any remedial obligations due to violations of applicable laws; (c) The Company is not subject to any liability or obligation relating to (i) the environmental conditions on, under or about the Property, including, without limitation, the soil and ground water conditions at the Property, or (ii) the use, management, handling, transport, treatment, generation, storage, disposal, release or discharge of any Polluting Substance; (d) There is no Polluting Substance or other substance that may pose any risk to safety, health or the environment on, under or about any Property; (e) No Polluting Substances have been disposed of or otherwise released on, onto, into, or from the Property, and the use which the Company makes and intends to make of the Property does not and will not result in the disposal or other release of any Polluting Substances on, onto, into or from the Property; and (f) The Company has been issued all required federal, state and local licenses, certificates or permits relating to, and the Property, the Company and the Company's facilities, business, assets, leaseholds and equipment are all in compliance in all respects with all applicable federal, state and local laws, rules and regulations relating to, air emissions, water discharge, noise emissions, solid or liquid waste disposal, Polluting Substances, or other environmental, health or safety matters. 2.8 LITIGATION AND JUDGMENTS. There is no action, suit, proceeding or investigation before any court, governmental authority or arbitrator pending, or to the knowledge of the Company threatened, against or affecting the Company, this Agreement, and/or the Other Agreements. There are no outstanding judgments against the Company. None of the matters listed under Section 2.8 of the Schedule of Exceptions could reasonably be expected to have, either individually or in the aggregate, a Material Adverse Effect. 2.9 RIGHTS IN PROPERTIES; LIENS. The Company has good and indefeasible title to all material properties and assets reflected on its balance sheets, and none of such properties or assets is subject to any Liens, except Permitted Liens. The Company enjoys peaceful and undisturbed possession under all leases necessary for the operation of its other properties, assets, and businesses and, to its knowledge, all such leases are valid and subsisting and are in full force and effect. There exists no default under any provision of any lease which -5- would permit the lessor thereunder to terminate any such lease or to exercise any rights under such lease which, individually or together with all other such defaults, could have a Material Adverse Effect. The Company has the right to use all of the Intellectual Property necessary to its business as presently conducted, and the Company's use of the Intellectual Property, to its knowledge, does not infringe on the rights of any other Person. To the best of the Company's knowledge, no other Person is infringing the rights of the Company in any of the Intellectual Property. The Company owes no royalties, honoraria or fees to any Person by reason of its use of the Intellectual Property. 2.10 TAXES. The Company has filed all tax returns (federal, state, and local) required to be filed, including, without limitation, all income, franchise, employment, property, and sales taxes, and has paid all of its tax liabilities, other than immaterial amounts and taxes that are being contested by the Company in good faith by appropriate actions or proceedings diligently pursued, and for which adequate reserves in conformity with GAAP with respect thereto have been established to the reasonable satisfaction of Lender. The Company knows of no pending investigation of the Company by any taxing authority or pending but unassessed tax liability of the Company. The Company has made no presently effective waiver of any applicable statute of limitations or request for an extension of time to file a tax return, and the Company is not a party to any tax-sharing agreement. 2.11 ERISA. The Company does not have or maintain any Employee Benefit Plans subject to ERISA or the Code, and has no liability, itself or as any member of a Controlled Group, under ERISA or the Code with respect to any plan it does maintain or has maintained for the benefit of its employees. 2.12 DISCLOSURE. No representation or warranty made by the Company in this Agreement contains or will contain any untrue material fact or omits to state any material fact necessary to make the statements herein or therein, taken as a whole, not misleading. There is no fact known to the Company which the Company has determined has a Material Adverse Effect, or which the Company has determined could have a Material Adverse Effect, that has not been disclosed in writing to Lender. 2.13 NO LABOR DISPUTES. The Company is not involved in any labor dispute. There are no strikes or walkouts or union organization of any of the Company's employees threatened or in existence and no labor contract is scheduled to expire during the term of the Credit Agreement. 2.14 INSURANCE. The amount and types of insurance carried by the Company, and the terms and conditions thereof, are substantially similar to the coverage maintained by companies in the same or similar business as the Company and similarly situated. All capitalized terms contained in this Section 2 that are not otherwise defined in this Agreement shall have the meanings ascribed to them under the Credit Agreement. 3. COVENANTS REGARDING ISSUANCE OF STOCK UPON EXERCISE OF WARRANTS. The Company covenants that: -6- (a) The shares of Preferred Stock issuable on exercise of the Warrants when issued and paid for in accordance with the terms of the Warrants, will be duly authorized, validly issued, fully paid, and nonassessable and will not be subject to preemptive rights, rights of first refusal, or similar rights of a third party. (b) Prior to the exercise of any Warrant in accordance with its terms, the Company will have authorized and reserved a sufficient number of shares of the Company's securities into which such Warrant is exercisable to provide for the exercise in full of the Warrants. (c) The Company has authorized and available for issuance, or shall, prior to January 31, 2002, authorize and make available for issuance, 750,000 shares of Series E Preferred Stock and shall reserve such shares for issuance upon exercise of the Warrants; provided, however, that in the event that the Warrants are not issuable for Series E Preferred Stock or are issuable for less than 750,000 shares of Series E Preferred Stock, the Company shall no longer be required to reserve any shares that are not issuable upon exercise of such Warrants. 4. REPRESENTATIONS AND WARRANTIES OF THE LENDER. The Lender hereby represents and warrants to the Company that: 4.1 AUTHORIZATION. The Lender has full power and authority to enter into this Agreement and this Agreement, when executed and delivered by the Lender, will constitute the valid and legally binding obligation of the Lender, enforceable in accordance with its terms, except as limited by applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance, and any other laws of general application affecting enforcement of creditors' rights generally, and as limited by laws relating to the availability of a specific performance, injunctive relief, or other equitable remedies. 4.2 PURCHASE ENTIRELY FOR OWN ACCOUNT. The Securities to be acquired by the Lender will be acquired for investment for the Lender's own account, not as a nominee or agent, and not with a view to the resale or distribution of any part thereof, and the Lender has no present intention of selling, granting any participation in, or otherwise distributing the same. By executing this Agreement, the Lender further represents that it does not presently 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. The Lender has not been formed for the specific purpose of acquiring any of the Securities. 4.3 KNOWLEDGE. The Lender is aware of the Company's business affairs and financial condition, has had an opportunity to discuss the Company's business affairs and financial condition with the Company's management, and has acquired sufficient information about the Company to reach an informed and knowledgeable decision to acquire the Securities. 4.4 RESTRICTED SECURITIES. The Lender understands that the Securities have not been, and will not be, registered under the Securities Act of 1933, as amended (the "Securities Act"), by reason of a specific exemption from the registration provisions of the Securities Act which depends upon, among other things, the bona fide nature of the investment -7- intent and the accuracy of the Lender's representations as expressed herein. The Lender understands that the Securities are "restricted securities" under applicable U.S. federal and state securities laws and that, pursuant to these laws, the Lender must hold the Securities 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. The Lender acknowledges that the Company has no obligation to register or qualify the Securities for resale except as required by Section 6 below. The Lender 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 Securities, and on requirements relating to the Company which are outside of the Lender's control, and which the Company is under no obligation and may not be able to satisfy. 4.5 NO PUBLIC MARKET. The Lender understands that no public market now exists for any of the securities issued by the Company, that the Company has made no assurances that a public market will ever exist for the Securities. 4.6 LEGENDS. The Lender understands that the Securities, and any securities issued in respect thereof or exchange therefor, may bear one or all of the following legends: (a) "THE SECURITIES 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." (b) Any legend required by the Blue Sky laws of any state to the extent such laws are applicable to the shares represented by the certificate so legended. 4.7 ACCREDITED INVESTOR. The Lender is an accredited investor as defined in Rule 501(a) of Regulation D promulgated under the Securities Act. 5. CONDITIONS OF THE COMPANY'S OBLIGATIONS TO ISSUE WARRANTS. The obligations of the Company to issue any Warrant to the Lender pursuant to the terms of this Agreement are subject to the following conditions, unless otherwise waived by the Company: 5.1 REPRESENTATIONS AND WARRANTIES. The representations and warranties of the Lender contained in Section 4 shall be true on and as of the date of issuance of such Warrant with the same effect as though such representations and warranties had been made on and as of such date. 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 -8- connection with the lawful issuance and sale of such Warrant pursuant to this Agreement shall be obtained and effective as of the date of issuance of such Warrant. 6. INVESTOR AGREEMENTS. Upon issuance of shares of Preferred Stock to the Lender pursuant to any exercise of the Warrants, the Company shall take all action necessary (including obtaining any necessary consents of the Company's existing stockholders) to have the Lender become a party to (unless Lender is already a party to), and to have the Lender's shares of Preferred Stock issued upon exercise of the Warrant become eligible to receive the benefits accorded to all other holders of shares of similar Preferred Stock set forth in, those certain Amended and Restated Investors' Rights Agreement, Amended and Restated Investor's Right of First Refusal and Co-Sale Agreement, and Amended and Restated Voting Agreement, each dated as of July 17, 2000 and as amended to date (collectively, the "Investor Agreements"); provided, however, in the event the Company hereafter closes a preferred stock financing prior to such issuance, the term Investor Agreements shall be deemed to refer to any successor agreement or agreements containing similar benefits granted to holders of shares issued in such financing. The Lender acknowledges and agrees that any rights set forth in the Investor Agreements shall be conditioned upon Lender's execution of such agreements. 7. CONDITIONS. The obligations of the Lender to purchase the Warrants hereunder are subject to satisfaction or waiver by the Lender of each of the conditions precedent to the obligations of the Lender under the Credit Agreement. 8. MISCELLANEOUS. 8.1 INTEGRATION. This Agreement, together with the attachments hereto, and the Credit Agreement constitute the entire agreement with respect to the subject matter hereof and thereof and supersede all previous written, and all previous or contemporaneous oral, negotiations, understandings, arrangements, and agreements. 8.2 REMEDIES. The failure of any party to enforce any right or remedy under this Agreement, or promptly to enforce any such right or remedy, will not constitute a waiver thereof, nor give rise to any estoppel against such party, nor excuse any other party from its obligations under this Agreement. Any waiver of any such right or remedy by any party must be in writing and signed by the party against which such waiver is sought to be enforced. The parties hereby agree that in the event of any breach by a party of its obligations under this Agreement, the non-breaching party will be entitled, in addition to any and all other rights and remedies that it may have in law or in equity, to seek specific performance of such obligations from such breaching party. 8.3 SURVIVAL. All warranties, representations, and covenants made by any party in this Agreement or in any certificate delivered by such party or on its behalf under this Agreement will be considered to have been relied upon by the party to which it is delivered and will survive the Closing Date, the exercise or retirement of the Warrants and the repayment of the -9- Obligations under the Credit Agreement, regardless of any investigation made by such party or on its behalf. 8.4 ATTORNEY'S FEES. If any action at law or in equity (including arbitration) is necessary to enforce or interpret the terms of this Agreement or the Warrant(s) issued hereunder, 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. 8.5 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. 8.6 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 Delaware, without giving effect to principles of conflicts of law. 8.7 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. 8.8 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. 8.9 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, overnight delivery service or confirmed facsimile, or forty-eight (48) hours after being deposited in the U.S. mail as certified or registered mail 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. 8.10 FINDER'S FEE. Each party represents that it neither is nor will be obligated for any finder's fee or commission in connection with this transaction. 8.11 AMENDMENTS AND WAIVERS. Any term of this Agreement may be amended or waived only with the written consent of the Company and the Lender. Any amendment or waiver effected in accordance with this Section 8.11 shall be binding upon the Lender and each transferee of the Securities, each future holder of all such Securities, and the Company. 8.12 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, -10- 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 (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. 8.13 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 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 THE QUALIFICATION BEING OBTAINED UNLESS THE SALE IS SO EXEMPT. [Signature page follows] -11- The parties have executed this Warrant Purchase Agreement as of the date first written above. COMPANY: REDENVELOPE, INC. By: /s/ Martin McClanan ----------------------------------- Name: Martin McClanan (print) Title: Chief Executive Officer Address: 201 Spear Street, Third Floor San Francisco, CA 94105 Facsimile Number: (415) 371-1134 LENDER: CAMELOT VENTURES, LLC By: /s/ David Katzman ----------------------------------- Name: David Katzman (print) Title: Manager Address: 100 Galleria Officentre Suite 419 Southfield, MI 48034 Attn: Nicholas J. Pyett Facsimile Number: (248) 827-3725 SIGNATURE PAGE TO WARRANT PURCHASE AGREEMENT EX-4.8 11 f89225orexv4w8.txt EXHIBIT 4.8 EXHIBIT 4.8 THE SECURITIES 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. Warrant No. WAR28 Date of Issuance: November 13, 2001 REDENVELOPE, INC. PREFERRED STOCK PURCHASE WARRANT RedEnvelope, Inc. (the "Company"), for value received, hereby certifies that Camelot Ventures, LLC, or its registered assigns (the "Registered Holder"), is entitled, subject to the terms set forth below, to purchase from the Company, at any time after the date hereof and on or before the Expiration Date (as defined in Section 6 below) 250,000 shares of preferred stock of the Company as set forth in Section 1 below (the "Preferred Stock") at the exercise price per share set forth in Section 1 below. The shares purchasable upon exercise of this Warrant and the per-share exercise price therefor, as determined in accordance with Section 1 of this Warrant and as may be adjusted from time to time pursuant to the provisions of this Warrant, are hereinafter referred to as the "Warrant Stock" and the "Purchase Price," respectively. THIS WARRANT IS ISSUED PURSUANT TO, AND IS SUBJECT TO THE TERMS AND CONDITIONS OF, A WARRANT PURCHASE AGREEMENT DATED NOVEMBER 13, 2001 BETWEEN THE COMPANY AND CAMELOT VENTURES, LLC (THE "PURCHASE AGREEMENT"). A COPY OF THE PURCHASE AGREEMENT IS AVAILABLE AT THE EXECUTIVE OFFICES OF THE COMPANY. 1. PREFERRED STOCK AND EXERCISE PRICE. The Preferred Stock to be issued upon exercise of this Warrant, and the per share exercise price therefor, shall be as follows: (a) In the event the Company authorizes and sells shares of a new series or class of convertible preferred stock after the date hereof and prior to January 1, 2005, as a result of which the Company raises aggregate gross proceeds of more than $5,000,000 (a "Major Financing"), this Warrant shall be exercisable for shares of the preferred stock sold in the first Major Financing to close after the date hereof and shall have a per-share exercise price equal to the lesser of (i) the per share price of the preferred stock sold in such Major Financing and (ii) $1.98; (b) In the event that, after the date hereof, prior to January 1, 2005 and prior to the closing of a Major Financing, the Company (i) sells all or substantially all of its assets or (ii) merges, consolidates or completes any other business combination transaction with or into another entity as a result of which the holders of the Company's outstanding stock immediately prior to such transaction hold, immediately after such transaction, stock representing less than 50% of the voting power of the surviving entity (other than a merger effected solely for the purpose of changing the domicile of the Company) (each an "Acquisition"), and the consideration paid to the Company's stockholders in connection with such Acquisition is either in the form of cash or equity securities traded on a national securities exchange, or The Nasdaq Stock Market ("Publicly-Traded Securities"), this Warrant shall, immediately prior to the closing of such Acquisition, become exercisable for the Company's Series E Preferred Stock, having the rights, preferences and privileges described in the Company's then-current Certificate of Incorporation (the "Series E Preferred"), and shall have a per-share exercise price equal to 33 1/3% of the fair market value of the consideration paid for one share of Series E Preferred (or paid for the share(s) of the Company's common stock issued upon conversion of one share of Series E Preferred) valued as of the date of the closing of such Acquisition; (c) In the event that, after the date hereof, prior to January 1, 2005 and prior to the closing of a Major Financing an Acquisition is closed and the consideration paid to the Company's stockholders in connection with such Acquisition is neither in the form of cash nor Publicly-Traded Securities, this Warrant shall, immediately prior to the closing of such Acquisition, become exercisable for Series E Preferred and shall have a per-share exercise price equal to $0.60; (d) In the event that neither a Major Financing nor an Acquisition is closed after the date hereof and prior to January 1, 2005, but the Company does authorize and sell shares of a new series or class of convertible preferred stock after the date hereof and prior to January 1, 2005, as a result of which the Company raises aggregate gross proceeds of $5,000,000 or less (a "Minor Financing"), this Warrant shall be exercisable for shares of the preferred stock sold in such Minor Financing having the lowest per-share purchase price (as adjusted for stock splits and the like) between the date hereof and January 1, 2005 and shall have a per-share exercise price equal to the lesser of (i) the per share price of the preferred stock sold in such Minor Financing and (ii) $1.98; (e) In the event that the Company closes an initial public offering of its common stock pursuant to a registration statement under the Securities Act in connection with which all outstanding shares of the Company's preferred stock are converted into common stock (an "IPO") prior to the closing of an Acquisition or a Major Financing, the Warrant Stock and the Purchase Price will be determined in accordance with Section 1(d) above. In the event that the Company closes its IPO prior to the closing of an Acquisition, a Major Financing or a Minor Financing, this Warrant shall be exercisable for such number of shares of Common Stock issuable upon conversion of 250,000 shares of Series E Preferred immediately prior to such IPO closing (the "Conversion Shares") and shall have a per-share exercise price equal to the lesser of (a) $l.98 multiplied by the quotient obtained by dividing 250,000 by the Conversion Shares and (b) 66 2/3% of the initial "Price to Public" per share specified in the final prospectus filed in connection with the IPO. (f) In the event that, after the date hereof and as of the end of business on December 31, 2004, the Company has not closed an Acquisition, an IPO, a Major Financing or a -2- Minor Financing, the Warrant shall be exercisable for the Company's Series E Preferred and shall have a per-share exercise price equal to $0.60. Once the nature of the Warrant Stock and the Purchase Price are determined in accordance with this Section 1, the Company may issue to the Registered Holder, and may require the Registered Holder to surrender this Warrant in exchange for, a replacement warrant reflecting the nature of the Warrant Stock and the Purchase Price so determined but identical in all other respects. All components used in determining the purchase price as required by this Section 1 shall be adjusted as necessary to reflect stock splits, stock dividends and the like. 2. EXERCISE. (a) MANNER OF EXERCISE. This Warrant may be exercised by the Registered Holder, in whole or in part, by surrendering this Warrant, with the purchase/exercise form appended hereto as Exhibit A duly executed by such Registered Holder or by such Registered Holder's duly authorized attorney, at the principal office of the Company, or at such other office or agency as the Company may designate, accompanied by payment in full of the Purchase Price payable in respect of the number of shares of Warrant Stock purchased upon such exercise. The Purchase Price may be paid by cash, check, wire transfer, or by the surrender of promissory notes or other instruments representing indebtedness of the Company to the Registered Holder. (b) EFFECTIVE TIME OF EXERCISE. Each exercise of this Warrant shall be deemed to have been effected immediately prior to the close of business on the day on which this Warrant shall have been surrendered to the Company as provided in Section 2(a) above. At such time, the person or persons in whose name or names any certificates for Warrant Stock shall be issuable upon such exercise as provided in Section 2(d) below shall be deemed to have become the holder or holders of record of the Warrant Stock represented by such certificates. (c) NET ISSUE EXERCISE. (i) In lieu of exercising this Warrant in the manner provided above in Section 2(a), the Registered Holder may elect to receive shares equal to the value of this Warrant (or the portion thereof being canceled) by surrender of this Warrant at the principal office of the Company together with notice of such election on the purchase/exercise form appended hereto as Exhibit A duly executed by such Registered Holder or such Registered Holder's duly authorized attorney, in which event the Company shall issue to such Holder a number of shares of Warrant Stock computed using the following formula: -3- X = Y (A - B) --------- A Where X = The number of shares of Warrant Stock to be issued to the Registered Holder. Y = The number of shares of Warrant Stock the Registered Holder elects to purchase under this Warrant. A = The fair market value of one share of Warrant Stock (at the date of such calculation). B = The Purchase Price (as adjusted to the date of such calculation). (ii) For purposes of this Section 2(c), the fair market value of Warrant Stock on the date of calculation shall mean with respect to each share of Warrant Stock: (A) if the exercise is in connection with an IPO, and if the Company's Registration Statement relating to such IPO has been declared effective by the Securities and Exchange Commission, then the fair market value shall be the product of (x) the initial "Price to Public" per share specified in the final prospectus with respect to the offering and (y) the number of shares of Common Stock into which each share of Warrant Stock is convertible at the date of calculation; (B) if this Warrant is exercised after, and not in connection with, the Company's initial public offering, and if the Common Stock is traded on a nationally recognized securities exchange or The Nasdaq Stock Market or actively traded over-the-counter: (1) if the Company's Common Stock is traded on a nationally recognized securities exchange or The Nasdaq Stock Market, the fair market value shall be deemed to be the product of (x) the average of the closing prices over a thirty (30) day period ending three days before date of calculation and (y) the number of shares of Common Stock into which each share of Warrant Stock is convertible on such date; or (2) if the Company's Common Stock is actively traded over-the-counter, the fair market value shall be deemed to be the product of (x) the average of the closing bid or sales price (whichever is applicable) over the thirty (30) day period ending three days before the date of calculation and (y) the number of shares of Common Stock into which each share of Warrant Stock is convertible on such date; or (C) if neither (A) nor (B) is applicable, the fair market value of Warrant Stock shall be as determined in good faith by the Company's Board of Directors, unless the Company is at such time subject to an Acquisition, in which case the fair market value of Warrant Stock shall be deemed to be the value received by the holders of such stock pursuant to such Acquisition. -4- (d) DELIVERY TO HOLDER. As soon as practicable after the exercise of this Warrant in whole or in part, and in any event within ten (10) days thereafter, the Company at its expense will cause to be issued in the name of, and delivered to, the Registered Holder, or as such Holder (upon payment by such Holder of any applicable transfer taxes) may direct: (i) a certificate or certificates for the number of shares of Warrant Stock to which such Registered Holder shall be entitled, and (ii) in case such exercise is in part only, a new warrant or warrants (dated the date hereof) of like tenor, calling in the aggregate on the face or faces thereof for the number of shares of Warrant Stock equal (without giving effect to any adjustment therein) to the number of such shares called for on the face of this Warrant minus the number of such shares purchased by the Registered Holder upon such exercise as provided in Section 2(a) or 2(c) above. (e) TAXES. The issuance of any Preferred Stock or other securities upon the exercise of the Warrants will be made without charge or offset to the Registered Holder for any stock issuance tax or stock transfer tax imposed by a United States federal or state tax agency, other than taxes that would not have been incurred but for Camelot Ventures, LLC's transfer of the Warrant. 3. ADJUSTMENTS. (a) REDEMPTION OR CONVERSION OF PREFERRED STOCK. If all of the Preferred Stock is redeemed or converted into shares of Common Stock, then this Warrant shall automatically become exercisable for that number of shares of Common Stock equal to the number of shares of Common Stock that would have been received if this Warrant had been exercised in full and the shares of Preferred Stock received thereupon had been simultaneously converted into shares of Common Stock immediately prior to such event, and the Exercise Price shall be automatically adjusted to equal the number obtained by dividing (i) the aggregate Purchase Price of the shares of Preferred Stock for which this Warrant was exercisable immediately prior to such redemption or conversion, by (ii) the number of shares of Common Stock for which this Warrant is exercisable immediately after such redemption or conversion. (b) STOCK SPLITS AND DIVIDENDS. If outstanding shares of the Company's Preferred Stock shall be subdivided into a greater number of shares or a dividend in Preferred Stock shall be paid in respect of Preferred Stock, the Purchase Price in effect immediately prior to such subdivision or at the record date of such dividend shall simultaneously with the effectiveness of such subdivision or immediately after the record date of such dividend be proportionately reduced. If outstanding shares of Preferred Stock shall be combined into a smaller number of shares, the Purchase Price in effect immediately prior to such combination shall, simultaneously with the effectiveness of such combination, be proportionately increased. When any adjustment is required to be made in the Purchase Price, the number of shares of Warrant Stock purchasable upon the exercise of this Warrant shall be changed to the number determined by dividing (i) an amount equal to the number of shares issuable upon the exercise of this Warrant immediately prior to such adjustment, multiplied by the Purchase Price in effect -5- immediately prior to such adjustment, by (ii) the Purchase Price in effect immediately after such adjustment. (c) RECLASSIFICATION, ETC. In case there occurs, on or after the date hereof, (i) any reclassification or change of the outstanding securities of the Company or of any reorganization of the Company (or any other corporation the stock or securities of which are at the time receivable upon the exercise of this Warrant) or any similar corporate reorganization, (ii) a merger, consolidation, or combination of the Company with or into another entity as a result of which the Company is not the surviving entity in such transaction (other than a merger effected solely for the purpose of changing the domicile of the Company), or (iii) the sale of all or substantially all of the Company's assets to any other person, then and in each such case the Registered Holder, upon the exercise hereof at any time after the consummation of such reclassification, change, reorganization, merger or sale, shall be entitled to receive, in lieu of the stock or other securities and property receivable upon the exercise hereof prior to such consummation, the stock or other securities or property to which such Holder would have been entitled upon such consummation if such Holder had exercised this Warrant immediately prior thereto, all subject to further adjustment pursuant to the provisions of this Section 3. (d) DEFERRAL OF ADJUSTMENTS. Immediately following the determination of the Warrant Stock and the Purchase Price in accordance with Section 1 above, the number of shares of Warrant Stock issuable upon exercise of this Warrant and the Purchase Price for this Warrant will be adjusted, as necessary, to reflect adjustments that would have been made pursuant to Sections 3(a)-3(c) above had the Warrant Stock and Purchase Price been determined as of the date of issuance of this Warrant. (e) ADJUSTMENT CERTIFICATE. When any adjustment is required to be made in the Warrant Stock or the Purchase Price pursuant to this Section 3, the Company shall promptly mail to the Registered Holder a certificate setting forth (i) a brief statement of the facts requiring such adjustment, (ii) the Purchase Price after such adjustment and (iii) the kind and amount of stock or other securities or property into which this Warrant shall be exercisable after such adjustment. (f) ACKNOWLEDGEMENT. In order to avoid doubt, it is acknowledged that the holder of this Warrant shall be entitled to the benefit of all adjustments in the number of shares of Common Stock of the Company issuable upon conversion of the Preferred Stock of the Company which occur prior to the exercise of this Warrant as a result of a dilutive issuance of capital stock. 4. TRANSFERS. (a) UNREGISTERED SECURITY. Each holder of this Warrant acknowledges that this Warrant, the Warrant Stock and the Common Stock of the Company have not been registered under the Securities Act of 1933, as amended (the "Securities Act"), and agrees not to sell, pledge, distribute, offer for sale, transfer or otherwise dispose of this Warrant, any Warrant Stock issued upon its exercise or any Common Stock issued upon conversion of the Warrant Stock in the absence of (i) an effective registration statement under the Act as to this Warrant, -6- such Warrant Stock or such Common Stock and registration and qualification of this Warrant, such Warrant Stock or such Common Stock under any applicable U.S. federal or state securities law then in effect, or (ii) an opinion of counsel, satisfactory to the Company, that such registration and qualification are not required. Each certificate or other instrument for Warrant Stock issued upon the exercise of this Warrant shall bear a legend substantially to the foregoing effect. (b) TRANSFERABILITY. Subject to the provisions of Section 4(a) hereof and of Section 5 of the Purchase Agreement, this Warrant and all rights hereunder are transferable upon surrender of the Warrant with a properly executed assignment (in the form of Exhibit B hereto) at the principal office of the Company; provided, however, that this Warrant may not be transferred (i) in part, (ii) to any entity that, in the Company's reasonable determination, is a competitor of the Company and (iii) unless and until the transferee has consented in writing to be bound by the "Market Stand Off" provisions of the Company's Amended and Restated Investors' Rights Agreement (currently set forth in Section 1.14 thereof). (c) WARRANT REGISTER. The Company will maintain a register containing the names and addresses of the Registered Holders of this Warrant. Until any transfer of this Warrant is made in the warrant register, the Company may treat the Registered Holder of this Warrant as the absolute owner hereof for all purposes; provided, however, that if this Warrant is properly assigned in blank, the Company may (but shall not be required to) treat the bearer hereof as the absolute owner hereof for all purposes, notwithstanding any notice to the contrary. Any Registered Holder may change such Registered Holder's address as shown on the warrant register by written notice to the Company requesting such change. 5. NO IMPAIRMENT. The Company will not, by amendment of its charter or through reorganization, consolidation, merger, dissolution, sale of assets or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, but will (subject to Section 13 below) at all times in good faith assist in the carrying out of all such terms and in the taking of all such action as may be necessary or appropriate in order to protect the rights of the holder of this Warrant against impairment. 6. TERMINATION. This Warrant (and the right to purchase securities upon exercise hereof) shall terminate upon the earliest to occur of the following (the "Expiration Date"): (a) November 13, 2011 or (b) two (2) years after the closing of the Company's IPO. 7. NOTICES OF CERTAIN TRANSACTIONS. In case: (a) the Company shall take a record of the holders of its Preferred Stock (or other stock or securities at the time deliverable upon the exercise of this Warrant) for the purpose of entitling or enabling them to receive any dividend or other distribution, or to receive any right to subscribe for or purchase any shares of stock of any class or any other securities, or to receive any other right, to subscribe for or purchase any shares of stock of any class or any other securities, or to receive any other right, or -7- (b) of any capital reorganization of the Company, any reclassification of the capital stock of the Company, any consolidation or merger of the Company, any consolidation or merger of the Company with or into another corporation (other than a consolidation or merger in which the Company is the surviving entity), or any transfer of all or substantially all of the assets of the Company, or (c) of the voluntary or involuntary dissolution, liquidation or winding-up of the Company, or (d) of any redemption of the Preferred Stock or mandatory conversion of the Preferred Stock into Common Stock of the Company, then, and in each such case, the Company will mail or cause to be mailed to the Registered Holder of this Warrant a notice specifying, as the case may be, (i) the date on which a record is to be taken for the purpose of such dividend, distribution or right, and stating the amount and character of such dividend, distribution or right, or (ii) the effective date on which such reorganization, reclassification, consolidation, merger, transfer, dissolution, liquidation, winding-up, redemption or conversion is to take place, and the time, if any is to be fixed, as of which the holders of record of Preferred Stock (or such other stock or securities at the time deliverable upon such reorganization, reclassification, consolidation, merger, transfer, dissolution, liquidation, winding-up, redemption or conversion) are to be determined. Such notice shall be mailed at least ten (10) days prior to the record date or effective date for the event specified in such notice. 8. EXCHANGE OF WARRANTS. Upon the surrender by the Registered Holder of any Warrant or Warrants, properly endorsed, to the Company at the principal office of the Company, the Company will, subject to the provisions of Section 4 hereof, issue and deliver to or upon the order of such Holder, at the Company's expense, a new Warrant or Warrants of like tenor, in the name of such Registered Holder or as such Registered Holder (upon payment by such Registered Holder of any applicable transfer taxes) may direct, calling in the aggregate on the face or faces thereof for the number of shares of Preferred Stock called for on the face or faces of the Warrant or Warrants so surrendered. 9. REPLACEMENT OF WARRANTS. Upon receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant and (in the case of loss, theft or destruction) upon delivery of an indemnity agreement (with surety if reasonably required) in an amount reasonably satisfactory to the Company, or (in the case of mutilation) upon surrender and cancellation of this Warrant, the Company will issue, in lieu thereof, a new Warrant of like tenor. 10. MAILING OF NOTICES. Any notice required or permitted pursuant to this Warrant shall be in writing and shall be deemed sufficient upon receipt, when delivered personally or sent by courier, 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, addressed (a) if to the Registered Holder, to the address of the Registered -8- Holder most recently furnished in writing to the Company and (b) if to the Company, to the address set forth below or subsequently modified by written notice to the Registered Holder. 11. NO RIGHTS AS STOCKHOLDER. Until the exercise of this Warrant, the Registered Holder of this Warrant shall not have or exercise any rights by virtue hereof as a stockholder of the Company with respect to the Warrant Stock. 12. NO FRACTIONAL SHARES. No fractional shares of Preferred Stock will be issued in connection with any exercise hereunder. In lieu of any fractional shares which would otherwise be issuable, the Company shall pay cash equal to the product of such fraction multiplied by the fair market value of one share of Preferred Stock on the date of exercise, as determined in good faith by the Company's Board of Directors. 13. AMENDMENT OR WAIVER. Any term of this Warrant may be amended or waived only by an instrument in writing signed by the party against which enforcement of the amendment or waiver is sought. 14. HEADINGS. The headings in this Warrant are for purposes of reference only and shall not limit or otherwise affect the meaning of any provision of this Warrant. 15. GOVERNING LAW. This Warrant shall be governed, construed and interpreted in accordance with the laws of the State of Delaware, without giving effect to principles of conflicts of law. REDENVELOPE, INC. By: /s/ Martin McClanan -------------------------------- Name: Martin McClanan (print) Title: Chief Executive Officer Address: 201 Spear Street, Third Floor San Francisco, CA 94105 Facsimile Number: (415) 371-1134 -9- EXHIBIT A PURCHASE/EXERCISE FORM To: RedEnvelope, Inc. Dated: The undersigned, pursuant to the provisions set forth in the attached Warrant No. WAR28, hereby irrevocably elects to (a) purchase _______ shares of the Preferred Stock covered by such Warrant and herewith makes payment of $_________, representing the full purchase price for such shares at the price per share provided for in such Warrant, or (b) exercise such Warrant for _______ shares purchasable under the Warrant pursuant to the Net Issue Exercise provisions of Section 2(c) of such Warrant. The undersigned acknowledges that it has reviewed the representations and warranties contained in Section 3 of the Purchase Agreement (as defined in the Warrant) and by its signature below hereby makes such representations and warranties to the Company as of the date hereof. Defined terms contained in such representations and warranties shall have the meanings assigned to them in the Purchase Agreement, provided that the term "Lender" shall refer to the undersigned and the term "Securities" shall refer to the Warrant Stock and the Common Stock of the Company issuable upon conversion of the Warrant Stock. The undersigned further acknowledges that it has reviewed the market standoff provisions in the Company's Amended and Restated Investors' Rights Agreement (currently set forth in Section 1.14 thereof) and agrees to be bound by such provisions. Signature: ____________________________ Name (print): _________________________ Title (if applic.): ___________________ Company (if applic.): _________________ EXHIBIT B ASSIGNMENT FORM FOR VALUE RECEIVED, _________________________________________ hereby sells, assigns and transfers all of the rights of the undersigned under the attached Warrant with respect to the number of shares of Series __ Preferred Stock covered thereby set forth below, unto:

Dated: _____________________ Signature: ___________________________ ___________________________ __________________ Witness: _____________________________ EX-4.9 12 f89225orexv4w9.txt EXHIBIT 4.9 EXHIBIT 4.9 THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED, OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL (WHICH MAY BE COMPANY COUNSEL) REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES LAWS. WARRANT AGREEMENT To Purchase Shares of Common Stock of REDENVLEOPE, INC. Dated as of February 10, 2000 (the "Effective Date") WHEREAS, RedEnvelope, Inc. a Delaware corporation (the "Company") has entered into a Master Lease Agreement dated as of February 10, 2000, Equipment Schedule No. VL-1 and Vl-2 dated as of February 10, 2000, and related Summary Equipment Schedules (collectively, the "Leases") with Comdisco, Inc., a Delaware corporation (the "Warrantholder"); and WHEREAS, the Company desires to grant to Warrantholder, in consideration for such Leases, the right to purchase shares of its Common Stock; NOW, THEREFORE, in consideration of the Warrantholder executing and delivering such Leases and in consideration of mutual covenants and agreements contained herein, the Company and Warrantholder agree as follows: 1. GRANT OF THE RIGHT TO PURCHASE COMMON STOCK. The Company hereby grants to the Warrantholder, and the Warrantholder is entitled, upon the terms and subject to the conditions hereinafter set forth, to subscribe to and purchase, from the Company, 9,272 fully paid and non-assessable shares of the Company's Common Stock at a purchase price of $4.853 per share (the "Exercise Price"). The number and purchase price of such shares are subject to adjustment as provided for in Section 8 hereof. 2. TERM OF THE WARRANT AGREEMENT. Except as otherwise provided for herein, this Warrant and the right to purchase Common Stock as granted herein shall commence on the Effective Date and shall be exercisable for a period of (i) seven (7) years or (ii) upon the sale, conveyance or disposal of all or substantially all of the Company's property or business or the Company's merger into or consolidation with any other corporation (other than a wholly-owned subsidiary of the Company) or any other transaction or series of related transactions in which more than fifty percent (50%) of the voting power of the Company is disposed of, provided that this Section 2 shall not apply to a merger effected exclusively for the purpose of changing the domicile of the Company, or (iii) immediately upon the effective date of the Company's initial public offering (through forced net issuance) whichever is longer. In connection with a termination pursuant to (iii) above, the Company shall give the Warrantholder notice of its intention to file a Registration Statement with the Securities and Exchange Commission (the "Commission") not less than twenty (20) days prior to the anticipated filing date of such Registration Statement. Following such notice, the Warrantholder shall, within ten (10) days of receipt of such notice, give the Company notice of any intention the Warrantholder has to exercise the Warrant. In the event that the Warrantholder desires to exercise this Warrant, such notice shall include the number of shares the Warrantholder intends to exercise and the Warrantholder shall surrender this Warrant to the Company along with payment of the applicable Purchase Price, unless the Company shall, in its discretion, permit deferral of such payment; provided, however, that the actual exercise of this Warrant may be, at the Warrantholder's discretion, solely conditioned on (a) the filing of a Registration Statement with the Commission within thirty (30) days following the Company's delivery of notice to the Warrantholder and (b) the declaration of effectiveness of such Registration Statement by the Commission within seventy-five (75) days following the filing thereof. In the event that either (a) or (b) above does not occur following the submission by the Warrantholder of a notice of exercise conditioned on such occurrence, this Warrant shall be returned to the Warrantholder and shall remain in full force and effect, subject to the terms and conditions hereof. 3. EXERCISE OF THE PURCHASE RIGHTS. The purchase rights set forth in this Warrant Agreement are exercisable by the Warrantholder in whole, at any time, or from time to time, prior to the expiration of the term set forth in Section 2 above, by tendering to the Company at its principal office a notice of exercise in the form attached hereto as Exhibit I (the "Notice of Exercise"), duly completed and executed. Promptly upon receipt of the Notice of Exercise and the payment of the purchase price in accordance with the terms set forth below, and in no event later than twenty-one (21) days thereafter, the Company shall issue to the Warrantholder a certificate for the number of shares of Common Stock purchased and shall execute the acknowledgment of exercise in the form attached hereto as Exhibit II (the "Acknowledgment of Exercise") indicating the number of shares which remain subject to future purchases, if any. The Exercise Price may be paid at the Warrantholder's election either (i) by cash or check, or (ii) by surrender of Warrants ("Net Issuance") as determined below. If the Warrantholder elects the Net Issuance method, the Company will issue Common Stock in accordance with the following formula: X = Y(A-B) A Where: X = the number of shares of Common Stock to be issued to the Warrantholder. Y = the number of shares of Common Stock requested to be exercised under this Warrant Agreement. A = the fair market value of one (1) share of Common Stock. B = the Exercise Price. For purposes of the above calculation, current fair market value of Common Stock shall mean with respect to each share of Common Stock: (i) if the exercise is in connection with an initial public offering of the Company's Common Stock, and if the Company's Registration Statement relating to such public offering has been declared effective by the SEC, then the fair market value per share shall be the initial "Price to Public" specified in the final prospectus with respect to the offering; (ii) if at any time the Common Stock is not listed on any securities exchange or quoted in the NASDAQ System or the over-the-counter market, the current fair market value of Common Stock shall be the highest price per share which the Company could obtain from a willing buyer (not a current employee or director) for shares of Common Stock sold by the Company, from authorized but unissued shares, as determined in good faith by its Board of Directors, unless the Company shall become subject to a merger, acquisition or other consolidation pursuant to which the Company is not the surviving party, in which case the fair market value of Common Stock shall be deemed to be the value received by the holders of the Company's Common Stock on a common equivalent basis pursuant to such merger or acquisition. 4. RESERVATION OF SHARES. During the term of this Warrant Agreement, the Company will at all times have authorized and reserved a sufficient number of shares of its Common Stock to provide for the exercise of the rights to purchase Common Stock as provided for herein. 5. NO FRACTIONAL SHARES OR SCRIP. No fractional shares or scrip representing fractional shares shall be issued upon the exercise of the Warrant, but in lieu of such fractional shares the Company shall make a cash payment therefor upon the basis of the Exercise Price then in effect. -2- 6. NO RIGHTS AS SHAREHOLDER. This Warrant Agreement does not entitle the Warrantholder to any voting rights or other rights as a shareholder of the Company prior to the exercise of the Warrant. 7. WARRANTHOLDER REGISTRY. The Company shall maintain a registry showing the name and address of the registered holder of this Warrant Agreement. 8. ADJUSTMENT RIGHTS. The purchase price per share and the number of shares of Common Stock purchasable hereunder are subject to adjustment, as follows: (a) Merger and Sale of Assets. If at any time there shall be a capital reorganization of the shares of the Company's stock (other than a combination, reclassification, exchange or subdivision of shares otherwise provided for herein), or a merger or consolidation of the Company with or into another corporation whether or not the Company is the surviving corporation, or the sale of all or substantially all of the Company's properties and assets to any other person (hereinafter referred to as a "Merger Event"), then, as a part of such Merger Event, lawful provision shall be made so that the Warrantholder shall thereafter be entitled to receive, upon exercise of the Warrant, the number of shares of Common stock or other securities of the successor corporation resulting from such Merger Event, equivalent in value to that which would have been issuable if Warrantholder had exercised this Warrant immediately prior to the Merger Event. In any such case, appropriate adjustment (as determined in good faith by the Company's Board of Directors) shall be made in the application of the provisions of this Warrant Agreement with respect to the rights and interest of the Warrantholder after the Merger Event to the end that the provisions of this Warrant Agreement (including adjustments of the Exercise Price and number of shares of Common Stock purchasable) shall be applicable to the greatest extent possible. (b) Reclassification of Shares. If the Company at any time shall, by combination, reclassification, exchange or subdivision of securities or otherwise, change any of the securities as to which purchase rights under this Warrant Agreement exist into the same or a different number of securities of any other class or classes, this Warrant Agreement shall thereafter represent the right to acquire such number and kind of securities as would have been issuable as the result of such change with respect to the securities which were subject to the purchase rights under this Warrant Agreement immediately prior to such combination, reclassification, exchange, subdivision or other change. (c) Subdivision or Combination of Shares. If the Company at any time shall combine or subdivide its Common Stock, the Exercise Price shall be proportionately decreased in the case of a subdivision, or proportionately increased in the case of a combination. (d) Stock Dividends. If the Company at any time shall pay a dividend payable in, or make any other distribution (except any distribution specifically provided for in the foregoing subsections (a) or (b)) of the Company's stock, then the Exercise Price shall be adjusted, from and after the record date of such dividend or distribution, to that price determined by multiplying the Exercise Price in effect immediately prior to such record date by a fraction (i) the numerator of which shall be the total number of all shares of the Company's stock outstanding immediately prior to such dividend or distribution, and (ii) the denominator of which shall be the total number of all shares of the Company's stock outstanding immediately after such dividend or distribution. The Warrantholder shall thereafter be entitled to purchase, at the Exercise Price resulting from such adjustment, the number of shares of Common Stock (calculated to the nearest whole share) obtained by multiplying the Exercise Price in effect immediately prior to such adjustment by the number of shares of Common Stock issuable upon the exercise hereof immediately prior to such adjustment and dividing the product thereof by the Exercise Price resulting from such adjustment. (e) Right to Purchase Additional Stock. If, the Warrantholder's total cost of equipment leased pursuant to the Leases exceeds $1,000,000, Warrantholder shall have the right to purchase from the Company, at the Exercise Price (adjusted as set forth herein), an additional number of shares, which number shall be determined by (i) multiplying the amount by which the Warrantholder's total equipment cost exceeds $1,000,000 by 4.5%, and (ii) dividing the product thereof by the Exercise Price per share referenced above. (f) Antidilution Rights. If at any time after the Effective Date the Company issues or sells, or is deemed by the provisions of Section 4(D)(I)(E) of the Certificate of Incorporation, as amended through the Effective -3- Date, (hereinafter "Charter") to have issued or sold Additional Stock (as defined in the [charter), other than as otherwise adjusted for or excepted pursuant to the Charter or pursuant to paragraphs (b), (c) and (d) hereof, without consideration or for a price less than the Exercise Price per share, then the Exercise Price shall be adjusted, from and after the date of such issuance or sale, to that price determined by multiplying the Exercise Price in effect immediately prior to such date of issuance or sale by a fraction (i) the numerator of which shall be the total number of shares of the Outstanding Common [(as defined in section 4(d)(I)(A) of the charter) immediately prior to such issuance or sale plus the number of Shares of Common Stock that the aggregate consideration received by the Corporation for such issuance would purchase at such Conversion Price, and (ii) the denominator of which shall be the total number of all shares of the outstanding common immediately after such issuance or sale plus the number of shares of Additional Stock. The Warrantholder shall then be entitled to purchase, at the Exercise Price resulting from such adjustment, the number of shares of Common Stock (calculated to the nearest whole share) obtained by multiplying the Exercise Price in effect immediately prior to such adjustment by the number of shares of Common Stock issuable upon the exercise hereof immediately prior to such adjustment and dividing the product thereof by the Exercise Price resulting from such adjustment. The Company shall provide Warrantholder with a certificate showing such adjustment of Exercise Price prepared by [its Chief Financial Officer] by [first class mail, postage prepaid] at the address as shown on the books of the Company. (g) Notice of Adjustments. If: (i) the Company shall declare any dividend or distribution upon its stock, whether in cash, property, stock or other securities; (ii) the Company shall offer for subscription prorata to the holders of any class of its Common Stock any additional shares of stock of any class or other rights; (iii) there shall be any Merger Event; (iv) there shall be an initial public offering; or (v) there shall be any voluntary dissolution, liquidation or winding up of the Company; then, in connection with each such event, the Company shall send to the Warrantholder: (A) at least twenty (20) days' prior written notice of the date on which the books of the Company shall close or a record shall be taken for such dividend, distribution, subscription rights (specifying the date on which the holders of Preferred Stock shall be entitled thereto) or for determining rights to vote in respect of such Merger Event, dissolution, liquidation or winding up; (B) in the case of any such Merger Event, dissolution, liquidation or winding up, at least twenty (20) days' prior written notice of the date when the same shall take place (and specifying the date on which the holders of Common Stock shall be entitled to exchange their Common Stock for securities or other property deliverable upon such Merger Event, dissolution, liquidation or winding up); and (C) in the case of a public offering, the Company shall give the Warrantholder at least twenty (20) days written notice prior to the effective date hereof. Each such written notice shall set forth, in reasonable detail, (i) the event requiring the adjustment, (ii) the amount of the adjustment, (iii) the method by which such adjustment was calculated, (iv) the Exercise Price, and (v) the number of shares subject to purchase hereunder after giving effect to such adjustment, and shall be given by first class mail, postage prepaid, addressed to the Warrantholder, at the address as shown on the books of the Company. (h) Timely Notice. Failure to timely provide such notice required by subsection (g) above shall entitle Warrantholder to retain the benefit of the applicable notice period notwithstanding anything to the contrary contained in any insufficient notice received by Warrantholder. The notice period shall begin on the date Warrantholder actually receives a written notice containing all the information specified above. 9. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE COMPANY. EXCEPT AS SET FORTH IN THE SCHEDULE OF EXCEPTIONS ATTACHED HERETO AS EXHIBIT A, THE COMPANY HEREBY REPRESENTS AND WARRANTS THAT: (a) Reservation of Common Stock. The Common Stock issuable upon exercise of the Warrantholder's rights has been duly and validly reserved and, when issued in accordance with the provisions of this Warrant Agreement, will be validly issued, fully paid and non-assessable, and will be free of any taxes, liens, charges or encumbrances of any nature whatsoever; provided, however, that the Common Stock issuable pursuant to this Warrant Agreement may be subject to restrictions on transfer under state and/or Federal securities laws and that certain Investors' Rights Agreement dated November 2, 1999 by and among the Company and certain investors (the Investors' Rights Agreement"). The Company has made available to the Warrantholder true, correct and complete copies of its Charter and Bylaws, as amended, attached hereto as Exhibit IV. The issuance of certificates for shares of Common Stock upon exercise of the Warrant Agreement shall be made without charge to the Warrantholder for any issuance tax in respect thereof, or other cost incurred by the Company in connection with such exercise and the related issuance of shares of Common Stock. The Company shall not be required to pay any tax which may be payable in respect of any transfer involved and the issuance and delivery of any certificate in a name other than that of the Warrantholder. -4- (b) Due Authority. The execution and delivery by the Company of this Warrant Agreement and the performance of all obligations of the Company hereunder, including the issuance to Warrantholder of the right to acquire the shares of Common Stock, have been duly authorized by all necessary corporate action on the part of the Company, and the Leases and this Warrant Agreement are not inconsistent with the Company's Charter or Bylaws, do not contravene any law or governmental rule, regulation or order applicable to it, do not and will not contravene any provision of, or constitute a default under, any indenture, mortgage, contract or other instrument to which it is a party or by which it is bound, and this Warrant Agreement constitutes a legal, valid and binding agreement of the Company, enforceable in accordance with its respective terms. (c) Consents and Approvals. No consent or approval of, giving of notice to, registration with, or taking of any other action in respect of any state, Federal or other governmental authority or agency is required with respect to the execution, delivery and performance by the Company of its obligations under this Warrant Agreement, except for the filing of notices pursuant to Regulation D under the 1933 Act and any filing required by applicable state securities law, which filings will be effective by the time required thereby. (d) Issued Securities. All issued and outstanding shares of Common Stock, Preferred Stock or any other securities of the Company have been duly authorized and validly issued and are fully paid and nonassessable. All outstanding shares of Common Stock, Preferred Stock and any other securities issued by the Company were issued in full compliance with all Federal and state securities laws. In addition, as the date hereof: (i) The authorized capital of the Company consists of (A) 21,914,722 shares of Preferred Stock, of which 7,913,224 shares are designated Series A Preferred Stock of which all shares are issued and outstanding,4,510,000 shares are designated Series B Preferred Stock of which all shares are issued and outstanding, and 6,491,493 shares are designated Series C Preferred Stock of which all are issued and outstanding, and 3,000,000 shares are designated Series D Preferred Stock of which 2,060,581 shares are issued and outstanding and (B) 35,000,000 shares of Common Stock of which _________ shares are issued and outstanding. (ii) The Company has reserved (A) 5,466,799 shares of Common Stock for issuance under its 1999 Stock Plan, under which ______ options are outstanding. Except for a Warrant issued to Lighthouse Capital Partners III, L.P., and as set forth in the Investor's Rights' Agreement, there are no other options, warrants, conversion privileges or other rights presently outstanding to purchase or otherwise acquire any authorized but unissued shares of the Company's capital stock or other securities of the Company. (iii) Except as set forth in the Investors' Rights Agreement, no shareholder of the Company has preemptive rights to purchase new issuance's of the Company's capital stock. (e) Other Commitments to Register Securities. Except as set forth in this Warrant Agreement and the Investors' Rights Agreement, the Company is not, pursuant to the terms of any other agreement currently in existence, under any obligation to register under the 1933 Act any of its presently outstanding securities or any of its securities which may hereafter be issued. (f) Exempt Transaction. Subject to the accuracy of the Warrantholder's representations in Section 10 hereof, the issuance of the Common Stock upon exercise of this Warrant will constitute a transaction exempt from (i) the registration requirements of Section 5 of the 1933 Act, in reliance upon Section 4(2) thereof. (g) Compliance with Rule 144. At the written request of the Warrantholder, who proposes to sell Common Stock issuable upon the exercise of the Warrant in compliance with Rule 144 promulgated by the Securities and Exchange Commission, the Company shall furnish to the Warrantholder, within ten (10) days after receipt of such request, a written statement confirming the Company's compliance with the filing requirements of the Securities and Exchange Commission as set forth in such Rule, as such Rule may be amended from time to time. 10. REPRESENTATIONS AND COVENANTS OF THE WARRANTHOLDER. This Warrant Agreement has been entered into by the Company in reliance upon the following representations and covenants of the Warrantholder: (a) Investment Purpose. The right to acquire Common Stock issuable upon exercise of the Warrantholder's rights contained herein will be acquired for investment and not with a view to the sale or distribution of any part thereof, and the Warrantholder has no present intention of selling or engaging in any public distribution of the same except pursuant to a registration or exemption. -5- (b) Private Issue. The Warrantholder understands (i) that the Common Stock issuable upon exercise of this Warrant is not registered under the 1933 Act or qualified under applicable state securities laws on the ground that the issuance contemplated by this Warrant Agreement will be exempt from the registration and qualifications requirements thereof, and (ii) that the Company's reliance on such exemption is predicated on the representations set forth in this Section 10. (c) Disposition of Warrantholder's Rights. In no event will the Warrantholder make a disposition of any of its rights to acquire Common Stock issuable upon exercise of such rights unless and until (i) it shall have notified the Company of the proposed disposition, and (ii) if requested by the Company, it shall have furnished the Company with an opinion of counsel (which counsel may either be inside or outside counsel to the Warrantholder) satisfactory to the Company and its counsel to the effect that (A) appropriate action necessary for compliance with the 1933 Act has been taken, or (B) an exemption from the registration requirements of the 1933 Act is available. Notwithstanding the foregoing, the restrictions imposed upon the transferability of any of its rights to acquire Common Stock or Common Stock issuable on the exercise of such rights do not apply to transfers from the beneficial owner of any of the aforementioned securities to its nominee or from such nominee to its beneficial owner, and shall terminate as to any particular share of Common Stock when (1) such security shall have been effectively registered under the 1933 Act and sold by the holder thereof in accordance with such registration or (2) such security shall have been sold without registration in compliance with Rule 144 under the 1933 Act, or (3) a letter shall have been issued to the Warrantholder at its request by the staff of the Securities and Exchange Commission or a ruling shall have been issued to the Warrantholder at its request by such Commission stating that no action shall be recommended by such staff or taken by such Commission, as the case may be, if such security is transferred without registration under the 1933 Act in accordance with the conditions set forth in such letter or ruling and such letter or ruling specifies that no subsequent restrictions on transfer are required. Whenever the restrictions imposed hereunder shall terminate, as hereinabove provided, the Warrantholder or holder of a share of Common Stock then outstanding as to which such restrictions have terminated shall be entitled to receive from the Company, without expense to such holder, one or more new certificates for the Warrant or for such shares of Common Stock not bearing any restrictive legend. (d) Financial Risk. The Warrantholder has such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of its investment, and has the ability to bear the economic risks of its investment. (e) Risk of No Registration. The Warrantholder understands that if the Company does not register with the Securities and Exchange Commission pursuant to Section 12 of the 1933 Act, or file reports pursuant to Section 15(d) of the Securities Exchange Act of 1934 (the "1934 Act"), or if a registration statement covering the securities under the 1933 Act is not in effect when it desires to sell (i) the rights to purchase Common Stock pursuant to this Warrant Agreement, or (ii) the Common Stock issuable upon exercise of the right to purchase, it may be required to hold such securities for an indefinite period. The Warrantholder also understands that any sale of its rights of the Warrantholder to purchase Common Stock which might be made by it in reliance upon Rule 144 under the 1933 Act may be made only in accordance with the terms and conditions of that Rule. (f) Accredited Investor. Warrantholder is an "accredited investor" within the meaning of the Securities and Exchange Rule 501 of Regulation D, as presently in effect. 11. TRANSFERS. Subject to the terms and conditions contained in Section 10 hereof, this Warrant Agreement and all rights hereunder are transferable in whole by the Warrantholder and any successor transferee, provided, however, in no event shall the number of transfers of the rights and interests in all of the Warrants exceed three (3) transfers and prior written notice is provided to the Company and the Warrantholder has otherwise complied with Section 10(c). The transfer shall be recorded on the books of the Company upon receipt by the Company of a notice of transfer in the form attached hereto as Exhibit III (the "Transfer Notice"), at its principal offices and the payment to the Company of all transfer taxes and other governmental charges imposed on such transfer. 12. MARKET STANDOFF (i) PERIOD; AGREEMENT. IN CONNECTION WITH THE INITIAL PUBLIC OFFERING OF THE COMPANY'S SECURITIES AND UPON REQUEST OF THE COMPANY OR THE UNDERWRITERS MANAGING SUCH OFFERING OF THE COMPANY'S SECURITIES, THE WARRANTHOLDER AGREES NOT TO SELL, MAKE ANY SHORT SALE OF, LOAN, GRANT ANY OPTION FOR THE PURCHASE OF, OR OTHERWISE DISPOSE OF ANY SECURITIES OF THE COMPANY (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 -6- 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. (ii) STOP-TRANSFER INSTRUCTIONS. IN ORDER TO ENFORCE THE FOREGOING COVENANTS, THE COMPANY MAY IMPOSE STOP-TRANSFER INSTRUCTIONS WITH RESPECT TO THE SECURITIES OF THE WARRANTHOLDER. (iii) TRANSFEREES BOUND. THE WARRANTHOLDER AGREES THAT PRIOR TO THE COMPANY'S INITIAL PUBLIC OFFERING IT WILL NOT TRANSFER SECURITIES OF THE COMPANY UNLESS EACH TRANSFEREE AGREES IN WRITING TO BE BOUND BY ALL OF THE PROVISIONS OF THIS SECTION 12(l). 13. MISCELLANEOUS. (a) Effective Date. The provisions of this Warrant Agreement shall be construed and shall be given effect in all respects as if it had been executed and delivered by the Company on the date hereof. This Warrant Agreement shall be binding upon any successors or assigns of the Company. (b) Attorney's Fees. In any litigation, arbitration or court proceeding between the Company and the Warrantholder relating hereto, the prevailing party shall be entitled to attorneys' fees and expenses and all costs of proceedings incurred in enforcing this Warrant Agreement. (c) Governing Law. This Warrant Agreement shall be governed by and construed for all purposes under and in accordance with the laws of the State of California without regard to conflicts of law considerations. (d) Counterparts. This Warrant 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) Notices. Any notice required or permitted hereunder shall be given in writing and shall be deemed effectively given upon personal delivery, facsimile transmission (provided that the original is sent by personal delivery or mail as hereinafter set forth) or seven (7) days after deposit in the United States mail, by registered or certified mail, addressed (i) to the Warrantholder at 6111 North River Road, Rosemont, Illinois 60018, attention: Venture Lease Administration, cc: Legal Department, attn: General Counsel, (and/or, if by facsimile, (847) 518-5465 and (847)518-5088) and (ii) to the Company at 201 Spear St. 3rd Floor, San Francisco, CA 94105, attention: Controller (and/or if by facsimile, (415)371-1134) or at such other address as any such party may subsequently designate by written notice to the other party. (f) Remedies. In the event of any default hereunder, the non-defaulting party may proceed to protect and enforce its rights either by suit in equity and/or by action at law, including but not limited to an action for damages as a result of any such default, and/or an action for specific performance for any default where Warrantholder will not have an adequate remedy at law and where damages will not be readily ascertainable. (g) No Impairment of Rights. The Company will not, by amendment of its Charter or through any other means, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such actions as may be necessary or appropriate in order to protect the rights of the Warrantholder against impairment. (h) Survival. The representations, warranties, covenants and conditions of the respective parties contained herein or made pursuant to this Warrant Agreement shall survive the execution and delivery of this Warrant Agreement. (i) Severability. In the event any one or more of the provisions of this Warrant Agreement shall for any reason be held invalid, illegal or unenforceable, the remaining provisions of this Warrant Agreement shall be unimpaired, and the invalid, illegal or unenforceable provision shall be replaced by a mutually acceptable valid, legal and enforceable provision, which comes closest to the intention of the parties underlying the invalid, illegal or unenforceable provision. (j) Amendments. Any provision of this Warrant Agreement may be amended by a written instrument signed by the Company and by the Warrantholder. (k) Additional Documents. The Company, upon execution of this Warrant Agreement, shall provide the Warrantholder with certified resolutions authorizing the reservation, issuance, and sale of the Warrant Agreement. The Company shall also supply such other documents as the Warrantholder may from time to time reasonably request. -7- IN WITNESS WHEREOF, the parties hereto have caused this Warrant Agreement to be executed by its officers thereunto duly authorized as of the Effective Date. COMPANY: REDENVELOPE, INC. By: /s/ Illegible ------------------------- Title: CEO ------------------------- WARRANTHOLDER: COMDISCO, INC. By: /s/ Illegible ------------------------- Title: VP ------------------------- -8- EXHIBIT I NOTICE OF EXERCISE TO: ____________________________ (1) The undersigned Warrantholder hereby elects to purchase _______ shares of the Common Stock of _____________________' pursuant to the terms of the Warrant Agreement dated the ______ day of ________________________, 20__ (the "Warrant Agreement") between _______________________________ and the Warrantholder, and tenders herewith payment of the purchase price for such shares in full, together with all applicable transfer taxes, if any. (2) In exercising its rights to purchase the Common Stock of ________________________________________' the undersigned hereby confirms and acknowledges the investment representations and warranties made in Section 10 of the Warrant Agreement. (3) Please issue a certificate or certificates representing said shares of Common Stock in the name of the undersigned or in such other name as is specified below. _________________________________ (Name) _________________________________ (Address) WARRANTHOLDER: COMDISCO, INC. By: ____________________________ Title: ____________________________ Date: ____________________________ -9- EXHIBIT II ACKNOWLEDGMENT OF EXERCISE The undersigned ____________________________________, hereby acknowledge receipt of the "Notice of Exercise" from Comdisco, Inc., to purchase ____ shares of the Common Stock of _____________________, pursuant to the terms of the Warrant Agreement, and further acknowledges that ______ shares remain subject to purchase under the terms of the Warrant Agreement. COMPANY: By: ___________________________ Title: ___________________________ Date: ___________________________ -10- EXHIBIT III TRANSFER NOTICE (TO TRANSFER OR ASSIGN THE FOREGOING WARRANT AGREEMENT EXECUTE THIS FORM AND SUPPLY REQUIRED INFORMATION. DO NOT USE THIS FORM TO PURCHASE SHARES.) FOR VALUE RECEIVED, the foregoing Warrant Agreement and all rights evidenced thereby are hereby transferred and assigned to ___________________________________________________________________ (Please Print) whose address is _________________________________________________ ___________________________________________________________________ Dated: ______________________________ Holder's Signature: __________________ Holder's Address: ___________________ _________________________________________ Signature Guaranteed: _________________________________________ NOTE: The signature to this Transfer Notice must correspond with the name as it appears on the face of the Warrant Agreement, without alteration or enlargement or any change whatever. Officers of corporations and those acting in a fiduciary or other representative capacity should file proper evidence of authority to assign the foregoing Warrant Agreement. -11- EX-10.1 13 f89225orexv10w1.txt EXHIBIT 10.1 EXHIBIT 10.1 INDEMNIFICATION AGREEMENT This Indemnification Agreement (the "Agreement") is made as of <>, by and between RedEnvelope, Inc., a Delaware corporation (the "Company"), and <> (the "Indemnitee"). RECITALS The Company and Indemnitee recognize the increasing difficulty in obtaining liability insurance for directors, officers and key employees, the significant increases in the cost of such insurance and the general reductions in the coverage of such insurance. The Company and Indemnitee further recognize the substantial increase in corporate litigation in general, subjecting directors, officers and key employees to expensive litigation risks at the same time as the availability and coverage of liability insurance has been severely limited. Indemnitee does not regard the current protection available as adequate under the present circumstances, and Indemnitee and agents of the Company may not be willing to continue to serve as agents of the Company without additional protection. The Company desires to attract and retain the services of highly qualified individuals, such as Indemnitee, and to indemnify its directors, officers and key employees so as to provide them with the maximum protection permitted by law. AGREEMENT In consideration of the mutual promises made in this Agreement, and for other good and valuable consideration, receipt of which is hereby acknowledged, the Company and Indemnitee hereby agree as follows: 1. INDEMNIFICATION. (a) THIRD PARTY PROCEEDINGS. The Company shall indemnify Indemnitee if Indemnitee is or was a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the Company) by reason of the fact that Indemnitee is or was a director, officer, employee or agent of the Company, or any subsidiary of the Company, by reason of any action or inaction on the part of Indemnitee while an officer or director or by reason of the fact that Indemnitee is or was serving at the request of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement (if such settlement is approved in advance by the Company, which approval shall not be unreasonably withheld) actually and reasonably incurred by Indemnitee in connection with such action, suit or proceeding if Indemnitee acted in good faith and in a manner Indemnitee 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 Indemnitee's conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that Indemnitee did not act in good faith and in a manner which Indemnitee reasonably believed to be in or not opposed to the best interests of the Company, or, with respect to any criminal action or proceeding, that Indemnitee had reasonable cause to believe that Indemnitee's conduct was unlawful. (b) PROCEEDINGS BY OR IN THE RIGHT OF THE COMPANY. The Company shall indemnify Indemnitee if Indemnitee was or is a party or is threatened to be made a party to any threatened, pending or completed action or proceeding by or in the right of the Company or any subsidiary of the Company to procure a judgment in its favor by reason of the fact that Indemnitee is or was a director, officer, employee or agent of the Company, or any subsidiary of the Company, by reason of any action or inaction on the part of Indemnitee while an officer or director or by reason of the fact that Indemnitee is or was serving at the request of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees) and, to the fullest extent permitted by law, amounts paid in settlement (if such settlement is approved in advance by the Company, which approval shall not be unreasonably withheld), in each case to the extent actually and reasonably incurred by Indemnitee in connection with the defense or settlement of such action or suit if Indemnitee acted in good faith and in a manner Indemnitee reasonably believed to be in or not opposed to the best interests of the Company and its stockholders, except that no indemnification shall be made in respect of any claim, issue or matter as to which Indemnitee shall have been finally adjudicated by court order or judgment to be liable to the Company in the performance of Indemnitee's duty to the Company and its stockholders unless and only to the extent that the court in which such action or proceeding is or was pending shall determine upon application that, in view of all the circumstances of the case, Indemnitee is fairly and reasonably entitled to indemnity for such expenses which such court shall deem proper. (c) MANDATORY PAYMENT OF EXPENSES. To the extent that Indemnitee has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to in Section 1(a) or Section 1(b) or the defense of any claim, issue or matter therein, Indemnitee shall be indemnified against expenses (including attorneys' fees) actually and reasonably incurred by Indemnitee in connection therewith. 2. NO EMPLOYMENT RIGHTS. Nothing contained in this Agreement is intended to create in Indemnitee any right to continued employment. 3. EXPENSES; INDEMNIFICATION PROCEDURE. (a) ADVANCEMENT OF EXPENSES. The Company shall advance all expenses incurred by Indemnitee in connection with the investigation, defense, settlement or appeal of any civil or criminal action, suit or proceeding referred to in Section l(a) or Section 1(b) hereof (including amounts actually paid in settlement of any such action, suit or proceeding). Indemnitee hereby undertakes to repay such amounts advanced only if, and to the extent that, it shall ultimately be determined that Indemnitee is not entitled to be indemnified by the Company as authorized hereby. (b) NOTICE/COOPERATION BY INDEMNITEE. Indemnitee shall, as a condition precedent to his or her right to be indemnified under this Agreement, give the Company notice in -2- writing as soon as practicable of any claim made against Indemnitee for which indemnification will or could be sought under this Agreement. Notice to the Company shall be directed to the Chief Executive Officer of the Company and shall be given in accordance with the provisions of Section 12(d) below. In addition, Indemnitee shall give the Company such information and cooperation as it may reasonably require and as shall be within Indemnitee's power. (c) PROCEDURE. Any indemnification and advances provided for in Section 1 and this Section 3 shall be made no later than thirty (30) days after receipt of the written request of Indemnitee. If a claim under this Agreement, under any statute, or under any provision of the Company's Certificate of Incorporation or Bylaws providing for indemnification, is not paid in full by the Company within thirty (30) days after a written request for payment thereof has first been received by the Company, Indemnitee may, but need not, at any time thereafter bring an action against the Company to recover the unpaid amount of the claim and, subject to Section 11 of this Agreement, Indemnitee shall also be entitled to be paid for the expenses (including attorneys' fees) of bringing such action. It shall be a defense to any such action (other than an action brought to enforce a claim for expenses incurred in connection with any action, suit or proceeding in advance of its final disposition) that Indemnitee has not met the standards of conduct which make it permissible under applicable law for the Company to indemnify Indemnitee for the amount claimed, but the burden of proving such defense shall be on the Company and Indemnitee shall be entitled to receive interim payments of expenses pursuant to Section 3(a) unless and until such defense may be finally adjudicated by court order or judgment from which no further right of appeal exists. It is the parties' intention that if the Company contests Indemnitee's right to indemnification, the question of Indemnitee's right to indemnification shall be for the court to decide, and neither the failure of the Company (including its Board of Directors, any committee or subgroup of the Board of Directors, independent legal counsel, or its stockholders) to have made a determination that indemnification of Indemnitee is proper in the circumstances because Indemnitee has met the applicable standard of conduct required by applicable law, nor an actual determination by the Company (including its Board of Directors, any committee or subgroup of the Board of Directors, independent legal counsel, or its stockholders) that Indemnitee has not met such applicable standard of conduct, shall create a presumption that Indemnitee has or has not met the applicable standard of conduct. (d) NOTICE TO INSURERS. If, at the time of the receipt of a notice of a claim pursuant to Section 3(b) hereof, the Company has director and officer liability 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 policies. (e) SELECTION OF COUNSEL. In the event the Company shall be obligated under Section 3(a) hereof to pay the expenses of any proceeding against Indemnitee, the Company, if appropriate, shall be entitled to assume the defense of such proceeding, with counsel approved by Indemnitee, upon the delivery to Indemnitee of written notice of its election so to do. After delivery of such notice, approval of such counsel by Indemnitee and the retention of such counsel by the Company, the Company will not be liable to Indemnitee under this Agreement for any fees -3- of counsel subsequently incurred by Indemnitee with respect to the same proceeding, provided that (i) Indemnitee shall have the right to employ counsel in any such proceeding at Indemnitee's expense; and (ii) if (A) the employment of counsel by Indemnitee has been previously authorized by the Company, (B) Indemnitee shall have reasonably concluded that there may be a conflict of interest between the Company and Indemnitee in the conduct of any such defense or (C) the Company shall not, in fact, have employed counsel to assume the defense of such proceeding, then the fees and expenses of Indemnitee's counsel shall be at the expense of the Company. 4. ADDITIONAL INDEMNIFICATION RIGHTS; NONEXCLUSIVITY. (a) SCOPE. Notwithstanding any other provision of this Agreement, the Company hereby agrees to indemnify the Indemnitee to the fullest extent permitted by law, notwithstanding that such indemnification is not specifically authorized by the other provisions of this Agreement, the Company's Certificate of Incorporation, the Company's Bylaws or by statute. In the event of any change, after the date of this Agreement, in any applicable law, statute, or rule which expands the right of a Delaware corporation to indemnify a member of its board of directors or an officer, such changes shall be deemed to be within the purview of Indemnitee's rights and the Company's obligations under this Agreement. In the event of any change in any applicable law, statute or rule which narrows the right of a Delaware corporation to indemnify a member of its board of directors or an officer, such changes, to the extent not otherwise required by such law, statute or rule to be applied to this Agreement shall have no effect on this Agreement or the parties' rights and obligations hereunder. (b) NONEXCLUSIVITY. The indemnification provided by this Agreement shall not be deemed exclusive of any rights to which Indemnitee may be entitled under the Company's Certificate of Incorporation, its Bylaws, any agreement, any vote of stockholders or disinterested members of the Company's Board of Directors, the General Corporation Law of the State of Delaware, or otherwise, both as to action in Indemnitee's official capacity and as to action in another capacity while holding such office. The indemnification provided under this Agreement shall continue as to Indemnitee for any action taken or not taken while serving in an indemnified capacity even though he or she may have ceased to serve in any such capacity at the time of any action, suit or other covered proceeding. 5. PARTIAL INDEMNIFICATION. If Indemnitee is entitled under any provision of this Agreement to indemnification by the Company for some or a portion of the expenses, judgments, fines or penalties actually or reasonably incurred in the investigation, defense, appeal or settlement of any civil or criminal action, suit or proceeding, but not, however, for the total amount thereof, the Company shall nevertheless indemnify Indemnitee for the portion of such expenses, judgments, fines or penalties to which Indemnitee is entitled. 6. MUTUAL ACKNOWLEDGMENT. Both the Company and Indemnitee acknowledge that in certain instances, Federal law or public policy may override applicable state law and prohibit the Company from indemnifying its directors and officers under this Agreement or otherwise. For example, the Company and Indemnitee acknowledge that the Securities and Exchange Commission (the "SEC") has taken the position that indemnification is not permissible for liabilities arising under certain federal securities laws, and federal legislation prohibits -4- indemnification for certain ERISA violations. Indemnitee understands and acknowledges that the Company has undertaken or may be required in the future to undertake with the SEC to submit the question of indemnification to a court in certain circumstances for a determination of the Company's right under public policy to indemnify Indemnitee. 7. OFFICER AND DIRECTOR LIABILITY INSURANCE. The Company shall, from time to time, make the good faith determination whether or not it is practicable for the Company to obtain and maintain a policy or policies of insurance with reputable insurance companies providing the officers and directors of the Company with coverage for losses from wrongful acts, or to ensure the Company's performance of its indemnification obligations under this Agreement. Among other considerations, the Company will weigh the costs of obtaining such insurance coverage against the protection afforded by such coverage. In all policies of director and officer liability insurance, Indemnitee shall be named as an insured in such a manner as to provide Indemnitee the same rights and benefits as are accorded to the most favorably insured of the Company's directors, if Indemnitee is a director; or of the Company's officers, if Indemnitee is not a director of the Company but is an officer; or of the Company's key employees, if Indemnitee is not an officer or director but is a key employee. Notwithstanding the foregoing, the Company shall have no obligation to obtain or maintain such insurance if the Company determines in good faith that such insurance is not reasonably available, if the premium costs for such insurance are disproportionate to the amount of coverage provided, if the coverage provided by such insurance is limited by exclusions so as to provide an insufficient benefit, or if Indemnitee is covered by similar insurance maintained by a parent or subsidiary of the Company. 8. SEVERABILITY. Nothing in this Agreement is intended to require or shall be construed as requiring the Company to do or fail to do any act in violation of applicable law. The Company's inability, pursuant to court order, to perform its obligations under this Agreement shall not constitute a breach of this Agreement. The provisions of this Agreement shall be severable as provided in this Section 8. If this Agreement or any portion hereof shall be invalidated on any ground by any court of competent jurisdiction, then the Company shall nevertheless indemnify Indemnitee to the full extent permitted by any applicable portion of this Agreement that shall not have been invalidated, and the balance of this Agreement not so invalidated shall be enforceable in accordance with its terms. 9. EXCEPTIONS. Any other provision herein to the contrary notwithstanding, the Company shall not be obligated pursuant to the terms of this Agreement: (a) CLAIMS INITIATED BY INDEMNITEE. To indemnify or advance expenses to Indemnitee with respect to proceedings or claims initiated or brought voluntarily by Indemnitee and not by way of defense, except with respect to proceedings brought to establish or enforce a right to indemnification under this Agreement or any other statute or law or otherwise as required under Section 145 of the Delaware General Corporation Law, but such indemnification or advancement of expenses may be provided by the Company in specific cases if the Board of Directors finds it to be appropriate; (b) LACK OF GOOD FAITH. To indemnify Indemnitee for any expenses incurred by Indemnitee with respect to any proceeding instituted by Indemnitee to enforce or interpret this -5- Agreement, if a court of competent jurisdiction determines that each of the material assertions made by Indemnitee in such proceeding was not made in good faith or was frivolous; (c) INSURED CLAIMS. To indemnify 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 expenses or liabilities have been paid directly to Indemnitee by an insurance carrier under a policy of officers' and directors' liability insurance maintained by the Company; or (d) CLAIMS UNDER SECTION 16(b). To indemnify Indemnitee for expenses or the payment of profits arising from the purchase and sale by Indemnitee of securities in violation of Section 16(b) of the Securities Exchange Act of 1934, as amended, or any similar successor statute. 10. CONSTRUCTION OF CERTAIN PHRASES. (a) For purposes of this Agreement, references to the "Company" shall include, in addition to the resulting corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had continued, would have had power and authority to indemnify its directors, officers, and employees or agents, so that if Indemnitee is or was a director, officer, employee or agent of such constituent corporation, or is or was serving at the request of such constituent corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, Indemnitee shall stand in the same position under the provisions of this Agreement with respect to the resulting or surviving corporation as Indemnitee would have with respect to such constituent corporation if its separate existence had continued. (b) For purposes of this Agreement, references to "other enterprises" shall include employee benefit plans; references to "fines" shall include any excise taxes assessed on Indemnitee with respect to an employee benefit plan; and references to "serving at the request of the Company" shall include any service as a director, officer, employee or agent of the Company which imposes duties on, or involves services by, such director, officer, employee or agent with respect to an employee benefit plan, its participants, or beneficiaries; and if Indemnitee acted in good faith and in a manner Indemnitee reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan, Indemnitee shall be deemed to have acted in a manner "not opposed to the best interests of the Company" as referred to in this Agreement. 11. ATTORNEYS' FEES. In the event that any action is instituted by Indemnitee under this Agreement to enforce or interpret any of the terms hereof, Indemnitee shall be entitled to be paid all court costs and expenses, including reasonable attorneys' fees, incurred by Indemnitee with respect to such action, unless as a part of such action, the court of competent jurisdiction determines that each of the material assertions made by Indemnitee as a basis for such action were not made in good faith or were frivolous. In the event of an action instituted by or in the name of the Company under this Agreement or to enforce or interpret any of the terms of this Agreement, Indemnitee shall be entitled to be paid all court costs and expenses, including attorneys' fees, incurred by Indemnitee in defense of such action (including with respect to -6- Indemnitee's counterclaims and cross-claims made in such action), unless as a part of such action the court determines that each of Indemnitee's material defenses to such action were made in bad faith or were frivolous. 12. 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 Delaware, without giving effect to principles of conflict of law. (b) ENTIRE AGREEMENT; ENFORCEMENT OF RIGHTS. This Agreement sets 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. (c) 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. (d) NOTICES. Any notice, demand or request required or permitted to be given under this Agreement shall be in writing and shall be deemed sufficient when delivered personally or sent by telegram or fax, or forty-eight (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. (e) 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. (f) SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon the Company and its successors and assigns, and inure to the benefit of Indemnitee and Indemnitee's heirs, legal representatives and assigns. (g) SUBROGATION. In the event of payment under this Agreement, the Company shall be subrogated to the extent of such payment to all of the rights of recovery of Indemnitee, who shall execute all documents required and shall do all acts that may be necessary to secure such rights and to enable the Company to effectively bring suit to enforce such rights. [Signature Page Follows] -7- The parties hereto have executed this Agreement as of the day and year set forth on the first page of this Agreement. RedEnvelope, Inc. By: ____________________________________ Title: ____________________________________ Address: 201 Spear Street, 3rd Floor San Francisco, CA 94105 AGREED TO AND ACCEPTED: <> _____________________________________ (Signature) Address: <> <> -8- EX-10.2 14 f89225orexv10w2.txt EXHIBIT 10.2 EXHIBIT 10.2 REDENVELOPE, INC. SERIES F PREFERRED STOCK PURCHASE AGREEMENT APRIL 17, 2002 REDENVELOPE, INC. SERIES F PREFERRED STOCK PURCHASE AGREEMENT This Series F Preferred Stock Purchase Agreement (the "Agreement") is made as of April 17, 2002 by and between RedEnvelope, Inc., a Delaware corporation (the "Company"), and the investors listed on Exhibit A attached 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. (a) The Company shall adopt and file with the Secretary of State of the State of Delaware on or before the Closing (as defined below) the Seventh Amended and Restated Certificate of Incorporation in the form attached hereto as Exhibit B (the "Certificate"). (b) Subject to the terms and conditions of this Agreement, each Purchaser agrees, severally but not jointly, to purchase at the Closing and the Company agrees to sell and issue to the Purchasers at the Closing that number of shares of Series F Preferred Stock, set forth opposite each such Purchaser's name on Exhibit A attached hereto at a purchase price of $0.63808 per share (as such price may be adjusted pursuant to Section 6.18 below). The shares of Series F Preferred Stock issued to each Purchaser pursuant to this Agreement and the Common Stock issuable upon conversion of the Series F Preferred Stock shall be hereinafter referred to as the "Shares." 1.2 CLOSING; DELIVERY. (a) CLOSING DATE. The initial closing of the purchase and sale of the Shares shall take place at the offices of Venture Law Group, a Professional Corporation in Menlo Park, California, at 10:00 a.m., on April 17, 2002 or at such other time and place as the Company and the Purchasers mutually agree upon, orally or in writing (which time and place are designated as the "Initial Closing"). The date of such Closing shall be referred to herein as the "Closing Date." (b) At the Closing, the Company shall deliver to the Purchasers a certificate or certificates representing the Shares being purchased thereby against payment of the purchase price therefor by check, wire transfer to the Company's bank account, promissory note, cancellation of indebtedness or any combination of the foregoing. (c) Subsequent Issuance of Series F Preferred Stock. The Company may issue up to 2,139,177 additional shares of Series F Preferred Stock to such purchasers as it shall select (each, an "Additional Purchaser"), provided the agreement for issuance is executed not later than ninety (90) days following the date of the Initial Closing. Any such Additional Purchaser shall become a party to this Agreement, that certain Amended and Restated Investors' Rights Agreement of even date herewith, by and among the Company, the Purchasers and the other parties thereto, the form of which is attached hereto as Exhibit C (the "Investors' Rights Agreement"), that certain Amended and Restated Right of First Refusal and Co-Sale Agreement of even date herewith, by and among the Company, the Purchasers and the other parties thereto, the form of which is attached as Exhibit D (the "Co-Sale Agreement") and that certain Amended and Restated Voting Agreement of even date herewith, by and among the Company, the Purchasers and the other parties thereto, the form of which is attached hereto as Exhibit E (the "Voting Agreement" and together with the Investors' Rights Agreement and the Co-Sale Agreement, the "Related Agreements"), and shall have the rights and obligations hereunder and thereunder, by executing and delivering to the Company an additional counterpart signature page to this Agreement and the Related Agreements. Any Additional Purchaser so acquiring shares of Series F Preferred Stock shall be considered a "Purchaser" for purposes of this Agreement and any Series F Preferred Stock so acquired by such Additional Purchaser shall be considered "Shares" for purposes of this Agreement. In the event there is more than one closing, the term "Closing" shall apply to each such closing unless otherwise specified. 2. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE COMPANY. The Company hereby represents, warrants and covenants to each Purchaser that, except as set forth on a Schedule of Exceptions made available to the Purchasers, which exceptions shall be deemed to be representations and warranties as if made hereunder: 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 and legal right to own and operate its assets and to carry on its business as now conducted and as proposed to be conducted, and to execute and deliver this Agreement and all of the other agreements and instruments to be executed and delivered by the Company, and to consummate the transactions contemplated hereby and thereby. The Company is duly qualified to transact business and is in good standing in each jurisdiction in which the failure so to qualify would reasonably be expected to have a material adverse effect on its business or properties. True and accurate copies of the Certificate and the Company's Bylaws, each as amended and in effect at the Closing, have been delivered to the special counsel of Moussenvelope, L.L.C. designated in Section 6.17 below. 2.2 CAPITALIZATION. The authorized capital of the Company consists, or will consist, immediately prior to the Closing, of: (a) 62,569,576 shares of Preferred Stock, $0.001 par value per share, of which (i) 7,694,809 shares have been designated Series A Preferred Stock, 7,337,634 of which will be issued and outstanding immediately prior to the Initial Closing, (ii) 4,510,000 shares have been designated Series B Preferred Stock, all of which will be issued and outstanding immediately prior to the Initial Closing, (iii) 6,491,498 shares have been designated Series C Preferred Stock, all of which will be issued and outstanding immediately prior to the Initial Closing, (iv) 2,278,996 shares have been designated Series D Preferred Stock, all of which will be issued and outstanding immediately prior to the Initial Closing, (v) 17,636,249 shares have been designated Series E Preferred Stock, 17,291,788 of which will be outstanding immediately prior to the Initial Closing, and (vi) 23,958,024 shares have been designated Series F Preferred Stock, none of which will be issued and outstanding immediately prior to the Initial Closing. The rights, privileges and preferences of the Preferred Stock are as stated in the Certificate. Immediately prior to the Initial -2- Closing all of the outstanding Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock and Series E Preferred Stock will be duly authorized, fully paid and nonassessable and issued in compliance with all applicable federal and state securities laws. (b) 110,000,000 shares of Common Stock, $0.001 par value per share, 3,610,145 shares of which are issued and outstanding. All of the outstanding shares of Common Stock have been duly authorized, fully paid and are nonassessable and issued in compliance with all applicable federal and state securities laws. The Company has reserved 62,475,115 shares of Common Stock for issuance upon conversion of the Series A Preferred Stock, the Series B Preferred Stock, the Series C Preferred Stock, the Series D Preferred Stock, the Series E Preferred Stock and the Series F Preferred Stock. (c) The Company has reserved 17,115,632 shares of Common Stock for issuance to officers, directors, employees and consultants of the Company pursuant to its 1999 Stock Plan duly adopted by the Board of Directors and approved by the Company stockholders (the "Stock Plan"). Of such reserved shares of Common Stock, options to purchase 4,659,159 shares have been granted and are currently outstanding, 4,259,921 shares of Common Stock have been issued upon exercise of options, and 8,196,552 shares of Common Stock remain available for issuance to officers, directors, employees and consultants pursuant to the Stock Plan. (d) Except as set forth above and as set forth in the Investors' Rights Agreement, there are no outstanding options, warrants, rights (including conversion or preemptive rights and rights of first refusal or similar rights) or agreements, orally or in writing, for the purchase or acquisition from the Company of any shares of its capital stock. (e) No stock plan, stock purchase, stock option, or other agreement or understanding between the Company and any holder of any equity securities of the Company or rights to purchase equity securities of the Company provides for acceleration or other changes in the vesting provisions or other terms of such securities, as the result of any merger, sale of stock or assets, change in control or other similar transaction by the Company. Except for the Voting Agreement (as defined in Section 2.4 below), 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 persons that affects or relates to the voting or giving of written consents with respect to any security or the voting by a director of the Company. 2.3 SUBSIDIARIES. The Company does not currently own or control, directly or indirectly, any interest in any other corporation, association, or other business entity and the Company has never had any subsidiaries. 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 Related Agreements (collectively, the "Agreements"), the performance of all obligations of the Company hereunder and thereunder and the authorization, issuance and delivery of the Shares has been taken or will be taken prior to the Closing, and the Agreements, when -3- executed and delivered by the Company, shall constitute valid and legally binding obligations of the Company, enforceable against the Company in accordance with their terms except (i) as limited by applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance, and other laws of general application affecting enforcement of creditors' rights generally, as limited by laws relating to the availability of specific performance, injunctive relief, or other equitable remedies, or (ii) to the extent the indemnification provisions contained in the Investors' Rights Agreement may be limited by applicable federal or state securities laws. 2.5 VALID ISSUANCE OF SECURITIES. The Series F Preferred Stock that is being issued to the Purchasers hereunder, when issued, sold and delivered in accordance with the terms hereof for the consideration expressed herein, will be duly and validly issued, fully paid and nonassessable and free of restrictions on transfer other than restrictions on transfer under the Agreements, and applicable state and federal securities laws and will have the rights, preferences, and privileges described in the Certificate. Based in part upon the representations of the Purchasers in this Agreement and subject to the provisions of Section 2.6 below, the Series F Preferred Stock issued to each Purchaser pursuant to this Agreement will be issued in compliance with all applicable federal and state securities laws. The Common Stock issuable upon conversion of the Series F Preferred Stock has been duly and validly reserved for issuance, and upon issuance in accordance with the terms of the Certificate shall be duly and validly issued, fully paid and nonassessable and free of restrictions on transfer other than restrictions on transfer under the Agreements, and applicable federal and state securities laws and will be issued in compliance with all applicable federal and state securities laws. 2.6 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 filings pursuant to Section 25102(f) of the California Corporate Securities Law of 1968, as amended, and the rules thereunder, and any other state securities laws. 2.7 LITIGATION. There is no action, suit, proceeding or investigation pending or, to the best of the Company's knowledge, currently threatened against the Company that questions the validity of the Agreements or the right of the Company to enter into them, 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 or affairs of the Company, financially or otherwise, or any change in the current equity ownership of the Company, nor is the Company aware that there is any basis for the foregoing. The foregoing includes, without limitation, actions, suits, proceedings or investigations pending or, to the best of the Company's knowledge, threatened (or any basis therefor known to the Company) involving the prior employment of any of the Company's employees, their use in connection with the Company's business of any information or techniques allegedly proprietary to any of their former employers, or their obligations under any agreements with prior employers. 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 which the Company intends to initiate. -4- 2.8 PATENTS AND TRADEMARKS. Set forth on the Schedule of Patents and Trademarks is a true and complete list of all patents, patent applications, trademarks, service marks, trademark and service mark applications and registered copyrights presently owned or held by the Company. The Company owns or possesses sufficient legal rights to all patents, trademarks, service marks, trade names, copyrights, trade secrets, licenses, information and proprietary rights and processes necessary for its business as now conducted and, as proposed to be conducted, without any conflict with, or infringement of, the rights of others. There are no outstanding options, licenses or agreements of any kind relating to the foregoing, nor is the Company bound by or a party to any options, licenses or agreements of any kind with respect to the patents, trademarks, service marks, trade names, copyrights, trade secrets, licenses, information, proprietary rights and processes of any other person or entity. The Company has not received any communications alleging that the Company has violated or, by conducting its business as currently conducted and as proposed would violate any of the patents, trademarks, service marks, tradenames, copyrights, trade secrets or other proprietary rights or processes of any other person or entity. The Company is not aware that any of its employees is obligated under any contract (including licenses, covenants or commitments of any nature) or other agreement, or subject to any judgment, decree or order of any court or administrative agency, that would interfere with the use of such employee's best efforts to promote the interest of the Company or that would conflict with the Company's business as proposed to be conducted. Neither the execution or delivery of the Agreements, nor the carrying on of the Company's business by the employees of the Company, nor the conduct of the Company's business as proposed, will, to the Company's knowledge, conflict with or result in a breach of the terms, conditions, or provisions of, or constitute a default under, any contract, covenant or instrument under which any such employee is now obligated. The Company does not believe it is or will be necessary to use any inventions of any of its employees (or persons it currently intends to hire) made prior to their employment by the Company. 2.9 COMPLIANCE WITH OTHER INSTRUMENTS. (a) The Company is not in violation or default of any provisions of its Certificate or Bylaws, each as amended and in effect on and as of the Closing, or of any instrument, judgment, order, writ, decree or contract to which it is a party or by which it is bound or, to the best of its knowledge, of any provision of federal or state statute, rule or regulation applicable to the Company. The execution, delivery and performance of the Agreements and the consummation of the transactions contemplated hereby or thereby will not result in any such violation or be in conflict with or constitute, with or without the passage of time and giving of notice, either a default under any such provision, instrument, judgment, order, writ, decree or contract or an event which results in the creation of any lien, charge or encumbrance upon any assets of the Company. (b) To the best of its knowledge, after reasonable investigation, the Company has avoided every condition, and has not performed any act, the occurrence of which would result in the Company's loss of any right granted under any license, distribution or other agreement. -5- 2.10 AGREEMENTS; ACTION. Except as explicitly contemplated by the Agreements: (a) There are no written or oral agreements, understandings or proposed transactions between the Company and any of its officers, directors, employees, consultants, affiliates, or any affiliate thereof. (b) There are no written or oral agreements, understandings, instruments, contracts, proposed transactions, judgments, orders, writs or decrees to which the Company is a party or by which it is bound that involve (i) obligations (contingent or otherwise) of, or payments to, the Company in excess of $25,000, (ii) the license of any patent, copyright, trade secret or other proprietary right to or from the Company, (iii) the grant of rights to manufacture, produce, assemble, license, market, or sell its products to any other person or that restrict or affect the Company's exclusive right to develop, manufacture, assemble, license, distribute, market or sell its products, or (iv) indemnification by the Company with respect to infringements of proprietary rights. (c) The Company has not (i) declared or paid any dividends, or authorized or made any distribution upon or with respect to any class or series of its capital stock, (ii) incurred any indebtedness for money borrowed or incurred any other liabilities individually in excess of $25,000 or in excess of $100,000 in the aggregate, (iii) made any loans or advances to any person, other than ordinary advances for travel or other standard business expenses, or (iv) sold, exchanged or otherwise disposed of any of its assets or rights, other than the sale of its inventory in the ordinary course of business. (d) To its knowledge, the Company is not a party to and is not bound by any contract, agreement or instrument, or subject to any restriction under its Certificate or Bylaws, that materially adversely affects its business as now conducted or as proposed to be conducted, its properties or its financial condition. 2.11 DISCLOSURE. The Company has fully provided each Purchaser with all the information which such Purchaser has requested for deciding whether to acquire the Shares and all information which the Company believes is reasonably necessary to enable such Purchaser to make such a decision. Assuming the accuracy of the Purchasers' representations regarding their sophistication with respect to investments in companies similar to the Company, neither the Agreements (including any representation or warranty therein) and the exhibits attached hereto, nor any written statement or certificate made, delivered or furnished or to be furnished to each Purchaser or their attorneys or agents in connection with the purchase of the Shares contains any untrue statement of a material fact or, when taken as a whole, omits to state a material fact necessary to make the statements contained herein or therein not misleading in light of the circumstances under which they were made. 2.12 NO CONFLICT OF INTEREST. The Company is not indebted, directly or indirectly, to any of its employees, 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 -6- knowledge, none of the Company's employees, officers or directors, or any members of their immediate families, are, directly or indirectly, indebted to the Company or have any direct or indirect ownership interest in any firm or corporation with which the Company is affiliated or with which the Company has a business relationship, or any firm or corporation which competes with the Company except that employees, officers, directors and/or stockholders of the Company may own stock in (but not exceeding two percent of the outstanding capital stock of) any publicly traded companies that may compete with the Company. To the Company's knowledge, none of the Company's employees, officers or directors or any members of their immediate families are, directly or indirectly, interested in any material contract with the Company. 2.13 RIGHTS OF REGISTRATION. Except as contemplated in the Investors' Rights Agreement, the Company has not granted or agreed to grant any registration rights, including piggyback rights, to any person or entity. 2.14 PRIVATE PLACEMENT. Subject in part to the truth and accuracy of the Purchaser's representations set forth in this Agreement, the offer, sale and issuance of the Shares, as contemplated by this Agreement, is exempt from the registration requirements of the Securities Act of 1933, as amended (the "Securities Act"), and neither the Company nor any authorized agent acting on its behalf will take any action hereafter that would cause the loss of such exemption. 2.15 TITLE TO PROPERTY AND ASSETS. The Company has good and marketable title to all property and assets free and clear of all mortgages, liens, loans and encumbrances, except such encumbrances and liens which 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 good and valid leasehold interest free of any liens, claims or encumbrances. The Company's properties and assets are in good operating condition and repair and are reasonably fit and usable for the purposes for which they are being used, reasonable wear and tear excepted. The Company is in compliance with all material terms of each lease to which it is a party or is otherwise bound. 2.16 FINANCIAL STATEMENTS. The Company has delivered or made available to each Purchaser an unaudited balance sheet dated February 24, 2002, an unaudited statement of cash flows for the period ended February 24, 2002, and an unaudited income statement for the period ended February 24, 2002, (the "Financial Statements"). The Company maintains and will continue to maintain a standard system of accounting established and administered in accordance with generally accepted accounting principles. The Financial Statements have been prepared in accordance with generally accepted accounting principles applied on a consistent basis throughout the period indicated and with each other, 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 adjustments. 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 February 24, 2002, 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 -7- 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 or corporation. 2.17 NO CHANGES. Since February 24, 2002, there has not been: (a) any change in the assets, liabilities, financial condition or operating results of the Company from that reflected in the Financial Statements, except changes in the ordinary course of business that have not had, in the aggregate, a materially adverse effect on such assets, liabilities, financial condition or operations of the Company; (b) any damage, destruction or loss, whether or not covered by insurance, materially and adversely affecting the assets, properties, financial condition, operating results, prospects or business of the Company (as such business is presently conducted and as it is proposed to be conducted); (c) any waiver by the Company of a valuable right or of a material debt owed to it; (d) any satisfaction or discharge of any lien, claim or encumbrance or payment of any obligation by the Company, except in the ordinary course of business and that is not material to the assets, properties, financial condition, operating results or business of the Company (as such business is presently conducted and as it is proposed to be conducted); (e) any material change to a material contract or arrangement by which the Company or any of its assets or properties is bound or subject; (f) any material change in any compensation arrangement or agreement with any employee, officer, director or consultant; (g) any sale, assignment or transfer of any patents, trademarks, copyrights, trade secrets, or other intangible assets; (h) any resignation or termination of employment of any key officer of the Company; and the Company, to the best of its knowledge, does not know of the impending resignation or termination of employment of any such officer; (i) any mortgage, pledge, transfer of a security interest in, or lien, created by the Company, with respect to any of its material properties or assets, except liens for taxes not yet due or payable; (j) any loans or guarantees made by the Company to or for the benefit of its employees, officers or directors, or any members of their immediate families, other than travel advances and other advances made in the ordinary course of its business; -8- (k) any declaration, setting aside or payment or other distribution in respect of any of the Company's capital stock, or any direct or indirect redemption, purchase or other acquisition of any of such stock by the Company other than the repurchase of unvested stock at cost from employees or consultants in connection with the termination of their employment or consulting relationship with the Company; (l) to the best of the Company's knowledge, any other event or condition of any character that reasonably could be expected to materially and adversely affect the assets, properties, financial condition, operating results or business of the Company (as such business is presently conducted and as it is proposed to be conducted); or (m) any agreement or commitment by the Company to do any of the things described in this Section 2.17. 2.18 EMPLOYEE BENEFIT PLANS. The Company does not have any Employee Benefit Plan as defined in the Employee Retirement Income Security Act of 1974. 2.19 TAX RETURNS AND PAYMENTS. The Company has timely filed all tax returns and reports as required by law. These returns and reports are true and correct in all material respects. The Company has timely paid all taxes owed by it or which it is obligated to withhold from amounts owing to an employee, creditor or third party and other assessments due. The Company has not been advised (a) that any of its returns, federal, state or other, have been or are being audited as of the date hereof or (b) of any deficiency in assessment or proposed judgment to its federal, state or other taxes. The Company is not aware of any tax liability to be imposed upon its properties or assets as of the date of this Agreement that would have a material adverse effect upon the Company's business. 2.20 INSURANCE. The Company has in full force and effect fire and casualty insurance policies, with extended coverage, sufficient in amount (subject to reasonable deductibles) to allow it to replace any of its properties that might be damaged or destroyed. 2.21 LABOR AGREEMENTS AND ACTIONS. The Company is not bound by or subject to (and none of its assets or properties is bound by or subject to) any written or oral, express or implied, contract, commitment or arrangement with any labor union, and no labor union has requested or, to the knowledge of the Company, after diligent inquiry, has sought to represent any of the employees, representatives or agents of the Company. There is no strike or other labor dispute involving the Company pending, or to the knowledge of the Company, after diligent inquiry, threatened, which could have a material adverse effect on the assets, properties, financial condition, operating results, or business of the Company (as such business is presently conducted and as it is proposed to be conducted), nor is the Company aware of any labor organization activity involving its employees. The Company is not aware, after diligent inquiry, that any officer or key employee, or any group of employees, intends to terminate their employment with the Company, nor does the Company have a present intention to terminate the employment of any officer, or key employee or any group of employees. The employment of each officer and employee of the Company is terminable at the will of the Company. To its knowledge, the Company has complied -9- in all material respects with all applicable state and federal equal employment opportunity laws and with other laws related to employment. 2.22 EMPLOYEES; EMPLOYEE COMPENSATION. Each former and current employee, consultant and officer of the Company, has executed an agreement with the Company regarding confidentiality and proprietary information substantially in the form or forms delivered to the counsel for Moussenvelope, L.L.C. Except as set forth in the Schedule of Exceptions, no former or current employee, officer or consultant of the Company has excluded works or inventions made prior to his or her employment with the Company from his or her assignment of inventions pursuant to such employee, officer or consultant's Confidential or Proprietary Information and Inventions Agreement. The Company, after reasonable investigation, is not aware that any of its former or CURRENT employees or consultants is in violation thereof, and the Company will use its best efforts to prevent any such violation. All former or current consultants to or vendors of the Company, with access to confidential information of the Company are parties to a written agreement substantially in the form or forms provided to counsel for the Purchasers under which, among other things, each such consultant or vendor is obligated to maintain the confidentiality of confidential information of the Company. The Company, after reasonable investigation, is not aware that any of its former or current consultants or vendors are in violation thereof, and the Company will use its best efforts to prevent any such violation. The Company is not a party to or bound by any currently effective employment contract, deferred compensation agreement, bonus plan, incentive plan, profit sharing plan, retirement agreement or other employee compensation agreement or arrangement with any collective bargaining agent. The Company is not aware that any of its employees is obligated under any contract (including licenses, covenants or commitments of any nature) or other agreement, or subject to any judgment, decree or order of any court or administrative agency, that would interfere with the use of such employee's best efforts to promote the interest of the Company or that would conflict with the Company's business. Neither the execution or delivery of this Agreement, nor the carrying on of the Company's business by the employees of the Company, nor the conduct of the Company's business as proposed, will, to the Company's knowledge, conflict with or result in a breach of the terms, conditions, or provisions of, or constitute a default under, any contract, covenant or instrument under which any such employee is now obligated. 2.23 PERMITS. The Company has all franchises, permits, licenses and any similar authority necessary for the conduct of its business as now being conducted by it, the lack of which could materially and adversely affect the business, properties, prospects, or financial condition of the Company and believes that it can obtain, without undue burden or expense, any similar authority for the conduct of its business as planned to be conducted. The Company is not in default in any material respect under any of such franchises, permits, licenses or other similar authority. 2.24 CORPORATE DOCUMENTS. The minute books of the Company contain minutes of all meetings of directors and stockholders and all actions by written consent without a meeting by the directors and stockholders since the date of incorporation and reflect all actions by the directors (and any committee of directors) and stockholders with respect to all transactions referred to in such minutes accurately in all material respects. -10- 2.25 REAL PROPERTY HOLDING CORPORATION. The Company is not a United States real property holding corporation within the meaning of Internal Revenue Code Section 897(c)(2) and any regulations promulgated thereunder. 2.26 ENVIRONMENTAL AND SAFETY LAWS. To the best of its knowledge, the Company is not in violation of any applicable statute, law, ordinance or regulation relating to the environment or occupational health and safety, and, to the best of its knowledge, no material expenditures are or will be required in order to comply with any such existing statute, law or regulation. 2.27 STOCKHOLDER AGREEMENTS. Except as contemplated by the Agreements, there are no agreements between the Company and any of the Company's stockholders, or to the best knowledge of the Company, among any of the Company's stockholders, which in any way affect any stockholder's ability or right to freely transfer or vote such shares (except restrictions designed to provide compliance with securities laws). 2.28 BROKERS OR FINDERS. The Company has not agreed to incur, directly or indirectly, any liability for brokerage or finders' fees, agents' commissions or other similar charges in connection with this Agreement or any of the transactions contemplated hereby. The Company shall pay, and hold each Purchaser harmless against, any liability, loss or expense (including, without limitation, reasonable attorney's fees and out-of-pocket expenses) arising in connection with any such claim. 2.29 COMPLIANCE WITH LAWS. The Company, to the best of its knowledge, has complied and continues to be in compliance in all material respects with all Federal and state laws, ordinances, rules, regulations and orders applicable to the conduct of its business or the ownership of its properties, other than any non-compliance that would not materially and adversely affect the business assets, liabilities, financial condition, operations or prospects of the Company and its business. 3. REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS. Each Purchaser, severally and not jointly, hereby represents and warrants to the Company as of the Closing Date that: 3.1 AUTHORIZATION. The Agreements, when executed and delivered by the Purchaser, will constitute valid and legally binding obligations of such Purchaser, enforceable in accordance with their terms, except (a) as limited by applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance, and any other laws of general application affecting enforcement of creditors' rights generally, and as limited by laws relating to the availability of a specific performance, injunctive relief, or other equitable remedies, or (b) to the extent the indemnification provisions contained in the Investors' Rights Agreement may be limited by applicable federal or state securities laws. 3.2 PURCHASE ENTIRELY FOR OWN ACCOUNT. This Agreement is made with the Purchaser in reliance upon such Purchaser's representation to the Company, which by such Purchaser's execution of this Agreement, such Purchaser hereby confirms, that the Shares to be acquired by such Purchaser will be acquired for investment for such Purchaser's own account, not -11- 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 presently 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 Shares. Such Purchaser represents that it has full power and authority to enter into this Agreement. 3.3 DISCLOSURE OF INFORMATION. Such Purchaser has had an opportunity to discuss the Company's business, management, financial affairs and the terms and conditions of the offering of the Shares with the Company's management. Such Purchaser understands that such discussions, as well as the written information issued by the Company, were intended to describe the aspects of the Company's business which the Company believes to be material. The foregoing does not limit or modify in any way the representations and warranties of the Company contained in Section 2 of this Agreement or the right of such Purchaser to rely thereon. 3.4 RESTRICTED SECURITIES. Such Purchaser understands that the Shares have not been, and will not be, registered under the Securities Act, by reason of a specific exemption from the registration provisions of the Securities Act which depends upon, among other things, the bona fide nature of the investment intent and the accuracy of such Purchaser's representations as expressed herein. Such Purchaser understands that the Shares 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 Shares may be resold without registration under the Securities Act only in certain limited circumstances. Such Purchaser acknowledges that the Shares must be held indefinitely unless subsequently registered under the Securities Act or an exemption from such registration is available. Such Purchaser is aware of the provisions of Rule 144 promulgated under the Securities Act which permit limited resale of shares purchased in a private placement subject to the satisfaction of certain conditions, including, among other things, the existence of a public market for the shares, the availability of certain current public information about the Company, the resale occurring not less than a specified number of years after a party has purchased and paid for the security to be sold, the sale being effected through a "broker's transaction" or in transactions directly with a "market maker" (as provided by Rule 144(f)) and the number of shares being sold during any three-month period not exceeding specified limitations. 3.5 NO PUBLIC MARKET. Such Purchaser understands that no public market now exists for any of the securities issued by the Company, and that the Company has made no assurances that a public market will ever exist for the Shares. 3.6 INVESTMENT EXPERIENCE. Such Purchaser has experience with respect to investments in early-stage companies and understands the high degree of risk associated with such investments, such Purchaser acknowledges that it is able to fend for itself, can bear the economic risk of its investment (including the loss of a portion or all of the money to be invested), and has such knowledge and experience in financial or business matters that it is capable of evaluating the merits and risks of its investment in the Company and has the capacity to protect its own interests. -12- 3.7 LEGENDS. Such Purchaser understands that the Shares, and any securities issued in respect thereof or exchange therefor, may bear one or all of the following legends: (a) "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 DISPOSITION MAY BE EFFECTED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL FOR THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF 1933." (b) Any legend required by the blue sky laws of any state or other jurisdiction to the extent such laws are applicable to the shares represented by the certificate so legended. 3.8 ACCREDITED INVESTOR. Such Purchaser is an "accredited investor" as defined in Rule 501(a) of Regulation D promulgated under the Securities Act, which definition is attached hereto as Exhibit G. 3.9 FOREIGN INVESTORS. If the Purchaser is not a United States person (as defined by Section 7701(a)(30) of the Internal Revenue Code of 1986, as amended), such Purchaser hereby represents that it has satisfied itself as to the full observance of the laws of its jurisdiction in connection with any invitation to subscribe for the Stock or any use of this Agreement, including (i) the legal requirements within its jurisdiction for the purchase of the Stock, (ii) any foreign exchange restrictions applicable to such purchase, (iii) any governmental or other consents that may need to be obtained, and (iv) the income tax and other tax consequences, if any, that may be relevant to the purchase, holding, redemption, sale, or transfer of the Stock. Such Purchaser's subscription and payment for and continued beneficial ownership of the Stock, will not violate any applicable securities or other laws of the Purchaser's jurisdiction. 4. CONDITIONS OF THE PURCHASERS' OBLIGATIONS AT CLOSING. The obligations of each Purchaser to the Company under this Agreement are subject to the fulfillment, on or before the Closing, of each of the following conditions, unless otherwise waived: 4.1 NO INJUNCTION, ETC. No preliminary or permanent injunction or other binding order, decree or ruling issued by a court or governmental agency shall be in effect which shall have the effect or preventing the consummation of the transactions contemplated by this Agreement. 4.2 REPRESENTATIONS AND WARRANTIES. The representations and warranties of the Company contained in Section 2 shall be true and correct on and as of the Initial Closing with the same effect as though such representations and warranties had been made on and as of the date of the Initial Closing. -13- 4.3 PERFORMANCE. The Company shall have performed and complied with all covenants, agreements, obligations and conditions contained in this Agreement that are required to be performed or complied with by it on or before the Closing. 4.4 COMPLIANCE CERTIFICATE. The President of the Company shall deliver to each Purchaser at the Closing a certificate certifying that the conditions specified in Sections 4.1, 4.2 and 4.3 have been fulfilled. 4.5 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 pursuant to this Agreement shall be obtained and effective as of the Closing. 4.6 OPINION OF COMPANY COUNSEL. The Purchasers shall have received from Venture Law Group, counsel for the Company, an opinion, dated as of the Closing, in form and substance reasonably satisfactory to counsel to the Purchasers. 4.7 BOARD OF DIRECTORS. The Bylaws of the Company shall provide for a board of up to eight (8) directors. Immediately following the Closing, the Board shall be comprised of Michael Dunn, Hilary Billings, Pat Connolly, Jacqueline Macdonald, Alison May, Michael Moritz and Claire Gruppo. 4.8 AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT. The Company, the holders of at least 55% of the Series B Preferred Stock, the Series C Preferred Stock, the Series D Preferred Stock, and the Series E Preferred Stock and the Purchasers shall have executed and delivered the Amended and Restated Investors' Rights Agreement in substantially the form attached hereto as Exhibit C, which shall be in full force and effect as of the Closing. 4.9 CERTIFICATE. The Company shall have filed the Certificate with the Secretary of State of Delaware on or prior to the Closing, which shall continue to be in full force and effect as of the Closing. 4.10 AMENDED AND RESTATED CO-SALE AGREEMENT. The Company, Scott Galloway, Ian Chaplin, Pete Baltaxe, Hilary Billings, Martin McClanan, Tom Bazzone, the holders of a majority the Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock and Series E Preferred Stock, voting together, shall have executed and delivered the Amended and Restated Co-Sale Agreement in substantially the form attached hereto as Exhibit D which shall be in full force and effect as of the Closing. 4.11 AMENDED AND RESTATED VOTING AGREEMENT. The Company and the holders of a majority of the Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock, and the Series E Preferred Stock, voting together, shall have executed and delivered the Amended and Restated Voting Agreement substantially in the form attached hereto as Exhibit E which shall be in full force and effect as of the Closing. -14- 4.12 CORPORATE PROCEEDINGS. All corporate and other proceedings required to carry out the transactions shall be reasonably satisfactory in form and substance to the counsel to Moussenvelope, L.L.C., and the Purchasers shall have been furnished with such instruments and documents as such counsel shall have reasonably requested. 4.13 SECRETARY CERTIFICATE. The Secretary of the Company shall deliver to Purchasers at the Closing (i) certified copies of the resolutions adopted by the Company's board of directors and stockholders authorizing the execution, delivery and performance of the transactions contemplated by this Agreement (ii) a certified copy of the Company's bylaws as in effect at the Closing and (iii) a certificate certifying that the Company is in good standing in the state of Delaware and in each jurisdiction where qualification to do business is required. 4.14 MINIMUM CLOSING. The Company shall sell and the Purchasers shall purchase at least an aggregate of 21,157,221 Shares at the Initial Closing. 5. CONDITIONS OF THE COMPANY'S OBLIGATIONS AT CLOSING. The obligations of the Company to the Purchasers under this Agreement are subject to the fulfillment, on or before the Closing, of each of the following conditions, unless otherwise waived: 5.1 REPRESENTATIONS AND WARRANTIES. The representations and warranties of the Purchasers contained in Section 3 shall be true and correct 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 PERFORMANCE. All covenants, agreements and conditions contained in this Agreement to be performed by the Purchasers on or prior to the Closing shall have been performed or complied with in all material respects. 5.3 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 Shares pursuant to this Agreement shall be obtained and effective as of the Closing. 5.4 CORPORATE PROCEEDINGS. All corporate and other proceedings required to carry out the transactions shall be reasonably satisfactory in form and substance to the counsel to the Company, and the Company shall have been furnished with such instruments and documents as such counsel shall have reasonably requested. 6. MISCELLANEOUS. 6.1 SURVIVAL OF WARRANTIES. Unless otherwise set forth in this Agreement, the warranties, representations and covenants of the Company and the Purchasers contained in or made pursuant to this Agreement shall survive the execution and delivery of this Agreement and the Closing. -15- 6.2 TRANSFER; 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. 6.3 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. 6.4 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. 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. Any notice required or permitted by this Agreement shall be in writing and shall be deemed sufficient upon delivery, when delivered personally, or 24 hours after prepaid deposit, by overnight courier or sent by telegram or fax after confirmation of receipt of such transmission, or as of 5 business days after being deposited in the U.S. mail, as certified or registered mail, with postage prepaid, addressed to the party to be notified at such party's address as set forth below or on Exhibit A hereto, or as subsequently modified by written notice, if such notice is sent to the Company, with a copy to Keith A. Miller, Venture Law Group, 2775 Sand Hill Road, Menlo Park, California 94025. 6.7 FINDER'S FEE. Each party represents that it neither is nor will be obligated for any finder's fee or commission in connection with this transaction. Each Purchaser agrees to indemnify and to hold harmless the Company from any liability for any commission or compensation in the nature of a finder's fee (and the costs and expenses of defending against such liability or asserted liability) for which such Purchaser or any of its officers, employees, or representatives is responsible. The Company agrees to indemnify and hold harmless the Purchasers from any liability for any commission or compensation in the nature of a finder's 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 ATTORNEY'S FEES. If any action at law or in equity (including arbitration) is necessary to enforce or interpret the terms of any of the Agreements, 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. 6.9 AMENDMENTS AND WAIVERS. Any term of this Agreement may be amended or waived with the written consent of the Company and the holders of at least a majority of the -16- Common Stock issued or issuable upon conversion of the Shares. Any amendment or waiver effected in accordance with this Section 6.9 shall be binding upon the Purchasers and each transferee of the Shares (or the Common Stock issuable upon conversion thereof), each future holder of all such securities, and the Company. 6.10 SEVERABILITY. Any provision of this Agreement which is held to be invalid or unenforceable in any jurisdiction shall be ineffective to the extent of such invalidity or unenforceability without invalidating or rendering unenforceable the remaining provisions hereof, and any such invalidity or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. If any provision is held to be invalid or unenforceable, such provision shall be construed by the appropriate judicial body by limiting or reducing it to the minimum extent necessary to make it legally enforceable. 6.11 DELAYS OR OMISSIONS. No delay or omission to exercise any right, power or remedy accruing to any holder of any of the Shares, upon any breach or default of the Company under the Agreements, shall impair any such right, power or remedy of such holder nor shall it be construed to be a waiver of any such breach or default, or an acquiescence therein, or of or in any similar breach or default thereafter occurring; nor shall any waiver of any single breach or default be deemed a waiver of any other breach or default before or thereafter occurring. Any waiver, permit, consent or approval of any kind or character on the part of any holder of any breach or default under the Agreements, or any waiver on the part of any holder of any provisions or conditions of the Agreements, must be in writing and shall be effective only to the extent specifically set forth in such writing. All remedies, either under the Agreements or by law or otherwise afforded to any holder, shall be cumulative and not alternative. 6.12 ENTIRE AGREEMENT. This Agreement, and the documents referred to herein constitute the entire agreement between the parties hereto pertaining to the subject matter hereof, and any and all other written or oral agreements existing between the parties hereto are expressly canceled. 6.13 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 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 THE QUALIFICATION BEING OBTAINED UNLESS THE SALE IS SO EXEMPT. 6.14 CONFIDENTIALITY. Each party hereto agrees that, except with the prior written permission of the other party, and except as required by law, it shall at all times keep confidential and not divulge, furnish or make accessible to anyone any confidential information, knowledge or data concerning or relating to the business or financial affairs of the other parties to which such party has been or shall become privy by reason of this Agreement, discussions or negotiations relating to this Agreement, the performance of its obligations hereunder or the ownership of Shares -17- purchased hereunder. The provisions of this Section 6.14 shall be in addition to, and not in substitution for, the provisions of any separate nondisclosure agreement executed by the parties hereto with respect to the transactions contemplated hereby. 6.15 EXCULPATION OF PURCHASERS. Each Purchaser acknowledges that it is not relying upon any person, firm or corporation, other than the Company and its officers and directors, in making its investment or decision to invest in the Company. 6.16 WAIVER OF CONFLICTS. Each party to this Agreement acknowledges that Venture Law Group, counsel for the Company, has in the past performed and may continue to perform legal services for certain of the Purchasers in matters unrelated to the transactions described in this Agreement, including the representation of such Purchasers in venture capital financings and other matters. Accordingly, each party to this Agreement hereby (a) acknowledges that they have had an opportunity to ask for information relevant to this disclosure; and (b) gives its informed consent to Venture Law Group's representation of certain of the Purchasers in such unrelated matters and to Venture Law Group's representation of the Company in connection with this Agreement and the transactions contemplated hereby. 6.17 FEES AND EXPENSES. The Company shall at the Closing, pay the reasonable fees and expenses of Willkie, Farr & Gallagher, counsel to Moussenvelope, L.L.C., incurred with respect to this Agreement, the documents referred to herein and the transactions contemplated hereby and thereby, up to $25,000. 6.18 PURCHASE PRICE ADJUSTMENTS. The parties hereto acknowledge that the price per share of the Series F Preferred Stock was calculated based on a pre-financing valuation of $42,000,000 divided by the total shares of Company capital stock, on a fully-diluted, as-converted-to-Common Stock basis (including authorized, but unallocated shares of stock available for issuance under the Company's Employee Stock Option Plan) immediately prior to the Initial Closing, including additional shares of Common Stock that will become issuable to the holders of Series C, Series D and Series E Preferred Stock as a result of the issuance of the Shares by operation of the antidilution provisions of Article IV, Section 4(d)(i) of the Certificate. The parties further acknowledge that the price was calculated assuming 23,508,024 shares of Series F Preferred Stock would be sold in the Financing. As less than 23,508,024 shares of Series F Preferred Stock is to be sold in the Initial Closing, in the event that, after any and all Subsequent Closings hereunder, the aggregate amount of Series F Preferred Stock sold by the Company is less than 23,508,024 shares, the parties acknowledge and agree that the Company may thereafter (a) re-calculate the purchase price for the Series F Preferred Stock based on the number of shares of Series F Preferred Stock actually sold in the Financing, which shall be effected by adjusting upward the Conversion Price for the Series F Preferred Stock (as set forth in the Certificate) to such new price and (b) amend the Restated Certificate to reflect such adjustment. [SIGNATURE PAGES FOLLOW] -18- The parties have executed this Series F Preferred Stock Purchase Agreement as of the date first written above. COMPANY: REDENVELOPE, INC. By: /s/ Alison May _________________________________ Name: Alison May _______________________________ Title: President and CEO _______________________________ SIGNATURE PAGE TO SERIES F PREFERRED STOCK PURCHASE AGREEMENT PURCHASER: MOUSSENVELOPE, L.L.C. By: Moussescapade, L.P., Managing Member By: Moussescribe, its General Partner By: /s/ Charles Heilbronn ___________________________________ Charles Heilbronn President Address: c/o Mousse Partners Limited 9 West 57th Street New York, New York 10019 WESTON PRESIDIO CAPITAL III, L.P. By: /s/ James B. McElwee ___________________________________ Name: James B. McElwee ___________________________________ Title: General Partner ___________________________________ Address: 2420 Sand Hill Road Suite 206 Menlo Park, CA 94025 WPC ENTREPRENEUR FUND, L.P. By: /s/ James B. McElwee ___________________________________ Name: James B. McElwee ___________________________________ Title: General Partner ___________________________________ Address: 2420 Sand Hill Road Suite 206 Menlo Park, CA 94025 SIGNATURE PAGE TO SERIES F PREFERRED STOCK PURCHASE AGREEMENT SEQUOIA CAPITAL IX SEQUOIA CAPITAL ENTREPRENEURS FUND SEQUOIA CAPITA IX PRINCIPALS FUND By: SC IX Management, LLC A Delaware Limited Liability Company General Partner of Each By: [Illegible] ------------------------------------- Managing Member Address: SEQUOIA CAPITAL FRANCHISE FUND SEQUOIA CAPITAL FRANCHISE PARTNERS By: SCOFF Management, LLC A Delaware Limited Liability Company General Partner of Each By: [Illegible] ------------------------------------- Managing Member Address: ATRIUM VENTURE PARTNERS, L.P. BY ATRIUM VENTURE LLC, GENERAL PARTNER By: /s/ Jonathan E. Rattner ------------------------------------- Name: Jonathan E. Rattner ----------------------------------- Title: Chief Operating Officer ---------------------------------- Address: 3000 Sand Hill Road, #2-240 Menlo Park, CA 94025 CAMELOT VENTURES LLC By: /s/ Nicholas Pyatt ------------------------------------- Name: Nicholas Pyatt ----------------------------------- Title: CFO ---------------------------------- Address: SIPPL MACDONALD VENTURES II, L.P. By: /s/ Glenn C. Myers ------------------------------------- Name: Glenn C. Myers ----------------------------------- Title: CFO ---------------------------------- Address: 1422 EL Camino Real Menlo Park, CA 94025 SIPPL MACDONALD VENTURES III, L.P. By: /s/ Glenn C. Myers ------------------------------------- Name: Glenn C. Myers ----------------------------------- Title: CFO ---------------------------------- Address: /s/ Peter Baltaxe ----------------------------------------- PETER BALTAXE Address: /s/ Douglas Bertozzi ----------------------------------------- DOUGLAS BERTOZZI Address: /s/ Anthony P. Brenner ----------------------------------------- ANTHONY P. BRENNER Address: 1466 Greenwich Street San Francisco, CA 94109 SIGNATURE PAGE TO SERIES F PREFERRED STOCK PURCHASE AGREEMENT Capital Research & Management Company, on behalf of SMALL CAP World Fund, Inc. By: [Illegible] Name: Title: Address: /s/ Pat Connolly ----------------------------------------- Patrick Connolly Address: GCC RedEnvelope By: /s/ R. Ian Chaplin -------------------------------------- Name: R. Ian Chaplin ------------------------------------ Title: Partner ---------------------------------- Address: 716 La Canada Street La Jolla, CA 92037 /s/ Jamie Cheng ----------------------------------------- Jamie Cheng Address: 96 Outlook Circle Pacifica, CA 94044 DOUGERY VENTURES By: /s/ John R. Dougery ------------------------------------------ Name: John R. Dougery ---------------------------------------- Title: Pres -------------------------------------- Address: JOHN R. DOUGERY AND MARILYN R. DOUGERY, TRUSTEES FOR THE DOUGERY REVOCABLE TRUST By: /s/ John R. Dougery ------------------------------------------ Name: John R. Dougery ---------------------------------------- Title: Trustee -------------------------------------- Address: JOHN R. DOUGERY, TRUSTEE FOR THE JOHN R. DOUGERY JR. TRUST By: /s/ John R. Dougery ------------------------------------------ Name: John R. Dougery ---------------------------------------- Title: -------------------------------------- Address: SIGNATURE PAGE TO SERIES F PREFERRED STOCK PURCHASE AGREEMENT JOHN R. DOUGERY, TRUSTEE FOR THE KATHRYN ANN DOUGERY TRUST By: /s/ John R. Dougery ----------------------------------------- Name: John R. Dougery --------------------------------------- Title: Trustee -------------------------------------- Address: JOHN R. DOUGERY, TRUSTEE FOR THE SHELLEY DOUGERY TRUST By: /s/ John R. Dougery ----------------------------------------- Name: John R. Dougery --------------------------------------- Title: Trustee -------------------------------------- Address: MARILYN R. DOUGERY, TRUSTEE FOR THE MARILYN R. DOUGERY SEPARATE PROPERTY TRUST By: /s/ Marilyn R. Dougery ----------------------------------------- Name: Marilyn R. Dougery --------------------------------------- Title: Trustee -------------------------------------- Address: MARILYN R. DOUGERY, TRUSTEE OF THE ROLAPP TRUST By: /s/ Marilyn R. Dougery ----------------------------------------- Name: Marilyn R. Dougery --------------------------------------- Title: Trustee -------------------------------------- Address: /s/ Craig Foley --------------------------------------------- CRAIG FOLEY Address: FOLEY 7 LOCUST LANE BRONXVILLE, NY 10708 SIGNATURE PAGE TO SERIES F PREFERRED STOCK PURCHASE AGREEMENT /s/ Seymour F. Kaufman - ---------------------------------------- SEYMOUR F. KAUFMAN Address: Crosslink Capital #2 Embarcadero Center Ste. 2200 San Francisco, CA 94111 /s/ Michael P. Lazarus - ---------------------------------------- MICHAEL P. LAZARUS Address: THE ADAM AND REBECCA MARKMAN TRUST, ADAM AND REBECCA MARKMAN AT TTEE U/A/T DATED 5/12/99 By: /s/ Adam Markman ------------------------------- Name: Adam Markman ------------------------------- Title: Trustee ------------------------------- Address: /s/ David Markman - ------------------------------- DAVID MARKMAN Address: MICHAEL L. MEYER LIVING TRUST By: /s/ Michael L. Meyer ------------------------------- Name: Michael L. Meyer Living Trust Title: Trustee Address: 1757 Ocean Way Laguna Beach, CA 92651 /s/ William D. Michelini - ------------------------------- WILLIAM D. MICHELINI Address: SIGNATURE PAGE TO SERIES F PREFERRED STOCK PURCHASE AGREEMENT W. DEXTER PAINE, III AND SUSAN L. PAINE, TRUSTEES OF PAINE FAMILY TRUST, UDT DATED 10/13/94, AS AMENDED By: Paine Family Trust --------------------- Name: /s/ [ILLEGIBLE] ------------------- Title: Trustee ------------------ Address: PHILLIPS-SMITH SPECIALTY RETAIL GROUP III, L.P. By: Phillips-Smith Management Company, L.P., its General Partner By: /s/ Cece Smith ------------------------- Name: Cece Smith ------------------------- Title: Managing General Partner ------------------------ Address: 5080 Spectrum Drive Suite 805 West Addison, TX 75001 /s/ Paul Sagan --------------------------- PAUL SAGAN Address: 5 Sunset Ridge LEXINGTON, MA 02421 SENIORTRAK, INC. By: /s/ Lee M. Caudill ------------------------ Name: LEE M CAUDILL ---------------------- Title: President --------------------- Address: 1080 Chestnut St, #16A San Francisco, CA 94109 /s/ Jarom Smith ------------------------ JAROM SMITH Address: /s/ Michael Stark ------------------------ MICHAEL STARK Address: CROSSLINK CAPITAL TWO EMBARCADERO CENTER, SUITE 2200 SAN FRANCISCO, CA 94111 SIGNATURE PAGE TO SERIES F PREFERRED STOCK PURCHASE AGREEMENT /s/ Barry S. Sternlicht --------------------------------------------- BARRY S. STERNLICHT Address: BARRY S. STERNLICHT FAMILY SPRAY TRUST I By: /s/ Barry S. Sternlicht ----------------------------------------- Name: Barry S. Sternlicht --------------------------------------- Title: -------------------------------------- Address: BARRY S. STERNLICHT FAMILY SPRAY TRUST II By: /s/ Barry S. Sternlicht ----------------------------------------- Name: Barry S. Sternlicht --------------------------------------- Title: -------------------------------------- Address: BARRY S. STERNLICHT FAMILY SPRAY TRUST III By: /s/ Barry S. Sternlicht ----------------------------------------- Name: Barry S. Sternlicht --------------------------------------- Title: -------------------------------------- Address: /s/ Warren Struhl --------------------------------------------- WARREN STRUHL Address: 21 Chestnut Court Englewood, NJ 07631 /s/ Henry L. Wilder --------------------------------------------- HENRY L. WILDER Address: SIGNATURE PAGE TO SERIES F PREFERRED STOCK PURCHASE AGREEMENT William Oberndorf, Trustee of the Wilder Family Fund dated April 5, 1999 By: William Oberndorf --------------------------------- Name: William Oberndorf ------------------------------- Title: Trustee, Wilder Family Fund ------------------------------ Address: 591 Redwood Hwy. #3215 Mill Valley, Ca. 94941 SIGNATURE PAGE TO SERIES F PREFERRED STOCK PURCHASE AGREEMENT EXHIBITS Exhibit A - Schedule of Series F Preferred Stock Purchasers Exhibit B - Form of Seventh Amended and Restated Certificate of Incorporation Exhibit C - Form of Amended and Restated Investors' Rights Agreement Exhibit D - Form of Amended and Restated Right of First Refusal and Co-sale Agreement Exhibit E - Form of Amended and Restated Voting Agreement Exhibit F - Form of Legal Opinion of Venture Law Group Exhibit G - Definition of "accredited investors" EXHIBIT A SCHEDULE OF SERIES F PREFERRED STOCK PURCHASERS

EX-10.4 15 f89225orexv10w4.txt EXHIBIT 10.4 EXHIBIT 10.4 EXECUTION COPY AMENDED AND RESTATED INVESTORS' RIGHT OF FIRST REFUSAL AND CO-SALE AGREEMENT This Amended and Restated Investors' Right of First Refusal and Co-Sale Agreement (the "Agreement") is made as of April 17, 2002 by and among RedEnvelope, Inc., a Delaware corporation (the "Company"), the persons or entities listed on Exhibit A-1 hereto (the "Prior Investors"), the persons listed on Exhibit A-2 hereto (individually, each a "Founder," and collectively, the "Founders") and the new investors listed on Exhibit B hereto (the "New Investors"). The Prior Investors and the New Investors are referred to herein collectively as the "Investors" and each individually as an "Investor". RECITALS The Company, the Founders and the Prior Investors entered into an Amended and Restated Investors' Right of First Refusal and Co-Sale Agreement on July 17, 2000 (the "Existing Agreement"). The Company and the New Investors have entered into a Series F Preferred Stock Purchase Agreement (the "Purchase Agreement") of even date herewith pursuant to which the Company desires to sell to the New Investors and the New Investors desire to purchase from the Company shares of the Company's Series F Preferred Stock. A condition to the New Investors' obligations under the Purchase Agreement is that the Company, the Founders and the Prior Investors enter into this Agreement in order to provide the New Investors with certain rights of first refusal and co-sale. The Company, the Founders and the Prior Investors desire to induce the New Investors to purchase shares of Series F Preferred Stock pursuant to the Purchase Agreement by agreeing to amend and restate in its entirety the Existing Agreement as set forth herein. NOW, THEREFORE, in consideration of the mutual promises and covenants hereinafter set forth, the parties agree as follows SECTION 1 RIGHT OF FIRST REFUSAL AND RIGHT OF CO-SALE ON FOUNDER STOCK Except as set forth in Sections 1.3 and 1.4 below, before any Series A Preferred Stock or Common Stock of the Company, now held or hereafter acquired, registered in the name of a Founder (the "Founder Stock") may be sold or transferred to a third party (a "Proposed Transferee(s)"), including a transfer by operation of law or other involuntary transfer, subject to the prior right of first refusal (the "Right of First Refusal") held by the Company pursuant to the Exchange Agreement or Restricted Stock Purchase Agreement between the Company and such Founder (collectively, the "Restricted Stock Purchase Agreements"), such Founder Stock (the "Offered Founder Stock") shall be offered to the investors in the following manner: 1.1 Investors' Right of First Refusal. (a) The Founder shall notify each Investor of the Company's decision to elect or not to elect the Right of First Refusal within 10 days of the Founder's receipt of notification of such decision. If the Company elects not to exercise its Right of First Refusal in full, then the Investors shall have the right to purchase all, but not less than all, of the Offered Founder Stock not purchased by the Company (the "Investors' Right of First Refusal"), at the price per share specified in the notice delivered by the Founder to the Company pursuant to a Restricted Stock Purchase Agreement (the "Notice"). Concurrently with delivering or mailing such Notice to the Company, the Founder shall deliver such Notice to each Investor. Each Investor desiring to participate in the Investors' Right of First Refusal (an "Electing Investor") and/or the Co-Sale Right (as defined below) must so notify the Founder within 15 days of receipt of the Notice that such Electing Investor desires to purchase and/or sell a minimum of such Investor's Pro Rata Portion (as defined below) and shall also indicate the maximum number of Offered Founder Stock such Electing Investor desires to purchase (the "Maximum Purchase Amount") and/or sell (the "Maximum Sale Amount"). Such Electing Investor shall be entitled to purchase that portion of the Offered Founder Stock (the "Pro Rata Portion") that is up to the number of shares of Offered Founder Stock multiplied by a fraction, the numerator of which shall be the number of shares of Common Stock of the Company issued or issuable upon conversion of Company Preferred Stock held by such Electing Investor (collectively, "Conversion Shares") on the date of the Notice, and the denominator of which shall be the total number of Conversion Shares held by all Investors on the date of the Notice. (b) If any Investor failed to participate in the Investors' Right of First Refusal, the Founder shall promptly inform, in writing, each Electing Investor of such failure. Each Electing Investor desiring to purchase shares of Offered Founder Stock in addition to its Pro Rata Portion (a "Further Electing Investor") shall so notify the Founder within five (5) days of receipt of such information, and shall thereby be entitled to obtain that portion of Offered Founder Stock that such other Investors were entitled to subscribe for but which was not subscribed for ("Remaining Offered Founder Stock") that is equal to the number of shares of Remaining Offered Founder Stock multiplied by a fraction, the numerator of which shall be the number of Conversion Shares held by such Further Electing Investor on the date of the Notice, and the denominator of which shall be the total number of Conversion Shares held by all Further Electing Investors on the date of the Notice. (c) If the total number of shares elected (and/or been deemed to have elected) to be purchased by the Electing Investors and the Further Electing Investors is less than the Offered Founder Stock, and one or more Further Electing Investors have not yet elected (and/or been deemed to have elected) to purchase their Maximum Purchase Amount, then the remaining Offered Founder Stock shall be divided among such Further Electing Investors in the manner set forth in Section 1.1(b) above (or in such other manner as mutually agreed to by such Further Electing Investors) until all of the Offered Founder Stock has been allocated. -2- 1.2 Payment; Co-Sale Right in the Event of a Failure to Exercise. If, pursuant to the operation of Section 1.1 above, the Electing Investors elect (and/or have been deemed to have elected) to purchase all of the Offered Founder Stock it shall be deemed an "Exercise;" if not, it shall be deemed a "Failure to Exercise." (a) In the event of an Exercise, payment of the purchase price shall be made, at the option of each Electing Investor, in cash (by check) or by wire transfer or by any combination thereof within 45 days after receipt of the Notice or in the manner and at the times set forth in the Notice or as otherwise mutually agreed to by the Founder and each Electing Investor. (b) In the event of a Failure to Exercise, each Investor who notified the Founder pursuant to Section 1.1 above that it desired to exercise the Co-Sale Right has the right to participate in the sale of the Offered Founder Stock on the same terms and conditions available to such Founder (the "Co-Sale Right"). Each Investor who elects to exercise the Co-Sale Right (the "Co-Selling Investor") shall be deemed to have elected to sell that number of shares of Founder Stock equal to the lesser of (i) its Maximum Sale Amount and (ii) the number of shares of Offered Founder Stock multiplied by a fraction (the "Co-Sale Fraction"), the numerator of which shall be the number of Conversion Shares held by such Co-Selling Investor on the date of the Notice, and the denominator of which shall be the total number of Conversion Shares held by all Investors plus the number of shares of Company Common and Preferred Stock held by the Selling Founder on the date of such Notice. (c) If the total number of shares deemed to have been elected to be sold by the Co-Selling Investors is less than the Offered Founder Stock multiplied by the sum of the Co-Sale Fractions of all Co-Selling Investors (the "Investor Co-Sale Portion"), and one or more Co-Selling Investors have not yet been deemed to have elected to sell their Maximum Sale Amount (each a "Further Co-Selling Investor"), then each Further Co-Selling Investor shall thereby be deemed to have elected to sell the lesser of (i) its Maximum Sale Amount and (ii) the number of shares of Common Stock that such Further Co-Selling Investor was deemed to have elected to sell pursuant to Section 1.2(b) above, plus that portion of stock that such other Co-Selling Investors were entitled to sell pursuant to this Agreement but did not elect to sell ("Remaining Co-Sale Stock") that is equal to the number of shares of Remaining Co-Sale Stock multiplied by a fraction, the numerator of which shall be the number of Conversion Shares held by such Further Co-Selling Investor on the date of the Notice, and the denominator of which shall be the total number of Conversion Shares held by all Further Co-Selling Investors plus the number of shares of Company Common or Preferred Stock held by the selling Founder on the date of the Notice. (d) If the total number of shares elected (and/or been deemed to have elected) to be sold by the Co-Selling Investors and the Further Co-Selling Investors is less than the Investor Co-Sale Portion and one or more Further Co-Selling Investors have not yet elected (and/or been deemed to have elected) to sell their Maximum Sale Amount, then the remaining Offered Founder Stock shall be divided among such Further Co-Selling Investors in the manner set forth in Section 1.2(c) above until all of the Investor Co-Sale Portion has been allocated. To the extent that any Investor elects to exercise the Co-Sale Right, the number of shares of capital -3- stock that the Founder may sell to third parties pursuant to Section 1.2(e) below shall be correspondingly reduced. (e) In the event of a Failure to Exercise, the Founder may then sell all of the Offered Founder Stock (reduced by such number of shares as are sold by Investors pursuant to this Section 1.2) to any person at the price specified in the Notice, provided that such sale or transfer is consummated within 90 days of the date of the Notice, and provided further that any such sale is in accordance with all the terms and conditions hereof. If the Founder fails to consummate the sale or transfer within such 90-day period, the Investors' Right of First Refusal and Co-Sale Right provided in Sections 1.1 and 1.2, respectively, shall be deemed to be revived with respect to the Offered Founder Stock and no sale or transfer of the Founder Stock shall be effected without first offering the shares in accordance therewith. 1.3 Limitations on Right of First Refusal and Co-Sale Right. This Investors' Right of First Refusal and Co-Sale Right shall not apply where: (a) the number of shares of Founder Stock offered by a Founder, when aggregated with all other transfers by such Founder during the 12 months prior to the effective date of transfer to which the Right of First Refusal was not applicable, is less than or equal to 10% in the aggregate, of the number of shares of Founder Stock of which such Founder was the beneficial owner on the later of (i) the first day of such 12-month period or (ii) the date such Founder initially acquired Founder Stock. For purposes of this Section 1.3, "beneficial owner" shall have the same meaning as set forth in Rule 13d-3(a) under the Securities Exchange Act of 1934, as amended; and (b) the sale, assignment, transfer or other conveyance of Offered Founder Stock is: (i) to that Founder's spouse, parents, or children or other members of the Founders family (including relatives by marriage), or to a custodian, trustee or other fiduciary for the account of the Founder or members of his family in connection with a bona fide estate planning transaction; (ii) by way of bequest or inheritance upon death; (iii) to the Company; (iv) by way of a bona fide gift; or (v) by way of any pledge of Offered Founder Stock pursuant to a bona fide loan transaction that creates a mere security interest; provided, however, that any transferees pursuant to this Section 1.3 shall receive and hold such shares subject in all respects to the provisions of this Agreement, and that there shall be no further transfer of such shares except in accordance herewith. -4- 1.4 Termination of Right of First Refusal and Co-Sale Right. The Investors' Right of First Refusal and Co-Sale Right shall terminate and be of no further force and effect immediately upon: (a) the effectiveness of a Qualified Public Offering (as defined in the Investors' Rights Agreement of even date herewith by and between the Company, the Investors and the Founders); or (b) the closing of a Liquidation Transaction (as defined in that certain Amended and Restated Investors' Rights Agreement of even date herewith by and between the Company, the Investors and the Founders) of the Company. SECTION 2 PROHIBITED TRANSFERS 2.1 Treatment of Prohibited Transfers. In the event a Founder sells any Founder Stock in contravention of the rights of first refusal and co-sale rights of the Investors under this Agreement (a "Prohibited Transfer"), the Investors, in addition to such other remedies as may be available at law, in equity or hereunder, shall have the put option provided in Section 2.2 below, and the Founder shall be bound by the applicable provisions of such put option. 2.2 Put Option. In the event of a Prohibited Transfer, each Investor shall have the right to sell to the Founder who effected the Prohibited Transfer, and, if such right is exercised, the Founder shall have the obligation to purchase from each Investor, a number of shares of Common Stock of the Company (either directly or through purchase of Convertible Securities) equal to the number of shares each Investor would have been entitled to sell to the purchaser in the Prohibited Transfer pursuant to the terms hereof. Such sale shall be made on the following terms and conditions: (a) The price per share at which the shares are to be sold to the Founder shall be equal to the price per share paid by the purchaser to the Founder in the Prohibited Transfer. The Founder shall also reimburse each Investor for any and all reasonable fees and expenses, including legal fees and expenses, promptly following demand therefor, incurred pursuant to the exercise or the attempted exercise of the Investor's rights under this Section 2. (b) Within twenty (20) business days after the later of the dates on which the Investors (i) received notice from the Founder of the Prohibited Transfer or (ii) otherwise become aware of the Prohibited Transfer, each Investor shall, if exercising the put option created hereby, deliver to the Founder the certificate or certificates representing shares to be sold, each certificate to be properly endorsed for transfer. (c) The Founder shall, upon receipt of the certificate or certificates for the shares to be sold by an Investor, pursuant to Section 2.2(b), immediately pay the aggregate purchase price therefor and the amount of reimbursable fees and expenses, as specified in Section 2.2(a), by certified check, wire transfer or bank draft made payable to the order of such Investor. -5- (d) NOTWITHSTANDING THE FOREGOING, ANY ATTEMPT TO TRANSFER SHARES OF THE COMPANY IN VIOLATION OF SECTION 1 HEREOF 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 INVESTORS. THE COMPANY AND THE FOUNDERS AGREE THAT ANY AND ALL CERTIFICATES REPRESENTING ANY SHARES OR OTHER SECURITIES OF THE COMPANY HELD FROM TIME TO TIME DURING THE TERM OF THIS AGREEMENT SHALL BEAR A LEGEND REFERENCING THE RESTRICTIONS IMPOSED BY THIS AGREEMENT. 2.3 Assignment of Rights. The rights of the Investors set forth in this Agreement may be assigned (but only with all related obligations) only to a transferee or assignee of all of such Investor's Company Preferred Stock (or Common Stock issued upon conversion thereof) provided that (a) the Company is, within a reasonable time after 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 agrees in writing to be bound by the provisions of this Agreement, and (c) such transferee is not an actual or potential competitor of the Company, as determined in good faith by the Company's Board of Directors. Notwithstanding the foregoing, any Investor may transfer its rights set forth in this Agreement if the transferee is a constituent partner or member of such Investor or an entity controlling, controlled by or under common control with such Investor. 2.4 Legends. Such Investor understands that the Founder Stock, and any securities issued in respect thereof or exchange therefor, may bear one or all of the following legends: "THE SHARES EVIDENCED HEREBY ARE SUBJECT TO AN INVESTORS' RIGHT OF FIRST REFUSAL AND CO-SALE 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 INVESTORS' RIGHT OF FIRST REFUSAL AND CO-SALE AGREEMENT." SECTION 3 MISCELLANEOUS 3.1 Future Chief Executive Officers. The Company and Founders agree to use best efforts to cause any future Chief Executive Officer who is issued the Company's Common Stock to become a party to this Agreement in connection with the issuance of such Common Stock. -6- 3.2 Governing Law. This Agreement shall be governed in all respects by and construed in all respects in accordance with the laws of the State of California as applied to contracts entered into and performed in California solely by residents thereof. 3.3 Successors and Assigns. Except as otherwise expressly provided herein the provisions hereof shall inure to the benefit of, and be binding upon, the successors, assigns, heirs, transferees, executors and administrators of the parties hereto. 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. 3.4 Entire Agreement. This Agreement constitutes the full and entire understanding and agreement between the parties with regard to rights of first refusal and co-sale rights with respect to sales of Founder Stock. 3.5 Amendment and Waiver. This Agreement, or any provision hereof, may be amended or waived only in writing signed by the Company, the Founders holding a majority of the Company Common Stock held, or issuable upon conversion of Preferred Stock held, by all Founders and the holders of a majority of the Series B, Series C, Series D, Series E and Series F Preferred Stock voting together (including any Common Stock then held by the Investors issued upon conversion of such Series B, Series C, Series D, Series E and Series F Preferred Stock), and any amendment or waiver so approved shall be binding upon all the Investors (including any transferee of an Investor); provided, however, that no such amendment shall be effective with respect to any Investor if such amendment materially adversely affects any of the rights granted pursuant to the Agreement to such Investor (the "Uniquely Affected Investor") in a manner different from the manner in which such amendment affects all other Investors, unless such amendment is consented to in writing by the Uniquely Affected Investor. If the Uniquely Affected Investor does not so consent, then the amendment shall be effective as to all Investors other than the Uniquely Affected Investor. 3.6 Notices. Any notice required or permitted by this Agreement shall be in writing and shall be deemed sufficient upon delivery, when delivered personally, or 24 hours after prepaid deposit, by overnight courier or sent by telegram or fax after confirmation of receipt of such transmission, or as of 5 business days after being deposited in the U.S. mail, as certified or registered mail, with postage prepaid, addressed to the party to be notified at such party's address as set forth below or on Exhibit A hereto, or as subsequently modified by written notice, if such notice is sent to the Company, with a copy to Keith A. Miller, Venture Law Group, 2775 Sand Hill Road, Menlo Park, California 94025. 3.7 Severability. Any provision of this Agreement which is held to be invalid or unenforceable in any jurisdiction shall be ineffective to the extent of such invalidity or unenforceability without invalidating or rendering unenforceable the remaining provisions hereof, and any such invalidity or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. If any provision is held to be invalid or unenforceable, such provision shall be construed by the appropriate judicial body by limiting or reducing it to the minimum extent necessary to make it legally enforceable. -7- 3.8 Titles and Subtitles. The titles of the sections and subsections of this Agreement are for convenience of reference only and are not to be considered in construing this Agreement. 3.9 Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be an original, but all of which together shall constitute one instrument. 3.10 Addition of Investors. Notwithstanding anything to the contrary contained herein, if the Company shall issue additional shares of its Series F Preferred Stock pursuant to Section 1.2(c) the Purchase Agreement, any acquiror of such shares of Series F Preferred Stock shall become a party of this Agreement by executing and delivering an additional counterpart signature page to this Agreement and shall be deemed an "Investor'" hereunder. 3.11 Termination of Existing Agreement. This Agreement contains the entire understanding of the parties, and there are no further or other agreements or understandings, written or oral, in effect between the parties relating to the subject matter hereof. The Company, the Founders and the signatories of this Agreement, as the holder of a majority of the Series B, Series C, Series D and Series E Preferred Stock, hereby agree that the Existing Agreement is hereby amended and restated in its entirety by this Agreement, and the Existing Agreement shall be of no further force or effect. [SIGNATURE PAGES FOLLOW] -8- IN WITNESS WHEREOF, the parties hereto have executed this Amended and Restated Investors' Right of First Refusal and Co-Sale Agreement as of the day and year written above. COMPANY: REDENVELOPE, INC. By: /s/ Alison L. May ------------------------------------ Name: Alison May ------------------------------------ Title: President & CEO ---------------------------------- INVESTOR: MOUSSENVELOPE, L.L.C. By: Moussescapade, L.P., Managing Member By: Moussescribe, its General Partner By: /s/ Charles Heilbronn -------------------------------------- Charles Heilbronn President Address: c/o Mousse Partners Limited 9 West 57th Street New York, New York 10019 WESTON PRESIDIO CAPITAL III, L.P. By: /s/ James B. McElwee -------------------------------------- Name: James B. McElwee ----------------------------------- Title: General Partner ---------------------------------- Address: WPC ENTREPRENEUR FUND, L.P. By: /s/ James B. McElwee -------------------------------------- Name: James B. McElwee ----------------------------------- Title: General Partner ---------------------------------- Address: SEQUOIA CAPITAL IX SEQUOIA CAPITAL ENTREPRENEURS FUND SEQUOIA CAPITAL IX PRINCIPALS FUND By: SC IX Management, LLC A Delaware Limited Liability Company General Partner of Each By: (ILLEGIBLE) ------------------------------------- Managing Member Address: SEQUOIA CAPITAL FRANCHISE FUND SEQUOIA CAPITAL FRANCHISE PARTNERS By: SCFF Management, LLC A Delaware Limited Liability Company General Partner of Each By: (ILLEGIBLE) ------------------------------------- Managing Member Address: SIGNATURE PAGE TO SERIES F PREFERRED STOCK RIGHT OF FIRST REFUSAL AND CO-SALE AGREEMENT ATRIUM VENTURE PARTNERS, L.P. By Atrium Ventures LLC, General Partner By: /s/ Jonathan E. Rattner ---------------------------------------------- Name: Jonathan E. Rattner -------------------------------------------- Title: Chief Operating Officer ------------------------------------------- Address: 3600 Sand Hill Rd #2-240 Menlo Park, CA 94025 CAMELOT VENTURES LLC By: /s/ Nicholas Pyett ---------------------------------------------- Name: Nicholas Pyett -------------------------------------------- Title: CFO ------------------------------------------- Address: SIPPL MACDONALD VENTURES II, L.P. By: /s/ Glenn C. Myers ---------------------------------------------- Name: Glenn C. Myers -------------------------------------------- Title: CFO ------------------------------------------- Address: 1422 El Camino Real Menlo Park, CA 94025 SIPPL MACDONALD VENTURES III, L.P. By: /s/ Glenn C. Myers ---------------------------------------------- Name: Glenn C. Myers -------------------------------------------- Title: CFO ------------------------------------------- Address: /s/ Peter Baltaxe -------------------------------------------------- PETER BALTAXE Address: /s/ Douglas Bertozzi -------------------------------------------------- DOUGLAS BERTOZZI Address: /s/ Anthony P. Brenner -------------------------------------------------- ANTHONY P. BRENNER Address: 1466 Greenwich St SF, CA 94109 SIGNATURE PAGE TO SERIES F PREFERRED STOCK RIGHT OF FIRST REFUSAL AND CO-SALE AGREEMENT CAPITAL RESEARCH & MANAGEMENT COMPANY, ON BEHALF OF SMALL CAP WORLD FUND, INC. By: /s/ [illegible] --------------------------------- Name: ------------------------------- Title: ------------------------------ Address: /s/ Patrick Connolly ------------------------------------- PATRICK CONNOLLY Address: /s/ Jamie Cheng ------------------------------------- JAMIE CHENG Address: 96 Outlook Circle Pacifica, CA 94044 DOUGERY VENTURES By: /s/ John Dougery ---------------------------------- Name: -------------------------------- Title: Pres. ------------------------------- Address: JOHN R. DOUGERY AND MARILYN R. DOUGERY, TRUSTEES FOR THE DOUGERY REVOCABLE TRUST By: /s/ John Dougery ---------------------------------- Name: /s/ Marilyn R. Dougery -------------------------------- Title: Trustees ------------------------------- Address: JOHN R. DOUGERY, TRUSTEE FOR THE JOHN R. DOUGERY JR. TRUST By: /s/ John Dougery ---------------------------------- Name: -------------------------------- Title: Trustee ------------------------------- Address: SIGNATURE PAGE TO SERIES F PREFERRED STOCK RIGHT OF FIRST REFUSAL AND CO-SALE AGREEMENT JOHN R. DOUGERY, TRUSTEE FOR THE KATHRYN ANN DOUGERY TRUST By: /s/ John R. Dougery --------------------------------------- Name: ------------------------------------- Title: Trustee ------------------------------------ Address: JOHN R. DOUGERY, TRUSTEE FOR THE SHELLEY DOUGERY TRUST By: /s/ John R. Dougery --------------------------------------- Name: ------------------------------------- Title: Trustee ------------------------------------ Address: MARILYN R. DOUGERY, TRUSTEE FOR THE MARILYN R. DOUGERY SEPARATE PROPERTY TRUST By: /s/ Marilyn R. Dougery --------------------------------------- Name: ------------------------------------- Title: Trustee ------------------------------------ Address: MARILYN R. DOUGERY, TRUSTEE OF THE ROLAPP TRUST By: /s/ Marilyn R. Dougery --------------------------------------- Name: ------------------------------------- Title: Trustee ------------------------------------ Address: /s/ Craig Foley ------------------------------------------ CRAIG FOLEY Address: Foley 7 Locust Lane Bronxville, NY 10708 GCC REDENVELOPE By: /s/ R. Ian Chaplin --------------------------------------- Name: R. Ian Chaplin ------------------------------------- Title: Partner ------------------------------------ Address: 716 La Canada La Jolla, CA 92037 /s/ Seymour F. Kaufman ------------------------------------------ SEYMOUR F. KAUFMAN Address: Crosslink Capital #2 Embarcadero Center Ste 2200 San Francisco, CA 94111 /s/ Michael P. Lazarus ------------------------------------------ MICHAEL P. LAZARUS Address: SIGNATURE PAGE TO SERIES F PREFERRED STOCK RIGHT OF FIRST REFUSAL AND CO-SALE AGREEMENT THE ADAM AND REBECCA MARKMAN TRUST, ADAM AND REBECCA MARKMAN AS TTEE U/A/T DATE 5/12/99 By: /s/ Adam Markman --------------------------------------- Name: Adam Markman ------------------------------------- Title: Trustee ------------------------------------ Address: /s/ David Markman ------------------------------------------ DAVID MARKMAN Address: MICHAEL L. MEYER LIVING TRUST By: /s/ Michael L. Meyer --------------------------------------- Name: Michael L. Meyer Living Trust ------------------------------------- Title: Trustee ------------------------------------ Address: 1757 Ocean Way Laguna Beach, CA 92651 /s/ William D. Michelini ------------------------------------------ WILLIAM D. MICHELINI Address: W. DEXTER PAINE, III AND SUSAN L. PAINE, TRUSTEES OF PAINE FAMILY TRUST, UDT DATED 10/13/94, AS AMENDED By: /s/ Paine Family Trust --------------------------------------- Name: DR ------------------------------------- Title: Trustee ------------------------------------ Address: SIGNATURE PAGE TO SERIES F PREFERRED STOCK RIGHT OF FIRST REFUSAL AND CO-SALE AGREEMENT PHILLIPS-SMITH SPECIALTY RETAIL GROUP III, L.P. By: Phillips-Smith Management Company, L.P., its General Partner By: /s/ Cece Smith --------------------------------- Name: Cece Smith ------------------------------- Title: Managing General Partner ------------------------------ Address: 5080 Spectrum Drive Suite 805 West Addison, TX 75001 /s/ Paul Sagan --------------------------------- PAUL SAGAN Address: 5 SUNSET RIDGE LEXINGTON, MA 02421 SENIORTRAK, INC. By: /s/ Lee M. Caudill --------------------------------- Name: Lee M. Caudill ------------------------------- Title: President ------------------------------ Address: 1080 Chestnut St, #16A San Francisco, CA 94109 /s/ Jarom Smith --------------------------------- JAROM SMITH Address: /s/ Michael Stark --------------------------------- MICHAEL STARK Address: Crosslink Capital Two Embarcadero Center, Suite 2200 San Francisco, CA 94111 SIGNATURE PAGE TO SERIES F PREFERRED STOCK RIGHT OF FIRST REFUSAL AND CO-SALE AGREEMENT /S/ Barry S. Sternlicht ----------------------- BARRY S. STERNLICHT Address: BARRY S. STERNLICHT FAMILY SPRAY TRUST I By: /s/ Barry S. Sternlicht ------------------------ Name: ---------------------- Title: --------------------- Address: BARRY S. STERNLICHT FAMILY SPRAY TRUST II By: /s/ Barry S. Sternlicht ------------------------ Name: ---------------------- Title: --------------------- Address: BARRY S. STERNLICHT FAMILY SPRAY TRUST III By: /s/ Barry S. Sternlicht ------------------------ Name: ---------------------- Title: --------------------- Address: /s/ Warren Struhl --------------------------- WARREN STRUHL Address: 21 Chestnut Court Englewood, NJ 07631 /s/ Henry L. Wilder --------------------------- HENRY L. WILDER Address: WILLIAM OBERNDORF, TRUSTEE OF THE WILDER FAMILY FUND DATED APRIL 5, 1999 By: /s/ William Oberndorf ------------------------ Name: William Oberndorf ---------------------- Title: Trustee, Wilder Family Fund ---------------------------- Address: 591 Redwood Hwy. #3215 Mill Valley, CA 94941 SIGNATURE PAGE TO SERIES F PREFERRED STOCK RIGHT TO FIRST REFUSAL AND CO-SALE AGREEMENT DIRECT EQUITY PARTNERS, L.P. By: /s/ Claire Gruppo -------------------------------- Name: Claire Gruppo ------------------------------ Title: President ----------------------------- Address: Attn: Claire Gruppo Direct Equity Partners 60 East 42nd Street Suite 3810 New York, NY 10165 /s/ Martin McClanan -------------------------------- MARTIN MCCLANAN Address: 128 3rd Ave San Francisco, CA 94118 ROBERT MAY Address: 1230 18th St. SF CA 94107 SIGNATURE PAGE TO SERIES F PREFERRED STOCK RIGHT OF FIRST REFUSAL AND CO-SALE AGREEMENT FOUNDERS: /s/ R. Ian Chaplin ----------------------------------- R. Ian Chaplin /s/ Scott Galloway ----------------------------------- Scott Galloway /s/ Pete Baltaxe ----------------------------------- Pete Baltaxe /s/ Hilary Billings ----------------------------------- Hilary Billings /s/ Tom Bazzone ----------------------------------- Tom Bazzone /s/ Martin McClanan ----------------------------------- Martin McClanan EXHIBIT A-1 List of Prior Investors Henry L. B. Wilder 3301 Tripp Road Woodside, CA 94062 Sippl Macdonald Ventures II, L.P. c/o Jacqueline A. Macdonald 4600 Bohannon Drive, Suite 110 Menlo Park, CA 94025 John R. Dougery and Marilyn R. Dougery, Trustees for the Dougery Revocable Trust c/o John R. Dougery Dougery Ventures 165 Santa Ana Avenue San Francisco, CA 94125 Dougery Ventures, LLC c/o John R. Dougery Dougery Ventures, LLC 165 Santa Ana Avenue San Francisco, CA 94125 John R. Dougery, Trustee for the Shelley Dougery Trust c/o John R. Dougery Dougery Ventures 165 Santa Ana Avenue San Francisco, CA 94125 John R. Dougery, Trustee for the John R. Dougery, Jr. Trust c/o John R. Dougery Dougery Ventures 165 Santa Ana Avenue San Francisco, CA 94125 John R. Dougery, Trustee for the Kathryn Ann Dougery Trust c/o John R. Dougery Dougery Ventures 165 Santa Ana Avenue San Francisco, CA 94125 A-1 Marilyn R. Dougery, Trustee for the Marilyn R. Dougery Separate Property Trust c/o John R. Dougery Dougery Ventures 165 Santa Ana Avenue San Francisco, CA 94125 Marilyn R. Dougery, Trustee of the Rolapp Trust c/o John R. Dougery Dougery Ventures 165 Santa Ana Avenue San Francisco, CA 94125 Michael L. Meyer Living Trust c/o Michael L. Meyer 660 Newport Center Drive, Suite 800 Newport Beach, CA 92660 Warren Hellman Hellman & Friedman One Maritime Plaza, 12th Floor San Francisco, CA 94111 William D. Michelini Director, Business Development 911Gifts, Inc. 832 Sansome Street, Suite 300 San Francisco, CA 94111 5 S Ventures LLC c/o K. B. Chandrasekhar 21591 Regnart Road Cupertino, CA 95014 M. Hannah Sullivan 41 Nevada Street San Francisco, CA 94110 Ellen Hancock President and CEO Exodus Communications 2831 Mission College Boulevard Santa Clara, CA 95054 A-2 Kanwal S. Rekhi and Ann H. Rekhi, As the Trustees of the Rekhi Family Trust Dated 12/15/89 16150 Hillvale Avenue Monte Sereno, CA 95030 Pat Connolly Williams Sonoma, Inc. 3250 Van Ness Avenue San Francisco, CA 94109 Robert May 1230 18th Street San Francisco, CA 94107 Adam Markman Green Street Advisors 567 San Nicholas Drive, Suite 203 Newport Beach, CA 92660 David Markman 4223 West Redondo Beach Boulevard Suite A Lawndale, CA 90260 Paul Sagan Akamai Technologies, Inc. 201 Broadway, 4th Floor Cambridge, MA 02139 Gregory J. Hartman and Sally Upjohn Hartman Westbrook Partners 155 Prospect Avenue Woodside, CA 94062 W. Dexter Paine, III and Susan L. Paine, Trustees of Paine Family Trust, UDT dated October 13, 1994, as amended c/o Fox, Paine & Company 950 Tower Lane, Suite 1950 Foster City, CA 94404 VLG INVESTMENTS 1999 c/o Elias J. Blawie Venture Law Group 2800 Sand Hill Road Menlo Park, CA 94025 A-3 The Community Trust Under the Green Family Trust U/T/A Dated November 6, 1995, Trustee Joshua L. Green c/o Joshua L. Green 25 Magnolia Drive Atherton, CA 94027 Paul H. Stephens and Eleanor M. Stephens, Trustees U/T/A dated 7/6/98 c/o RS Investment Management 555 California Street, Suite 2500 San Francisco, CA 94104 George R. Hecht TTEE FBO P. Bart Stephens UTA dated 12/22/83 c/o RS Investment Management 555 California Street, Suite 2500 San Francisco, CA 94104 George R. Hecht TTEE FBO W. Brad Stephens UTA dated 12/22/83 c/o RS Investment Management 555 California Street, Suite 2500 San Francisco, CA 94104 Sequoia Capital IX Sequoia Capital Angel Fund Sequoia Capital IX Partners Fund Sequoia Capital Franchise Fund Sequoia Capital Franchise Partners c/o Michael Moritz Sequoia Capital 3000 Sand Hill Road Building 4, Suite 280 Menlo Park, CA 94025 AMB Property, L.P. 505 Montgomery San Francisco, CA 94111 Attn: Tamra Browne Angel (Q) Investors, L.P. c/o Casey McGlynn Wilson Sonsini 650 Page Mill Road Palo Alto, CA 94304 A-4 Barry Sternlicht Starwood Hotels & Resorts Worldwide 777 Westchester Avenue White Plaines, NY 10604 Anthony P. Brennar Omega Venture Partners, Inc. 555 California Street Suite 2350 San Francisco, CA 94104 Seymour F. Kaufman Omega Venture Partners, Inc. 555 California Street Suite 2350 San Francisco, CA 94104 Michael Stark Omega Venture Partners, Inc. 555 California Street Suite 2350 San Francisco, CA 94104 Tom Bliska Omega Venture Partners, Inc. 555 California Street Suite 2350 San Francisco, CA 94104 Dan Dunn Omega Venture Partners, Inc. 555 California Street Suite 2350 San Francisco, CA 94104 Jason Sanders Omega Venture Partners, Inc. 555 California Street Suite 2350 San Francisco, CA 94104 Jason Duckworth Omega Venture Partners, Inc. 555 California Street Suite 2350 San Francisco, CA 94104 A-5 Gerri Holt Omega Venture Partners, Inc. 555 California Street Suite 2350 San Francisco, CA 94104 John S. Perkins Omega Venture Partners, Inc. 555 California Street Suite 2350 San Francisco, CA 94104 James B. McElwee Weston Presidio Capital 343 Sansome Street, Suite 1210 San Francisco CA 94104-1316 Michael P. Lazarus Weston Presidio Capital 343 Sansome Street, Suite 1210 San Francisco CA 94104-1316 Barry S. Sternlicht Family Spray Trust I Barry S. Sternlicht Family Spray Trust II Barry S. Sternlicht Family Spray Trust III Phillips-Smith Specialty Retail Group III, L.P. Craig J. Foley Weston Presidio Capital III, L.P. WPC Entrepreneur Fund, L.P. Stephen J. Brownell Mark W. Lindsay RE General Partnership Tsakopoulos Family Partnership Galloway & Chaplin Capital A-6 Sippl Macdonald Ventures III, L.P. Angel (Q) Investors II, L.P. Angel Investors II, L.P. The K.B. and Sukanya Chandrasekhar Living Trust dated August 26, 1998 Anthony Brenner Mary M. Sullivan Trust Sequoia Capital Entrepreneurs Fund Sequoia Capital IX Principals Fund Hybrid Venture Partners, L.P. Direct Equity Partners I, L.P. SMALLCAP World Fund, Inc. Atrium Venture Partners L.P. Warren Struhl Crown Technologies Partners Camelot Ventures, LLC A-7 EXHIBIT A-2 List of Founders R. Ian Chaplin Scott Galloway Pete Baltaxe Hilary Billings Tom Bazzone Martin McClanan A-8 EXHIBIT B LIST OF NEW INVESTORS Moussenvelope, L.L.C. Weston Presidio Capital III, L.P. WPC Entrepreneur Fund, L.P. Sequoia Capital Entrepreneurs Fund Sequoia Capital Franchise Fund Sequoia Capital Franchise Partners Sequoia Capital IX Sequoia Capital IX Principals Fund Atrium Venture Partners, L.P. Camelot Ventures LLC Sippl Macdonald Ventures II, L.P. Sippl Macdonald Ventures III, L.P. Peter Baltaxe Douglas Bertozzi Anthony P. Brenner Clipperbay & Co., Nominee for SMALLCAP World Fund, Inc. Patrick Connolly GCC RedEnvelope Jamie Cheng Dougery Ventures John R. Dougery and Marilyn R. Dougery, Trustees for the Dougery Revocable Trust John R. Dougery, Trustee for the John R. Dougery Jr. Trust B-1 John R. Dougery, Trustee for the Kathryn Ann Dougery Trust John R. Dougery, Trustee for the Shelley Dougery Trust Marilyn R. Dougery, Trustee for the Marilyn R. Dougery Separate Property Trust Marilyn R. Dougery, Trustee of the Rolapp Trust Craig Foley Seymour F. Kaufman Michael P. Lazarus The Adam and Rebecca Markman Trust, Adam and Rebecca Markman as TTEE U/A/T dated 5/12/99 David Markman Michael L. Meyer Living Trust William D. Michelini W. Dexter Paine, III and Susan L. Paine, Trustees of Paine Family Trust, UDT dated 10/13/94, as amended Phillips-Smith Specialty Retail Group III, L.P. Paul Sagan SeniorTrak, Inc. Jarom Smith Michael Stark Barry S. Sternlicht Barry S. Sternlicht Family Spray Trust I Barry S. Sternlicht Family Spray Trust II Barry S. Sternlicht Family Spray Trust III Warren Struhl Henry L. Wilder B-2 William Oberndorf, Trustee of the Wilder Family Fund dated April 5, 1999 Direct Equity Partners, L.P. Martin McClanan Robert May B-3 EX-10.5 16 f89225orexv10w5.txt EXHIBIT 10.5 EXHIBIT 10.5 REDENVELOPE, INC. AMENDED AND RESTATED VOTING AGREEMENT This Amended and Restated Voting Agreement (the "Agreement") is made as of April 17, 2002, by and among RedEnvelope, Inc., a Delaware corporation (the "Company"), the holders of Series A Preferred Stock and Common Stock listed on Exhibit A (the "Stockholders"), the prior purchasers of Preferred Stock of the Company listed on Exhibit B hereto (the "Prior Investors") and the new investors listed on Exhibit C hereto (the "New Investors"). The Prior Investors and the New Investors are referred to herein collectively as the "Investors" and each individually as an "Investor". RECITALS The Company, certain of the Stockholders and the Prior Investors entered into an Amended and Restated Voting Agreement on July 17, 2000 (the "Existing Agreement"). The Company and the Investors have entered into a Series F Preferred Stock Purchase Agreement (the "Purchase Agreement") of even date herewith pursuant to which the Company desires to sell to the New Investors and the New Investors desire to purchase from the Company shares of the Company's Series F Preferred Stock. A condition to the New Investors' obligations under the Purchase Agreement is that the Company, the Stockholders and the Prior Investors amend and restate in its entirety the Existing Agreement in the manner set forth herein, for the purpose of setting forth the terms and conditions pursuant to which the parties shall vote their shares of the Company's voting stock in favor of certain designees to the Company's Board of Directors. The Company, the Stockholders and the Prior Investors desire to induce the New Investors to purchase shares of Series F Preferred Stock pursuant to the Purchase Agreement by agreeing to the terms and conditions set forth below. AGREEMENT The parties hereby agree as follows: 1. Voting Agreement. 1.1 Election of Directors. (a) Prior to each election of directors, the holders of Series F Preferred Stock shall nominate one director (the "Series F Nominee"), the holders of Series E Preferred Stock shall nominate one director (the "Series E Nominee") which Series E Nominee shall be designated by Direct Equity Partners I, L.P. ("DEP") for so long as DEP continues to hold at least 1,500,000 shares of Series E Preferred Stock (as such figure shall be adjusted to take into account any stock split or stock dividend or other recapitalization of the capital stock of the Company), the holders of Series C Preferred Stock shall nominate one director (the "Series C Nominee"), the holders of Series B Preferred Stock shall nominate one director (the "Series B Nominee") and the holders of Series A Preferred Stock and Common Stock shall nominate one director (the "Series A/Common Nominee"). At each annual meeting of the stockholders of the Company, or at any meeting of the stockholders 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, each of the Investors and the Stockholders hereby agree to vote all voting securities owned or controlled by them to elect as director: (i) the Series F Nominee, which shall be nominated by the holders of greater than two-thirds of the Series F Preferred Stock as of the date of this Agreement; (ii) the Series E Nominee, which shall be Claire Gruppo as of the date of this Agreement; (iii) the Series C Nominee, which shall be Michael Moritz as of the date of this Agreement; (iv) the Series B Nominee, which shall be Jackie MacDonald as of the date of this Agreement; (v) the Series A/Common Nominee, which shall be Michael Dunn as of the date of this Agreement; (vi) the individual acting as Chief Executive Officer at the time of the election (the "CEO Nominee"), which person shall be Alison May as of the date of this Agreement; (vii) one individual nominated by a majority of the then-existing Board of Directors, which individual shall be Pat Connolly as of the date of this Agreement; and (viii) one individual who shall have relevant industry experience and shall be acceptable to the Series E Nominee, Series F Nominee, Series C Nominee, Series B Nominee and the Series A/Common Nominee, which individual shall be Hilary Billings as of the date of this Agreement. (b) Neither the Company, the Investors, the Stockholders, nor any officer, director, stockholder, partner, employee or agent of any such party, makes any representation or warranty as to the fitness or competence of any nominee hereunder to serve on the Board of Directors of the Company by virtue of execution of this Agreement or by the act of such Investor or Stockholder in voting for such nominee pursuant to this Agreement. (c) At any time prior to any meeting (or written action in lieu of a meeting) of the stockholders of the Company at or by which directors are to be elected, a party having a right to nominate a director hereunder shall notify the other parties in writing of its nominee, but in the absence of any such notification it shall be presumed that an incumbent -2- nominee has been redesignated. The Series F Nominee may not be removed except by a vote of greater than two-thirds of the shares of Series F Preferred Stock then outstanding. The Series E Nominee may not be removed except by a vote of greater than 65% of the shares of Series E Preferred Stock then outstanding or DEP (for so long as DEP is entitled to designate the Series E Nominee pursuant to Section 1.1(a)). The Series C Nominee may not be removed except by a vote of greater than 50% of the shares of Series C Preferred Stock then outstanding. The Series B Nominee may not be removed except by a vote of greater than 50% of the shares of Series B Preferred Stock then outstanding. The Series A/Common Nominee may not be removed except by vote of greater than 50% of the shares of Series A Preferred Stock and Common Stock then outstanding, voting together as one class. (d) In the event of the resignation, death, removal or disqualification of any of the nominees set forth in Section 1.1(a) above, the Stockholders, Investors or other parties (as the case may be), who nominated such nominee as set forth in Section 1.1(a) above, shall promptly nominate a new director, and, after written notice of the nomination has been given to the other parties, each Investor and Stockholder shall vote its shares of capital stock of the Company to elect such nominee to the Board of Directors. 1.2 Class Voting. If a class vote is required from the holders of Series A Preferred Stock, then such holders agree that: (i) they will convert their shares of Series A Preferred Stock to Common Stock prior to such vote or (ii) they will vote as directed by and in accordance with the holders of a majority of all Series of the Company's Preferred Stock (other than those excepted specifically by operation of the Company's Certificate of Incorporation or by agreement) other than the votes of the Series A Preferred Stock. 1.3 Renouncement of Dissenters' Rights. If at any time hereafter, the Company's Board of Directors resolves to engage in a merger or other business combination transaction to be qualified as a pooling of interests for accounting purposes, the Investors and the Stockholders hereby agree not to exercise dissenters' rights with respect thereto. 1.4 Termination of Voting Agreement. The provisions of this Agreement shall terminate and be of no further force and effect upon the effective date of a Qualified Public Offering (as defined in the Investors' Right Agreement of even date herewith by and between the Company, the Investors and the Founders, the "Investors' Rights Agreement") or upon a Liquidation Transaction (as defined in the Investors' Rights Agreement) of the Company. 1.5 Removal. The holders of Series F Preferred Stock, the holders of Series E Preferred Stock or DEP (for so long as DEP is entitled to designate the Series E Nominee pursuant to Section 1.1(a)), the holders of the Series C Preferred Stock or the holders of the Series B Preferred Stock and the holders of the Series A Preferred Stock and Common Stock, as the case may be, may remove their respective designated director other than the Company's Chief Executive Officer at any time and from time to time, with or without cause (subject to the Bylaws of the Company as in effect from time to time and any requirements of law), in their sole discretion, and after written notice to each of the parties hereto of the new nominee to replace such director and, with respect to a nominee pursuant to Section 1.1(a)(vii) or 1.1(a)(viii) above, after such nominee has been approved by the Company's directors in accordance with such -3- Section 1.1(a)(vii) or 1.1(a)(viii) as applicable, each Investor and Stockholder shall promptly vote its shares of capital stock of the Company to elect such nominee to the Board of Directors. 1.6 Legend. Each certificate representing shares of the Company's capital stock held by Investors or Stockholders or any assignee of the Investors or Stockholders shall bear the following legend: "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." At any time following the termination of this Agreement in accordance with Section 1.4 above, any holder of a stock certificate legended pursuant to this Section 1.5 may surrender such certificate to the Company for removal of the legend. 2. Miscellaneous. 2.1 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 of the Preferred Stock or any Common Stock issued upon conversion thereof). 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. 2.2 Governing Law. This Agreement and all acts and transactions pursuant 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 laws. 2.3 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. 2.4 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. 2.5 Notices. Any notice required or permitted by this Agreement shall be in writing and shall be deemed sufficient upon delivery, when delivered personally, or 24 hours after prepaid deposit, by overnight courier or sent by telegram or fax after confirmation of receipt of such transmission, or as of 5 business days after being deposited in the U.S. mail, as certified or registered mail, with postage prepaid, addressed to the party to be notified at such party's address as set forth below or on Exhibit A or Exhibit B hereto, or as subsequently modified by written notice, if such notice is sent to the Company, with a copy to Keith A. Miller, Venture Law Group, 2775 Sand Hill Road, Menlo Park, California 94025. -4- 2.6 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 Preferred Stock of the Company; provided, however, that no amendment of this agreement that affects the ability of a series of Preferred Stock or party hereto to nominate or remove a director as set forth in Section 1.1 above shall be effective unless approved by the holders of a majority of the shares of such series or, in the case of the Series F Preferred Stock, the holders of greater than two-thirds of the Series F Preferred Stock then outstanding or, in the case of DEP (for so long as DEP is entitled to designate the Series E Nominee pursuant to Section 1.1(a)), the consent of DEP. Any amendment or waiver effected in accordance with this paragraph shall be binding upon each party to this Agreement and each transferee of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock, Series E Preferred Stock, Series F Preferred Stock and Common Stock of the Company held by such parties. 2.7 Severability. Any provision of this Agreement which is held to be invalid or unenforceable in any jurisdiction shall be ineffective to the extent of such invalidity or unenforceability without invalidating or rendering unenforceable the remaining provisions hereof, and any such invalidity or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. If any provision is held to be invalid or unenforceable, such provision shall be construed by the appropriate judicial body by limiting or reducing it to the minimum extent necessary to make it legally enforceable. 2.8 No Revocation. The voting agreements contained herein are coupled with an interest and may not be revoked during the term of this Agreement. 2.9 Addition of Investors. Notwithstanding anything to the contrary contained herein, if the Company shall issue additional shares of its Series F Preferred Stock pursuant to Section 1.2 (c) of the Purchase Agreement, any acquiror of such shares of Series F Preferred Stock shall become a party to this Agreement by executing and delivering an additional counterpart signature page to this Agreement and shall be deemed an "Investor'" hereunder. 2.10 Termination of Existing Agreement. This Agreement contains the entire understanding of the parties, and there are no further or other agreements or understandings, written or oral, in effect between the parties relating to the subject matter hereof. The Company and the signatories to this Agreement, as the holders of at least a majority of the Preferred Stock of the Company, hereby agree that the Existing Agreement is hereby amended and restated in its entirety by this Agreement, and the Existing Agreement shall be of no further force or effect. 2.11 Remedies. The parties acknowledge and agree that in the event of any breach of this Agreement, remedies at law will be inadequate, and each party hereto shall be entitled to specific performance of the obligations of the other parties hereto and to such appropriate injunctive relief as may be granted by a court of competent jurisdiction. 2.12 Company Efforts. The Company agrees to use reasonable efforts to cooperate with the parties hereto in the implementation of this Agreement, including noticing -5- and calling meeting and issuing certificates and otherwise cooperating generally in the implementation hereof. [SIGNATURE PAGES FOLLOW] -6- The parties have executed this Amended and Restated Voting Agreement as of the date first above written. COMPANY: REDENVELOPE, INC. By: /s/ Alison L. May _________________________________ Name: Alison L. May _______________________________ Title: President & CEO ______________________________ INVESTOR: MOUSSENVELOPE, L.L.C. By: Moussescapade, L.P., Managing Member By: Moussescribe, its General Partner By: /s/ Charles Heilbronn _____________________ Charles Heilbronn President Address: c/o Mousse Partners Limited 9 West 57th Street New York, New York 10019 WESTON PRESIDIO CAPITAL III, L.P. By: /s/ James B. Illegible _________________________________ Name: James B. Illegible _______________________________ Title: General Partner ______________________________ Address: WPC ENTREPRENEUR FUND, L.P. By: /s/ James B. Illegible _________________________________ Name: James B. Illegible _______________________________ Title: General Partner ______________________________ Address: SIGNATURE PAGE TO SERIES F PREFERRED STOCK VOTING AGREEMENT SEQUOIA CAPITAL IX SEQUOIA CAPITAL ENTREPRENEURS FUND SEQUOIA CAPITAL IX PRINCIPALS FUND By: SC IX Management, LLC A Delaware Limited Liability Company General Partner of Each By: Illegible _____________________ Managing Member Address: SEQUOIA CAPITAL FRANCHISE FUND SEQUOIA CAPITAL FRANCHISE PARTNERS By: SCFF Management, LLC A Delaware Limited Liability Company General Partner of Each By: Illegible _____________________ Managing Member Address: ATRIUM VENTURE PARTNERS, L.P. By Atrium Ventures LLC. General Partner By: /s/ Jonathan E. Rattner _________________________________ Name: Jonathan E. Rattner _______________________________ Title: Chief Operating Officer ______________________________ Address: 3000 Sand Hill Rd. #2-240 Menlo Park, CA 94025 SIGNATURE PAGE TO SERIES F PREFERRED STOCK VOTING AGREEMENT CAMELOT VENTURES LLC By: /s/ Nicholas Illegible _________________________________ Name: Nicholas Illegible _______________________________ Title: CFO ______________________________ Address: SIPPL MACDONALD VENTURES II, L.P. By: /s/ Glenn C. Myers _________________________________ Name: Glenn C. Myers _______________________________ Title: CFO ______________________________ Address: 1422 El Camino Real Menlo Park, CA 94025 SIPPL MACDONALD VENTURES III, L.P. By: Glenn C. Myers _________________________________ Name: Glenn C. Myers _______________________________ Title: CFO ______________________________ Address: /s/ Peter Baltaxe ______________________________________ PETER BALTAXE Address: /s/ Douglas Bertozzi ______________________________________ DOUGLAS BERTOZZI Address: SIGNATURE PAGE TO SERIES F PREFERRED STOCK VOTING AGREEMENT /s/ Anthony P. Brenner ______________________________________ ANTHONY P. BRENNER Address: 1466 Greenwich Street San Francisco, CA 94109 CAPITAL RESEARCH & MANAGEMENT COMPANY, ON BEHALF OF SMALL CAP WORLD FUND, INC. By: /s/ Illegible _________________________________ Name: _______________________________ Title: ______________________________ Address: /s/ Patrick Connolly ______________________________________ PATRICK CONNOLLY Address: GCC REDENVELOPE By: /s/ R. Ian Chaplin _________________________________ Name: R. Ian Chaplin _______________________________ Title: Partner ______________________________ Address: 716 La Illegible La Jolla, CA 92037 /s/ Jamie Cheng ______________________________________ Jamie Cheng Address: 98 Outlook Circle Pacifica, CA 94044 SIGNATURE PAGE TO SERIES F PREFERRED STOCK VOTING AGREEMENT DOUGERY VENTURES By: /s/ John R. Dougery _________________________________ Name: _______________________________ Title: President ______________________________ Address: JOHN R. DOUGERY AND MARILYN R. DOUGERY, TRUSTEES FOR THE DOUGERY REVOCABLE TRUST By: /s/ John R. Dougery _________________________________ Name: /S/ Marilyn R. Dougery _______________________________ Title: Trustee ______________________________ Address: JOHN R. DOUGERY, TRUSTEE FOR THE JOHN R. DOUGERY JR. TRUST By: /s/ John R. Dougery _________________________________ Name: _______________________________ Title: TRUSTEE ______________________________ Address: SIGNATURE PAGE TO SERIES F PREFERRED STOCK VOTING AGREEMENT JOHN R. DOUGERY, TRUSTEE FOR THE KATHRYN ANN DOUGERY TRUST By: /s/ John R. Dougery _________________________________ Name: _______________________________ Title: Trustee ______________________________ Address: JOHN R. DOUGERY, TRUSTEE FOR THE SHELLY DOUGERY TRUST By: /s/ John R. Dougery _________________________________ Name: _______________________________ Title: Trustee ______________________________ Address: MARILYN R. DOUGERY, TRUSTEE FOR THE MARILYN R. DOUGERY SEPARATE PROPERTY TRUST By: /s/ Marilyn R. Dougery _________________________________ Name: _______________________________ Title: Trustee ______________________________ Address: MARILYN R. DOUGERY, TRUSTEE OF THE ROLAPP TRUST By: /s/ Marilyn R. Dougery _________________________________ Name: _______________________________ Title: Trustee ______________________________ SIGNATURE PAGE TO SERIES F PREFERRED STOCK VOTING AGREEMENT By: /s/ Craig Foley _____________________ CRAIG FOLEY Address: FOLEY 7 LOCUST LANE BRONXVILLE, NY 10708 By: /s/ Seymour F. Kaufman _____________________ SEYMOUR F. KAUFMAN Address: Crosslink Capital #2 Embarcadero Center Suite 2200 San Francisco, CA 94111 By: /s/ Michael P. Lazarus _____________________ MICHAEL P. LAZARUS Address: THE ADAM AND REBECCA MARKMAN TRUST, ADAM AND REBECCA MARKMAN AS TTEE U/A/T DATED 5/12/99 By: /s/ Adam Markman _________________________________ Name: Adam Markman _______________________________ Title: Trustee ______________________________ Address: SIGNATURE PAGE TO SERIES F PREFERRED STOCK VOTING AGREEMENT By: /s/ David Markman _____________________ DAVID MARKMAN Address: MICHAEL L. MEYER LIVING TRUST By: /s/ Michael L. Meyer _________________________________ Name: Michael L. Meyer Living Trust _______________________________ Title: Trustee ______________________________ Address: 1757 Ocean Way Laguna Bend, CA 92651 By: /s/ William D. Michelini _____________________ WILLIAM D. MICHELINI Address: W. DEXTER PAINE, III AND SUSAN L. PAINE, TRUSTEES OF PAINE FAMILY TRUST, UDT DATED 10/13/94, AS AMENDED By: Paine Family Trust _________________________________ Name: /s/ Illegible _______________________________ Title: Trustee ______________________________ Address: SIGNATURE PAGE TO SERIES F PREFERRED STOCK VOTING AGREEMENT PHILLIPS-SMITH SPECIALTY RETAIL GROUP III, L.P. By: Phillips-Smith Management Company, L.P., its General Partner _________________________________ By: /s/ Cece Smith _________________________________ Name: Cece Smith _______________________________ Title: Managing General Partner ______________________________ Address: 5080 Spectrum Drive Suite 805 West Addison, TX 75001 /s/ Paul Sagan ______________________________________ PAUL SAGAN Address: 5 Sunset Ridge Lexington, MA 02421 SENIORTRAK, INC. By: /s/ Lee M. Caudill _________________________________ Name: Lee M. Caudill _______________________________ Title: President ______________________________ Address: 1080 Chestnut St, #16A San Francisco, CA 94109 /s/ Jarom Smith ______________________________________ JAROM SMITH Address: SIGNATURE PAGE TO SERIES F PREFERRED STOCK VOTING AGREEMENT /s/ Michael Stark ______________________________________ MICHAEL STARK Address: Crosslink Capital Two Embarcadero Center, Suite 2200 San Francisco, CA 94111 /s/ Barry S. Sternlicht ______________________________________ BARRY S. STERNLICHT BARRY S. STERNLICHT FAMILY SPRAY TRUST I By: /s/ Barry S. Sternlicht _________________________________ Name: _______________________________ Title: ______________________________ Address: BARRY S. STERNLICHT FAMILY SPRAY TRUST II By: /s/ Barry S. Sternlicht _________________________________ Name: _______________________________ Title: ______________________________ Address: BARRY S. STERNLICHT FAMILY SPRAY TRUST III By: /s/ Barry S. Sternlicht _________________________________ Name: _______________________________ Title: ______________________________ Address: SIGNATURE PAGE TO SERIES F PREFERRED STOCK VOTING AGREEMENT /s/ Warren Struhl ______________________________________ WARREN STRUHL Address: 21 Chestnut Court Englewood, NJ 07631 /s/ Henry L. Wilder ______________________________________ HENRY L. WILDER Address: WILLIAM OBERNDORF, TRUSTEE OF THE WILDER FAMILY FUND DATED APRIL 5, 1999 By: /s/ William Oberndorf _________________________________ Name: William Oberndorf _______________________________ Title: Trustee, Wilder Family Fund ______________________________ Address: 591 Redwood Hwy. # 3215 Mill Valley, CA 94941 SIGNATURE PAGE TO SERIES F PREFERRED STOCK VOTING AGREEMENT DIRECT EQUITY PARTNERS, L.P. By: /s/ Claire Gruppo _________________________________ Name: Claire Gruppo _______________________________ Title: President ______________________________ Address: Attn: Claire Gruppo Direct Equity Partners 60 East 42nd Street Suite 3810 New York, NY 10165 By: /s/ Martin McClanan _____________________ Martin McClanan Address: 128 3rd Ave. San Francisco, CA 94118 By: /s/ Robert May _____________________ ROBERT MAY Address: 1230 18th St. San Francisco, CA 94107 SIGNATURE PAGE TO SERIES F PREFERRED STOCK VOTING AGREEMENT EXHIBIT A STOCKHOLDERS R. Ian Chaplin 716 La Canada La Jolla, CA 92037 Scott Galloway 3467 21st San Francisco, CA 94110 Hilary Billings RedEnvelope, Inc. 201 Spear Street, 3rd Floor San Francisco, CA 94105 Sippl Macdonald Ventures II, L.P. c/o Jacqueline A. Macdonald 4600 Bohannon Drive, Suite 110 Menlo Park, CA 94025 Dougery Ventures, LLC c/o John R. Dougery Dougery Ventures, LLC 165 Santa Ana Avenue San Francisco, CA 94125 Michael L. Meyer Living Trust c/o Michael L. Meyer 660 Newport Center Drive, Suite 800 Newport Beach, CA 92660 FWH Associates Attn: Warren Hellman Hellman & Friedman One Maritime Plaza, 12th Floor San Francisco, CA 94111 5 S Ventures LLC c/o K.B. Chandrasekhar 21591 Regnart Road Cupertino, CA 95014 M. Hannah Sullivan 41 Nevada Street San Francisco, CA 94110 A-1 Kanwal S. Rekhi and Ann H. Rekhi, As the Trustees of the Rekhi Family Trust Dated 12/15/89 16150 Hillvale Avenue Monte Sereno, CA 95030 Pat Connolly Williams Sonoma, Inc. 3250 Van Ness Avenue San Francisco, CA 94109 Robert May 1230 18th Street San Francisco, CA 94107 Adam Markman Green Street Advisors 567 San Nicholas Drive, Suite 203 Newport Beach, CA 92660 David Markman 4223 West Redondo Beach Boulevard Suite A Lawndale, CA 90260 Paul Sagan Akamai Technologies, Inc. 201 Broadway, 4th Floor Cambridge, MA 02139 Gregory J. Hartman and Sally Upjohn Hartman Westbrook Partners 155 Prospect Avenue Woodside, CA 94062 W. Dexter Paine, III and Susan L. Paine, Trustees of Paine Family Trust, UDT dated October 13, 1994, as amended c/o Fox, Paine & Company 950 Tower Lane, Suite 1950 Foster City, CA 94404 Peter Baltaxe 2425 Buchanan Street, Apt. 201 San Francisco, CA 94115 Douglas Bertozzi 1641 Sixth Avenue, #3 Belmont, CA 94002 A-2 Jamie Cheng 3967 Nobel Drive, #254 San Diego, CA 92122 Arno Harris 564 Appleberry Drive San Rafael, CA 94903 Benjamin Blakely 3425 Lebon Drive #814 San Diego, CA 92122 Karen Chen 173 Saturn Street San Francisco, CA 94112 Kristine Dang 655 Steiner Street #203 San Francisco, CA 94117 Jennifer MacDonald 3123 Jarvis Street San Diego, CA 92106 William D. Michelini 41 Nevada Street San Francisco, CA 94110 Jawad Mohammad 4444 West Point Loma Blvd. #23 San Diego, CA 92107 Jarom Smith 2335 Fair Oak Court Escondido, CA 92026 The Community Trust Under the Green Family Trust U/T/A Dated November 6, 1995, Trustee Joshua L.Green c/o Joshua L. Green 25 Magnolia Drive Atherton, CA 94027 VLG INVESTMENTS 1999 Elias J. Blawie c/o Venture Law Group 2800 Sand Hill Road Menlo Park, CA 94025 A-3 Henry Wilder 3301 Tripp Road Woodside, CA 94062 Mercedes Feller 15 Daffodil Lane Mill Valley, CA 94941 SeniorTrak, Inc. 1080 Chestnut Street #16A San Francisco, CA 94109 Lorena Vidrio 1165 Bellingham Dr. San Jose, CA 95121 Elizabeth Herrick 2155 Scott St. #5 San Francisco, Ca 94115 Michelle Mendiola 2155 Ocean Ave. San Francisco, CA 94127 Peter Aaronson 402 Stoney Brook Ct. Danville, CA 94506 Marc Svenby 4138 17th Street San Francisco, CA 94115 Gary Steuck 2838 Cross Country Circle Verona, WI 53593 Nancy Pilotte 207 Villa Terrace San Mateo, CA 94401 A-4 EXHIBIT B SCHEDULE OF PRIOR INVESTORS Henry L. B. Wilder 3301 Tripp Road Woodside, CA 94062 Sippl Macdonald Ventures II, L.P. c/o Jacqueline A. Macdonald 4600 Bohannon Drive, Suite 110 Menlo Park, CA 94025 John R. Dougery and Marilyn R. Dougery, Trustees for the Dougery Revocable Trust c/o John R. Dougery Dougery Ventures 165 Santa Ana Avenue San Francisco, CA 94125 Dougery Ventures, LLC c/o John R. Dougery Dougery Ventures, LLC 165 Santa Ana Avenue San Francisco, CA 94125 John R. Dougery, Trustee for the Shelley Dougery Trust c/o John R. Dougery Dougery Ventures 165 Santa Ana Avenue San Francisco, CA 94125 John R. Dougery, Trustee for the John R. Dougery, Jr. Trust c/o John R. Dougery Dougery Ventures 165 Santa Ana Avenue San Francisco, CA 94125 John R. Dougery, Trustee for the Kathryn Ann Dougery Trust c/o John R. Dougery Dougery Ventures 165 Santa Ana Avenue San Francisco, CA 94125 B-1 Marilyn R. Dougery, Trustee for the Marilyn R. Dougery Separate Property Trust c/o John R. Dougery Dougery Ventures 165 Santa Ana Avenue San Francisco, CA 94125 Marilyn R. Dougery, Trustee of the Rolapp Trust c/o John R. Dougery Dougery Ventures 165 Santa Ana Avenue San Francisco, CA 94125 Michael L. Meyer Living Trust c/o Michael L. Meyer 660 Newport Center Drive, Suite 800 Newport Beach, CA 92660 Warren Hellman Hellman & Friedman One Maritime Plaza, 12th Floor San Francisco, CA 94111 William D. Michelini Director, Business Development 911 Gifts, Inc. 832 Sansome Street, Suite 300 San Francisco, CA 94111 5 S Ventures LLC c/o K. B. Chandrasekhar 21591 Regnart Road Cupertino, CA 95014 M. Hannah Sullivan 41 Nevada Street San Francisco, CA 94110 Ellen Hancock President and CEO Exodus Communications 2831 Mission College Boulevard Santa Clara, CA 95054 B-2 Kanwal S. Rekhi and Ann H. Rekhi, As the Trustees of the Rekhi Family Trust Dated 12/15/89 16150 Hillvale Avenue Monte Sereno, CA 95030 Pat Connolly Williams Sonoma, Inc. 3250 Van Ness Avenue San Francisco, CA 94109 Robert May 1230 18th Street San Francisco, CA 94107 Adam Markman Green Street Advisors 567 San Nicholas Drive, Suite 203 Newport Beach, CA 92660 David Markman 4223 West Redondo Beach Boulevard Suite A Lawndale, CA 90260 Paul Sagan Akamai Technologies, Inc. 201 Broadway, 4th Floor Cambridge, MA 02139 Gregory J. Hartman and Sally Upjohn Hartman Westbrook Partners 155 Prospect Avenue Woodside, CA 94062 W. Dexter Paine, III and Susan L. Paine, Trustees of Paine Family Trust, UDT dated October 13, 1994, as amended c/o Fox, Paine & Company 950 Tower Lane, Suite 1950 Foster City, CA 94404 VLG INVESTMENTS 1999 Elias J. Blawie c/o Venture Law Group 2800 Sand Hill Road Menlo Park, CA 94025 B-3 The Community Trust Under the Green Family Trust U/T/A Dated November 6, 1995, Trustee Joshua L. Green c/o Joshua L. Green 25 Magnolia Drive Atherton, CA 94027 Paul H. Stephens and Eleanor M. Stephens, Trustees U/T/A dated 7/6/98 c/o RS Investment Management 555 California Street, Suite 2500 San Francisco, CA 94104 George R. Hecht TTEE FBO P. Bart Stephens UTA dated 12/22/83 c/o RS Investment Management 555 California Street, Suite 2500 San Francisco, CA 94104 George R. Hecht TTEE FBO W. Brad Stephens UTA dated 12/22/83 c/o RS Investment Management 555 California Street, Suite 2500 San Francisco, CA 94104 Sequoia Capital IX Sequoia Capital Angel Fund Sequoia Capital IX Partners Fund Sequoia Capital Franchise Fund Sequoia Capital Franchise Partners c/o Michael Moritz Sequoia Capital 3000 Sand Hill Road Building 4, Suite 280 Menlo Park, CA 94025 AMB Property, L.P. 505 Montgomery San Francisco, CA 94111 Attn: Tamra Browne Angel (Q) Investors, L.P. c/o Casey McGlynn Wilson Sonsini 650 Page Mill Road Palo Alto, CA 94304 B-4 Barry Sternlicht Starwood Hotels & Resorts Worldwide 777 Westchester Avenue White Plaines, NY 10604 Anthony P. Brennar Omega Venture Partners, Inc. 555 California Street Suite 2350 San Francisco, CA 94104 Seymour F. Kaufman Omega Venture Partners, Inc. 555 California Street Suite 2350 San Francisco, CA 94104 Michael Stark Omega Venture Partners, Inc. 555 California Street Suite 2350 San Francisco, CA 94104 Tom Bliska Omega Venture Partners, Inc. 555 California Street Suite 2350 San Francisco, CA 94104 Dan Dunn Omega Venture Partners, Inc. 555 California Street Suite 2350 San Francisco, CA 94104 Jason Sanders Omega Venture Partners, Inc. 555 California Street Suite 2350 San Francisco, CA 94104 Jason Duckworth Omega Venture Partners, Inc. 555 California Street Suite 2350 San Francisco, CA 94104 B-5 Gerri Holt Omega Venture Partners, Inc. 555 California Street Suite 2350 San Francisco, CA 94104 John S. Perkins Omega Venture Partners, Inc. 555 California Street Suite 2350 San Francisco, CA 94104 James B. McElwee Weston Presidio Capital 343 Sansome Street, Suite 1210 San Francisco, CA 94104-1316 Michael P. Lazarus Weston Presidio Capital 343 Sansome Street, Suite 1210 San Francisco, CA 94104-1316 Barry S. Sternlicht Family Spray Trust I Barry S. Sternlicht Family Spray Trust II Barry S. Sternlicht Family Spray Trust III Phillips-Smith Specialty Retail Group III, L.P. Craig J. Foley Weston Presidio Capital III, L.P. WPC Entrepreneur Fund, L.P. Stephen J. Brownell Mark W. Lindsay RE General Partnership Tsakopoulos Family Partnership Galloway & Chaplin Capital B-6 Sippl Macdonald Ventures III, L.P. Angel (Q) Investors II, L.P. Angel Investors II, L.P. The K.B. and Sukanya Chandrasekhar Living Trust dated August 26, 1998 Anthony Brenner Mary M. Sullivan Trust Sequoia Capital Entrepreneurs Fund Sequoia Capital IX Principals Fund Hybrid Venture Partners, L.P. Direct Equity Partners I, L.P. SMALLCAP World Fund, Inc. Atrium Venture Partners L.P. Warren Struhl Crown Technologies Partners Camelot Ventures, LLC B-7 EXHIBIT C LIST OF NEW INVESTORS Moussenvelope, L.L.C. Weston Presidio Capital III, L.P. WPC Entrepreneur Fund, L.P. Sequoia Capital Entrepreneurs Fund Sequoia Capital Franchise Fund Sequoia Capital Franchise Partners Sequoia Capital IX Sequoia Capital IX Principals Fund Atrium Venture Partners, L.P. Camelot Ventures LLC Sippl Macdonald Ventures II, L.P. Sippl Macdonald Ventures III, L.P. Peter Baltaxe Douglas Bertozzi Anthony P. Brenner Clipperbay & Co., Nominee for SMALLCAP World Fund, Inc. Patrick Connolly GCC RedEnvelope Jamie Cheng Dougery Ventures John R. Dougery and Marilyn R. Dougery, Trustees for the Dougery Revocable Trust John R. Dougery, Trustee for the John R. Dougery Jr. Trust John R. Dougery, Trustee for the Kathryn Ann Dougery Trust John R. Dougery, Trustee for the Shelley Dougery Trust Marilyn R. Dougery, Trustee for the Marilyn R. Dougery Separate Property Trust Marilyn R. Dougery, Trustee of the Rolapp Trust Craig Foley Seymour F. Kaufman C-1 Michael P. Lazarus The Adam and Rebecca Markman Trust, Adam and Rebecca Markman as TTEE U/A/T dated 5/12/99 David Markman Michael L. Meyer Living Trust William D. Michelini W. Dexter Paine, III and Susan L. Paine, Trustees of Paine Family Trust, UDT dated 10/13/94, as amended Phillips-Smith Specialty Retail Group III, L.P. Paul Sagan SeniorTrak, Inc. Jarom Smith Michael Stark Barry S. Sternlicht Barry S. Sternlicht Family Spray Trust I Barry S. Sternlicht Family Spray Trust II Barry S. Sternlicht Family Spray Trust III Warren Struhl Henry L. Wilder William Oberndorf, Trustee of the Wilder Family Fund dated April 5, 1999 Direct Equity Partners, L.P. Martin McClanan Robert May C-2 EX-10.7 17 f89225orexv10w7.txt EXHIBIT 10.7 EXHIBIT 10.7 OFFICE LEASE (201 Spear Street, San Francisco) between THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES, A NEW YORK CORPORATION as Landlord and 911gifts.com, A Delaware Corporation as Tenant Dated as of September 1, 1999 San Francisco, California TABLE OF CONTENTS

Addendum to Lease Exhibit A: Floor Plan Exhibit B: Rules and Regulations Exhibit C: Tenant Improvement Work Letter Exhibit D: Commencement of Term Agreement ii TABLE OF CONTENTS CLAUSE CLAUSE HEADINGS PAGE - ------ --------------- ---- 1. Definitions 1 2. Term; Conditions of Premises 1 3. Rental 1 4. Additional Charges for Expenses and Real Estate Taxes 2 5. Use 5 6. Services 5 7. Impositions Payable by Tenant 6 8. Alterations 6 9. Liens 7 10. Repairs 7 11. Destruction or Damage 7 12. Insurance 8 13. Waiver of Subrogation 9 14. Indemnification 9 15. Compliance with Legal Requirements 9 16. Assignment and Subletting 9 17. Rules; No Discrimination 11 18. Entry by Landlord 11 19. Events of Default 12 20. Termination upon Default 12 21. Continuation after Default 13 22. Other Relief 14 23. Landlord's Right to Cure Defaults 14 24. Attorney's Fees 14 25. Eminent Domain 14 26. Subordination 14 27. No Merger 15 28. Sale 15 29. Estoppel Certificate 15 30. No Light, Air, or View Easement 15 31. Holding Over 15 32. Security Deposit 15 33. Waiver 15 34. Notices and Consents 15 35. Complete Agreement 16 36. Corporate Authority 16 37. Partnership Authority 16 38. Limitation of Liability to Building 16 39. Miscellaneous 16 40. Abandonment 16 41. Substitution of Premises 17 42. Americans with Disabilities Act and Similar Acts 17 43. Exhibits 17 44. Landlord's Liability; Sale of Building 17 45. Name of Building 18 46. Hazardous Substance Disclosure 18 47. Real Estate Brokers 18 48. Limited Resources 18 Addendum to Lease Exhibit A: Floor Plan Exhibit B: Rules and Regulations Exhibit C: Tenant Improvement Work Letter Exhibit D: Commencement of Term Agreement OFFICE LEASE BASIC LEASE INFORMATION Date: September 1, 1999 Landlord: THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES, a New York corporation Tenant: 911GIFTS.COM, a Delaware corporation Building (Paragraph 1(a)): 201 Spear Street, San Francisco, CA 94107 Premises (paragraph 1(b)): Approximately 15,511 rentable square feet of office space comprising the entire third (3rd) floor of the Building, as more specifically outlined in EXHIBIT A attached hereto. Term Commencement Date (Paragraph 2): The term of the Lease shall commence upon the day that Landlord delivers the Premises to Tenant. Term Expiration Date (Paragraph 2): The term of the Lease shall expire upon the last day of the calendar month which includes the fifth (5th) anniversary of the Term Commencement Date. Base Rent (Paragraph 3): The annual Base Rent for the initial term shall be as follow: Years 1-5: $42.25 per rentable square foot per annum for total of Six Hundred Fifty-Five Thousand Three Hundred Thirty-Nine and 75/100 ($655,339.75) per annum (or Fifty-Four Thousand Six Hundred Eleven and 65/100 Dollars ($54,611.65) per month). Rent Commencement Date: Rent shall commence on that date which is thirty (30) days after the Term Commencement Date. Base Expense Year (Paragraph 1(c)): 1999 Base Tax Year (Paragraph 1(d)): 2000 Tenant's Expense Share (Paragraph 4(a)): 6.70% Tenant's Tax Share (Paragraph 4(a)): 6.70% Security Deposit (Paragraphs 32 and 64): $320,000.00 First Month's Base Rent: The first month's Base Rent due upon Lease execution is $54,611.65 Tenant's Address For Notices (Paragraph 34): 911GIFTS.COM 201 Spear Street, Suite 300 San Francisco, CA 94107 Attn: Chief Financial Officer Landlord's Address For Notices (Paragraph 34): THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES c/o Lend Lease Real Estate Investments, Inc. One Front Street, Ste 1100 San Francisco, CA 94111 Attn: Asset Manager iii With a copy to: THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES c/o LaSalle Partners Management Services, Inc. 201 Spear Street, Building Offices San Francisco, CA 94107 Attn: Property Manager Brokers (Paragraph 47): Tenant's Broker: CB Richard Ellis, Inc. 275 Battery Street, Suite 1300 San Francisco, CA 94111 P 415.772.0123 Landlord's Broker: Jones Lang LaSalle Americas, Inc. One Front Street, 12th Floor San Francisco, CA 94111 P 415.395.4900 Exhibits and Addendum: Addendum to Lease: Paragraphs 49 to 68 Exhibit A: Floor Plan Exhibit B: Rules and Regulations Exhibit C: Tenant Improvement Work Letter Exhibit D: Commencement of Term Agreement The provisions of the Lease identified above in parentheses are those provisions where references to particular Basic Lease Information appear. Each such reference shall incorporate the applicable Basic Lease Information. In the event of any conflict between any Basic Lease Information and the Lease, the latter shall control. TENANT: LANDLORD: 911gifts.com, THE EQUITABLE LIFE ASSURANCE SOCIETY a Delaware corporation OF THE UNITED STATES, a New York corporation By: /s/ [ILLEGIBLE] By: /s/ [ILLEGIBLE] ------------------ ------------------- Its: COO Its: Investment Officer Date: 9/1/99 Date: 9-2-99 By: /s/ [ILLEGIBLE] ------------------ Its: SVP BUS. DEV. Date: 9/1/99 iv OFFICE LEASE THIS LEASE, dated September 1, 1999, for purposes of reference only, is made and entered into by and between The Equitable Life Assurance Society of the United States ("Landlord") and 911gifts.com ("Tenant"). WITNESSETH: Landlord hereby leases to Tenant, and Tenant hereby leases from Landlord the premises described in paragraph 1 (b) below for the term and subject to the terms, covenants, agreements and conditions hereinafter set forth, to each and all of which Landlord and Tenant hereby mutually agree. 1. Definitions. Unless the context otherwise specifies or requires, the following terms shall have the meanings herein specified: (a) The term "Building" shall mean the land, building or buildings, other improvements and other real property described in the Basic Lease Information, as well as any property interest in the area of the streets bounding the parcel described in the Basic Lease Information, and all other improvements on or appurtenances to said parcel or said streets. (b) The term "Premises" shall mean the portion of the Building located on the floor(s) specified in the Basic Lease Information which is crosshatched on the floor plan(s) attached to this Lease as Exhibit A. (c) The term "Base Expense Year" shall mean the calendar year specified in the Basic Lease Information as the Base Expense Year. (d) The term "Base Tax Year" shall mean the calendar year specified in the Basic Lease Information as the Base Tax Year. 2. Term; Condition of Premises. The term of this Lease shall commence and, unless sooner terminated as hereinafter provided, shall end on the dates respectively specified in the Basic Lease Information. Unless otherwise agreed by Landlord and Tenant in this Lease, Landlord shall deliver the Premises to Tenant on the commencement of the term in their then existing condition with no alterations being made by Landlord. If Landlord has undertaken in this Lease to make any alterations to the Premises prior to commencement of the term and the alterations are completed prior to the date set forth in the Basic Lease Information for commencement of the term, and if Tenant desires to take occupancy in advance of such date and Landlord consents to such prior occupancy, Landlord shall deliver the Premises to Tenant on such advance date as shall be mutually approved by Landlord and Tenant and, notwithstanding anything to the contrary contained herein, the term of this Lease shall commence upon such delivery. If Landlord, for any reason whatsoever, cannot deliver the Premises to Tenant at the commencement of the term, this Lease shall not be void or voidable, nor shall Landlord be liable to Tenant for any loss or damage resulting therefrom, but in that event rental shall be waived for the period between the commencement of the term and the time when Landlord delivers the Premises to Tenant. No delay in delivery of the Premises shall operate to extend the term hereof.* *See Lease Addendum 3. Rental. (a) Tenant shall pay to Landlord throughout the term of this Lease as rental for the Premises the sum specified in the Basic Lease Information as the Base Rent. As additional rental hereunder, Tenant shall pay to Landlord the additional charges described in paragraph 4 below. (b) Monthly rental shall be paid to Landlord on or before the first day of the term hereof and on or before the first day of each and every successive calendar month thereafter during the term hereof. In the event the term of this Lease commences on a day other than the first day of a calendar month or ends on a day other than the last day of a calendar month, the monthly rental for the first and last fractional months of the term hereof shall be appropriately prorated. 1 (c) All sums of money due from Tenant hereunder not specifically characterized as rental shall constitute additional rent, and if any such sum is not paid when due it shall nonetheless be collectible as additional rent with the next installment of rental thereafter falling due, but nothing contained herein shall be deemed to suspend or delay the payment of any sum of money at the time it becomes due and payable hereunder, or to limit any other remedy of Landlord. (d) Tenant hereby acknowledges that late payment by Tenant to Landlord of rent and other sums due hereunder after the expiration of any applicable grace period described in paragraph 19(a) will cause Landlord to incur costs not contemplated by this Lease, the exact amounts of which will be difficult to ascertain. Such costs include, but are not limited to, processing and accounting charges, and late charges which may be imposed on Landlord by the terms of any encumbrances covering the Building and the Premises. Accordingly, if any installment of rent or any other sums due from Tenant shall not be received by Landlord prior to the expiration of any applicable grace period described in paragraph 19 (a), Tenant shall pay to Landlord a late charge equal to five percent (5%) of such overdue amount. The parties hereby agree that such late charge represents a fair and reasonable estimate of the costs Landlord will incur by reason of late payment by Tenant based on the circumstances existing as of the date of this Lease. Acceptance of such late charge by Landlord shall in no event constitute a waiver of Tenant's default with respect to such overdue amount, nor prevent Landlord from exercising any of the other rights and remedies granted hereunder. (e) Any amount due from Tenant, if not paid when first due, shall bear interest from the date first due until paid at an annual rate equal to 4% over the annual prime rate of interest announced publicly by Citibank, N.A. in New York, New York from time to time (but in no event in excess of the maximum rate of interest permitted by law), provided that interest shall not be payable on late charges incurred by Tenant nor on any amounts upon which late charges are paid by Tenant to the extent such interest would cause the total interest to be in excess of that legally permitted. Payment of interest shall not excuse or cure any default hereunder by Tenant. (f) All payments due from Tenant shall be paid to Landlord, without deduction or offset, in lawful money of the United States of America at Landlord's address for notices hereunder, or to such other person or at such other place as Landlord may from time to time designate by notice to Tenant. 4. Additional Charges for Expenses and Real Estate Taxes (a) For purposes of this Paragraph 4, the following terms shall have the meanings hereinafter set forth: (i) "Tenant's Tax Share" and "Tenant's Expense Share" mean the percentage figures so specified in the Basic Lease Information. Tenant's Tax Share and/or Tenant's Expense Share may be adjusted by Landlord as a result of any change in the rentable area of the Premises or the total rentable area of the Building. (ii) "Tax Year" means each twelve (12) consecutive month period commencing January 1st of each year during the Term, including, without limitation, any partial year during which the Lease may commence; provided that Landlord, upon notice to Tenant, may change the Tax Year from time to time to any other twelve (12) consecutive month period and, in the event of any such change, Tenant's Tax Share of Real Estate Taxes shall be equitably adjusted for the Tax Year involved in any such change. (iii) "Real Estate Taxes" means all taxes, assessments and charges of any kind whatsoever levied upon or with respect to the Building or any personal property of Landlord used in the operation thereof, or Landlord's interest in the Building or such personal property. Real Estate Taxes shall include, without limitation: all general real property taxes and general and special assessments, charges, fees, or assessments for transit, housing, police, fire, or other governmental services or purported benefits to the Building or the occupants thereof, service payments in lieu of taxes, business taxes, and any tax, fee, or excise on the act of entering into this Lease or any other lease of space in the Building, or on the use or occupancy of the Building or any part thereof, or on the rent payable under any lease or in connection with the business of renting space in the Building, that are now or hereafter levied or assessed against 2 Landlord by the United States of America, the State of California or any political subdivision thereof, public corporation, district, or any other political or public entity, and shall also include any other tax, fee, charge or other excise, however described, that may be levied or assessed as a substitute for, or as an addition to, in whole or in part, any other Real Estate Taxes, whether or not now customary or in the contemplation of the parties on the date of this Lease. Real Estate Taxes shall not include franchise, transfer, inheritance, or capital stock taxes or income taxes measured by the net income of Landlord from all sources unless, due to a change in the method of taxation, any of such taxes is levied or assessed against Landlord as a substitute for, or as an addition to, in whole or in part, any other tax that would otherwise constitute a Real Estate Tax. Real Estate Taxes shall also include legal fees, costs, and disbursements incurred in connection with proceedings to contest, determine, or reduce Real Estate Taxes. See Lease Addendum (iv) "Expense Year" means each twelve (12) consecutive month period commencing January 1st of each year during the Term, including, without any limitation, any partial year during which the Lease may commence; provided that Landlord, upon notice to Tenant, may change the Expense Year from time to time to any other twelve (12) consecutive month period and, in the event of any such change, Tenant's Expense Share of Expenses shall be equitably adjusted for the Expense Years involved in any such change. (v) Expenses means the total costs and expenses paid or incurred by Landlord in connection with the ownership, management, operation, maintenance and repair of the Building, including, without limitation; (i) the cost of air conditioning, electricity, steam, water, heating, mechanical, telephone, ventilating, escalator and elevator systems and all other utilities; (ii) the cost of repairs and replacements and all labor and material costs related thereto, and the cost of general maintenance, cleaning and service contracts and the cost of all supplies, tools and equipment required in connection thereof; (iii) the cost of the Building delivery and messenger service; (iv) the cost incurred by Landlord for all insurance carried on the Building or in connection with the use and/or occupancy thereof and the amount of any deductible on uninsured loss; (v) wages, salaries, payroll taxes and other labor costs and employee benefits; (vi) management fees; (vii) fees, charges and other costs of all independent contractors engaged by Landlord; (viii) accounting and legal expenses; (ix) Landlord's share of any shared expenses under any reciprocal easement agreement or similar document; (x) depreciation on personal property, including, without limitation, carpeting in public corridor and common areas and window coverings provided by Landlord; (xi) the rental paid for offices in the Building for the property manager and related management and operations personnel; (xii) the cost of any capital improvements made to the Building after completion of its construction as a labor-saving or energy saving device or to enhance the health and safety of the public (including tenants) or to effect other economies in the operation or maintenance of the Building, or made to the Building after the date of this Lease that are required under any governmental law or regulation or insurance carrier that was not applicable to the Building at the time that permits for the construction thereof were obtained, or required under any governmental law or regulation enacted after the Building's temporary certificate of occupancy or the equivalent was validly issued; such cost to be amortized over such period as Landlord shall reasonably determine in accordance with generally accepted accounting principles ("GAAP") and consistent with industry standards and sound management practices (including, without limitation, with respect to any improvements which result in cost savings with respect to the Building, such period as would allow Landlord to amortize the improvements to the extent of such cost savings in any year or to any greater extent deemed appropriate to Landlord), together with interest on the unamortized balance at the rate of ten percent (10%) per annum or such higher rate as may have been paid by Landlord on funds borrowed for the purpose of constructing such capital improvements; (xiii) assessments, costs and charges of the San Francisco Transit Management Association (xiv) the cost of contesting the validity or applicability of any governmental enactments which may affect operating expenses; (xv) the costs of public art; and (xvi) any other expenses and costs of any kind whatsoever incurred in connection with the ownership, management, operation, maintenance and repair of the Building. See Lease Addendum See Lease Addendum Landlord and Tenant acknowledge and agree that certain costs of the ownership, management, operation maintenance and repair of the Building may be allocated exclusively to a single component of the Building (for example, and without limitation, to an office area, a retail area or a parking facility) and certain of such costs may be allocated among such components. The determination of such costs and their allocation 3 shall be made by Landlord in Landlord's sole discretion. (b) Tenant shall pay to Landlord as additional rent one twelfth (1/12) of Tenant's Tax Share of increases in the Real Estate Taxes for each Tax Year or portion thereof during the Term after the Base Tax Year when compared to Real Estate Taxes for the Base Tax Year (the "Tax Increases"), in advance, on or before the first day of each month during such Tax Year, in an amount estimated by Landlord in a writing delivered to Tenant. Landlord may revise such estimates from time to time and Tenant will thereafter make payments on the basis of such revised estimates. (c) Tenant shall pay to Landlord as additional rent one twelfth (1/12) of Tenant's Expense Share of increases in the Expenses for each Expense Year or portion thereof during the Term after the Base Expense Year when compared to Expenses for the Base Expense Year (the "Expense Increases"), in advance, on or before the first day of each month during such Expense Year, in an amount estimated by Landlord in a writing delivered to Tenant. Landlord may revise such estimates from time to time and Tenant will thereafter make payments on the basis of such revised estimates. (d) With reasonable promptness after the expiration of each Expense Year and Tax Year after the Base Expense Year and Base Tax Year, including, without limitation, the Expense Year and Tax Year during which this Lease terminates, Landlord will furnish Tenant with a statement (herein called "Landlord's Expense Statement" and "Landlord's Tax Statement"), prepared by Landlord or its accountant, setting forth in reasonable detail the Expenses and Real Estate Taxes for each such Expense Year and Tax Year and Tenant's Expense Share of the Expense Increases and Tenant's Tax Share of the Tax Increases, which statement shall be conclusive and binding upon Tenant. If the total of Tenant's Expense Share of the Expense Increases for such Expense Year as set forth in Landlord's Expense Statement exceeds the total estimated payments for Expense Increases paid by Tenant for such Expense Year, Tenant shall pay to Landlord (whether or not this Lease has terminated) the difference between the total amount of estimated payments paid by Tenant with respect to Expense Increases and the total of Tenant's Expense Share of the actual Expense Increases within fifteen (15) days after the receipt of Landlord's Expense Statement. If the total amount paid by Tenant for any such Expense Year shall exceed Tenant's Expense Share of the actual Expense Increases for such Expense Year, such excess shall be credited against the next installments of Expense Increases due from Tenant to Landlord hereunder. If this Lease has terminated and no amounts are due or to become due to Landlord from Tenant hereunder, any excess shall be paid to Tenant by check within a reasonable time after such final determination of the actual Expenses. If the total of Tenant's Tax Share of the Tax Increases for any Tax Year as set forth in Landlord's Tax Statement exceeds the total estimated payments for Tax Increases paid by Tenant for such Tax Year, Tenant shall pay to Landlord (whether or not this Lease has terminated) the difference between the total amount of estimated payments paid by Tenant with respect to Tax Increases and the total of Tenant's Tax Share of the actual Tax Increases within fifteen (15) days after the receipt of Landlord's Tax Statement. If the total amount paid by Tenant for any such Tax Year shall exceed Tenant's Tax Share of the actual Real Estate Taxes for such Tax Year, such excess shall be credited against the next installments of Tax Increases due from Tenant to Landlord hereunder. If this Lease has terminated and no amounts are due or to become due to Landlord from Tenant hereunder, any excess shall be paid to Tenant by check within a reasonable time after such final determination of the actual Tax Increases. Notwithstanding anything to the contrary contained herein, in the event that the Expenses for any subsequent Expense Year are less than Expenses for the Base Expense Year or in the event that the Real Estate Taxes for any Tax Year are less than the Real Estate Taxes for the Base Tax Year, Tenant shall not be entitled to a credit against any Base Rent or other sums payable by Tenant hereunder or to a payment from Landlord to Tenant with respect thereto. (e) If the commencement date or expiration date shall occur on a date other than the first or last day, respectively, of a Tax Year and/or Expense Year, Tenant's Tax Share of the Tax Increases and/or Tenant's Expense Share of Expense Increases for which the commencement date or expiration date occurs shall be prorated based on a 365-day year, but shall remain subject to adjustment based on receipt of information after the expiration date. 4 5. Use. (a.) The Premises shall be used for general office purposes and no other without the prior written consent of Landlord, which may be granted or denied in Landlord's absolute discretion. Tenant shall not do or permit to be done in or about the Premises, nor bring or keep or permit to be brought or kept therein, anything which is prohibited by or would in any way conflict with any law, statute, ordinance or governmental rule or regulation now in force or which may hereafter be enacted or promulgated, or which is prohibited by the standard form of fire insurance policy, or would in any way increase the existing rate of or affect any fire or other insurance upon the Building or any of its contents, or cause a cancellation of any insurance policy covering the Building or any part thereof or any of its contents. Tenant shall not do or permit anything to be done in or about the Premises which would in any way obstruct or interfere with the rights of other tenants of the Building, or injure or annoy them, or use or allow the Premises to be used for any improper, immoral, unlawful or objectionable purposes, nor shall Tenant cause, maintain or permit any nuisance or waste in, on or about the Premises. (b.) Tenant shall not cause or permit the storage, use, generation, release, or disposal (collectively, "Handling") of any Hazardous Materials (as defined below), in, on, or about the Premises or the Building by Tenant or any agents, employees, contractors, licensees, subtenants, customers, guests or invitees of Tenant (collectively with Tenant, "Tenant Parties"), except that Tenant shall be permitted to use normal quantities of office supplies or products (such as copier fluids or cleaning supplies) customarily used in the conduct of general business office activities ("Common Office Chemicals"), providing that the Handling of such Common Office Chemicals shall comply at all times with all Hazardous Materials Laws (as defined below). Notwithstanding anything to the contrary contained herein, however, in no event shall Tenant permit any usage of Common Office Chemicals in a manner that may cause the Premises or the Building to be contaminated by any Hazardous Materials or in violation of any Hazardous Materials Laws. Tenant's obligations under this Paragraph shall survive the expiration or other termination of this Lease. For purposes of this Paragraph, "Hazardous Materials" means any explosive, radioactive materials, hazardous wastes, or hazardous substances, including without limitation, asbestos containing materials, PCB's, CFC's, or substances defined or regulated as hazardous substances or hazardous materials in the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, 42 U.S.C. Section 9601-9657; the Hazardous Materials Transportation Act of 1975, 42 U.S.C. Section 1001-1012, the Resource Conservation and Recovery Act of 1976, 42 U.S.C. Section 6901-6987; or any other Federal State or local law, ordinance or regulation. "Hazardous Materials Laws" shall mean all Federal, State, and local laws, ordinances and regulations defining, regulating, restricting or otherwise governing the storage, use, generation, release or disapproval of Hazardous Materials. 6. Services. (a) Landlord shall maintain the public and common areas of the Building, including lobbies, stairs, elevators, corridors and restrooms, windows, mechanical, plumbing and electrical equipment, and the structure itself in reasonably good order and condition except for damage occasioned by the acts of Tenant, its employees, agents, contractors or invitees, which damage shall be repaired by Landlord at Tenant's expense. (b) Landlord shall furnish the Premises with (1) electricity for lighting and the operation of customary office machines, (2) heat and air conditioning to the extent reasonably required for the comfortable occupancy by Tenant in its use of the Premises during the period from 7 a.m. to 6 p.m. on weekdays (except holidays), or such shorter period as may be prescribed by any applicable policies or regulations adopted by any utility or governmental agency, (3) elevator service, (4) lighting replacement (for building standard lights), (5) restroom supplies, (6) window washing with reasonable frequency, and (7) lobby attendant services and janitor service during the times and in the manner that such services are customarily furnished in comparable office buildings in the area. Landlord may establish reasonable measures to conserve energy, including but not limited to, automatic switching of lights after hours, so long as such measures do not unreasonably interfere with Tenant's use of the Premises. Landlord shall not be in default hereunder or be liable for any damages directly or indirectly resulting from, nor shall the rental herein reserved be abated, or this Lease terminated by reason of (i) the installation, use or interruption of use of any equipment in connection with the furnishing of any of the foregoing services, (ii) failure to furnish or delay in furnishing any such services or by the making of necessary repairs or improvements to the Premises or to the Building, or (iii) the 5 limitation, curtailment, rationing or restrictions on use of water, electricity, gas or any other form of energy serving the Premises or the Building. Landlord shall use reasonable efforts diligently to remedy any interruption in the furnishing of such services. (c) Whenever heat-generating equipment or lighting other than building standard lights are used in the Premises by Tenant which affect the temperature otherwise maintained by the air conditioning system, Landlord shall have the right, after notice to Tenant, to install supplementary air conditioning facilities in the Premises or otherwise modify the ventilating and air conditioning system serving the Premises, and the cost of such facilities and modifications shall be borne by Tenant. Tenant shall also pay the cost of providing all cooling energy to the Premises in excess of that required for normal office use or during hours requested by Tenant when air conditioning is not otherwise furnished by Landlord. If there is installed in the Premises lighting requiring power in excess of that required for normal office use in the Building, or if there is installed in the Premises equipment requiring power in excess of that required for normal desk-top office equipment or normal copying equipment, Tenant shall pay for the cost of such excess power, together with the cost of installing any additional risers or other facilities that may be necessary to furnish such excess power to the Premises. (d) In the event that Landlord, at Tenant's request, provides services to Tenant that are not otherwise provided for in this Lease, Tenant shall pay Landlord's reasonable charges for such services upon billing therefor, including, without limitation, Landlord's then current administrative fee therefor. 7. Impositions Payable by Tenant. In addition to the monthly rental and other charges to be paid by Tenant hereunder, Tenant shall pay or reimburse Landlord for any and all of the following items (hereinafter collectively referred to as "Impositions"), whether or not now customary or in the contemplation of the parties hereto: taxes (other than local, state and federal personal or corporate income taxes measured by the net income of Landlord from all sources), assessments (including, without limitation, all assessments for public improvements, services or benefits, irrespective of when commenced or completed), excises, levies, business taxes,' license, permit, inspection and other authorization fees, transit development fees, assessments or charges for housing funds, service payments in lieu of taxes and any other fees or charges of any kind, which are levied, assessed, confirmed or imposed by any public authority, but only to the extent the Impositions are: (a) upon, measured by or reasonably attributable to the cost or value of Tenant's equipment, furniture, fixtures and other personal property located in the Premises, or the cost or value of any leasehold improvements made in or to the Premises by or for Tenant, regardless of whether title to such improvements shall be in Tenant or Landlord; (b) upon, with respect to or by reason of the development, possession, leasing, operation, management, maintenance, alteration, repair, use or occupancy by Tenant of the Premises or any portion thereof; or (c) upon this transaction or any document to which Tenant is a party creating or transferring an interest or an estate in the Premises. In the event that it shall not be lawful for Tenant to reimburse Landlord for the Impositions but it is lawful to increase the monthly rental to take intb account Landlord's payment of the Impositions, the monthly rental payable to Landlord shall be revised to net Landlord the same net return without reimbursement of the Impositions as would have been received by Landlord with reimbursement of the Impositions. 8. Alterations. (a) Tenant shall make no alterations, additions or improvements to the Premises or install fixtures in the Premises without first obtaining Landlord's consent, which consent shall not be unreasonably withheld, provided however, that Landlord may withhold its consent in its sole and absolute discretion if the cost of the work will exceed two thousand five hundred dollars ($2,500.00) or there are any material modifications to any structural components of the Building or any of the Building's operating systems, including, without limitation, heating, ventilating, air conditioning, plumbing, electrical, and other operating systems. See Lease Addendum In connection with Tenant's request for Landlord's consent under this Lease, Tenant shall pre-pay to Landlord a Two Hundred Fifty Dollar ($250.00) charge for Landlord's review of applicable documents and plans, together with any third-party costs and expenses incurred or to be incurred by Landlord related thereto. In no event, however, may the Tenant make any alterations, additions or improvements or install fixtures which, in Landlord's reasonable judgment, might adversely affect the structural components of the Building or Building mechanical, utility or life safety systems. At the time such consent is requested, Tenant shall furnish to Landlord a description of 6 the proposed work, an estimate of the cost thereof and such information as shall reasonably be requested by Landlord substantiating Tenant's ability to pay for such work. Landlord, at its sole option, may require as a condition to the granting of such consent to any work costing in excess of fifty thousand dollars ($50,000), that Tenant provide to Landlord, at Tenant's sole cost and expense, a lien and completion bond in an amount equal to one and one-half (1 1/2) times any and all estimated costs of the proposed work, to insure Landlord against any liability for mechanics' and materialmen's liens and to insure completion of the work. Before commencing any work, Tenant shall give Landlord at least twenty (20) days written notice of the proposed commencement of such work in order to give Landlord an opportunity to prepare, post and record such notice as may be permitted by law to protect Landlord's interest in the Premises and the Building from mechanics' and materialmen's liens. Within a reasonable period following completion of any work for which plans and specifications were required to obtain a building permit for such work, Tenant shall furnish to Landlord "as built" plans showing the changes made to the Premises. (b) Any alterations, additions or improvements to the Premises shall be made by Tenant at Tenant's sole cost and expense, and any contractor, subcontractor or other person selected by Tenant to make the same shall be selected from Landlord's approved bidder list. Tenant's contractor and its subcontractors shall employ union labor to the extent necessary to insure, so far as may be possible, the progress of the alterations, additions or improvements and the performance of any other work or the provision of any services in the Building without interruption on account of strikes, work stoppage or similar causes of delay. All work performed by Tenant shall comply with the laws, rules, orders, directions, regulations and requirements of all governmental entities having jurisdiction over such work and shall comply with the rules, orders, directions, regulations and requirements of any nationally recognized board of insurance underwriters. All alterations, additions and improvements shall immediately become Landlord's property and, at the end of the term hereof, shall remain on the Premises without compensation to Tenant; provided, however, that if required by Landlord prior to the end of the term of the Lease, Tenant shall, prior to the end of the term, at its sole cost and expense, remove the alterations, additions and improvements required to be removed by Landlord and repair and restore the Premises to their condition at the commencement of the term. See Lease Addendum 9. Liens. Tenant shall keep the Premises and the Building free from any liens (and claims thereof) arising out of any work performed, materials furnished or obligations incurred by or for Tenant. Landlord shall have the right to post and keep posted on the Premises any notices that may be provided by law or which Landlord may deem to be property for the protection of Landlord, the Premises and the Building from such liens and claims. 10. Repairs. By entry hereunder, Tenant accepts the Premises as being in the condition in which Landlord is obligated to deliver the Premises. Tenant shall, at all times during the term hereof and at Tenant's sole cost and expense, keep the Premises in good condition and repair; ordinary wear and tear and damage thereto by fire, earthquake, act of God or the elements excepted. Tenant hereby waives all rights to make repairs at the expense of Landlord or in lieu thereof to vacate the Premises, abate rent or terminate this Lease. Subject to Landlord's rights to require the removal of alterations, additions and improvements, Tenant shall at the end of the term hereof surrender to Landlord the Premises and all Alterations thereto in the same condition as when received, ordinary wear and tear and damage by fire, earthquake, act of God or the elements excepted. Landlord has no obligation and has made no promise to alter, remodel, improve, repair, decorate or paint the Premises or any part thereof, except as specifically herein set forth. No representations respecting the condition of the Premises or the Building have been made by Landlord or Landlord's agents to Tenant, except as specifically herein set forth. 11. Destruction or Damage. (a) In the event the Premises or the portion of the Building necessary for Tenant's use and enjoyment of the Premises are damaged by fire, earthquake, act of God, the elements or other casualty, Landlord shall repair the same, subject to the provisions of this paragraph hereinafter set forth, if (i) such repairs can, in Landlord's opinion, be made within a period of twelve (12) months after commencement of the repair work, (ii) the cost of repairing damage for which Landlord is not insured shall be less than ten percent (10%) of the then full insurable value of the Premises with respect to repairing any damage to the Premises, or five percent (5%) of the then full insurable value of the Building with respect to repairing any 7 damage to other areas of the Building, and (iii) the damage or destruction does not occur during the last twelve (12) months of the term of this Lease or any extension thereof. This Lease shall remain in full force and effect except that so long as the damage or destruction is not caused by the fault or negligence of Tenant, its contractors, agents, employees or invitees, an abatement of rental shall be allowed Tenant for such part of the Premises as shall be rendered unusable by Tenant in the conduct of its business during the time such part is so unusable. (b) As soon as is reasonably possible following the occurrence of any damage, Landlord shall notify Tenant of the estimated time and cost required for the repair or restoration of the Premises or the portion of the Building necessary for Tenant's occupancy. If, in Landlord's opinion, such repairs cannot be made within twelve (12) months as set forth in subparagraph (a) (i) above, Landlord or Tenant may elect by written notice to the other within thirty (30) days after Landlord's notice of estimated time and cost is given, to terminate this Lease effective as of the date of such damage or destruction. If Landlord is not obligated to effect the repair based upon the circumstances set forth in subparagraphs (a) (ii) or (a) (iii) above, Landlord shall have the right to terminate this Lease, by written notice to Tenant within thirty (30) days after Landlord's notice of time and cost is given, effective as of the date of such damage or destruction. See Lease Addendum If neither party so elects to terminate this Lease, this Lease shall continue in full force and effect, but the rent shall be partially abated as hereinabove in this paragraph provided, and Landlord shall proceed diligently to repair such damage. (c) A total destruction of the Building shall automatically terminate this Lease. Tenant waives California Civil Code Sections 1932, 1933, 1941 and 1942 providing for (among other things) termination of hiring upon destruction of the thing hired and the right to make repairs and to vacate the Premises under certain conditions. (d) In no event shall Tenant be entitled to any compensation or damages from Landlord, specifically including, but not limited to, any compensation or damages for (i) loss of the use of the whole or any part of the Premises, (ii) damage to Tenant's personal property in or improvements to the Premises, or (iii) any inconvenience, annoyance or expense occasioned by such damage or repair (including moving expenses and the expense of establishing and maintaining any temporary facilities). (e) Landlord, in repairing the Premises, shall not be required to repair any injury or damage to the personal property of Tenant, or to make any repairs to or replacement of any alterations, additions, improvements or fixtures installed on the Premises by or for Tenant. 12. Insurance. (a) Tenant agrees to procure and maintain in force during the term hereof, at Tenant's sole cost and expense, Commercial General Liability insurance in an amount not less than Two Million Dollars ($2,000,000) combined single limit for bodily injury and property damage for injuries to or death of persons and property damage occurring in, on or about the Premises on the Building. If the term of this Lease, including, without limitation, any option terms, is for a period of more than five (5) years, then at the date which is the fifth anniversary of the commencement of the term, the aforesaid amount of Two Million Dollars ($2,000,000) shall be increased as required by Landlord to reflect Landlord's then requirements for the aforesaid insurance. Such policy shall name Landlord, Landlord's managing agent and any other party designated by Landlord as additional insureds, shall insure Landlord and Landlord's managing agent's contingent liability as respect to acts or omissions of Tenant, shall be issued by a company licensed to do business in the State of California and otherwise reasonably acceptable to Landlord, and shall provide that the policy may not be canceled nor amended without thirty (30) days prior written notice to Landlord. Tenant may carry said insurance under a blanket policy, provided however, said insurance by Tenant shall include an endorsement confirming application to and coverage of Landlord. Said insurance shall be primary insurance to any other insurance that may be available to Landlord. Any other insurance available to Landlord shall be non-contributing with and excess to this insurance. (b) A copy of the certificate(s) of insurance shall be delivered to Landlord by Tenant prior to commencement of the term of this Lease and upon each renewal of such insurance. 8 (c) Tenant shall, prior to and throughout the term of this Lease, procure from each of its insurers under all policies of fire, theft, public liability, workers' compensation and any other insurance policies of Tenant now or hereafter existing, pertaining in any way to the Premises or the Building or any operation therein, a waiver, as set forth in paragraph 13 of this Lease, of all rights of subrogation which the insurer might otherwise, if at all, have against the Landlord or any officer, agent or employee of Landlord (including, without limitation, Landlord's managing agent). (d) See Lease Addendum 13. Waiver of Subrogation. Landlord and Tenant shall each have included in all policies of fire, extended coverage, business interruption and other insurance respectively obtained by them covering the Demised Premises, the Building and contents therein, a waiver by the insurer of all right of subrogation against the other in connection with any loss or damage thereby insured against. Any additional premium for such waiver shall be paid by the primary insured. To the full extent permitted by law, Landlord and Tenant each waives all right of recovery against the other for, and agrees to release the other from liability for, loss or damage to the extent such loss or damage is covered by valid and collectible insurance in effect at the time of such loss or damage or would be covered by the insurance required to be maintained under this Lease by the party seeking recovery. 14. Indemnification. Tenant hereby waives all claims against Landlord for damage to any property or injury or death of any person in, upon or about the Premises arising at any time and from any cause other than principally by reason of gross negligence or willful act of Landlord, its employees or contractors, and Tenant shall defend Landlord against, hold Landlord harmless from, and reimburse Landlord for any and all claims, liabilities, damages, losses, costs and expenses, including without limitation, attorneys' fees and costs arising out of or in any way connected with (a) injury to or death of any person, and (b) damage to or destruction of any property, and such injury, death, damage or destruction is attributable to or resulting from the condition, use or occupancy of the Premises by Tenant or Tenant's failure to perform its obligations under this Lease; except such as is caused principally by gross negligence or willful act of Landlord, its contractors or employees. The foregoing indemnity obligation of Tenant shall include reasonable attorneys' fees, investigation costs and all other reasonable costs and expenses incurred by Landlord from the first notice that injury, death or damage has occurred or that any claim or demand is to be made or may be made. The provisions of this paragraph shall survive the termination of this Lease with respect to any damage, injury or death occurring prior to such termination. 15. Compliance with Legal Requirements. Tenant, at its sole cost and expense, shall promptly comply with all laws, statutes, ordinances and governmental rules, regulations or requirements now in force or which may hereafter be in force; with the requirements of any board of fire underwriters or other similar body now or hereafter constituted; with any direction or occupancy certificate issued pursuant to any law by any public officer or officers; as well as the provisions of all recorded documents affecting the Premises (including, without limitation, any ground lease, mortgage or covenants, conditions and restrictions), insofar as any thereof relate to or affect the condition, use or occupancy of the Premises, including, without limitation, structural, utility system and life safety system changes necessitated by Tenant's acts, use of the Premises or by improvements made by or for Tenant. See Lease Addendum 16. Assignment and Subletting. (a) Tenant shall not hypothecate or encumber this Lease or any interest herein without the prior written consent of Landlord, which may be granted or denied in Landlord's absolute discretion. Tenant shall not, without the prior written consent of Landlord, which consent shall not be unreasonably withheld by Landlord, transfer or assign this Lease or any interest herein, sublet the Premises or any part thereof, or permit the use of the Premises by any party other than Tenant. This Lease shall not, nor shall any interest herein, be assignable as to the interest of Tenant by operation of law without the consent of Landlord, which consent shall not be unreasonably withheld. Any of the foregoing acts without such consent shall be void and shall, at the option of Landlord, terminate this Lease. In connection with each consent requested by Tenant, Tenant shall submit to Landlord the terms of the proposed transaction, the identity of the parties to the transaction, the proposed documentation for the transaction, and all other information reasonably requested by Landlord concerning the proposed transaction and the parties involved. 9 (b) If the Tenant is a privately held corporation, or is an unincorporated association or partnership, or any other entity, the transfer, assignment, or hypothecation of any stock or interest in such corporation, association, partnership or other entity in excess of fifty percent (50%) in the aggregate from the Ownership existing as of the date of this Lease shall be deemed an assignment or transfer within the meaning and provisions of this paragraph 16. If Tenant is a publicly held corporation, the public trading of stock in Tenant shall not be deemed an assignment or transfer within the meaning of this paragraph. (c) Without limiting the other instances in which it may be reasonable for Landlord to withhold its consent to an assignment or subletting, Landlord and Tenant acknowledge that it shall be reasonable for Landlord to withhold its consent in the following instances: (1) if at the time consent is requested, or at any time prior to the granting of consent, Tenant is in default under this Lease or would be in default under this Lease but for the pendency of any grace or cure period under paragraph 19 below; (2) if the proposed assignee or sublessee is a governmental agency; (3) if, in Landlord's reasonable judgment, the use of the Premises by the proposed assignee or sublessee would not be comparable to the types of office use by other tenants in the Building, would entail any alterations which would lessen the value of the leasehold improvements in the Premises, or would conflict with any so-called "exclusive" or percentage lease then in favor of another tenant of the Building; (4) if, in Landlord's reasonable judgment, the financial worth of the proposed assignee or sublessee does not meet the credit standards applied by Landlord for other tenants under leases with comparable terms, or the character, reputation, or business of the proposed assignee or sublessee is not consistent with the quality of the other tenancies in the Building; (5) See Lease Addendum; and (6) if the proposed assignee or sublessee is an existing tenant of the Building. (d) If, at any time during the term of this Lease, Tenant desires to assign its interest in this Lease or sublet all or any part of the Premises and Landlord's consent is required hereunder, Tenant shall give notice to Landlord setting forth the terms of the proposed assignment or subletting ("Tenant's Notice"). Landlord shall have the option, exercisable by notice given to Tenant within twenty-one (21) days after Tenant's Notice is given ("Landlord's Option Period"), either (1) to consent to the assignment, in which event the provisions of subparagraph (g) shall be applicable, or to consent to the subletting in which event the provisions of subparagraph (h) shall be applicable; (2) in the event of a proposed assignment, to terminate this Lease and to retake possession of the Premises; (3) in the event of a proposed subletting of the entire Premises, or a portion of the Premises for all or substantially all of the remainder of the term, to terminate this Lease with respect to, and to retake possession of, the space in question, together with, if only a portion of the Premises is involved, such rights of access to and from such portion as may be reasonably required for its use and enjoyment; or (4) to reasonably disapprove the proposed assignment or subletting. (e) See Lease Addendum (f) No sublessee (other than Landlord if it exercises its option pursuant to subparagraph (d) above) shall have a right further to sublet without Landlord's prior consent, which Tenant acknowledges may be withheld in Landlord's absolute discretion, and any assignment by a sublessee of its sublease shall be subject to Landlord's prior consent in the same manner as if Tenant were entering into a new sublease. No sublease, once consented to by Landlord, shall be modified or terminated by Tenant without Landlord's prior consent, which consent shall not be unreasonably withheld. 10 (g) In the case of an assignment to an entity other than Permitted Transferee, fifty percent (50%) of any sums above the rate paid by Tenant, or other economic consideration received by Tenant as a result of such assignment, shall be paid to Landlord after first deducting the unamortized cost of reasonable leasehold improvements paid for by Tenant, and the cost of any real estate commissions incurred by Tenant in connection with such assignment. (h) In the case of a subletting to an entity other than Permitted Transferee, fifty percent (50%) of any sums or economic consideration received by Tenant as a result of such subletting shall be paid to Landlord after first deducting (1) the rental due hereunder, prorated to reflect only rental allocable to the sublet portion of the Premises, (2) the cost of leasehold improvements made to the sublet portion of the Premises at Tenant's cost, amortized over the term of this Lease except for leasehold improvements made for the specific benefit of the sublessee, which shall be amortized over the term of the sublease, and (3) the cost of any real estate commissions incurred by Tenant in connection with such subletting, amortized over the term of the sublease. (i) Regardless of Landlord's consent and regardless of whether Landlord consent is required pursuant to the terms hereof, no subletting or assignment shall release Tenant of Tenant's obligation or alter the primary liability of Tenant to pay the rental and to perform all other obligations to be performed by Tenant hereunder. The acceptance of rental by Landlord from any other person shall not be deemed to be a waiver by Landlord of any provision hereof. Consent to one assignment or subletting shall not be deemed consent to any subsequent assignment or subletting. In the event of default by any assignee of Tenant or any successor of Tenant in the performance of any of the terms hereof, Landlord may proceed directly against Tenant without the necessity of exhausting remedies against such assignee or successor. Landlord may consent to subsequent assignments or subletting of this Lease or amendments or modifications to this Lease with assignees of Tenant, without notifying Tenant, or any successor of Tenant, and without obtaining its or their consent thereto, and such action shall not relieve Tenant of liability under this Lease. (j) In the event Tenant shall assign this Lease or sublet the Premises or request the consent of Landlord to any assignment, subletting, hypothecation or other action requiring Landlord's consent hereunder, the Tenant shall pay Landlord's reasonable and standard processing fee (not to exceed Five Hundred Dollars ($500.00)) in each instance and Landlord's reasonable attorneys' fees and costs incurred in connection therewith (which shall not exceed $500.00). In no event shall any of these costs be reimbursable to Tenant. (k) Notwithstanding anything to the contrary contained herein, any and all unexercised options to extend or renew the term of the Lease or to expand the Premises and any and all rights of first refusal and similar rights are intended by both Landlord and Tenant to be personal to 911 gifts.com or a Tenant Affiliate and are not intended to benefit any assignee or sublessee hereunder. Upon any assignment or subletting of the Premises or any portion thereof, any such options or rights shall automatically and without any further action by Landlord terminate and be of no further force and effect. 17. Rules; No Discrimination. Tenant shall faithfully observe and comply with the rules and regulations annexed to this Lease, and after notice thereof, all reasonable modifications thereof and additions thereto from time to time promulgated in writing by Landlord. Landlord shall not be responsible to Tenant for the nonperformance by any other tenant or occupant of the Building of any of said rules and regulations. Tenant specifically covenants and agrees that Tenant shall not discriminate against or segregate any person or group of persons on account of race, sex, creed, color, national origin, or ancestry in the occupancy, use, sublease, tenure or enjoyment of the Premises. 18. Entry by Landlord. Landlord may with reasonable prior notice (which shall in no event be more than 24 hours prior notice) enter the Premises at reasonable hours to (a) inspect the same; (b) exhibit the same to prospective purchasers, lenders or tenants, provided, however, that Landlord shall only exhibit the Premises to prospective tenants during the final ninety (90) days of Tenant's occupancy of the Premises; (c) make repairs or perform maintenance required of Landlord under the terms hereof or repairs to any adjoining space or utility services or make repairs, alterations or improvements to any other portion of the Building; (d) supply janitor service and any other service to be provided by Landlord to Tenant under this 11 Lease; and (e) post notices of non-responsibility, provided, however, that all such work shall be done as promptly as reasonably practical and so as to cause as little interference to Tenant as reasonably practical. Tenant hereby waives any claim for damages for any inconvenience to or interference with Tenant's business or any loss of occupancy or quiet enjoyment of the Premises occasioned by such entry, except for the gross negligence or willful misconduct of Landlord. Landlord shall at all times have and retain a key with which to unlock all of the doors in, on or about the Premises (excluding Tenant's server room vaults, safes and similar areas designated in writing by Tenant in advance); and Landlord shall have the right to use any and all means which Landlord may deem proper to open Tenant's doors in an emergency in order to obtain entry to the Premises, and any entry to the Premises obtained by Landlord in an emergency shall not be construed or deemed to be a forcible or unlawful entry into or a detainer of the Premises or an eviction, actual or constructive, of Tenant from the Premises or any portion thereof and Landlord shall have no liability to Tenant as a result thereof. 19. Events of Default. The following events shall constitute Events of Default under this Lease: (a) a default by Tenant in the payment when due of any rent or other sum payable hereunder and the continuation of such default for a period of five (5) days after the same is due; (b) a default by Tenant in the performance of any of the other terms, covenants, agreements or conditions contained herein and, if the default is curable, the continuation of such default for a period of twenty (20) days after notice by Landlord or beyond the time reasonably necessary for cure if the default is of a nature to require more than twenty (20) days to remedy, provided, however, in no event shall Tenant have more than a period of sixty (60) days to remedy any such default; (c) the bankruptcy or insolvency of Tenant, transfer by Tenant in fraud of creditors, an assignment by Tenant for the benefit of creditors, or the commencement of any proceedings of any kind by or against Tenant under any provision of the Federal Bankruptcy Act or under any other insolvency, bankruptcy or reorganization act unless, in the event any such proceedings are involuntary, Tenant is discharged from the same within sixty (60) days thereafter; (d) the appointment of a receiver for a substantial part of the assets of Tenant; (e) the abandonment of the Premises; and (f) the levy upon this Lease or any estate of Tenant hereunder by any attachment or execution and the failure to have such attachment or execution vacated within twenty (20) days thereafter. In no event shall this Lease be assigned or assignable by reason of any voluntary or involuntary bankruptcy proceedings, nor shall any rights or privileges hereunder be an asset of Tenant, the trustee, debtor-in-possession, or the debtor's estate in any bankruptcy, insolvency or reorganization proceedings, 20. Termination Upon Default. Upon the occurrence of any Event of Default by Tenant hereunder, Landlord may, at its option and without any further notice or demand, in addition to any other rights and remedies given hereunder or by law, terminate this Lease and exercise its remedies relating thereto in accordance with the following provisions: (a) Landlord shall have the right, so long as the Event of Default remains uncured, to give notice of termination to Tenant, and on the date specified in such notice this Lease shall terminate. (b) In the event of any such termination of this Lease, Landlord may then or at any time thereafter by judicial process, re-enter the Premises and remove therefrom all persons and property and again repossess and enjoy the ?ILLEGIBLE? Premises, without prejudice to any other remedies that Landlord may have by reason of Tenant's default or of such termination. (c) In the event of any such termination of this Lease, and in addition to any 12 other rights and remedies Landlord may have, Landlord shall have all of the rights and remedies of a landlord provided by Section 1951.2 of the California Civil Code. The amount of damages which Landlord may recover in event of such termination shall include, without limitation: (1) the worth at the time of award (computed by discounting such amount at the discount rate of the Federal Reserve Bank of San Francisco at the time of award plus one percent) of the amount by which the unpaid rent for the balance of the term after the time of award exceeds the amount of rental loss that Tenant proves could be reasonably avoided; (2) all legal expenses and other related costs incurred by Landlord following Tenant's default; (3) all costs incurred by Landlord in restoring the Premises to good order and condition, or in remodeling, renovating or otherwise preparing the Premises for reletting; (4) all costs (including, without limitation, any brokerage commissions) actually incurred by Landlord in reletting the Premises; and (5) any and all other damages suffered by Landlord. (d) After terminating this Lease, Landlord may remove any and all personal property located in the Premises and place such property in a public or private warehouse or elsewhere at the sole cost and expense of Tenant. In the event that Tenant shall not immediately pay the cost of storage of such property after the same has been stored for a period of thirty (30) days or more, Landlord may sell any or all thereof at a public or private sale in such manner and at such times and places as Landlord in its sole discretion may deem proper, without notice to or demand upon Tenant. Tenant waives all claims for damages that may be caused by Landlord's removing or storing or selling the property as herein provided, and Tenant shall indemnify and hold Landlord free and harmless from and against any and all claims, damages, liabilities, losses, costs and expenses, including, without limitation, all costs of court and attorneys' fees of Landlord occasioned thereby. (e) In the event of the occurrence of any of the events specified in paragraph 19(c) of this Lease, if Landlord shall not choose to exercise, or by law shall not be able to exercise, its rights hereunder to terminate this Lease, then, in addition to any other rights of Landlord hereunder or by law, (1) Landlord may discontinue the services provided pursuant to paragraph 6 of this Lease, unless Landlord has received compensation in advance for such services in the amount of Landlord's reasonable estimate of the compensation required with respect to such services, and (2) neither Tenant, as debtor-in-possession, nor any trustee or other person (collectively, the "Assuming Tenant") shall be entitled to assume this Lease unless on or before the date of such assumption, the Assuming Tenant (a) cures, or provides adequate assurance that the Assuming Tenant will promptly cure, any existing default under this Lease, (b) compensates, or provides adequate assurance that the Assuming Tenant will promptly compensate Landlord for any pecuniary loss (including, without limitation, attorneys' fees and disbursements) resulting from such default, and (c) provides adequate assurance of future performance under this Lease. For purposes of this subparagraph (e), "adequate assurance" of such cure, compensation or future performance shall be effected by the establishment of an escrow fund for the amount at issue or by bonding. (f) In the event any governmental authority having jurisdiction over the Real Property or the Building promulgates or revises any applicable law or imposes mandatory or voluntary controls or guidelines on Landlord or the Premises or the Building relating to the use or conservation of energy or utilities or the reduction of automobiles or other emissions (collectively "Controls") or in the event Landlord is required or elects to make alterations to the Premises or the Building in order to comply with such mandatory or voluntary Controls, Landlord may, in its sole discretion, comply with such Controls or make such alterations to the Premises and/or Building related thereto. Such compliance and the making of such alterations shall not entitle Tenant to any abatement of rent, constitute an eviction of Tenant, constructive or otherwise, or impose upon Landlord any liability whatsoever, including but no limited to, liability for consequential damages or loss of business by Tenant. In carrying out such compliance and alterations, Landlord shall use reasonable efforts to minimize any disruptions to Tenant's business in the Premises. 21. Continuation after Default. Landlord shall have the remedy described in California Civil Code Section 1951.4 (i.e. Landlord may continue this Lease in effect after Tenant's abandonment and recover rental as it becomes due, because Tenant has the right to sublet or assign, subject only to reasonable limitations). Even though Tenant has breached this Lease and abandoned the Premises, this Lease shall continue in effect for so long as Landlord does not terminate Tenant's right to possession, and Landlord may enforce all its rights and remedies as it becomes due under this Lease. Acts of maintenance or preservation or efforts to 13 relet the Premises or the appointment of a receiver upon initiative of Landlord to protect Landlord's interest under this Lease shall not constitute a termination of Tenant's right to possession. 22. Other Relief. The remedies provided for in this Lease are in addition to any other remedies available to Landlord at law or in equity, by statute or otherwise. 23. Landlord's Right to Cure Defaults. All agreements and provisions to be performed by Tenant under any of the terms of this Lease shall be at its sole cost and expense and without any abatement of rental. If Tenant shall fail to pay any sum of money, other than rental, required to be paid by it hereunder or shall fail to perform any other act on its part to be performed hereunder and such failure shall continue for twenty (20) days after notice thereof by Landlord, or such longer period as may be allowed hereunder, Landlord may, but shall not be obligated so to do, and without waiving or releasing Tenant from any obligations of Tenant, make any such payment or perform any such other act on Tenant's part to be made or performed as in this Lease provided to the extent Landlord may deem desirable. All sums so paid by Landlord (with interest at an annual rate equal to four percent (4%) over the annual prime rate of interest announced publicly by Citibank, N.A., in New York, New York from time to time, but in no event in excess of the maximum interest rate permitted by law) and all necessary incidental costs shall be payable to Landlord on demand. 24. Attorneys' Fees. If any action arising out of this Lease is brought by either party hereto against the other, then and in that event the unsuccessful party to such action shall pay to the prevailing party all costs and expenses, including reasonable attorneys' fees, incurred by such prevailing party, and if the prevailing party shall recover judgment in such action, such costs expenses and attorneys' fees shall be included in and as part of such judgment. 25. Eminent Domain. If all or any part of the Premises shall be taken as a result of the exercise of the part of eminent domain, this Lease shall terminate as to the part so taken as of the date of taking, and, in the case of a partial taking, either Landlord or Tenant shall have the right to terminate this Lease as to the balance of the Premises by notice to the other within thirty (30) days after such date, provided, however, that a condition to the exercise by Tenant of such right to terminate shall be that the portion of the Premises taken shall be of such extent and nature as substantially to handicap, impede or impair Tenant's use of the balance of the Premises. In the event of any taking, Landlord shall be entitled to any and all compensation, damages, income, rent, awards, or any interest therein whatsoever which may be paid or made in connection therewith, and Tenant shall have no claim against Landlord for the value of any unexpired term of this Lease or otherwise. In the event of a partial taking of the Premises which does not result in a termination of this Lease, the monthly rental thereafter to be paid shall be equitably reduced. Tenant shall have the right to make a separate claim to the condemning authority for Tenant's relocation expenses and loss of personal property and equipment. 26. Subordination. (a) This Lease shall be subject and subordinate to any ground lease, mortgage, deed of trust, or any other hypothecation for security now or hereafter placed upon the Building and to any and all advances made on the security thereof or Landlord's interest therein, and to all renewals, modifications, consolidations, replacements and extensions thereof. In the event any mortgage or deed of trust to which this Lease is subordinate is foreclosed or a deed in lieu of foreclosure is given to the mortgagee or beneficiary, Tenant shall attorn to the purchaser at the foreclosure sale or to the grantee under the deed in lieu of foreclosure; in the event any ground lease to which this Lease is subordinate is terminated, Tenant shall attorn to the ground lessor. Tenant agrees to execute within ten (10) days any documents required to effectuate such subordination, to make this Lease prior to the lien of any mortgage or deed of trust or ground lease as may be requested by the holder of any such mortgage or deed of trust or by the ground lease under any such ground lease, or to evidence such attornment. (b) In the event any mortgage or deed of trust which is entered into by Landlord after the date hereof to which this Lease is subordinate is foreclosed or a deed in lieu of foreclosure is given to the mortgagee or beneficiary, or in the event any ground lease to which this Lease is subordinate is terminated, this Lease shall not be barred, terminated, cut off or foreclosed, nor shall the rights and possession of Tenant hereunder be disturbed if Tenant shall not then be in default in the payment of rental and other sums due hereunder or otherwise be in default under the terms of this Lease, and if Tenant shall attorn to the purchaser, grantee, or 14 ground lessor as provided in subparagraph (a) above or, if requested, enter into a new lease for the balance of the term hereof upon the same terms and provisions as are contained in this Lease. (c) See Lease Addendum 27. No Merger. The voluntary or other surrender of this Lease by Tenant, or a mutual cancellation thereof, shall not work a merger, and shall, at the option of Landlord, terminate all or any existing subleases or subtenancies, or operate as an assignment to it of any or all such subleases or subtenancies. 28. Sale. In the event the original Landlord hereunder, or any successor owner of the Building, shall sell or convey the Building, all liabilities and obligations on the part of the original Landlord, or such successor owner, under this Lease accruing thereafter shall terminate, and thereupon all such liabilities and obligations shall be binding upon the new owner. Tenant agrees to attorn to such new owner. 29. Estoppel Certificate. At any time and from time to time but on not less than ten (10) days prior notice by Landlord, Tenant shall execute, acknowledge, and deliver to Landlord, promptly upon request, a certificate certifying (a) that this Lease is unmodified and in full force and effect (or, if there have been modifications, that this Lease is in full force and effect, as modified, and stating the date and nature of each modification), (b) the date, if any, to which rental and other sums payable hereunder have been paid, (c) that no notice has been received by Tenant of any default which has not been cured, except as to defaults specified in the certificate, (d) whether there is then existing any claim by Tenant of default hereunder by Landlord, and, if so, specifying the nature thereof, and (e) such other matters as may be requested by Landlord. Any such certificate may be relied upon by any prospective purchaser, mortgagee or beneficiary under any deed of trust on the Building or any part thereof. 30. No Light, Air, or View Easement. Tenant agrees that any diminution or shutting off of light, air or view by any structure which may be erected (whether or not by Landlord) on lands adjacent to the Building shall in no way affect this Lease or impose any liability on Landlord nor entitle Tenant to any reduction of rent or any other sums payable hereunder. 31. Holding Over. If Tenant holds possession of the Premises after expiration of the term of this Lease, Tenant shall become a tenant from month to month upon the terms herein specified but at a monthly rental equivalent to 150% of the then prevailing monthly rental payable by Tenant at the expiration of the term of this Lease, payable in advance on or before the first day of each month, and shall indemnify Landlord and any replacement tenant for the Premises for any damages or loss suffered by either Landlord or the replacement tenant resulting from Tenant's failure timely to vacate the Premises. 32. Security Deposit. Tenant shall, upon execution of this Lease, deposit with Landlord the sum specified in the Basic Lease Information (the "deposit"). The deposit shall be held by Landlord as security for the faithful performance by Tenant of all the provisions of this Lease to be performed or observed by Tenant. If Tenant fails to pay rent or other sums due hereunder, or otherwise commits an Event of Default with respect to any provision of this Lease, Landlord may use, apply or retain all or any portion of the deposit for the payment of any rent or other sum in default or for the payment of any other sum to which Tenant compensates Landlord for any loss or damage which Landlord may suffer thereby. If Landlord so uses or applies all or any portion of the deposit, Tenant shall within ten (10) days after demand therefor deposit cash with Landlord in an amount sufficient to restore the deposit to the full amount thereof and Tenant's failure to do so shall be a material breach of this Lease. Landlord shall not be required to keep the deposit separate from its general accounts or to pay any interest on the deposit. 33. Waiver. The waiver by Landlord of any agreement, condition or provision herein contained shall not be deemed to be a waiver of any subsequent breach of the same or any other agreement, condition or provision herein contained, nor shall any custom or practice which may grow up between the parties in the administration of the terms hereof be construed to waive or to lessen the right of Landlord to insist upon the performance by Tenant in strict accordance with such terms. The subsequent acceptance of rental hereunder by Landlord shall not be deemed to be a waiver of any preceding breach by Tenant of any agreement, condition or provision of this Lease, other than the failure of Tenant to pay the particular rental so accepted, regardless of Landlord's knowledge of preceding breach at the time of acceptance of the rental. 34. Notices and Consents. All notices, consents, demands and other communications 15 from one party to the ?ILLEGIBLE? that are given pursuant to the terms of this Lease shall be in writing and shall be deemed to have been fully given when deposited in the United States mail, certified or registered, postage prepaid, and addressed as follows: to Tenant at the address specified in the Basic Lease Information, or to such other place as Tenant may from time to time designate in a notice to Landlord; to Landlord at the address specified in the Basic Lease Information, or to such other place as Landlord may from time to time designate in a notice to Tenant; or, in the case of Tenant, delivered to Tenant at the Premises. 35. Complete Agreement. There are no oral agreements between Landlord and Tenant affecting this Lease, and this Lease supersedes and cancels any and all previous negotiations, arrangements, brochures, agreements, letters of intent and understandings if any, between Landlord and Tenant or displayed by Landlord to Tenant with respect to the subject matter of this Lease, the Building or related facilities. 36. Corporate Authority. See Lease Addendum 37. Partnership Authority. If Tenant is a partnership, joint venture, or other unincorporated association, each individual executing this Lease on behalf of Tenant warrants that this Lease is binding on Tenant and that each and both of the persons signing on behalf of Tenant were authorized to do so. 38. Limitation of Liability to Building. The liability of Landlord to Tenant for any default by Landlord under this Lease or arising in connection with Landlord's operation, management, leasing, repair, renovation, alteration, or any other matter relating to the Building or the Premises, shall be limited to the interest of Landlord in the Building. Tenant agrees to look solely to Landlord's interest in the Building for the recovery of any judgment against Landlord, and Landlord shall not be personally liable for any such judgment or deficiency after execution thereon. The limitations of liability contained in this paragraph 38 shall apply equally and inure to the benefit of Landlord, its successors and their respective, present and future partners of all tiers, beneficiaries, officers, directors, trustees, shareholders, agents and employees, and their respective heirs, successors and assigns. Under no circumstances shall any present or future general partner of Landlord (if Landlord is a partnership) or individual trustee or beneficiary (if Landlord or any partner of Landlord is a trust) have any liability for the performance of Landlord's obligations under this Lease. 39. Miscellaneous. The words "Landlord" and "Tenant" as used herein shall include the plural as well as the singular. If there be more than one Tenant, the obligations hereunder imposed upon Tenant shall be joint and several. Time is of the essence of this Lease and each and all of its provisions. Submission of this instrument for examination or signature by Tenant does not constitute a reservation of or option for lease, and it is not effective as a lease or otherwise until execution and delivery by both Landlord and Tenant. The agreements, conditions and provisions herein contained shall, subject to the provisions as to assignment, apply to and bind the heirs, executors, administrators, successors and assigns of the parties hereto. Tenant shall not, without the consent of Landlord, use the name of the Building for any purpose other than as the address of the business to be conducted by Tenant in the Premises. Upon the request of Landlord, Tenant shall provide to Landlord from time to time, at no expense to Landlord, copies of such financial statements with respect to Tenant as may have been prepared by or for Tenant. See Lease Addendum Landlord's acceptance of a partial rent payment shall not constitute a waiver of any rights of Tenant or Landlord, including, without limitation, any right Landlord may have to recover possession of the Premises, in unlawful detainer, or otherwise. If any provisions of this Lease shall be determined to be illegal or unenforceable, such determination shall not affect any other provision of this Lease and all such other provisions shall remain in full force and effect. This Lease shall be governed by and construed pursuant to the laws of the State of California. 40. Abandonment. Tenant shall not vacate or abandon the Premises or any part thereof at any time during the term of this Lease. Tenant understands that if Tenant should leave the Premises or any part thereof vacant or abandoned, the risk of fire, other casualty, and 16 vandalism to the Premises and the Building will be increased and that, therefore, such action by Tenant shall constitute a material breach of this Lease, whether or not Tenant continues to pay rent and additional rent under this Lease. If Tenant shall vacate, abandon or surrender the Premises, or be dispossessed by process of law or otherwise, any personal property belonging to Tenant and left on the Premises shall be deemed to be abandoned, at the option of Landlord, and Landlord may sell or otherwise dispose of such personal property in any commercially reasonable manner. 41. Substitution of Premises. Landlord hereby reserves the right from time to time to relocate Tenant to another part of the Building prior to or during the term of this Lease so long as the number of net rentable square feet so substituted approximately equals the number of net rentable square feet in the Premises, and Landlord shall not have any liability with respect to any such relocation and substitution. From and after the date of such relocation and substitution, the term "Premises" as used herein shall mean the substituted space in the Building, and Landlord and Tenant shall initial, date and attach to this Lease a substitute Exhibit A showing the new Premises. If such relocation occurs after Tenant has occupied the Premises, or any such substituted Premises, then Landlord shall bear the reasonable out-of-pocket expense of moving Tenant's furnishings and equipment from the occupied Premises to such substitute Premises and shall at Landlord's sole cost and expense improve the substituted Premises with improvements substantially similar in quality and scope to those located in the Premises then occupied by Tenant. Except as provided in this paragraph, all of the terms and conditions of this Lease shall remain in full force and effect with respect to the substitute Premises. See Lease Addendum 42. Americans with Disabilities Act and Similar Acts. Notwithstanding anything to the contrary contained herein or in the Lease, Tenant, at its sole cost and expense, shall (i) cause the Premises to comply with the provisions of the Americans With Disabilities Act, 42. U.S.C. 12101 et seq. and any governmental regulations with respect thereof (the "ADA"), Title 24 of the California Administrative Code ("Title 24"), and other similar federal, state, and local laws and regulations, including, without limitation, any alterations required under ADA for the purposes of "public accommodations" (as that term is used in the ADA), and (ii) reimburse Landlord upon demand for any and all costs and expenses incurred by Landlord to comply with ADA, Title 24, or such similar federal, state, or local laws and regulations in any other portion of the Building in which the Premises are located arising out of Tenant's particular use of or construction in the Premises. Except as provided above, Tenant shall have no responsibility to comply with such laws in portions of the Building outside of the Premises. 43. Exhibits. The exhibit(s) and addendum, if any, specified in the Basic Lease Information are attached to this Lease and by this reference made a part hereof. 44. Landlord's Liability; Sale of Building. The term "Landlord," as used in this Lease, shall mean only the owner or owners (or lessee or lessees under any ground lease) of the Building at the time in question. Tenant acknowledges and agrees that the liability of Landlord with respect to its obligations under this Lease is limited to Landlord's interest in the Building, and Tenant agrees to look solely to Landlord's interest in the Building to satisfy any claim or judgment against or any liability or obligation of Landlord to Tenant under this Lease. In no event shall any partner, officer, director, employee, trustee, beneficiary, advisor, investment manager, manager, agent, member, advisor, or shareholder of Landlord have any personal liability to Tenant with respect to any liability or obligation of Landlord to Tenant, and no recourse shall be had by Tenant against any such parties or the assets of any such parties to satisfy any claim or judgment of Tenant for Landlord's breach of any of its obligations under this Lease. In addition, in the event of any conveyance of title to the Building, Landlord shall be relieved of all liability with respect to Landlord's obligations to be performed under this Lease after the date of such conveyance. If Tenant provides Landlord with any security for Tenant's performance of its obligations hereunder, Landlord shall transfer such security to the grantee or transferee of Landlord's interest in the Real Property, and once such transfer has been made, Landlord shall be released from any further responsibility or liability of such security. Wherever in this Lease Tenant (a) releases Landlord from any claim or liability, (b) waives or limits any right of Tenant to assert any claim against Landlord or to seek recourse against any property of Landlord or (c) agrees to indemnify Landlord against any matters, the relevant release, waiver, limitation or indemnity shall run in favor of and apply to Landlord, the constituent shareholders, partners, trustees, beneficiaries, members or other owners of Landlord, and the directors, officers, employees and agents of Landlord and each such constituent shareholder, partner or other owner. 17 45. Name of Building. Tenant shall not use the name of the Building for any purpose other than as the address of the business conducted by Tenant in the Premises without the written consent of Landlord. Landlord reserves the right to change the name of the Building and Landlord shall not be liable to Tenant for any loss, cost or expense in account of any such change of name. 46. Hazardous Substance Disclosure. California law requires landlords to disclose to tenants the existence of certain Hazardous Materials. Accordingly, the existence of gasoline and other automotive fluids, asbestos containing materials, maintenance fluids, copying fluids and other office supplies and equipment, certain construction and finish materials, tobacco smoke, cosmetics and other personal items must be disclosed. Gasoline and other automotive fluids are found in the garage area of the Building. Cleaning, lubricating and hydraulic fluids used in the operation and maintenance of the Building are found in the utility areas of the Building not generally accessible to Building occupants or the public. Many Building occupants use copy machines and printers with associated fluids and toners, and pens, markers, inks, and office equipment that may contain Hazardous Materials. Certain adhesives, paints and other construction materials and finishes used in portions of the Building may contain Hazardous Materials. Although smoking is prohibited in the public areas or the Building, these areas may from time to time be exposed to tobacco smoke. Building occupants and other persons entering the Building from time to time may use or carry prescription and non-prescription drugs, perfumes, cosmetics and other toiletries, and foods and beverages, some of which may contain Hazardous Materials. 47. Real Estate Brokers. Landlord and Tenant each represents and warrants to the other that such party has negotiated this Lease directly with the Real Estate Broker(s), if any, identified in the Basic Lease Information and has not authorized or employed, or acted by implication to authorize or to employ, any other real estate broker or salesman to act for such party in connection with this Lease. Each party shall indemnify, defend and hold the other harmless from and against any and all claims by any real estate broker or salesman other than the Real Estate Broker(s), if any, identified in the Basic Lease Information for a commission, finder's fee or other compensation as a result of the inaccuracy of such party's representation above. Landlord will pay any commission owing to the Real Estate Brokers, if any, identified in the Basic Lease Information above pursuant to a separate agreement. 48. Limited Recourse. Notwithstanding anything to the contrary in the Lease or in any document delivered by Landlord in connection with the consummation of the transaction contemplated hereby, it is expressly understood and agreed that The Equitable Life Assurance Society of the United States is acting solely on behalf and for the benefit of Separate Account No. S-16V and Landlord's liability shall be limited to, and payable and collectable only out of, assets allocated to, or held by Landlord for the benefit of, Separate Account No. S-16V (including, without limitation, the Building) and no other property or asset of Landlord or of any of Landlord's directors, officers, employees, shareholders, contractholders or policyholders, shall be subject to any lien, levy, execution, setoff or other enforcement procedure for satisfaction of any right or remedy of Tenant in connection with the transaction contemplated hereby. IN WITNESS WHEREOF, the parties have executed this Lease on the respective dates indicated below: TENANT LANDLORD 911 gifts.com, THE EQUITABLE LIFE ASSURANCE a Delaware corporation SOCIETY OF THE UNITED STATES, a New York corporation By: /s/ [ILLEGIBLE] By: /s/ [ILLEGIBLE] --------------------- ------------------------ Its: COO Its: Investment Officer By: /s/ [ILLEGIBLE] By: ______________________ --------------------- Its: SVP BUS. DEV. Its: ______________ Date of Execution Date of Execution by Tenant: 9/1/99 by Landlord: 9-2-99 18 ADDENDUM TO LEASE This Addendum ("Addendum") is made to be a part of that certain Office Lease between THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES, a New York corporation ("Landlord"), and 911 GIFTS.COM., a Delaware corporation ("Tenant"), dated as of September 1, 1999 (the "Lease"). To the extent there is any inconsistency between the terms and provisions of the Lease and the terms and provisions of this Addendum, this Addendum shall govern and control. All capitalized words used herein which have defined meanings in the Lease shall have the same defined meanings herein. Landlord and Tenant have agreed as follows: 49. [INSERT AFTER THE LAST SENTENCE OF PARAGRAPH 2 ON PAGE 1 OF THE LEASE] Notwithstanding the foregoing, and except for delays caused by fire, earthquake, act of God or the elements, in the event that Landlord does not deliver the Premises to Tenant on or before October 1, 1999, then Tenant as its sole remedy shall have the right to terminate this Lease upon five (5) business days prior written notice to Landlord (unless, within such five (5) business day period, Landlord delivers possession of the Premises to Tenant). Upon such termination, Landlord shall promptly return to Tenant the Letter of Credit and any prepaid rent held by Landlord, and neither party shall have any further rights or obligations hereunder (except such obligations as expressly survive the expiration or termination of the Lease). 50. [INSERT AFTER THE LAST SENTENCE OF PARAGRAPH 4(a)(iii) ON PAGE 3 OF THE LEASE] Notwithstanding anything to the contrary contained herein, if any Taxes are payable, or may at the option of the taxpayer be paid, in installments, such Taxes shall be deemed to have been paid in installments and amortized over the maximum allowable time period, regardless of the method of actual payment by Landlord, and Tenant's Share of such Taxes shall only include those installments that would become due and payable during the Term of this Lease. 51. [INSERT IN PARAGRAPH 4(a)(v) AS THE SECOND SENTENCE ON PAGE 3 OF THE LEASE] Notwithstanding the foregoing, for purposes of this Lease, Expenses shall not include: (1) Real Estate Taxes, since Tenant is obligated to pay Tenant's Tax Share of Tax Increases pursuant to other provisions hereof; (2) Leasing commissions paid to agents of Landlord, other brokers or any other persons in connection with the leasing of premises in the Building; attorneys' fees, costs, disbursements and other expenses incurred in connection with the negotiation or disputes with tenants, or in connection with leasing, renovating, or improving space for tenants or other occupants or prospective tenants or other occupants of the Building; (3) Costs to the extent resulting from the gross negligence or willful misconduct of Landlord, its employees or contractors; (4) Any fines, penalties or interest resulting from Landlord's violation of any federal, state or local law or regulation; (5) The depreciation or amortization (except to the extent specifically provided in this Paragraph 4(a)(v)) of the Building; (6) Capital improvements made to the Building except to the extent specifically provided in this Paragraph 4(a)(v); (7) Costs of complying with laws, codes, regulations, or ordinances relating to hazardous materials to the extent such costs are incurred as a result of the presence of hazardous materials in the soil or groundwater under the Building on or before the date of execution of this Lease. The parties agree that the clean-up of hazardous materials required because of the use of selection of building materials (other than those known to be hazardous at the time of the installation) shall be either an Expense, or to the extent that such clean-up constitutes an improvement to the Building, a capital improvement pursuant to this Lease. To the extent that such clean-up of hazardous materials is a capital improvement, the cost thereof shall be payable by Tenant to Landlord as capital improvement amortization under this Lease, as reasonably determined by Landlord and in accordance with GAAP and consistent with industry standards and sound management practices. 1 (8) The costs of repair or maintenance to the Building, including the Premises and other costs and expenses (which would otherwise be included as part of Expenses), to the extent such costs are reimbursed by insurance, guaranties, warranties, governmental agencies, or other tenants or occupants; (9) Landlord's general overhead and administrative expenses, including executive salaries and service personnel, to the extent not allocable to the operation or management of the Building; (10) Principal, interest, points and fees on debt or amortization payments on any real property mortgages or deeds of trust, or any fines or penalties associated with the foregoing; (11) Advertising and marketing costs incurred with respect to advertising or solicitation of new tenants for the Building; (12) Any bad debt loss, rent loss or reserves for bad debts or rent loss; (13) Any reserves for capital replacements; (14) Costs of purchasing, installing and replacing art work or decorative features in excess of Twenty-Five Thousand Dollars ($25,000) in any calendar year, excluding replacements required as a result of normal wear and tear in the Building; (15) Rental payments made under any ground lease; (16) The cost of utilities, services and other benefits (including but not limited to after-hours HVAC, supplemental condenser water, etc.) for which individual tenants (including Tenant) reimburse Landlord or directly pay service providers, or costs in connection with services or other benefits provided selectively to one or more tenants (other than Tenant) and which do not benefit Tenant; (17) Interest, penalties or damages resulting from any amount payable by Landlord to any tenant of the Building resulting solely from Landlord's default in its obligations to that tenant. 52. [INSERT IN PARAGRAPH 4(a)(v) AS THE THIRD AND FOURTH SENTENCES ON PAGE 3 OF THE LEASE] Actual expenses for the Base Expense Year shall be adjusted to equal the greater of Landlord's Expenses (aa) at the actual occupancy rate of the Building during the Base Expense Year, or (bb) as though 95% of the total area of the Building had been occupied during the Base Expense Year. Actual expenses for each subsequent Expense Year shall be adjusted to equal Landlord's reasonable estimate of the Expenses had the total area of the Building been occupied for such Expense Year. 53. [INSERT IN PARAGRAPH 8(a) AS THE SECOND SENTENCE ON PAGE 6 OF THE LEASE] Notwithstanding the foregoing, Tenant shall be permitted to make nonstructural alterations to the Premises such as painting, carpeting or adding cubicles, up to a maximum of Twenty-Five Thousand Dollars ($25,000) per year without Landlord's prior consent but otherwise subject to all other terms and conditions of this Paragraph 8. 54. [INSERT IN PARAGRAPH 8(b) AS THE LAST SENTENCE ON PAGE 7 OF THE LEASE] Notwithstanding the foregoing, upon the written request of Tenant, either at the time Landlord's consent to an alteration, addition or improvement is sought by Tenant or prior to Tenant undertaking any alteration, addition or improvement where Landlord's consent is not required, Landlord shall specify which alterations, additions and improvements will be required to be removed by Tenant at the end of the term of the Lease. 55. [INSERT IN PARAGRAPH 11(b) AS THE FOURTH SENTENCE ON PAGE 8 OF THE LEASE] In the event the Premises or any portion of the Building necessary for Tenant's use and enjoyment of the Premises are damaged by fire, earthquake, act of God, the elements or other casualty during the last year of the term of the Lease, and in Landlord's opinion, the repair and restoration of the Premises or the portion of the Building necessary for Tenant's occupancy, cannot be repaired within sixty (60) days after the commencement of repair, Tenant may elect by written notice to Landlord within thirty (30) days after Landlord's notice of estimated time 2 and cost is give, to terminate this Lease effective as of the date of such damage and destruction. 56. [INSERT IN PARAGRAPH 12 AS A NEW PARAGRAPH 12(d) ON PAGE 9 OF THE LEASE] 12(d) Landlord shall maintain at all times during the term of this Lease: (i) "All-Risk" fire or other casualty insurance with extended coverage endorsement, as Landlord deems reasonably necessary, and (ii) "Broad-Form" comprehensive general liability insurance covering injuries occurring within the Building, except when caused by the negligence or willful misconduct of Tenant, its agents, employees, contractors or invitees, or Tenant's failure to perform its obligations under this Lease. Landlord may, in its sole discretion, obtain and maintain such other commercially reasonable coverage as a prudent landlord similarly situated might deem necessary or desirable, including, without limitation, earthquake coverage, but Landlord shall not be obligated to maintain earthquake or flood coverage. 57. [INSERT IN PARAGRAPH 15 AS THE LAST SENTENCE ON PAGE 9 OF THE LEASE] Notwithstanding the foregoing and excluding compliance requirements relating to improvements made by or for Tenant, Tenant shall not be required to undertake any construction or pay at its sole cost and expense to comply with the foregoing requirements in the event that such requirements are being enforced against the entire Building; provided, however, the cost and expense to comply with the foregoing requirements may be included as an Expense as otherwise provided in Paragraph 4(a)(v) above. 58. [INSERT IN PARAGRAPH 16 AS A NEW SUBPARAGRAPH 16(c)(5) ON PAGE 10 OF THE LEASE] 16(c)(5) in the case of subletting, such subletting is of less than fifty percent (50%) of the Premises. Notwithstanding the foregoing (and without limiting the other instances in which it may be reasonable for Landlord to withhold its consent), no more than twice during the term of the Lease, Tenant shall have the right to undertake a subletting of 3,500 to 7,500 rentable square feet of Premises; 59. [THE FOLLOWING SHALL BE INSERTED IN PARAGRAPH 16 AS A NEW PARAGRAPH 16(e) ON PAGE 10 OF THE LEASE] 16(e). The provisions of subparagraphs (a) and (b) above notwithstanding, no consent by Landlord shall be required for an assignment or sublease by Tenant to a Tenant Affiliate or Tenant Successor (a "Permitted Transfer" to a "Permitted Transferee"), provided, that, any such assignment or subletting to a Tenant Affiliate or Tenant Successor shall be subject to the following conditions: (i) Tenant shall furnish Landlord written notice of the assignment or subletting and the identity of the assignee or sublessee prior to the effective date of such assignment or subletting; (ii) Tenant shall furnish Landlord with a fully-executed copy of the sublease or assignment instrument, if any, and, with respect to any and all assignments (whether to an Tenant Affiliate or a Tenant Successor), Landlord shall furnish Tenant with a fully-executed copy of an instrument in writing, in form and substance satisfactory to Landlord, pursuant to which the assignee assumes all of the obligations and liabilities accruing from and after such assignment and imposed upon Tenant herein or arising hereunder; (iii) at the time of the proposed assignment or subletting, there shall be no Events of Default under this Lease; and (iv) in connection with an assignment to a Tenant Successor and in the event that Landlord then holds Tenant's security deposit in the form of a Letter of Credit, such Tenant Successor shall deliver to Landlord either a cash deposit as described in Paragraph 32 of the Lease or a Letter of Credit as described in Paragraph 64 below to replace Tenant's Letter of Credit. Upon Landlord's receipt of the cash deposit or the replacement Letter of Credit, Landlord shall promptly return the original Letter of Credit to Tenant (or the Tenant Successor, in the event that original Tenant ceases to exist as a separate entity). 3 In no event shall a subletting or assignment to a Permitted Transferee release or relieve Tenant of any of its obligations under this Lease. For purposes hereof, (i) "Tenant Affiliate" shall mean any corporation, partnership or other entity which controls, is controlled by or is under common control with Tenant; (ii) "Tenant Successor" shall mean any entity which acquires all or substantially all of the stock or assets of Tenant or any entity into which Tenant may become merged or consolidated or any other non-bankruptcy reorganization; and (iii) "control" in this context shall mean the right directly or indirectly to exercise in excess of fifty percent (50%) of the voting or governing power of an entity. In addition to the foregoing, a sale or transfer of all or any portion of the capital stock of Tenant shall be permitted without the consent of Landlord if (a) such sale or transfer occurs in connection with a bona fide financing or capitalization for the benefit of Tenant and does not result in a change of use of the Premises, or (b) Tenant becomes a publicly traded company; provided, that, in the event of a sale or transfer of a Controlling interest in Tenant or a public offering, Tenant shall furnish Landlord with prior written notice. 60. [THE FOLLOWING SHALL BE INSERTED IN PARAGRAPH 26 AS A NEW PARAGRAPH 26(c) ON PAGE 15 OF THE LEASE] 26(c) As of the date of this Lease, there are no mortgages, deeds of trust or ground leases encumbering the Building or real property on which the Building is located. In connection with any future lienholders, upon Tenant's request, Landlord shall use commercially reasonable efforts (which excludes Landlord's obligation to expend any monies or undertake any increase in liability in connection therewith) to obtain from the then current lienholder on the Building a non-disturbance agreement in favor of Tenant in the form customarily used by such lienholder, provided that this Lease shall continue in full force and effect, and Landlord shall have no responsibility to Tenant, if one or more of such lienholders is unwilling to execute such agreement. 61. [THE FOLLOWING SHALL BE INSERTED IN PARAGRAPH 36 AS A NEW PARAGRAPH 36 ON PAGE 16 OF THE LEASE] 36 Tenant hereby represents and warrants that it is a duly authorized and existing corporation, that Tenant has been and is qualified to do business in California, and that the corporation has full right and authority to enter into this Lease. The persons executing this Lease on behalf of Tenant represent and warrant that they are authorized to do so. 62. [THE FOLLOWING SHALL BE INSERTED IN PARAGRAPH 39 AT THE END OF THE SIXTH SENTENCE ON PAGE 16 OF THE LEASE] but in no event more than annually (except in the event that there is a default by Tenant under this Lease) and such financial information shall be kept confidential by Landlord; provided that Landlord shall have the right to deliver the same to a potential purchaser of the Building or a potential encumbrancer of the Building, or its attorneys and accountants, as necessary, subject to their agreement to maintain the confidentiality of such information. 63. [THE FOLLOWING SHALL BE INSERTED IN PARAGRAPH 41 AS THE LAST SENTENCE ON PAGE 17 OF THE LEASE] Notwithstanding anything to the contrary contained in this Paragraph 41, Landlord shall not have the right to require Tenant to relocate during the following periods of any year during the term of the Lease: (a) the eight (8) week period immediately preceding Christmas Day and Christmas Day; and (b) the three (3) week period immediately preceding Valentine's Day, Mother's Day, Father's Day (and those holidays). Landlord shall also be responsible to reimburse Tenant for all other reasonable out-of-pocket costs directly related to such relocation, including without limitation, costs of stationary and business cards and other promotional materials, containing the address of Tenant, costs of cabling and rewiring the new space, and the costs of connecting telephone, electrical service and other utilities, if any. 64. LETTER OF CREDIT. In lieu of the cash deposit described in Paragraph 32 of the Lease, Tenant shall, upon signing this Lease, deliver to Landlord an irrevocable and unconditional Letter of Credit (the "Letter of Credit") governed by the Uniform Customs and Practice for 4 Documentary Credits (1993 revisions), International Chamber of Commerce Publication No. 500, as revised from time to time, in the amount of $320,000.00 issued to Landlord, as beneficiary, in form and substance satisfactory to Landlord, by a bank (an "Approved Bank") approved by Landlord qualified to transact banking business in California with an office in the City and County of San Francisco, San Mateo County, or Santa Clara County at which drafts drawn on the Letter of Credit may be presented for payment. The full amount of the Letter of Credit shall be available to landlord upon presentation of Landlord's sight draft accompanied only by the Letter of Credit and Landlord's signed statement that Landlord is entitled to draw on the Letter of Credit pursuant to this Lease. Tenant shall maintain the Letter of Credit for the entire term of this Lease, subject only to reduction in the amount of the Letter of Credit as provide in this Paragraph. The Letter of Credit shall expressly state that the Letter of Credit and the right to draw thereunder may be transferred or assigned by Landlord to any successor or assignee of Landlord under this Lease. Tenant shall pay any fees related to the issuance or amendment of the Letter of Credit, including without limitation, any transfer fees. The Letter of Credit shall also provide that it shall be deemed automatically renewed, without amendment, for consecutive periods of one (1) year each during the term of this Lease (plus a period of thirty (30) days after the Term Expiration Date), unless the Approved Bank sends written notice ("Issuer Notice") to Landlord by any method specified in Paragraph 34 of the Lease, not less that sixty (60) days next preceding the then expiration date of the Letter of Credit that it elects not to have such Letter of Credit renewed. If Landlord receives an Issuer Notice, and not later than thirty (30) days prior to the expiry date of the Letter of Credit Tenant fails to furnish Landlord with a replacement Letter of Credit pursuant to the terms and conditions of this Paragraph 64, then Landlord shall have the right to draw the full amount of the Letter of Credit, by sight draft, and shall hold the proceeds of the Letter of Credit as a cash security deposit pursuant to the terms and conditions of Paragraph 32 of the Lease. Notwithstanding the foregoing, in the event that there is no Event of Default by Tenant on the commencement of the Third, Fourth and Fifth Lease Years, as applicable, and there have been no more than one previous Events of Default by Tenant under this Lease, Tenant shall have the right, at its sole cost and expense, to obtain an amendment to the Letter of Credit in each of said Lease Years which reduces the amount of the Letter of Credit so that the amount of the Letter of Credit for said Lease years is as follows: ~~Lease Year 3 $ 240,000.00 Lease Year 4 $ 160,000.00 Lease Year 5 $ 80,000.00~~

65. OPTION TERM. Landlord hereby grants to the originally named Tenant and a Tenant Affiliate to whom Tenant has assigned the Lease (the "Optionee"), one (1) option ("Option") to extend the Lease term for a period of five (5) years (an "Option Term"), which Option shall be exercisable only by written notice delivered by Optionee to Landlord as provided below, and shall be on the terms and conditions set forth in this Paragraph 65. Anything herein to the contrary notwithstanding, if there is an Event of Default under the Lease, whether at the time Optionee gives Landlord notice of its exercise of the Option, or at the time of the commencement date of the Option Term, the Option shall automatically terminate and become null and void. The rights contained in this Paragraph 65 shall be personal to Optionee, and may only be exercised by Optionee (and not any sublessee or transferee or any other assignee or successor of Tenant's interest in or to this Lease) and are conditioned upon Optionee occupying the entire Premises both at the time Optionee gives Landlord notice of its exercise of the Option and at the time of the commencement date of the Option Term. (a) Exercise of option: The Option contained in this Paragraph 65, shall be exercised by Optionee, if at all, and only in the following manner: (i) Optionee shall deliver written notice to Landlord not more than twelve (12) months nor less than nine (9) months prior to the expiration of the then current Lease term, stating that Optionee is exercising its Option. Upon the proper exercise of each such Option, the Lease term, as it applies to the Premises, shall be extended for the term of the Option Term upon all of the terms and conditions of the Lease, provided that (i) the Base Rent and additional rent for the Option Term shall be the "Fair Market Rent" for the Premises determined as provided in 5 subparagraph (b) below, (ii) the Expense Base Year and the Tax Base Year shall be the calendar year in which the Option Term commences, (iii) Optionee shall have no further right to extend the term of this Lease (i.e., beyond the one (1) five year Option Term), and (iv) the Premises shall be accepted by Optionee in its "as is" condition with no tenant improvements to be built by Landlord. (b) Fair Market Rent. The Base Rent and additional rent payable by Optionee during the Option Term (the "Fair Market Rent") shall be equal to the effective base rent and additional rent, including all escalations, at which, as of the commencement of the Option Term, tenants are leasing non-sublease, non-encumbered, non-equity full service space comparable in size, location and quality to the Premises for a term of five (5) years, which comparable space is located in other Class "A" buildings of comparable quality in the San Francisco North and South of Market Financial area and which tenants are of similar credit standing with Optionee at the time of renewal, and for comparable terms pursuant to leases entered into or renewed by such other tenants on or about the commencement of the Option Term, provided that in no event shall the monthly Base Rent for the Option Term be less than the monthly Base Rent during the last twelve months of the initial lease term. The effective rental rate shall be calculated by taking into consideration the following concessions and no other concessions: (i) rental abatement concessions, if any, provided in connection with such comparable space; (ii) tenant improvements or allowances provided or to be provided by the landlord for such comparable space, taking into account, and deducting the value of, the then existing improvements in the Premises, such value to be based on the age, quality and layout of the improvements and the extent to which the same can be utilized by Optionee based on the fact that the precise tenant improvements existing in the Premises are specifically suitable to Optionee; (iii) any other customary and ordinary material economic office rental market concessions and inducements. Notwithstanding the foregoing, if in determining the Fair Market Rent, the parties and/or appraisers determine that the economic terms of the Fair Market Rent include a tenant improvement allowance, Landlord may elect either to: (1) grant some or all of the value of the tenant improvement allowance as an allowance for the refurbishment of the Premises, or (2) reduce the Base Rent component of the Fair Market Rent to be an effective rental rate that takes into consideration the total dollar value of that portion of the tenant improvement allowance that Landlord has elected not to grant to Tenant pursuant to clause (1) above. (d) Determination of Option Rent. Not later than six (6) months prior to the expiration of the then current Lease term, Landlord shall notify Optionee in writing of Landlord's estimate of the Fair Market Rent the applicable Option Term, based on the provisions of subparagraph (c) above. Within thirty (30) days after receipt of such notice from Landlord, Optionee shall have the right either to (a) accept Landlord's statement of Fair Market Rent; or (b) elect to determine the Fair Market Rent pursuant to an appraisal process to be conducted pursuant to the provisions of subparagraph (e) below (the "appraisal"). Failure on the part of Optionee to elect such appraisal process within such thirty (30) day period shall constitute acceptance of the Fair Market Rent for the Option Term as calculated by Landlord. If Optionee elects to determinate the Fair Market Rent pursuant to the appraisal process, the appraisal shall be concluded within ninety (90) days after the date of Optionee's election, subject to extension for an additional thirty (30) day period if a third appraiser is required and does not act in a timely manner. To the extent that the appraisal has not been completed prior to the expiration of any preceding period for which Option has been determined, Optionee shall pay Base Rent and additional rent at the rate calculated by Landlord, with an adjustment to be made once the Fair Market Rent is ultimately determined by such appraisal. (e) In the event that Optionee elects to determine the Fair Market Rent pursuant to an appraisal process, the appraisal process shall be conducted as follows: (i) Optionee shall make a demand for an appraisal in writing within thirty (30) days after service of Landlord's determination of Fair Market Rent given under subparagraph (d) above, specifying therein the name and address of the person to act as the appraiser on its behalf. The appraiser shall be qualified as a real estate appraiser (and shall be a member of the American Institute of Real Estate Appraisers (MAI) or any comparable successor organization) with at least five (5) years professional experience and shall be 6 familiar with the rental value of first-class commercial office space in the San Francisco South of Market area. Failure on the part of Optionee to make a proper demand and appointment in a timely manner for such appraisal shall constitute a waiver of the right thereto. Within fifteen (15) days after the service of the demand for such appraisal, Landlord shall give notice to Optionee, specifying the name and address of the person designated by Landlord to act as the appraiser on its behalf who shall be similarly qualified. (ii) In the event that two appraisers are chosen pursuant to subparagraph (i) above, the appraisers so chosen shall, within ten (10) business days after the second appraiser is appointed, determine the Fair Market Rent. If the two appraisers are unable to agree upon a determination of Fair Market Rent within such ten (10) business day period, they, themselves, shall appoint a third appraiser, who shall be a competent and impartial person with qualifications similar to those required of the first two appraisers pursuant to subparagraph (i) above. In the event they are unable to agree upon such appointment within fifteen (15) days after expiration of said ten (10) business day period, the third appraiser shall be selected by the parties themselves, if they can agree thereon, within a further period of fifteen (15) days. If the parties do not so agree, then either party, on behalf of both, may request appointment of such a qualified person by the then Presiding Judge of the Superior Court in and for the City and County of San Francisco, acting in his private and not in his official capacity, and the other party shall not raise any question as to such Judge's full power and jurisdiction to entertain the application for and make the appointment. (iii) Where the Fair Market Rent cannot be resolved by agreement between the two appraisers selected by Landlord and Optionee or settlement between the parties during the course of the appraisal process, the Fair Market Rent shall be determined by the three appraisers within ten (10) business days of the appointment of the third appraiser in accordance with the following procedure: The appraiser selected by each of the parties shall state in writing his or her determination of the Fair Market Rent supported by the reasons therefor with counterpart copies to each party. The appraisers shall arrange for a simultaneous exchange of such proposed resolutions. The role of the third appraiser shall be to select which of the two proposed resolutions most closely approximates his or her determination of the Fair Market Rent. The third appraiser shall have no right to propose a middle ground or any modification of either of the two proposed resolutions. The resolution he or she chooses as most closely approximating his or her determination shall constitute the decision of the appraisers and be final and binding upon the parties. (iv) In the event of a failure, refusal or inability of any appraiser to act, his or her successor shall be appointed by him or her, but in the case of the third appraiser, his or her successor shall be appointed in the same manner as provided for appointment of the third appraiser. Any decision in which the appraiser appointed by Landlord and the appraiser appointed by Optionee concur shall be binding and conclusive upon the parties. Each party shall pay the fee and expenses of its respective appraiser and both shall share the fee and expenses of the third appraiser, if any. (f) If the Optionee timely exercises an Option as set forth herein pursuant to the terms and conditions of this Paragraph 65, Landlord and Optionee shall promptly execute an amendment to this Lease which shall confirm the Option Term, Basic Rent, and if necessary, add a new Tenant Improvement Work Letter (substantially in the form attached hereto as EXHIBIT C modified to reflect the terms of this Paragraph 65). 66. GROSS NEGLIGENCE. The term "gross negligence" as used in this Lease shall mean "any action or inaction taken with a reckless disregard for the consequences ". 67. RATIFICATION OF LEASE: Landlord and Tenant hereby ratify and confirm all of the provisions of the Lease as amended by this Addendum. 68. TIME IS OF THE ESSENCE: Time is of the essence of the Lease Agreement and each of its provisions. 7 IN WITNESS WHEREOF, Landlord and Tenant have entered into this Addendum as of the date of the Lease. TENANT: LANDLORD: 911 gifts.com THE EQUITABLE LIFE ASSURANCE a Delaware corporation SOCIETY OF THE UNITED STATES, a New York corporation By: /s/ [ILLEGIBLE] By: /s/ [ILLEGIBLE] ----------------------- -------------------------- Its: COO Its: INVESTMENT OFFICER By: /s/ [ILLEGIBLE] ----------------------- Its: SVP BUS. DEV. 8 EXHIBIT A FLOOR PLANS OF PREMISES 5 [201 SPEAR STREET TERRACE PLAN] RULES AND REGULATIONS 1. The ?ILLEGIBLE? halls, passages, exits, entrances, shopping malls, elevators, escalators and stairways of the Building shall not be obstructed by any of the tenants or used by them for any purpose other than for ingress to and egress from their respective premises. The halls, passages, exits, entrances, shopping malls, elevators, escalators and stairways are not for the general public, and Landlord shall in all cases retain the right to control and prevent access thereto of all persons whose presence in the judgment of Landlord would be prejudicial to the safety, character, reputation and interests of the Building and its tenants, provided that nothing herein contained shall be construed to prevent such access to persons with whom any tenant normally deals in the ordinary course of its business, unless such persons are engaged in illegal activities. No tenant and no employee or invitee of any tenant shall go upon the roof of the Building except such roof or portion thereof as may be contiguous to the premises of a particular tenant and may be designated in writing by Landlord as a roof deck or roof garden area. 2. No sign, placard, picture, name, advertisement or notice visible from the exterior of any tenant's premises shall be inscribed, painted, affixed or otherwise displayed by any tenant on any part of the Building without the prior written consent of Landlord. Landlord will adopt and furnish to tenants general guidelines relating to signs inside the Building on the office floors. Each tenant shall conform to such guidelines, but may request approval of Landlord for modifications, which approval will not be unreasonably withheld. All approved signs or lettering on doors shall be printed, painted, affixed or inscribed at the expense of the Tenant by a person approved by Landlord, which approval will not be unreasonably withheld. Material visible from outside the Building will not be permitted. 3. Their Premises shall not be used for the storage of merchandise held for sale to the general public or for lodging. No cooking shall be done or permitted by any tenant on the premises, except that use by the tenant of food and beverage vending machines and Underwriters' Laboratory approved microwave ovens and equipment for brewing coffee, tea, hot chocolate and similar beverages shall be permitted, provided that such use is in accordance with all applicable federal, state and city laws, codes, ordinances, rules and regulations. 4. No tenant shall employ any person or persons other than Landlord's janitorial service for the purpose of cleaning the premises, unless otherwise approved by Landlord. No person or persons other than those approved by Landlord shall be permitted to enter the Building for the purpose of cleaning the same. No tenant shall cause any unnecessary labor by reason of such tenant's carelessness or indifference in the preservation of good order and cleanliness. Janitor service will not be furnished on nights when rooms are occupied after 9:30 P.M. unless, by prior arrangement with Landlord, service is extended to a later hour for specifically designated rooms. 5. Landlord will furnish each tenant, free of charge, with two keys to each door lock in its premises. Landlord may make a reasonable charge for any additional keys. No tenant shall have any keys made. No tenant shall alter any lock or install a new or additional lock or any bolt on any door of its premises without the prior consent of Landlord. The tenant shall in each case furnish Landlord with a key for any such lock. Each tenant, upon the termination of its tenancy, shall deliver to Landlord all keys to doors in the Building which shall have been furnished to the tenant. 6. The freight elevator shall be available for use by all tenants in the Building, subject to such reasonable scheduling as Landlord in its discretion shall deem appropriate. The persons employed to move such equipment in or out of the Building must be acceptable to Landlord. Landlord shall have the right to prescribe the weight, size and position of all equipment, materials, furniture or other property brought into the Building. Heavy objects shall, if considered necessary by Landlord, stand on wood strips of such thickness as is necessary to properly distribute the weight. Landlord will not be responsible for loss of or damage to any such property from any cause, and all damage done to the Building by moving or maintaining such property shall be repaired at the expense of the tenant. 7. No tenant shall use or keep in the premises or the Building any kerosene, gasoline or inflammable or combustible fluid or material other than limited quantities thereof reasonably necessary for the operation or maintenance of office equipment, or, without Landlord's prior approval, use any method of heating or air conditioning other than that supplied by Landlord. 19 RULES AND REGULATIONS No tenant shall use or keep or permit to be used or kept any form of noxious gas or substance in the premises, or permit or suffer the premises to be occupied or used in a manner offensive or objectionable to Landlord or other occupants of the Building by reason of noise, odors or vibrations, or interfere in any way with other tenants or those having business therein. 8. Landlord shall have the right, exercisable without notice and without liability to any tenant, to change the name and street address of the Building. 9. Landlord reserves the right to exclude from the Building between the hours of 6 P.M. and 7 A.M. and at all hours on Saturdays, Sundays and legal holidays all persons who do not present a pass signed by Landlord to the Building. Landlord will furnish passes to persons for whom any tenant requests the same in writing. Each tenant shall be responsible for all persons for whom it requests passes and shall be liable to Landlord for all acts of such persons. Landlord shall in no case be liable for damages for any error with regard to the admission to or exclusion from the Building of any person. In the case of invasion, mob, riot, public excitement or other circumstances rendering such action advisable in Landlord's opinion, Landlord reserves the right to prevent access to the Building during the continuance of the same by such action as Landlord may deem appropriate. 10. The directory of the Building will be provided for the display of the name and location of tenants and a reasonable number of the principal officers and employees of tenants, and Landlord reserves the right to exclude any other names therefrom. Any additional name which a tenant desires to have added to the directory shall be subject to Landlord's approval and may be subject to a charge therefor. 11. No curtains, draperies, blinds, shutters, shades, screens or other coverings, hangings or decorations shall be attached to, hung or placed in, or used in connection with any exterior window in the Building without the prior consent of Landlord. If consented to by Landlord, such items shall be installed on the office side of the standard window covering and shall in no way be visible from the exterior of the Building. 12. Messenger services and suppliers of bottled water, food, beverages, and other products or services shall be subject to such reasonable regulations as may be adopted by Landlord. Landlord may establish a central receiving station in the Building for delivery and pick-up by all messenger services, and may limit delivery and pick-up at tenant premises to Building personnel. 13. Each tenant shall see that the doors of its premises are closed and locked and that all water faucets or apparatus, cooking facilities and office equipment (excluding office equipment required to be operative at all times) are shut off before the tenant or its employees leave the premises at night, so as to prevent waste or damage, and for any default or carelessness in this regard the tenant shall be responsible for any damage sustained by other tenants or occupants of the Building or Landlord. On multiple-tenancy floors, all tenants shall keep the doors to the, Building corridors closed at all times except for ingress and egress. 14. The toilets, urinals, wash bowls and other restroom facilities shall not be used for any purpose other than that for which they were constructed, no foreign substance of any kind whatsoever shall be thrown therein and the expense of any breakage, stoppage or damage resulting from the violation of this rule shall be borne by the tenant who, or whose employees or invitees, shall have caused it. 15. Except with the prior consent of Landlord, no tenant shall sell, or permit the sale at retail, of newspapers, magazines, periodicals, theatre tickets or any other goods or merchandise to the general public in or on the premises, nor shall any tenant carry on, or permit or allow any employee or other person to carry on, the business of stenography, typewriting or any similar business or from the premises for the service or accommodation of occupants of any other portion of the Building, nor shall the premise of any tenant be used for manufacturing of any kind, or any business or activity other than that specifically provided for in such tenant's lease. 16. No tenant shall install any antenna, loudspeaker, or other device on the roof or exterior walls of the Building. 20 RULES AND REGULATIONS 17. There shall not be used in any portion of the Building, by any tenant or its invitees, any hand trucks or other material handling equipment except those equipped with rubber tires and side guards unless otherwise approved by Landlord. 18. Each tenant shall store its refuse within its premises. No material shall be placed in the refuse boxes or receptacles if such material is of such nature that it may not be disposed of in the ordinary and customary manner of removing and disposing of refuse in the City and County of San Francisco without being in violation of any law or ordinance governing such disposal. All refuse disposal shall be made only through entryways and elevators provided for such purposes and at such times as Landlord shall designate. 19. Canvassing, peddling, soliciting, and distribution of handbills or any other written materials in the Building are prohibited, and each tenant shall cooperate to prevent the same. 20. The requirements of the tenants will be attended to only upon application by telephone or in person at the office of the Building. Employees of Landlord shall not perform any work or do anything outside of their regular duties unless under special instructions from Landlord. 21. Landlord may waive any one or more of these Rules and Regulations for the benefit of any particular tenant or tenants, but no such waiver by Landlord shall be construed as a wavier of such Rules and Regulations in favor of any other tenant or tenants, nor prevent Landlord from thereafter enforcing any such Rules and Regulations against any or all of the tenants of the Building. 22. These Rules and Regulations are in addition to, and shall not be construed to in any way modify or amend, in whole or in part, the terms, covenants, agreements and conditions of any lease of premises in the Building. 23. Landlord reserves the right to make such other and reasonable rules and regulations as in its judgment may from time to time be needed for the safety, care and cleanliness of the Building, and for the preservation of good order therein. 21 EXHIBIT C TENANT IMPROVEMENT WORK LETTER This EXHIBIT C is made to be a part of that certain Office Lease between THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES, a New York corporation ("Landlord"), and 911GIFTS.COM, a Delaware corporation ("Tenant"), dated as of September 1, 1999 (the "Lease"). To the extent there is any inconsistency between the terms and provisions of the Lease and the terms and provisions of this EXHIBIT C, this EXHIBIT C shall govern and control. All capitalized words used herein which have defined meanings in the Lease shall have the same defined meanings herein. Landlord and Tenant have agreed as follows: 1. TENANT ACCEPTS PREMISES IN "AS IS" CONDITION. As of the Term Commencement Date, Landlord shall deliver possession of the Premises to Tenant broom and vacuum clean, free of all occupants and personal property, and Tenant shall accept possession of the Premises in their "AS IS" condition, except as aforesaid. Tenant acknowledges and agrees that Tenant and its representatives have inspected the Premises and all of its structural and mechanical elements and that Tenant is satisfied with the condition thereof. The Lease, shall become effective with respect to the Premises upon the Term Commencement Date. Tenant's obligation to pay Base Rent for the Premises shall commence upon the Rent Commencement Date, as described in the Basic Lease Information. Except as specifically provided below or in the Lease, Landlord has no obligation and has made no promise to alter, remodel, improve, repair, decorate or paint the Premises or any part of the Premises, or to pay for any such work, and neither Landlord nor Landlord's agents have made any representations to Tenant with respect to the condition of the Premises. 2. CONSTRUCTION OF TENANT IMPROVEMENTS. Tenant shall substantially complete any and all alterations of, or improvements to, the Premises (the "Tenant Improvements"), in accordance with the Final Plans (as defined below) submitted to and approved by Landlord. The Tenant Improvements shall be made and performed in a safe and workmanlike manner, using only first-class materials, in compliance with the minimum Building standard specification for interior tenant improvements developed by Landlord for uniform application in the Building, and in accordance with the provisions of the following provisions of this EXHIBIT C: (a) No work with respect to the Tenant Improvements shall proceed without Landlord's reasonable prior written approval of: (1) Tenant's contractor(s) and subcontractor(s) selected from a list of contractors and subcontractors approved by Landlord; (2) certificates of insurance furnished to Landlord from a company or companies approved by Landlord (i) by Tenant's general contractor, evidencing commercial general liability insurance (with contractual liability and products and completed operations coverages) with a minimum combined single limit for bodily injury and property damage in an amount not less than Two Million Five Hundred Thousand Dollars ($2,500,000) per occurrence, endorsed to name Landlord, Landlord's managing agent and any other party designated by Landlord as an additional insured, and workers' compensation insurance, as required by law; (ii) by any and all subcontractors, evidencing commercial general liability insurance (with contractual liability and products and completed operations coverages) with a minimum combined single limit for bodily injury and property damage in an amount not less than One Million Dollars ($1,000,000) per occurrence, endorsed name Landlord, Landlord's managing agent and any other party designated by Landlord as an additional insured, and workers' compensation insurance, as required by law; and C-1 (iii) by Tenant evidencing builder's risk insurance with respect to the Tenant Improvements, in such amounts as are deemed reasonable by Landlord, and workers' compensation insurance, as required by law; and (3) detailed plans and specifications for such work, prepared by a licensed architect approved in writing by Landlord (the "Tenant's Architect"), which indicate that such work will not exceed the design load capacities and performance criteria of the Building, including, without limitation, its electrical, HVAC and weight capacities, and construction means and methods. (b) Except as otherwise expressly provided herein, the Tenant Improvements shall be undertaken at Tenant's sole cost and expense and in strict conformance with all applicable laws, regulations, building codes and the requirements of any building permit and all other applicable permits or licenses issued with respect to such work. Tenant shall be solely responsible for obtaining all such permits and licenses from the appropriate governmental authorities, and any delay in obtaining such permits or licenses shall not be deemed to extend the commencement date or the expiration date of the term of the Lease or to waive or toll Tenant's rental and other obligations with respect to the Premises. Copies of all permits and licenses shall be furnished to Landlord before any work is commenced, and any work not acceptable to any governmental authority or agency having or exercising jurisdiction over such work, or not reasonably satisfactory to Landlord, shall be promptly replaced and corrected at Tenant's expense. (c) Tenant shall provide Landlord with a construction schedule and all revisions thereto. All work by Tenant shall be scheduled through Landlord and shall be diligently and continuously pursued from the date of its commencement through its completion. Landlord hereby agrees to use its reasonable efforts to facilitate such work and to ensure access by Tenant to and availability to Tenant of all freight elevators and all such similar facilities necessary to facilitate such work, subject, however, to the rules and regulations established by Landlord for construction work in the Building. All work shall be conducted in a manner that maintains harmonious labor relations and does not unreasonably interfere with or delay any other work or activities being carried out by Landlord in the Building. Landlord or Landlord's agent shall have the right to enter the Premises and inspect the Premises and the Tenant Improvements at all reasonable times during the construction of the Tenant Improvements. (d) Tenant shall cause the Tenant's Architect to prepare and submit to Landlord for its approval complete architectural plans, drawings and specifications for all Tenant Improvements, including, without limitation, complete engineered mechanical and electrical working drawings for the Premises, showing the subdivision, layout, finish and decoration work desired by Tenant therefor, and any internal or external communications or special utility facilities which will require installation of conduits or other improvements within common areas, all in such form and in such detail as may be required by Landlord. Such complete plans, drawings and specifications are referred to herein as "Final Plans". Tenant shall submit the Final Plans for the approval of Landlord. Within seven (7) business days after Landlord receives the Final Plans for approval, Landlord shall give its written approval of the Final Plans, or provide Tenant with specific written objections to the Final Plans. If Landlord objects to the Final Plans, Landlord shall make itself available to meet with Tenant and the Tenant's Architect within five (5) business days after said objection to resolve the objections and to deliver to the Tenant's Architect such information as may be necessary to enable the Tenant's Architect to cause the Final Plans to be revised consistent with Landlord's objections. No delay in the scheduling of completion of the Tenant Improvements resulting from Landlord's timely review, revision and approval of the Final Plans shall be deemed to extend the commencement date or expiration date of the term of the Lease or waive or toll Tenant's rental obligations with respect to the Premises. In the event that Tenant and/or its contractors and subcontractors desire to change the Final Plans subsequent to approval by Landlord, Tenant shall provide notice of such proposed change to Landlord for Landlord's written C-2 approval, which approval shall be required prior to the implementation of such proposed change. Landlord shall approve or disapprove the proposed change within five (5) business days after Landlord's receipt of all final plans and specifications therefor or within such time period after such five (5) business day period which is reasonably practical. At the conclusion of construction, Tenant shall cause the Tenant's Architect to provide two (2) complete sets of record drawings of the Tenant Improvements, as constructed, which shall not materially deviate from the Final Plans, and Tenant shall also cause to be provided a project closeout package, including, without limitation, a punchlist sign-off, project team list, permit cards, unconditional lien releases and final construction costs itemized by trade. (e) Tenant shall enter into a contract (the "General Contract") with one of the Bidding Contractors ("Tenant's Contractor") for the construction of the Tenant Improvements selected from a list of contractors approved by Landlord. (f) With respect to fire and life safety systems work required under the General Contract, Tenant shall cause Tenant's Contractor to use either EDS or Simplex. With respect to the mechanical, electrical and plumbing engineering required under the General Contract, Tenant shall cause Tenant's Contractor to use Glumac. Tenant's Contractor may engage such other laborers and suppliers as it deems appropriate selected from a list of subcontractors approved by Landlord, subject to the provisions of subparagraph (g) below. (g) Notwithstanding anything to the contrary contained herein, all major contractors' and subcontractors' contracts for the Tenant Improvements shall be union contracts, and Tenant shall use its commercially reasonable efforts to ensure that union labor is employed in connection with the design and construction of the Tenant Improvements. (h) Tenant hereby designates Dan Michelini, or any other person designated by Tenant from time to time, as its representative in connection with the design and construction of the Tenant Improvements, and Landlord shall be entitled to rely upon the decisions and agreements made by such representative as binding upon Tenant. (i) Although Landlord has the right to review, request revisions to and approve the Final Plans, Landlord's sole interest in doing so is to protect the Building and Landlord's interest in the Building, and Landlord is not in any way warranting or representing that Tenant's Final Plans are suitable for their intended use or comply with applicable laws and regulations. Landlord shall have no liability whatsoever in connection with Tenant's Final Plans, nor any responsibility for any omissions or errors contained therein. Accordingly, Tenant shall not rely upon Landlord's approval for any purpose other than for the purpose of acknowledging the consent of Landlord to proceed with the requested action, and Landlord shall incur no liability of any kind by reason of the granting of such approvals. (j) Nothing in this EXHIBIT C shall affect the obligations of Tenant under the Lease with respect to any alterations, additions and improvements within the Premises, including, without limitation, any obligation to obtain the prior written consent of Landlord in connection therewith. 3. TENANT IMPROVEMENT ALLOWANCE. Subject to the terms and conditions of this Paragraph 3, Landlord shall pay on behalf of Tenant up to a maximum amount of Fifty Eight Thousand One Hundred Sixty-Six and 25/100 Dollars ($58,166.25) (or a maximum of $3.75 per rentable square foot of Premises) for the construction of Tenant Improvements in the Premises (the "Tenant Improvement Allowance"), including without limitation, all architectural and engineering fees incurred in connection therewith, project and construction management fees, real property improvements, and all sums payable to Landlord as provided in Paragraph 4 below. The Tenant Improvement Allowance shall be paid as follows: upon the presentation of invoices to Landlord from Tenant or the person performing the work or rendering the services or providing the materials and such supporting documentation as Landlord may reasonably require, including, without limitation, identification of the work completed C-3 and/or material supplied, mechanic lien releases and certificates of payment issued by the Tenant's Architect and Tenant's designated representative, Landlord shall pay such invoices on or before the fifteenth (15th) day of the following month to the person performing the work or rendering the services or providing the materials. Notwithstanding anything to the contrary contained herein or in the Lease, the obligation of Landlord to make any one or more payments pursuant to the provisions of this Paragraph 3 shall be suspended without further act of the parties during any such time as there exists an Event of Default by Tenant under the Lease. The Tenant Improvement Allowance must be utilized by Tenant, if at all, prior to March 1,2000. As of such date, Tenant shall forfeit any remaining balance of the Tenant Improvement Allowance that Tenant has not utilized pursuant to the terms of this EXHIBIT C. Tenant shall bear the cost of any and all Tenant Improvements to the Premises in excess of the Tenant Improvement Allowance. 4. REIMBURSEMENT AND COMPENSATION. Tenant shall reimburse Landlord for any and all reasonable out-of-pocket costs incurred by Landlord in connection with the design and review of the Final Plans (including, without limitation, any conceptual plans and/or working drawings related thereto) for the Tenant Improvements. Landlord may obtain any reimbursement or compensation required hereunder by deducting the amount of such reimbursement and/or compensation from the Tenant Improvement Allowance. Landlord will not charge Tenant a construction management or administrative fee in connection with the Tenant Improvements. 5. TENANT'S INDEMNITY. Tenant shall indemnify, defend and hold Landlord harmless from and against any and all claims, liens, expenses, costs, losses, fines, liabilities and/or damages (including, without limitation, attorneys' fees and costs) arising out of or in any way connected with the construction by Tenant of the Tenant Improvements, except to the extent caused by the gross negligence or willful misconduct of Landlord or its employees, contractors or agents. Tenant's liability insurance will be primary with respect to Tenant's indemnity. 6. NOTICE OF NONRESPONSIBILITY. Landlord shall have the right to post in a conspicuous location on the Premises, as well as record within the City and County of San Francisco, Notice (s) of Nonresponsibility in connection with any and all Tenant Improvements constructed by Tenant hereunder. IN WITNESS WHEREOF, the undersigned have executed this EXHIBIT C concurrently with the execution of the Lease. 911GIFTS.COM, THE EQUITABLE LIFE ASSURANCE a Delaware corporation SOCIETY OF THE UNITED STATES, a New York corporation By: /s/ [ILLEGIBLE] By: /s/ [ILLEGIBLE] ---------------------- ------------------------- Its: COO Its: Investment Officer By: /s/ [ILLEGIBLE] ----------------------- Date: 9-2-99 Its: SVP BUS. DEV Date: 9/1/99 C-4 EX-10.8 18 f89225orexv10w8.txt EXHIBIT 10.8 EXHIBIT 10.8 ASSIGNMENT OF LEASE Upon receipt of $1343.00 from Red Envelope, Inc., I, the undersigned Mission Valley Christian Fellowship of San Diego, a California Non-profit Religious Corporation, do hereby assign, transfer and ?ILLEGIBLE? over unto Red Envelope Inc., all my rights, title and interest in and to the entirety of that certain lease reference dated November 17,1995 by and between the Four Amigos, a California Ltd. as Lessor, and Mission Valley Christian Fellowship of San Diego, a California Non-profit Religious Corporation as Lessee, covering that certain property and premise situated in the City of San Diego, County of San Diego, State of California and particularly described as: approximately 2,098 square feet of office space at 4562-M Alvarado Canyon Road, and said lease is attached hereto as Exhibit "A", Together with all my right, title and interest in and to prepaid rent and/or security deposit on said lease, if any. Nothing contained herein shall relieve Mission Valley Christian Fellowship of San Diego, a California Non-profit Religious Corporation, as Assignor or Personal Guarantor(s) of said lease from their liability for said lease. Mission Valley Christian Fellowship of San Diego, a California Non-profit Religious Corporation as Assignor and Personal Guarantor(s) shall be fully liable for the rental obligation, notwithstanding this Assignment of Lease through the ending date of said lease which is December 31,2003. Dated this 18 day of APRIL, 2000. Agreed, Assignor-Lessee: Mission Valley Christian Fellowship of San Diego, a California Non-profit Religious Corporation /s/ Leo Giovinetti President - -------------------------- -------------------------- Signature Title Print Name Leo Giovinetti Date 4-18-2000 Agreed, Personal Guarantor of Lease: Jack Forness, /s/ [ILLEGIBLE] - -------------------------- Date 4/17/00 Signature Agreed, Personal Guarantor of Lease: Leo Giovenitti, /s/ Leo Giovinetti - -------------------------- Date 4-18-2000 Signature ACCEPTANCE OF ASSIGNMENT OF LEASE I, Red Envelope, Inc., (Assignee-Lessee) do hereby accept the attached Assignment of Lease for the Premises more commonly known as 4562-M Alvarado Canyon Road, San Diego, California which is described as approximately 2,098 ?ILLEGIBLE?are feet of industrial space and agree to be additionally liable for said lease and agree to be bound by all of the conditions and covenants contained in that certain lease referenced dated November 17, 1995 by and between Four Amigos, a California Ltd., as Lessor, and Mission Valley Christian Fellowship of San Diego, a California Non-profit Religious Corporation as Lessee, referred to on the attached Assignment of Lease, a true copy of said lease is attached hereto as Exhibit "A" and shall become part of this assignment agreement. By signing below I acknowledge receipt of lease and that I have read and agree to be bound by all the terms and conditions of said lease. I, Red Envelope, Inc. (Assignee-Lessee) promise to pay and be fully liable to Lessor for the rent payments and operating expenses of said lease due for the Premises from July 1, 2000 (Assignee-Rent Commencement Date of Assignment) to the Lease ending date defined as December 31, 2003 to be paid in the manner and at the times therein specified in said lease. On date of execution of the said assignment agreement by Lessor, Assignor and Assignee (Execution date) and occupancy of the Premises I, Assignee will be bound by all other terms, conditions, provisions and covenants of said lease, including carry insurance per said lease upon taking occupancy of the premises for tenant improvements and said terms, conditions, provisions and covenants shall continue to be in full force and effect until the lease ending date. Dated this 1 day of MAY, 2000. Agreed Assignee-Lessee: Red Envelope, Inc. /s/ [ILLEGIBLE] President & COO - ------------------------ ------------------------ Signature Title CONSENT TO ASSIGNMENT OF LEASE I, Four Amigos, a California Ltd., Lessor, named in the aforementioned lease for the Premises more commonly known as 4562-M Alvarado Canyon Road, San Diego, California which is described as approximately 2,098 square feet of industrial ?ILLEGIBLE? which is attached hereto as Exhibit "A ", do hereby consent to the assignment of said lease to Red Envelope, Inc., ?ILLEGIBLE? the understanding Assignee-Lessee shall be additionally liable for the rent payment due to Lessor for the Premises of said lease from Assignee's Rent Commencement date of July 1, 2000 to the lease ending date December 31, 2003. Assignee also shall have the right to occupy the premises on the date of execution of the said assignment agreement by Lessor, Assignor and Assignee (Execution date) with proof of insurance and without rent payment or Operating expense payment until Assignee-Rent Commencement date of July 1, 2000 and Assignee will be bound by all other terms, conditions, provisions and covenants of said lease from said Execution date, and said terms, conditions, provisions and covenants shall continue to be in full force and effect until the lease ending date. Nothing contained herein shall relieve Mission Valley Christian Fellowship of San Diego, a California Non-profit Religious Corporation, as Assignor-Lessee or Personal Guarantor(s) of said lease from their liability for said lease and the rent and operating expense payments due for the premises per said lease. I, Lessor, notwithstanding anything to the contrary in Paragraph #6 of the Lease hereby consent to the use of the Premises for the general office purposes including but not limited to use as a 24 hour call center for Internet commerce business. I, also, hereby certify that I hold the sum of $1343.00, as a security deposit under said lease. All payments of rent currently due under said lease have been paid to May 1, 2000. The amount of the base monthly rent for the premises is $1463.18 per month plus Lessee's estimated pro-rata share of the operating expense of the park, with the with Assignee-Lessee next payment due on July 1, 2000 plus $15 per month HVAC maintenance contract charge (covers filter changing and belt tightening only). It shall be Assignor-Lessee's sole responsibility to pay rent and operating expense for the Premise of said lease for May, 2000 and June, 2000 The monthly rent is payable to: Four Amigos, a California Ltd. Address: 4607 Mission Gorge Place, San Diego, California 92120 Lessor: Four Amigos, a California Ltd., Dated this 5 day of 2, 2000. /s/ [ILLEGIBLE] - ------------------------ __________________________ Signature Title ADDRESS: 4607 Mission Gorge Place, San Diego, California 92120 TELEPHONE: (619) 287-8873 EXHIBIT "A" Assignor: /s/ [ILLEGIBLE] Assignee: /s/ [ILLEGIBLE] ------------------ ----------------- SECOND AMENDMENT TO LEASE SECOND AMENDMENT TO LEASE, dated August 19, 1997, for that certain lease made by and between FOUR AMIGOS, A CALIFORNIA LIMITED PARTNERSHIP, as Lessor, and MISSION VALLEY CHRISTIAN FELLOWSHIP OF SAN DIEGO, A CALIFORNIA NON-PROFIT RELIGIOUS CORPORATION, Lessee, for that certain lease which is reference dated November 17, 1995, for the premises more commonly known as 4562 Alvarado Canyon Road, Suite M, and described as approximately 2,098 of office space. Lessee and Lessor hereby agrees to extend the lease ending date, as defined in Paragraph 3.1 of said lease, to December 31, 2003 and agree the Base monthly rent for the premises shall increase by 3% on January 1, 2002 and January 1, 2003. All other terms and conditions of said lease will remain in full force and effect. FOUR AMIGOS MISSION VALLEY CHRISTIAN FELLOWSHIP A CALIFORNIA LTD. OF SAN DIEGO, A CALIFORNIA NON-PROFIT RELIGIOUS CORPORATION By /s/ [ILLEGIBLE] By /s/ [ILLEGIBLE] ----------------------- --------------------------- Lessor Lessee Date 9/16/97 Date AUG 20 1997 FIRST AMENDMENT TO LEASE FIRST AMENDMENT TO LEASE, dated July 23, 1996, for that certain lease made by and between FOUR AMIGOS, A CALIFORNIA LIMITED PARTNERSHIP, as Lessor, and MISSION VALLEY CHRISTIAN FELLOWSHIP OF SAN DIEGO, A CALIFORNIA NON-PROFIT RELIGIOUS CORPORATION, Lessee, for that certain lease which is reference dated November 17, 1995, for the premises more commonly known as 4562 Alvarado Canyon Road, Suite M, and described as approximately 2,098 of office space. Lessee and Lessor hereby agree to extend the lease ending date, as defined in Paragraph 3.1 of said lease one (1) additional year and one (1) month with the new agreed upon lease ending date being December 31, 2001. Lessee agrees to pay base monthly rent for the premises commencing December 1, 2000 of $1,449.11 per month plus Lessee's pro-rata share of operating expenses. All other terms and conditions of said lease will remain in full force and effect. FOUR AMIGOS MISSION VALLEY CHRISTIAN FELLOWSHIP A CALIFORNIA LTD. OF SANDIEGO, A CALIFORNIA NON-PROFIT RELIGIOUS CORPORATION By /s/ [ILLEGIBLE] By /s/ [ILLEGIBLE] ----------------------- --------------------------- Lessor Lessee Date 9/24/96 Date 8-29-96 EXHIBIT "A" Assignor: /s/ [ILLEGIBLE] Assignee: /s/ [ILLEGIBLE] ---------------- ------------------- STANDARD LEASE -- MULTI-TENANT 1. PARTIES. This Lease, dated, for reference purposes only, NOVEMBER 17, 1995, is made by and between FOUR AMIGOS, A CA, LTD. (herein called "Lessor") and MISSION VALLEY CHRISTIAN FELLOWSHIP OF SAN DIEGO, A CALIFORNIA NON-PROFIT RELIGIOUS CORPORATION (herein called "Lessee"). 2. PREMISES, PARKING AND COMMON AREAS. 2.1 PREMISES. Lessor hereby leases to Lessee and Lessee leases from Lessor for the term, at the rental, and upon all of the conditions set forth herein, real property situated in the County of SAN DIEGO, State of CALIFORNIA commonly known as 4562-M ALVARADO CANYON ROAD and described as approximately 2.098 square feet of INDUSTRIAL space, herein referred to as the "Premises", as may be outlined on an Exhibit attached hereto, including rights to the Common Areas as hereinafter specified but not including any rights to the roof of the Premises or to any Building in the Center. The Premises are a portion of a building, herein referred to as the "Building." The Premises, the Building, the Common Areas, and the land upon which the same are located, along with all other buildings and improvements thereon, are herein collectively referred to as the "Center." 2.2 VEHICLE PARKING. Lessee shall be entitled to THREE (3) vehicle parking spaces, unreserved and unassigned, on those portions of the Common Areas designated by Lessor for parking. Lessee shall not use more parking spaces than said number. Said parking spaces shall be used only for parking by vehicles no larger than full size passenger automobiles or pick-up trucks, herein called "Permitted Size Vehicles." Vehicles other than Permitted Size Vehicles are herein referred to as "Oversized Vehicles." 2.2.1 Lessee shall not permit or allow any vehicles that belong to or are controlled by Lessee or Lessee's employees, suppliers, shippers, customers, or invitees to be loaded, unloaded, or parked in areas other than those designated by Lessor for such activities. 2.2.2 If Lessee permits or allows any of the prohibited activities described in paragraph 2.2 of this Lease, then Lessor shall have the right, without notice, in addition to such other rights and remedies that it may have, to remove or tow away the vehicle involved and charge the cost to Lessee, which cost shall be immediately payable upon demand by Lessor. 2.3 COMMON AREAS-DEFINITION. The term "Common Areas" is defined as all areas and facilities outside the Premises and within the exterior boundary line of the Center that are provided and designated by the Lessor from time to time for the general non-exclusive use of Lessor, Lessee and of other lessees of the Center and their respective employees, suppliers, shippers, customers and invitees, including parking areas, loading and unloading areas, trash areas, roadways, sidewalks, walkways, parkways, driveways and landscaped areas. 2.4 COMMON AREAS--LESSEE'S RIGHTS. Lessor hereby grants to Lessee, for the benefit of Lessee and its employees, suppliers, shippers, customers and invitees, during the term of this Lease, the non-exclusive right to use, in common with others entitled to such use, the Common Areas as they exist from time to time, subject to any rights, powers, and privileges reserved by Lessor under the terms hereof or under the terms of any rules and regulations or restrictions governing the use of the Center. Under no circumstances shall the right herein granted to use the Common Areas be deemed to include the right to store any property, temporarily or permanently, in the Common Areas. Any such storage shall be permitted only by the prior written consent of Lessor ?ILLEGIBLE? designated agent, which consent may be revoked at any time. In the event that any unauthorized storage shall occur then Lessor shall have the ?ILLEGIBLE? without notice, in addition to such other rights and remedies that it may have, to remove the property and charge the cost to Lessee, which cost shall be immediately payable upon demand by Lessor. 2.5 COMMON AREAS-RULES AND REGULATIONS. Lessor or such other person(s) as Lessor may appoint shall have the exclusive control and management of the Common Areas and shall have the right, from time to time, to establish, modify, amend and enforce reasonable rules and regulations with respect thereto. Lessee agrees to abide by and conform to all such rules and regulations, and to cause its employees, suppliers, shippers, customers, and invitees to so abide and conform. Lessor shall not be responsible to Lessee for the non-compliance with said rules and regulations by other lessees of the Center. 2.6 COMMON AREAS-CHANGES. Lessor shall have the right, in Lessor's sole discretion, from time to time: (a) To make changes to the Common Areas, including, without limitation, changes in the location, size, shape and number of driveways, entrances, parking spaces, parking areas, loading and unloading areas, ingress, egress, direction of traffic, landscaped areas and walkways; (b) To close temporarily any of the Common Areas for maintenance purposes so long as reasonable access to the Premises remains available; (c) To designate other land outside the boundaries of the Center to be a part of the Common Areas; (d) To add additional buildings and improvements to the Common Areas; (e) To use the Common Areas while engaged in making additional improvements, repairs or alterations to the Center, or any portion thereof; (f) To do and perform such other acts and make such other changes in, to or with respect to the Common Areas and Center as Lessor may, in the exercise of sound business judgment, deem to be appropriate. 2.6.1 Lessor shall at all times provide the parking facilities required by applicable law and in no event shall the number of parking spaces that Lessee is entitled to under paragraph 2.2 be reduced. 3. TERM. 3.1 TERM. The term of this Lease shall be for FIVE (5) YEARS commencing on DECEMBER 1, 1995 and ending on NOVEMBER 30, 2000 unless sooner terminated pursuant to any provision hereof. 3.2 DELAY IN POSSESSION. Notwithstanding said commencement date, if for any reason Lessor cannot deliver possession of the Premises to Lessee on said date, Lessor shall be not be subject to any liability therefor, nor shall such failure affect the validity of this Lease or the obligations of Lessee hereunder or extend the term hereof, but in such case, Lessee shall not be obligated to pay rent or perform any other obligation of Lessee under the terms of this Lease, except as may be otherwise provided in this Lease, until possession of the Premises is tendered to Lessee; provided, however, that if Lessor shall not have delivered possession of the Premises within sixty (60) days from said commencement date, Lessee may, at Lessee's option, by notice in writing to Lessor within ten (10) days thereafter, cancel this Lease, in which event the parties shall be discharged from all obligations hereunder; provided further, however, that if such written notice of Lessee is not received by Lessor within said ten (10) day period, Lessee's right to cancel this Lease hereunder shall terminate and be of no further force or effect. 3.3 EARLY POSSESSION. If Lessee occupies the Premises prior to said commencement date, such occupancy shall be subject to all provisions of this lease, such occupancy shall not advance the termination date, and Lessee shall pay rent for such period at the initial monthly rates set forth below. 4. RENT. 4.1 BASE RENT. Lessee shall pay to Lessor, as Base Rent for the Premises, without any offset or deduction, except as may be otherwise expressly ?ILLEGIBLE? provided in this Lease, on the 1st day of each month of the term hereof, monthly payments in advance of $1,069,98 (SEE ADDENDUM 51) plus operating expenses of $273,12 for a total of $1,343,00. Lessee shall pay Lessor upon execution hereof $1,343,00 as Base Rent including operating expenses for DECEMBER, 1995. Rent for any period during the term hereof which is for less than one month shall be a pro rata portion of the Base Rent. Rent shall be payable in lawful money of the United States to Lessor at the address stated herein or to such other persons or at such other places as Lessor may designate in writing. 4.2 OPERATING EXPENSES. Lessee shall pay to Lessor during the term hereof, in addition to the Base Rent, Lessee's Share, as hereinafter defined, of all Operating Expenses, as hereinafter defined, during each calendar year of the term of this Lease, in accordance with the following provisions: (a) "Lessee's Share" is defined, for purposes of this Lease, as approximately 3,39 percent based on the total square footage of the project. (b) "Operating Expenses" is defined, for purposes of this Lease, as all costs incurred by Lessor, if any, for: (i) The operation, repair and maintenance, in neat, clean, good order and condition, of the following: (aa) The Common Areas, including parking areas, loading and unloading areas, trash areas, roadways, sidewalks, walkways, parkways, driveways, landscaped areas, striping, bumpers, irrigation systems, Common Area lighting facilities, fences and gates, and roofs and walls; (bb) Trash disposal services; (cc) Tenant directories; (dd) Fire detection systems including sprinkler system maintenance and repair; (ee) Security services; (ff) Any other service to be provided by Lessor that is elsewhere in this Lease stated to be an "Operating Expense;" (ii) Any deductible portion of an insured loss concerning any of the items or matters described in this paragraph 4.2; (iii) The cost of the premiums for the liability and property insurance policies to be maintained by Lessor under paragraph 8 hereof; (iv) The amount of the real property tax to be paid by Lessor under paragraph 10.1 hereof; (v) The cost of water, gas and electricity to service the Common Areas; (vi) Annual account audit plus 10% supervision fee, based on total annual expenses. (vii) All other costs of any kind paid or incurred by Landlord in connection with the operation, the cost of capital improvements designed to protect the health and safety of the tenants, maintenance, and management of the Building and the Project including, by way of examples and not as a limitation upon the generality of the foregoing, costs of repairs and replacements to improvements within the Project as appropriate to maintain the Project in first class condition including cost of funding such reasonable reserves as Landlord deems consistent with good business practice and may establish to provide for future repairs and replacements, association dues or any other fees due pursuant to any documents governing the real property on which the building is located, costs of utilities furnished to the Common Areas, sewer fees, windows, heating, ventilation, air conditioning, maintenance of landscape ?ILLEGIBLE? grounds, maintenance of drives and parking areas, security services and devices, building supplies, maintenance and replacement to equipment utilized for operation and maintenance of the Project, insurance premiums, portions of loss by reason of insurance policy terms, service contracts, costs of services of independent contractors retained to do work of nature before referenced, and costs of compensation (including employment taxes and fringe benefits) of all persons who perform regular and recurring duties connected with the day-to-day operation and maintenance of the Project, its equipment, the adjacent walks, landscaped areas, drives, and parking areas, including without limitation, janitors, floor waxers, window-washers, watchmen, gardeners, sweepers, and handymen and reasonable costs of management services. (c) The inclusion of the improvements, facilities and services set forth in paragraph 4.2(b)(i) of the definition of Operating Expenses shall not be deemed to impose an obligation upon Lessor to either have said improvements or facilities or to provide those services unless the Center already has the same, Lessor already provides the services, or Lessor has agreed elsewhere in this Lease to provide the same of some of them. (d) Lessee's Share of Operating Expenses shall be payable by Lessee within ten (10) days after a reasonably detailed statement of actual expenses is presented to Lessee by Lessor. At Lessor's option, however, an amount may be estimated by Lessor from time to time of Lessee's Share of annual Operating Expenses and the same shall be payable monthly or quarterly, as Lessor shall designate, during each twelve-month period of the Lease term, on the same day as the Base Rent is due hereunder. In the event that Lessee pays Lessor's estimate of Lessee's Share of Operating Expenses as aforesaid, Lessor shall deliver to Lessee within sixty (60) days after the expiration of each calendar year a reasonably detailed statement showing Lessee's Share of the actual Operating Expenses incurred during the preceding year. If Lessee's payments under this paragraph 4.2(d) during said preceding year exceed Lessee's Share as indicated on said statement, Lessee shall be entitled to credit the amount of such overpayment against Lessee's Share of Operating Expenses next falling due. If Lessee's payments under this paragraph during said preceding year were less than Lessee's Share as indicated on said statement, Lessee shall pay to Lessor the amount of the deficiency within ten (10) days after delivery by Lessor to Lessee of said statement. 5. SECURITY DEPOSIT. Lessee shall deposit with Lessor upon execution hereof $1,343,00 as security for Lessee's faithful performance of Lessee's obligations hereunder. If Lessee fails to pay rent or other charges due hereunder, or otherwise defaults with respect to any provision of this Lease, Lessor may use, apply or retain all or any portion of said deposit for the payment of any rent or other charge in default or for the payment of any other sum to which Lessor may become obligated by reason of Lessee's default, or to compensate Lessor for any loss or damage which Lessor may suffer thereby. If Lessor so uses or applies all or any portion of said deposit, Lessee shall within ten (10) days after written demand therefor deposit cash with Lessor in an amount sufficient to restore said deposit to the full amount then required of Lessee. If the monthly rent shall, from time to time, increase during the term of this Lease, Lessee shall, at the time of such increase, deposit with Lessor additional money as a security deposit so that the total amount of the security deposit held by Lessor shall at all times bear the same proportion to the then current Base Rent as the initial security deposit bears to the initial Base Rent set forth in paragraph 4. Lessor shall not be required to keep said security deposit separate from its general accounts. If Lessee performs all of Lessee's obligations hereunder, said deposit, or so much thereof as has not theretofore been applied by Lessor, shall be returned, without payment of interest or other increment for its use, to Lessee (or, at Lessor's option, to the last assignee, if any, of Lessee's interest hereunder) at the expiration of the term hereof, and after Lessee has vacated the Premises. No trust relationship is created herein between Lessor and Lessee with respect to said Security Deposit. 6. USE. 6.1 USE. The Premises shall be used and occupied only for MEETING AND STORAGE AREA or any other use which is reasonably comparable and for no other purpose. 6.2 COMPLIANCE WITH LAW. (a) Lessor warrants to Lessee that the Premises, in the state existing on the date that the Lease term commences, but without regard to the use for which Lessee will occupy the Premises, does not violate any covenants or restrictions of record, or any applicable building code, regulation or ordinance in effect on such Lease term commencement date. In the event it is determined that this warranty has been violated, then it shall be the obligation of the Lessor, after written notice from Lessee, to promptly, at Lessor's sole cost and expense, rectify any such violation. In the event Lessee does not give to Lessor written notice of the violation of this warranty within six months from the date that the Lease term commences, the correction of same shall be the obligation of the Lessee at Lessee's sole cost. The warranty contained in this paragraph 6.2(a) shall be of no force or effect if, prior to the date of this Lease, Lessee was an owner or occupant of the Premises and, in such event, Lessee shall correct any such violation at Lessee's sole cost. (b) Except as provided in paragraph 6.2(a) Lessee shall, at Lessee's expense, promptly comply with all applicable statutes, ordinances, rules, regulations, orders, covenants and restrictions of record, and requirements of any fire insurance underwriters or rating bureaus, now in effect or which may hereafter come into effect, whether or not they reflect a change in policy from that now existing, during the term or any part of the term hereof, relating in any manner to the Premises and the occupation and use by Lessee of the Premises and of the Common Areas. Lessee shall not use nor permit the use of the Premises or the Common Areas in any manner that will tend to create waste or a nuisance or shall tend to disturb other occupants of the Center. 6.3 CONDITION OF PREMISES. (a) Lessor shall deliver the Premises to Lessee clean and free of debris on the Lease commencement date (unless Lessee is already in possession) and Lessor warrants to Lessee that the plumbing, lighting, and loading doors in the Premises shall be in good operating condition on the Lease commencement date. In the event that it is determined that this warranty has been violated, then it shall be the obligation of Lessor, after receipt of written notice from Lessee setting forth with specificity the nature of the violation, to promptly, at Lessor's sole cost, rectify such violation. Lessee's failure to give such written notice to Lessor within thirty (30) days after the Lease commencement date shall cause the conclusive presumption that Lessor has complied with all of Lessor's obligations hereunder. The warranty contained in this paragraph 6.3(a) shall be of no force or effect if prior to the date of this Lease, Lessee was an owner or occupant of the Premises. (b) Except as otherwise provided in this Lease, Lessee hereby accepts the Premises in their condition existing as of the Lease commencement date or the date that Lessee takes possession of the Premises, whichever is earlier, subject to all applicable zoning, municipal, county and state laws, ordinances and regulations governing and regulating the use of the Premises, and any covenants or restrictions of record, and accepts this Lease subject thereto and to all matters disclosed thereby and by any exhibits attached hereto. Lessee acknowledges that neither Lessor nor Lessor's agent has made any representation or warranty as to the present or future suitability of the Premises for the conduct of Lessee's business. 7. MAINTENANCE, REPAIRS, ALTERATIONS AND COMMON AREA SERVICES. 7.1 LESSOR'S OBLIGATIONS. Subject to the provisions of paragraphs 4.2 (Operating Expenses), 6 (Use), 7.2 (Lessee's Obligations) and 9 (Damage or Destruction) and except for damage caused by any negligent or intentional act or omission of Lessee, Lessee's employees, suppliers, shippers, customers, or invitees, in which event Lessee shall repair the damage, Lessor, at Lessor's expense, subject to reimbursement pursuant to paragraph 4.2, shall keep in good condition and repair the foundations, exterior walls, structural condition of interior bearing walls, and roof of the Premises, as well as the parking lots, walkways, driveways, landscaping, fences, signs and utility installations of the Common Areas and all parts thereof, as well as providing the services for which there is an Operating Expense pursuant to paragraph 4.2. Lessor shall not, however, be obligated to paint the exterior or interior surface of exterior walls, ?ILLEGIBLE? or shall Lessor be required to maintain, repair or replace windows, doors or plate glass of the Premises. Lessor shall have no obligation to make repairs under ?ILLEGIBLE? this paragraph 7.1 until reasonable time after receipt of written notice from Lessee of the need for such repairs. Lessee expressly waives the benefits of any statute now or hereafter in effect which would otherwise afford Lessee the right to make repairs at Lessor's expense or to terminate this Lease because of Lessor's failure to keep the Premises in good order, condition and repair. Lessor shall not be liable for damages or loss of any kind or nature by reason of Lessor's failure to furnish any Common Area Services when such failure is caused by accident, breakage, repairs, strikes, lockout, or other labor disturbances or disputes of any character, or by any other cause beyond the reasonable control of Lessor. 7.2 LESSEE'S OBLIGATIONS. (a) Subject to the provisions of paragraphs 6 (Use), 7.1 (Lessor's Obligations), and 9 (Damage or Destruction), Lessee, at Lessee's expense, shall keep in good order, condition and repair the Premises and every part thereof (whether or not the damaged portion of the Premises or the means of repairing the same are reasonably or readily accessible to Lessee) including, without limiting the generality of the foregoing, all plumbing, including the replacement of the heating, ventilating and air conditioning systems, electrical and lighting facilities and equipment within the Premises, fixtures, interior walls and interior surfaces of exterior walls, ceilings, windows, doors, plate glass, and skylights located within the Premises. Lessor reserves the right to procure and maintain the ventilating and air conditioning system maintenance contract and if Lessor so elects, Lessee shall reimburse Lessor, upon demand, for the costs thereof. (b) If Lessee fails to perform Lessee's obligations under this paragraph 7.2 or under any other paragraph of this Lease, Lessor may enter upon the Premises after ten (10) days' prior written notice to Lessee (except in the case of emergency, in which no notice shall be required), perform such obligations on Lessee's behalf and put the Premises in good order condition and repair, and the cost thereof together with interest thereon at the maximum rate then allowable by law shall be due and payable as additional rent to Lessor together with Lessee's next Base Rent installment. (c) On the last day of the term hereof, or on any sooner termination, Lessee shall surrender the Premises to Lessor in the same condition as received, ordinary wear and tear excepted, clean and free of debris. Any damage or deterioration of the Premises shall not be deemed ordinary wear and tear if the same could have been prevented by good maintenance practices. Lessee shall repair any damage to the Premises occasioned by the installation or removal of Lessee's trade fixtures, alterations, furnishings and equipment. Notwithstanding anything to the contrary otherwise stated in this Lease, Lessee shall leave the air lines, power panels, electrical distribution systems, lighting fixtures, space heaters, air conditioning, plumbing and fencing on the Premises in good operating condition. -2- 7.3 ALTERATIONS AND ADDITIONS. (a) Lessee shall not, without Lessor's prior written consent make any alterations, improvements, additions, or Utility Installations in, on or about the Premises, or the Center, except for nonstructural alterations to the Premises not exceeding $2,500 in cumulative costs, during the term of this Lease. In any event, whether or not in excess of $2,500 in cumulative cost, Lessee shall make no change or alteration to the exterior of the Premises nor the exterior of the Building nor the Center without Lessor's prior written consent. As used in this paragraph 7.3 the term "Utility Installation" shall mean carpeting, window coverings, air lines, power panels, electrical distribution systems, lighting fixtures, space heaters, air conditioning, plumbing, and fencing. Lessor may require that Lessee remove any or all of said alterations, improvements, additions or Utility Installations at the expiration of the term, and restore the Premises and the Center to their prior condition. Lessor may require Lessee to provide Lessor, at Lessee's sole cost and expense, a lien and completion bond in an amount equal to one and one-half times the estimated cost of such improvements, to insure Lessor against any liability for mechanic's and materialmen's liens and to insure completion of the work, Should Lessee make any alterations, improvements, additions or Utility Installations without the prior approval of Lessor, Lessor may, at any time during the term of this Lease, require that Lessee remove any or all of the same. (b) Any alterations, improvements, additions or Utility Installations in or about the Premises or the Center that Lessee shall desire to make and which requires the consent of the Lessor shall be presented to Lessor in written form, with proposed detailed plans. If Lessor shall give its consent, the consent shall be deemed conditioned upon Lessee acquiring a permit to do so from appropriate governmental agencies, the furnishing of a copy thereof to Lessor prior to the commencement of the work and the compliance by Lessee of all conditions of said permit in a prompt and expeditions manner. (c) Lessee shall pay, when due, all claims for labor or materials furnished or alleged to have been furnished to or for Lessee at or for use in the Premises, which claims are or may be secured by any mechanic's or materialmen's lien against the Premises, or the Center, or any interest therein. Lessee shall give Lessor not less than ten (10) days' notice prior to the commencement of any work in the Premises, and Lessor shall have the right to post notices of non-responsibility in or on the Premises or the Building as provided by law. If Lessee shall, in good faith, contest the validity of any such lien, claim or demand, then Lessee shall, at its sole expense defend itself and Lessor against the same and shall pay and satisfy any such adverse judgment that may be rendered thereon before the enforcement thereof against the Lessor or the Premises or the Center, upon the condition that if Lessor shall require, Lessee shall furnish to Lessor a surety bond satisfactory to Lessor in an amount equal to such contested lien claim or demand indemnifying Lessor against liability for the same and holding the Premises and the Center free from the effect of such lien or claim. In addition, Lessor may require Lessee to pay Lessor's attorneys fees and costs in participating in such action if Lessor shall decide it is to Lessor's best interest to do so. (d) All alterations, improvements, additions and Utility Installations (whether or not such Utility Installations constitute trade fixtures of Lessee), which may be made on the Premises, shall be the property of Lessor and shall remain upon and be surrendered with the Premises at the expiration of the Lease term, unless Lessor requires their removal pursuant to paragraph 7.3(a). Notwithstanding the provisions of this paragraph 7.3(d), Lessee's machinery and equipment, other than that which is affixed to the Premises so that it cannot be removed without material damage to the Premises, and other than Utility Installations, shall remain the property of Lessee and may be removed by Lessee subject to the provisions of paragraph 7.2. 7.4 UTILITY ADDITIONS. Lessor reserves the right to install new or additional utility facilities throughout the Building and the Common Areas for the benefit of Lessor or Lessee, or any other lessee of the Center, including, but not by way of limitation, such utilities as plumbing, electrical systems, security systems, communication systems, and fire protection and detection systems, so long as such installations do not unreasonably interfere with Lessee's use of the Premises. INSURANCE; INDEMNITY. 8.1 LIABILITY INSURANCE - LESSEE. Lessee shall, at Lessee's expense, obtain and keep in force during the term of this Lease a policy of Combined Single Limit Bodily Injury and Property Damage insurance insuring Lessee and Lessor against any liability arising out of the use, occupancy or maintenance of the Premises and the Center. Such insurance shall be in an amount not less than $1,000,000.00 per occurrence. The policy shall insure performance by Lessee of the indemnity provisions of this paragraph 8. The limits of said insurance shall not, however, limit the liability of Lessee hereunder. The liability coverage will also include coverage for fire legal liability, with limits of at least $50,000 and are subject to increase at the discretion of the Lessor. 8.2 LIABILITY INSURANCE - LESSOR. Lessor shall obtain and keep in force during the term of this Lease a policy of Combined Single Limit Bodily Injury and Property Damage Insurance, insuring Lessor, but not Lessee, against any liability arising out of the ownership, use, occupancy or maintenance of the Center in an amount not less than $1,000,000.00 per occurrence. 8.3 PROPERTY INSURANCE. (a) Lessor shall obtain and keep in force during the term of this Lease a policy or policies of insurance covering loss or damage to the Center improvements, but not Lessee's personal property, fixtures, equipment or tenant improvements, in an amount not to exceed the full replacement value thereof, as the same may exist from time to time, providing protection against all perils included within the classification of fire, extended coverage, vandalism, malicious mischief, flood (in the event same is required by a lender having a lien on the Premises) special extended perils ( "all risk ", as such term is used in the insurance industry), plate glass insurance and such other insurance as Lessor deems advisable. In addition, Lessor shall obtain and keep in force, during the term of this Lease, a policy of rental value insurance covering a period of one year, with loss payable to Lessor, which insurance shall also cover all Operating Expenses for said period. In the event that the Premises shall suffer an insured loss as defined in paragraph 9.1 (g) hereof, the deductible amounts under the casualty insurance policies relating to the Premises shall be paid by Lessee. (b) Lessee shall obtain and keep in force during the term of this Lease a policy of insurance covering the Lessee's personal property, fixtures, equipment, and tenant improvements, for full replacement cost, for the "all risk" perils. 8.4 PAYMENT OF PREMIUM INCREASE. (a) After the term of this Lease has commenced, Lessee shall not be responsible for paying Lessee's Share of any increase in the property insurance premium for the Center specified by Lessor's insurance carrier as being caused by the use, acts or omissions of any other lessee of the Center, or by the nature of such other lessee's occupancy which create an extraordinary or unusual risk. (b) Lessee, however, shall pay the entirety of any increase in the property insurance premium for the Center over what it was immediately prior to the commencement of the term of this Lease if the increase is specified by Lessor's insurance carrier as being caused by the nature of Lessee's occupancy or any act or omission of Lessee. 8.5 INSURANCE POLICIES. Insurance required hereunder shall be in companies holding a "General Policyholders Rating" of at least B plus, or such other rating as may be required by a lender having a lien on the Premises, as set forth in the most current issue of "Best's Insurance Guide." Lessee shall not do or permit to be done anything which shall invalidate the insurance policies carried by Lessor. Lessee shall deliver to Lessor copies of liability insurance policies required under paragraph 8.1 or certificates evidencing the existence and amounts of such insurance within seven (7) days after the commencement date of this Lease. No such policy shall be cancelable or subject to reduction of coverage or other modification except after thirty (30) days prior written notice to Lessor. Lessee shall, at least thirty (30) days prior to the expiration of such policies, furnish Lessor with renewals or "binders" thereof. 8.6 WAIVER OF SUBROGATION. Lessee and Lessor each hereby release and relieve the other, and waive their entire right of recovery against the other for loss or damage arising out of or incident to the perils insured against which perils occur in, on or about the Premises, whether due to the negligence of Lessor or Lessee or their agents, employees, contractors and/or invitees. Lessee and Lessor shall, upon obtaining the policies of insurance required, give notice to the insurance carrier or carriers that the foregoing mutual waiver of subrogation is contained in this Lease. 8.7 INDEMNITY. Lessee shall indemnify and hold harmless Lessor from and against any and all claims arising from Lessee's use of the Center, or from the conduct of Lessee's business or from any activity, work or things done, permitted or suffered by Lessee in or about the Premises or elsewhere and shall further indemnify and hold harmless Lessor from and against any and all claims arising from any breach or default in the performance of any obligation on Lessee's part to be performed under the terms of this Lease, or arising from any act or omission of Lessee, or any of Lessee's agents, contractors, or employees, and from and against all costs, attorney's fees, expenses and liabilities incurred in the defense of any such claim or any action or proceeding brought thereon; and in case any action or proceeding be brought against Lessor by reason of any such claim, Lessee upon notice from Lessor shall defend the same at Lessee's expense by counsel reasonably satisfactory to Lessor and Lessor shall cooperate with Lessee in such defense. Lessee, as a material part of the consideration to Lessor, hereby assumes all risk of damage to property of Lessee or injury to persons, in, upon or about the Center arising from any cause and Lessee hereby waives all claims in respect thereof against Lessor. 8.8 EXEMPTION OF LESSOR FROM LIABILITY. Lessee hereby agrees that Lessor shall not be liable for injury to Lessee's business or any loss of income therefrom or for damage to the goods, wares, merchandise or other property of Lessee, Lessee's employees, invitees, customers, or any other person in or about the Premises or the Center, nor shall Lessor be liable for injury to the person of Lessee, Lessee's employees, agents or contractors, whether such damage or injury is caused by or results from fire, steam, electricity, gas, water or rain, or from the breakage, leakage, obstruction or other defects of pipes, sprinklers, wires, appliances, plumbing, air conditioning or lighting fixtures, or from any other cause, whether said damage or injury results from conditions arising upon the Premises or upon other portions of the Center, or from other sources or places and regardless of whether the cause of such damage or injury or the means of repairing the same is inaccessible to Lessee. Lessor shall not be liable for any damages arising from any act or neglect of any other lessee, occupant or user of the Center, nor from the failure of Lessor to enforce the provisions of any other lease of the Center. -3- 9. DAMAGE OR DESTRUCTION. 9.1 DEFINITION. (a) "Premises Partial Damage" shall mean if the Premises are damaged or destroyed to the extent that the cost of repairs is less than fifty percent of the then replacement cost of the Premises. (b) "Premises Total Destruction" shall mean if the Premises are damaged or destroyed to the extent that the cost of repair is fifty percent or more of the then replacement cost of the Premises. (c) "Premises Building Partial Damage" shall mean if the Building of which the Premises are a part is damaged or destroyed to the extent that the cost to repair is less than fifty percent of the then replacement cost of the Building. (d) "Premises Building Total Destruction" shall mean if the Building of which the Premises are a part is damaged or destroyed to the extent that the cost to repair is fifty percent or more of the then replacement cost of the Building. (e) "Center Buildings" shall mean all of the buildings on the Center site. (f) "Center Buildings Total Destruction" shall mean if the Center Buildings are damaged or destroyed to the extent that the cost of repair is fifty percent or more of the then replacement cost of the Center Buildings. (g) "Insured Loss" shall mean damage or destruction which was covered by an event required to be covered by the insurance described in paragraph 8. The fact that an Insured Loss has a deductible amount shall not make the loss an uninsured loss. (h) "Replacement Cost" shall mean the amount of money necessary to be spent in order to repair or rebuild the damaged area to the condition that existed immediately prior to the damage occurring excluding all improvements made by lessees. 9.2 PREMISES PARTIAL DAMAGE; PREMISES BUILDING PARTIAL DAMAGE. (a) Insured Loss: Subject to the provisions of paragraph 9.4 and 9.5, if at any time during the term of this Lease there is damage which is an Insured Loss and which falls into the classification of either Premises Partial Damage or Premises Building Partial Damage, then Lessor shall, at the Lessor's expense, repair such damage to the Premises, but not Lessee's fixtures, equipment or tenant improvements, as soon as reasonably possible and this Lease shall continue in full force and effect. (b) Uninsured Loss: Subject to the provisions of paragraph 9.4 and 9.5, if at any time during the term of this Lease there is damage which is not an Insured Loss and which falls within the classification of Premises Partial Damage or Premises Building Partial Damage, unless caused by a negligent or willful act of Lessee (in which event Lessee shall make the repairs at Lessee's expense), which damage prevents Lessee from using the Premises, Lessor may at Lessor's option either (i) repair such damage as soon as reasonably possible at Lessor's expense, in which event this Lease shall continue in full force and effect, or (ii) give written notice to Lessee within thirty (30) days after the date of the occurrence of such damage of Lessor's intention to cancel and terminate this Lease as of the date of the occurrence of such damage. In the event Lessor elects to give such notice of Lessor's intention to cancel and terminate this Lease, Lessee shall have the right within ten (10) days after the receipt of such notice to give written notice to Lessor of Lessee's intention to repair such damage at Lessee's expense, without reimbursement from Lessor, in which event this Lease shall continue in full force and effect, and Lessee shall proceed to make such repairs as soon as reasonably possible. If Lessee does not give such notice within such 10-day period this Lease shall be canceled and terminated as of the date of the occurrence of such damage. 9.3 PREMISES TOTAL DESTRUCTION; PREMISES BUILDING TOTAL DESTRUCTION; CENTER BUILDINGS TOTAL DESTRUCTION. (a) Subject to the provisions of paragraphs 9.4 and 9.5, if at any time during the term of this Lease there is damage, whether or not it is an Insured Loss, and which falls into the classifications of either (i) Premises Total Destruction, or (ii) Premises Building Total Destruction, or (iii) Center Buildings Total Destruction, then Lessor may at Lessor's option either (i) repair such damage or destruction, but not Lessee's fixtures, equipment or tenant improvements, as soon as reasonably possible at Lessor's expense, and this Lease shall continue in full force and effect, or (ii) give written notice to Lessee within thirty (30) days after the date of occurrence of such damage of Lessor's intention to cancel and terminate this Lease, in which case this Lease shall be canceled and terminated as of the date of the occurrence of such damage. 9.4 DAMAGE NEAR END OF TERM. (a) Subject to paragraph 9.4(b), if at any time during the last six months of the term of this Lease there is substantial damage, whether or not an Insured Loss, which falls within the classification of Premises Partial Damage, Lessor may at Lessor's option cancel and terminate this Lease as of the date of occurrence of such damage by giving written notice to Lessee of Lessor's election to do so within 30 days after the date of occurrence of such damage. (b) Notwithstanding paragraph 9.4(a), in the event that Lessee has an option to extend or renew this Lease, and the time within which said option may be exercised has not yet expired, Lessee shall exercise such option, if it is to be exercised at all, no later than twenty (20) days after the occurrence of an Insured Loss falling within the classification of Premises Partial Damage during the last six months of the term of this Lease. If Lessee duly exercises such option during said twenty (20) day period, Lessor shall, at Lessor's expense, repair such damage, but not Lessee's fixtures, equipment or tenant improvements, as soon as reasonably possible and this Lease shall continue in full force and effect. If Lessee falls to exercise such option during said twenty (20) day period, then Lessor may at Lessor's option terminate and cancel this Lease as of the expiration of said twenty (20) day period by giving written notice to Lessee of Lessor's election to do so within ten (10) days after the expiration of said twenty (20) day period, notwithstanding any term or provision in the grant of option to the contrary. 9.5 ABATEMENT OF RENT; LESSEE'S REMEDIES. (a) In the event Lessor repairs or restores the Premises pursuant to the provisions of this paragraph 9, the rent payable hereunder for the period during which such damage, repair or restoration continues shall be abated in proportion to the degree to which Lessee's use of the Premises is impaired. Except for abatement of rent, if any, Lessee shall have no claim against Lessor for any damage suffered by reason of any such damage, destruction, repair or restoration. (b) If Lessor shall be obligated to repair or restore the Premises under the provisions of this paragraph 9 and shall not commence such repair or restoration within ninety (90) days after such obligation shall accrue, Lessee may at Lessee's option cancel and terminate this Lease by giving Lessor written notice of Lessee's election to do so at any time prior to the commencement of such repair or restoration. In such event this Lease shall terminate as of the date of such notice. 9.6 TERMINATION-ADVANCE PAYMENTS. Upon termination of this Lease pursuant to this paragraph 9, an equitable adjustment shall be made concerning advance rent and any advance payments made by Lessee to Lessor. Lessor shall, in addition, return to Lessee so much of Lessee's security deposit as has not theretofore been applied by Lessor. 9.7 WAIVER. Lessor and Lessee waive the provisions of any statute which relate to termination of leases when leased property is destroyed and agree ?ILLEGIBLE? such event shall be governed by the terms of this Lease. 10. REAL PROPERTY TAXES. 10.1 PAYMENT OF TAXES. Lessor shall pay the real property tax, as defined in paragraph 10.3, applicable to the Center subject to reimbursement by Lessee of Lessee's Share of such taxes in accordance with the provisions of paragraph 4.2, except as otherwise provided in paragraph 10.2. 10.2 ADDITIONAL IMPROVEMENTS. Lessee shall not be responsible for paying Lessee's Share of any increase in real property tax specified in the tax assessor's records and work sheets as being caused by additional improvements placed upon the Center by other lessees or by Lessor for the exclusive enjoyment of such other lessees. Lessee shall, however, pay to Lessor at the time that Operating Expenses are payable under paragraph 4.2(c) the entirety of any increase in real property tax if assessed solely by reason of additional improvements placed upon the Premises by Lessee or at Lessee's request. 10.3 DEFINITION OF "REAL PROPERTY TAX." As used herein, the term "real property tax" shall include any form of real estate tax or assessment, general, special, ordinary or extraordinary, and any license fee, commercial rental tax, improvement bond or bonds, levy or tax (other than inheritance, personal income or estate taxes) imposed on the Center or any portion thereof by any authority having the direct or indirect power to tax, including any city, county, state or federal government, or any school, agricultural, sanitary, fire, street, drainage or other improvement district thereof, as against any legal or equitable interest of Lessor in the Center or in any portion thereof, as against Lessors right to rent or other income therefrom, and as against Lessor's business of leasing the Center. The term "real property tax" shall also include any tax, fee, levy, assessment or charge (i) in substitution of, partially or totally, any tax, fee, levy, assessment or charge hereinabove included within the definition of "real property tax," or (ii) the nature of which was hereinbefore included within the definition of "real property tax," or (iii) which is imposed for a service or right not charged prior to June 1, 1978, or, if previously charged, has been increased since June 1, 1978, or (iv) which is imposed as a result of a transfer, either partial or total, of Lessor's interest in the Center or which is added to a tax or charge hereinbefore included within the definition of real property tax by reason of such transfer, or (v) which is imposed by reason of this transaction, any modifications or changes hereto, or any transfers hereof. 10.4 JOINT ASSESSMENT. If the Center is not separately assessed, Lessee's Share of the real property tax liability shall be an equitable proportion of the real property taxes for all of the land and improvements included within the tax parcel assessed, such proportion to be determined by Lessor from the respective valuations assigned in the assessor's work sheets or such other information as may be reasonably available. Lessor's reasonable determination thereof, in good faith, shall be conclusive. -4- 10.5 PERSONAL PROPERTY TAXES. (a) Lessee shall pay prior to delinquency all taxes assessed against and levied upon trade fixtures, furnishings, equipment and all other personal property of Lessee contained in the Premises or elsewhere. When possible, Lessee shall cause said trade fixtures, furnishings, equipment and all other personal property to be assessed and billed separately from the real property of Lessor. (b) If any of Lessee's said personal property shall be assessed with Lessor's real property, Lessee shall pay to Lessor the taxes attributable to Lessee within ten (10) days after receipt of a written statement setting forth the taxes applicable to Lessee's property. 11. UTILITIES. Lessee shall pay for all water, gas, heat, light, power, telephone and other utilities and services supplied to the Premises, together with any taxes thereon. If any such services are not separately metered to the Premises, Lessee shall pay at Lessor's option, either Lessee's Share or a reasonable proportion to be determined by Lessor of all charges jointly metered with other premises in the Building. 12. ASSIGNMENT AND SUBLETTING. 12.1 LESSOR'S CONSENT REQUIRED. Lessee shall not voluntarily or by operation of law assign, transfer, mortgage, sublet, or otherwise transfer or encumber all or any part of Lessee's interest in the Lease or in the Premises, without Lessor's prior written consent, which Lessor shall not unreasonably withhold. Lessor shall respond to Lessee's request for consent hereunder in a timely manner and any attempted assignment, transfer, mortgage, encumbrance or subletting without such consent shall be void, and shall constitute a breach of this Lease without the need for notice to Lessee under paragraph 13.1. If Lessee shall assign or sublet the Leased Premises or request the consent of Lessor to any assignment or subletting, or if Lessee should request the consent of Lessor for any act Lessee proposes to do, then Lessee shall pay to Lessor, within thirty (30) days of receipt of a bill, all reasonable fees and costs incurred by Lessor for attorneys, accountants, service of notice or any other services in connection with said assignment or subletting or other act. 12.2 LESSEE AFFILIATE. Notwithstanding the provisions of paragraph 12.1 hereof, Lessee may assign or sublet the Premises, or any portion thereof, without Lessor's consent, to any corporation which controls, is controlled by or is under common control with Lessee, or to any corporation resulting from the merger or consolidation with Lessee, or to any person or entity which acquires all the assets of Lessee as a going concern of the business that is being conducted on the Premises, all of which are referred to as "Lessee Affiliate," provided that before such assignment shall be effective said assignee shall assume, in full, the obligations of Lessee under this Lease. Any such assignment shall not, in any way, affect or limit the liability of Lessee under the terms of this Lease even if after such assignment or subletting the terms of this Lease are materially changed or altered without the consent of Lessee, the consent of whom shall not be necessary. 12.3 TERMS AND CONDITIONS OF ASSIGNMENT. Regardless of Lessor's consent, no assignment shall release Lessee of Lessee's obligations hereunder or alter the primary liability of Lessee to pay the Base Rent and Lessee's Share of Operating Expenses, and to perform all other obligations to be performed by Lessee hereunder. Lessor may accept rent from any person other than Lessee pending approval or disapproval of such assignment. Neither a delay in the approval or disapproval of such assignment nor the acceptance of rent shall constitute a waiver or estoppel of Lessor's right to exercise its remedies for the breach of any of the terms or conditions of this paragraph 12 or this Lease. Consent to one assignment shall not be deemed consent to any subsequent assignment. In the event of default by any assignee of Lessee or any successor of Lessee, in the performance of any of the terms hereof, Lessor may proceed directly against Lessee without the necessity of exhausting remedies against said assignee. Lessor may consent to subsequent assignments of this Lease or amendments or modifications to this Lease with assignees of Lessee, without notifying Lessee, or any successor of Lessee, and without obtaining its or their consent thereto and such action shall not relieve Lessee of liability under this Lease. 12.4 TERMS AND CONDITIONS APPLICABLE TO SUBLETTING. Regardless of Lessor's consent, the following terms and conditions shall apply to any subletting by Lessee of all or any part of the Premises and shall be included in subleases: (a) Lessee hereby assigns and transfers to Lessor all of Lessee's interest in all rentals and income arising from any sublease heretofore or hereafter made by Lessee, and Lessor may collect such rent and income and apply same toward Lessee's obligations under this Lease, provided, however, that until a default shall occur in the performance of Lessee's obligations under this Lease, Lessee may receive, collect and enjoy the rents accruing under such sublease. Lessor shall not, by reason of this or any other assignment of such sublease to Lessor nor by reason of the collection of the rents from a sublessee, be deemed liable to the sublessee for any failure of Lessee to perform and comply with any of Lessee's obligations to such sublessee under such sublease. Lessee hereby irrevocably authorizes and directs any such sublessee, upon receipt of a written notice from Lessor stating that a default exists in the performance of Lessee's obligations under this Lease, to pay to Lessor the rents due and to become due under the sublease. Lessee agrees that such sublessee shall have the right to rely upon any such statement and request from Lessor, and that such sublessee shall pay such rents to Lessor without any obligation or right to inquire as to whether such default exists and notwithstanding any notice from or claim from Lessee to the contrary. Lessee shall have no right or claim against such sublessee or Lessor for any such rents so paid by said sublessee to Lessor. (b) No sublease entered into by Lessee shall be effective unless and until it has been approved in writing by Lessor. In entering into any sublease, Lessee shall use only such form of sublease as is satisfactory to Lessor, and once approved by Lessor, such sublease shall not be changed or modified without Lessor's prior written consent. Any sublessee shall, by reason of entering into a sublease under this Lease, be deemed, for the benefit of Lessor, to have assumed and agreed to conform and comply with each and every obligation herein to be performed by Lessee other than such obligations as are contrary to or inconsistent with provisions contained in a sublease to which Lessor has expressly consented in writing. (c) If Lessee's obligations under this Lease have been guaranteed by third parties, then a sublease, and Lessor's consent thereto, shall not be effective unless said guarantors give their written consent to such sublease and the terms thereof. (d) The consent by Lessor to any subletting shall not release Lessee from its obligations or alter the primary liability of Lessee to pay the rent and perform and comply with all of the obligations of Lessee to be performed under this Lease. (e) The consent by Lessor to any subletting shall not constitute a consent to any subsequent subletting by Lessee or to any assignment or subletting by the sublessee. However, Lessor may consent to subsequent sublettings and assignments of the sublease or any amendments or modifications thereto without notifying Lessee or anyone else liable on the Lease or sublease and without obtaining their consent and such action shall not relieve such persons from liability. (f) In the event of any default under this Lease, Lessor may proceed directly against Lessee, any guarantors or any one else responsible for the performance of this Lease, including the sublessee, without first exhausting Lessor's remedies against any other person or entity responsible therefor to Lessor, or any security held by Lessor or Lessee. (g) In the event Lessee shall default in the performance of its obligations under this Lease, Lessor, at its option and without any obligation to do so, may require any sublessee to attorn to Lessor, in which event Lessor shall undertake the obligations of Lessee under such sublease from the time of the exercise of said option to the termination of such sublease; provided, however, Lessor shall not be liable for any prepaid rents or security deposit paid by such sublessee to Lessee or for any other prior defaults of Lessee under such sublease. (h) Each and every consent required of Lessee under a sublease shall also require the consent of Lessor. (i) No sublessee shall further assign or sublet all or any part of the Premises without Lessor's prior written consent. (j) Lessor's written consent to any subletting of the Premises by Lessee shall not constitute an acknowledgement that no default then exists under this Lease of the obligations to be performed by Lessee nor shall such consent be deemed a waiver of any then existing default, except as may be otherwise stated by Lessor at the time. (k) With respect to any subletting to which Lessor has consented, Lessor agrees to deliver a copy of any notice of default by Lessee to the sublessee. Such sublessee shall have the right to cure a default of Lessee within ten (10) days after service of said notice of default upon such sublessee, and the sublessee shall have a right of reimbursement and offset from and against Lessee for any such defaults cured by the sublessee. 12.5 ATTORNEY'S FEES. In the event Lessee shall assign or sublet the Premises or request the consent of Lessor to any assignment or subletting or if Lessee shall request the consent of Lessor for any act Lessee proposes to do then Lessee shall pay Lessor's reasonable attorneys fees incurred in connection therewith, such attorneys fees not to exceed $350.00 for each such request. 13. DEFAULT; REMEDIES. 13.1 DEFAULT. The occurrence of any one or more of the following events shall constitute a material default of this Lease by Lessee: (a) The vacating or abandonment of the Premises by Lessee. (b) The failure by Lessee to make any payment of rent or any other payment required to be made by Lessee hereunder, as and when due, where such failure shall continue for a period of three (3) days after written notice thereof from Lessor to Lessee. In the event that Lessor serves Lessee with a Notice to Pay Rent or Quit pursuant to applicable Unlawful Detainer statutes such Notice to Pay Rent or Quit shall also constitute the notice required by this subparagraph. (c) Except as otherwise provided in this Lease, the failure by Lessee to observe or perform any of the covenants, conditions or provisions of this Lease to be observed or performed by Lessee, other than described in paragraph (b) above, where such failure shall continue for a period of thirty (30) days after written notice thereof from Lessor to Lessee; provided, however, that if the nature of Lessee's noncompliance is such that more than thirty (30) days are reasonably required for its cure, then Lessee shall not be deemed to be in default if Lessee commenced such cure within said thirty (30) day period -5- and thereafter diligently prosecutes such cure to completion. To the extent permitted by law, such thirty (30) day notice shall constitute the sole and exclusive notice required to be given to Lessee under applicable Unlawful Detainer statutes. (d) (i) The making by Lessee of any general arrangement or general assignment for the benefit of creditors; (ii) Lessee becomes a "debtor" as defined in 11 U.S.C. Section 101 or any successor statute thereto (unless, in the case of a petition filed against Lessee, the same is dismissed within sixty (60) days); (iii) the appointment of a trustee or receiver to take possession of substantially all of Lessee's assets located at the Promises or of Lessee's interest in this Lease, where possession is not restored to Lessee within thirty (30) days; or (iv) the attachment, execution or other judicial seizure of substantially all of Lessee's assets located at the Premises or of Lessee's interest in this Lease, where such seizure is not discharged within thirty (30) days. In the event that any provision of this paragraph 13.1(d) is contrary to any applicable law, such provision shall be of no force or effect. (e) The discovery by Lessor that any financial statement given to Lessor by Lessee, any assignee of Lessee, any subtenant of Lessee, any successor in interest of Lessee or any guarantor of Lessee's obligation hereunder, was materially false. 13.2 REMEDIES. In the event of any such material default by Lessee, Lessor may at any time thereafter, with or without notice or demand and without limiting Lessor in the exercise of any right or remedy which Lessor may have by reason of such default: (a) Terminate Lessee's right to possession of the Premises by any lawful means, in which case this Lease and the term hereof shall terminate and Lessee shall immediately surrender possession of the Premises to Lessor. In such event Lessor shall be entitled to recover from Lessee all damages incurred by Lessor by reason of Lessee's default including, but not limited to, the cost of recovering possession of the Premises; expenses of reletting, including necessary renovation and alteration of the Premises, reasonable attorney's fees, and any real estate commission actually paid; the worth at the time of award by the court having jurisdiction thereof of the amount by which the unpaid rent for the balance of the term after the time of such award exceeds the amount of such rental loss for the same period that Lessee proves could be reasonably avoided; that portion of the leasing commission paid by Lessor pursuant to paragraph 15 applicable to the unexpired term of this Lease. (b) Maintain Lessee's right to possession in which case this Lease shall continue in effect whether or not Lessee shall have vacated or abandoned the Premises. In such event Lessor shall be entitled to enforce all of Lessor's rights and remedies under this Lease, including the right to recover the rent as it becomes due hereunder. (c) Pursue any other remedy now or hereafter available to Lessor under the laws or judicial decisions of the state wherein the Premises are located. Unpaid installments of rent and other unpaid monetary obligations of Lessee under the terms of this Lease shall bear interest from the date due at the maximum rate then allowable by law. 13.3 DEFAULT BY LESSOR. Lessor shall not be in default unless Lessor falls to perform obligations required of Lessor within a reasonable time, but in no event later than thirty (30) days after written notice by Lessee to Lessor and to the holder of any first mortgage or deed of trust covering the Premises whose name and address shall have theretofore been furnished to Lessee in writing, specifying wherein Lessor has failed to perform such obligation, provided, however, that if the nature of Lessor's obligation is such that more than thirty (30) days are required for performance then Lessor shall not be in default if Lessor commences performance within such thirty (30) day period and thereafter diligently prosecutes the same to completion. 13.4 LATE CHARGES. Should Lessee fail to pay, when due and payable, the minimum monthly rental or any additional rental, such unpaid amounts shall bear interest at the maximum legal rate from the date the debt was incurred to the date of ultimate payment. Said interest amount shall be in addition to, and not in lieu of, any late charge assessed for the debt incurred. Late charges shall not be included in calculating interest due. In addition to such interest, ?ILLEGIBLE? stipulates that the late payment by Lessee of any monthly rental/additional rental will cause Lessor to incur certain costs and expenses not ?ILLEGIBLE? by the parties/lease hereto, the exact amount of which costs are extremely difficult to ascertain. As such, if any such installment is not received by Lessor from Lessee within five (5) days of its due date, Lessee shall forthwith pay as additional rent, a late charge of ten percent (10%) of that amount due. Lessor and Lessee agree that such late charge represents a reasonable estimate of such costs and expenses and is fair compensation to Lessor for the loss caused by Lessee's nonpayment. Payment(s) made by Lessee shall be applied by Lessor, subject to Lessor's sole discretion, first to late charges incurred, then to common area maintenance/operating expense as additional rent, and lastly to base rent. Lessor's acceptance of this late charge shall not constitute a waiver of Lessee's default with respect to nonpayment of the subject debt, nor prevent Lessor from exercising all other rights, claims, or remedies, known or unknown, available to Lessor pursuant to this lease or under California or federal law. 14. CONDEMNATION. If the Premises or any portion thereof or the Center are taken under the power of eminent domain, or sold under the threat of the exercise of said power (all of which are herein called "condemnation "), this Lease shall terminate as to the part so taken as of the date the condemning authority takes title or possession, whichever first occurs. If more than ten percent of the floor area of the Premises, or more than twenty-five percent of that portion of the Common Areas designated as parking for the Center is taken by condemnation, Lessee may, at Lessee's option, to be exercised in writing only within ten (10) days after Lessor shall have given Lessee written notice of such taking (or in the absence of such notice, within ten (10) days after the condemning authority shall have taken possession) terminate this Lease as of the date the condemning authority takes such possession. If Lessee does not terminate this Lease in accordance with the foregoing, this Lease shall remain in full force and effect as to the portion of the premises remaining, except that the rent shall be reduced in the proportion that the floor area of the Premises taken bears to the total floor area of the Premises. No reduction of rent shall occur if the only area taken is that which does not have the Premises located thereon. Any award for the taking of all or any part of the Premises under the power of eminent domain or any payment made under threat of the exercise of such power shall be the property of Lessor, whether such award shall be made as compensation for diminution in value of the leasehold or for the taking of the fee, or as severance damages; provided, however, that Lessee shall be entitled to any award for loss of or damage to Lessee's trade fixtures and removable personal property. In the event that this Lease is not terminated by reason of such condemnation, Lessor shall to the extent of severance damages received by Lessor in connection with such condemnation, repair any damage to the Premises caused by such condemnation except to the extent that Lessee has been reimbursed therefor by the condemning authority. Lessee shall pay any amount in excess of such severance damages required to complete such repair. 15. BROKER'S FEE. (a) Upon execution of this Lease by both parties, upon occupancy of the premises by Lessee, and receipt of any deposits and/or initial rental payment, Lessor shall pay to N/A Licensed real estate broker(s) a fee as set forth in a separate agreement between Lessor and said broker(s), or in the event there is no separate agreement between Lessor and said broker(s), the sum of $-0-, for brokerage services rendered by said broker(s) to Lessor in this transaction. 16. ESTOPPEL CERTIFICATE. (a) Each party (as "responding party ") shall at any time upon not less than ten (10) days' prior written notice from the other party ( "requesting party ") execute, acknowledge and deliver to the requesting party a statement in writing (i) certifying that this Lease is unmodified and in full force and effect (or, if modified, stating the nature of such modification and certifying that this Lease, as so modified, is in full force and effect) and the date to which the rent and other charges are paid in advance, if any, and (ii) acknowledging that there are not, to the responding party's knowledge, any uncured defaults on the part of the requesting party, or specifying such defaults if any are claimed. Any such statement may be conclusively relied upon by any prospective purchaser or encumbrancer of the Premises or of the business of the requesting party. (b) At the requesting party's option, the failure to deliver such statement within such time shall be a material default of this Lease by the party who is to respond, without any further notice to such party, or it shall be conclusive upon such party that (i) this Lease is in full force and effect, without modification except as may be represented by the requesting party, (ii) there are no uncured defaults in the requesting party's performance, and (iii) if Lessor is the requesting party, not more than one month's rent has been paid in advance. (c) If Lessor desires to finance, refinance, or sell the Property, or any part thereof, Lessee and all Guarantors of Lessee's performance hereunder hereby agrees to deliver to any lender or purchaser designated by Lessor such financial statements of Lessee and such Guarantors as may be reasonably required by such lender or purchaser. Such statements shall include the past three (3) years' financial statements of Lessee. All such financial statements shall be received by Lessor and such lender or purchaser in confidence and shall be used only for the purposes herein set forth. 17. LESSOR'S LIABILITY. The term "Lessor" as used herein shall mean only the owner or owners, at the time in question, of the fee title or a lessee's interest in a ground lease of the Center, and except as expressly provided in paragraph 15, in the event of any transfer of such title or interest, Lessor herein named (and in case of any subsequent transfers then the grantor) shall be relieved from and after the date of such transfer of all liability as respects Lessor's obligations thereafter to be performed, provided that any funds in the hands of Lessor or the then grantor at the time of such transfer, in which Lessee has an interest, shall be delivered to the grantee. The obligations contained in this Lease to be performed by Lessor shall, subject as aforesaid, be binding on Lessors successors and assigns, only during their respective periods of ownership. 18. SEVERABILITY. The invalidity of any provision of this Lease as determined by a court of competent jurisdiction, shall in no way affect the validity of any other provision hereof. 19. INTEREST ON PAST-DUE OBLIGATIONS. Except as expressly herein provided, any amount due to Lessor not paid when due shall bear interest at the maximum rate then allowable by law from the date due. Payment of such interest shall not excuse or cure any default by Lessee under this Lease; provided, however, that interest shall not be payable on late charges incurred by Lessee nor on any amounts upon which late charges are paid by Lessee. 20. TIME OF ESSENCE. Time is of the essence with respect to the obligations to be performed under this Lease. 21. ADDITIONAL RENT. All monetary obligations of Lessee to Lessor under the terms of this Lease, including but not limited to Lessee's Share of Operating Expenses and insurance and tax expenses payable shall be deemed to be rent. -6- 22. INCORPORATION OF PRIOR AGREEMENTS; AMENDMENTS. This Lease contains all agreements of the parties with respect to any matter mentioned herein. No ?ILLEGIBLE? contemporaneous agreement or understanding pertaining to any such matter shall be effective. This lease may be modified in writing only, signed by the parties in interest at the time of the modification. Except as otherwise stated in this Lease, Lessee hereby acknowledges that neither the real estate broker listed in paragraph 15 hereof nor any cooperating broker on this transaction nor the Lessor or any employee or agents of any of said persons has made any oral or written warranties or representations to Lessee relative to the condition or use by Lessee of the Premises or the Property and Lessee acknowledges that Lessee assumes all responsibility regarding the Occupational Safety Health Act, the legal use and adaptability of the Premises and the compliance thereof with all applicable laws and regulations in effect during the term of this Lease except as otherwise specifically stated in this Lease. 23. NOTICES. Any notice required or permitted to be given hereunder shall be in writing and may be given by personal delivery or by certified mail, and if given personally or by mail, shall be deemed sufficiently given if addressed to Lessee or to Lessor at the address noted below the signature of the respective parties, as the case may be. Either party may by notice to the other specify a different address for notice purposes except that upon Lessee's taking possession of the Premises, the Premises shall constitute Lessee's address for notice purposes. A copy of all notices required or permitted to be given to Lessor hereunder shall be concurrently transmitted to such party or parties at such addresses as Lessor may from time to time hereafter designate by notice to Lessee. 24. WAIVERS. No waiver by Lessor or any provision hereof shall be deemed a waiver of any other provision hereof or of any subsequent breach by Lessee of the same or any other provision. Lessor's consent to, or approval of, any act shall not be deemed to render unnecessary the obtaining of Lessor's consent to or approval of any subsequent act by Lessee. The acceptance of rent hereunder by Lessor shall not be a waiver of any preceding breach by Lessee of any provision hereof other than the failure of Lessee to pay the particular rent so accepted, regardless of Lessor's knowledge of such preceding breach at the time of acceptance of such rent. 25. RECORDING. Either Lessor or Lessee shall, upon request of the other, execute, acknowledge and deliver to the other a "short form" memorandum of this Lease for recording purposes. 26. HOLDING OVER. If Lessee, with Lessor's consent, remains in possession of the Premises or any part thereof after the expiration of the term hereof, such occupancy shall be a tenancy from month to month upon all the provisions of this Lease pertaining to the obligations of Lessee, but all Options, if any, granted under the terms of this Lease shall be deemed terminated and be of no further effect during said month to month tenancy. 27. CUMULATIVE REMEDIES. No remedy or election hereunder shall be deemed exclusive but shall, wherever possible, be cumulative with all other remedies at law or in equity. 28. COVENANTS AND CONDITIONS. Each provision of this Lease performable by Lessee shall be deemed both a covenant and a condition. 29. BINDING EFFECT; CHOICE OF LAW. Subject to any provisions hereof restricting assignment or subletting by Lessee and subject to the provisions of paragraph 17, this Lease shall bind the parties, their personal representatives, successors and assigns. This Lease shall be governed by the laws of the State where the Center is located and any litigation concerning this Lease between the parties hereto shall be initiated in the county in which the Center is located. 30. SUBORDINATION. (a) This Lease, and any Option granted hereby, at Lessor's option, shall be subordinate to any ground lease, mortgage, deed of trust, or any other hypothecation or security now or hereafter placed upon the Center and to any and all advances made on the security thereof and to all renewals, modifications, consolidations, replacements and extensions thereof. Notwithstanding such subordination, Lessee's right to quiet possession of the Premises shall not be ?ILLEGIBLE? if Lessee is not in default and so long as Lessee shall pay the rent and observe and perform all of the provisions of this Lease, unless this Lease is ?ILLEGIBLE? terminated pursuant to its terms. If any mortgagee, trustee or ground lessor shall elect to have this Lease and any Options granted hereby prior to the lien of its mortgage, deed of trust or ground lease, and shall give written notice thereof to Lessee, this Lease and such Options shall be deemed prior to such mortgage, deed of trust or ground lease, whether this Lease or such Options are dated prior or subsequent to the date of said mortgage, deed of trust or ground lease or the date of recording thereof. (b) Lessee agrees to execute any documents required to effectuate an attornment, a subordination or to make this Lease or any Option granted herein prior to the lien of any mortgage, deed of trust or ground lease, as the case may be. Lessee's failure to execute such documents within ten (10) days after written demand shall constitute a material default by Lessee hereunder without further notice to Lessee or, at Lessor's option, Lessor shall execute such documents on behalf of Lessee as Lessee's attorney-in-fact. Lessee does hereby make, constitute and irrevocably appoint Lessor as Lessee's attorney-in-fact and in Lessee's name, place and stead, to execute such documents in accordance with is paragraph 30(b). 31. ATTORNEY'S FEES. If either party or the broker(s) named herein bring an action to enforce the terms hereof or declare rights hereunder, the prevailing party in any such action, on trial or appeal, shall be entitled to his reasonable attorney's fees to be paid by the losing party as fixed by the court. The provisions of this paragraph shall inure to the benefit of the broker named herein who seeks to enforce a right hereunder. 32. LESSOR'S ACCESS. Lessor and Lessor's agents shall have the right to enter the Premises at reasonable times for the purposes of inspecting the same, showing the same to prospective purchasers, lenders, or lessees, and making such alterations, repairs, improvements or additions to the Premises or to the building of which they are part as Lessor may deem necessary or desirable. Lessor may at any time place on or about the Premises or the Building any ordinary "For Sale" signs and Lessor may at any time during the last 120 days of the term hereof place on or about the Premises any ordinary "For Lease" signs. All activities of Lessor pursuant to this paragraph shall be without abatement of rent, nor shall Lessor have any liability to Lessee for the same. 33. AUCTIONS. Lessee shall not conduct, nor permit to be conducted, either voluntarily or involuntarily, any auction upon the Premises or the Common Areas without first having obtained Lessor's prior written consent. Notwithstanding anything to the contrary in this Lease, Lessor shall not be obligated to exercise any standard of reasonableness in determining whether to grant such consent. 34. SIGNS. Lessee shall not place any sign upon the Premises of the Center without Lessor's prior written consent. Under no circumstances shall Lessee place a sign on any roof of the Center. 35. MERGER. The voluntary or other surrender of this Lease by Lessee, or a mutual cancellation thereof, or a termination by Lessor, shall not work a merger, and shall, at the option of Lessor, terminate all or any existing subtenancies or may, at the option of Lessor, operate as an assignment to Lessor of any or all of such subtenancies. 36. CONSENTS. Except for paragraph 33 hereof, wherever in this Lease the consent of one party is required to an act of the other party such consent shall not be unreasonably withheld or delayed. 37. GUARENTOR. In the event that there is a guarantor of this Lease, said guarantor shall have the same obligations as Lessee under this Lease. 38. QUIET POSSESSION. Upon Lessee paying the rent for the Premises and observing and performing all of the covenants, conditions and provisions on Lessee's part to be observed and performed hereunder, Lessee shall have quiet possession of the Premises for the entire term hereof subject to all of the provisions of this Lease. The individuals executing this Lease on behalf of Lessor represent and warrant to Lessee that they are fully authorized and legally ?ILLEGIBLE? of executing this Lease on behalf of Lessor and that such execution is binding upon all parties holding an ownership interest in the Property. Landlord ?ILLEGIBLE? not be liable for any damage arising from acts or neglects of co-tenants, or other occupants of the same building, or of any owners or occupants of adjacent or contiguous property. 39. OPTIONS. 39.1 DEFINITION. As used in this paragraph the word "Option" has the following meaning: (1) the right or option to extend the term of this Lease or to renew this Lease or to extend or renew any lease that Lessee has on other property of Lessor; (2) the option or right of first refusal to lease the Premises or the right of first offer to lease the Premises or the right of first refusal to lease other space within the Center or other property of Lessor or the right of first offer to lease other space within the Center or other property of Lessor; (3) the right or option to purchase the Premises or the Center, or the right of first refusal to purchase the Premises or the Center, or the right of first offer to purchase the Premises or the Center, or the right or option to purchase other property of Lessor, or the right of first refusal to purchase other property of Lessor or the right of first offer to purchase other property of Lessor. 39.2 OPTIONS PERSONAL. Each Option granted to Lessee in this Lease is personal to the original Lessee and may be exercised only by the original Lessee while occupying the Premises who does so without the intent of thereafter assigning this Lease or subletting the Premises or any portion thereof, and may not be exercised or be assigned, voluntarily or involuntarily, by or to any person or entity other than Lessee, provided, however, that an Option may be exercised by or assigned to any Lessee Affiliate as defined in paragraph 12.2 of this Lease. The Options, if any, herein granted to Lessee are not assignable separate and apart from this Lease, nor may any Option be separated from this Lease in any manner, either by reservation or otherwise. 39.3 MULTIPLE OPTIONS. In the event that Lessee has any multiple options to extend or renew this Lease a later option cannot be exercised unless the prior option to extend or renew this Lease has been so exercised. 39.4 EFFECT OF DEFAULT ON OPTIONS. (a) Lessee shall have no right to exercise an Option, notwithstanding any provision in the grant of Option to the contrary, (i) during the time commencing from the date Lessor gives to Lessee a notice of default pursuant to paragraph 13.1 (b) or 13.1 (c) and continuing until the noncompliance alleged in said notice of default is cured, or (ii) during the period of time commencing on the date after a monetary obligation to Lessor is due from Lessee and unpaid (without necessity for notice thereof to Lessee) and continuing until the obligation is paid, or (iii) at any time after an event of default described in paragraphs 13.1(a), 13.1(d), or 13.1(e) (without any necessity of Lessor to give notice of such default to Lessee), nor (iv) in the event that Lessor has given to Lessee three or more notices of default under paragraph 13.1(b), or paragraph 13.1(c), whether or not the defaults are cured, during the 12 month period of time immediately prior to the time that Lessee attempts to exercise the subject Option. -7- (b) The period of time within which an Option may be exercised shall not be extended or enlarged by reason of Lessee's inability to exercise ?ILLEGIBLE? because of the provisions of paragraph 39.4(a). (c) All rights of Lessee under the provisions of an Option shall terminate and be of no further force or effect, notwithstanding Lessee's due and timely exercise of the Option, if, after such exercise and during the term of this Lease, (i) Lessee fails to pay to Lessor a monetary obligation of Lessee for a period of thirty (30) days after such obligation becomes due (without any necessity of Lessor to give notice thereof to Lessee), or (ii) Lessee fails to commence to cure a default specified in paragraph 13.1(c) within thirty (30) days after the date that Lessor gives notice to Lessee of such default and/or Lessee fails thereafter to diligently prosecute said cure to completion, or (iii) Lessee commits a default described in paragraph 13.1(a), 13.1(d) or 13.1(e) (without any necessity of Lessor to give notice of such default to Lessee), or (iv) Lessor gives to Lessee three or more notices of default under paragraph 13.1(b), or paragraph 13.1(c), whether or not the defaults are cured. 40. SECURITY MEASURES. Lessee hereby acknowledges that Lessor shall have no obligation whatsoever to provide guard service or other security measures for the benefit of the Premises or the Center. Lessee assumes all responsibility for the protection of Lessee, its agents, and invitees and the property of Lessee and of Lessee's agents and invitees from acts of third parties. Nothing herein contained shall prevent Lessor, at Lessor's sole option, from providing security protection for the Industrial Center or any part thereof, in which event the cost thereof shall be included within the definition of Operating Expenses, as set forth in paragraph 4.2(b). 41. EASEMENTS. Lessor reserves to itself the right, from time to time to grant such easements, rights and dedications that Lessor deems necessary or desirable, and to cause the recordation of Parcel Maps and restrictions, so long as such easements, rights, dedications, Maps and restrictions do not unreasonably interfere with the use of the Premises by Lessee. Lessee shall sign any of the aforementioned documents upon request of Lessor and failure to do so shall constitute a material default of this Lease by Lessee without the need for further notice to Lessee. 42. PERFORMANCE UNDER PROTEST. If at any time a dispute shall arise as to any amount or sum of money to be paid by one party to the other under the provisions hereof, the party against whom the obligation to pay the money is asserted shall have the right to make payment "under protest" and such payment shall not be regarded as a voluntary payment, and there shall survive the right on the part of said party to institute suit for recovery of such sum. If it shall be adjudged that there was no legal obligation on the part of said party to pay such sum or any part thereof, said party shall be entitled to recover such sum or so much thereof as it was not legally required to pay under the provisions of this Lease. 43. AUTHORITY. If Lessee is a corporation, trust, or general or limited partnership, each individual executing this Lease on behalf of such entity represents and warrants that he or she is duly authorized to execute and deliver this Lease on behalf of said entity. If Lessee is a corporation, trust or partnership, Lessee shall, within thirty (30) days after execution of this Lease, deliver to Lessor evidence of such authority satisfactory to Lessor. 44. CONFLICT. Any conflict between the printed provisions of this Lease and the typewritten or handwritten provisions, if any, shall be controlled by the typewritten or handwritten provisions. 45. OFFER. Preparation of this Lease by Lessor or Lessor's agent and submission of same to Lessee shall not be deemed an offer to lease. This Lease shall become binding upon Lessor and Lessee only when fully executed by Lessor and Lessee. 46. ADDENDUM. Attached hereto is an addendum or addenda containing paragraphs 47 through 51 which constitute a part of this Lease. 47. PARKING. Lessee is allowed 2.5 cars per 1,000 square feet Lessee has leased. Your 2.5 cars per 1,000 square feet should be used for executive ?ILLEGIBLE? and customers only. All employees must park on City streets. Please note below license numbers of management. Please notify landlord of any change in management parking. A.___________ B.____________ C.____________ D._____________ E.___________ The following Exhibits are hereby attached and made part of this lease agreement: Exhibit "A" Estimated Budget Exhibit "B" Guarantee of Lease Exhibit "C" Rules and Regulations Exhibit "D" Site Plan Exhibit "E" Floor Plan LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND PROVISION CONTAINED HEREIN AND, BY EXECUTION OF THIS LEASE, SHOW THEIR INFORMED AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE TIME THIS LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE AND EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO THE PREMISES. LESSOR LESSEE FOUR AMIGOS, A CA. LTD. MISSION VALLEY CHRISTIAN FELLOWSHIP OF SAN DIEGO, A CALIFORNIA NON- PROFIT RELIGIOUS CORPORATION By [ILLEGIBLE] By [ILLEGIBLE] ---------------------------- -------------------------------- By ____________________________ By ________________________________ Executed on 1-19-96 Executed on 12-5-95 (Corporate Seal) (Corporate Seal) ADDRESS FOR NOTICES AND RENT ADDRESS 4607 MISSION GORGE PLACE 4562-M ALVARADO CANYON ROAD SAN DIEGO, CALIFORNIA 92120 SAN DIEGO, CALIFORNIA 92120 MULTI TENANT--MODIFIED NET INITIALS [ILLEGIBLE] ----------- LAST REVISED 4/12/94 [ILLEGIBLE] ----------- -8- A D D E N D U M TO STANDARD INDUSTRIAL LEASE DATED NOVEMBER 17, 1995 BY AND BETWEEN FOUR AMIGOS, A CA. LTD. AND MISSION VALLEY CHRISTIAN FELLOWSHIP OF SAN DIEGO, A CALIFORNIA NON-PROFIT RELIGIOUS CORPORATION 48 E N V I R O N M E N T A L M A T T E R S 48.1 NO USE OF HAZARDOUS MATERIALS. Lessee agrees that Lessee shall not keep, use, generate, store, release, threaten release or dispose of any Hazardous Materials (as defined below) on or about the Premises without the prior express written consent of Lessor, which consent may be withheld by Lessor in its sole and absolute discretion. Lessee represents that the presence of Hazardous Materials on the Premises is not necessary to the conduct of its business or its use of the Premises and Lessee acknowledges that it is probable that Lessor will withhold its consent to any requested use of Hazardous Materials on the Premises. For purposes of this provision, "Hazardous Materials" shall include all oil, flammable explosives, asbestos, urea formaldehyde, radioactive materials or waste, or other hazardous, toxic, contaminated, or polluting materials, substances or wastes, including, without limitation, substances defined as "hazardous substances', 'hazardous materials', 'hazardous wastes', or 'toxic substances' under any laws ordinances or regulations heretofore or hereafter enacted or adopted. 48.2 COMPLIANCE WITH ENVIRONMENTAL LAWS. If Lessor consents in writing to the presence, use, generation, storage, release or disposition of Hazardous Materials (collectively, "Use of Hazardous Materials:) on or about the Premises, then Lessee shall conduct such Use of Hazardous Materials subject to, and in full compliance with, all local, state, federal and other laws and regulations governing the Use of Hazardous Materials. Lessee shall, at its own expense, procure, maintain in effect and comply with, all conditions of any and all permits, licenses and other governmental and regulatory approvals required for Lessee's use of the Premises, including without limitation, discharge of appropriately treated materials or wastes. Lessee shall cause any known Hazardous Materials located on or about the Premises to be removed and transported from the Premises solely by duly licensed haulers to duly licensed facilities for final disposal of such materials and wastes. Lessee shall in all respects handle, treat, deal with and manage any and all Hazardous Materials in, on, under or about the Premises in total conformity with all applicable laws and regulations governing the Use of Hazardous Materials and prudent industrial practices regarding management of such Hazardous Materials. Upon regarding management of such Hazardous Materials. Upon expiration or earlier termination of the term of this Lease, Lessee shall cause all Hazardous Materials to be removed from the Premises and transported for use, storage or disposal in accordance and compliance with all applicable laws and regulations governing the Use of Hazardous Materials. 48.3 NOTICES. Lessee shall immediately notify Lessor in writing of: (i) any enforcement, clean-up, removal or other governmental or regulatory actions instituted, completed or threatened pursuant to any laws or regulations governing the use of Hazardous Materials; (ii) any claim made or threatened against Lessee or the Premises relating to damage, contribution, cost recovery, compensation, loss or injury resulting from or claimed to result from any hazardous materials; and (iii) any reports made to any environmental agency arising out of or in connection with any Hazardous Materials in or removed from the Premises, including any complaints, notices, warnings or asserted violations in connection therewith. Lessee shall also supply to Lessor as promptly as possible, and in any event within five (5) business days after Lessee first receives or sends the same, with copies of all claims, reports, complaints, notices, warnings or asserted violations relating in any way to the Premises or Lessee's use thereof. Lessee shall promptly deliver to Lessor copies of hazardous waste manifests reflecting the legal and proper disposal of all Hazardous Materials removed from the Premises. Initials: [ILLEGIBLE] ----------- 48.4 INDEMNIFICATION. Lessee hereby agrees to indemnify, defend and hold harmless Lessor, its trustees, officers, employees and agents, and the beneficiary or mortgagee under any deed of trust or mortgage now or hereafter encumbering all or any portion of the Premise, from and against any and all suits, actions, legal or administrative proceedings, claims, demands, damages, fines, punitive damages, losses, costs, liabilities, interest, attorneys' fees (including any such fees and expenses incurred in enforcing this indemnity), resulting from or relating to, directly or indirectly, the Use of Hazardous Materials on or about the Premises. The indemnity set forth herein shall include, without limitation, the cost of any required or necessary repair, clean-up or detoxification of the Premises and the surrounding property and shall survive the expiration or earlier termination of the term of this Lease. 48.5 ADDITIONAL INSURANCE OR FINANCIAL CAPACITY. If at any time it reasonably appears to Lessor that Lessee is not maintaining sufficient insurance or other means of financial capacity to enable Lessee to fulfill its obligation to Lessor hereunder, whether or not then accrued, liquidated, conditional or contingent, Lessee shall procure and thereafter maintain in full force and effect such insurance or other form of financial assurance, with or from companies or persons and in forms reasonably acceptable to Lessor as Lessor may from time to time reasonably request. BY: MISSION VALLEY CHRISTIAN FELLOWSHIP OF SAN DIEGO, A CALIFORNIA NON-PROFIT RELIGIOUS CORPORATION /s/ [ILLEGIBLE] -------------------------- Lessee 12-5-95 -------------------------- Date A D D E N D U M TO STANDARD INDUSTRIAL LEASE DATED NOVEMBER 17, 1995 BY AND BETWEEN FOUR AMIGOS, A CA. LTD. AND MISSION VALLEY CHRISTIAN FELLOWSHIP OF SAN DIEGO, A CALIFORNIA NON-PROFIT RELIGIOUS CORPORATION 49 P R O P E R T Y T A X E S The estimated budget for Property Taxes is attached hereto and made a part hereof. Lessee agrees Property Taxes are to be paid concurrently with rental payment due and payable on the first day of each month. 50 M A I N T E N A N C E F E E S The established budget for maintenance cost is attached hereto and made a part hereof. Lessee agrees maintenance fees are to be paid concurrently with rental payment due and payable on the first day of each month. 51 B A S E M O N T H L Y R E N T S C H E D U L E Lessor and Lessee agree to the following base monthly rent schedule for the premises: December 1995 - February 1996: $1,069.98 plus Lessee's pro rata share of the operating expenses (estimated to be $273.12) March 1996 - February 1997: $1,123.60 plus Lessee's pro rat share of operating expenses March 1997 - December 2000: $1,300.76 with fixed four percent (4%) annual increases plus Lessee's pro rata share of operating expenses (currently running at $273.12 per month). BY: FOUR AMIGOS, A CA. LTD. BY: MISSION VALLEY CHRISTIAN FELLOWSHIP OF SAN DIEGO, A CALIFORNIA NON-PROFIT RELIGIOUS CORPORATION /s/ [ILLEGIBLE] /s/ [ILLEGIBLE] - -------------------------- ------------------------------ Lessor Lessee 1-19-96 12-5-95 - -------------------------- ------------------------------ Date Date EXHIBIT A FOUR AMIGOS MISSION VALLEY BUSINESS CENTER 1995 ESTIMATED BUDGET
MONTHLY YEARLY 1. Property Management Fee $ 732.42 $ 8,789.00 2. Maintenance 1,377.08 16,525.00 3. Landscaping 548.33 6,580.00 4. Security 228.00 2,736.00 5. Insurance 500.17 6,002.00 6. Gas & Electric 211.50 2,538.00 7. Water 531.08 6,373.00 8. Sweeping -0- -0- 9. Window Washing 116.67 1,400.00 10. Trash 545.00 6,540.00 11. Alarm Telephone -0- -0- 12. Reserve 400.00 4,800.00 13. Legal -0- -0- 14. Audit -0- -0- 15. Property Taxes 2,866.33 34,396.00 16. Association Dues -0- -0- 17. Franchise Tax 0.00 0.00 --------- ---------- TOTAL: $8,056.58 $96,679.00 ========= ==========
Tenant Building Area - 2,098 Square Feet = 3.39% Total Building Area - 61,940 $8,056.58 x 3.39% = $ Monthly Maintenance & Tax Costs BY: FOUR AMIGOS BY: MISSION VALLEY CHRISTIAN FELLOWSHIP OF SAN DIEGO, A CALIFORNIA NON-PROFIT RELIGIOUS CORPORATION /s/ [ILLEGIBLE] /s/ [ILLEGIBLE] - --------------------- ------------------------------ Lessor Lessee 1/19/96 12-5-95 - --------------------- ------------------------------ Date Date EXHIBIT B GUARANTEE OF LEASE WHEREAS as a certain Lease of even date herewith has been, or will be, executed by and between FOUR AMIGOS, A CA. LTD., therein referred to as "Lessor", and MISSION VALLEY CHRISTIAN FELLOWSHIP OF SAN DIEGO, A CALIFORNIA NON-PROFIT RELIGIOUS CORPORATION, therein and herein referred to as "Tenant", covering certain premises in the City of SAN DIEGO, County of SAN DIEGO, State of CALIFORNIA. WHEREAS, the Lessor under said Lease requires as a condition to its execution of said Lease that the undersigned Guarantor guarantee the full performance of the obligations of Tenant under said Lease; and WHEREAS, Guarantor is desirous that Lessor enter into said Lease with Tenant. NOW, THEREFORE, in consideration of the execution of said Lease by Lessor, Guarantor hereby unconditionally guarantees the full performance of each and all of the terms, covenants, and conditions of said Lease to be kept and performed by Tenant, including the payment of all rentals and other charges to accrue thereunder. Guarantor further agrees as follows: 1.0 PERFORMANCE OF OBLIGATIONS UNDER THE LEASE: (a) PERFORMANCE: In the case Tenant shall fail to perform any agreement or comply with any condition contained in the Lease and required to be performed or complied with by it, Guarantor, whether or not such failure constitutes a default under the Lease, will perform or comply with the same before any grace period for remedying the same has expired. Guarantor will pay all costs and expenses (including without limitation, attorneys' fees and expenses) in connection with the enforcement of the obligations of Tenant and in connection with the enforcement of Guarantor's obligations under this Agreement. (b) RENT: Without limiting the generality of subsection (a), and without being limited thereby, Guarantor unconditionally guarantees that Tenant will duly and punctually pay all fixed Rent (as defined in the Lease), and additional rent (Fixed Rent and additional rent being hereinafter collectively called "Rent"), damages (whether provided for in the Lease or otherwise allowed by law) and all other sums payable by Tenant under the Lease. Such guarantee is an absolute, unconditional, continuing guarantee of payment and not of collectibility, and is in no way conditioned upon any attempt to collect from Tenant or upon any other event or contingency. If Tenant shall fail duly and punctually to pay any such sum, Guarantor will forthwith pay the same, together with interest thereon at the rates and under the conditions contained in the Lease. 2.0 PAYMENTS IN LIEU OF RENT: In the event of any bankruptcy, insolvency, reorganization, arrangement, readjustment, composition, liquidation or similar proceeding with respect to tenancy in which the Lease shall be terminated or rejected or the obligations of Tenant shall be modified, Guarantor will pay an amount equal to the Rent which would have been payable by it pursuant to the Lease, accrued to the date of such termination, rejection or modification and shall thereafter pay an amount equal to the Rent which would have been payable by it pursuant to the Lease on the days when the same would have been due except for such termination, rejection or modification. 3.0 OBLIGATIONS OF GUARANTOR: The obligations of Guarantor hereunder shall be absolute and unconditional, shall not be subject to any counterclaim, setoff, deduction or defense based upon any claim Guarantor may have against Tenant or Lessor, and shall remain in full force and effect without regard to, and shall not be released, discharged, or in any way affected by any circumstance or condition (whether or not Guarantor shall have any knowledge or notice thereof), including without limitation: (a) any amendment or modification of or supplement to the Lease; (b) any waiver, consent, extension, indulgence or other action or inaction under or in respect of the Lease, or any exercise or non-exercise of any right, remedy, power or privilege under or in respect of the Lease; (c) any bankruptcy, insolvency, reorganization, arrangement, readjustment, composition, liquidation or similar proceeding with respect to Tenant; or (d) any limitation on the liability of Tenant under the Lease or any invalidly or unenforceability, in whole or in part of the Lease or any term thereof. EXHIBIT B GUARANTEE OF LEASE WHEREAS as a certain Lease of even date herewith has been, or will be, executed by and between CASTER FAMILY TRUST, therein referred to as "Lessor", and MISSION VALLEY CHRISTIAN FELLOWSHIP OF SAN DIEGO, A CALIFORNIA NON-PROFIT RELIGIOUS CORPORATION, therein and herein referred to as "Tenant", covering certain premises in the City of SAN DIEGO, County of SAN DIEGO, State of CALIFORNIA. WHEREAS, the Lessor under said Lease requires as a condition to its execution of said Lease that the undersigned Guarantor guarantee the full performance of the obligations of Tenant under said Lease; and WHEREAS, Guarantor is desirous that Lessor enter into said Lease with Tenant. NOW, THEREFORE, in consideration of the execution of said Lease by Lessor, Guarantor hereby unconditionally guarantees the full performance of each and all of the terms, covenants, and conditions of said Lease to be kept and performed by Tenant, including the payment of all rentals and other charges to accrue thereunder. Guarantor further agrees as follows: 1.0 PERFORMANCE OF OBLIGATIONS UNDER THE LEASE: (a) PERFORMANCE: In the case Tenant shall fail to perform any agreement or comply with any condition contained in the Lease and required to be performed or complied with by it, Guarantor, whether or not such failure constitutes a default under the Lease, will perform or comply with the same before any grace period for remedying the same has expired. Guarantor will pay all costs and expenses (including without limitation, attorneys' fees and expenses) in connection with the enforcement of the obligations of Tenant and in connection with the enforcement of Guarantor's obligations under this Agreement. (b) RENT: Without limiting the generality of subsection (a), and without being limited thereby, Guarantor unconditionally guarantees that Tenant will duly and punctually pay all fixed Rent (as defined in the Lease), and additional rent (Fixed Rent and additional rent being hereinafter collectively called "Rent"), damages (whether provided for in the Lease or otherwise allowed by law) and all other sums payable by Tenant under the Lease. Such guarantee is an absolute, unconditional, continuing guarantee of payment and not of collectibility, and is in no way conditioned upon any attempt to collect from Tenant or upon any other event or contingency. If Tenant shall fail duly and punctually to pay any such sum, Guarantor will forthwith pay the same, together with interest thereon at the rates and under the conditions contained in the Lease. 2.0 PAYMENTS IN LIEU OF RENT: In the event of any bankruptcy, insolvency, reorganization, arrangement, readjustment, composition, liquidation or similar proceeding with respect to tenancy in which the Lease shall be terminated or rejected or the obligations of Tenant shall be modified, Guarantor will pay an amount equal to the Rent which would have been payable by it pursuant to the Lease, accrued to the date of such termination, rejection or modification and shall thereafter pay an amount equal to the Rent which would have been payable by it pursuant to the Lease on the days when the same would have been due except for such termination, rejection or modification. 3.0 OBLIGATIONS OF GUARANTOR: The obligations of Guarantor hereunder shall be absolute and unconditional, shall not be subject to any counterclaim, setoff, deduction or defense based upon any claim Guarantor may have against Tenant or Lessor, and shall remain in full force and effect without regard to, and shall not be released, discharged, or in any way affected by any circumstance or condition (whether or not Guarantor shall have any knowledge or notice thereof), including without limitation: (a) any amendment or modification of or supplement to the Lease; (b) any waiver, consent, extension, indulgence or other action or inaction under or in respect of the Lease, or any exercise or non-exercise of any right, remedy, power or privilege under or in respect of the Lease; (c) any bankruptcy, insolvency, reorganization, arrangement, readjustment, composition, liquidation or similar proceeding with respect to Tenant; or (d) any limitation on the liability of Tenant under the Lease or any invalidly or unenforceability, in whole or in part of the Lease or any term thereof. 4.0 WAIVERS: Guarantor unconditionally waives (a) notice of any of the matters referred to in Section 3.0(b) all notices which may be required by statute, rule of law or otherwise to preserve or assert any rights against Guarantor hereunder, including, without limitation, any demand, proof or notice of nonpayment of any Rent, damages or other sums payable under this Lease, and notice of any failure on the part of Tenant to perform or comply with any term or condition of the Lease, (c) any right to the enforcement, assertion or exercise of any right, remedy, power or privilege under or in respect of the Lease, (d) any requirement of diligence, (e) any requirement to mitigate, by eviction of Tenant and the reletting of the Premises or otherwise, the damages resulting from a default by Tenant under the Lease, and (f) any right to a trial by jury in any action or proceeding hereunder or under the Lease. 5.0 WAIVER OF RIGHT TO REQUIRE LESSOR TO PROCEED AGAINST TENANT FIRST: Guarantor waives any right to require Lessor to (a) proceed against Tenant, its successor, assignee or subtenant; (b) proceed against or exhaust any security held from Tenant, its successor, assignee or subtenant; or (c) pursue any other remedy in Lessor's power whatsoever. Guarantor waives any defense arising by reason of any disability or other defense of Tenant or by reason of the cessation from any cause whatsoever of the liability of the Tenant. Until all indebtedness or other obligations of Tenant to Lessor shall have been paid in full, Guarantor shall ave no right to subrogation, and waives any right to enforce any remedy which Lessor now has or may hereafter have against Tenant, and waives any benefit or, and any right to participate in any security now or hereafter held by Lessor. Guarantor waives all presentments, demands for performance, notices of non-performance, protests, notices of protest, notices dishonor, notice of sales, and notices of acceptance of this Guarantee and of the existence, creation, or incurring of new or additional indebtedness. 6.0 SUBORDINATION OF TENANT'S DEBTS TO GUARANTOR. Guarantor agrees that the indebtedness of Tenant to Lessor, whether now existing or hereafter created, shall be prior to any claim that Guarantor may now have or hereafter acquire against Tenant, whether or not Tenant becomes insolvent. Guarantor hereby expressly subordinates any claim Guarantor may have against Tenant, upon any account whatsoever, to any claim that Lessor may now or hereafter have against Tenant. In the event of insolvency and consequent liquidation of the assets of Tenant, through bankruptcy, by an assignment for the benefit of creditors, by voluntary liquidation, or otherwise, the assets of Tenant applicable to the payment of the claims of both Lessor and Guarantor shall be paid to Lessor and shall be first applied by Lessor to the indebtedness of Tenant to Lessor. Guarantor does hereby assign to Lessor all claims which it may have or acquire against Tenant or any assignee or trustee in bankruptcy of Tenant; provided, that such assignment shall be effective only for the purpose of assuring to Lessor full payment of all indebtedness of Tenant to Lessor. 7.0 GUARANTOR'S UNDERSTANDING WITH RESPECT TO WAIVERS: Guarantor warrants and agrees that each of the waivers set forth above is made with Guarantor's full knowledge of its significance and consequences, and that under the circumstances, the waivers are reasonable and not contrary to public policy or law. If any of such waivers is determined to be contrary to any applicable law or public policy, such waiver shall be effective only to the extent permitted by law. 8.0 WAIVER OF AUTHENTICATION OF VALIDITY OF ACTS OF CORPORATION OR PARTNERSHIP: If Tenant or Guarantor are corporations or partnerships, it is not necessary for Lessor to inquire into the powers of borrower or Guarantor or the officers, directors, partners, or agents acting or purporting to act on their behalf, and any indebtedness made or created in reliance upon the professed exercise of such powers shall be guaranteed hereunder. 9.0 OBLIGATIONS OF MARRIED PERSONS: Any married person who signs this Guaranty as the Guarantor hereby expressly agrees that recourse may be had against his or her separate property for all his or her obligations under this Guaranty. 10.0 JOINT AND SEVERAL LIABILITY OF GUARANTORS: This Agreement shall be binding upon Guarantor, and if more than one Guarantor, each of them jointly and severally, its successors and assignees, and shall inure to the benefit of and be enforceable by Lessor, and any holder of a mortgage on such Premises or any assignee under an assignment of Lessor's interest in the Lease given as security for any such mortgage, and their respective successors and assignees. 11.0 APPLICATION OF SINGULAR AND PLURAL IN CONTEXT AND CONSTRUCTION. In all cases where there are more than Guarantor, then all words used herein in the singular shall be deemed to have been used in the plural where the context and construction so require; and where Guaranty is executed by more than one Guarantor, the word "Guarantor" shall mean all and any one or more of them. 12.0 CALIFORNIA LAWS APPLICABLE: This Guaranty is governed by and construed in accordance with the laws of the state of California. 13.0 AMENDMENTS MUST BE IN WRITING: Neither this Agreement nor any term hereof may be amended, waived, discharged or terminated orally, but only by an instrument in writing signed by the party against which such amendment, waiver, discharge or termination is sought to be charged. 14.0 INTEGRATED DOCUMENT: This writing is intended by the parties to be an integrated and final expression of the guarantee agreement and also is intended to be a complete and exclusive statement of the terms of that agreement. No course of prior dealing between the parties, no usage of trade, and no parol or extrinsic evidence of any nature shall be used to supplement, modify or vary any of the terms hereof. There are no conditions to the full effectiveness of this guarantee agreement. This Agreement may be executed in several counterparts, each of which shall be an original, but all of which together shall constitute one instrument. IN WITNESS WHEREOF, the undersigned Guarantor has caused this Guarantee to be executed as of the date of said Lease which is dated NOVEMBER 17, 1995. /s/ Jack Forness ----------------------------------- Guarantor 12-5-95 ----------------------------------- Date Jack Forness ----------------------------------- Please Print Name EXHIBIT C MISSION VALLEY BUSINESS CENTER RULES & REGULATIONS A. TENANT AGREES AS FOLLOWS: 1. All loading and unloading of goods shall be done only at such times, in the areas and through the entrances designated for such purposes by Landlord. 2. The delivery or shipping of merchandise, supplies and fixtures to and from leased premises shall be subject to such rules and regulations as in the judgment of Landlord are necessary for the proper operation of the leased premises or shopping center. 3. All garbage and refuse shall be kept in the kind of container specified by Landlord and shall be placed outside of the premises, prepared for collection in the manner and at the times and places specified by Landlord. If Landlord shall provide or designate a service for picking up refuse and garbage, Tenant shall use same at Tenant's cost. Tenant shall pay the cost of removal of any of Tenant's refuse or rubbish. 4. No radio or television or other similar device shall be installed without first obtaining in each instance Landlord's consent in writing. No aerial shall be erected on the roof or exterior walls of the premises, or on the grounds, without in each instance the written consent of the Landlord. Any aerial so installed without such written consent shall be subject to removal without notice at any time. 5. No loud speakers, televisions, phonographs, radios or other devices shall be used in a manner so as to be heard or seen outside of the premises without the prior written consent of Landlord. 6. The outside areas immediately adjoining the premises shall be kept clean and free from dirt and rubbish by Tenant to the satisfaction of Landlord, and Tenant shall not place or permit any obstructions or merchandise in such areas. 7. Tenant and Tenant's employees shall park their cars only in those portions of the parking area designated for that purpose by Landlord. Tenant shall furnish Landlord with State automobile license numbers assigned to Tenant's car or cars and cars of Tenant's employee, within five days after taking possession of the premises and shall thereafter notify Landlord of any changes within five days after such changes occur. In the event Tenant or its employees fail to park their cars in designated parking areas as aforesaid, then Landlord at its option shall charge Tenant $50.00 per day per car parked in any area other than those designated, as and for liquidated damages. 8. The plumbing facilities shall not be used for any other purpose than that for which they are constructed, and no foreign substance of any kind shall be thrown therein, and the expense of any breakage, stoppage, or damage resulting from a violation of this provision shall be borne by Tenant, who shall, or whose employees, agents or invitees shall have caused it. 9. Tenant shall use at Tenant's cost such pest extermination contractor as Landlord may direct and at such intervals as Landlord may require. 10. Tenant shall not burn any trash or garbage of any kind in or about the leased premises, the shopping center, or within one mile of the outside property line of the shopping center. MISSION VALLEY BUSINESS CENTER RULES & REGULATIONS (continued) 11. All public entrances and exits to the leased premises shall be kept unobstructed and open to the public at all times during normal business hours. 12. Tenant shall not cause or permit any obnoxious or foul odors that disturb the public or other tenants. Should such odors be evident, Tenant shall be required to take immediate steps to remedy same upon written notice from Landlord. 13. All signs will be uniform in material, shape, design, color and lettering. 14. All employees except the Manager will park in off-site parking areas. Parking lot will be for customers only. Vehicles may not be left in parking lot area for longer than a 24 hour period. 15. The outside areas immediately adjoining the premises shall be kept clean and free from dirt and rubbish by Tenant to the satisfaction of the Owner, and Tenant shall not place or permit any obstruction or merchandise in such areas. 16. Lessee shall not fasten or cause to be fastened, any machinery to any party wall or ceiling that will be a nuisance or shall tend to disturb neighbors. B. Tenant agrees to comply with all such rules and regulations. C. Owner reserves the right from time to time to amend or supplement the foregoing rules and regulations, and to adopt and promulgate additional rules and regulations applicable to the leased premises. Reasonable notice of such rules and regulations and amendments and supplements thereto, if any, shall be given to the Tenant. BY: MISSION VALLEY CHRISTIAN FELLOWSHIP OF SAN DIEGO, A CALIFORNIA NON-PROFIT RELIGIOUS CORPORATION [ILLEGIBLE] ---------------------------------------------- Lessee 12-5-95 ---------------------------------------------- Date EXHIBIT D [MAP OF BUILDING 3] [MAP OF BUILDING 2] [MAP OF BUILDING 1] ADDENDUM TO ASSIGNMENT OF LEASE (4562-M Alvarado Canyon Road, San Diego, California) THIS ADDENDUM TO ASSIGNMENT OF LEASE (this "Addendum") is dated as of April___, 2000 (the "Effective Date"), and is made by MISSION VALLEY CHRISTIAN FELLOWSHIP OF SAN DIEGO, a California non-profit religious organization ("Assignor") for the benefit of RED ENVELOPE, INC. ("Assignee"). A. WHEREAS, pursuant to that certain Assignment of Lease, dated April 18, 2000, and that certain Acceptance of Assignment of Lease of unknown date, Assignor is assigning and Assignee is assuming all of Assignor's interest in that certain Lease (the "Lease"), dated November 17, 1995, by and between Assignor, as tenant, and Four Amigos, a Ca. Ltd., as landlord ("Landlord"), for certain premises located in the County of San Diego, State of California, as more particularly described in the Lease (the "Premises"). NOW, THEREFORE, for good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the undersigned hereby agrees as follows: 1. Assignor's Representations. a. Assignor is the Tenant under the Lease, a true and complete copy of which is attached hereto as Exhibit "A" and made a part hereof. b. The Lease embodies the entire agreement and understanding between the parties thereto with respect to the Premises and the Lease is in full force and effect and has not been amended, modified, supplemented or superseded, except as shown in Exhibit "A", nor has Assignor's interest in the Lease and/or the Premises previously been assigned, sublet or otherwise transferred, nor has Assignor entered into any agreement to expand the Premises, extend the term of the Lease or terminate the Lease, except as shown in Exhibit "A". c. The termination date of the present term of the Lease is December 31, 2003. d. All rent, taxes and other charges recited in the Lease have been paid to the extent the same were payable prior to the Effective Date and no such rent or other charges have been prepaid. e. As of the Effective Date, there is no defense, offset, claim or counterclaim by or in favor of Assignor against the obligations of Assignor under the Lease or otherwise. f. To the best of Assignor's knowledge, as of the Effective Date there is no defense, offset, claim or counterclaim by or in favor of Landlord against the obligations of Landlord under the Lease or otherwise. g. As of the Effective Date, there is no default of Assignor under the Lease and no event has occurred and is continuing which with the giving of notice or passage of time or both would constitute a default or violation of the Lease by Assignor. h. Assignor has not received notice of any lien, sale, transfer, assignment, hypothecation or pledge of the Lease or the Premises. i. There is no suit, action, proceeding or audit pending at law or in equity or before or by any court, administrative agency or other governmental authority, or, to the knowledge of Assignor, threatened against or affecting the undersigned or the Premises which brings into question the validity of the Lease or which if determined adversely against Assignor might impair the interest of Assignee under the Lease. j. To the best of Assignor's knowledge, there is no fact which materially or adversely affects or in the future may materially or adversely affect the condition or operation of Assignee's business in the Premises under the Lease. k. Assignor has not used and is not aware of any individual or entity who has used the Premises for any activities which, directly or indirectly, involve the use, generation, treatment, storage, transportation or disposal of any petroleum product or any toxic or hazardous chemical, material, substance, pollutant or waste, except as follows: ____________________________________________________________________ 1. The undersigned is authorized to execute this Addendum on behalf of Assignor. m. Assignor hereby acknowledges that Assignee will rely upon the representations of Assignor in this Section 1 in connection with the assumption by Assignee of Assignor's interest in the Lease. IN WITNESS WHEREOF, Assignor has executed this Addendum the day and year first above written. "ASSIGNOR": MISSION VALLEY CHRISTIAN FELLOWSHIP OF SAN DIEGO, a California non-profit religious organization By: [ILLEGIBLE] Its: President ------------------------- "ASSIGNEE ": RED ENVELOPE, INC. By: [ILLEGIBLE] Its: President and COO ------------------------- --------------------- EXHIBIT "A" (Lease) A copy of the Lease is attached hereto. EXHIBIT "A" EX-10.9 19 f89225orexv10w9.txt EXHIBIT 10.9 EXHIBIT 10.9 ASSIGNMENT OF LEASE Upon receipt of $6750.00 from Red Envelope, Inc., I, the undersigned Mission Valley Christian Fellowship of San Diego, a California Non-profit Religious Corporation, do hereby assign, transfer and ?ILLEGIBLE? over unto Red Envelope Inc., all my rights, title and interest in and to the entirety of that certain lease reference dated October 19, 1994 by and between the Four Amigos, a California Ltd. as Lessor, and Mission Valley Christian Fellowship of San Diego, a California Non-profit Religious Corporation as Lessee, covering that certain property and premise situated in the City of San Diego, County of San Diego, State of California and particularly described as: approximately 10,906 square feet of office space at 4562-A,B,C,D,K,J,K,L,M Alvarado Canyon Road, and said lease is attached hereto as Exhibit "A", together with all my right, title and interest in and to prepaid rent and/or security deposit on said lease, if any. Nothing contained herein shall relieve Mission Valley Christian Fellowship of San Diego, a California Non-profit Religious Corporation, as Assignor or Personal Guarantor(s) of said lease from their liability for said lease. Mission Valley Christian Fellowship of San Diego, a California Non-profit Religious Corporation as Assignor and Personal Guarantor(s) shall be fully liable for the rental obligation, notwithstanding this Assignment of Lease through the ending date of said lease which is December 31, 2003. Dated this 18th day of April 2000. Agreed, Assignor-Lessee: Mission Valley Christian Fellowship of San Diego, a California Non-profit Religious Corporation. [ILLEGIBLE] PRESIDENT - ----------------------------- ----------------------------- Signature Title Print Name LEO GIOVENITTI Date 4-18-2000 Agreed Personal Guarantor of Lease: Leo Giovenitti, [ILLEGIBLE] Date 4-18-2000 - ----------------------------- Signature ACCEPTANCE OF ASSIGNMENT OF LEASE I. Red Envelope, Inc., (Assignee-Lessee) do hereby accept the attached Assignment of Lease for the premises commonly known as 4562-A,B,C,D,K,J,K,L,M Alvarado Canyon Road, San Diego, California which is described as approximately ?ILLEGIBLE? 906 square feet of office space and agree to be additionally liable for said lease and agree to be bound by all of the conditions and covenants contained in that certain lease which is reference a dated October 19, 1994 by and between Four Amigos, a California Ltd., as Lessor, and Mission Valley Christian Fellowship of San Diego, a California Non-profit Religious Corporation as Lessee, referred to on the attached Assignment of Lease, a true copy of said lease is attached hereto as Exhibit "A" and shall become part of this assignment agreement. By signing below I acknowledge receipt of lease and that I have read and agree to be bound by all the terms and conditions of said lease. I, Red Envelope, Inc. (Assignee-Lessee) promise to pay and be fully liable to Lessor for the rent payments and operating expenses of said lease due for the Premises from July 1, 2000 (Assignee-Rent Commencement Date of Assignment) to the Lease ending date defined as December 31, 2003 to be paid in the manner and at the times therein specified in said lease. On date of execution of the said assignment agreement by Lessor, Assignor and Assignee (Execution date) and occupancy of the Premises I, Assignee will be bound by all other terms, conditions, provisions and covenants of said lease, including carry insurance per said lease upon taking occupancy of the premises for tenant improvements and said terms, conditions, provisions and covenants shall continue to be in full force and effect until the lease ending date. Dated this 1 day of May, 2000. Agreed Assignee-Lessee: Red Envelope, Inc. [ILLEGIBLE] President & COO - ----------------------------- ----------------------- Signature Title CONSENT TO ASSIGNMENT OF LEASE I, Four Amigos, a California Ltd., Lessor, named in the aforementioned lease which is attached hereto as Exhibit "A", do hereby consent to the assignment of said lease to Red Envelope, Inc., for the premises commonly known as 4562- A,B,C,D,K,J,K,L, and M Alvarado Canyon Road, San Diego, California which is described as approximately 10,906 ?ILLEGIBLE? are feet of office space on the understanding Assignee-Lessee shall be additionally liable for the rent payment due to Lessor for the Premises of said lease from Assignee's Rent Commencement date of July 1, 2000 to the lease ending date December 31, 2003. Assignee also shall have the right to occupy the premises on the date of execution of the said assignment agreement by Lessor, Assignor and Assignee(Execution date) with proof of insurance and without rent payment or Operating expense payment until Assignee-Rent Commencement date of July 1, 2000 and Assignee will be bound by all other terms, conditions, provisions and covenants of said lease from said Execution date, and said terms, conditions, provisions and covenants shall continue to be in full force and effect until the lease ending date. Nothing contained herein shall relieve Mission Valley Christian Fellowship of San Diego, a California Non-profit Religious Corporation, as Assignor-Lessee or Personal Guarantor(s) of said lease from their liability for said lease and the rent and operating expense payments due for the premises per said lease. I, Lessor, notwithstanding anything to the contrary in Paragraph #6 of the Lease hereby consent to the use of the Premises for the general office purposes including but not limited to use as a 24 hour call center for Internet commerce business. I, also, hereby certify that I hold the sum of $6750.00, as a security deposit under said lease. All payments of rent currently due under said lease have been paid to May 1, 2000. The amount of the base monthly rent for the premises is $8793.33 per month plus Lessee's estimated pro-rata share of the operating expense of the park, with the with Assignee-Lessee next payment due on July 1, 2000 plus $15 per month HVAC maintenance contract charge for every three units on the roof for the premises(covers filter changing and belt tightening only). It shall be Assignor-Lessee's sole responsibility to pay rent and operating expense for the Premise of said lease for May, 2000 and June, 2000. The monthly rent is payable to: Four Amigos, a California Ltd. Address: 4607 Mission Gorge Place, San Diego, California 92120 ?ILLEGIBLE?: Four Amigos, a California Ltd., Dated this 5 day of 2, 2000 [ILLEGIBLE] - ------------------------ ______________________________ Signature Title ADDRESS: 4607 Mission Gorge Place, San Diego, California 92120 TELEPHONE: (619)287-8873 EXHIBIT "A" Assignor: [ILLEGIBLE] Assignee: [ILLEGIBLE] ------------------- ----------------- THIRD AMENDMENT TO LEASE THIRD AMENDMENT TO LEASE, dated August 19,1997, for that certain lease made by and between FOUR AMIGOS, A CALIFORNIA LIMITED PARTNERSHIP, as Lessor, and MISSION VALLEY CHRISTIAN FELLOWSHIP OF SAN DIEGO, A CALIFORNIA NON-PROFIT RELIGIOUS CORPORATION, Lessee, for that certain lease which is reference dated October 19, 1994, for the premises more commonly known as 4562 Alvarado Canyon Road, Suites A, B, C, D, J, K, L, and M, and described as approximately 10,906 of office space. Lessee and Lessor hereby agrees to extend the lease ending date, as defined in Paragraph 3.1 of said lease, to December 31, 2003. All other terms and conditions of said lease will remain in full force and effect. FOUR AMIGOS MISSION VALLEY CHRISTIAN FELLOWSHIP A CALIFORNIA LTD. OF SAN DIEGO, A CALIFORNIA NON-PROFIT RELIGIOUS CORPORATION By [ILLEGIBLE] By [ILLEGIBLE] -------------------- ---------------------------- Lessor Lessee Date 9-16-97 Date AUG 20 1997 SECOND AMENDMENT TO LEASE SECOND AMENDMENT TO LEASE, dated July 23, 1996, for that certain lease made by and between FOUR AMIGOS, A CALIFORNIA LIMITED PARTNERSHIP, as Lessor, and MISSION VALLEY CHRISTIAN FELLOWSHIP OF SAN DIEGO, A CALIFORNIA NON-PROFIT RELIGIOUS CORPORATION, Lessee, for that certain lease which is reference dated October 19, 1994, for the premises more commonly known as 4562 Alvarado Canyon Road, Suites A, B, C, D, J, K, L, and M, and described as approximately 10,906 of office space. Lessee and Lessor hereby agree to extend the lease ending date, as defined in Paragraph 3.1 of said lease and as amended in the First Amendment to Lease, three (3) additional years and seventeen (17) days, with the new agreed upon lease ending date being December 31, 2001. On November 1, 1998, Lessee agrees the base monthly rent for the premises shall be increased by three percent (3%) and shall be increased by three percent (3%) annually thereafter until the lease ending date. All other terms and conditions of said lease will remain in full force and effect. FOUR AMIGOS MISSION VALLEY CHRISTIAN FELLOWSHIP A CALIFORNIA LTD. OF SANDIEGO, A CALIFORNIA NON-PROFIT RELIGIOUS CORPORATION By /s/ [ILLEGIBLE] By /s/ [ILLEGIBLE] --------------- --------------- Lessor Lessee Date 10/2/96 Date 8-29-96 FIRST AMENDMENT TO LEASE FIRST AMENDMENT TO LEASE dated January 26, 1995, for that certain lease made by and between FOUR AMIGOS, A CALIFORNIA LIMITED PARTNERSHIP, as Lessor, and MISSION VALLEY CHRISTIAN FELLOWSHIP OF SAN DIEGO, A CALIFORNIA NON-PROFIT RELIGIOUS CORPORATION, Lessee, for that certain lease which is referenced dated October 19, 1994, for the premises more commonly known as 4562 Alvarado Canyon Road, Suites A, B, C, D, J, K, L, & M, and described as approximately 10,906 square feet of office space. Lessee and Lessor hereby agree to extend the lease ending date, as defined in Paragraph 3.1 of said lease one (1) additional year. Lessee agrees to pay the following monthly rent schedule for the premises for the additional year: $0.76 per sq. ft. leased plus Lessee's pro-rata share of operating expenses. All other terms and conditions of said lease will remain in full force and effect. FOUR AMIGOS MISSION VALLEY CHRISTIAN FELLOWSHIP OF SAN DIEGO, A CALIFORNIA NON-PROFIT RELIGIOUS CORPORATION By /s/ [ILLEGIBLE] By /s/ [ILLEGIBLE] ------------------- --------------- 2/13/95 JAN 31,1995 - ---------------------- ------------------ Date Date EXHIBIT "A" Assignor: /s/ [ILLEGIBLE] Assignee: /s/ [ILLEGIBLE] --------------- --------------- STANDARD LEASE -- MULTI-TENANT 1. PARTIES. This Lease, dated, for reference purposes only, OCTOBER 19, 1994, is made by and between THE FOUR AMIGOS A CALIFORNIA LTD, (herein called "Lessor") and MISSION VALLEY CHRISTIAN FELLOWSHIP OF SAN DIEGO, A CALIFORNIA NON-PROFIT RELIGIOUS CORPORATION (herein called "Lessee"). 2. PREMISES, PARKING AND COMMON AREAS. 2.1 PREMISES. Lessor hereby leases to Lessee and Lessee leases from Lessor for the term, at the rental, and upon all of the conditions set forth herein, real property situated in the County of SAN DIEGO, State of CALIFORNIA commonly known as 4562 ALVARADO CANYON ROAD, SUITES A, B, C, D, J, K, L, AND M and described as approximately 10,906 square feet of OFFICE space, herein referred to as the "Premises", as may be outlined on an Exhibit attached hereto, including rights to the Common Areas as hereinafter specified but not including any rights to the roof of the Premises or to any Building in the Center. The Premises are a portion of a building, herein referred to as the "Building." The Premises, the Building, the Common Areas, and the land upon which the same are located, along with all other buildings and improvements thereon, are herein collectively referred to as the "Center." 2.2 VEHICLE PARKING. Lessee shall be entitled to THIRTY (30) vehicle parking spaces, unreserved and unassigned, on those portions of the Common Areas designated by Lessor for parking. Lessee shall not use more parking spaces than said number. Said parking spaces shall be used only for parking by vehicles no larger than full size passenger automobiles or pick-up trucks, herein called "Permitted Size Vehicles." Vehicles other than Permitted Size Vehicles are herein referred to as "Oversized Vehicles." 2.2.1 Lessee shall not permit or allow any vehicles that belong to or are controlled by Lessee or Lessee's employees, suppliers, shippers, customers, or invitees to be loaded, unloaded, or parked in areas other than those designated by Lessor for such activities. 2.2.2 If Lessee permits or allows any of the prohibited activities described in paragraph 2.2 of this Lease, then Lessor shall have the right, without notice, in addition to such other rights and remedies that it may have, to remove or tow away the vehicle involved and charge the cost to Lessee, which cost shall be immediately payable upon demand by Lessor. 2.3 COMMON AREAS--DEFINITION. The term "Common Areas" is defined as all areas and facilities outside the Premises and within the exterior boundary line of the Center that are provided and designated by the Lessor from time to time for the general non-exclusive use of Lessor, Lessee and of other lessees of the Center and their respective employees, suppliers, shippers, customers and invitees, including parking areas, loading and unloading areas, trash areas, roadways, sidewalks, walkways, parkways, driveways and landscaped areas. 2.4 COMMON AREAS--LESSEE'S RIGHTS. Lessor hereby grants to Lessee, for the benefit of Lessee and its employees, suppliers, shippers, customers and invitees, during the term of this Lease, the non-exclusive right to use, in common with others entitled to such use, the Common Areas as they exist from time to time, subject to any rights, powers, and privileges reserved by Lessor under the terms hereof or under the terms of any rules and regulations or restrictions governing the use of the Center. Under no circumstances shall the right herein granted to use the Common Areas be deemed to include the right to store any property, temporarily or permanently, in the Common Areas. Any such storage shall be permitted only by the prior written consent of Lessor ?ILLEGIBLE? designated agent, which consent may be revoked at any time. In the event that any unauthorized storage shall occur then Lessor shall have the ?ILLEGIBLE? without notice, in addition to such other rights and remedies that it may have, to remove the property and charge the cost to Lessee, which cost shall be immediately payable upon demand by Lessor. 2.5 COMMON AREAS--RULES AND REGULATIONS. Lessor or such other person(s) as Lessor may appoint shall have the exclusive control and management of the Common Areas and shall have the right, from time to time, to establish, modify, amend and enforce reasonable rules and regulations with respect thereto. Lessee agrees to abide by and conform to all such rules and regulations, and to cause its employees, suppliers, shippers, customers, and invitees to so abide and conform. Lessor shall not be responsible to Lessee for the non-compliance with said rules and regulations by other lessees of the Center. 2.6 COMMON AREAS--CHANGES. Lessor shall have the right, in Lessor's sole discretion, from time to time: (a) To make changes to the Common Areas, including, without limitation, changes in the location, size, shape and number of driveways, entrances, parking spaces, parking areas, loading and unloading areas, ingress, egress, direction of traffic, landscaped areas and walkways; (b) To close temporarily any of the Common Areas for maintenance purposes so long as reasonable access to the Premises remains available; (c) To designate other land outside the boundaries of the Center to be a part of the Common Areas; (d) To add additional buildings and improvements to the Common Areas; (e) To use the Common Areas while engaged in making additional improvements, repairs or alterations to the Center, or any portion thereof; (f) To do and perform such other acts and make such other changes in, to or with respect to the Common Areas and Center as Lessor may, in the exercise of sound business judgment, deem to be appropriate. 2.6.1 Lessor shall at all times provide the parking facilities required by applicable law and in no event shall the number of parking spaces that Lessee is entitled to under paragraph 2.2. be reduced. 3. TERM. 3.1 TERM. The term of this Lease shall be for THREE (3) YEARS commencing on TWO WEEKS AFTER OCCUPANCY IS GIVEN TO LESSEE and ending on THREE YEARS FROM COMMENCEMENT DATE unless sooner terminated pursuant to any provision hereof. 3.2 DELAY IN POSSESSION. Notwithstanding said commencement date, if for any reason Lessor cannot deliver possession of the Premises to Lessee on said date, Lessor shall be not be subject to any liability therefor, nor shall such failure affect the validity of this Lease or the obligations of Lessee hereunder or extend the term hereof, but in such case, Lessee shall not be obligated to pay rent or perform any other obligation of Lessee under the terms of this Lease, except as may be otherwise provided in this Lease, until possession of the Premises is tendered to Lessee; provided, however, that if Lessor shall not have delivered possession of the Premises within sixty (60) days from said commencement date, Lessee may, at Lessee's option, by notice in writing to Lessor within ten (10) days thereafter, cancel this Lease, in which event the parties shall be discharged from all obligations hereunder; provided further, however, that if such written notice of Lessee is not received by Lessor within said ten (10) day period, Lessee's right to cancel this Lease hereunder shall terminate and be of no further force or effect. 3.3 EARLY POSSESSION. If Lessee occupies the Premises prior to said commencement date, such occupancy shall be subject to all provisions of this lease, such occupancy shall not advance the termination date, and Lessee shall pay rent for such period at the initial monthly rates set forth below. 4. RENT. 4.1 BASE RENT. Lessee shall pay to Lessor, as Base Rent for the Premises, without any offset or deduction, except as may be otherwise expressly ?ILLEGIBLE? in this Lease, on the 1st day of each month of the term hereof, monthly payments in advance of $ 5,811,60 plus operating expenses of $ 1,388,40 for a total of $ 7,200,00. Lessee shall pay Lessor upon execution hereof $ 7,200,00 as Base Rent including operating expenses for DECEMBER, 1994. Rent for any period during the term hereof which is for less than one month shall be a pro rata portion of the Base Rent. Rent shall be payable in lawful money of the United States to Lessor at the address stated herein or to such other persons or at such other places as Lessor may designate in writing. 4.2 OPERATING EXPENSES. Lessee shall pay to Lessor during the term hereof, in addition to the Base Rent, Lessee's Share, as hereinafter defined, of all Operating Expenses, as hereinafter defined, during each calendar year of the term of this Lease, in accordance with the following provisions: (a) "Lessee's Share" is defined, for purposes of this Lease, as approximately 17,49 percent based on the total square footage of the project. (b) "Operating Expenses" is defined, for purposes of this Lease, as all costs incurred by Lessor, if any, for: (i) The operation, repair and maintenance, in neat, clean, good order and condition, of the following: (aa) The Common Areas, including parking areas, loading and unloading areas, trash areas, roadways, sidewalks, walkways, parkways, driveways, landscaped areas, striping, bumpers, irrigation systems, Common Area lighting facilities, fences and gates, and roofs and walls; (bb) Trash disposal services; (cc) Tenant directories; (dd) Fire detection systems including sprinkler system maintenance and repair; (ee) Security services; (ff) Any other service to be provided by Lessor that is elsewhere in this Lease stated to be an "Operating Expense;" (ii) Any deductible portion of an insured loss concerning any of the items or matters described in this paragraph 4.2; (iii) The cost of the premiums for the liability and property insurance policies to be maintained by Lessor under paragraph 8 hereof; (iv) The amount of the real property tax to be paid by Lessor under paragraph 10.1 hereof; (v) The cost of water, gas and electricity to service the Common Areas; (vi) Annual account audit plus 10% supervision fee, based on total annual expenses. (vii) All other costs of any kind paid or incurred by Landlord in connection with the operation, the cost of capital improvements designed to protect the health and safety of the tenants, maintenance, and management of the Building and the Project including, by way of examples and not as a limitation upon the generality of the foregoing, costs of repairs and replacements to improvements within the Project as appropriate to maintain the Project in first class condition including cost of funding such reasonable reserves as Landlord deems consistent with good business practice and may establish to provide for future repairs and replacements, association dues or any other fees due pursuant to any documents governing the real property on which the MULTI TENANT--MODIFIED NET Initials /s/ L.G. -------- -1- ?ILLEGIBLE? is located, costs of utilities furnished to the Common Areas, sewer fees, windows, heating, ventilation, air conditioning, maintenance of landscape ?ILLEGIBLE? maintenance of drives and parking areas, security services and devices, building supplies, maintenance and replacement to equipment utilized for operation and maintenance of the Project, insurance premiums, portions of loss by reason of insurance policy terms, service contracts, costs of services of independent contractors retained to do work of nature before referenced, and costs of compensation (including employment taxes and fringe benefits) of all persons who perform regular and recurring duties connected with the day-to-day operation and maintenance of the Project, its equipment, the adjacent walks, landscaped areas, drives, and parking areas, including without limitation, janitors, floor waxers, window-washers, watchmen, gardeners, sweepers, and handymen and reasonable costs of management services. (c) The inclusion of the improvements, facilities and services set forth in paragraph 4.2(b)(i) of the definition of Operating Expenses shall not be deemed to impose an obligation upon Lessor to either have said improvements or facilities or to provide those services unless the Center already has the same, Lessor already provides the services, or Lessor has agreed elsewhere in this Lease to provide the same of some of them. (d) Lessee's Share of Operating Expenses shall be payable by Lessee within ten (10) days after a reasonably detailed statement of actual expenses is presented to Lessee by Lessor. At Lessor's option, however, an amount may be estimated by Lessor from time to time of Lessee's Share of annual Operating Expenses and the same shall be payable monthly or quarterly, as Lessor shall designate, during each twelve-month period of the Lease term, on the same day as the Base Rent is due hereunder. In the event that Lessee pays Lessor's estimate of Lessee's Share of Operating Expenses as aforesaid, Lessor shall deliver to Lessee within sixty (60) days after the expiration of each calendar year a reasonably detailed statement showing Lessee's Share of the actual Operating Expenses incurred during the preceding year. If Lessee's payments under this paragraph 4.2(d) during said preceding year exceed Lessee's Share as indicated on said statement, Lessee shall be entitled to credit the amount of such overpayment against Lessee's Share of Operating Expenses next falling due. If Lessee's payments under this paragraph during said preceding year were less than Lessee's Share as indicated on said statement, Lessee shall pay to Lessor the amount of the deficiency within ten (10) days after delivery by Lessor to Lessee of said statement. 5. SECURITY DEPOSIT. Lessee shall deposit with Lessor upon execution hereof $ 6,750,00 as security for Lessee's faithful performance of Lessee's obligations hereunder. If Lessee fails to pay rent or other charges due hereunder, or otherwise defaults with respect to any provision of this Lease. Lessor may use, apply or retain all or any portion of said deposit for the payment of any rent or other charge in default or for the payment of any other sum to which Lessor may become obligated by reason of Lessee's default, or to compensate Lessor for any loss or damage which Lessor may suffer thereby. If Lessor so uses or applies all or any portion of said deposit, Lessee shall within ten (10) days after written demand therefor deposit cash with Lessor in an amount sufficient to restore said deposit to the full amount then required of Lessee. If the monthly rent shall, from time to time, increase during the term of this Lease, Lessee shall, at the time of such increase, deposit with Lessor additional money as a security deposit so that the total amount of the security deposit held by Lessor shall at all times bear the same proportion to the then current Base Rent as the initial security deposit bears to the initial Base Rent set forth in paragraph 4. Lessor shall not be required to keep said security deposit separate from its general accounts. If Lessee performs all of Lessee's obligations hereunder, said deposit, or so much thereof as has not theretofore been applied by Lessor, shall be returned, without payment of interest or other increment for its use, to Lessee (or, at Lessor's option, to the last assignee, if any, of Lessee's interest hereunder) at the expiration of the term hereof, and after Lessee has vacated the Premises. No trust relationship is created herein between Lessor and Lessee with respect to said Security Deposit. 6. USE. 6.1 USE. The Premises shall be used and occupied only for CHURCH or any other use which is reasonably comparable and for no other purpose. 6.2 COMPLIANCE WITH LAW. (a) Lessor warrants to Lessee that the Premises, in the state existing on the date that the Lease term commences, but without regard to the ?ILLEGIBLE? which Lessee will occupy the Premises, does not violate any covenants or restrictions of record, or any applicable building code, regulation or ordinance in effect on such Lease term commencement date. In the event it is determined that this warranty has been violated, then it shall be the obligation of the Lessor, after written notice from Lessee, to promptly, at Lessor's sole cost and expense, rectify any such violation. In the event Lessee does not give to Lessor written notice of the violation of this warranty within six months from the date that the Lease term commences, the correction of same shall be the obligation of the Lessee at Lessee's sole cost. The warranty contained in this paragraph 6.2(a) shall be of no force or effect if, prior to the date of this Lease, Lessee was an owner or occupant of the Premises and, in such event, Lessee shall correct any such violation at Lessee's sole cost. (b) Except as provided in paragraph 6.2(a) Lessee shall, at Lessee's expense, promptly comply with all applicable statutes, ordinances, rules, regulations, orders, convenants and restrictions of record, and requirements of any fire insurance underwriters or rating bureaus, now in effect or which may hereafter come into effect, whether or not they reflect a change in policy from that now existing, during the term or any part of the term hereof, relating in any manner to the Premises and the occupation and use by Lessee of the Premises and of the Common Areas. Lessee shall not use nor permit the use of the Premises or the Common Areas in any manner that will tend to create waste or a nuisance or shall tend to distrub other occupants of the Center. 6.3 CONDITION OF PREMISES. (a) Lessor shall deliver the Premises to Lessee clean and free of debris on the Lease commencement date (unless Lessee is already in possession) and Lessor warrants to Lessee that the plumbing, lighting, and loading doors in the Premises shall be in good operating condition on the Lease commencement date. In the event that it is determined that this warranty has been violated, then it shall be the obligation of Lessor, after receipt of written notice from Lessee setting forth with specificity the nature of the violation, to promptly, at Lessor's sole cost, rectify such violation. Lessee's failure to give such written notice to Lessor within thirty (30) days after the Lease commencement date shall cause the conclusive presumption that Lessor has complied with all of Lessor's obligations hereunder. The warranty contained in this paragraph 6.3(a) shall be of no force or effect if prior to the date of this Lease. Lessee was an owner or occupant of the Premises. (b) Except as otherwise provided in this Lease, Lessee hereby accepts the Premises in their condition existing as of the Lease commencement date or the date that Lessee takes possession of the Premises, whichever is earlier, subject to all applicable zoning, municipal, county and state laws, ordinances and regulations governing and regulating the use of the Premises, and any covenants or restrictions of record, and accepts this Lease subject thereto and to all matters disclosed thereby and by any exhibits attached hereto. Lessee acknowledged that neither Lessor nor Lessor's agent has made any representation or warranty as to the present or future suitability of the Premises for the conduct of Lessee's business. 7. MAINTENANCE, REPAIRS, ALTERATIONS AND COMMON AREA SERVICES. 7.1 LESSOR'S OBLIGATIONS. Subject to the provisions of paragraphs 4.2 (Operating Expenses), 6 (Use), 7.2 (Lessee's Obligations) and 9 (Damage or Destruction) and except for damage caused by any negligent or intentional act or omission of Lessee, Lessee's employees, suppliers, shippers, customers, or invitees, in which event Lessee shall repair the damage, Lessor, at Lessor's expense, subject to reimbursement pursuant to paragraph 4.2, shall keep in good condition and repair the foundations, exterior walls, structural condition of interior bearing walls, and roof of the Premises, as well as the parking lots, walkways, driveways, landscaping, fences, signs and utility installations of the Common Areas and all parts thereof, as well as providing the services for which there is an Operating Expense pursuant to paragraph 4.2. Lessor shall not, however, be obligated to paint the exterior or interior surface of exterior walls, ?ILLEGIBLE? shall Lessor be required to maintain, repair or replace windows, doors or plate glass of the Premises. Lessor shall have no obligation to make repairs under ?ILLEGIBLE? paragraph 7.1 until reasonable time after receipt of written notice from Lessee of the need for such repairs. Lessee expressly waives the benefits of any ?ILLEGIBLE? now or hereafter in effect which would otherwise afford Lessee the right to make repairs at Lessor's expense or to terminate this Lease because of Lessor's failure to keep the Premises in good order, condition and repair. Lessor shall not be liable for damages or loss of any kind or nature by reason of Lessor's failure to furnish any Common Area Services when such failure is caused by accident, breakage, repairs, strikes, lockout, or other labor disturbances or disputes of any character, or by any other cause beyond the reasonable control of Lessor. 7.2 LESSEE'S OBLIGATIONS. (a) Subject to the provisions of paragraphs 6 (Use), 7.1 (Lessor's Obligations), and 9 (Damage or Destruction), Lessee, at Lessee's expense, shall keep in good order, condition and repair the Premises and every part thereof (whether or not the damaged portion of the Premises or the means of repairing the same are reasonably or readily accessible to Lessee) including, without limiting the generality of the foregoing, all plumbing, including the replacement of the heating, ventilating and air conditioning systems (Lessor shall procure and maintain, at Lessee's sole expense, a ventilating and air conditioning system maintenance contract with a licensed subcontractor. The maintenance agreement does not cover repairs, just routine maintenance. Said contract shall be obtained through Lessor at the cost to the Lessee of $ 15.00 per month which is to be paid concurrently each month with Base Rent and any other monies due as per this lease), electrical and lighting facilities and equipment within the Premises, fixtures, interior walls and interior surfaces of exterior walls, ceilings, windows, doors, plate glass, and skylights located within the Premises. Lessor reserves the right to procure and maintain the ventilating and air conditioning system maintenance contract and if Lessor so elects. Lessee shall reimburse Lessor, upon demand, for the costs thereof. (b) If Lessee fails to perform Lessee's obligations under this paragraph 7.2 or under any other paragraph of this Lease, Lessor may enter upon the Premises after ten (10) days' prior written notice to Lessee (except in the case of emergency, in which no notice shall be required), perform such obligations on Lessee's behalf and put the Premises in good order condition and repair, and the cost thereof together with interest thereon at the maximum rate then allowable by law shall be due and payable as additional rent to Lessor together with Lessee's next Base Rent installment. (c) On the last day of the term hereof, or on any sooner termination, Lessee shall surrender the Premises to Lessor in the same condition as received, ordinary wear and tear excepted, clean and free of debris. Any damage or deterioration of the Premises shall not be deemed ordinary wear and tear if the same could have been prevented by good maintenance Practices. Lessee shall repair any damage to the Premises occasioned by the installation or removal of Lessee's trade fixtures, alterations, furnishings and equipment. Notwithstanding anything to the contrary otherwise stated in this Lease, Lessee shall leave the air lines, power panels, electrical distribution systems, lighting fixtures, space heaters, air conditioning, plumbing and fencing on the Premises in good operating condition. 7.3 ALTERATIONS AND ADDITIONS. MULTI TENANT--MODIFIED NET Initials /s/ L.G. -------- -2- (a) Lessee shall not, without Lessor's prior written consent make any alterations, improvements, additions, or Utility Installations in, on or about the Premises, or the Center, except for nonstructural alterations to the Premises not exceeding $2,500 in cumulative costs, during the term of this Lease. In any event, whether or not in excess of $2,500 in cumulative cost, Lessee shall make no change or alteration to the exterior of the Premises nor the exterior of the Building nor the Center without Lessor's prior written consent. As used in this paragraph 7.3 the term "Utility Installation" shall mean carpeting, window coverings, air lines, power panels, electrical distribution systems, lighting fixtures, space heaters, air conditioning, plumbing, and fencing. Lessor may require that Lessee remove any or all of said alterations, improvements, additions or Utility Installations at the expiration of the term, and restore the Premises and the Center to their prior condition. Lessor may require Lessee to provide Lessor, at Lessee's sole cost and expense, a lien and completion bond in an amount equal to one and one-half times the estimated cost of such improvements, to insure Lessor against any liability for mechanic's and materialmen's lines and to insure completion of the work. Should Lessee make any alterations, improvements, additions or Utility Installations without the prior approval of Lessor, Lessor may, at any time during the term of this Lease, require that Lessee remove any or all of the same. (b) Any alterations, improvements, additions or Utility Installations in or about the Premises or the Center that Lessee shall desire to make and which requires the consent of the Lessor shall be presented to Lessor in written form, with proposed detailed plans. If Lessor shall give its consent, the consent shall be deemed conditioned upon Lessee acquiring a permit to do so from appropriate governmental agencies, the furnishing of a copy thereof to Lessor prior to the commencement of the work and the compliance by Lessee of all conditions of said permit in a prompt and expeditions manner. (c) Lessee shall pay, when due, all claims for labor or materials furnished or alleged to have been furnished to or for Lessee at or for use in the Premises, which claims are or may be secured by any mechanic's or materialmen's lien against the Premises, or the Center, or any interest therein. Lessee shall give Lessor not less than ten (10) days' notice prior to the commencement of any work in the Premises, and Lessor shall have the right to post notices of non-responsibility in or on the Premises or the Building as provided by law. If Lessee shall, in good faith, contest the validity of any such lien, claim or demand, then Lessee shall, at its sole expense defend itself and Lessor against the same and shall pay and satisfy any such adverse judgment that may be rendered thereon before the enforcement thereof against the Lessor or the Premises or the Center, upon the condition that if Lessor shall require, Lessee shall furnish to Lessor a surety bond satisfactory to Lessor in an amount equal to such contested lien claim or demand indemnifying Lessor against liability for the same and holding the Premises and the Center free from the effect of such lien or claim. In addition, Lessor may require Lessee to pay Lessor's attorneys fees and costs in participating in such action if Lessor shall decide it is to Lessor's best interest to do so. (d) All alterations, improvements, additions and Utility Installations (whether or not such Utility Installations constitute trade fixtures of Lessee), which may be made on the Premises, shall be the property of Lessor and shall remain upon and be surrendered with the Premises at the expiration of the Lease term, unless Lessor requires their removal pursuant to paragraph 7.3(a). Notwithstanding the provisions of this paragraph 7.3(d), Lessee's machinery and equipment, other than that which is affixed to the Premises so that it cannot be removed without material damage to the Premises, and other than Utility Installations, shall remain the property of Lessee and may be removed by Lessee subject to the provisions of paragraph 7.2. 7.4 UTILITY ADDITIONS. Lessor reserves the right to install new or additional utility facilities throughout the Building and the Common Areas for the benefit of Lessor or Lessee, or any other lessee of the Center, including, but not by way of limitation, such utilities as plumbing, electrical systems, security systems, communication systems, and fire protection and detection systems, so long as such installations do not unreasonably interfere with Lessee's use of the Premises. [ILLEGIBLE] INSURANCE; INDEMNITY. 8.1 LIABILITY INSURANCE -- LESSEE. Lessee shall, at Lessee's expense, obtain and keep in force during the term of this Lease a policy of Combined Single Limit Bodily Injury and Property Damage insurance insuring Lessee and Lessor against any liability arising out of the use, occupancy or maintenance of the Premises and the Center. Such insurance shall be in an amount not less than $ 1,000,000.00 per occurrence. The policy shall insure performance by Lessee of the indemnity provisions of this paragraph 8. The limits of said insurance shall not, however, limit the liability of Lessee hereunder. 8.2 LIABILITY INSURANCE -- LESSOR. Lessor shall obtain and keep in force during the term of this Lease a policy of Combined Single Limit Bodily Injury and Property Damage Insurance, insuring Lessor, but not Lessee, against any liability arising out of the ownership, use, occupancy or maintenance of the Center in an amount not less than $ 1,000,000.00 per occurrence. 8.3 PROPERTY INSURANCE. Lessor shall obtain and keep in force during the term of this Lease a policy or policies of insurance covering loss or damage to the Center improvements, but not Lessee's personal property, fixtures, equipment or tenant improvements, in an amount not to exceed the full replacement value thereof, as the same may exist from time to time, providing protection against all perils included within the classification of fire, extended coverage, vandalism, malicious mischief, flood (in the event same is required by a lender having a lien on the Premises) special extended perils ("all risk", as such term is used in the insurance industry), plate glass insurance and such other insurance as Lessor deems advisable. In addition, Lessor shall obtain and keep in force, during the term of this Lease, a policy of rental value insurance covering a period of one year, with loss payable to Lessor, which insurance shall also cover all Operating Expenses for said period. In the event that the Premises shall suffer an insured loss as defined in paragraph 9.1(g) hereof, the deductible amounts under the casualty insurance policies relating to the Premises shall be paid by Lessee. 8.4 PAYMENT OF PREMIUM INCREASE. (a) After the term of this Lease has commenced, Lessee shall not be responsible for paying Lessee's Share of any increase in the property insurance premium for the Center specified by Lessor's insurance carrier as being caused by the use, acts or omissions of any other lessee of the Center, or by the nature of such other lessee's occupancy which create an extraordinary or unusual risk. (b) Lessee, however, shall pay the entirety of any increase in the property insurance premium for the Center over what it was immediately prior to the commencement of the term of this Lease if the increase is specified by Lessor's insurance carrier as being caused by the nature of Lessee's occupancy or any act or omission of Lessee. 8.5 INSURANCE POLICIES. Insurance required hereunder shall be in companies holding a "General Policyholders Rating" of at least B plus, or such other rating as may be required by a lender having a lien on the Premises, as set forth in the most current issue of "Best's Insurance Guide." Lessee shall not do or permit to be done anything which shall invalidate the insurance policies carried by Lessor. Lessee shall deliver to Lessor copies of liability insurance policies required under paragraph 8.1 or certificates evidencing the existence and amounts of such insurance within seven (7) days after the commencement date of this Lease. No such policy shall be cancelable or subject to reduction of coverage or other modification except after thirty (30) days prior written notice to Lessor. Lessee shall, at least thirty (30) days prior to the expiration of such policies, furnish Lessor with renewals or "binders" thereof. 8.6 WAIVER OF SUBROGATION. Lessee and Lessor each hereby release and relieve the other, and waive their entire right of recovery against the other for loss or damage arising out of or incident to the perils insured against which perils occur in, on or about the Premises, whether due to the negligence of Lessor or Lessee or their agents, employees, contractors and/or invitees. Lessee and Lessor shall, upon obtaining the policies of insurance required, give notice ?ILLEGIBLE? insurance carrier or carriers that the foregoing mutual waiver of subrogation is contained in this Lease. 8.7 INDEMNITY. Lessee shall indemnify and hold harmless Lessor from and against any and all claims arising from Lessee's use of the Center, or from the conduct of Lessee's business or from any activity, work or things done, permitted or suffered by Lessee in or about the Premises or elsewhere and shall further indemnify and hold harmless Lessor from and against any and all claims arising from any breach or default in the performance of any obligation on Lessee's part to be performed under the terms of this Lease, or arising from any act or omission of Lessee, or any of Lessee's agents, contractors, or employees, and from and against all costs, attorney's fees, expenses and liabilities incurred in the defense of any such claim or any action or proceeding brought thereon; and in case any action or proceeding be brought against Lessor by reason of any such claim, Lessee upon notice from Lessor shall defend the same at Lessee's expense by counsel reasonably satisfactory to Lessor and Lessor shall cooperate with Lessee in such defense. Lessee, as a material part of the consideration to Lessor, hereby assumes all risk of damage to property of Lessee or injury to persons, in, upon or about the Center arising from any cause and Lessee hereby waives all claims in respect thereof against Lessor. 8.8 EXEMPTION OF LESSOR FROM LIABILITY. Lessee hereby agrees that Lessor shall not be liable for injury to Lessee's business or any loss of income therefrom or for damage to the goods, wares, merchandise or other property of Lessee, Lessee's employees, invitees, customers, or any other person in or about the Premises or the Center, nor shall Lessor be liable for injury to the person of Lessee, Lessee's employees, agents or contractors, whether such damage or injury is caused by or results from fire, steam, electricity, gas, water or rain, or from the breakage, leakage, obstruction or other defects of pipes, sprinklers, wires, appliances, plumbing, air conditioning or lighting fixtures, or from any other cause, whether said damage or injury results from conditions arising upon the Premises or upon other portions of the Center, or from other sources or places and regardless of whether the cause of such damage or injury or the means of repairing the same is inaccessible to Lessee. Lessor shall not be liable for any damages arising from any act or neglect of any other lessee, occupant or user of the Center, nor from the failure of Lessor to enforce the provisions of any other lease of the Center. 9. DAMAGE OR DESTRUCTION. 9.1 DEFINITION. (a) "Premises Partial Damage" shall mean if the Premises are damaged or destroyed to the extent that the cost of repairs is less than fifty percent of the then replacement cost of the Premises. (b) "Premises Total Destruction" shall mean if the Premises are damaged or destroyed to the extent that the cost of repair is fifty percent or more of the then replacement cost of the Premises. MULTI TENANT--MODIFIED NET Initials /s/ L.G. -------- -3- (c) "Premises Building Partial Damage" shall mean if the Building of which the Premises are a part is damaged or destroyed to the extent that ?ILLEGIBLE? to repair is less than fifty percent of the then replacement cost of the Building. (d) "Premises Building Total Destruction" shall mean if the Building of which the Premises are a part is damaged or destroyed to the extent that the cost to repair is fifty percent or more of the then replacement cost of the Building. (e) "Center Buildings" shall mean all of the buildings on the Center site. (f) "Center Buildings Total Destruction" shall mean if the Center Buildings are damaged or destroyed to the extent that the cost of repair is fifty percent or more of the then replacement cost of the Center Buildings. (g) "Insured Loss" shall mean damage or destruction which was covered by an event required to be covered by the insurance described in paragraph 8. The fact that an Insured Loss has a deductible amount shall not make the loss an uninsured loss. (h) "Replacement Cost" shall mean the amount of money necessary to be spent in order to repair or rebuild the damaged area to the condition that existed immediately prior to the damage occurring excluding all improvements made by lessees. 9.2 PREMISES PARTIAL DAMAGE; PREMISES BUILDING PARTIAL DAMAGE. (a) Insured Loss: Subject to the provisions of paragraph 9.4 and 9.5, if at any time during the term of this Lease there is damage which is an Insured Loss and which falls into the classification of either Premises Partial Damage or Premises Building Partial Damage, then Lessor shall, at the Lessor's expense, repair such damage to the Premises, but not Lessee's fixtures, equipment or tenant improvements, as soon as reasonably possible and this Lease shall continue in full force and effect. (b) Uninsured Loss: Subject to the provisions of paragraph 9.4 and 9.5, if at any time during the term of this Lease there is damage which is not an Insured Loss and which falls within the classification of Premises Partial Damage or Premises Building Partial Damage, unless caused by a negligent or willful act of Lessee (in which event Lessee shall make the repairs at Lessee's expense), which damage prevents Lessee from using the Premises, Lessor may at Lessor's option either (i) repair such damage as soon as reasonably possible at Lessor's expense, in which event this Lease shall continue in full force and effect, or (ii) give written notice to Lessee within thirty (30) days after the date of the occurrence of such damage of Lessor's intention to cancel and terminate this Lease as of the date of the occurrence of such damage. In the event Lessor elects to give such notice of Lessor's intention to cancel and terminate this Lease, Lessee shall have the right within ten (10) days after the receipt of such notice to give written notice to Lessor of Lessee's intention to repair such damage at Lessee's expense, without reimbursement from Lessor, in which event this Lease shall continue in full force and effect, and Lessee shall proceed to make such repairs as soon as reasonably possible. If Lessee does not give such notice within such 10-day period this Lease shall be canceled and terminated as of the date of the occurrence of such damage. 9.3 PREMISES TOTAL DESTRUCTION; PREMISES BUILDING TOTAL DESTRUCTION; CENTER BUILDINGS TOTAL DESTRUCTION. (a) Subject to the provisions of paragraphs 9.4 and 9.5, if at any time during the term of this Lease there is damage, whether or not it is an Insured Loss, and which falls into the classifications of either (i) Premises Total Destruction, or (ii) Premises Building Total Destruction, or (iii) Center Buildings Total Destruction, then Lessor may at Lessor's option either (i) repair such damage or destruction, but not Lessee's fixtures, equipment or tenant improvements, as soon as reasonably possible at Lessor's expense, and this Lease shall continue in full force and effect, or (ii) give written notice to Lessee within thirty (30) days after the date of occurrence of such damage of Lessor's intention to cancel and terminate this Lease, in which case this Lease shall ?ILLEGIBLE? and terminated as of the date of the occurrence of such damage. 9.4 DAMAGE NEAR END OF TERM. (a) Subject to paragraph 9.4(b), if at any time during the last six months of the term of this Lease there is substantial damage, whether or not an Insured Loss, which falls within the classification of Premises Partial Damage, Lessor may at Lessor's option cancel and terminate this Lease as of the date of occurrence of such damage by giving written notice to Lessee of Lessor's election to do so within 30 days after the date of occurrence of such damage. (b) Notwithstanding paragraph 9.4(a), in the event that Lessee has an option to extend or renew this Lease, and the time within which said option may be exercised has not yet expired, Lessee shall exercise such option, if it is to be exercised at all, no later than twenty (20) days after the occurrence of an Insured Loss falling within the classification of Premises Partial Damage during the last six months of the term of this Lease. If Lessee duly exercises such option during said twenty (20) day period, Lessor shall, at Lessor's expense, repair such damage, but not Lessee's fixtures, equipment or tenant improvements, as soon as reasonably possible and this Lease shall continue in full force and effect. If Lessee fails to exercise such option during said twenty (20) day period, then Lessor may at Lessor's option terminate and cancel this Lease as of the expiration of said twenty (20) day period, by giving written notice to Lessee of Lessor's election to do so within ten (10) days after the expiration of said twenty (20) day period, notwithstanding any term or provision in the grant of option to the contrary. 9.5 ABATEMENT OF RENT; LESSEE'S REMEDIES. (a) In the event Lessor repairs or restores the Premises pursuant to the provisions of this paragraph 9, the rent payable hereunder for the period during which such damage, repair or restoration continues shall be abated in proportion to the degree to which Lessee's use of the Premises is impaired. Except for abatement of rent, if any, Lessee shall have no claim against Lessor for any damage suffered by reason of any such damage, destruction, repair or restoration. (b) If Lessor shall be obligated to repair or restore the Premises under the provisions of this paragraph 9 and shall not commence such repair or restoration within ninety (90) days after such obligation shall accrue, Lessee may at Lessee's option cancel and terminate this Lease by giving Lessor written notice of Lessee's election to do so at any time prior to the commencement of such repair or restoration. In such event this Lease shall terminate as of the date of such notice. 9.6 TERMINATION--ADVANCE PAYMENTS. Upon termination of this Lease pursuant to this paragraph 9, an equitable adjustment shall be made concerning advance rent and any advance payments made by Lessee to Lessor. Lessor shall, in addition, return to Lessee so much of Lessee's security deposit as has not therefore been applied by Lessor. 9.7 WAIVER. Lessor and Lessee waive the provisions of any statute which relate to termination of leases when leased property is destroyed and agree that such event shall be governed by the terms of this Lease. 10. REAL PROPERTY TAXES. 10.1 PAYMENT OF TAXES. Lessor shall pay the real property tax, as defined in paragraph 10.3, applicable to the Center subject to reimbursement by Lessee of Lessee's Share of such taxes in accordance with the provisions of paragraph 4.2, except as otherwise provided in paragraph 10.2. 10.2 ADDITIONAL IMPROVEMENTS. Lessee shall not be responsible for paying Lessee's Share of any increase in real property tax specified in the tax Lessor's records and work sheets as being caused by additional improvements placed upon the Center by other lessees or by Lessor for the exclusive ?ILLEGIBLE? of such other lessees. Lessee shall, however, pay to Lessor at the time that Operating Expenses are payable under paragraph 4.2(c) the entirety of any increase in real property tax if assessed solely by reason of additional improvements placed upon the Premises by Lessee or at Lessee's request. 10.3 DEFINITION OF "REAL PROPERTY TAX." As used herein, the term "real property tax" shall include any form of real estate tax or assessment, general, special, ordinary or extraordinary, and any license fee, commercial rental tax, improvement bond or bonds, levy or tax (other than inheritance, personal income or estate taxes) imposed on the Center or any portion thereof by any authority having the direct or indirect power to tax, including any city, county, state or federal government, or any school, agricultural, sanitary, fire, street, drainage or other improvement district thereof, as against any legal or equitable interest of Lessor in the Center or in any portion thereof, as against Lessors right to rent or other income therefrom, and as against Lessor's business of leasing the Center. The term "real property tax" shall also include any tax, fee, levy, assessment or charge (i) in substitution of, partially or totally, any tax, fee, levy, assessment or charge hereinabove included within the definition of "real property tax" or (ii) the nature of which was hereinbefore included within the definition of "real property tax," or (iii) which is imposed for a service or right not charged prior to June 1, 1978, or, if previously charged, has been increased since June 1, 1978, or (iv) which is imposed as a result of a transfer, either partial or total, of Lessor's interest in the Center or which is added to a tax or charge hereinbefore included within the definition of real property tax by reason of such transfer, or (v) which is imposed by reason of this transaction, any modifications or changes hereto, or any transfers hereof. 10.4 JOINT ASSESSMENT. If the Center is not separately assessed, Lessee's Share of the real property tax liability shall be an equitable proportion of the real property taxes for all of the land and improvements included within the tax parcel assessed, such proportion to be determined by Lessor from the respective valuations assigned in the assessor's work sheets or such other information as may be reasonably available. Lessor's reasonable determination thereof, in good faith, shall be conclusive. 10.5 PERSONAL PROPERTY TAXES. (a) Lessee shall pay prior to delinquency all taxes assessed against and levied upon the trade fixtures, furnishings, equipment and all other personal property of Lessee contained in the Premises or elsewhere. When possible, Lessee shall cause said trade fixtures, furnishings, equipment and all other personal property to be assessed and billed separately from the real property of Lessor. (b) If any of Lessee's said personal property shall be assessed with Lessor's real property, Lessee shall pay to Lessor the taxes attributable to Lessee within ten (10) days after receipt of a written statement setting forth the taxes applicable to Lessee's property. MULTI TENANT--MODIFIED NET Initials /s/ L.G. -------- -4- ?ILLEGIBLE? Utilities. Lessee shall pay for all water, gas, heat, light, power, telephone and other utilities and services supplied to the Premises, together with any taxes thereon. If any such services are not separately metered to the Premises, Lessee shall pay at Lessor's option, either Lessee's Share or a reasonable proportion to be determined by Lessor of all charges jointly metered with other premises in the Building. 12. ASSIGNMENT AND SUBLETTING. 12.1 LESSOR'S CONSENT REQUIRED. Lessee shall not voluntarily or by operation of law assign, transfer, mortgage, sublet, or otherwise transfer or encumber all or any part of Lessee's interest in the Lease or in the Premises, without Lessor's prior written consent, which Lessor shall not unreasonably withhold. Lessor shall respond to Lessee's request for consent hereunder in a timely manner and any attempted assignment, transfer, mortgage, encumbrance or subletting without such consent shall be void, and shall constitute a breach of this Lease without the need for notice to Lessee under paragraph 13.1. If Lessee shall assign or sublet the Leased Premises or request the consent of Lessor to any assignment or subletting, or if Lessee should request the consent of Lessor for any act Lessee proposes to do, then Lessee shall pay to Lessor, within thirty (30) days of receipt of a bill, all reasonable fees and costs incurred by Lessor for attorneys, accountants, service of notice or any other services in connection with said assignment or subletting or other act. 12.2 LESSEE AFFILIATE. Notwithstanding the provisions of paragraph 12.1 hereof, Lessee may assign or sublet the Premises, or any portion thereof, without Lessor's consent, to any corporation which controls, is controlled by or is under common control with Lessee, or to any corporation resulting from the merger or consolidation with Lessee, or to any person or entity which acquires all the assets of Lessee as a going concern of the business that is being conducted on the Premises, all of which are referred to as "Lessee Affiliate," provided that before such assignment shall be effective said assignee shall assume, in full, the obligations of Lessee under this Lease. Any such assignment shall not, in any way, affect or limit the liability of Lessee under the terms of this Lease even if after such assignment or subletting the terms of this Lease are materially changed or altered without the consent of Lessee, the consent of whom shall not be necessary. 12.3 TERMS AND CONDITIONS OF ASSIGNMENT. Regardless of Lessor's consent, no assignment shall release Lessee of Lessee's obligations hereunder or alter the primary liability of Lessee to pay the Base Rent and Lessee's Share of Operating Expenses, and to perform all other obligations to be performed by Lessee hereunder. Lessor may accept rent from any person other than Lessee pending approval or disapproval of such assignment. Neither a delay in the approval or disapproval of such assignment nor the acceptance of rent shall constitute a waiver or estoppel of Lessor's right to exercise its remedies for the breach of any of the terms or conditions of this paragraph 12 or this Lease. Consent to one assignment shall not be deemed consent to any subsequent assignment. In the event of default by any assignee of Lessee or any successor of Lessee, in the performance of any of the terms hereof, Lessor may proceed directly against Lessee without the necessity of exhausting remedies against said assignee. Lessor may consent to subsequent assignments of this Lease or amendments or modifications to this Lease with assignees of Lessee, without notifying Lessee, or any successor of Lessee, and without obtaining its or their consent thereto and such action shall not relieve Lessee of liability under this Lease. 12.4 TERMS AND CONDITIONS APPLICABLE TO SUBLETTING. Regardless of Lessor's consent, the following terms and conditions shall apply to any subletting by Lessee of all or any part of the Premises and shall be included in subleases: (a) Lessee hereby assigns and transfers to Lessor all of Lessee's interest in all rentals and income arising from any sublease heretofore or hereafter made by Lessee, and Lessor may collect such rent and income and apply same toward Lessee's obligations under this Lease, provided, however, that until a default shall occur in the performance of Lessee's obligations under this Lease, Lessee may receive, collect and enjoy the rents accruing under such sublease. Lessor shall not, by reason of this or any other assignment of such sublease to Lessor nor by reason of the collection of the rents from a ?ILLEGIBLE? be deemed liable to the sublessee for any failure of Lessee to perform and comply with any of Lessee's obligations to such sublessee under such ?ILLEGIBLE? Lessee hereby irrevocably authorizes and directs any such sublessee, upon receipt of a written notice from Lessor stating that a default exists in the performance of Lessee's obligations under this Lease, to pay to Lessor the rents due and to become due under the sublease. Lessee agrees that such sublessee shall have the right to rely upon any such statement and request from Lessor, and that such sublessee shall pay such rents to Lessor without any obligation or right to inquire as to whether such default exists and notwithstanding any notice from or claim from Lessee to the contrary. Lessee shall have no right or claim against such sublessee or Lessor for any such rents so paid by said sublessee to Lessor. (b) No sublease entered into by Lessee shall be effective unless and until it has been approved in writing by Lessor. In entering into any sublease, Lessee shall use only such form of sublease as is satisfactory to Lessor, and once approved by Lessor, such sublease shall not be changed or modified without Lessor's prior written consent. Any sublessee shall, by reason of entering into a sublease under this Lease, be deemed, for the benefit of Lessor, to have assumed and agreed to conform and comply with each and every obligation herein to be performed by Lessee other than such obligations as are contrary to or inconsistent with provisions contained in a sublease to which Lessor has expressly consented in writing. (c) If Lessee's obligations under this Lease have been guaranteed by third parties, then a sublease, and Lessor's consent thereto, shall not be effective unless said guarantors give their written consent to such sublease and the terms thereof. (d) The consent by Lessor to any subletting shall not release Lessee from its obligations or alter the primary liability of Lessee to pay the rent and perform and comply with all of the obligations of Lessee to be performed under this Lease. (e) The consent by Lessor to any subletting shall not constitute a consent to any subsequent subletting by Lessee or to any assignment or subletting by the sublessee. However, Lessor may consent to subsequent sublettings and assignments of the sublease or any amendments or modifications thereto without notifying Lessee or anyone else liable on the Lease or sublease and without obtaining their consent and such action shall not relieve such persons from liability. (f) In the event of any default under this Lease, Lessor may proceed directly against Lessee, any guarantors or any one else responsible for the performance of this Lease, including the sublessee, without first exhausting Lessor's remedies against any other person or entity responsible therefor to Lessor, or any security held by Lessor or Lessee. (g) In the event Lessee shall default in the performance of its obligations under this Lease, Lessor, at its option and without any obligation to do so, may require any sublessee to attorn to Lessor, in which event Lessor shall undertake the obligations of Lessee under such sublease from the time of the exercise of said option to the termination of such sublease; provided, however, Lessor shall not be liable for any prepaid rents or security deposit paid by such sublessee to Lessee or for any other prior defaults of Lessee under such sublease. (h) Each and every consent required of Lessee under a sublease shall also require the consent of Lessor. (i) No sublessee shall further assign or sublet all or any part of the Premises without Lessor's prior written consent. (j) Lessor's written consent to any subletting of the Premises by Lessee shall not constitute an acknowledgement that no default then exists under this Lease of the obligations to be performed by Lessee nor shall such consent be deemed a waiver of any then existing default, except as may be otherwise stated by Lessor at the time. (k) With respect to any subletting to which Lessor has consented, Lessor agrees to deliver a copy of any notice of default by Lessee to the ?ILLEGIBLE?. Such sublessee shall have the right to cure a default of Lessee within ten (10) days after service of said notice of default upon such sublessee, and the sublessee shall have a right of reimbursement and offset from and against Lessee for any such defaults cured by the sublessee. 12.5 ATTORNEY'S FEES. In the event Lessee shall assign or sublet the Premises or request the consent of Lessor to any assignment or subletting or if Lessee shall request the consent of Lessor for any act Lessee proposes to do then Lessee shall pay Lessor's reasonable attorneys fees incurred in connection therewith, such attorneys fees not to exceed $350.00 for each such request. 13. DEFAULT; REMEDIES. 13.1 DEFAULT. The occurrence of any one or more of the following events shall constitute a material default of this Lease by Lessee: (a) The vacating or abandonment of the Premises by Lessee. (b) The failure by Lessee to make any payment of rent or any other payment required to be made by Lessee hereunder, as and when due, where such failure shall continue for a period of three (3) days after written notice thereof from Lessor to Lessee. In the event that Lessor serves Lessee with a Notice to Pay Rent or Quit pursuant to applicable Unlawful Detainer statutes such Notice to Pay Rent or Quit shall also constitute the notice required by this subparagraph. (c) Except as otherwise provided in this Lease, the failure by Lessee to observe or perform any of the covenants, conditions or provisions of this Lease to be observed or performed by Lessee, other than described in paragraph (b) above, where such failure shall continue for a period of thirty (30) days after written notice thereof from Lessor to Lessee; provided, however, that if the nature of Lessee's noncompliance is such that more than thirty (30) days are reasonably required for its cure, then Lessee shall not be deemed to be in default if Lessee commenced such cure within said thirty (30) day period and thereafter diligently prosecutes such cure to completion. To the extent permitted by law, such thirty (30) day notice shall constitute the sole and exclusive notice required to be given to Lessee under applicable Unlawful Detainer statutes. (d) (i) The making by Lessee of any general arrangement or general assignment for the benefit of creditors; (ii) Lessee becomes a "debtor" as defined in 11 U.S.C. Section 101 or any successor statute thereto (unless, in the case of a petition filed against Lessee, the same is dismissed within sixty (60) days); (iii) the appointment of a trustee or receiver to take possession of substantially all of Lessee's assets located at the Premises or of Lessee's interest in this Lease, where possession is not restored to Lessee within thirty (30) days; or (iv) the attachment, execution or other judicial seizure of substantially all of Lessee's assets located at the Premises or of Lessee's interest in this Lease, where such seizure is not discharged within thirty (30) days. In the event that any provision of this paragraph 13.1(d) is contrary to any applicable law, such provision shall be of no force or effect. MULTI TENANT--MODIFIED NET Initials /s/ L.G. -------- -5- (e) The discovery by Lessor that any financial statement given to Lessor by Lessee, any assignee of Lessee, any subtenant of Lessee, any successor in interest of Lessee or any guarantor of Lessee's obligation hereunder, was materially false. 13.2 REMEDIES. In the event of any such material default by Lessee, Lessor may at any time thereafter, with or without notice or demand and without limiting Lessor in the exercise of any right or remedy which Lessor may have by reason of such default: (a) Terminate Lessee's right to possession of the Premises by any lawful means, in which case this Lease and the term hereof shall terminate and Lessee shall immediately surrender possession of the Premises to Lessor. In such event Lessor shall be entitled to recover from Lessee all damages incurred by Lessor by reason of Lessee's default including, but not limited to, the cost of recovering possession of the Premises; expenses of reletting, including necessary renovation and alteration of the Premises, reasonable attorney's fees, and any real estate commission actually paid; the worth at the time of award by the court having jurisdiction thereof of the amount by which the unpaid rent for the balance of the term after the time of such award exceeds the amount of such rental loss for the same period that Lessee proves could be reasonably avoided; that portion of the leasing commission paid by Lessor pursuant to paragraph 15 applicable to the unexpired term of this Lease. (b) Maintain Lessee's right to possession in which case this Lease shall continue in effect whether or not Lessee shall have vacated or abandoned the Premises. In such event Lessor shall be entitled to enforce all of Lessor's rights and remedies under this Lease, including the right to recover the rent as it becomes due hereunder. (c) Pursue any other remedy now or hereafter available to Lessor under the laws or judicial decisions of the state wherein the Premises are located. Unpaid installments of rent and other unpaid monetary obligations of Lessee under the terms of this Lease shall bear interest from the date due at the maximum rate then allowable by law. 13.3 DEFAULT BY LESSOR. Lessor shall not be in default unless Lessor fails to perform obligations required of Lessor within a reasonable time, but in no event later than thirty (30) days after written notice by Lessee to Lessor and to the holder of any first mortgage or deed of trust covering the Premises whose name and address shall have therefore been furnished to Lessee in writing, specifying wherein Lessor has failed to perform such obligation, provided, however, that if the nature of Lessor's obligation is such that more than thirty (30) days are required for performance then Lessor shall not be in default if Lessor commences performance within such thirty (30) day period and thereafter diligently prosecutes the same to completion. 13.4 LATE CHARGES. Should Lessee fail to pay, when due and payable, the minimum monthly rental or any additional rental, such unpaid amounts shall bear interest at the maximum legal rate from the date the debt was incurred to the date of ultimate payment. Said interest amount shall be in addition to, and not in lieu of, any late charge assessed for the debt incurred. Late charges shall not be included in calculating interest due. In addition to such interest, Lessee stipulates that the late payment by Lessee of any monthly rental/additional rental will cause Lessor to incur certain costs and expenses not contemplated by the parties/lease hereto, the exact amount of which costs are extremely difficult to ascertain. As such, if any such installment is not received by Lessor from Lessee within five (5) days of its due date, Lessee shall forthwith pay as additional rent, a late charge of ten percent (10%) of that amount due. Lessor and Lessee agree that such late charge represents a reasonable estimate of such costs and expenses and is fair compensation to Lessor for the loss caused by Lessee's nonpayment. Payment(s) made by Lessee shall be applied by Lessor, subject to Lessor's sole discretion, first to late charges incurred, then to common area maintenance/operating expense as additional rent, and lastly to base rent. Lessor's acceptance of this late charge shall not constitute a waiver of Lessee's default with respect to nonpayment of the subject debt, nor prevent Lessor from exercising all other rights, claims, or remedies, known ?ILLEGIBLE? unknown, available to Lessor pursuant to this lease or under California or federal law. CONDEMNATION. If the Premises or any portion thereof or the Center are taken under the power of eminent domain, or sold under the threat of the exercise of said power (all of which are herein called "condemnation"), this Lease shall terminate as to the part so taken as of the date the condemning authority takes title or possession, whichever first occurs. If more than ten percent of the floor area of the Premises, or more than twenty-five percent of that portion of the Common Areas designated as parking for the Center is taken by condemnation. Lessee may, at Lessee's option, to be exercised in writing only within ten (10) days after Lessor shall have given Lessee written notice of such taking (or in the absence of such notice, within ten (10) days after the condemning authority shall have taken possession) terminate this Lease as of the date the condemning authority takes such possession. If Lessee does not terminate this Lease in accordance with the foregoing, this Lease shall remain in full force and effect as to the portion of the premises remaining, except that the rent shall be reduced in the proportion that the floor area of the Premises taken bears to the total floor are of the Premises. No reduction of rent shall occur if the only area taken is that which does not have the Premises located thereon. Any award for the taking of all or any part of the Premises under the power of eminent domain or any payment made under threat of the exercise of such power shall be the property of Lessor, whether such award shall be made as compensation for diminution in value of the leasehold or for the taking of the fee, or as severance damages; provided, however, that Lessee shall be entitled to any award for loss of or damage to Lessee's trade fixtures and removable personal property. In the event that this Lease is not terminated by reason of such condemnation, Lessor shall to the extent of severance damages received by Lessor in connection with such condemnation, repair any damage to the Premises caused by such condemnation except to the extent that Lessee has been reimbursed therefor by the condemning authority. Lessee shall pay any amount in excess of such severance damages required to complete such repair. 15. BROKER'S FEE. (a) Upon execution of this Lease by both parties, Lessor shall pay to N/A Licensed real estate broker(s) a fee as set forth in a separate agreement between Lessor and said broker(s), or in the event there is no separate agreement between Lessor and said broker(s), the sum of $N/A, for brokerage services rendered by said broker(s) to Lessor in this transaction. 16. ESTOPPEL CERTIFICATE. (a) Each party (as "responding party") shall at any time upon not less than ten (10) days' prior written notice from the other party ("requesting party") execute, acknowledge and deliver to the requesting party a statement in writing (i) certifying that this Lease is unmodified and in full force and effect (or, if modified, stating the nature of such modification and certifying that this Lease, as so modified, is in full force and effect) and the date to which the rent and other charges are paid in advance, if any, and (ii) acknowledging that there are not, to the responding party's knowledge, any uncured defaults on the part of the requesting party, or specifying such defaults if any are claimed. Any such statement may be conclusively relied upon by any prospective purchaser or encumbrancer of the Premises or of the business of the requesting party. (b) At the requesting party's option, the failure to deliver such statement within such time shall be a material default of this Lease by the party who is to respond, without any further notice to such party, or it shall be conclusive upon such party that (i) this Lease is in full force and effect, without modification except as may be represented by the requesting party, (ii) there are no uncured defaults in the requesting party's performance, and (iii) if Lessor is the requesting party, not more than one month's rent has been paid in advance. (c) If Lessor desires to finance, refinance, or sell the Property, or any part thereof, Lessee and all Guarantors of Lessee's performance hereunder hereby agrees to deliver to any lender or purchaser designated by Lessor such financial statements of Lessee and such Guarantors as may be reasonably ?ILLEGIBLE? by such lender or purchaser. Such statements shall include the past three (3) years' financial statements of Lessee. All such financial statements ?ILLEGIBLE? be received by Lessor and such lender or purchaser in confidence and shall be used only for the purposes herein set forth. 17. LESSOR'S LIABILITY. The term "Lessor" as used herein shall mean only the owner or owners, at the time in question, of the fee title or a lessee's interest in a ground lease of the Center, and except as expressly provided in paragraph 15, in the event of any transfer of such title or interest, Lessor herein named (and in case of any subsequent transfers then the grantor) shall be relieved from and after the date of such transfer of all liability as respects Lessor's obligations thereafter to be performed, provided that any funds in the hands of Lessor or the then grantor at the time of such transfer, in which Lessee has an interest, shall be delivered to the grantee. The obligations contained in this Lease to be performed by Lessor shall, subject as aforesaid, be binding on Lessors successors and assigns, only during their respective periods of ownership. 18. SEVERABILITY. The invalidity of any provision of this Lease as determined by a court of competent jurisdiction, shall in no way affect the validity of any other provision hereof. 19. INTEREST ON PAST-DUE OBLIGATIONS. Except as expressly herein provided, any amount due to Lessor not paid when due shall bear interest at the maximum rate then allowable by law from the date due. Payment of such interest shall not excuse or cure any default by Lessee under this Lease; provided, however, that interest shall not be payable on late charges incurred by Lessee nor on any amounts upon which late charges are paid by Lessee. 20. TIME OF ESSENCE. Time is of the essence with respect to the obligations to be performed under this Lease. 21. ADDITIONAL RENT. All monetary obligations of Lessee to Lessor under the terms of this Lease, including but not limited to Lessee's Share of Operating Expenses and insurance and tax expenses payable shall be deemed to be rent. 22. INCORPORATION OF PRIOR AGREEMENTS; AMENDMENTS. This Lease contains all agreements of the parties with respect to any matter mentioned herein. No prior or contemporaneous agreement or understanding pertaining to any such matter shall be effective. This lease may be modified in writing only, signed by the parties in interest at the time of the modification. Except as otherwise stated in this Lease, Lessee hereby acknowledges that neither the real estate broker listed in paragraph 15 hereof nor any cooperating broker on this transaction nor the Lessor or any employee or agents of any of said persons has made any oral or written warranties or representations to Lessee relative to the condition or use by Lessee of the Premises or the Property and Lessee acknowledges that Lessee assumes all responsibility regarding the Occupational Safety Health Act, the legal use and adaptability of the Premises and the compliance thereof with all applicable laws and regulations in effect during the term of this Lease except as otherwise specifically stated in this Lease. 23. NOTICES. Any notice required or permitted to be given hereunder shall be in writing and may be given by personal delivery or by certified mail, and if given personally or by mail, shall be deemed sufficiently given if addressed to Lessee or to Lessor at the address noted below the signature of the respective parties, MULTI TENANT--MODIFIED NET Initials /s/ L.G. -------- -6- EXHIBIT B ASSIGNMENT FORM FOR VALUE RECEIVED, ______________________________________ hereby sells, assigns and transfers all of the rights of the undersigned under the attached Warrant with respect to the number of shares of Series F Preferred Stock covered thereby set forth below, unto: NAME OF ASSIGNEE ADDRESS/FAX NUMBER NO. OF SHARES Dated: Signature: ______________________ ___________________________ ___________________________ Witness: ___________________________ ?ILLEGIBLE? case may be. Either party may by notice to the other specify a different address for notice purposes except that upon Lessee's taking possession of ?ILLEGIBLE? the Premises shall constitute Lessee's address for notice purposes. A copy of all notices required or permitted to be given to Lessor hereunder shall be concurrently transmitted to such party or parties at such addresses as Lessor may from time to time hereafter designate by notice to Lessee. 24. WAIVERS. No waiver by Lessor or any provision hereof shall be deemed a waiver of any other provision hereof or of any subsequent breach by Lessee of the same or any other provision. Lessor's consent to, or approval of, any act shall not be deemed to render unnecessary the obtaining of Lessor's consent to or approval of any subsequent act by Lessee. The acceptance of rent hereunder by Lessor shall not be a waiver of any preceding breach by Lessee of any provision hereof other than the failure of Lessee to pay the particular rent so accepted, regardless of Lessor's knowledge of such preceding breach at the time of acceptance of such rent. 25. RECORDING. Either Lessor or Lessee shall, upon request of the other, execute, acknowledge and deliver to the other a "short form" memorandum of this Lease for recording purposes. 26. HOLDING OVER. If Lessee, with Lessor's consent, remains in possession of the Premises or any part thereof after the expiration of the term hereof, such occupancy shall be a tenancy from month to month upon all the provisions of this Lease pertaining to the obligations of Lessee, but all Options, if any, granted under the terms of this Lease shall be deemed terminated and be of no further effect during said month to month tenancy. 27. CUMULATIVE REMEDIES. No remedy or election hereunder shall be deemed exclusive but shall, wherever possible, be cumulative with all other remedies at law or in equity. 28. COVENANTS AND CONDITIONS. Each provision of this Lease performable by Lessee shall be deemed both a covenant and a condition. 29. BINDING EFFECT; CHOICE OF LAW. Subject to any provisions hereof restricting assignment or subletting by Lessee and subject to the provisions of paragraph 17, this Lease shall bind the parties, their personal representatives, successors and assigns. This Lease shall be governed by the laws of the State where the Center is located and any litigation concerning this Lease between the parties hereto shall be initiated in the county in which the Center is located. 30. SUBORDINATION. (a) This Lease, and any Option granted hereby, at Lessor's option, shall be subordinate to any ground lease, mortgage, deed of trust, or any other hypothecation or security now or hereafter placed upon the Center and to any and all advances made on the security thereof and to all renewals, modifications, consolidations, replacements and extensions thereof. Notwithstanding such subordination, Lessee's right to quiet possession of the Premises shall not be disturbed if Lessee is not in default and so long as Lessee shall pay the rent and observe and perform all of the provisions of this Lease, unless this Lease is otherwise terminated pursuant to its terms. If any mortgagee, trustee or ground lessor shall elect to have this Lease and any Options granted hereby prior to the lien of its mortgage, deed of trust or ground lease, and shall give written notice thereof to Lessee, this Lease and such Options shall be deemed prior to such mortgage, deed of trust or ground lease, whether this Lease or such Options are dated prior or subsequent to the date of said mortgage, deed of trust or ground lease or the date of recording thereof. (b) Lessee agrees to execute any documents required to effectuate an attornment, a subordination or to make this Lease or any Option granted herein prior to the lien of any mortgage, deed of trust or ground lease, as the case may be. Lessee's failure to execute such documents within ten (10) days after written demand shall constitute a material default by Lessee hereunder without further notice to Lessee or, at Lessor's option, Lessor shall execute such documents on behalf of Lessee as Lessee's attorney-in-fact. Lessee does hereby make, constitute and irrevocably appoint Lessor as Lessee's attorney-in-fact ?ILLEGIBLE? Lessee's name, place and stead, to execute such documents in accordance with is paragraph 30(b). 31. ATTORNEY'S FEES. If either party or the broker(s) named herein bring an action to enforce the terms hereof or declare rights hereunder, the prevailing party in any such action, on trial or appeal, shall be entitled to his reasonable attorney's fees to be paid by the losing party as fixed by the court. The provisions of this paragraph shall inure to the benefit of the broker named herein who seeks to enforce a right hereunder. 32. LESSOR'S ACCESS. Lessor and Lessor's agents shall have the right to enter the Premises at reasonable times for the purposes of inspecting the same, showing the same to prospective purchasers, lenders, or lessees, and making such alterations, repairs, improvements or additions to the Premises or to the building of which they are part as Lessor may deem necessary or desirable. Lessor may at any time place on or about the Premises or the Building any ordinary "For Sale" signs and Lessor may at any time during the last 120 days of the term hereof place on or about the Premises. All activities of Lessor pursuant to this paragraph shall be without abatement of rent, nor shall Lessor have any liability to Lessee for the same. 33. AUCTIONS. Lessee shall not conduct, nor permit to be conducted, either voluntarily or involuntarily, any auction upon the Premises or the Common Areas without first having obtained Lessor's prior written consent. Notwithstanding anything to the contrary in this Lease, Lessor shall not be obligated to exercise any standard of reasonableness in determining whether to grant such consent. 34. SIGNS. Lessee shall not place any sign upon the Premises of the Center without Lessor's prior written consent. Under no circumstances shall Lessee place a sign on any roof of the Center. 35. MERGER. The voluntary or other surrender of this Lease by Lessee, or a mutual cancellation thereof, or a termination by Lessor, shall not work a merger, and shall, at the option of Lessor, terminate all or any existing subtenancies or may, at the option of Lessor, operate as an assignment to Lessor of any or all of such subtenancies. 36. CONSENTS. Except for paragraph 33 hereof, wherever in this Lease the consent of one party is required to an act of the other party such consent shall not be unreasonably withheld or delayed. 37. GUARANTOR. In the event that there is a guarantor of this Lease, said guarantor shall have the same obligations as Lessee under this Lease. 38. QUIET POSSESSION. Upon Lessee paying the rent for the Premises and observing and performing all of the covenants, conditions and provisions on Lessee's part to be observed and performed hereunder, Lessee shall have quiet possession of the Premises for the entire term hereof subject to all of the provisions of this Lease. The individuals executing this Lease on behalf of Lessor represent and warrant to Lessee that they are fully authorized and legally capable of executing this Lease on behalf of Lessor and that such execution is binding upon all parties holding an ownership interest in the Property. Landlord shall not be liable for any damage arising from acts or neglects of co-tenants, or other occupants of the same building, or of any owners or occupants of adjacent or contiguous property. 39. OPTIONS. 39.1 DEFINITION. As used in this paragraph the word "Option" has the following meaning: (1) the right or option to extend the term of this Lease or to renew this Lease or to extend or renew any lease that Lessee has on other property of Lessor; (2) the option or right of first refusal to lease the Premises or the right of first offer to lease the Premises or the right of first refusal to lease other space within the Center or other property of Lessor or the right of first offer to lease other space within the Center or other property of Lessor; (3) the right or option to purchase the Premises or the Center, or the right of first ?ILLEGIBLE? to purchase the Premises or the Center, or the right of first offer to purchase the Premises or the Center, or the right or option to purchase other ?ILLEGIBLE? of Lessor, or the right of first refusal to purchase other property of Lessor or the right of first offer to purchase other property of Lessor. 39.2 OPTIONS PERSONAL. Each Option granted to Lessee in this Lease is personal to the original Lessee and may be exercised only by the original Lessee while occupying the Premises who does so without the intent of thereafter assigning this Lease or subletting the Premises or any portion thereof, and may not be exercised or be assigned, voluntarily or involuntarily, by or to any person or entity other than Lessee, provided, however, that an Option may be exercised by or assigned to any Lessee Affiliate as defined in paragraph 12.2 of this Lease. The Options, if any, herein granted to Lessee are not assignable separate and apart from this Lease, nor may any Option be separated from this Lease in any manner, either by reservation or otherwise. 39.3 MULTIPLE OPTIONS. In the event that Lessee has any multiple options to extend or renew this Lease a later option cannot be exercised unless the prior option to extend or renew this Lease has been so exercised. 39.4 EFFECT OF DEFAULT ON OPTIONS. (a) Lessee shall have no right to exercise an Option, notwithstanding any provision in the grant of Option to the contrary, (i) during the time commencing from the date Lessor gives to Lessee a notice of default pursuant to paragraph 13.1(b) or 13.1(c) and continuing until the noncompliance alleged in said notice of default is cured, or (ii) during the period of time commencing on the date after a monetary obligation to Lessor is due from Lessee and unpaid (without necessity for notice thereof to Lessee) and continuing until the obligation is paid, or (iii) at any time after an event of default described in paragraphs 13.1(a), 13.1(d), or 13.1(e)(without any necessity of Lessor to give notice of such default to Lessee), nor (iv) in the event that Lessor has given to Lessee three or more notices of default under paragraph 13.1(b), or paragraph 13.1(c), whether or not the defaults are cured, during the 12 month period of time immediately prior to the time that Lessee attempts to exercise the subject Option. (b) The period of time within which an Option may be exercised shall not be extended or enlarged by reason of Lessee's inability to exercise an Option because of the provisions of paragraph 39.4(a). (c) All rights of Lessee under the provisions of an Option shall terminate and be of no further force or effect, notwithstanding Lessee's due and timely exercise of the Option, if, after such exercise and during the term of this Lease, (i) Lessee fails to pay to Lessor a monetary obligation of Lessee for a period of thirty (30) days after such obligation becomes due (without any necessity of Lessor to give notice thereof to Lessee), or (ii) Lessee fails to commence to cure a default specified in paragraph 13.1(c) within thirty (30) days after the date that Lessor gives notice to Lessee of such default and/or Lessee fails thereafter to diligently prosecute said cure to completion, or (iii) Lessee commits a default described in paragraph 13.1(a), 13.1(d) or 13.1(e) (without any necessity of Lessor to give notice of such default to Lessee), or (iv) Lessor gives to Lessee three or more notices of default under paragraph 13.1(b), or paragraph 13.1(c), whether or not the defaults are cured. MULTI TENANT--MODIFIED NET Initials /s/ L.G. -------- -7- 40. ?ILLEGIBLE? MEASURES. Lessee hereby acknowledges that Lessor shall have no obligation whatsoever to provide guard service or other security measures for the benefit of the Premises or the Center. Lessee assumes all responsibility for the protection of Lessee, its agents, and invitees and the property of Lessee and of Lessee's agents and invitees from acts of third parties. Nothing herein contained shall prevent Lessor, at Lessor's sole option, from providing security protection for the Industrial Center or any part thereof, in which event the cost thereof shall be included within the definition of Operating Expenses, as set forth in paragraph 4.2(b). 41. EASEMENTS. Lessor reserves to itself the right, from time to time to grant such easements, rights and dedications that Lessor deems necessary or desirable, and to cause the recordation of Parcel Maps and restrictions, so long as such easements, rights, dedications, Maps and restrictions do not unreasonably interfere with the use of the Premises by Lessee. Lessee shall sign any of the aforementioned documents upon request of Lessor and failure to do so shall constitute a material default of this Lease by Lessee without the need for further notice to Lessee. 42. PERFORMANCE UNDER PROTEST. If at any time a dispute shall arise as to any amount or sum of money to be paid by one party to the other under the provisions hereof, the party against whom the obligation to pay the money is asserted shall have the right to make payment "under protest" and such payment shall not be regarded as a voluntary payment, and there shall survive the right on the part of said party to institute suit for recovery of such sum. If it shall be adjudged that there was no legal obligation on the part of said party to pay such sum or any part thereof, said party shall be entitled to recover such sum or so much thereof as it was not legally required to pay under the provisions of this Lease. 43. AUTHORITY. If Lessee is a corporation, trust, or general or limited partnership, each individual executing this Lease on behalf of such entity represents and warrants that he or she is duly authorized to execute and deliver this Lease on behalf of said entity. If Lessee is a corporation, trust or partnership, Lessee shall, within thirty (30) days after execution of this Lease, deliver to Lessor evidence of such authority satisfactory to Lessor. 44. CONFLICT. Any conflict between the printed provisions of this Lease and the typewritten or handwritten provisions, if any, shall be controlled by the typewritten or handwritten provisions. 45. OFFER. Preparation of this Lease by Lessor or Lessor's agent and submission of same to Lessee shall not be deemed an offer to lease. This Lease shall become binding upon Lessor and Lessee only when fully executed by Lessor and Lessee. 46. ADDENDUM. Attached hereto is an addendum or addenda containing paragraphs 47 through 55 which constitute a part of this Lease. 47. PARKING. Lessee is allowed 2.5 cars per 1,000 square feet Lessee has leased. Your 2.5 cars per 1,000 square feet should be used for executive management and customers only. All employees must park on City streets. Please note below license numbers of management. Please notify landlord of any change in management parking. A._________ B._________ C.________ D._________ E.__________ The following Exhibits are hereby attached and made part of this lease agreement: Exhibit "A" Estimated Budget Exhibit "B" Guarantee of Lease Exhibit"C" Rules and Regulations Exhibit "D" Site Plan Exhibit "E" Floor Plan LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND PROVISION CONTAINED HEREIN AND, BY EXECUTION OF THIS LEASE, SHOW THEIR INFORMED AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE TIME THIS LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE AND EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO THE PREMISES. LESSOR LESSEE THE FOUR AMIGOS, A CALIFORNIA LTD. MISSION VALLEY CHRISTIAN FELLOWSHIP OF SAN DIEGO, A CALIFORNIA NON-PROFIT RELIGIOUS CORPORATION By /s/ [ILLEGIBLE] By /s/ Leo A. Govinetti, President --------------- ------------------------------- By________________ By _______________ Executed on 11/18/94 Executed on___________________________ -------------- (Corporate Seal) (Corporate Seal) ADDRESS FOR NOTICES AND RENT ADDRESS 4607 MISSION GORGE PLACE 4562-A ALVARADO CANYON ROAD SAN DIEGO, CALIFORNIA 92120 SAN DIEGO, CALIFORNIA 92120 MULTI TENANT--MODIFIED NET Initials /s/ L.G. -------- -8- A D D E N D U M TO STANDARD INDUSTRIAL LEASE DATED OCTOBER 19, 1994 BY AND BETWEEN THE FOUR AMIGOS, A CALIFORNIA LTD. AND MISSION VALLEY CHRISTIAN FELLOWSHIP OF SAN DIEGO, A CALIFORNIA RELIGIOUS NON-PROFIT CORPORATION 49 P R O P E R T Y T A X E S The estimated budget for Property Taxes is attached hereto and made a part hereof. Lessee agrees Property Taxes are to be paid concurrently with rental payment due and payable on the first day of each month. 50 M A I N T E N A N C E F E E S The established budget for maintenance cost is attached hereto and made a part hereof. Lessee agrees maintenance fees are to be paid concurrently with rental payment due and payable on the first day of each month. BY: THE FOUR AMIGOS, A CALIFORNIA LTD. BY: MISSION VALLEY CHRISTIAN FELLOWSHIP OF SAN DIEGO, A CALIFORNIA NON-PROFIT RELIGIOUS CORPORATION /s/ [ILLEGIBLE] /s/ Leo A. Govinetti, President - --------------------- ------------------------------- Lessor Lessee 11/18/94 10-24-1994 - -------------- ------------------- Date Date 48.4 INDEMNIFICATION. Lessee hereby agrees to indemnify, defend and hold harmless Lessor, its trustees, officers, employees and agents, and the beneficiary or mortgagee under any deed of trust or mortgage now or hereafter encumbering all or any portion of the Premise, from and against any and all suits, actions, legal or administrative proceedings, claims, demands, damages, fines, punitive damages, losses, costs, liabilities, interest, attorneys' fees (including any such fees and expenses incurred in enforcing this indemnity), resulting from or relating to, directly or indirectly, the Use of Hazardous Materials on or about the Premises. The indemnity set forth herein shall include, without limitation, the cost of any required or necessary repair, clean-up or detoxification of the Premises and the surrounding property and shall survive the expiration or earlier termination of the term of this Lease. 48.5 ADDITIONAL INSURANCE OR FINANCIAL CAPACITY. If at any time it reasonably appears to Lessor that Lessee is not maintaining sufficient insurance or other means of financial capacity to enable Lessee to fulfill its obligation to Lessor hereunder, whether or not then accrued, liquidated, conditional or contingent, Lessee shall procure and thereafter maintain in full force and effect such insurance or other form of financial assurance, with or from companies or persons and in forms reasonably acceptable to Lessor as Lessor may from time to time reasonably request. BY: MISSION VALLEY CHRISTIAN FELLOWSHIP OF SAN DIEGO, A CALIFORNIA NON-PROFIT RELIGIOUS CORPORATION /s/ Leo A. Govinetti, President ------------------------------------- Lessee 10-24-1994 ----------------------------------- Date A D D E N D U M TO STANDARD INDUSTRIAL LEASE DATED OCTOBER 19, 1994 BY AND BETWEEN THE FOUR AMIGOS, A CALIFORNIA LTD. AND MISSION VALLEY CHRISTIAN FELLOWSHIP OF SAN DIEGO, A CALIFORNIA RELIGIOUS NON-PROFIT CORPORATION 51 R E N T S C H E D U L E Lessee agrees to pay the following monthly rent schedule for the premises from term commencement date: ~~Year 1: $5,811.60 plus operating expenses Year 2: $7,111.60 plus operating expenses Year 3: $8,111.60 plus operating expenses~~

52 T E N A N T I M P R O V E M E N T S Lessor, at Lessor's sole cost, shall put all electrical, HVAC and plumbing fixtures in good working order and Lessor shall provide Lessee with a written report from the certified HVAC company on the condition and remaining life expectancy of the HVAC units for the premises. 53 P A R K I N G Lessee shall be entitled to 30 unreserved and unassigned vehicle parking spaces. In addition, Lessee shall be allowed to utilize parking as required to support special functions during Saturday, Sunday, holidays and weekday evenings as long as such use does not interfere with other tenants. 54 O P E R A T I N G E X P E N S E S If, and only if, Lessor sells Lessee's building then Lessor agrees operating expenses paid by Lessee shall not increase by more than 10 percent per year after sale of the property. 55 D E L A Y I N O C C U P A N C Y If, Lessee is unable to occupy the total premises on or before December 7, 1994, due to fault of Lessor, or occupancy by current Lessee, Lessor shall provide Lessee a rent credit equivalent to one-half of their base rent for every day that occupancy is delayed. BY: THE FOUR AMIGOS, A CALIFORNIA LTD. BY: MISSION VALLEY CHRISTIAN FELLOWSHIP OF SAN DIEGO, A CALIFORNIA NON-PROFIT RELIGIOUS CORPORATION /s/ [ILLEGIBLE] /s/ Leo A. Govinetti, President - --------------------- --------------------------------- Lessor Lessee 11/18/94 10-24-1994 - --------------------- --------------------------------- Date Date EXHIBIT A THE FOUR AMIGOS MISSION VALLEY BUSINESS CENTER 1994 ESTIMATED BUDGET
MONTHLY YEARLY 1. Property Management Fee $ 793.83 $ 9,526.00 2. Maintenance 2,019.67 24,236.00 3. Landscaping 375.00 4,500.00 4. Security 217.17 2,606.00 5. Insurance 444.08 5,329.00 6. Gas & Electric 150.00 1,800.00 7. Water 453.33 5,440.00 8. Sweeping -0- -0- 9. Window Washing 225.00 2,700.00 10. Trash 497.00 5,964.00 11. Alarm Telephone -0- -0- 12. Reserve -0- -0- 13. Legal -0- -0- 14. Audit -0- -0- 15. Property Taxes 2,763.17 33,158.00 16. Association Dues -0- -0- 17. Franchise Tax 0.00 0.00 --------- ---------- TOTAL: $7,938.25 $95,259.00 ========= ==========
====================================================================== Tenant Building Area - 10,906 Square Feet = 17.49% Total Building Area - 62,372 $7,938.25 X 17.49% = $1,388.40 Monthly Maintenance & Tax Costs BY: THE FOUR AMIGOS BY: MISSION VALLEY CHRISTIAN FELLOWSHIP OF SAN DIEGO, A CALIFORNIA NON-PROFIT RELIGIOUS CORPORATION /s/ [ILLEGIBLE] /s/ Leo A. Govinetti, President - ---------------- ------------------------------- Lessor Lessee 11/18/94 10-24-1994 - ---------------- ------------------------------- Date Date EXHIBIT A THE FOUR AMIGOS MISSION VALLEY BUSINESS CENTER 1994 ESTIMATED BUDGET
MONTHLY YEARLY 1. Property Management Fee $ 793.83 $ 9,526.00 2. Maintenance 2,019.67 24,236.00 3. Landscaping 375.00 4,500.00 4. Security 217.17 2,606.00 5. Insurance 444.08 5,329.00 6. Gas & Electric 150.00 1,800.00 7. Water 453.33 5,440.00 8. Sweeping -0- -0- 9. Window Washing 225.00 2,700.00 10. Trash 497.00 5,964.00 11. Alarm Telephone -0- -0- 12. Reserve -0- -0- 13. Legal -0- -0- 14. Audit -0- -0- 15. Property Taxes 2,763.17 33,158.00 16. Association Dues -0- -0- 17. Franchise Tax 0.00 0.00 --------- ---------- TOTAL: $7,938.25 $95,259.00 ========= ==========
============================================================================ Tenant Building Area - 10,906 Square Feet = 17.49% Total Building Area - 62,372 $7,938.25 X 17.49% = $1,388.40 Monthly Maintenance & Tax Costs BY: THE FOUR AMIGOS BY: MISSION VALLEY CHRISTIAN FELLOWSHIP OF SAN DIEGO, A CALIFORNIA NON-PROFIT CORPORATION /s/ [ILLEGIBLE] /s/ Leo A. Govinetti, President - ----------------- ------------------------------- Lessor Lessee 11/18/94 10-24-1994 - ----------------- ------------------------------- Date Date EXHIBIT B GUARANTEE OF LEASE WHEREAS as a certain Lease of even date herewith has been, or will be, executed by and between THE FOUR AMIGOS, A CALIFORNIA LTD., therein referred to as "Lessor", and MISSION VALLEY CHRISTIAN FELLOWSHIP OF SAN DIEGO, A CALIFORNIA NON-PROFIT RELIGIOUS CORPORATION, therein and herein referred to as "Tenant", covering certain premises in the City of SAN DIEGO, County of SAN DIEGO, State of CALIFORNIA. WHEREAS, the Lessor under said Lease requires as a condition to its execution of said Lease that the undersigned Guarantor gurantee the full performance of the obligations of Tenant under said Lease; and WHEREAS, Guarantor is desirous that Lessor enter into said Lease with Tenant. NOW, THEREFORE, in consideration of the execution of said Lease by Lessor, Guarantor hereby unconditionally guarantees the full performance of each and all of the terms, covenants, and conditions of said Lease to be kept and performed by Tenant, including the payment of all rentals and other charges to accrue thereunder. Guarantor further agrees as follows: 1.0 PERFORMANCE OF OBLIGATIONS UNDER THE LEASE: (a) PERFORMANCE: In the case Tenant shall fail to perform any agreement or comply with any condition contained in the Lease and required to be performed or complied with by it, Guarantor, whether or not such failure constitutes a default under the Lease, will perform or comply with the same before any grace period for remedying the same has expired. Guarantor will pay all costs and expenses (including without limitation, attorneys' fees and expenses) in connection with the enforcement of the obligations of Tenant and in connection with the enforcement of Guarantor's obligations under this Agreement. (b) RENT: Without limiting the generality of subsection (a), and without being limited thereby, Guarantor unconditionally guarantees that Tenant will duly and punctually pay all fixed Rent (as defined in the Lease), and additional rent (Fixed Rent and additional rent being hereinafter collectively called "Rent"), damages (whether provided for in the Lease or otherwise allowed by law) and all other sums payable by Tenant under the Lease. Such guarantee is an absolute, unconditional, continuing guarantee of payment and not of collectibility, and is in no way conditioned upon any attempt to collect from Tenant or upon any other event or contingency. If Tenant shall fail duly and punctually to pay any such sum, Guarantor will forthwith pay the same, together with interest thereon at the rates and under the conditions contained in the Lease. 2.0 PAYMENTS IN LIEU OF RENT: In the event of any bankruptcy, insolvency, reorganization, arrangement, readjustment, composition, liquidation or similar proceeding with respect to tenancy in which the Lease shall be terminated or rejected or the obligations of Tenant shall be modified, Guarantor will pay an amount equal to the Rent which would have been payable by it pursuant to the Lease, accrued to the date of such termination, rejection or modification and shall thereafter pay an amount equal to the Rent which would have been payable by it pursuant to the Lease on the days when the same would have been due except for such termination, rejection or modification. 3.0 OBLIGATIONS OF GUARANTOR: The obligations of Guarantor hereunder shall be absolute and unconditional, shall not be subject to any counterclaim, setoff, deduction or defense based upon any claim Guarantor may have against Tenant or Lessor, and shall remain in full force and effect without regard to, and shall not be released, discharged, or in any way affected by any circumstance or condition (whether or not Guarantor shall have any knowledge or notice thereof), including without limitation: (a) any amendment or modification of or supplement to the Lease; (b) any waiver, consent, extension, indulgence or other action or inaction under or in respect of the Lease, or any exercise or non-exercise of any right, remedy, power or privilege under or in respect of the Lease; (c) any bankruptcy, insolvency, reorganization, arrangement, readjustment, composition, liquidation or similar proceeding with respect to Tenant; or (d) any limitation on the liability of Tenant under the Lease or any invalidly or unenforceability, in whole or in part of the Lease or any term thereof. 4.0 WAIVERS: Guarantor unconditionally waives (a) notice of any of the matters referred to in Section 3.0(b) all notices which may be required by statute, rule of law or otherwise to preserve or assert any rights against Guarantor hereunder, including, without limitation, any demand, proof or notice of nonpayment of any Rent, damages or other sums payable under this Lease, and notice of any failure on the part of Tenant to perform or comply with any term or condition of the Lease, (c) any right to the enforcement, assertion or exercise of any right, remedy, power or privilege under or in respect of the Lease, (d) any requirement of diligence, (e) any requirement to mitigate, by eviction of Tenant and the reletting of the Premises or otherwise, the damages resulting from a default by Tenant under the Lease, and (f) any right to a trial by jury in any action or proceeding hereunder or under the Lease. 5.0 WAIVER OF RIGHT TO REQUIRE LESSOR TO PROCEED AGAINST TENANT FIRST: Guarantor waives any right to require Lessor to (a) proceed against Tenant, its successor, assignee or subtenant; (b) proceed against or exhaust any security held from Tenant, its successor, assignee or subtenant; or (c) pursue any other remedy in Lessor's power whatsoever. Guarantor waives any defense arising by reason of any disability or other defense of Tenant or by reason of the cessation from any cause whatsoever of the liability of the Tenant. Until all indebtedness or other obligations of Tenant to Lessor shall have been paid in full, Guarantor shall ave no right to subrogation, and waives any right to enforce any remedy which Lessor now has or may hereafter have against Tenant, and waives any benefit or, and any right to participate in any security now or hereafter held by Lessor. Guarantor waives all presentments, demands for performance, notices of non-performance, protests, notices of protests, notices dishonor, notice of sales, and notices of acceptance of this Guarantee and of the existence, creation, or incurring of new or additional indebtedness. 6.0 SUBORDINATION OF TENANT'S DEBTS TO GUARANTOR. Guarantor agrees that the indebtedness of Tenant to Lessor, whether now existing or hereafter created, shall be prior to any claim that Guarantor may now have or hereafter acquire against Tenant, whether or not Tenant becomes insolvent. Guarantor hereby expressly subordinates any claim Guarantor may have against Tenant, upon any account whatsoever, to any claim that Lessor may now or hereafter have against Tenant. In the event of insolvency and consequent liquidation of the assets of Tenant, through bankruptcy, by an assignment for the benefit of creditors, by voluntary liquidation, or otherwise, the assets of Tenant applicable to the payment of the claims of both Lessor and Guarantor shall be paid to Lessor and shall be first applied by Lessor to the indebtedness of Tenant to Lessor. Guarantor does hereby assign to Lessor all claims which it may have or acquire against Tenant or any assignee or trustee in bankruptcy of Tenant; provided, that such assignment shall be effective only for the purpose of assuring to Lessor full payment of all indebtedness of Tenant to Lessor. 7.0 GUARANTOR'S UNDERSTANDING WITH RESPECT TO WAIVERS: Guarantor warrants and agrees that each of the waivers set forth above is made with Guarantor's full knowledge of its significance and consequences, and that under the circumstances, the waivers are reasonable and not contrary to public policy or law. If any of such waivers is determined to be contrary to any applicable law or public policy, such waiver shall be effective only to the extent permitted by law. 8.0 WAIVER OF AUTHENTICATION OF VALIDITY OF ACTS OF CORPORATION OR PARTNERSHIP: If Tenant or Guarantor are corporations or partnerships, it is not necessary for Lessor to inquire into the powers of borrower or Guarantor or the officers, directors, partners, or agents acting or purporting to act on their behalf, and any indebtedness made or created in reliance upon the professed exercise of such power shall be guaranteed hereunder. 9.0 OBLIGATIONS OF MARRIED PERSONS: Any married person who signs this Guaranty as the Guarantor hereby expressly agrees that recourse may be had against his or her separate property for all his or her obligations under this Guaranty. 10.0 JOINT AND SEVERAL LIABILITY OF GUARANTORS: This Agreement shall be binding upon Guarantor, and if more than one Guarantor, each of them jointly and severally, its successors and assignees, and shall inure to the benefit of and be enforceable by Lessor, and any holder of a mortgage on such Premises or any assignee under an assignment of Lessor's interest in the Lease given as security for any such mortgage, and their respective successors and assignees. 11.0 APPLICATION OF SINGULAR AND PLURAL IN CONTEXT AND CONSTRUCTION. In all cases where there are more than Guarantor, then all words used herein in the singular shall be deemed to have been used in the plural where the context and construction so require; and where Guaranty is executed by more than one Guarantor, the word "Guarantor" shall mean all and any one or more of them. 12.0 CALIFORNIA LAWS APPLICABLE: This Guaranty is governed by an construed in accordance with the laws of the state of California. 13.0 AMENDMENTS MUST BE IN WRITING: Neither this Agreement nor any term hereof may be amended, waived, discharged or terminated orally, but only by an instrument in writing signed by the party against which such amendment, waiver, discharge or termination is sought to be charged. 14.0 INTEGRATED DOCUMENT: This writing is intended by the parties to be an integrated and final expression of the guarantee agreement and also is intended to be a complete and exclusive statement of the terms of that agreement. No course of prior dealing between the parties, no usage of trade, and no parol or extrinsic evidence of any nature shall be used to supplement, modify or vary any of the terms hereof. There are no conditions to the full effectiveness of this guarantee agreement. This Agreement may be executed in several counterparts, each of which shall be an original, but all of which together shall constitute one instrument. IN WITNESS WHEREOF, the undersigned Guarantor has caused this Guarantee to be executed as of the date of said Lease which is dated OCTOBER 19, 1994. /s/ Leo A. Govinetti --------------------- Guarantor 10-24-1994 --------------------- Date LEO A. GOVINETTI --------------------- Please Print Name ###-##-#### --------------------- Social Security No. 50158749 --------------------- Driver's License No. EXHIBIT C MISSION VALLEY BUSINESS CENTER RULES & REGULATIONS A. TENANT AGREES AS FOLLOWS: 1. All loading and unloading of goods shall be done only at such times, in the areas and through the entrances designated for such purposes by Landlord. 2. The delivery or shipping of merchandise, supplies and fixtures to and from leased premises shall be subject to such rules and regulations as in the judgment of Landlord are necessary for the proper operation of the leased premises or shopping center. 3. All garbage and refuse shall be kept in the kind of container specified by Landlord and shall be placed outside of the premises, prepared for collection in the manner and at the times and places specified by Landlord. If Landlord shall provide or designate a service for picking up refuse and garbage, Tenant shall use same at Tenant's cost. Tenant shall pay the cost of removal of any Tenant's refuse or rubbish. 4. No radio or television or other similar device shall be installed without first obtaining in each instance Landlord's consent in writing. No aerial shall be erected on the roof or exterior walls of the premises, or on the grounds, without in each instance the written consent of the Landlord. Any aerial so installed without such written consent shall be subject to removal without notice at any time. 5. No loud speakers, televisions, phonographs, radios or other devices shall be used in a manner so as to be heard or seen outside of the premises without the prior written consent of Landlord. 6. The outside areas immediately adjoining the premises shall be kept clean and free from dirt and rubbish by Tenant to the satisfaction of Landlord, and Tenant shall not place or permit any obstructions or merchandise in such areas. 7. Tenant and Tenant's employees shall park their cars only in those portions of the parking area designated for that purpose by Landlord. Tenant shall furnish Landlord with State automobile license numbers assigned to Tenant's car or cars and cars of Tenant's employee, within five days after taking possession of the premises and shall thereafter notify Landlord of any changes within five days after such changes occur. In the event Tenant or its employees fail to park their cars in designated parking areas as aforesaid, then Landlord at its option shall charge Tenant $50.00 per day per car parked in any area other than those designated, as and for liquidated damages. 8. The plumbing facilities shall not be used for any other purpose than that for which they are constructed, and no foreign substance of any kind shall be thrown therein, and the expense of any breakage, stoppage, or damage resulting from a violation of this provision shall be borne by Tenant, who shall, or whose employees, agents or invitees shall have caused it. 9. Tenant shall use at Tenant's cost such pest extermination contractor as Landlord may direct and at such intervals as Landlord may require. 10. Tenant shall not burn any trash or garbage of any kind in or about the leased premises, the shopping center, or within one mile of the outside property line of the shopping center. /s/ Leo A. Govinetti ------------------------- Lessee MISSION VALLEY BUSINESS CENTER RULES & REGULATIONS (continued) 11. All public entrances and exits to the leased premises shall be kept unobstructed and open to the public at all times during normal business hours. 12. Tenant shall not cause or permit any obnoxious or foul odors that disturb the public or other tenants. Should such odors be evident, Tenant shall be required to take immediate steps to remedy same upon written notice from Landlord. 13. All signs will be uniform in material, shape, design, color and lettering. 14. All employees except the Manager will park in off-site parking areas. Parking lot will be for customers only. Vehicles may not be left in parking lot area for longer than a 24 hour period. 15. The outside areas immediately adjoining the premises shall be kept clean and free from dirt and rubbish by Tenant to the satisfaction of the Owner, and Tenant shall not place or permit any obstruction or merchandise in such areas. 16. Lessee shall not fasten or cause to be fastened, any machinery to any party wall or ceiling that will be a nuisance or shall tend to disturb neighbors. B. Tenant agrees to comply with all such rules and regulations. C. Owner reserves the right from time to time to amend or supplement the foregoing rules and regulations, and to adopt and promulgate additional rules and regulations applicable to the leased premises. Reasonable notice of such rules and regulations and amendments and supplements thereto, if any, shall be given to the Tenant. BY: MISSION VALLEY CHRISTIAN FELLOWSHIP OF SAN DIEGO, A CALIFORNIA NON-PROFIT RELIGIOUS CORPORATION /s/ Leo A. Govinetti, President ----------------------------------------- Lessee 10-24-1994 ----------------------------------------- Date A D D E N D U M TO STANDARD INDUSTRIAL LEASE DATED OCTOBER 19, 1994 BY AND BETWEEN THE FOUR AMIGOS, A CALIFORNIA LTD. AND MISSION VALLEY CHRISTIAN FELLOWSHIP OF SAN DIEGO, A CALIFORNIA NON-PROFIT RELIGIOUS CORPORATION 48 E N V I R O N M E N T A L M A T T E R S 48.1 NO USE OF HAZARDOUS MATERIALS. Lessee agrees that Lessee shall not keep, use, generate, store, release, threaten release or dispose of any Hazardous Materials (as defined below) on or about the Premises without the prior express written consent of Lessor, which consent may be withheld by Lessor in its sole and absolute discretion. Lessee represents that the presence of Hazardous Materials on the Premises is not necessary to the conduct of its business or its use of the Premises and Lessee acknowledges that it is probable that Lessor will withhold its consent to any requested use of Hazardous Materials on the Premises. For purposes of this provision, "Hazardous Materials" shall include all oil, flammable explosives, asbestos, urea formaldehyde, radioactive materials or waste, or other hazardous, toxic, contaminated, or polluting materials, substances or wastes, including, without limitation, substances defined as "hazardous substances', 'hazardous materials', 'hazardous wastes', or 'toxic substances' under any laws ordinances or regulations heretofore or hereafter enacted or adopted. 48.2 COMPLIANCE WITH ENVIRONMENTAL LAWS. If Lessor consents in writing to the presence, use, generation, storage, release or disposition of Hazardous Materials (collectively, "Use of Hazardous Materials:) on or about the Premises, then Lessee shall conduct such Use of Hazardous Materials subject to, and in full compliance with, all local, state, federal and other laws and regulations governing the Use of Hazardous Materials. Lessee shall, at its own expense, procure, maintain in effect and comply with, all conditions of any and all permits, licenses and other governmental and regulatory approvals required for Lessee's use of the Premises, including without limitation, discharge of appropriately treated materials or wastes. Lessee shall cause any known Hazardous Materials located on or about the Premises to be removed and transported from the Premises solely by duly licensed haulers to duly licensed facilities for final disposal of such materials and wastes. Lessee shall in all respects handle, treat, deal with and manage any and all Hazardous Materials in, on, under or about the Premises in total conformity with all applicable laws and regulations governing the Use of Hazardous Materials and prudent industrial practices regarding management of such Hazardous Materials. Upon regarding management of such Hazardous Materials. Upon expiration or earlier termination of the term of this Lease, Lessee shall cause all Hazardous Materials to be removed from the Premises and transported for use, storage or disposal in accordance and compliance with all applicable laws and regulations governing the Use of Hazardous Materials. 48.3 NOTICES. Lessee shall immediately notify Lessor in writing of: (i) any enforcement, clean-up, removal or other governmental or regulatory actions instituted, completed or threatened pursuant to any laws or regulations governing the use of Hazardous Materials; (ii) any claim made or threatened against Lessee or the Premises relating to damage, contribution, cost recovery, compensation, loss or injury resulting from or claimed to result from any hazardous materials; and (iii) any reports made to any environmental agency arising out of or in connection with any Hazardous Materials in or removed from the Premises, including any complaints, notices, warnings or asserted violations in connection therewith. Lessee shall also supply to Lessor as promptly as possible, and in any event within five (5) business days after Lessee first receives or sends the same, with copies of all claims, reports, complaints, notices, warnings or asserted violations relating in any way to the Premises or Lessee's use thereof. Lessee shall promptly deliver to Lessor copies of hazardous waste manifests reflecting the legal and proper disposal of all Hazardous Materials removed from the Premises. Initials: /s/ L.G. -------- ADDENDUM TO ASSIGNMENT OF LEASE (4562-A, B, C, D, K, J, L and M Alvarado Canyon Road, San Diego, California) THIS ADDENDUM TO ASSIGNMENT OF LEASE (this "Addendum") is dated as of April___, 2000 (the "Effective Date"), and is made by MISSION VALLEY CHRISTIAN FELLOWSHIP OF SAN DIEGO, a California non-profit religious organization ("Assignor") for the benefit of RED ENVELOPE, INC. ("Assignee"). A. WHEREAS, pursuant to that certain Assignment of Lease, dated April 18, 2000, and that certain Acceptance of Assignment of Lease of unknown date, Assignor is assigning and Assignee is assuming all of Assignor's interest in that certain Lease (the "Lease"), dated October 19, 1994, by and between Assignor, as tenant, and Four Amigos, a Ca. Ltd., as landlord ("Landlord"), for certain premises located in the County of San Diego, State of California, as more particularly described in the Lease (the "Premises"). NOW, THEREFORE, for good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the undersigned hereby agrees as follows: 1. Assignor's Representations. a. Assignor is the Tenant under the Lease, a true and complete copy of which is attached hereto as Exhibit "A" and made a part hereof. b. The Lease embodies the entire agreement and understanding between the parties thereto with respect to the Premises and the Lease is in full force and effect and has not been amended, modified, supplemented or superseded, except as shown in Exhibit "A", nor has Assignor's interest in the Lease and/or the Premises previously been assigned, sublet or otherwise transferred, nor has Assignor entered into any agreement to expand the Premises, extend the term of the Lease or terminate the Lease, except as shown in Exhibit "A". c. The termination date of the present term of the Lease is December 31, 2003. d. All rent, taxes and other charges recited in the Lease have been paid to the extent the same were payable prior to the Effective Date and no such rent or other charges have been prepaid. e. As of the Effective Date, there is no defense, offset, claim or counterclaim by or in favor of Assignor against the obligations of Assignor under the Lease or otherwise. f. To the best of Assignor's knowledge, as of the Effective Date there is no defense, offset, claim or counterclaim by or in favor of Landlord against the obligations of Landlord under the Lease or otherwise. g. As of the Effective Date, there is no default of Assignor under the Lease and no event has occurred and is continuing which with the giving of notice or passage of time or both would constitute a default or violation of the Lease by Assignor. h. Assignor has not received notice of any lien, sale, transfer, assignment, hypothecation or pledge of the Lease or the Premises. i. There is no suit, action, proceeding or audit pending at law or in equity or before or by any court, administrative agency or other governmental authority, or, to the knowledge of Assignor, threatened against or affecting the undersigned or the Premises which brings into question the validity of the Lease or which if determined adversely against Assignor might impair the interest of Assignee under the Lease. j. To the best of Assignor's knowledge, there is no fact which materially or adversely affects or in the future may materially or adversely affect the condition or operation of Assignee's business in the Premises under the Lease. k. Assignor has not used and is not aware of any individual or entity who has used the Premises for any activities which, directly or indirectly, involve the use, generation, treatment, storage, transportation or disposal of any petroleum product or any toxic or hazardous chemical, material, substance, pollutant or waste, except as follows: _______________________________________________. l. The undersigned is authorized to execute this Addendum on behalf of Assignor. m. Assignor hereby acknowledges that Assignee will rely upon the representations of Assignor in this Section 1 in connection with the assumption by Assignee of Assignor's interest in the Lease. IN WITNESS WHEREOF, Assignor has executed this Addendum the day and year first above written. "ASSIGNOR": MISSION VALLEY CHRISTIAN FELLOWSHIP OF SAN DIEGO, a California non-profit religious organization By: /s/ [ILLEGIBLE] Its: PRESIDENT --------------- "ASSIGNEE ": RED ENVELOPE, INC., By: /s/ [ILLEGIBLE] Its: PRESIDENT [ILLEGIBLE] --------------- EXHIBIT "A" (Lease) A copy of the Lease is attached hereto. EXHIBIT "A" EX-10.10 20 f89225orexv10w10.txt EXHIBIT 10.10 EXHIBIT 10.10 STANDARD LEASE -- MULTI-TENANT 1. PARTIES. This Lease, dated, for reference purposes only, MARCH 28, 2000, is made by and between THE FOUR AMIGOS, A CALIFORNIA LIMITED PARTNERSHIP (herein called "Lessor") and RED ENVELOPE, INC. (herein called "Lessee"). 2. PREMISES, PARKING AND COMMON AREAS. 2.1 PREMISES. Lessor hereby leases to Lessee and Lessee leases from Lessor for the term, at the rental, and upon all of the conditions set forth herein, real property situated in the City of SAN DIEGO, County of SAN DIEGO, State of CALIFORNIA commonly known as 4562 ALVARADO CANYON ROAD, SUITE A and M and described as approximately 13,004 square feet of INDUSTRIAL space, herein referred to as the "Premises", as may be outlined on an Exhibit attached hereto, including rights to the Common Areas as hereinafter specified but not including any rights to the roof of the Premises or to any Building in the Center. The Premises are a portion of a building, herein referred to as the "Building." The Premises, the Building, the Common Areas, and the land upon which the same are located, along with all other buildings and improvements thereon, are herein collectively referred to as the "Center." 2.2 VEHICLE PARKING. Lessee shall be entitled to FORTY (40) vehicle parking spaces, unreserved and unassigned, on those portions of the Common Areas designated by Lessor for parking. Lessee shall not use more parking spaces than said number. Said parking spaces shall be used only for parking by vehicles no larger than full size passenger automobiles or pick-up trucks, herein called "Permitted Size Vehicles." Vehicles other than Permitted Size Vehicles are herein referred to as "Oversized Vehicles." 2.2.1 Lessee shall not permit or allow any vehicles that belong to or are controlled by Lessee or Lessee's employees, suppliers, shippers, customers, or invitees to be loaded, unloaded, or parked in areas other than those designated by Lessor for such activities. 2.2.2 If Lessee permits or allows any of the prohibited activities described in paragraph 2.2 of this Lease, then Lessor shall have the right, without notice, in addition to such other rights and remedies that it may have, to remove or tow away the vehicle involved and charge the cost to Lessee, which cost shall be immediately payable upon demand by Lessor. 2.3 COMMON AREAS--DEFINITION. The term "Common Areas" is defined as all areas and facilities outside the Premises and within the exterior boundary line of the Center that are provided and designated by the Lessor from time to time for the general non-exclusive use of Lessor, Lessee and of other lessees of the Center and their respective employees, suppliers, shippers, customers and invitees, including parking areas, loading and unloading areas, trash areas, roadways, sidewalks, walkways, parkways, driveways and landscaped areas. 2.4 COMMON AREAS--LESSEE'S RIGHTS. Lessor hereby grants to Lessee, for the benefit of Lessee and its employees, suppliers, shippers, customers and invitees, during the term of this Lease, the non-exclusive right to use, in common with others entitled to such use, the Common Areas as they exist from time to time, subject to any rights, powers, and privileges reserved by Lessor under the terms hereof or under the terms of any rules and regulations or restrictions governing the use of the Center. Under no circumstances shall the right herein granted to use the Common Areas be deemed to include the right to store any property, temporarily or permanently, in the Common Areas. Any such storage shall be permitted only by the prior written consent of Lessor or Lessor's designated agent, which consent may be revoked at any time. In the event that any unauthorized storage shall occur then Lessor shall have the right, without notice, in addition to such other rights and remedies that it may have, to remove the property and charge the cost to Lessee, which cost shall be immediately payable upon demand by Lessor. 2.5 COMMON AREAS--RULES AND REGULATIONS. Lessor or such other person(s) as Lessor may appoint shall have the exclusive control and management of the Common Areas and shall have the right, from time to time, to establish, modify, amend and enforce reasonable rules and regulations with respect thereto. Lessee agrees to abide by and conform to all such rules and regulations, and to cause its employees, suppliers, shippers, customers, and invitees to so abide and conform. Lessor shall not be responsible to Lessee for the non-compliance with said rules and regulations by other lessees of the Center. 2.6 COMMON AREAS--CHANGES. Lessor shall have the right, in Lessor's sole discretion, from time to time: (a) To make changes to the Common Areas, including, without limitation, changes in the location, size, shape and number of driveways, entrances, parking spaces, parking areas, loading and unloading areas, ingress, egress, direction of traffic, landscaped areas and walkways; (b) To close temporarily any of the Common Areas for maintenance purposes so long as reasonable access to the Premises remains available; (c) To designate other land outside the boundaries of the Center to be a part of the Common Areas; (d) To add additional buildings and improvements to the Common Areas; (e) To use the Common Areas while engaged in making additional improvements, repairs or alterations to the Center, or any portion thereof; (f) To do and perform such other acts and make such other changes in, to or with respect to the Common Areas and Center as Lessor may, in the exercise of sound business judgment, deem to be appropriate. 2.6.1 Lessor shall at all times provide the parking facilities required by applicable law and in no event shall the number of parking spaces that Lessee is entitled to under paragraph 2.2 be reduced. 3. TERM. 3.1 TERM. The term of this Lease shall be for THREE (3) MONTHS commencing on JANUARY 1, 2004 and ending on MARCH 31, 2004 unless sooner terminated pursuant to any provision hereof. 3.2 DELAY IN POSSESSION. Notwithstanding said commencement date, if for any reason Lessor cannot deliver possession of the Premises to Lessee on said date. Lessor shall be not be subject to any liability therefor, nor shall such failure affect the validity of this Lease or the obligations of Lessee hereunder or extend the term hereof, but in such case, Lessee shall not be obligated to pay rent or perform any other obligation of Lessee under the terms of this Lease, except as may be otherwise provided in this Lease, until possession of the Premises is tendered to Lessee; provided, however, that if Lessor shall not have delivered possession of the Premises within sixty (60) days from said commencement date, Lessee may, at Lessee's option, by notice in writing to Lessor within ten (10) days thereafter, cancel this Lease, in which event the parties shall be discharged from all obligations hereunder; provided further, however, that if such written notice of Lessee is not received by Lessor within said ten (10) day period, Lessee's right to cancel this Lease hereunder shall terminate and be of no further force or effect. 3.3 EARLY POSSESSION. If Lessee occupies the Premises prior to said commencement date, such occupancy shall be subject to all provisions of this lease, such occupancy shall not advance the termination date, and Lessee shall pay rent for such period at the initial monthly rates set forth below. 4. RENT. 4.1 BASE RENT. Lessee shall pay to Lessor, as Base Rent for the Premises, without any offset or deduction, except as may be otherwise expressly provided in this Lease, on the 1st day of each month of the term hereof, monthly payments in advance of $11,855.00 plus operating expenses of $2600.80 for a total of $14,255.80. Lessee shall pay Lessor on January 1, 2004 hereof $14,255.80 as Base Rest including operating expenses for JANUARY, 2004. Rent for any period during the term hereof which is for less than one month shall be a pro rata portion of the Base Rent. Rent shall be payable in lawful money of the United States to Lessor at the address stated herein or to such other persons or at such other places as Lessor may designate in writing. 4.2 OPERATING EXPENSES. Lessee shall pay to Lessor during the term hereof, in addition to the Base Rent, Lessee's Share, as hereinafter defined, of all Operating Expenses, as hereinafter defined, during each calendar year of the term of this Lease, in accordance with the following provisions: (a) "Lessee's Share" is defined, for purposes of this Lease, as approximately 20.89 percent based on the total square footage of the project. (b) "Operating Expenses" is defined, for purposes of this Lease, as all costs incurred by Lessor, if any, for: (i) The operations, repair and maintenance, in neat, clean, good order and condition, of the following: (aa) The Common Areas, including parking areas, loading and unloading areas, trash areas, roadways, sidewalks, walkways, parkways, driveways, landscaped areas, striping, bumpers, irrigation systems, Common Area lighting facilities, fences and gates, and roofs and walls; (bb) Trash disposal services; (cc) Tenant directories; (dd) Fire detection systems including sprinkler system maintenance and repair; (ee) Security services; (ff) Any other service to be provided by Lessor that is elsewhere in this Lease stated to be an "Operating Expense." (ii) Any deductible portion of an insured loss concerning any of the items or matters described in this paragraph 4.2; (iii) The cost of the premiums for the liability and property insurance policies to be maintained by Lessor under paragraph 8 hereof; (iv) The amount of the real property tax to be paid by Lessor under paragraph 10.1 hereof; (v) The cost of water, gas and electricity to service the Common Areas; (vi) Annual account audit plus 10% supervision fee, based on total annual expenses. (vii) All other costs of any kind paid or incurred by Landlord in connection with the operation, the cost of capital improvements designed to protect the health and safety of the tenants, maintenance, and management of the Building and the Project including, by way of examples and not as a limitation upon the generality of the foregoing, costs of repairs and replacements to improvements within the Project as appropriate to maintain the Project in first class condition including cost of funding such reasonable reserves as Landlord deems consistent with good business practice and may establish to provide for future repairs and replacements, association dues or any other fees due pursuant to any documents governing the real property on which the Building is located, costs of utilities furnished to the Common Areas, sewer fees, windows, heating, ventilation, air conditioning, maintenance of landscape and grounds, maintenance of drives and parking areas, security services and devices, building supplies, maintenance and replacement to equipment utilized for operation and maintenance of the Project, insurance premiums, portions of loss by reason of insurance policy terms, service contracts, costs of services of independent contractors retained to do work of nature before referenced, and costs of compensation (including employment taxes and fringe benefits) of all persons who perform regular and recurring duties connected with the day-to-day operation and maintenance of the Project, its equipment, the adjacent walks, landscaped areas, drives, and parking areas, including without limitation, janitors, floor waxers, window-washers, watchmen, gardeners, sweepers, and handyman and reasonable costs of management services. (c) The inclusion of the improvements, facilities and services set forth in paragraph 4.2(b)(i) of the definition of Operating Expenses shall not be deemed to impose an obligation upon Lessor to either have said improvements or facilities or to provide those services unless the Center already has the same, Lessor already provides the services, or Lessor has agreed elsewhere in this Lease to provide the same of some of them. 1 Initials /s/ TMB ----------- [illegible] ----------- (d) Lessee's Share of Operating Expenses shall be payable by Lessee within ten (10) days after a reasonably detailed statement of actual expenses is presented to Lessee by Lessor. At Lessor's option, however, an amount may be estimated by Lessor from time to time of Lessee's Share of annual Operating Expenses and the same shall be payable monthly or quarterly, as Lessor shall designate, during each twelve-month period of the Lease term, on the same day as the Base Rent is due hereunder. In the event that Lessee pays Lessor's estimate of Lessee's Share of Operating Expenses as aforesaid, Lessor shall deliver to Lessee within sixty (60) days after the expiration of each calendar year a reasonably detailed statement showing Lessee's Share of the actual Operating Expenses incurred during the preceding year. If Lessee's payments under this paragraph 4.2(d) during said preceding year exceed Lessee's Share as indicated on said statement, Lessee shall be entitled to credit the amount of such overpayment against Lessee's Share of Operating Expenses next falling due. If Lessee's payments under this paragraph during said preceding year were less than Lessee's Share as indicated on said statement, Lessee shall pay to Lessor the amount of the deficiency within ten (10) days after delivery by Lessor to Lessee of said statement. 5. SECURITY DEPOSIT. Lessee shall deposit with Lessor upon execution hereof $6162.80 and Deposit an additional $8,083.00 on January 1, 2004 with Lessor as security for Lessee's faithful performance of Lessee's obligations hereunder. If Lessee fails to pay rent or other charges due hereunder, or otherwise defaults with respect to any provision of this Lease, Lessor may use, apply or retain all or any portion of said deposit for the payment of any rent or other charge in default or for the payment of any other sum to which Lessor may become obligated by reason of Lessee's default, or to compensate Lessor for any loss or damage which Lessor may suffer thereby. If Lessor so uses or applies all or any portion of said deposit, Lessee shall within ten (10) days after written demand therefor deposit cash with Lessor in an amount sufficient to restore said deposit to the full amount then required of Lessee. If the monthly rent shall, from time to time, increase during the term of this Lease, Lessee shall, at the time of such increase, deposit with Lessor additional money as a security deposit so that the total amount of the security deposit held by Lessor shall at all times bear the same proportion to the then current Base Rent as the initial security deposit bears to the Initial Base Rent set forth in paragraph 4. Lessor shall not be required to keep said security deposit separate from its general accounts. If Lessee performs all of Lessee's obligations hereunder, said deposit, or so much thereof as has not theretofore been applied by Lessor, shall be returned, without payment of interest or other increment for its use, to Lessee (or, at Lessor's option, to the last assignee, if any, of Lessee's interest hereunder) at the expiration of the term hereof, and after Lessee has vacated the Premises. No trust relationship is created herein between Lessor and Lessee with respect to said Security Deposit. 6. USE. 6.1 USE. The Premises shall be used and occupied only for ADMINISTRATIVE OFFICE AND CALL CENTER OF E-COMMERCE BUSINESS or any other use which is reasonably comparable and for no other purpose. 6.2 COMPLIANCE WITH LAW. (a) Lessor warrants to Lessee that the Premises, in the state existing on the date that the Lease term commences, but without regard to the use for which Lessee will occupy the Premises, does not violate any covenants or restrictions of record, or any applicable building code, regulation or ordinance in effect on such Lease term commencement date. In the event it is determined that this warranty has been violated, then it shall be the obligation of the Lessor, after written notice from Lessee, to promptly, at Lessor's sole cost and expense, rectify any such violation. In the event Lessee does not give to Lessor written notice of the violation of this warranty within six months from the date that the Lease term commences, the correction of same shall be the obligation of the Lessee at Lessee's sole cost. The warranty contained in this paragraph 6.2(a) shall be of no force or effect if, prior to the date of this Lease, Lessee was an owner or occupant of the Premises and, in such event, Lessee shall correct any such violation at Lessee's sole cost. (b) Except as provided in paragraph 6.2(a) Lessee shall, at Lessee's expense, promptly comply with all applicable statutes, ordinances, rules, regulations, orders, covenants and restrictions of record, and requirements of any fire insurance underwriters or rating bureaus, now in effect or which may hereafter come into effect, whether or not they reflect a change in policy from that now existing, during the term or any part of the term hereof, relating in any manner to the Premises and the occupation and use by Lessee of the Premises and of the Common Areas. Lessee shall not use nor permit the use of the Premises or the Common Areas in any manner that will tend to create waste or a nuisance or shall tend to disturb other occupants of the Center. 6.3 CONDITION OF PREMISES. (a) Lessor shall deliver the Premises to Lessee clean and free of debris on the Lease commencement date (unless Lessee is already in possession) and Lessor warrants to Lessee that the plumbing, lighting, and loading doors in the Premises shall be in good operating condition on the Lease commencement date. In the event that it is determined that this warranty has been violated, then it shall be the obligation of Lessor, after receipt of written notice from Lessee setting forth with specificity the nature of the violation, to promptly, at Lessor's sole cost, rectify such violation. Lessee's failure to give such written notice to Lessor within thirty (30) days after the Lease commencement date shall cause the conclusive presumption that Lessor has complied with all of Lessor's obligations hereunder. The warranty contained in this paragraph 6.3(a) shall be of no force or effect if prior to the date of this Lease, Lessee was an owner or occupant of the Premises. (b) Except as otherwise provided in this Lease, Lessee hereby accepts the Premises in their condition existing as of the Lease commencement date or the date that Lessee takes possession of the Premises, whichever is earlier, subject to all applicable zoning, municipal, county and state laws, ordinances and regulations governing and regulating the use of the Premises, and any covenants or restrictions of record, and accepts this Lease subject thereto and to all matters disclosed thereby and by any exhibits attached hereto. Lessee acknowledges that neither Lessor nor Lessor's agent has made any representation or warranty as to the present or future suitability of the Premises for the conduct of Lessee's business. 7. MAINTENANCE, REPAIRS, ALTERATIONS AND COMMON AREA SERVICES. 7.1 LESSOR'S OBLIGATIONS. Subject to the provisions of paragraphs 4.2 (Operating Expenses), 6 (Use), 7.2 (Lessee's Obligations) and 9 (Damage or Destruction) and except for damage caused by any negligent or intentional act or omission of Lessee, Lessee's employees, suppliers, shippers, customers, or invitees, in which event Lessee shall repair the damage, Lessor, at Lessor's expense, subject to reimbursement pursuant to paragraph 4.2, shall keep in good condition and repair the foundations, exterior walls, structural condition of interior bearing walls, and roof of the Premises, as well as the parking lots, walkways, driveways, landscaping, fences, signs and utility installations of the Common Areas and all parts thereof, as well as providing the services for which there is an Operating Expense pursuant to paragraph 4.2. Lessor shall not, however, be obligated to paint the exterior or interior surface of exterior walls, nor shall Lessor be required to maintain, repair or replace windows, doors or plate glass of the Premises. Lessor shall have no obligation to make repairs under this paragraph 7.1 until reasonable time after receipt of written notice from Lessee of the need for such repairs. Lessee expressly waives the benefits of any statute now or hereafter in effect which would otherwise afford Lessee the right to make repairs at Lessor's expense or to terminate this Lease because of Lessor's failure to keep the Premises in good order, condition and repair. Lessor shall not be liable for damages or loss of any kind or nature by reason of Lessor's failure to furnish any Common Area Services when such failure is caused by accident, breakage, repairs, strikes, lockout, or other labor disturbances or disputes of any character, or by any other cause beyond the reasonable control of Lessor. 7.2 LESSEE'S OBLIGATIONS. (a) Subject to the provisions of paragraphs 6 (Use), 7.1 (Lessor's Obligations), and 9 (Damage or Destruction), Lessee, at Lessee's expense, shall keep in good order, condition and repair the Premises and every part thereof (whether or not the damaged portion of the Premises or the means of repairing the same are reasonably or readily accessible to Lessee) including, without limiting the generality of the foregoing, all plumbing, including the replacement of the heating, ventilating and air conditioning systems (Lessor shall procure and maintain, at Lessee's sole expense, a ventilating and air conditioning system maintenance contract with a licensed subcontractor. The maintenance agreement does not cover repairs, just routine maintenance. Said contract shall be obtained through Lessor at the cost to the Lessee of $15.00 per month which is to be paid concurrently each month with Base Rent and any other monies due as per this lease), electrical and lighting facilities and equipment within the Premises, fixtures, interior walls and interior surfaces of exterior walls, ceilings, windows, doors, plate glass, and skylights located within the Premises. Lessor reserves the right to procure and maintain the ventilating and air conditioning system maintenance contract and if Lessor so elects, Lessee shall reimburse Lessor, upon demand, for the costs thereof. (b) If Lessee fails to perform Lessee's obligations under this paragraph 7.2 or under any other paragraph of this Lease, Lessor may enter upon the Premises after ten (10) days' prior written notice to Lessee (except in the case of emergency, in which no notice shall be required), perform such obligations on Lessee's behalf and put the Premises in good order, condition and repair, and the cost thereof together with interest thereon at the maximum rate then allowable by law shall be due and payable as additional rent to Lessor together with Lessee's next Base Rent installment. (c) On the last day of the term hereof, or on any sooner termination, Lessee shall surrender the Premises to Lessor in the same condition as received, ordinary wear and tear excepted, clean and free of debris. Any damage or deterioration of the Premises shall not be deemed ordinary wear and tear if the same could have been prevented by good maintenance practices. Lessee shall repair any damage to the Premises occasioned by the installation or removal of Lessee's trade fixtures, alterations, furnishings and equipment. Notwithstanding anything to the contrary otherwise stated in this Lease, Lessee shall leave the air lines, power panels, electrical distribution systems, lighting fixtures, space heaters, air conditioning, plumbing and fencing on the Premises in good operating condition. 7.3 ALTERATIONS AND ADDITIONS. (a) Lessee shall not, without Lessor's prior written consent make any alterations, improvements, additions, or Utility installations in, on or about the Premises, or the Center, except for nonstructural alterations to the Premises not exceeding $2,500 in cumulative costs, during the term of this Lease. In any event, whether or not in excess of $2,500 in cumulative cost, Lessee shall make no change or alteration to the exterior of the Premises nor the exterior of the Building nor the Center without Lessor's prior written consent. As used in this paragraph 7.3 the term "Utility Installation" shall mean carpeting, window coverings, air lines, power panels, electrical distribution systems, lighting fixtures, space heaters, air conditioning, plumbing, and fencing. Lessor may require that Lessee remove any or all of said alterations, improvements, additions or Utility Installations at the expiration of the term, and restore the Premises and the Center to their prior condition. Lessor may require Lessee to provide Lessor, at Lessee's sole cost and expense, a lien and completion bond in an amount equal to one and one-half times the estimated cost of such improvements, to insure Lessor against any liability for mechanic's and materialmen's liens and to insure completion of the work. Should Lessee make any alterations, improvements, additions or Utility installations without the prior approval of Lessor, Lessor may, at any time during the term of this Lease, require that Lessee remove any or all of the same. (b) Any alterations, improvements, additions or Utility installations in or about the Premises or the Center that Lessee shall desire to make and which requires the consent of the Lessor shall be presented to Lessor in written form, with proposed detailed plans. If Lessor shall give its consent, the consent 2 shall be deemed conditioned upon Lessee acquiring permit to do so from appropriate governmental agency, the furnishing of a copy thereof to Lessor prior to the commencement of the work and the compliance by Lessee of all conditions of said permit in a prompt and expeditions manner. (c) Lessee shall pay, when due, all claims for labor or materials furnished or alleged to have been furnished to or for Lessee at or for use in the Premises, which claims are or may be secured by any mechanic's or materialmen's lien against the Premises, or the Center, or any interest therein. Lessee shall give Lessor not less than ten (10) days' notice prior to the commencement of any work in the Premises, and Lessor shall have the right to post notices of non-responsibility in or on the Premises or the Building as provided by law. If Lessee shall, in good faith, contest the validity of any such lien, claim or demand, then Lessee shall, at its sole expense defend itself and Lessor against the same and shall pay and satisfy any such adverse judgment that may be rendered thereon before the enforcement thereof against the Lessor or the Premises or the Center, upon the condition that if Lessor shall require, Lessee shall furnish to Lessor a surety bond satisfactory to Lessor in an amount equal to such contested lien claim or demand indemnifying Lessor against liability for the same and holding the Premises and the Center free from the effect of such lien or claim. In addition, Lessor may require Lessee to pay Lessor's attorneys fees and costs in participating in such action if Lessor shall decide it is to Lessor's best interest to do so. (d) All alterations, improvements, additions and Utility Installations (whether or not such Utility Installations constitute trade fixtures of Lessee), which may be made on the Premises, shall be the property of Lessor and shall remain upon and be surrendered with the Premises at the expiration of the Lease term, unless Lessor requires their removal pursuant to paragraph 7.3(a). Notwithstanding the provisions of this paragraph 7.3(d), Lessee's machinery and equipment, other than that which is affixed to the Premises so that it cannot be removed without material damage to the Premises, and other than Utility installations, shall remain the property of Lessee and may be removed by Lessee subject to the provisions of paragraph 7.2. 7.4 UTILITY ADDITIONS. Lessor reserves the right to install new or additional utility facilities throughout the Building and the Common Areas for the benefit of Lessor or Lessee, or any other lessee of the Center, including, but not by way of limitation, such utilities as plumbing, electrical systems, security systems, communication systems, and fire protection and detection systems, so long as such installations do not unreasonably interfere with Lessee's use of the Premises. 8. INSURANCE; INDEMNITY. 8.1 LIABILITY INSURANCE - LESSEE. Lessee shall, at Lessee's expense, obtain and keep in force during the term of this Lease a policy of Combined Single Limit Bodily Injury and Property Damage Insurance insuring Lessee and Lessor against any liability arising out of the use, occupancy or maintenance of the Premises and the Center. Such insurance shall be in an amount not less than $1,000,000.00 per occurrence. The policy shall insure performance by Lessee of the indemnity provisions of this paragraph 8. The limits of said insurance shall not, however, limit the liability of Lessee hereunder. The liability coverage will also include coverage for fire legal liability, with limits of at least $50,000 and are subject to increase at the discretion of the Lessor. 8.2 LIABILITY INSURANCE - LESSOR. Lessor shall obtain and keep in force during the term of this Lease a policy of Combined Single Limit Bodily Injury and Property Damage Insurance, insuring Lessor, but not Lessee, against any liability arising out of the ownership use, occupancy or maintenance of the Center in an amount not less than $1,000,000.00 per occurrence. 8.3 PROPERTY INSURANCE. (a) Lessor shall obtain and keep in force during the term of this Lease a policy or policies of Insurance covering loss or damage to the Center improvements, but not Lessee's personal property, fixtures, equipment or tenant Improvements, in an amount not to exceed the full replacement value thereof, as the same may exist from time to time, providing protection against all perils included within the classification of fire, extended coverage, vandalism, malicious mischief, flood (in the event same is required by a lender having a lien on the Premises) special extended peril ("all risk", as such term is used in the insurance industry), plate glass insurance and such other insurance as Lessor deems advisable. In addition, Lessor shall obtain and keep in force, during the term of this Lease, a policy of rental value insurance covering a period of one year, with loss payable to Lessor, which insurance shall also cover all Operating Expenses for said period. In the event that the Premises shall suffer an insured loss as defined in paragraph 9.1(g) hereof, the deductible amounts under the casualty insurance policies relating to the Premises shall be paid by Lessee. (b) Lessee shall obtain and keep in force during the term of this Lease a policy of Insurance covering the Lessee's personal property, fixtures, equipment, and tenant improvements, for full replacement cost, for the "all risk" perils. 8.4 PAYMENT OF PREMIUM INCREASE. (a) After the term of this Lease has commenced, Lessee shall not be responsible for paying Lessee's Share of any increase in the property insurance premium for the Center specified by Lessor's insurance carrier as being caused by the use, acts or omissions of any other lessee of the Center, or by the nature of such other lessee's occupancy which create an extraordinary or unusual risk. (b) Lessee, however, shall pay the entirety of any increase in the property insurance premium for the Center over what it was immediately prior to the commencement of the term of this Lease if the increase is specified by Lessor's Insurance carrier as being caused by the nature of Lessee's occupancy or any act or omission of Lessee. 8.5 INSURANCE POLICIES. Insurance required hereunder shall be in companies holding a "General Policyholders Rating" of at least B plus, or such other rating as may be required by a lender having a lien on the Premises, as set forth in the most current issue of "Best's Insurance Guide." Lessee shall not do or permit to be done anything which shall invalidate the insurance policies carried by Lessor. Lessee shall deliver to Lessor copies of liability insurance policies required under paragraph 8.1 or certificates evidencing the existence and amounts of such insurance within seven (7) days after the commencement date of this Lease. No such policy shall be cancelable or subject to reduction of coverage or other modification except after thirty (30) days prior written notice to Lessor. Lessee shall, at least thirty (30) days prior to the expiration of such policies, furnish Lessor with renewals or "binders" thereof. 8.6 WAIVER OF SUBROGATION. Lessee and Lessor each hereby release and relieve the other, and waive their entire right of recovery against the other for loss or damage arising out of or incident to the perils insurance against which perils occur in, on or about the Premises, whether due to the negligence of Lessor or Lessee or their agents, employees, contractors and/or invitees. Lessee and Lessor shall, upon obtaining the policies of insurance required, give notice to the insurance carrier or carriers that the foregoing mutual waiver of subrogation is contained in this Lease. 8.7 INDEMNITY. Lessee shall indemnify and hold harmless Lessor from and against any and all claims arising from Lessee's use of the Center, or from the conduct of Lessee's business or from any activity, work or things done, permitted or suffered by Lessee in or about the Premises or elsewhere and shall further indemnify and hold harmless Lessor from and against any and all claims arising from any breach or default in the performance of any obligation on Lessee's part to be performed under the terms of this Lease, or arising from any act or a omission of Lessee, or any of Lessee's agents, contractors, or employees, and from and against all costs, attorney's fees, expenses and liabilities incurred in the defense of any such claim or any action or proceeding brought thereon; and in case any action or proceeding be brought against Lessor by reason of any such claim. Lessee upon notice from Lessor shall defend the same at Lessee's expense by counsel reasonably satisfactory to Lessor and Lessor shall cooperate with Lessee in such defense. Lessee, as a material part to the consideration to Lessor, hereby assumes all risk of damage to property of Lessee or injury to persons, in, upon or about the Center arising from any cause and Lessee hereby waives all claims in respect thereof against Lessor. 8.8 EXEMPTION OF LESSOR FROM LIABILITY. Lessee hereby agrees that Lessor shall not be liable for injury to Lessee's business or any loss of income therefrom or for damage to the goods, wares, merchandise or other property of Lessee, Lessee's employees, invitees, customers, or any other person in or about the Premises or the Center, nor shall Lessor be liable for injury to the person of Lessee, Lessee's employees, agents or contractors, whether such damage or injury is caused by or results from fire, steam, electricity, gas, water or rain, or from the breakage, leakage, obstruction or other defects of pipes, sprinklers, wires, appliances, plumbing, air conditioning or lighting fixtures, or from any other cause, whether said damage or injury results from conditions arising upon the Premises or upon other portions of the Center, or from other sources or places and regardless of whether the cause of such damage or injury or the means of repairing the same is inaccessible to Lessee. Lessor shall not be liable for any damages arising from any act or neglect of any other lessee, occupant or user of the Center, nor from the failure of Lessor to enforce the provisions of any other lease of the Center. 9. DAMAGE OR DESTRUCTION. 9.1 DEFINITION. (a) "Premises Partial Damage" shall mean if the Premises are damaged or destroyed to the extent that the cost of repairs is less than fifty percent of the then replacement cost of the Premises. (b) "Premises Total Destruction" shall mean if the Premises are damaged or destroyed to the extent that the cost of repair is fifty percent or more of the then replacement cost of the Premises. (c) "Premises Building Partial Damage" shall mean if the Building of which the Premises are a part is damaged or destroyed to the extent that the cost to repair is less than fifty percent of the then replacement cost of the Building. (d) "Premises Building Total Destruction" shall mean if the Building of which the Premises are a part is damaged or destroyed to the extent that the cost to repair is fifty percent or more of the then replacement cost of the Building. (e) "Center Buildings" shall mean all of the buildings on the Center site. (f) "Center Buildings Total Destruction" shall mean if the Center Buildings are damaged or destroyed to the extent that the cost of repair is fifty percent or more of the then replacement cost of the Center Buildings. (g) "Insured Loss" shall mean damage or destruction which was covered by an event required to be covered by the insurance described in paragraph 8. The fact that an insured Loss has a deductible amount shall not make the loss an uninsured loss. (h) "Replacement Cost" shall mean the amount of money necessary to be spent in order to repair or rebuild the damaged area to the condition that existed immediately prior to the damage occurring excluding all improvements made by lessees. 9.2 PREMISES PARTIAL DAMAGE; PREMISES BUILDING PARTIAL DAMAGE. (a) Insured Loss: Subject to the provisions of paragraph 9.4 and 9.5. If at any time during the term of this Lease there is damage which is an Insured Loss and which falls into the classification of either Premises Partial Damage or Premises Building Partial Damage, than Lessor shall, at the Lessor's expense, repair such damage to the Premises, but not Lessee's fixtures, equipment or tenant improvements, as soon as reasonably possible and this Lease shall continue in full force and effect. Initials /s/ TMB -------- 3 (b) Uninsured Loss: Subject to the provisions of paragraph 9.4 and 9.5, if at any time during the term of this Lease there is damage which is not an insured Loss and which falls within the classification of Premises Partial Damage or Premises Building Partial Damage, unless caused by a negligent or willful act of Lessee (in which event Lessee shall make the repairs at Lessee's expense), which damage prevents Lessee from using the Premises, Lessor may at Lessor's option either (i) repair such damage as soon as reasonably possible at Lessor's expense, in which event this Lease shall continue in full force and effect, or (ii) give written notice to Lessee within thirty (30) days after the date of the occurrence of such damage of Lessor's intention to cancel and terminate this Lease as of the date of the occurrence of such damage. In the event Lessor elects to give such notice of Lessor's intention to cancel and terminate this Lease, Lessee shall have the right within ten (10) days after the receipt of such notice to give written notice to Lessor of Lessee's intention to repair such damage at Lessee's expense, without reimbursement from Lessor, in which event this Lease shall continue in full force and effect, and Lessee shall proceed to make such repairs as soon as reasonably possible. If Lessee does not give such notice within such 10-day period this Lease shall be canceled and terminated as of the date of the occurrence of such damage. 9.3 PREMISES TOTAL DESTRUCTION; PREMISES BUILDING TOTAL DESTRUCTION; CENTER BUILDINGS TOTAL DESTRUCTION. (a) Subject to the provisions of paragraphs 9.4 and 9.5, if at any time during the term of this Lease there is damage, whether or not it is an Insured Loss, and which falls into the classifications of either (i) Premises Total Destruction, or (ii) Premises Building Total Destruction, or (iii) Center Buildings Total Destruction, then Lessor may at Lessor's option either (i) repair such damage or destruction, but not Lessee's fixtures, equipment or tenant improvements, as soon as reasonably possible at Lessor's expense, and this Lease shall continue in full force and effect or (ii) give written notice to Lessee within thirty (30) days after the date of occurrence of such damage of Lessor's intention to cancel and terminate this Lease, in which case this Lease shall be canceled and terminated as of the date of the occurrence of such damage. 9.4 DAMAGE NEAR END OF TERM. (a) Subject to paragraph 9.4(b), if at any time during the last six months of the term of this Lease there is substantial damage, whether or not an Insured Loss, which falls within the classification of Premises Partial Damage, Lessor may at Lessor's option cancel and terminate this Lease as of the date of occurrence of such damage by giving written notice to Lessee of Lessor's election to do so within 30 days after the date of occurrence of such damage. (b) Notwithstanding paragraph 9.4(a), in the event that Lessee has an option to extend or renew this Lease, and the time within which said option may be exercised has not yet expired, Lessee shall exercise such option, if it is to be exercised at all, no later than twenty (20) days after the occurrence of an Insured Loss falling within the classification of Premises Partial Damage during the last six months of the term of this Lease. If Lessee duly exercises such option during said twenty (20) day period, Lessor shall, at Lessor's expense, repair such damage, but not Lessee's fixtures, equipment or tenant improvements, as soon as reasonably possible and this Lease shall continue in full force and effect. If Lessee fails to exercise such option during said twenty (20) day period, then Lessor may at Lessor's option terminate and cancel this Lease as of the expiration of said twenty (20) day period by giving written notice to Lessee of Lessor's election to do so within ten (10) days after the expiration of said twenty (20) day period, notwithstanding any term or provision in the grant of option to the contrary. 9.5 ABATEMENT OF RENT; LESSEE'S REMEDIES. (a) In the event Lessor repairs or restores the Premises pursuant to the provisions of this paragraph 9, the rent payable hereunder for the period during which such damage, repair or restoration continues shall be abated in proportion to the degree to which Lessee's use of the Premises is impaired. Except for abatement of rent, if any, Lessee shall have no claim against Lessor for any damage suffered by reason of any such damage, destruction, repair or restoration. (b) If Lessor shall be obligated to repair or restore the Premises under the provisions of this paragraph 9 and shall not commence such repair or restoration within ninety (90) days after such obligation shall accrue, Lessee may at Lessee's option cancel and terminate this Lease by giving Lessor written notice of Lessee's election to do so at any time prior to the commencement of such repair or restoration. In such event this Lease shall terminate as of the date of such notice. 9.6 TERMINATION-ADVANCE PAYMENTS. Upon termination of this Lease pursuant to this paragraph 9, an equitable adjustment shall be made concerning advance rent and any advance payments made by Lessee to Lessor. Lessor shall, in addition, return to Lessee so much of Lessee's security deposit as has not theretofore been applied by Lessor. 9.7 WAIVER. Lessor and Lessee waive the provisions of any statute which relate to termination of leases when leased property is destroyed and agree that such event shall be governed by the terms of this Lease. 10. REAL PROPERTY TAXES. 10.1 PAYMENT OF TAXES. Lessor shall pay the real property tax, as defined in paragraph 10.3, applicable to the Center subject to reimbursement by Lessee of Lessee's Share of such taxes in accordance with the provisions of paragraph 4.2, except as otherwise provided in paragraph 10.2. 10.2 ADDITIONAL IMPROVEMENTS. Lessee shall not be responsible for paying Lessee's Share of any increase in real property tax specified in the tax assessor's records and work sheets as being caused by additional improvements placed upon the Center by other lessees or by Lessor for the exclusive enjoyment of such other lessees. Lessee shall, however, pay to Lessor at the time that Operating Expenses are payable under paragraph 4.2(c) the entirety of any increase in real property tax if assessed solely by reason of additional improvements placed upon the Premises by Lessee or at Lessee's request. 10.3 DEFINITION OF "REAL PROPERTY TAX." As used herein, the term "real property tax" shall include any form of real estate tax or assessment, general, special, ordinary or extraordinary, and any license fee, commercial rental tax, improvement bond or bonds, levy or tax (other than inheritance, personal income or estate taxes) imposed on the Center or any portion thereof by any authority having the direct or indirect power to tax, including any city, county, state or federal government, or any school, agricultural, sanitary, fire, street, drainage or other improvement district thereof, as against any legal or equitable interest of Lessor in the Center or in any portion thereof, as against Lessors right to rent or other income therefrom, and as against Lessor's business of leasing the Center. The term "real property tax" shall also include any tax, fee, levy, assessment or charge (i) in substitution of, partially or totally, any tax, fee, levy, assessment or charge hereinabove included within the definition of "real property tax" or (ii) the nature of which was hereinbefore included within the definition of "real property tax" or (iii) which is imposed for a service or right not charged prior to June 1, 1978, or, if previously charged, has been increased since June 1, 1978, or (iv) which is imposed as a result of a transfer, either partial or total, of Lessor's interest in the Center or which is added to a tax or charge hereinbefore included within the definition of real property tax by reason of such transfer, or (v) which is imposed by reason of this transaction, any modifications or changes hereto, or any transfers hereof. 10.4 JOINT ASSESSMENT. If the Center is not separately assessed, Lessee's Share of the real property tax liability shall be an equitable proportion of the real property taxes for all of the land and improvements included within the tax parcel assessed, such proportion to be determined by Lessor from the respective valuations assigned in the assessor's work sheets or such other information as may be reasonably available. Lessor's reasonable determination thereof, in good faith, shall be conclusive. 10.5 PERSONAL PROPERTY TAXES. (a) Lessee shall pay prior to delinquency all taxes assessed against and levied upon trade fixtures, furnishings, equipment and all other personal property of Lessee contained in the Premises or elsewhere. When possible, Lessee shall cause said trade fixtures, furnishings, equipment and all other personal property to be assessed and billed separately from the real property of Lessor. (b) If any of Lessee's said personal property shall be assessed with Lessor's real property, Lessee shall pay to Lessor the taxes attributable to Lessee within ten (10) days after receipt of a written statement setting forth the taxes applicable to Lessee's property. 11. UTILITIES. Lessee shall pay for all water, gas, heat, light, power, telephone or other utilities and services supplied to the Premises, together with any taxes thereon. If any such services are not separately metered to the Premises, Lessee shall pay at Lessor's option, either Lessee's Share or a reasonable proportion to be determined by Lessor or all charges jointly metered with other premises in the Building. 12. ASSIGNMENT AND SUBLETTING. 12.1 LESSOR'S CONSENT REQUIRED. Lessee shall not voluntarily or by operation of law assign, transfer, mortgage, sublet or otherwise transfer or encumber all or any part of Lessee's interest in the Lease or in the Premises, without Lessor's prior written consent, which Lessor shall not unreasonably withhold. Lessor shall respond to Lessee's request for consent hereunder in a timely manner and any attempted assignment, transfer, mortgage, encumbrance or subletting without such consent shall be void, and shall constitute a breach of this Lease without the need for notice to Lessee under paragraph 13.1. If Lessee shall assign or sublet the Leased Premises or request the consent of Lessor to any assignment or subletting, or if Lessee should request the consent of Lessor for any act Lessee proposes to do, then Lessee shall pay to Lessor, within thirty (30) days of receipt of a bill, all reasonable fees and costs incurred by Lessor for attorneys, accountants, service of notice or any other services in connection with said assignment or subletting or other act. 12.2 LESSEE AFFILIATE. Notwithstanding the provisions of paragraph 12.1 hereof, Lessee may assign or sublet the Premises, or any portion thereof, without Lessor's consent, to any corporation which controls, is controlled by or is under common control with Lessee, or to any corporation resulting from the merger or consolidation with Lessee, or to any person or entity which acquires all the assets of Lessee as a going concern of the business that is being conducted on the Premises, all of which are referred to as "Lessee Affiliate" provided that before such assignment shall be effective said assignee shall assume, in full, the obligations of Lessee under this Lease. Any such assignment shall not, if any way, affect or limit the liability of Lessee under the terms of this Lease even if after such assignment or subletting the terms of this Lease are materially changed or altered without the consent of Lessee, the consent of whom shall not be necessary. 4 12.3 TERMS AND CONDITIONS OF ASSIGNMENT. Regardless of Lessor's consent, no assignment shall release Lessee of Lessee's obligations hereunder or after the primary liability of Lessee to pay the Base Rent and Lessee's Share of Operating Expenses, and to perform all other obligations to be performed by Lessee hereunder. Lessor may accept rent from any person other than Lessee pending approval or disapproval of such assignment. Neither a delay in the approval or disapproval of such assignment nor the acceptance of rent shall constitute a waiver or estoppel of Lessor's right to exercise its remedies for the breach of any of the terms or conditions of this paragraph 12 or this Lease. Consent to one assignment shall not be deemed consent to any subsequent assignment, in the event of default by any assignee of Lessee or any successor of Lessee, in the performance of any of the terms hereof, Lessor may proceed directly against Lessee without the necessity of exhausting remedies against said assignee. Lessor may consent to subsequent assignments of this Lease or amendments or modifications to this Lease with assignees of Lessee, without notifying Lessee, or any successor of Lessee, and without obtaining its or their consent thereto and such action shall not relieve Lessee of liability under this Lease. 12.4 TERMS AND CONDITIONS APPLICABLE TO SUBLETTING. Regardless of Lessor's consent, the following terms and conditions shall apply to any subletting by Lessee of all or any part of the Premises and shall be included in subleases: (a) Lessee hereby assigns and transfers to Lessor all of Lessee's interest in all rentals and income arising from any sublease heretofore or hereafter made by Lessee, and Lessor may collect such rent and income and apply same toward Lessee's obligations under this Lease, provided, however, that until a default shall occur in the performance of Lessee's obligations under this Lease, Lessee may receive, collect and enjoy the rents accruing under such sublease. Lessor shall not, by reason of this or any other assignment of such sublease to Lessor nor by reason of the collection of the rents from a sublessee, be deemed liable to the sublessee for any failure of Lessee to perform and comply with any of Lessee's obligations to such sublessee under such sublease. Lessee hereby irrevocably authorizes and directs any such sublessee, upon receipt of a written notice from Lessor stating that a default exists in the performance of Lessee's obligations under this Lease, to pay to Lessor the rents due and to become due under the sublease. Lessee agrees that such sublessee shall have the right to rely upon any such statement and request from Lessor, and that such sublessee shall pay such rents to Lessor without any obligation or right to inquire as to whether such default exists and notwithstanding any notice from or claim from Lessee to the contrary. Lessee shall have no right or claim against such sublessee or Lessor for any such rents so paid by said sublessee to Lessor. (b) No sublease entered into by Lessee shall be effective unless and until it has been approved in writing by Lessor. In entering into any sublease, Lessee shall use only such form of sublease as is satisfactory to Lessor, and once approved by Lessor, such sublease shall not be changed or modified without Lessor's prior written consent. Any sublessee shall, by reason of entering into a sublease under this Lease, be deemed, for the benefit of Lessor, to have assumed and agreed to conform and comply with each and every obligation herein to be performed by Lessee other than such obligations as are contrary to or inconsistent with provisions contained in a sublease to which Lessor has expressly consented in writing. (c) If Leasee's obligations under this Lease have been guaranteed by third parties, then a sublease, and Lessor's consent thereto, shall not be effective unless said guarantors give their written consent to such sublease and the terms thereof. (d) The consent by Lessor to any subletting shall not release Lessee from its obligations or alter the primary liability of Lessee to pay the rent and perform and comply with all of the obligations of Lessee to be performed under this Lease. (e) The consent by Lessor to any subletting shall not constitute a consent to any subsequent subletting by Lessee or to any assignment or subletting by the sublessee. However, Lessor may consent to subsequent sublettings and assignments of the sublease or any amendments or modifications thereto without notifying Lessee or anyone else liable on the Lease or sublease and without obtaining their consent and such action shall not relieve such persons from liability. (f) In the event of any default under this Lease, Lessor may proceed directly against Lessee, any guarantors or any one else responsible for the performance of this Lease, including the sublessee, without first exhausting Lessor's remedies against any other person or entity responsible therefor to Lessor, or any security held by Lessor or Lessee. (g) In the event Lessee shall default in the performance of its obligations under this Lease, Lessor, at its option and without any obligation to do so, may require any sublessee to [*] to Lessor, in which event Lessor shall undertake the obligations of Lessee under such sublease from the time of the exercise of said option to the termination of such sublease; provided, however, Lessor shall not be liable for any prepaid rents or security deposit paid by such sublessee to Lessee or for any other prior defaults of Lessee under such sublease. (h) Each and every consent required of Lessee under a sublease shall also require the consent of Lessor. (i) No sublessee shall further assign or sublet all or any part of the Premises without Lessor's prior written consent. (j) Lessor's written consent to any subletting of the Premises by Lessee shall not constitute an acknowledgement that no default then exists under this Lease of the obligations to be performed by Lessee nor shall such consent be deemed a waiver of any then existing default, except as may be otherwise stated by Lessor at the time. (k) With respect to any subletting to which Lessor has consented, Lessor agrees to deliver a copy of any notice of default by Lessee to the sublessee. Such sublessee shall have the right to cure a default of Lessee within ten (10) days after service of said notice of default upon such sublessee, and the sublessee shall have a right of reimbursement and offset from and against Lessee for any such defaults cured by the sublessee. 12.5 ATTORNEY'S FEES. In the event Lessee shall assign or sublet the Premises or request the consent of Lessor to any assignment or subletting or if Lessee shall request the consent of Lessor for any act Lessee proposes to do then Lessee shall pay Lessor's reasonable attorneys fees incurred in connection therewith, such attorneys fees not to exceed $350.00 for each such request. 13. DEFAULT; REMEDIES. 13.1 DEFAULT. The occurrence of any one or more of the following events shall constitute a material default of this Lease by Lessee: (a) The vacating or abandonment of the Premises by Lessee. (b) The failure by Lessee to make any payment of rent or any other payment required to be made by Lessee hereunder, as and when due, where such failure shall continue for a period of three (3) days after written notice thereof from Lessor to Lessee. In the event that Lessor serves Lessee with a Notice to Pay Rent or Quit pursuant to applicable Unlawful Detainer statutes such Notice to Pay Rent or Quit shall also constitute the notice required by this subparagraph. (c) Except as otherwise provided in this Lease, the failure by Lessee to observe or perform any of the convenants, conditions or provisions of this Lease to be observed or performed by Lessee, other than described in paragraph (b) above, where such failure shall continue for a period of thirty (30) days after written notice thereof from Lessor to Lessee; provided, however, that if the nature of Lessee's noncompliance is such that more than thirty (30) days are reasonably required for its cure, then Lessee shall not be deemed to be in default if Lessee commenced such cure within said thirty (30) day period and thereafter diligently prosecutes such cure to completion. To the extent permitted by law, such thirty (30) day notice shall constitute the sole and exclusive notice required to be given to Lessee under applicable Unlawful Detainer statutes. (d) (i) The making by Lessee of any general arrangement or general assignment for the benefit of creditors; (ii) Lessee becomes a "debtor" as defined in 11 U.S.C. SECTION 101 or any successor statute thereto (unless, in the case of a petition filed against Lessee, the same is dismissed within sixty (60) days); (iii) the appointment of a trustee or receiver to take possession of substantially all of Lessee's assets located at the Premises or of Lessee's interest in this Lease, where possession is not restored to Lessee within thirty (30) days; or (iv) the attachment, execution or other judicial seizure of substantially all of Lessee's assets located at the Premises or of Lessee's interest in this Lease, where such seizure is not discharged within thirty (30) days. In the event that any provision of this paragraph 13.1(d) is contrary to any applicable law, such provision shall be of no force or effect. (e) The discovery by Lessor that any financial statement given to Lessor by Lessee, any assignee of Lessee, any subtenant of Lessee, any successor in interest of Lessee or any guarantor of Lessee's obligation hereunder, was materially false. 13.2 REMEDIES. In the event of any such material default by Lessee, Lessor may at any time thereafter, with or without notice or demand and without limiting Lessor in the exercise of any right or remedy which Lessor may have by reason of such default: (a) Terminate Lessee's right to possession of the Premises by any lawful means, in which case this Lease and the term hereof shall terminate and Lessee shall immediately surrender possession of the Premises to Lessor. In such event Lessor shall be entitled to recover from Lessee all damages incurred by Lessor by reason of Lessee's default including, but not limited to, the cost of recovering possession of the Premises; expenses of reletting, including necessary renovation and alteration of the Premises, reasonable attorney's fees, and any real estate commission actually paid; the worth at the time of award by the court having jurisdiction thereof of the amount by which the unpaid rent for the balance of the term after the time of such award exceeds the amount of such rental loss for the same period that Lessee proves could be reasonably avoided; that portion of the leasing commission paid by Lessor pursuant to paragraph 15 applicable to the unexpired term of this Lease. (b) Maintain Lessee's right to possession in which case this Lease shall continue in effect whether or not Lessee shall have vacated or abandoned the Premises. In such event Lessor shall be entitled to enforce all of Lessor's rights and remedies under this Lease, including the right to recover the rent as it becomes due hereunder. (c) Pursue any other remedy now or hereafter available to Lessor under the laws or judicial decisions of the state wherein the Premises are located. Unpaid installments of rent and other unpaid monetary obligations of Lessee under the terms of this Lease shall bear interest from the date due at the maximum rate then allowable by law. 13.3 DEFAULT BY LESSOR. Lessor shall not be in default unless Lessor fails to perform obligations required of Lessor within a reasonable time, but in no event later than thirty (30) days after written notice by Lessee to Lessor and to the holder of any first mortgage or deed of trust covering the Premises whose name and address shall have theretofore been furnished to Lessee in writing, specifying wherein Lessor has failed to perform such obligation, provided, however, that if the nature of Lessor's obligation is such that more than thirty (30) days are required for performance than Lessor shall not be in default if Lessor commences performance within such thirty (30) days are required for performance then Lessor shall not be in default if Lessor commences performance within such thirty (30) day period and thereafter diligently prosecutes the same to completion. 5 13.4 LATE CHARGES. Should Lessee fail to pay, when due and payable, the minimum monthly rental or any additional rental, such unpaid amounts shall bear interest at the maximum legal rate from the date the debt was incurred to the date of ultimate payment. Said interest amount shall be in addition to, and not in lieu of, any late charge assessed for the debt incurred. Late charges shall not be included in calculating interest due. In addition to such interest, Lessee stipulates that the late payment by Lessee of any monthly rental/additional rental will cause Lessor to incur certain costs and expenses not contemplated by the parties/lease hereto, the exact amount of which costs are extremely difficult to ascertain. As such, if any installment is not received by Lessor from Lessee within five (5) days of its due date, Lessee shall forthwith pay as additional rent, a late charge of ten percent (10%) of that amount due. Lessor and Lessee agree that such late charge represents a reasonable estimate of such costs and expenses and is fair compensation to Lessor for the loss caused by Lessee's nonpayment. Payment(s) made by Lessee shall be applied by Lessor, subject to Lessor's sole discretion, first to late charges incurred, then to common area maintenance/operating expense as additional rent, and lastly to base rent. Lessor's acceptance of this late charge shall not constitute a waiver of Lessee's default with respect to nonpayment of the subject debt, nor prevent Lessor from exercising all other rights, claims, or remedies, known or unknown, available to Lessor pursuant to this lease or under California or federal law. 14. CONDEMNATION. If the Premises or any portion thereof or the Center are taken under the power of eminent domain, or sold under the threat of the exercise of said power (all of which are herein called "condemnation"), this Lease shall terminate as to the part so taken as of the date the condemning authority takes title or possession, whichever first occurs. If more than ten percent of the floor area of the Premises, or more than twenty-five percent of that portion of the Common Areas designated as parking for the Center is taken by condemnation, Lessee may, at Lessee's option, to be exercised in writing only within ten (10) days after Lessor shall have given Lessee written notice of such taking (or in the absence of such notice, within ten (10) days after the condemning authority shall have taken possession) terminate this Lease as of the date the condemning authority takes such possession. If Lessee does not terminate this Lease in accordance with the foregoing, this Lease shall remain in full force and effect as to the portion of the premises remaining, except that the rent shall be reduced in the proportion that the floor area of the Premises taken bears to the total floor area of the Premises. No reduction of rent shall occur if the only area taken is that which does not have the Premises located thereon. Any award for the taking of all or any part of the Premises under the power of eminent domain or any payment made under threat of the exercise of such power shall be the property of Lessor, whether such award shall be made as compensation for diminution in value of the leasehold or for the taking of the fee, or as severance damages; provided, however, that Lessee shall be entitled to any award for loss of or damage to Lessee's trade fixtures and removable personal property. In the event that this Lease is not terminated by reason of such condemnation, Lessor shall to the extent of severance damages received by Lessor in connection with such condemnation, repair any damage to the Premises caused by such condemnation except to the extent that Lessee has been reimbursed therefor by the condemning authority. Lessee shall pay any amount in excess of such severance damages required to complete such repair. 15. BROKER'S FEE. (a) Upon execution of this Lease by both parties, upon occupancy of the premises by Lessee, and receipt of any deposits and/or initial rental payment, Lessor shall pay to ELKINS-ZIRPOLO, INC., licensed real estate broker(s), a fee as set forth in a separate agreement between Lessor and said broker(s), or in the event there is no separate agreement between Lessor and said broker(s), the sum of $ PER CONTRACT AGREEMENT , for brokerage services rendered by said broker(s) to Lessor in this transaction. 16. ESTOPPEL CERTIFICATE. (a) Each party (as "responding party") shall at any time upon not less than ten (10) days' prior written notice from the other party ("requesting party") execute, acknowledge and deliver to the requesting party a statement in writing (i) certifying that this Lease is unmodified and in full force and effect (or, if modified, stating the nature of such modification and certifying that this Lease, as so modified, is in full force and effect) and the date to which the rent and other charges are paid in advance, if any, and (ii) acknowledging that there are not, to the responding party's knowledge, any uncured defaults on the part of the requesting party, or specifying such defaults if any are claimed. Any such statement may be conclusively relied upon by any prospective purchaser or encumbrancer of the Premises or of the business of the requesting party. (b) At the requesting party's option, the failure to deliver such statement within such time shall be a material default of this Lease by the party who is to respond, without any further notice to such party, or it shall be conclusive upon such party that (i) this Lease is in full force and effect, without modification except as may be represented by the requesting party, (ii) there are no uncured defaults in the requesting party's performance, and (iii) if Lessor is the requesting party, not more than one month's rent has been paid in advance. (c) If Lessor desires to finance, refinance, or sell the Property, or any part thereof, Lessee and all Guarantors of Lessee's performance hereunder hereby agrees to deliver to any lender or purchaser designated by Lessor such financial statements of Lessee and such Guarantors as may be reasonably required by such lender or purchaser. Such statements shall include the past three (3) years' financial statements of Lessee. All such financial statements shall be received by Lessor and such lender or purchaser in confidence and shall be used only for the purposes herein set forth. 17. LESSOR'S LIABILITY. The term "Lessor" as used herein, shall mean only the owner or owners, at the time in question, of the fee title or a lessee's interest in a ground lease of the Center, and except as expressly provided in paragraph 15, in the event of any transfer of such title or interest, Lessor herein named (and in case of any subsequent transfers than the grantor) shall be relieved from and after the date of such transfer of all liability as respects Lessor's obligations thereafter to be performed, provided that any funds in the hands of Lessor or the then grantor at the time of such transfer, in which Lessee has an interest, shall be delivered to the grantee. The obligations contained in this Lease to be performed by Lessor shall, subject as aforesaid, be binding on Lessors successors and assigns, only during their respective periods of ownership. 18. SEVERABILITY. The invalidity of any provision of this Lease as determined by a court of competent jurisdiction shall in no way affect the validity of any other provision hereof. 19. INTEREST ON PAST-DUE OBLIGATIONS. Except as expressly herein provided, any amount due to Lessor not paid when due shall bear interest at the maximum rate then allowable by law from the date due. Payment of such interest shall not excuse or cure any default by Lessee under this Lease; provided, however, that interest shall not be payable on late charges incurred by Lessee nor on any amounts upon which late charges are paid by Lessee. 20. TIME OF ESSENCE. Time is of the essence with respect to the obligations to be performed under this Lease. 21. ADDITIONAL RENT. All monetary obligations of Lessee to Lessor under the terms of this Lease, including but not limited to Lessee's Share of Operating Expenses and insurance and tax expenses payable shall be deemed to be rent. 22. INCORPORATION OF PRIOR AGREEMENTS; AMENDMENTS. This Lease contains all agreements of the parties with respect to any matter mentioned herein. No prior or contemporaneous agreement or understanding pertaining to any such matter shall be effective. This lease may be modified in writing only, signed by the parties in interest at the time of the modification. Except as otherwise stated in this Lease, Lessee hereby acknowledges that neither the real estate broker listed in paragraph 15 hereof nor any cooperating broker on this transaction nor the Lessor or any employee or agents of any of said persons has made any oral or written warranties or representations to Lessee relative to the condition or use by Lessee of the Premises or the Property and Lessee acknowledges that Lessee assumes all responsibility regarding the Occupational Safety Health Act, the legal use and adaptability of the Premises and the compliance thereof with all applicable laws and regulations in effect during the term of this Lease except as otherwise specifically stated in this Lease. 23. NOTICES. Any notice required or permitted to be given hereunder shall be in writing and may be given by personal delivery or by certified mail, and if given personally or by mail, shall be deemed sufficiently given if addressed to Lessee or to Lessor at the address noted below the signature of the respective parties, as the case may be. Either party may by notice to the other specify a different address for notice purposes except that upon Lessee's taking possession of the Premises, the Premises shall constitute Lessee's address for notice purposes. A copy of all notices required or permitted to be given to Lessor hereunder shall be concurrently transmitted to such party or parties at such addresses as Lessor may from time to time hereafter designate by notice to Lessee. 24. WAIVERS. No waiver by Lessor or any provision hereof shall be deemed a waiver of any other provision hereof or of any subsequent breach by Lessee of the same or any other provision. Lessor's consent to, or approval of, any act shall not be deemed to render unnecessary the obtaining of Lessor's consent to or approval of any subsequent act by Lessee. The acceptance of rent hereunder by Lessor shall not be a waiver of any preceding breach by Lessee of any provision hereof other than the failure of Lessee to pay the particular rent so accepted, regardless of Lessor's knowledge of such preceding breach at the time of acceptance of such rent. 25. RECORDING. Either Lessor or Lessee shall, upon request of the other, execute, acknowledge and deliver to the other a "short form" memorandum of this Lease for recording purposes. 26. HOLDING OVER. If Lessee, with Lessor's consent, remains in possession of the Premises or any part thereof after the expiration of the term hereof, such occupancy shall be a tenancy from month to month upon all provisions of this Lease pertaining to the obligations of Lessee, but all Options, if any, granted under the terms of this Lease shall be deemed terminated and be of no further effect during said month to month tenancy. 27. CUMULATIVE REMEDIES. No remedy or election hereunder shall be deemed exclusive but shall, wherever possible, be cumulative with all other remedies at law or in equity. 28. COVENANTS AND CONDITIONS. Each provision of this Lease performable by Lessee shall be deemed both a covenant and a condition. 29. BINDING EFFECT: CHOICE OF LAW. Subject to any provisions hereof restricting assignment or subletting by Lessee and subject to the provisions of paragraph 17, this Lease shall bind the parties, their personal representatives, successors and assigns. This Lease shall be governed by the laws of the State where the Center is located and any litigation concerning this Lease between the parties hereto shall be initiated in the county in which the Center is located. 30. SUBORDINATION. (a) This Lease, and any Option granted hereby, at Lessor's option, shall be subordinate to any ground lease, mortgage, deed of trust, or any other hypothecation of security now or hereafter placed upon the Center and to any and all advances made on the security thereof and to all renewals, modifications, consolidations, replacements and extensions thereof. Notwithstanding such subordination, Lessee's right to quiet possession of the Premises shall not be disturbed if Lessee is not in default and so long as Lessee shall pay the rent and observe and perform all of the provisions of this Lease, unless this Lease is otherwise terminated pursuant to its terms. If any mortgages, trustee or ground lessor shall elect to have this Lease and any Options granted hereby prior to the lien of its mortgage, deed of trust or ground lease, and shall give written notice thereof to Lessee, this Lease and such Options shall be deemed prior to such mortgage, deed of trust or ground lease, whether this Lease or such Options are dated prior or subsequent to the date of said mortgage, deed of trust or ground lease or the date of recording thereof. 6 (b) Lessee agrees to execute any documents required to effectuate an attornment, a subordination [illegible] make this Lease or any Option granted herein prior to the lien of any mortgage, deed of trust or ground lease, as the case may be. Lessee's failure to execute such documents within ten (10) days after written demand shall constitute a material default by Lessee hereunder without further notice to Lessee or, at Lessor's option, Lessor shall execute such documents on behalf of Lessee as Lessee's attorney-in-fact. Lessee does hereby make, constitute and irrevocably appoint Lessor as Lessee's attorney-in-fact and in Lessee's name, place and stead, to execute such documents in accordance with is paragraph 30(b). 31. ATTORNEY'S FEES. If either party or the broker(s) named herein bring an action to enforce the terms hereof or declare rights hereunder, the prevailing party in any such action, on trial or appeal, shall be entitled to his reasonable attorney's fees to be paid by the losing party as fixed by the court. The provisions of this paragraph shall inure to the benefit of the broker named herein who seeks to enforce a right hereunder. 32. LESSOR'S ACCESS. Lessor and Lessor's agents shall have the right to enter the Premises at reasonable times for the purposes of inspecting the same, showing the same to prospective purchasers, lenders, or lessees, and making such alterations, repairs, improvements or additions to the Premises or to the building of which they are part as Lessor may deem necessary or desirable. Lessor may at any time place on or about the Premises or the Building any ordinary "For Sale" signs and Lessor may at any time during the last 120 days of the term hereof place on or about the Premises any ordinary "For Lease" signs. All activities of Lessor pursuant to this paragraph shall be without abatement of rent, nor shall Lessor have any liability to Lessee for the same. 33. AUCTIONS. Lessee shall not conduct, nor permit to be conducted, either voluntarily or involuntarily, any auction upon the Premises or the Common Areas without first having obtained Lessor's prior written consent. Notwithstanding anything to the contrary in this Lease, Lessor shall not be obligated to exercise any standard of reasonableness in determining whether to grant such consent. 34. SIGNS. Lessee shall not place any sign upon the Premises of the Center without Lessor's prior written consent. Under no circumstances shall Lessee place a sign on any roof of the Center. 35. MERGER. The voluntary or other surrender of this Lease by Lessee, or a mutual cancellation thereof, or a termination by Lessor, shall not work a merger, and shall, at the option of Lessor, terminate all or any existing subtenancies or may, at the option of Lessor, operate as an assignment to Lessor of any or all of such subtenancies. 36. CONSENTS. Except for paragraph 33 hereof, wherever in this Lease the consent of one party is required to an act of the other party such consent shall not be unreasonably withheld or delayed. 37. GUARANTOR. In the event that there is a guarantor of this Lease, said guarantor shall have the same obligations as Lessee under this Lease. 38. QUIET POSSESSION. Upon Lessee paying the rent for the Premises and observing and performing all of the covenants, conditions and provisions on Lessee's part to be observed and performed hereunder, Lessee shall have quiet possession of the Premises for the entire term hereof subject to all of the provisions of this Lease. The individuals executing this Lease on behalf of Lessor represent and warrant to Lessee that they are fully authorized and legally capable of executing this Lease on behalf of Lessor and that such execution is binding upon all parties holding an ownership interest in the Property. Landlord shall not be liable for any damage arising from acts or neglects of co-tenants, or other occupants of the same building, or of any owners or occupants of adjacent or contiguous property. 39. OPTIONS. 39.1 DEFINITION. As used in this paragraph the word "Option" has the following meaning: (1) the right or option to extend the term of this Lease or to renew this Lease or to extend or renew any lease that Lessee has on other property of Lessor; (2) the option or right of first refusal to lease the Premises or the right of first offer to lease the Premises or the right of first refusal to lease other space within the Center or other property of Lessor or the right of first offer to lease other space within the Center or other property of Lessor; (3) the right or option to purchase the Premises or the Center, or the right of first refusal to purchase the Premises or the Center, or the right of first offer to purchase the Premises or the Center, or the right or option to purchase other property of Lessor, or the right of first refusal to purchase other property of Lessor or the right of first offer to purchase other property of Lessor. 39.2 OPTIONS PERSONAL. Each Option granted to Lessee in this Lease is personal to the original Lessee and may be exercised only by the original Lessee while occupying the Premises who does so without the intent of thereafter assigning this Lease or subletting the Premises or any portion thereof, and may not be exercised or be assigned, voluntarily or involuntarily, by or to any person or entity other than Lessee, provided, however, that an Option may be exercised by or assigned to any Lessee Affiliate as defined in paragraph 12.2 of this Lease. The Options, if any, herein granted to Lessee are not assignable separate and apart from this Lease, nor may any Option be separated from this Lease in any manner, either by reservation or otherwise. 39.3 MULTIPLE OPTIONS. In the event that Lessee has any multiple options to extend or renew this Lease a later option cannot be exercised unless the prior option to extend or renew this Lease has been so exercised. 39.4 EFFECT OF DEFAULT ON OPTIONS. (a) Lessee shall have no right to exercise an Option, notwithstanding any provision in the grant of Option to the contrary, (i) during the time commencing from the date Lessor gives to Lessee a notice of default pursuant to paragraph 13.1(b) or 13.1(c) and continuing until the noncompliance alleged in said notice of default is cured, or (ii) during the period of time commencing on the date after a monetary obligation to Lessor is due from Lessee and unpaid (without necessity for notice thereof to Lessee) and continuing until the obligation is paid, or (iii) at any time after an event of default described in paragraphs 13.1(a), 13.1(d), or 13.1(e) (without any necessity of Lessor to give notice of such default to Lessee), nor (iv) in the event that Lessor has given to Lessee three or more notices of default under paragraph 13.1(b), or paragraph 13.1(c), whether or not the defaults are cured, during the 12 month period of time immediately prior to the time that Lessee attempts to exercise the subject Option. (b) The period of time within which an Option may be exercised shall not be extended or enlarged by reason of Lessee's inability to exercise an Option because of the provisions of paragraph 39.4(a). (c) All rights of Lessee under the provisions of an Option shall terminate and be of no further force or effect, notwithstanding Lessee's due and timely exercise of the Option. If, after such exercise and during the term of this Lease, (i) Lessee fails to pay to Lessor a monetary obligation of Lessee for a period of thirty (30) days after such obligation becomes due (without any necessity of Lessor to give notice thereof to Lessee), or (ii) Lessee fails to commence to cure a default specified in paragraph 13.1(c) within thirty (30) days after the date that Lessor gives notice to Lessee of such default and/or Lessee fails thereafter to diligently prosecute said cure to completion, or (iii) Lessee commits a default described in paragraph 13.1(a), 13.1(d) or 13.1(e) (without any necessity of Lessor to give notice of such default to Lessee) or (iv) Lessor gives to Lessee three or more notices of default under paragraph 13.1(b), or paragraph 13.1(c), whether or not the defaults are cured. 40. SECURITY MEASURES. Lessee hereby acknowledges that Lessor shall have no obligation whatsoever to provide guard service or other security measures for the benefit of the Premises or the Center. Lessee assumes all responsibility for the protection of Lessee, its agents, and invitees and the property of Lessee and of Lessee's agents and invitees from acts of third parties. Nothing herein contained shall prevent Lessor, at Lessor's sole option, from providing security protection for the Industrial Center or any part thereof, in which event the cost thereof shall be included within the definition of Operating Expenses, as set forth in paragraph 4.2(b). 41. EASEMENTS. Lessor reserves to itself the right, from time to time to grant such easements, rights and dedications that Lessor deems necessary or desirable, and to cause the recordation of Parcel Maps and restrictions, so long as such easements, rights, dedications, Maps and restrictions do not unreasonably interfere with the use of the Premises by Lessee. Lessee shall sign any of the aforementioned documents upon request of Lessor and failure to do so shall constitute a material default of this Lease by Lessee without the need for further notice to Lessee. 42. PERFORMANCE UNDER PROTEST. If at any time a dispute shall arise as to any amount or sum of money to be paid by one party to the other under the provisions hereof, the party against whom the obligation to pay the money is asserted shall have the right to make payment "under protest" and such payment shall not be regarded as a voluntary payment, and there shall survive the right on the part of said party to institute suit for recovery of such sum. If it shall be adjudged that there was no legal obligation on the part of said party to pay such sum or any part thereof, said party shall be entitled to recover such sum or so much thereof as it was not legally required to pay under the provisions of this Lease. 43. AUTHORITY. If Lessee is a corporation, trust, or general or limited partnership, each individual executing this Lease on behalf of such entity represents and warrants that he or she is duly authorized to execute and deliver this Lease on behalf of said entity. If Lessee is a corporation, trust or partnership, Lessee shall, within thirty (30) days after execution of this Lease, deliver to Lessor evidence of such authority satisfactory to Lessor. 44. CONFLICT. Any conflict between the printed provisions of this Lease and the typewritten or handwritten provisions, if any, shall be controlled by the typewritten or handwritten provisions. 45. OFFER. Preparation of this Lease by Lessor or Lessor's agent and submission of same to Lessee shall not be deemed an offer to lease. This Lease shall become binding upon Lessor and Lessee only when fully executed by Lessor and Lessee. 46. ADDENDUM. Attached hereto is an addendum or addenda containing paragraphs 47 through 52 which constitute a part of this Lease. 47. PARKING. Lessee is allowed 2.5 cars per 1,000 square feet Lessee has leased. Your 2.5 cars per 1,000 square feet should be used for executive management and customers only. All employees must park on City streets. Please note below license numbers of management. Please notify landlord of any change in management parking. A._______________ B._____________ C._____________ D.____________ E._____________ The following Exhibits are hereby attached and made part of this lease agreement: Exhibit "A" Estimated Budget Exhibit "B" Guarantee of Lease Exhibit "C" Rules and Regulations Exhibit "D" Site Plan Exhibit "E" Floor Plan 7 LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND PROVISION CONTAINED HEREIN AND, BY EXECUTION OF THIS LEASE, SHOW THEIR INFORMED AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE TIME THIS LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE AND EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO THE PREMISES. LESSOR LESSEE THE FOUR AMIGOS, A CALIFORNIA RED ENVELOPE, INC. LIMITED PARTNERSHIP By: [ILLEGIBLE] By: [ILLEGIBLE] --------------------------- --------------------------- Title: Title: President & CEO ------------------------ ------------------------ Date: 5/15/00 Date: 5/1/00 ------------------------- -------------------------- (Corporate Seal) (Corporate Seal) ADDRESS FOR NOTICES AND RENT ADDRESS FOR NOTICES AND RENT 4607 MISSION GORGE PLACE 4562 ALVARADO CANYON ROAD, SAN DIEGO, CA 92120 SUITE A and M SAN DIEGO, CA 92120 8 ADDENDUM TO STANDARD INDUSTRIAL LEASE DATED MARCH 28, 2000 BY AND BETWEEN THE FOUR AMIGOS, A CALIFORNIA LIMITED PARTNERSHIP AND RED ENVELOPE, INC. 48 ENVIRONMENTAL MATTERS 48.1 NO USE OF HAZARDOUS MATERIALS. Lessee agrees that Lessee shall not keep, use, generate, store, release, threaten release or dispose of any Hazardous Materials (as defined below) on or about the Premises without the prior express written consent of Lessor, which consent may be withheld by Lessor in its sole and absolute discretion. Lessee represents that the presence of Hazardous Materials on the Premises is not necessary to the conduct of its business or its use of the Premises and Lessee acknowledges that it is probable that Lessor will withhold its consent to any requested use of Hazardous Materials on the Premises. For purposes of this provision, "Hazardous Materials" shall include all oil, flammable explosives, asbestos, urea formaldehyde, radioactive materials or waste, or other hazardous, toxic, contaminated, or polluting materials, substances or wastes, including, without limitation, substances defined as "hazardous substances", "hazardous materials", "hazardous wastes", or "toxic substances" under any laws ordinances or regulations heretofore or hereafter enacted or adopted. 48.2 COMPLIANCE WITH ENVIRONMENTAL LAWS. If Lessor consents in writing to the presence, use, generation, storage, release or disposition of Hazardous Materials (collectively, "Use of Hazardous Materials") on or about the Premises, then Lessee shall conduct such Use of Hazardous Materials subject to, and in full compliance with, all local, state, federal and other laws and regulations governing the Use of Hazardous Materials. Lessee shall, at its own expense, procure, maintain in effect and comply with, all conditions of any and all permits, licenses and other governmental and regulatory approvals required for Lessee's use of the Premises, including without limitation, discharge of appropriately treated materials or wastes. Lessee shall cause any known Hazardous Materials located on or about the Premises to be removed and transported from the Premises solely by duly licensed haulers to duly licensed facilities for final disposal of such materials and wastes. Lessee shall in all respects handle, treat, deal with and manage any and all Hazardous Materials in, on, under or about the Premises in total conformity with all applicable laws and regulations governing the Use of Hazardous Materials and prudent industrial practices regarding management of such Hazardous Materials. Upon regarding management of such Hazardous Materials. Upon expiration or earlier termination of the term of this Lease, Lessee shall cause all Hazardous Materials to be removed from the Premises and transported for use, storage or disposal in accordance and compliance with all applicable laws and regulations governing the Use of Hazardous Materials. 48.3 NOTICES. Lessee shall immediately notify Lessor in writing of: (i) any enforcement, clean-up, removal or other governmental or regulatory actions instituted, completed or threatened pursuant to any laws or regulations governing the use of Hazardous Materials; (ii) any claim made or threatened against Lessee or the Premises relating to damage, contribution, cost recovery, compensation, loss or injury resulting from or claimed to result from any hazardous materials; and (iii) any reports made to any environmental agency arising out of or in connection with any Hazardous Materials in or removed from the Premises, including any complaints, notices, warnings or asserted violations in connection therewith. Lessee shall also supply to Lessor as promptly as possible, and in any event within five (5) business days after Lessee first receives or sends the same, with copies of all claims, reports, complaints, notices, warnings or asserted violations relating in any way to the Premises or Lessee's use thereof. Lessee shall promptly deliver to Lessor copies of hazardous waste manifests reflecting the legal and proper disposal of all Hazardous Materials removed from the Premises. 48.4 INDEMNIFICATION. Lessee hereby agrees to indemnify, defend and hold harmless Lessor, its trustees, officers, employees and agents, and the beneficiary or mortgagee under any deed of trust or mortgage now or hereafter encumbering all or any portion of the Premise, from and against any and all suits, actions, legal or administrative proceedings, claims, demands, damages, fines, punitive damages, losses, costs, liabilities, interest, attorneys' fees (including any such fees and expenses incurred in enforcing this indemnity), resulting from or relating to, directly or indirectly, the Use of Hazardous Materials on or about the Premises. The indemnity set forth herein shall include, without limitation, the cost of any required or necessary repair, clean- 9 up or detoxification of the Premises and the surrounding property and shall survive the expiration or earlier termination of the term of this Lease. 48.5 ADDITIONAL INSURANCE OR FINANCIAL CAPACITY. If at any time it reasonably appears to Lessor that Lessee is not maintaining sufficient insurance or other means of financial capacity to enable Lessee to fulfill its obligation to Lessor hereunder, whether or not then accrued, liquidated, conditional or contingent, Lessee shall procure and thereafter maintain in full force and effect such insurance or other form of financial assurance, with or from companies or persons and in forms reasonably acceptable to Lessor as Lessor may from time to time reasonably request. THE FOUR AMIGOS, A CALIFORNIA RED ENVELOPE, INC. LIMITED PARTNERSHIP By: [ILLEGIBLE] By: [ILLEGIBLE] --------------------------- --------------------------- Title: Title: President & CEO ------------------------ ------------------------ Date: 5/15/00 Date: 5/1/00 ------------------------- -------------------------- 10 A D D E N D U M TO STANDARD INDUSTRIAL LEASE DATED MARCH 28, 2000 BY AND BETWEEN THE FOUR AMIGOS, A CALIFORNIA LIMITED PARTNERSHIP AND RED ENVELOPE, INC. 49 R E N T E S C A L A T I O N S Base rent under Section 4 of this Lease shall be adjusted annually, effective on the 1st day of JANUARY of each year of the Lease term, including option periods, if any. The adjustment shall be made for changes in the current purchasing power of lawful money of the United States, as reported by the U.S. Bureau of Labor Statistics and Consumer Price Index for all Urban Consumers in the Los Angeles-Anaheim-Riverside, California, as published by the United States Department of Labor's Bureau of Labor Statistics (Index Base Year 1982-4=100). If said Index is not published, but the United States Government provides a substitute therefore and the means of adjustment, such substitute shall be used. If no official substitute is provided, the Parties shall agree upon another source by arbitration pursuant to the provisions of the California Code of Civil Procedure. The monthly rent during each such annual period shall be the greater of the rent specified in section 4 hereof, said rent amount multiplied by a fraction, the numerator of which is the most recent Index number available ten (10) days before the effective date of the adjustment and the denominator of which is the Index number for the calendar month which is four (4) months prior to the month the original Lease term commences. Notwithstanding the foregoing, the amount of an individual cost of living increase for a given Lease or option year shall not be less than FOUR PERCENT (4%). 50 P R O P E R T Y T A X E S The estimated budget for Property Taxes is attached hereto and made a part hereof. Lessee agrees Property Taxes are to be paid concurrently with rental payment due and payable on the first day of each month. 51 M A I N T E N A N C E F E E S The established budget for maintenance cost is attached hereto and made a part hereof. Lessee agrees maintenance fees are to be paid concurrently with rental payment due and payable on the first day of each month. 52 C O N D I T I O N O F S P A C E Condition of Space: Tenant to accept the space in its "as-is" condition. THE FOUR AMIGOS, A CALIFORNIA RED ENVELOPE, INC. LIMITED PARTNERSHIP By: /s/ [Illegible] By: /s/ [Illegible] --------------------------------- --------------------------------- Title: Title: President & CEO ------------------------------ ------------------------------ Date 5/15/01 Date 5/1/00 ------------------------------- ------------------------------- Initials TMB --- --- 11 EXHIBIT A FOUR AMIGOS MISSION VALLEY BUSINESS CENTER 2004 ESTIMATED BUDGET 1. Property Management Fee 2. Maintenance 3. Landscaping 4. Security 5. Insurance 6. Gas & Electric 7. Water 8. Sweeping 9. Window Washing 10. Trash 11. Alarm Telephone 12. Reserve 13. Legal 14. Audit 15. Property Taxes 16. Association Dues 17. Franchise Tax ================================================================================ Premises - approximately 13,004 rentable Square Feet = 20.89% of Total Building Area - 62,261 sq. ft. $2600.80 Estimated Monthly Maintenance & Tax Costs for year 2004 Lessor: FOUR AMIGOS, a California Lessee: RED ENVELOPE, INC. Limited Partnership By: /s/ [ILLEGIBLE] By: /s/ [ILLEGIBLE] ----------------------------- ----------------------------- Title: Title: President & CEO -------------------------- -------------------------- 5/15/00 5/1/00 - --------------------------------- --------------------------------- Date Date EXHIBIT B GUARANTEE OF LEASE-INTENTIONALLY DELETED Initials TMB -------- -------- 12 EXHIBIT C MISSION VALLEY BUSINESS CENTER RULES & REGULATIONS A. TENANT AGREES AS FOLLOWS: 1. All loading and unloading of goods shall be done only at such times, in the areas and through the entrances designated for such purposes by Landlord. 2. The delivery or shipping of merchandise, supplies and fixtures to and from leased premises shall be subject to such rules and regulations as in the judgment of Landlord are necessary for the proper operation of the leased premises or shopping center. 3. All garbage and refuse shall be kept in the kind of container specified by Landlord and shall be placed outside of the premises, prepared for collection in the manner and at the times and places specified by Landlord. If Landlord shall provide or designate a service for picking up refuse and garbage, Tenant shall use same at Tenant's cost. Tenant shall pay the cost of removal of any of Tenant's refuse or rubbish. 4. No radio or television or other similar device shall be installed without first obtaining in each instance Landlord's consent in writing. No aerial shall be erected on the roof or exterior walls of the premises, or on the grounds, without in each instance the written consent of the Landlord. Any aerial so installed without such written consent shall be subject to removal without notice at any time. 5. No loud speakers, televisions, phonographs, radios or other devices shall be used in a manner so as to be heard or seen outside of the premises without the prior written consent of Landlord. 6. The outside areas immediately adjoining the premises shall be kept clean and free from dirt and rubbish by Tenant to the satisfaction of Landlord, and Tenant shall not place or permit any obstructions or merchandise in such areas. 7. Tenant and Tenant's employees shall park their cars only in those portions of the parking area designated for that purpose by Landlord. Tenant shall furnish Landlord with State automobile license numbers assigned to Tenant's car or cars and cars of Tenant's employee, within five days after taking possession of the premises and shall thereafter notify Landlord of any changes within five days after such changes occur. In the event Tenant or its employees fail to park their cars in designated parking areas as aforesaid, then Landlord at its option shall charge Tenant $50.00 per day per car parked in any area other than those designated, as and for liquidated damages. 8. The plumbing facilities shall not be used for any other purpose than that for which they are constructed, and no foreign substance of any kind shall be thrown therein, and the expense of any breakage, stoppage, or damage resulting from a violation of this provision shall be borne by Tenant, who shall, or whose employees, agents or invitees shall have caused it. 9. Tenant shall use at Tenant's cost such pest extermination contractor as Landlord may direct and at such intervals as Landlord may require. 10. Tenant shall not burn any trash or garbage of any kind in or about the leased premises, the shopping center, or within one mile of the outside property line of the shopping center. 11. All public entrances and exits to the leased premises shall be kept unobstructed and open to the public at all times during normal business hours. 12. Tenant shall not cause or permit any obnoxious or foul odors that disturb the public or other tenants. Should such odors be evident, Tenant shall be required to take immediate steps to remedy same upon written notice from Landlord. 13. All signs will be uniform in material, shape, design, color and lettering. Initials /s/ TMB --------- --------- 13 MISSION VALLEY BUSINESS CENTER RULES & REGULATIONS (CONTINUED) 14. All employees except the Manager will park in off-site parking areas. Parking lot will be for customers only. Vehicles may not be left in parking lot area for longer than a 24 hour period. 15. The outside areas immediately adjoining the premises shall be kept clean and free from dirt and rubbish by Tenant to the satisfaction of the Owner, and Tenant shall not place or permit any obstruction or merchandise in such areas. 16. Lessee shall not fasten nor cause to be fastened, any machinery to any party wall or ceiling that will be a nuisance or shall tend to disturb neighbors. B. Tenant agrees to comply with all such rules and regulations. C. Owner reserves the right from time to time to amend or supplement the foregoing rules and regulations, and to adopt and promulgate additional rules and regulations applicable to the leased premises. Reasonable notice of such rules and regulations and amendments and supplements thereto, if any, shall be given to the Tenant. BY: Red Envelope, Inc. Lessee: [/s/ illegible] --------------------------------- Date: 5/1/00 ----------------------------------- Initials ------------ ------------ 14 EXHIBIT "D" SITE PLAN MISSION VALLEY BUSINESS CENTER [GRAPHIC OF MISSION VALLEY BUSINESS CENTER vs LAYOUT] /S/ [illegible] /s/ [illegible] - ---------------------------------- ---------------------------------------- Lessee Lessor 5/1/00 5/15/00 Date: --------------------------- Date:----------------------------------- EXHIBIT "D" SITE PLAN [GRAPHIC OF SITE PLAN] /s/ [illegible] /s/ [illegible] -------------------------- ----------------------------- Lessee Lessor Date: 5/1/00 Date: 5/15/00 --------------------- ------------------------ EXHIBIT "E" FLOOR PLAN [GRAPHIC OF FLOOR PLAN] /s/ [illegible] /s/ [illegible] -------------------------- ----------------------------- Lessee Lessor Date: 5/1/00 Date: 5/15/00 --------------------- ------------------------ EX-10.11 21 f89225orexv10w11.txt EXHIBIT 10.11 EXHIBIT 10.11 SUBLEASE AGREEMENT BETWEEN 3PF.COM, INC., AS SUBLESSOR, AND RED ENVELOPE, INC. AS SUBLESSEE DATED: JUNE 18, 2002 PROPERTY LOCATED IN: VILLAGE OF OBETZ, OHIO TABLE OF CONTENTS
Page ---- EXHIBITS: EXHIBIT A--SITE PLAN OF PREMISES EXHIBIT B--ILLUSTRATIVE EXAMPLES OF OPERATING EXPENSES EXHIBIT C--CREEKSIDE RULES AND REGULATIONS EXHIBIT D--PRELIMINARY SPECIFICATIONS FOR LEASEHOLD IMPROVEMENTS EXHIBIT E--"TAXES" SECTION FROM MASTER LEASE EXHIBIT F--"CASUALTY" SECTION FROM MASTER LEASE EXHIBIT G--"TAX ABATEMENT" REAL & PERSONAL PROPERTY TAX ABATEMENT DOCUMENTATION
i Revised 6/14/02 THIS SUBLEASE is made as of June 18, 2002, between 3PF.COM, INC., a Delaware corporation having an address at 3300 State Route 73, South Building 5, Wilmington, Ohio 45177 ("Sublessor"), and RED ENVELOPE, INC., a Delaware corporation having an address at 201 Spear Street, 3rd Floor, San Francisco, California 94105 ("Sublessee"). RECITALS: A. Pursuant to Lease, dated August 16, 2000, between Creekside III LLC and Sublessor, as amended by First Amendment to Lease, dated March 30, 2001 (as amended, the "Master Lease"), Sublessor leases a building of approximately 388,264 square feet (the "Building"), situated on the approximately 18 acre parcel of land located in the Creekside Industrial Center in the Village of Obetz, Ohio, depicted on EXHIBIT A hereto (the "Entire Premises"). The entity from time to time holding the Landlord's interest under the Master Lease is referred to as "Master Lessor". B. Sublessee desires to sublease from Sublessor and Sublessor desires to sublease to Sublessee a portion of the Building upon the terms and conditions hereinafter set forth. NOW, THEREFORE, in consideration of the premises, the rents reserved herein and the mutual benefits to be derived by Sublessor and Sublessee, the parties agree as follows: 1. SUBLEASE TERM. (a) PRIMARY TERM. Sublessor hereby subleases and demises to Sublessee and Sublessee hereby subleases and takes from Sublessor the portion of the Building depicted on EXHIBIT A as "Red Envelope" comprising approximately 194,000 square feet (the "Demised Premises") for an initial term (the "Primary Term") commencing on the date that all of the following conditions have been satisfied (the "Term Commencement Date"): (i) Sublessor tenders possession of the Demised Premises to Sublessee, with the Leasehold Improvements (as hereinafter defined) substantially completed (as evidenced by the issuance of any required certificate of occupancy or similar certificate with respect to the Leasehold Improvements by the Village of Obetz), (ii) all equipment leased by Sublessee pursuant to the Equipment Lease Agreement of even date herewith, between Sublessor and Sublessee (the "Equipment Lease"), has been installed in the Demised Premises and is fully operational and in good working order, (iii) Sublessor has obtained from the Village of Obetz tax abatement agreements substantially on the terms provided in EXHIBIT G , attached hereto, with respect to the abatement of real property taxes, personal property taxes and inventory taxes, (iv) Sublessor has transferred to the Demised Premises a sufficient amount of Sublessee's stock located at Sublessee's Wilmington Ohio facility to enable Sublessee to operate its business at the Demised Premises for a period of at least thirty (30) days, and (v) Master Lessor has consented to this Sublease in accordance with Section 32. The Primary Term shall expire on July 31, 2006. Subject to the terms of this Sublease, Sublessee agrees to accept possession of the Demised Premises when tendered by Sublessor. The targeted Term Commencement Date shall be August 1, 2002. Sublessor shall give Sublessee at least fifteen (15) days' prior written notice of the Term Commencement Date. Prior to the Term Commencement Date, Sublessee may enter the Demised Premises for the purposes of preparing the Demised Premises for Sublessee's occupancy. Such early entry shall not trigger the Term Commencement Date and Sublessee shall not be required to pay any rent with respect to such early entry period. (b) EXTENDED TERMS. Provided this Sublease is in full force and effect and there shall have been no Event of Default (hereinafter defined) then continuing at the time of the exercise of the option, Sublessee shall have two (2) successive options to extend the term of the Sublease beyond the Primary Term. The first option shall extend the Primary Term for additional periods of one (1) year and the second option shall extend the Primary Term for a period of eight (8) months (each an "Extended Term"). Each such Extended Term shall begin upon the expiration of the Primary Term or the immediately preceding Extended Term, as the case may be. Each Extended Term shall be on the same terms and conditions as the Primary Term. Sublessee may exercise the aforesaid options only by giving notice to Sublessor not less than one hundred eighty (180) days but not more than twelve (12) months prior to the expiration of the Primary Term or the immediately preceding Extended Term, as the case may be. Sublessee acknowledges that time is of the essence for the exercise of such options. The Primary Term and the Extended Terms (to the extent exercised by Sublessee) shall be collectively referred to as the "Sublease Term". 2. RENT. (a) BASE RENT. Commencing on the Term Commencement Date and continuing throughout the Sublease Term, Sublessee shall pay annual "Base Rent" to Sublessor, in equal monthly installments, in advance, on the first day of each month of the Sublease Term, in accordance with the following schedule:
- -------------------------------------------------------------------------------- ANNUAL BASE RENT PER SUBLEASE YEAR SQUARE FOOT ANNUAL BASE RENT - -------------------------------------------------------------------------------- Term Commencement Date through March 31, 2003 $ 2.90 - -------------------------------------------------------------------------------- April 1, 2003 through July 31, 2003 $ 3.25 $ 585,240 - -------------------------------------------------------------------------------- August 1, 2003 through July 31, 2004 $ 3.25 $ 630,500 - -------------------------------------------------------------------------------- August 1, 2004 through July 31, 2005 $ 3.25 $ 630,500 - -------------------------------------------------------------------------------- August 1, 2005 through March 31, 2006 $ 3.25 $ 643,440 - --------------------------------------------------------------------------------
2 April 1, 2006 through July 31, 2006 $ 3.45 - -------------------------------------------------------------------------------- August 1, 2006 through July 31, 2007 (First Extended Term) $ 3.45 $ 669,300 - -------------------------------------------------------------------------------- August 1, 2007 through March 31, 2008 (Second Extended Term) $ 3.45 $ 669,300 - --------------------------------------------------------------------------------

Annual Base Rent for the first year ending July 31, 2003 shall be prorated based on the Term Commencement Date and, if the Term Commencement Date is not the first day of a month, Base Rent for such month shall be prorated per diem and be paid by Sublessee on the Rent Commencement Date. Annual Base Rent for the second Extended Term shall be prorated based on the eight (8) month term. (b) ADDITIONAL CHARGES; LATE PAYMENT. Sublessee shall pay Base Rent and all other sums due under this Sublease and perform all obligations under this Sublease at its cost and when due or required without prior notice or demand, and without any rights of reduction, counterclaim or offset. Sublessee shall pay Base Rent to Sublessor's address set forth herein or at such other address or to such other person as Sublessor may from time to time designate. All amounts payable by Sublessee under this Sublease (other than Base Rent and current damages under Section 18(f)), and all interest and costs added for non- or late payment, shall constitute "Additional Charges" under this Sublease. If Sublessee fails to pay any Additional Charge, Sublessor shall have all the rights and remedies with respect thereto as are provided herein or at law or equity for non- or late payment of Base Rent. If Base Rent or any Additional Charge is not received by Sublessor by its due date, then a late payment charge of 5% of such past due amount will be immediately due and payable from Sublessee. 3. OPERATING EXPENSE PAYMENT. Sublessee will pay its Proportionate Share of all Operating Expenses incurred by Sublessor during the Sublease Term in connection with the operation, management, maintenance and repair of the Land and the Building. Illustrative examples of those expenses which are included within, and excluded from, the definition of "Operating Expenses" as set forth in the Master Lease are attached hereto as EXHIBIT B. Sublessee's Proportionate Share is fifty percent (50%). Sublessee will pay its Proportionate Share of such Operating Expenses, in advance, on the first day of each month, based upon Master Lessor's and Sublessor's estimate of the actual Operating Expenses which will be incurred during each calendar year during the Sublease Term. The Estimated Operating Expense Payment for the first such calendar year is $ 6,628.33 per month. The Estimated Operating Expense Payment for each calendar year thereafter will be adjusted based upon Master Lessor's and Sublessor's estimate of its Operating Expenses for such calendar year. Sublessor will use its reasonable efforts to notify Sublessee by December 1 of each year during the Sublease Term of any adjustment in the monthly Estimated Operating Expense Payment for the upcoming calendar year. 3 As soon as reasonably practicable after the end of each calendar year upon receipt from Master Lessor, Sublessor will deliver to Sublessee a written statement showing the actual Operating Expenses for such calendar year and Sublessee's actual Proportionate Share thereof. If the sum of the Estimated Operating Expense Payments paid by Sublessee during such calendar year exceeds Sublessee's Proportionate Share of the actual Operating Expenses incurred during such year, then Sublessor will apply the excess toward the next succeeding monthly Estimated Operating Expense Payment(s) due from Sublessee (or, if the Sublease Term has expired or terminated otherwise than due to default of Sublessee, Sublessor shall immediately refund such amount to Sublessee, which obligation shall survive the expiration or earlier termination of this Sublease). If the sum of the Estimated Operating Expense Payments paid by Sublessee during such calendar year is less than Sublessee's Proportionate Share of the actual Operating Expenses incurred during such year, then Sublessee will pay the deficiency to Sublessor within ten days after Sublessee's receipt of Sublessor's written demand for the payment thereof. 4. USE. (a) Sublessee will use the Demised Premises solely for general office and warehouse use which shall include management, assembly, and product personalization (e.g. monogramming, embroidery, etc.) services. Sublessee will not cause or permit any waste or damage to the Demised Premises, the Building or the Land and will not occupy or use the Demised Premises for any business or purpose which is unlawful, hazardous, unsanitary, noxious or offensive or which unreasonably interferes with the business operations of other tenants or occupants in the remainder of the Building ("Adjacent Premises"). If the nature of Sublessee's use or occupancy of the Demised Premises causes any increase in Sublessor's insurance premiums over and above those chargeable for the least hazardous type of occupancy legally permitted in the Demised Premises, then Sublessee will pay the resulting increase within ten days after its receipt of a statement from Sublessor setting forth the amount thereof. Sublessee will comply with Master Lessor's Rules and Regulations for Creekside as set forth in the Master Lease and attached hereto as EXHIBIT C (and any reasonable modifications thereto which are consistent with the provisions of this Sublease). (b) Sublessee shall, at its sole expense, comply with all laws and other governmental requirements which are now or hereafter in force pertaining to the Demised Premises and Sublessee's use and occupancy thereof, including, without limitation, the Americans with Disabilities Act, the Comprehensive Environmental Response, Compensation and Liability Act, the Clean Air Act, the Hazardous Materials Transportation Act, the Resource Conservation and Recovery Act and the Water Pollution Control Act (collectively herein called the "Legal Requirements"). To the extent the Legal Requirements require modifications of the Entire Premises, the cost thereof shall be shared pro rata based on the then square footage of the Adjacent Premises and the Subleased Premises. 5. SIGNS. Sublessee, at its cost, with Sublessor's prior written consent, which shall not be unreasonably withheld, and with the consent of Master Lessor to the extent required under the Master Lease, may erect and shall thereafter maintain in good order, condition and repair such signs upon the exterior walls of the Demised Premises as it desires, provided the installation of such signs shall not affect or damage the roof of the Demised Premises, and shall otherwise comply with all Legal Requirements applicable thereto. 4 6. MAINTENANCE AND REPAIR. Sublessee will at its sole expense maintain the Demised Premises in a first-class condition and order of repair, reasonable wear and tear and damage by casualty excepted. Sublessee's maintenance obligation will extend to and include the repair and replacement, if necessary, of all structural and non-structural elements and mechanical systems located within the Demised Premises. Any repairs or replacements made to the Demised Premises by Sublessee pursuant to this Section 6 will be made in a workmanlike manner with materials at least equal in quality and grade to those originally contained within the Demised Premises. 7. MASTER LESSOR OBLIGATIONS. Master Lessor under the Master Lease is obligated to maintain, repair and, if necessary, replace, the roof, roof membrane and exterior walls of the Building (including exterior glass) and all common areas serving the Building (including, without limitation, the parking lot, driveways and loading dock areas) in a first-class condition and order of repair; provided, however, that Sublessee (and not Master Lessor) will be required to maintain the same if the need therefore arises due to the fault or negligence of Sublessee or its agents, employees, licensees or invitees. Except as otherwise expressly provided in Section 8, Sublessor will not at any time during the Sublease Term be required to make any improvements, repairs, replacements or alterations to the Demised Premises and will not incur any liability to Sublessee as a result of Master Lessor's failure to do so. Notwithstanding the foregoing, Sublessor shall (I) use reasonable efforts to cause Master Lessor to comply with its obligations as Master Lessor under the Master Lease (but shall not be required to initiate a lawsuit), and (ii) repair all damage caused by Sublessor or any of its agents, employees, contractors or invitees acting outside the scope of the Servicing, Warehousing & Distribution Agreement between Sublessor and Sublessee of even date herewith ("Servicing Agreement"). If, after receipt of written request from Sublessee, Sublessor shall fail or refuse to take action for the enforcement of Sublessor's rights against Master Lessor with respect to the Demised Premises ("Action"), Sublessee shall have the right to take such Action in its own name, at its sole expense, and for that purpose and only to such extent, all of the rights of Sublessor as tenant under the Master Lease are hereby conferred upon and assigned to Sublessee, and Sublessee shall be subrogated to such rights to the extent that such rights shall apply to the Demised Premises. If any Action against Master Lessor in Sublessee's name shall be barred by reason of lack of privity, nonassignability or otherwise, Sublessee may take such Action in Sublessor's name; provided, that Sublessee has obtained the prior written consent of Sublessor, which consent shall not be unreasonably withheld or delayed; and provided, further, that Sublessee shall indemnify, protect, defend by counsel reasonably satisfactory to Sublessor and hold Sublessor harmless from and against any and all claims, demands, actions, suits, proceedings, liabilities, obligations, losses, damages, judgments, costs and expenses (including, without limitation, reasonable attorneys' fees) which Sublessor may incur or suffer by reason of such Action, except to the extent incurred or suffered by reason of Sublessor's negligent acts or omissions. If a default by Master Lessor under the terms of the Master Lease shall result in the excuse of Sublessor from the performance of any of its obligations to be performed under the Master Lease or result in any reduction or abatement in the base rent or additional rent to be paid by Sublessor thereunder, then Sublessee shall be excused from the performance of any corresponding obligation relating to the Subleased Premises and/or shall be entitled to a corresponding reduction in or abatement of the rent to be paid by Sublessee hereunder. 5 8. ALTERATIONS. (a) BUILDING SEPARATION WORK. Sublessor shall, at its cost, perform all work and obtain all labor and materials necessary to divide the Demised Premises from the Adjacent Premises, including (i) constructing and erecting a dividing wall separating the Demised Premises and the Adjacent Premises, (ii) removing and relocating any existing interior walls and improvements as necessary, (iii) splitting alarm systems (if any), gas, electrical and other utility delivery systems for the Demised Premises from that serving the Adjacent Premises, including installing separate utility meters for the Demised Premises and the Adjacent Premises, and (iv) splitting the heating, ventilating and air conditioning systems serving the Building so as to serve the Adjacent Premises (under separate controls located in the Adjacent Premises) and the Demised Premises (collectively, the "Building Separation Work"). Notwithstanding the foregoing, Sublessee acknowledges that the Adjacent Premises are not currently occupied, and agrees that Sublessor shall not be required to complete the Building Separation Work until such time as it subleases or occupies the Adjacent Premises. Sublessor shall perform the Building Separation Work in a manner that minimizes any interference with Sublessee's operations at the Demised Premises. (b) LEASEHOLD IMPROVEMENTS. Attached to this Sublease as EXHIBIT D are the preliminary specifications approved by Sublessee for the improvements to be made to the Demised Premises ("Leasehold Improvements"), which shall be subject to approval by the Master Lessor. Once the Master Lessor has approved the preliminary specifications, Sublessor will proceed with the preparation of the final architectural and engineering drawings, plans and specifications for the improvements. Once those drawings, plans and specifications are completed, Sublessor will deliver a full set thereof to Sublessee for its review and approval. The approved final drawings, plans and specifications ("Final Plans") are incorporated herein by this reference. Sublessor will cause the Improvements to be constructed in accordance with the Final Plans. Sublessor will use its reasonable efforts to substantially complete construction of the Improvements on or before the targeted Term Commencement Date, subject to delays caused by the occurrence of events beyond its reasonable control, including, without limitation, labor troubles, inability to procure materials, restrictive governmental laws and pronouncements, acts of God, unseasonable weather, Sublessee's failure to timely respond to any matter submitted for its review and Sublessee's requested change orders ("Delay Events"). Sublessee agrees that it will review and either approve or specify its objections to any documents or drawings submitted to it for its review and approval hereunder within five days after its receipt of the same. If Sublessee fails to respond to any submission to it within five days after its receipt of same, then it will be deemed to have approved the same for all the purposes of this Sublease. Notwithstanding anything to the contrary contained herein, if Sublessor's inability to substantially complete the improvements on or before the targeted Term Commencement Date is attributable substantially to Sublessee-caused delays (including, without limitation, Sublessee's failure to timely respond to any matter submitted for its review, or delays caused by Sublessee's requested change orders), then the Term Commencement Date will remain August 1, 2002, notwithstanding the fact that the Leasehold Improvements are not yet substantially completed, and Sublessee will, from and after the Term Commencement Date, have an 6 obligation to pay Base Rent, Estimated Operating Expense Payments and perform all of its other obligations and duties set forth in this Sublease. If the Term Commencement Date does not occur by September 30, 2002, and such delay is not attributable substantially to Sublessee-caused delays, then, unless the parties agree otherwise, the Term Commencement Date shall not occur until January 1, 2003. (c) ALTERATIONS. Except for "Minor Alterations" (as that term is hereafter defined), Sublessee may not at any time prior to or during the Sublease Term make any alterations, additions or improvements to the Demised Premises without the prior written consent of Sublessor. For the purposes of this Subsection (c), "Minor Alterations" will mean any alteration, addition or improvement to the Demised Premises which costs less than $10,000, and which does not alter the exterior aesthetics or structural integrity of the Building. All improvement, alterations and additions made at one time in connection with any one job will be aggregated for the purposes of determining whether the $10,000 limit has been exceeded. Any alterations, addition or improvement made to the Demised Premises in accordance with this Subsection (c) will at all times remain the property of Sublessor. No consent shall be required for the installation of any of Sublessee's furniture, removable trade fixtures and equipment, and no such furniture, fixtures or equipment shall become the property of Sublessor. (d) NO LIENS. Sublessee shall not permit and shall indemnify and hold Sublessor and Master Lessor harmless from any mechanics' or other lien or security interest to be filed against the Demised Premises (or any part thereof) or Base Rent or other sum payable hereunder which arises out of Sublessee's use, occupancy, construction, maintenance, repair or rebuilding of the Demised Premises or for work or materials furnished to the Demised Premises or to Sublessee, its assignees, sublessees, concessionaires, or licensees on behalf of Sublessee request. Any such lien shall, at Sublessee's expense, be discharged within thirty (30) days after Sublessee's receipt of notice thereof. Notice is hereby given that Sublessor and Master Lessor will not be liable for any labor, service or material furnished or to be furnished to Sublessee, and that no mechanics or other liens for such labor, services or materials shall attach to or affect the interest of Sublessor or Master Lessor in and to the Demised Premises or any part thereof. 9. ACCESS AND INSPECTION. Sublessor and Master Lessor, and their respective agents, shall have access to the Demised Premises at all reasonable times to examine and inspect and, during the last one hundred eighty (180) days of the Sublease Term, to show the Demised Premises to prospective assignees, subtenants, mortgagees and purchasers, provided such examination, inspection or showing will not unreasonably interfere with Sublessee's use of the Demised Premises. 10. SUBLESSEE'S INSURANCE. Sublessee will at its sole expense maintain in full force and effect at all times during the Sublease Term with respect to the Demised Premises and common areas: (a) comprehensive public liability insurance for personal injury and property damage with liability limits of not less than $2,000,000 for injury to one person, $4,000,000 for injury from one occurrence and $1,000,000 for property damage; and (b) extended coverage insurance on all property stored or placed by Sublessee in or about the Demised Premises in an amount equal to the full replacement value thereof. Each insurance policy required to be maintained by Sublessee hereunder will name Sublessor, Master Lessor and Master Lessor's mortgagee, if any, as additional insureds and will specifically provide that such insurance policy 7 cannot be terminated without giving at least 30 days' prior written notice to Sublessor, Master Lessor and Master Lessor's mortgagee, if any.. 11. INDEMNIFICATION. Sublessor and Master Lessor will not be liable for an Sublessee will indemnify and hold Sublessor and Master Lessor harmless from any liability or expense associated with any damage or injury to any person or property (including any person or property of Sublessee or any one claiming under Sublessee) which arises directly or indirectly in connection with the Demised Premises or Sublessee's use or occupancy thereof or of the common areas; provided, however, that Sublessee will not be obligated to indemnify Sublessor and Master Lessor as to any uninsured liability or expense occasioned by gross negligence of Sublessor or Master Lessor. 12. UTILITIES AND OCCUPANCY COSTS. Sublessee shall arrange to have the accounts for all utility services which are separately metered to the Demised Premises placed in the name of Sublessee. If Sublessee does not transfer such utility accounts and Sublessor is billed therefor and pays the same, Sublessee covenants to reimburse Sublessor for one hundred percent (100%) of the amount of such bills. Commencing on the Term Commencement Date and continuing throughout the Sublease Term, (a) for all utilities separately metered to the Demised Premises, Sublessee shall pay directly to the utility provider all charges for all utilities used on or furnished to the Demised Premises or Sublessee, its assignees, sublessees, concessionaries or licensees, on or before the date such utility charges become due or bear interest or penalties, and (b) for all utilities not separately metered to the Demised Premises, Sublessee shall, at Sublessor's election, either pay directly to the utility provider or pay to Sublessor its proportionate share of all charges for utilities furnished to the Building. Sublessor and Sublessee agree that for so long as the Adjacent Premises remain unoccupied, Sublessee shall pay 100% of the cost of the utilities to the Building including, without limitation, electrical, gas, HVAC, water, and telecommunication and data communication services. Sublessor shall not be responsible for any loss or interruption of utility services, except to the extent caused by Sublessor's gross negligence or willful misconduct, and Sublessee hereby waives any right under any law now or hereafter existing to withhold Base Rent or any other sum due under this Sublease. Sublessee will also contract for its own security, janitorial and trash removal services and will promptly pay all costs associated with such services. 13. TAXES. (a) As an Additional Charge, commencing on the Term Commencement Date and continuing throughout the Sublease Term, Sublessee shall reimburse Sublessor for the following (collectively, the "Impositions"): (a) a Proportionate Share of all taxes, assessments and charges which shall be the obligation of the "Tenant" under the portion of the Master Lease attached hereto as EXHIBIT E; and (b) all taxes, assessments and charges levied upon or measured by the Base Rent and Additional Charges payable under this Sublease and a Proportionate Share of all taxes, assessments and charges levied upon or measured by the rents 8 and charges payable under the Master Lease. Sublessee's reimbursement shall be paid in monthly installments, in advance, on the first day of each month, in an amount reasonably estimated by Sublessor to become due for the following year. At the end of each such year, Sublessor shall furnish Sublessee with a statement of the actual amount of Impositions for such year. If the total of the monthly installments paid by Sublessee for such year is less than the actual amount due from Sublessee for such year, Sublessee shall, within thirty (30) days of receipt of the statement, pay to Sublessor the difference. If the total of the monthly installments paid by Sublessee for such year exceeds the actual amount due from Sublessee for such year, the excess shall be credited against subsequent monthly installments of Impositions due from Sublessee or be refunded to Sublessee upon request. All payments of Impositions shall be prorated for the year encompassing the Term Commencement Date and for the year encompassing the date on which this Sublease expires or terminates (for a reason other than termination of the Sublease as a result of an Event of Default). Notwithstanding the foregoing, Sublessor and Sublessee acknowledge that certain Tax Abatement Agreements in the form attached hereto as EXHIBIT G have been or will be obtained from the Village of Obetz prior to the Term Commencement Date. Sublessor agrees that it will cooperate with Sublessee and use its reasonable efforts to maintain the Tax Abatement Agreements in full force and effect and will assist Sublessee in obtaining any additional abatements of taxes that become available from the local taxing authorities. Each party will pay its own expenses in connection with obtaining and maintaining the Tax Abatements. (b) Sublessor and Sublessee acknowledge that Sublessor has also filed on behalf of Sublessee and application with the Village of Obetz for an abatement of personal property and inventory taxes (collectively, the "Personal Property Tax Abatement"). Sublessor shall use commercially reasonable efforts to obtain the Personal Property Tax Abatement. If, at any time during the Primary Term or the Extended Term(s) of this Sublease, the personal property and/or inventory tax rate for the Village of Obetz (or other applicable taxing jurisdiction for the Demised Premises) exceeds the then existing personal property and/or inventory tax rate for the City of Wilmington (or other applicable taxing jurisdiction for Sublessee's existing Wilmington facility), Sublessor shall reimburse Sublessee for the difference between (i) the personal property and inventory taxes that are due to the Village of Obetz (or other applicable taxing jurisdiction for the Demised Premises) with respect to Sublessee's fixtures, equipment, other personal property and inventory for sale located at the Demised Premises (collectively, "Sublessee's Personal Property and Inventory") less (ii) the amount of personal property and inventory taxes that would be due with respect to Sublessee's Personal Property and Inventory if such personal property and inventory taxes were calculated using the personal property and inventory tax rate then in effect for the corresponding tax period in the City of Wilmington (or other applicable taxing jurisdiction for Sublessee's existing Wilmington facility). Sublessor shall make such reimbursement within thirty (30) days after receipt of written verification of the then applicable personal property and/or inventory tax rates, a copy of the applicable tax bills and an invoice from Sublessee. If any such reimbursement is not received by its due date, then a late payment charge of 5% of such past due amount will be immediately due and payable from Sublessor. 9 14. ASSIGNMENT AND SUBLETTING. Sublessee shall not assign this Sublease or further sublet all or any part of the Demised Premises without the prior written consent of Sublessor, which consent shall not be unreasonably withheld, and without the prior written consent of Master Lessor to the extent required under the Master Lease. Unless otherwise agreed to by Sublessor, Sublessor's consent to any such assignment or sublease will not relieve Sublessee from its obligations under this Sublease. Notwithstanding the foregoing paragraph, and subject to the notification requirements and Master Lessor's right to terminate the Master Lease as provided in the Modification to Section 12 of the Master Lease, Sublessee may assign this Sublease or sublet the whole of the Demised Premises to any parent, subsidiary or division of Sublessee or assign or transfer this Sublease pursuant to a sale of all or substantially all of Sublessee's assets or stock, in each case without obtaining the consent of Sublessor, so long as such sublessee or assignee shall have a financial condition and tangible net worth equal to or greater than that of Sublessee, and provided Sublessee shall remain primarily liable under this Sublease. If sublessor consents to any sublease (whether it be to any parent, subsidiary or division of Sublessee or to some third party), Sublessee shall pay Sublessor, as additional rent, 50% of the Sublease Premium (as hereinafter defined) derived from that sublease. "Sublease Premium" shall mean all rent, additional rent, and/or other monies, property and other consideration of every kind whatsoever received by Sublessee from the subtenant for, or by reason of, the sub-sublease, less (i) Base Rent and Sublessee's Proportionate Share of Operating Expenses allocable to the space covered by such sublease (as reasonably determined by Sublessor), and (ii) commissions or other reasonable subleasing costs paid by Sublessee to procure the sublease, amortized over the term of the sublease. Sublessee shall pay the Sublease Premium to Sublessor as and when Sublessee receives payment from such subtenant. 15. RIGHT OF FIRST REFUSAL. At any time that Sublessor shall desire to sublease all or any portion of the Adjacent Premises, it shall give written notice to Sublessee. Sublessee shall have a first right to include all or a portion of the Adjacent Premises under this Sublease by giving written notice to Sublessor of its election to do so not more than ten (10) business days after its receipt of Sublessor's notice. Sublessee's failure timely to give such notice shall be deemed a waiver of its right of first refusal hereunder. If Sublessee shall elect to Sublease the Adjacent Premises, it shall be on the same terms and conditions of this Sublease except that Base Rent and Sublessee's Proportionate Share of Sublessor's Operating Expenses shall be increased proportionately based on the square footage of the Adjacent Premises included in this Sublease. 16. CASUALTY. (a) If, during the Sublease Term, the Demised Premises shall be partially or totally damaged or destroyed by fire or other casualty, Sublessee shall immediately notify Sublessor and Master Lessor of the existence and extent of such damage. If the Sublease is not terminated as provided in paragraph (b) below, Master Lessor is obligated to repair the Demised Premises as provided in EXHIBIT F, and Sublessor shall have no liability to Sublessee with respect to such repairs. If the Demised Premises are rendered untenantable in whole or in part as a result of a fire or other casualty, then all rent accruing after the occurrence of any such fire or other casualty and prior to the completion of the repair of the Demised Premises by 10 Master Lessor as provided in EXHIBIT F will be equitably and proportionately abated to reflect the untenantable portion of the Demised Premises. Notwithstanding the foregoing, Sublessee's rent will only be abated if and to the extent Sublessor's rent under the Master Lease is abated as provided in EXHIBIT F. Sublessor will not be liable to Sublessee for any inconvenience or interruption to Sublessee's business occasioned by such fire or other casualty or the concomitant repair of the Demised Premises. (b) If the Demised Premises are damaged by fire or other casualty and such damage would give Sublessor as "Tenant" the right under EXHIBIT F to terminate the Master Lease, Sublessee shall also have the option to terminate this Sublease by giving written notice to Sublessor within twenty (20) days after receipt from Sublessor of Master Lessor's notice of intent to repair such damage. If Sublessee shall not respond within such 20-day period, Sublessee shall be conclusively deemed to have waived the option to terminate hereunder. If the Sublessor as "Tenant" would have the right under EXHIBIT F to terminate the Master Lease following damage or destruction to the Building, regardless whether or not the Demised Premises is damaged, Sublessor shall also have the option to terminate this Sublease by giving written notice to Sublessee within the time period provided in EXHIBIT F for termination notice to Master Lessor. If Master Lessor elects to terminate pursuant to the terms of the Master Lease set forth in EXHIBIT F, Sublessor shall give prompt notice thereof to Sublessee and this Sublease shall terminate as of the same date as the Master Lease terminates. If notice of termination is given by either party or Master Lessor, this Sublease shall terminate on the same date as the Master Lease would terminate if the option under EXHIBIT F were exercised by Sublessor as "Tenant" thereunder. 17. EMINENT DOMAIN. If all or any substantial portion of the Demised Premises or the Building is taken by or under threat of condemnation so as to render the Demised Premises wholly untenantable, then this Sublease will automatically terminate as of the date of the vesting of title to such property in the condemning authority. If such taking does not render the Demised Premises wholly untenantable, then this Sublease will not terminate but will continue in full force and effect in accordance with its terms, except that Base Rent and Tenant's Proportionate Share will be adjusted to fairly reflect the portion of the Demised Premises or the Building which was so taken. Sublessor will not be liable to Sublessee for any inconvenience or interruption to Sublessee's business occasioned by any such taking. Master Lessor will be entitled to receive the entire award made by the condemning authority for any such taking. 18. SURRENDER OF DEMISED PREMISES. Upon the termination of Sublessee's right of possession under this Sublease, Sublessee will immediately surrender possession of the Demised Premises to Sublessor in good repair and "broom clean" condition, reasonable wear and tear and fire and casualty excepted. Sublessee will at the same time remove all of its movable trade fixtures from the Demised Premises. Sublessee will promptly repair any damage caused to the Demised Premises by the removal of any of such movable trade fixtures. 19. DEFAULT. (a) EVENTS OF DEFAULT. Any of the following occurrences, acts or omissions shall constitute an "Event of Default" under this Sublease: (i) Sublessee fails to pay any Base Rent, Additional Charge or any other charge or sum under this Sublease within five (5) 11 days of Sublessee's receipt of notice from Sublessor; or (ii) Sublessee fails to observe or perform any other provision of this Sublease within twenty (20) days of Sublessee's receipt of notice from Sublessor or Master Lessor, whichever occurs first (provided that if the failure cannot reasonably be cured within such 20-day period, then such failure shall not be deemed an Event of Default if Sublessee commences to cure within such 20-day period and proceeds diligently and in good faith thereafter to cure such failure and does cure such failure within a reasonable time); or (iii) Sublessee fails to pay when due Base Rent, Additional Charge or any other charge or sum under this Sublease six (6) times in any twelve (12) month period; or (iv) Sublessee files a petition in bankruptcy or for reorganization, is adjudicated a bankrupt, becomes insolvent or makes an assignment for the benefit of creditors; or (v) a receiver or trustee is appointed for Sublessee or all or substantially all of Sublessee's assets, or for the Demised Premises or Sublessee's estate therein; or (vi) an "Event of Default" by Sublessee as "Lessee" under the Equipment Lease provided that Sublessor shall at the time hold the Lessor's interest in the Equipment Lease and there exists no uncured default on the part of Sublessor under the Servicing Agreement. (b) NOTICE TO TERMINATE. If an Event of Default shall have happened and be continuing, Sublessor shall have the right to terminate this Sublease. Thereupon, the Sublease Term and the estate hereby granted shall expire and terminate as fully and completely and with the same effect as if such date were the date herein fixed for the expiration of the Sublease Term, and all rights of Sublessee hereunder shall expire and terminate (but Sublessee shall remain liable as hereinafter provided), unless before such date all arrears in Base Rent, Additional Charges, and any other sums due hereunder shall have been paid in full and all Events of Default at the time existing under this Sublease shall have been fully remedied. (c) RIGHT TO RE-ENTER. If an Event of Default shall have happened and be continuing, Sublessor shall have the right to re-enter and repossess the Demised Premises by summary proceedings, ejectment or in any other lawful manner Sublessor determines to be necessary or desirable and shall have the right to remove all persons and property therefrom. Sublessor shall be under no liability by reason of any such re-entry, repossession or removal. No such re-entry or repossession of the Demised Premises shall be construed as an election by Sublessor to terminate the Sublease Term unless a notice of such intention is given to Sublessee pursuant to Section 18(b), or unless such termination is decreed by a court of competent jurisdiction. (d) AUTHORITY TO RELET. At any time or from time to time after the re-entry or repossession of the Demised Premises pursuant to Section 18(c), Sublessor may (but shall be under no obligation to) relet the Demised Premises for the account of Sublessee, in the name of Sublessee or Sublessor or otherwise, without notice to Sublessee, for such term or terms and on such conditions and for such uses as Sublessor, in its absolute discretion, may determine. Sublessor may collect and receive any rents payable by reason of such reletting. Sublessor shall not be liable for any failure to relet the Demised Premises or for any failure to collect any rents due upon any such reletting. (e) SUBLESSEE'S LIABILITY CONTINUES. No expiration or termination of the Sublease Term pursuant to Section 18(b), or by operation of law or otherwise, and no re-entry or repossession of the Demised Premises pursuant to Section 18(c) or otherwise, and no 12 reletting of the Demised Premises pursuant to Section 18(d) or otherwise, shall relieve Sublessee of its liabilities and obligations hereunder, all of which shall survive such expiration, termination, re-entry, repossession or reletting. (f) CURRENT DAMAGES. In the event of any expiration or termination of the Sublease Term or re-entry or repossession of the Demised Premises by reason of the occurrence of an Event of Default, Sublessee will pay to Sublessor all Base Rent, Additional Charges and other sums required to be paid by Sublessee to and including the date of such expiration, termination, re-entry or repossession; and thereafter Sublessee shall, until the end of what would have been the Sublease Term in the absence of such expiration, termination, re-entry or repossession, and whether or not the Demised Premises shall have been relet, be liable to Sublessor for, and shall pay to Sublessor, as liquidated and agreed current damages: (i) all Base Rent, Additional Charges and other sums which would be payable under this Sublease by Sublessee in the absence of such expiration, termination, re-entry or repossession, less (ii) the net proceeds, if any, of any reletting effected for the account of Sublessee pursuant to Section 18(d), after deducting from such proceeds all Sublessor's expenses in connection with such reletting (including all repossession costs, brokerage commissions, attorneys' fees and expenses, employees' expenses, alteration costs and expenses of preparation for such reletting). Sublessee will pay such current damages on the days on which Base Rent would be payable under this Sublease in the absence of such expiration, termination, re-entry or repossession, and Sublessor shall be entitled to recover the same from Sublessee on each such day. (g) FINAL DAMAGES. At any time after any such expiration or termination of the Sublease Term or re-entry or repossession of the Demised Premises by reason of the occurrence of an Event of Default, whether or not Sublessor shall have collected any current damages pursuant to Section 18(f), Sublessor shall be entitled to recover from Sublessee, and Sublessee will pay to Sublessor on demand, as and for liquidated and agreed final damages for Sublessee's default and in lieu of all current damages beyond the date of such demand (it being agreed that it would be impracticable or extremely difficult to fix the actual damages), an amount equal to: (i) all Base Rent, additional Charges and other sums which would be payable under this Sublease from the date of such demand (or, if it be earlier, the date to which Sublessee shall have satisfied in full its obligations under Section 18(f) to pay current damages) for what would be the then unexpired Sublease Term in the absence of such expiration, termination, re-entry or repossession, discounted at the rate of four percent (4%) per annum, less (ii) the then fair rental value of the Demised Premises (including Base Rent, Additional Charges, and all other sums payable under this Sublease), for the same period, discounted at the rate of four percent (4%) per annum. If any law shall limit the amount of such liquidated final damages to less than the amount above agreed upon, Sublessor shall be entitled to the maximum amount allowable under such law. (h) ADDITIONAL REMEDIES; RIGHT TO CURE. In addition to the remedies set forth herein and at law or equity, if Sublessee shall fail to perform any obligation under this Sublease, then Sublessor may, but shall not be obligated to, with twenty (20) days prior written notice to Sublessee, and without waiving or releasing such obligation or the Event of Default, undertake such obligation and do all necessary work and make all necessary payments in connection therewith for the account of Sublessee, and may enter the Demised Premises for such purpose. No such entry shall be deemed an eviction of Sublessee. Sublessee shall on demand 13 pay to Sublessor within ten (10) days of receipt of a statement therefor, the amount so paid by Sublessor (including, without limitation, attorneys' fees and the reasonable cost of investigation), together with interest thereon at the annual rate of four percent (4%) above the prime rate last announced in the Wall Street Journal, or the highest rate permitted by law, whichever is less. If the amount set forth on the statement and interest thereon is not paid within such period, the amount of the statement, together with interest accrued, shall be an Additional Charge hereunder and added to and be considered a part of the next succeeding monthly Base Rent payment. If there shall occur an Event of Default under this Sublease, Sublessee shall pay to Sublessor, on demand, all expenses incurred by Sublessor as a result thereof, including, without limitation, attorneys' fees. 20. HOLDING OVER. If Sublessee remains in occupancy of the Demised Premises beyond the expiration or termination of the Sublease Term, it shall remain solely as a subtenant from month-to-month and all provisions of this Sublease applicable to the Sublease Term shall remain in full force and effect, except that Base Rent shall be equal to one hundred fifty percent (150%) of the Base Rent due under the Master Lease for the Entire Premises during such hold-over period. Nothing in this Section is intended or shall be construed to permit Sublessee to remain in occupancy of the Demised Premises beyond the expiration or termination of the Sublease Term or to waive any right or remedy of Sublessor as a result thereof. 21. GENERAL PROVISIONS REGARDING DEFAULT. No right or remedy under this Sublease or at law or equity shall be exclusive of any other right or remedy but shall be cumulative. Failure to insist upon strict performance of any provision of this Sublease or to exercise any right or remedy of this Sub-lease or at law or equity shall not constitute a waiver of any future performance. Receipt by Sublessor of any Base Rent, Additional Charge or other sum payable under this Sublease with knowledge of an Event of Default or Sublessee's breach of this Sublease shall not constitute a waiver of such Event of Default or breach. No waiver by either party of any provision of this Sublease shall be deemed to have been made unless made in writing. Each party shall be entitled to injunctive relief in the event of violation or threatened violation of their material obligations hereunder beyond applicable cure periods. Sublessee hereby waives and surrenders for itself and all those claiming under it, including creditors of all kinds, any right and privilege which it or any of them may have to redeem the Demised Premises or to have a continuance of this Sublease after expiration or termination of Sublessee's right of occupancy by order or judgment, any legal process or writ, or under the terms of this Sublease. 22. MORTGAGE SUBORDINATION. Upon request by Sublessor or Master Lessor, Sublessee shall execute and deliver an agreement subordinating this Sublease and Sublessee's interest in the Demised Premises to any mortgage upon the Entire Premises (or part thereof) or to any mortgage of Sublessor's leasehold interest under the Master Lease; provided that the holder of such mortgage shall agree in writing not to disturb Sublessee's tenancy if there is no Event of Default beyond applicable cure periods under this Sublease. 23. ESTOPPEL CERTIFICATES. Sublessee shall, from time to time, upon fifteen (15) days prior written request from Sublessor, cause to be executed, acknowledged and delivered a certificate stating that this Sublease is unmodified and in full effect (or, if there have been modifications, that this Sublease is in full effect as modified and setting forth such modifications), the amount of Base Rent, the dates to which Base Rent has been paid, and stating 14 that, to the knowledge of the signer of such certificate, either no default exists under this Sublease or specifying each such default of which the signer has knowledge. 24. TITLE AND CONDITION. (a) The Demised Premises are subleased to Sublessee in their present condition by Sublessor, without representation or warranty, express or implied, subject and subordinate to all easements, restrictions, agreements and recorded matters, all taxes not yet payable, and all applicable zoning restrictions, regulations and ordinances and building restrictions and governmental regulations now or hereafter in effect. Sublessee acknowledges that the leasehold estate demised herein is derived from and subject to the Master Lease. Sublessee has examined the title to the Demised Premises and has found the same satisfactory. (b) BY EXECUTION OF THIS SUBLEASE, SUBLESSEE ACKNOWLEDGES AND AGREES THAT IT HAS INSPECTED THE DEMISED PREMISES. SUBJECT TO SECTION 25 BELOW, SUBLESSEE SHALL ACCEPT THE DEMISED PREMISES ON THE TERM COMMENCEMENT DATE IN THEIR THEN "AS IS" AND "WHERE IS" PHYSICAL AND ENVIRONMENTAL CONDITION AND HEREBY RELEASES AND DISCHARGES SUBLESSOR FROM ANY CLAIM, DEMAND, LIABILITY OR SUIT RELATED TO OR ARISING FROM THE PHYSICAL OR ENVIRONMENTAL CONDITION OF THE DEMISED PREMISES. SUBLESSEE ACKNOWLEDGES AND AGREES THAT NEITHER SUBLESSOR NOR ITS AGENTS OR EMPLOYEES HAS MADE ANY EXPRESS WARRANTY OR REPRESENTATION REGARDING THE PHYSICAL OR ENVIRONMENTAL CONDITION OF THE DEMISED PREMISES, THE QUALITY OF MATERIAL OR WORKMANSHIP OF THE DEMISED PREMISES, LATENT OR PATENT, OR THE FITNESS OF THE DEMISED PREMISES FOR ANY PARTICULAR USE OR PURPOSE AND THAT NO SUCH REPRESENTATION OR WARRANTY SHALL BE IMPLIED BY LAW, IT BEING AGREED THAT ALL SUCH RISKS ARE TO BE BORNE BY SUBLESSEE. (c) Sublessee acknowledges that EXHIBIT A is an approximation only of the Building and improvements on the Land and that no representation or warranty, express or implied, is hereby made by Sublessor, its employees or agents, regarding the existence, location or size of any buildings or improvements or the location of the boundaries of the Land depicted on EXHIBIT A. 25. REPRESENTATIONS AND WARRANTIES. (a) Sublessee represents and warrants to Sublessor that: (i) Sublessee is a corporation, duly organized, validly existing and in good standing under the laws of Delaware and has the power to own its property and assets and carry on its business in Ohio; (ii) the execution of this Sublease constitutes the binding obligation of Sublessee and has been authorized by Sublessee's Board of Directors; and (iii) the sublease of the Demised Premises will not conflict with or result in a breach of Sublessee's Articles of Incorporation or By-laws or any agreement to which Sublessee is a party or by which it may be bound, or violate any state or federal governmental law, statute, ordinance or regulation. (b) Sublessor represents and warrants to Sublessee that: (i) to its knowledge, the Master Lease is in full force and effect and neither Master Lessor nor Sublessor 15 is in default thereunder; (ii) Sublessor knows of no claims or defenses or circumstances which, with the passage of time, would lead to claims or defenses by Master Lessor against Sublessor as tenant under the Master Lease; (iii) this Sublease, if consented to by Master Lessor as provided for herein, does not violate any provision of the Master Lease; and (iv) the Subleased Premises (including the Leasehold Improvements) and building systems which Sublessor is required to maintain and repair under the Master Lease are in good working order and condition as of the Term Commencement Date and are in compliance with all existing laws, ordinances, rules or regulations relating thereto which would materially affect Sublessee's use or occupancy of the Subleased Premises. 26. NOTICES, DEMANDS AND OTHER INSTRUMENTS. All notices, demands or other communications given pursuant to this Sublease shall be in writing and shall be deemed given on the date received if mailed by nationally recognized overnight courier or three (3) days after the date mailed if mailed by registered or certified mail, return receipt requested, with postage prepaid if: (a) when mailed to Sublessor, it is addressed to Sublessor at its address set forth above, and (b) when mailed to Sublessee, it is addressed to Sublessee at its address set forth above. The parties may specify any other address in the United States with fifteen (15) days' notice. 27. SEPARABILITY. If any provision of this Sublease or its application to any person or circumstance shall be declared invalid or unenforceable, the remaining provisions of this Sublease, or the application of such provision to persons or circumstances other than those to which it is invalid or unenforceable, shall not be affected thereby and each provision shall be valid and enforceable to the extent permitted by law. 28. BINDING EFFECT. Subject to the terms and restrictions of Section 13 and this Section, all provisions contained in this Sublease shall be binding upon, inure to the benefit of, and be enforceable by, the respective successors and assigns of Sublessor and Sublessee. The covenants and obligations of Sublessor under this Sublease shall not be binding upon the Sublessor herein named or any subsequent sublessor with respect to any period subsequent to the transfer of all its interests in the Demised Premises, and, in the event of any such transfer, Sublessee agrees to look solely to the transferee for the performance of any term, covenant, obligation, warranty or representation of Sublessor hereunder, but only with respect to the period beginning with such transfer and ending with a subsequent transfer of such interest. If Sublessor terminates the Master Lease and assigns this Sublease to the Master Lessor, Sublessee hereby agrees to attorn to the Master Lessor as the "Sublessor" under this Sublease provided Master Lessor assumes Sublessor's obligations under this Sublease. If Sublessor shall acquire a fee interest in the Entire Premises, this Sublease shall continue as a direct lease between Sublessor, as landlord, and Sublessee, as tenant. 29. INTERPRETATION, AMENDMENT AND MODIFICATION. This Sublease shall be interpreted under the laws of Ohio. The recitals to this Sublease are hereby incorporated in this Sublease. The Section and subsection captions are for the convenient reference of the parties only and are not intended to and shall not be deemed to modify the interpretation of the Section or subsection from that which is indicated by the text of the Section or subsection alone. All of the representations, warranties and indemnities contained in this Sublease shall survive indefinitely the expiration or termination of this Sublease. This Sublease is the product of 16 negotiation and the parties agree that it shall be interpreted in accordance with its fair and apparent meaning and not for or against either party. This Sublease contains the entire agreement between the parties with respect to the Demised Premises and all prior negotiations or agreements, whether oral or written, are superseded and merged herein. This Sublease may not be changed or amended except by a writing duly authorized and executed by the party against whom enforcement is sought. 30. SUBLESSEE AND SUBLESSOR COVENANTS. Sublessee and Sublessor agree that they intend to pass through to Sublessee the obligations of Sublessor as tenant under the Master Lease with respect to the Subleased Premises, from and after the Term Commencement Date. Sublessee therefore covenants and agrees, from and after the Term Commencement Date, to comply with and perform Sublessor's obligations under the Master Lease with respect to the Subleased Premises. Sublessor covenants and agrees to comply with and perform its obligations as tenant under the Master Lease with respect to the Adjacent Premises. Sublessor further covenants and agrees that, so long as no Event of Default has occurred and is continuing, without the prior written consent of Sublessee, which consent shall not be unreasonably withheld or delayed, Sublessor shall not terminate the Master Lease or amend or modify the Master Lease in any manner which would materially impair the rights of Sublessee under the Sublease. 31. BROKERS. Sublessor and Sublessee covenant and represent to each other that no parties are entitled to be paid a fee or commission in connection with the transaction contemplated by this Sublease. If any individual or entity shall assert a claim to a finder's fee or commission as a broker or a finder, then the party who is alleged to have retained such individual or entity or whose acts, omissions or representations are alleged to give rise to such claim shall defend (with counsel reasonably acceptable to the indemnified party), indemnify and hold harmless the other party from and against any such claim and all costs, expenses, liabilities and damages incurred in connection with such claim or any action or proceeding brought thereon. 32. CONDITION PRECEDENT. This Sublease is subject to receipt from Master Lessor, prior to the Term Commencement Date, of a written consent to this Sublease and waiver of any right to terminate the Master Lease which Master Lessor may possess as a result of Sublessor's subleasing of the Demised Premises. If Master Lessor terminates the Master Lease as a result thereof or refuses to consent to this Sublease, this Sublease shall simultaneously terminate and neither party shall have any further rights or obligations under the Sublease, and each party releases the other from any cost, loss, damage, claim, liability, expense, fee or charge related thereto or arising therefrom. 33. SECURITY DEPOSIT. Concurrently with the execution of this Sublease, Sublessee shall deliver to Sublessor a security deposit in the amount of Two Hundred Thousand Dollars ($200,000) (the "Security Deposit"). The Security Deposit will be retained by Sublessor as partial security for Sublessee's performance of all its obligations under this Sublease. If Sublessee defaults in the performance of any of its obligations under this Sublease, then Sublessor will have the right to use all or a portion of the Security Deposit to cure such default and Sublessee shall immediately deposit additional sums with Sublessor in an amount sufficient to restore the Security Deposit to its original amount. Any portion of the Security Deposit remaining unutilized following the expiration of the Sublease Term and Sublessee's performance of all its obligations under this Sublease will be promptly returned to Sublessee without interest. 17 [Intentionally Blank; Signature and Acknowledgment Pages Follow] 18 IN WITNESS WHEREOF, the parties hereto have caused this Sublease to be executed as of the date first above written. WITNESSED: 3PF.COM, INC., a Delaware corporation ("Sublessor") Jennie Collins By: /s/ [ILLEGIBLE] -------------------------------- Executive Assistant Its: CHIEF FINANCIAL OFFICER RED ENVELOPE, INC., a Delaware corporation ("Sublessee") ___________________________ By: /s/ [ILLEGIBLE] -------------------------------- ___________________________ Its:______________President ___________________________ And: /s/ [ILLEGIBLE] ------------------------------- ___________________________ Its: _________Secretary 19 [SITE PLAN] EXHIBIT A EXHIBIT B ILLUSTRATIVE EXAMPLES OF OPERATING EXPENSES The following are illustrative examples of some of the expenses which are included within the definition of 'Operating Expenses': 1. Real estate taxes and assessments on the Building and the Land; 2. Insurance premiums for liability and extended coverage insurance policies maintained by Master Lessor on the Building and the Land; 3. Costs of snow removal and costs of maintaining and repairing the landscaping and irrigation system which serves the Land; 4. Costs related to the provision of water, sewer, gas, telephone, electricity and other utility services to or for the benefit of the Building, unless such utility services are separately metered and placed in the name of a tenant; 5. Salaries and related costs (including fringe benefits, payroll taxes and a labor overhead charge of not more than 15%) of personnel spending time on-site associated with the operation, management, and repair of the Building and the Land; 6. A reasonable property management fee not to exceed four percent (4%) of the gross rents of the Building; 7. Costs of maintaining and repairing the fire protection and life safety systems for the buildings and all common areas serving the Building; 8. Accounting, legal and other professional services rendered in connection with the operation, management and maintenance of the Building and the Land; and 9. All other costs and expenses incurred by Landlord related to the operation, management, maintenance and repair of the building and the Land. The following are those expenses which are excluded from the definition of "Operating Expenses": 1. Landlord's debt service on any financing related to the Building or the Land; 2. Franchise or income taxes payable by Landlord; 3. Salaries and related costs of Landlord's off-site administrative personnel; 4. Costs of all tenant improvements; 5. Leasing commissions; and EXHIBIT B 1 6. Costs of utility usage for utility services separately metered in the name of a tenant. Operating Expenses will be computed for each calendar year during the Lease Term based upon the accrual method of accounting. If the Building is ever less than 100% occupied, then Operating Expenses shall be calculated as if the Buildings had been 100% occupied and the results will constitute Landlord's Operating Expenses for such calendar year for all purposes of this Lease. Initialed and Approved by Sublessee /s/ [ILLEGIBLE] ------------------------------ EXHIBIT C 2 EXHIBIT C RULES AND REGULATIONS 1. Landlord will provide Tenant with two sets of keys to the Leased Premises. Tenant may obtain additional keys to the Leased Premises at Tenant's sole expense. Tenant will provide only its authorized agents and employees with copies of such keys. Upon termination of the Lease, Tenant will return all keys to Landlord. 2. Tenant will not alter or add locks or bolts on doors providing ingress and egress to the Leased Premises. 3. Tenant will lock the Leased Premises and shut off water faucets, lights and electrical equipment and appliances located in the Leased Premises before leaving the Leased Premises each day. 4. Tenant will not obstruct or impede other tenants' use of the common areas serving the Building. 5. Tenant will place garbage and refuse only in trash containers approved by Landlord. Such containers will be kept either inside the Leased Premises or outside the Leased Premises in such areas as are from time to time designated by Landlord. Landlord must approve the trash collection and disposal service utilized to empty and haul away such garbage and refuse and the times and days of the week such containers will be emptied. Tenant will pay for the cost of the containers and the periodic trash collection and disposal charges. 6. No aerials or antennae will be placed by Tenant on or about the Leased Premises or the Building without the prior consent of Landlord, which consent will not be unreasonably withheld. 7. Tenant will not engage in any activity or utilize any machinery or apparatus which may be heard or seen outside the Leased Premises. 8. Tenant will not use the plumbing facilities serving the Leased Premises for the disposal of refuse or any other improper use. Tenant will, at its sole expense, repair any damage to such plumbing facilities caused by any such misuse. 9. No animals or birds will be allowed in or about the Leased Premises. 10. Tenant will no store any personal property outside the Leased Premises. 11. Tenant will not burn or incinerate trash, refuse or any other items in or outside the Leased Premises. 12. Tenant will not allow anyone to reside or sleep in the Leased Premises. EXHIBIT C 1 13. Landlord will not be responsible for any loss, theft or disappearance of personal property from the Leased Premises. 14. Tenant will not cover all or any part of any window or door to the Leased Premises without obtaining the prior written consent of Landlord. 15. Tenant will not conduct or permit to be conducted any auction or public sale on or about the Leased Premises or the Park. 16. Tenant will maintain the inside of the Leased Premises at a temperature sufficiently high to prevent freezing of water, pipes, fixtures and fire protection systems inside the Leased Premises. 17. Tenant will not cause or permit any unusual or objectionable odors to be produced upon or permeated from the Leased Premises. 18. The sidewalk, entrances, passages, halls and parking areas will not be obstructed or encumbered by Tenant or used for any purpose other than ingress or egress to and from the Leased Premises. 19. Tenant will not create or maintain any nuisance (including without limitation, loud noises, bright lights, smoke or dust) which will be visible from the exterior o the Leased Premises. 20. Tenant will not conduct any noxious or offensive trade or activity at the Leased Premises. 21. All deliveries and shipments will be made only at Tenant's loading dock(s) or other areas designated by Landlord. 22. Tenant will park only in those areas designated by Landlord. Tenant will comply with all directional and other signs posted in the parking areas and will use only one parking stall per vehicle. Tenant will not park boats, mobile homes, trailers or similar vehicles in the common areas. Inoperable vehicles will not be allowed to remain in the common parking areas. Any vehicle which is parked in the common parking areas by Tenant in violation of these Rules and Regulations may be towed at Tenant's expense. 23. Tenant will upon Landlord's request furnish Landlord with state automobile license numbers of Tenant's vehicles and its employees' vehicles and will notify Landlord of any changes within five days after such change occurs. 24. Parking for tractors and trailers related to Tenant's business will be limited to the rear 60 feet at the rear of Tenant's Leased Premises. Tenant will not park tractors or trailers in the driveways, entrances, exits or areas behind other tenant's leased premises or the parking areas in front of the Building. The parking areas in the front of the Building will be used for automobile parking only. 25. Tenant shall not load any vehicle beyond the weight limits established by the state and will be responsible for any damage caused to the common areas by vehicles making EXHIBIT C 2 deliveries to or transporting goods from the Leased Premises including damage caused by overweight vehicles. 26. Tenant agrees to cooperate and assist Landlord in the prevention of canvassing, soliciting and peddling within the Building and the Park. 27. It is Landlord's desire to maintain the Building and the Park with the highest standard of dignity and good taste consistent with comfort and convenience for tenants. Landlord reserves the right to make such other and further reasonable rules and regulations as in its judgment may from time to time be necessary of the safety, care and cleanliness of the Leased Premises, the Building and the Park and the preservation of good order therein. These Rules and Regulations (and any amendments hereto which are consistent with the Lease) are intended to supplement the terms and provisions of the Lease and shall be applied and interpreted in a manner which is consistent with the terms and provisions of the Lease. In the event of a conflict between the Lease and these Rules and Regulations (or any amendments thereto), the Lease will govern. Initialed and Approved by Sublessee /s/ [ILLEGIBLE] ------------------------------- EXHIBIT C 3 EXHIBIT D [insert preliminary specifications for leasehold improvements] EXHIBIT D Top Layer - Creekside Buildout Site Plan [SITE PLAN] EXHIBIT E [insert tax section from Master Lease] Section 3. MANNER AND TIMING OF RENT PAYMENTS. The first monthly installment of Base Rent and Estimated Operating Expense Payments will be paid by Tenant on or before the Commencement Date. Thereafter, monthly installments of Base Rent and Estimated Operating Expense Payments will be due and payable in advance on or before the first day of each calendar month during the Lease Term. Each such installment will be paid to Landlord at its address set forth in the Lease Summary (or such other address as Landlord may designate from time to time). If the Lease Term commences on a day other than the first day of the month or terminates on a day other than the last day of the month, then the installments of Base Rent and Estimated Operating Expense Payments for such month(s) will be adjusted accordingly. If any installment of Base Rent or any Estimated Operating Expense Payment or any other sum due hereunder is not received by Landlord by its due date, then a late payment charge of 5% of such past due amount will be immediately due and payable from Tenant. All installments of Base Rent and Estimated Operating Expense Payments will be paid by Tenant without demand and without any rights of reduction, counterclaim or offset. Tenant hereby agrees to pay as additional rent any sales, use or other tax (other than income taxes) now or hereafter imposed by any governmental authority upon the rent and other sums payable by Tenant hereunder. EXHIBIT E EXHIBIT F [insert Casualty section from Master Lease] Section 18. CASUALTY . If the Leased Premises are damaged by fire or other casualty, Landlord shall promptly give written notice to Tenant whether the Leased Premises can reasonably be repaired within 180 days after the date of the occurrence of such fire or other casualty. If Landlord notifies Tenant that it does not believe that the Leased Premises can reasonably be repaired within such 180-day period, then both Landlord and Tenant will have the option of terminating this Lease by giving written notice thereof to the other at any time within 30 days after the date of Tenant's receipt of the aforementioned notice from Landlord. If Landlord determines that the Leased Premises can reasonably be repaired within such 180-day period or if neither party elects to terminate this Lease despite the fact that Landlord has determined that the Leased Premises cannot be reasonably repaired within such 180-day period, then Landlord will proceed to repair the Leased Premises at its sole expense; provided, however, that Landlord will in no event be required to repair any improvements previously made to or any fixtures previously installed in the Leased Premises by Tenant. If the Leased Premises are rendered untenantable in whole or in part as a result of a fire or other casualty, then all rent accuring after the occurrence of any such fire or other casualty and prior to the completion of the repair of the Leased Premises will be equitably and proportionately abated to reflect the untenantable portion of the Leased Premises. Landlord will not be liable to Tenant for any inconvenience or interruption to Tenant's business occasioned by such fire or other casualty or the concomitant repair of the Leased Premises. EXHIBIT F MASTER LESSOR'S CONSENT 1. CONSENT. Subject to all of the terms and conditions of this Agreement, Master Lessor hereby consents to the Sublease, including, without limitation, the use of the Subleased Premises set forth in Section 4 thereof. 2. SUBORDINATE. The Sublease shall be subject and subordinate to the Master Lease and all of the Master Lease's provisions, covenants, and conditions. 3. NO RATIFICATION. This Agreement shall not operate as a consent to, approval of, or ratification by Master Lessor of any of the provisions of the Sublease and Master Lessor shall not be bound or estopped in any way by the provisions of the Sublease. This Agreement shall not create in Subtenant, as a third party beneficiary or otherwise, any rights except as herein set forth. 4. NO WAIVER. This Agreement shall not be construed to modify, waive, or affect (i) any present or future breach or default on the part of Sublessor under the Master Lease; (ii) any of the provisions, covenants, or conditions in the Master Lease; (iii) any of Sublessor's obligations under the Master Lease; or (iv) any rights or remedies of Master Lessor under the Master Lease or to enlarge or increase Master Lessor's obligations or Sublessor's rights under the Master Lease. Master Lessor shall have no obligations to any party in connection with the Demised Premises other than those obligations set forth in the Master Lease. 5. NOT ASSIGNABLE. This Agreement is personal to Sublessor and Subtenant and may not be assigned by Sublessor or Subtenant. Any attempted assignment in violation of this section shall be void. 6. NO RELEASE. Neither the Sublease not this Agreement shall release or discharge Sublessor from any liability under the Master Lease and Sublessor shall remain liable and responsible for the full performance and observance of all of the provisions, covenants, and conditions set forth in the Master Lease on the part of Sublessor to be performed and observed. The breach or violation of any provision of the Master Lease by Subtenant shall constitute a default by Sublessor in fulfilling such provision. 7. CONSENT TO SUBSEQUENT SUBLEASE. This Agreement by Master Lessor shall not be construed as a consent by Master Lessor to any future assignment or subletting either by Sublessor or Subtenant. The Sublease may not be assigned, renewed, or extended not shall the Demised Premises, or any part thereof, be further sublet without the prior written consent of Master Lessor in each instance. Notwithstanding the foregoing, Master Lessor's consent shall not be required with respect to a sublease or assignment that is specifically permitted under Section 14. 8. NO DEFAULT. Master Lessor hereby certifies to Sublessor and Sublessee that there exists no default, breach, failure of condition or event of default under the Master Lease by Master Lessor or to the best of Master Lessor's knowledge, Sublessor, nor any event or condition which, with notice or the passage of time or both, would constitute a default, breach, 1 failure of condition or event of default thereunder and Master Lessor and, to the best of Master Lessor's knowledge, Sublessor, has as of the date hereof, complied with all of the terms and conditions of the Master Lease. 9. NON-DISTURBANCE. In the event of a default by Sublessor under the terms of the Master Lease that would allow Master Lessor to terminate the Master Lease, then so long as Sublessee has not committed an event of default under the terms of this Sublease, the Sublease shall continue in full force and effect as a direct lease between Master Lessor and Sublessee, upon and subject to all of the terms, covenants and conditions of the Sublease for the balance of the Term of this Sublease. In such event Sublessee shall attorn to Master Lessor and shall execute an attornment agreement in such form as may reasonably be requested by Master Lessor. 10. RELEASE AND WAIVER OF SUBROGATION. Master Lessor hereby releases Sublessee and its agents and employees from any liability for injury to any person or damage to property that is caused by or results from any risk to the extent insured against under any valid and collectible policy of "all risk" property insurance carried by Master Lessor or to the extent such risk would have been insured under an "all risk" property insurance policy but for the deductible provision thereof, provided that Sublessee shall not be released from any such liability to the extent any damages resulting from such injury or damage are not part of the recovery obtained by Master Lessor from such insurance (except for the deductible portion thereof), but only if the insurance in question permits such partial release. This release shall be in effect only so long as the applicable insurance policy contains a clause to the effect that this release shall not affect the right of the insured to recover under such policy. Master Lessor shall cause its property insurance policy to provide that the insurer waives all right of recovery by way of subrogation against Sublessee in connection with any injury or damage covered by such policy; provided, however, if any such insurance policy cannot be obtained with such a waiver of subrogation, or such waiver of subrogation is only available at rates which are not commercially reasonable, then Master Lessor shall notify Sublessee of that fact and thereupon shall be relieved of the obligation to obtain such waiver of subrogation rights from the insurer with respect to the particular insurance involved. "MASTER LESSOR" _____________________________________________ By: _________________________________________ Its: ____________________________________ By: _________________________________________ Its: ____________________________________ Date: _______________________________________ BLOOMFIELD 34512-1 491487-6 06/14/2002 2 EX-10.12 22 f89225orexv10w12.txt EXHIBIT 10.12 EXHIBIT 10.12 March 12, 2002 Alison L. May 22 Jersey Street San Francisco, CA 94114 Dear Alison: On behalf of RedEnvelope, Inc. (the "Company"), I am pleased to offer you the full-time position of Chief Executive Officer and President of the Company. The terms of your new position with the Company are as set forth below: 1. POSITION. a. You will become the Chief Executive Officer and President of the Company, working out of the Company's headquarters office in San Francisco, California. You will also be appointed to the Company's Board of Directors in connection with your employment with the Company. As Chief Executive Officer and President, you will have the duties, responsibilities and authority customarily associated with such position, including responsibility for the overall management of the Company. You will report directly to the Company's Board of Directors. b. You agree to the best of your ability and experience that you will at all times loyally and conscientiously perform all of your duties and obligations to the Company. During your employment, you further agree that you (i) will devote substantially all of your business time and attention to the business of the Company; (ii) will not render commercial or professional services of any nature to any person or organization, whether or not for compensation, without the prior written consent of the Company's Board of Directors, and (iii) will not directly or indirectly engage or participate in any business or activity that is competitive in any manner with the business of the Company. Nothing in this letter agreement will prevent you from: (i) accepting speaking or presentation engagements in exchange for honoraria; (ii) serving on advisory boards or boards of charitable organizations (including, without limitation, the advisory board of the Lioness Fund), so long as such service does not unduly interfere with the performance of your duties to the Company; or (iii) owning, directly or indirectly, no more than one percent (1%) of the outstanding equity securities of a corporation whose stock is listed on a national stock exchange. 2. START DATE. Subject to fulfillment of any pre-conditions imposed by this letter agreement, you will commence this new position with the Company on April 8, 2002 (the "Start Date"). -1- 3. REFERENCE CHECK; PROOF OF RIGHT TO WORK. a. This offer of employment is contingent upon the successful completion of a reference check by the Company, including a check of your personal references and other information relevant to employment. b. 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 to us within three (3) business days of your date of hire, or our employment relationship with you may be terminated. 4. COMPENSATION. a. BASE SALARY. You will be paid a base monthly salary of $27,083.33, which is equivalent to $325,000 on an annualized basis, subject to applicable tax withholding. Your salary will be payable pursuant to the Company's regular payroll policy (or in the same manner as other similarly situated employees of the Company). b. BONUS. You will not be entitled to a bonus for fiscal year 2003 (i.e., the fiscal year ending March 31, 2003), unless otherwise determined by the Company's Board of Directors. You will be eligible, subject to approval by the Company's Board of Directors, for annual bonuses in subsequent fiscal years pursuant to an incentive compensation plan that you will develop with the Board of Directors. 5. STOCK OPTIONS. a. INITIAL GRANT. In connection with the commencement of your employment, the Company will recommend that the Board of Directors grant you a stock option to purchase such number of shares of the Company's Common Stock as equals four percent (4%) of the Company's outstanding Common Stock as calculated upon the earlier of (i) June 30, 2002 or (ii) immediately following the final closing of the Company's next round of Preferred Stock financing (currently anticipated to be a Series F Preferred Stock) in which the Company raises, through all closings thereof, aggregate gross proceeds of at least $5 million, with an exercise price equal to the fair market value on the date of the grant (the "Shares"). For purposes of the immediately preceding sentence, the calculation of the Company's outstanding Common Stock will include all then-outstanding shares of Preferred Stock on an as-converted basis, all then-outstanding options on an as-exercised basis, all then-outstanding warrants on an as-exercised (and, if applicable, as-converted) basis, and any authorized but unissued option shares in the Company's employee stock option pool. These option shares will vest at the rate of 25% of the total number of Shares on the twelve (12) month anniversary of your Vesting Commencement Date (as defined in your Stock Option Agreement, which date will be your Start Date, as defined above) and 1/48th of the total number of Shares each month thereafter for the succeeding three years on the monthly anniversary of your Vesting Commencement Date. 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 applicable law and will be subject to the terms of the Company's 1999 Stock Plan and the Stock Option Agreement (including the related notice of stock option grant) between -2- you and the Company, which will be consistent with the terms of this letter agreement. The option will be exercisable for a period of 12 months following a termination of your employment relationship with the Company as a result of your death or disability (or, if earlier, the expiration date of the term of the option) and will be transferable to a trust for your benefit, or for the benefit of an immediate family member, as permitted by applicable law. The Stock Option Agreement will permit the use of a full-recourse, five-year term promissory note, with such terms and conditions as the plan Administrator determines to be appropriate, as an acceptable form of payment upon exercise of any of the Shares. In the event of a Change of Control of the Company, then 25% of your unvested options or shares remaining as of the effective date of the Change of Control will become immediately vested. As used herein, a "Change of Control" shall mean any of the following: (i) a merger of the Company into another entity (other than a merger effected solely for the purpose of changing the state of domicile of the Company), (ii) any other transaction in which more than 50% of the voting control of the Company is transferred (other than an equity financing of the Company in which the Company is the surviving entity), including, without limitation, the sale of more than 50% of the outstanding shares of the Company's capital stock or the sale of all or substantially all of the assets of the Company, or (iii) immediately prior to the liquidation or dissolution of the Company. b. SUBSEQUENT OPTION GRANTS. Subject to the discretion of the Company's Board of Directors, which will consider the matter at least annually, you may be eligible to receive additional grants of stock options or purchase rights from time to time in the future, on such terms and subject to such conditions as the Board of Directors shall determine as of the date of any such grant. 6. BENEFITS. a. INSURANCE BENEFITS; INDEMNIFICATION. The Company will provide you with the opportunity to participate in the standard benefits plans currently available to other similarly situated employees, including group medical insurance, subject to any eligibility requirements imposed by such plans. In addition, the Company currently indemnifies all officers and directors to the maximum extent permitted by law (and advances expenses for which indemnification is available to the maximum extent permitted by law) and the Company will enter into its standard form of Indemnification Agreement (in the form enclosed herewith) with you giving you such protection. The Company will also maintain, at its sole expense, during the period of your service as a director or officer of the Company or any of its affiliated entities and for such additional period of time as you are subject to claims arising therefrom, director and officer liability insurance in such amounts and subject to such limitations as the Company shall, in good faith, determine. Notwithstanding the foregoing, the Company shall have no obligation to obtain or maintain such insurance coverage if the Company determines in good faith that: (i) such insurance cannot be obtained or maintained on terms that are commercially reasonable; (ii) if the premium costs for such insurance are substantially disproportionate to the amount of coverage provided; (iii) if the coverage provided by such insurance is limited by exclusions so as to provide -3- an insufficient benefit; or (iv) if you are covered by similar insurance maintained by a parent or subsidiary of the Company. b. VACATION. You will be entitled to twenty (20) days of paid time off per year (exclusive of Company holidays), pro-rated from the Start Date for the remainder of this calendar year, and subject to the applicable cap on accrual and other terms of the Company's vacation policy. 7. CONFIDENTIAL INFORMATION AND INVENTION ASSIGNMENT AGREEMENT. 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. 8. AT-WILL EMPLOYMENT. Subject only to the Company's obligations described in Section 9 below, your employment with the Company will be on an "at will" basis, meaning that either you or the Company may terminate your employment at any time for any reason or no reason, without further obligation. 9. SEVERANCE BENEFITS. Upon termination of your employment with the Company, you will be entitled to receive benefits only as set forth in this Section 9 or as otherwise provided by applicable law. Your entitlement to these severance benefits will be conditioned upon your execution and delivery to the Company of (i) a general mutual release of all claims (provided that the Company shall not be required to release any claims arising from a material breach by you of the Confidentiality Agreement) and (ii) a resignation from all of your positions with the Company. a. In the event of the termination of your employment by the Company without "Cause", or as a result of your "Constructive Termination" (as such terms are defined below), you will be entitled to receive (i) a cash amount equal to twelve (12) months of your then-current base salary (less applicable tax withholding), which benefit will be paid over the twelve (12) month period following your execution of the release agreement on the Company's normal payroll dates in equal installments, and (ii) twelve (12) months, measured from the date of termination, of continued insurance coverage under COBRA to be paid for by the Company. b. For purposes of this letter agreement, "Cause" for your termination by the Company will mean your: (i) gross negligence in the performance of your job responsibilities; (ii) failure or refusal to comply with the lawful directives of the Company's Board of Directors not inconsistent with your position and responsibilities (other than a refusal to incur any of (i) - (iv) under the definition of Constructive Termination below); (iii) willful misconduct that the Company reasonably determines is materially detrimental to the business or reputation of the Company; (iv) dishonest or fraudulent conduct in the performance of your job responsibilities or that the Company reasonably determines is materially detrimental to the business or reputation of the Company; (v) conviction of a felony; (vi) material breach of your Confidentiality Agreement or your duties of confidentiality owed to any third parties as a result of your position with the Company; or (vii) death; provided, however, that an occurrence of any of (i) through (iii) above shall constitute Cause hereunder only after the Company has provided you with written notice of -4- such gross negligence, failure or misconduct and a reasonable opportunity for you to cure such gross negligence, failure or misconduct (assuming such gross negligence, failure or misconduct is capable of being cured). For purposes of the immediately preceding proviso, a majority of the disinterested members of the Company's Board of Directors shall determine whether a cure has been effected or whether a reasonable opportunity to cure was provided). c. For purposes of this letter agreement, "Constructive Termination" will mean your resignation from all of your positions with the Company within thirty (30) days following: (i) a material reduction or change in your title, job duties, responsibilities or job requirements inconsistent with your position with the Company; (ii) any material reduction of your base compensation; (iii) any elimination of a material benefit provided to you pursuant to your employment with the Company; (iv) a relocation of your place of employment more than twenty-five (25) miles from San Francisco, California; (v) the Company's failure to cure any material breach by it of the terms of this letter agreement or the Indemnification Agreement referenced herein within a reasonable time following written notice from you to the Company's Board of Directors, in each case under (i) through (v) above, other than with your written consent; or (vi) the actual occurrence of any "constructive termination" of you by the Company under any applicable provision of California law. d. Notwithstanding the foregoing, in the event that the Company terminates your employment without Cause and as a result of your physical or mental impairment which prevents performance of the essential functions of your position, the amount of cash payment that you would otherwise be entitled to receive pursuant to Section 9(a)(i) above shall be reduced by the gross amount of disability insurance proceeds that you are entitled to receive, due to such impairment, during the twelve (12) month period following such termination. 10. ATTORNEY FEES. The Company shall reimburse you for up to $5,000 of the attorney or other professional fees reasonably incurred by you in connection with the review and negotiation of the terms of your employment prior to the Start Date upon submission of an invoice or other suitable documentation. 11. BUSINESS EXPENSES. The Company shall reimburse you, following submission of appropriate documentation, for the reasonable travel, entertainment, cellular telephone and other business expenses incurred in connection with your duties to the Company, subject to the Company's expenditure and reimbursement guidelines. -5- We are all delighted to be able to extend you this offer and look forward to working with you. To indicate your acceptance of the Company's offer, please 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 agreement, together with the Confidentiality Agreement and other documents referenced herein, set forth the terms of your employment with the Company and supersede any prior representations or agreements, whether written or oral. This letter agreement may not be modified or amended except by a written agreement, signed by the Company and by you. This letter agreement will be governed by California law, without regard to the conflicts of laws provisions thereof. Very truly yours, ACCEPTED AND AGREED: REDENVELOPE, INC. ALISON L. MAY By: /s/ Hilary Billings /s/ Alison L. May ----------------------------------- ----------------------------------- Signature Title: Chairman and CMO March 15, 2002 Date Attachment A: Confidential Information and Invention Assignment Agreement Attachment B: Indemnification Agreement -6- EX-10.13 23 f89225orexv10w13.txt EXHIBIT 10.13 EXHIBIT 10.13 INDEMNIFICATION AGREEMENT This Indemnification Agreement (the "Agreement") is made as of April 8, 2002, by and between RedEnvelope, Inc., a Delaware corporation (the "Company"), and Alison L. May (the "Indemnitee"). In consideration of the mutual promises made in this Agreement, and for other good and valuable consideration, receipt of which is hereby acknowledged, the Company and Indemnitee hereby agree as follows: 1. INDEMNIFICATION. (a) THIRD PARTY PROCEEDINGS. The Company shall indemnify Indemnitee if Indemnitee is or was a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the Company) by reason of the fact that Indemnitee is or was a director, officer, employee or agent of the Company, or any subsidiary or affiliated entity of the Company, by reason of any action or inaction on the part of Indemnitee while an officer or director or by reason of the fact that Indemnitee is or was serving at the request of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees), damages, judgments, fines and amounts paid in settlement (if such settlement is approved in advance by the Company, which approval shall not be unreasonably withheld) actually and reasonably incurred by Indemnitee in connection with such action, suit or proceeding, whether or not Indemnitee is a successful party in such action, suit or proceeding, to the fullest extent permitted by applicable law if Indemnitee acted in good faith and in a manner Indemnitee 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 Indemnitee's conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that Indemnitee did not act in good faith and in a manner which Indemnitee reasonably believed to be in or not opposed to the best interests of the Company, or, with respect to any criminal action or proceeding, that Indemnitee had reasonable cause to believe that Indemnitee's conduct was unlawful. (b) PROCEEDINGS BY OR IN THE RIGHT OF THE COMPANY. The Company shall indemnify Indemnitee, to the fullest extent permitted by law, if Indemnitee was or is a party or is threatened to be made a party to any threatened, pending or completed action or proceeding by or in the right of the Company or any subsidiary or affiliated entity of the Company to procure a judgment in its favor by reason of the fact that Indemnitee is or was a director, officer, employee or agent of the Company, or any subsidiary or affiliated entity of the Company, by reason of any action or inaction on the part of Indemnitee while an officer or director or by reason of the fact that Indemnitee is or was serving at the request of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees), judgments, fines and damages and amounts paid in settlement (if such settlement is approved in advance by the Company, which approval shall not be unreasonably withheld), in each case to the extent actually and reasonably incurred by Indemnitee in connection with the defense or settlement of such action, proceeding or suit, whether or not Indemnitee is a successful party in such action, proceeding or suit, if Indemnitee acted in good faith and in a manner Indemnitee reasonably believed to be in or not opposed to the best interests of the Company and its stockholders, except that no indemnification shall be made in respect of any claim, issue or matter as to which Indemnitee shall have been finally adjudicated by court order or judgment to be liable to the Company in the performance of Indemnitee's duty to the Company and its stockholders unless and only to the extent that the court in which such action, suit or proceeding is or was pending shall determine upon application that, in view of all the circumstances of the case, Indemnitee is fairly and reasonably entitled to indemnity for such amounts. (c) MANDATORY PAYMENT OF EXPENSES. Notwithstanding any other provision herein, to the extent that Indemnitee has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to in Section 1(a) or Section 1(b) or the defense of any claim, issue or matter therein, Indemnitee shall be indemnified against any and all expenses (including attorneys' fees) actually and reasonably incurred by Indemnitee in connection therewith. For purposes of this paragraph, Indemnitee will be deemed to have been successful on the merits if the action, suit or proceeding is terminated by settlement or is dismissed. (d) CONCLUSIVE PRESUMPTION REGARDING STANDARD OF CONDUCT. Indemnitee shall be conclusively presumed to have met the relevant standard of conduct required by applicable law for indemnification pursuant to these indemnity provisions, unless a determination is made that Indemnitee has not met such standards: (i) by the Board of Directors of the Company by a majority vote of a quorum of the disinterested directors thereof; (ii) by the stockholders of the Company by majority vote; or (iii) in a written opinion of independent legal counsel retained by the Company. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, rebut the presumption that Indemnitee met the relevant standards of conduct for indemnification pursuant to these indemnity provisions. 2. NO EMPLOYMENT RIGHTS. Nothing contained in this Agreement is intended to create in Indemnitee any right to continued employment. 3. EXPENSES; INDEMNIFICATION PROCEDURE. (a) ADVANCEMENT OF EXPENSES. The Company shall advance all expenses incurred by Indemnitee in connection with the investigation, defense, settlement or appeal of any civil or criminal action, suit or proceeding referred to in Section l(a) or Section 1(b) hereof (including amounts actually paid in settlement of any such action, suit or proceeding) to the fullest extent permitted by applicable law. Indemnitee hereby undertakes to repay such amounts advanced only if, and to the extent that, it shall ultimately be determined that Indemnitee is not entitled to be indemnified by the Company as authorized hereby. (b) NOTICE/COOPERATION BY INDEMNITEE. Indemnitee shall, as a condition precedent to his or her right to be indemnified under this Agreement, give the Company notice in -2- writing as soon as practicable of any claim made against Indemnitee for which indemnification will or could be sought under this Agreement. Notice to the Company shall be directed to the Chief Executive Officer of the Company and shall be given in accordance with the provisions of Section 12(d) below. In addition, Indemnitee shall give the Company such information and cooperation as it may reasonably require and as shall be within Indemnitee's power. The failure to so notify the Company will not relieve the Company from any liability which it may have to Indemnitee under the indemnity provisions herein; provided, however, that the Company shall not be required to indemnify Indemnitee for any liability that would have been avoided had Indemnitee timely provided notice hereunder to the Company. (c) PROCEDURE. Any indemnification and advances provided for in Section 1 and this Section 3 shall be made no later than thirty (30) days after receipt of the written request of Indemnitee. If a claim under this Agreement, under any statute, or under any provision of the Company's Certificate of Incorporation or Bylaws providing for indemnification, is not paid in full by the Company within thirty (30) days after a written request for payment thereof has first been received by the Company, Indemnitee may, but need not, at any time thereafter bring an action against the Company in any court of competent jurisdiction to recover the unpaid amount of the claim and enforce any other provision of this Agreement and, subject to Section 11 of this Agreement, Indemnitee shall also be entitled to recover from the Company all expenses (including attorneys' fees) of bringing such action or negotiating such matter. It shall be a defense to any such action (other than an action brought to enforce a claim for expenses incurred in connection with any action, suit or proceeding in advance of its final disposition) that Indemnitee has not met the standards of conduct which make it permissible under applicable law for the Company to indemnify Indemnitee for the amount claimed, but the burden of proving such defense shall be on the Company and Indemnitee shall be entitled to receive interim payments of expenses pursuant to Section 3(a) unless and until such defense may be finally adjudicated by court order or judgment from which no further right of appeal exists. It is the parties' intention that if the Company contests Indemnitee's right to indemnification, the question of Indemnitee's right to indemnification shall be for the court to decide, and neither the failure of the Company (including its Board of Directors, any committee or subgroup of the Board of Directors, independent legal counsel, or its stockholders) to have made a determination that indemnification of Indemnitee is proper in the circumstances because Indemnitee has met the applicable standard of conduct required by applicable law, nor an actual determination by the Company (including its Board of Directors, any committee or subgroup of the Board of Directors, independent legal counsel, or its stockholders) that Indemnitee has not met such applicable standard of conduct, shall create a presumption that Indemnitee has or has not met the applicable standard of conduct. (d) NOTICE TO INSURERS. If, at the time of the receipt of a notice of a claim pursuant to Section 3(b) hereof, the Company has director and officer liability 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 policies. -3- (e) SELECTION OF COUNSEL. In the event the Company shall be obligated under Section 3(a) hereof to pay the expenses of any proceeding against Indemnitee, the Company, if appropriate, shall be entitled to assume the defense of such proceeding, with counsel approved by Indemnitee, upon the delivery to Indemnitee of written notice of its election so to do. After delivery of such notice, approval of such counsel by Indemnitee and the retention of such counsel by the Company, the Company will not be liable to Indemnitee under this Agreement for any fees of counsel subsequently incurred by Indemnitee with respect to the same proceeding, provided that (i) Indemnitee shall have the right to employ counsel in any such proceeding at Indemnitee's expense; and (ii) if (A) the employment of counsel by Indemnitee has been previously authorized by the Company, (B) Indemnitee shall have reasonably concluded that there may be a conflict of interest between the Company and Indemnitee in the conduct of any such defense or (C) the Company shall not, in fact, have employed counsel to assume the defense of such proceeding, then the fees and expenses of Indemnitee's counsel shall be at the expense of the Company. 4. ADDITIONAL INDEMNIFICATION RIGHTS; NONEXCLUSIVITY. (a) SCOPE. Notwithstanding any other provision of this Agreement, the Company hereby agrees to indemnify the Indemnitee to the fullest extent permitted by applicable law, notwithstanding that such indemnification is not specifically authorized by the other provisions of this Agreement, the Company's Certificate of Incorporation, the Company's Bylaws or by statute. In the event of any change, after the date of this Agreement, in any applicable law, statute, or rule which expands the right of the Company to indemnify a member of its board of directors or an officer, such changes shall be deemed to be within the purview of Indemnitee's rights and the Company's obligations under this Agreement. In the event of any change in any applicable law, statute or rule which narrows the right of the Company to indemnify a member of its board of directors or an officer, such changes, to the extent not otherwise required by such law, statute or rule to be applied to this Agreement shall have no effect on this Agreement or the parties' rights and obligations hereunder. (b) NONEXCLUSIVITY. The indemnification provided by this Agreement shall not be deemed exclusive of any rights to which Indemnitee otherwise may be entitled under the Company's Certificate of Incorporation, its Bylaws, any agreement, any vote of stockholders or disinterested members of the Company's Board of Directors, the General Corporation Law of the State of Delaware, the applicable provisions of California law, or otherwise, both as to action in Indemnitee's official capacity and as to action in another capacity while holding such office. The indemnification provided under this Agreement shall continue as to Indemnitee for any action taken or not taken while serving in an indemnified capacity even though he or she may have ceased to serve in any such capacity at the time of any action, suit or other covered proceeding. 5. PARTIAL INDEMNIFICATION. If Indemnitee is entitled under any provision of this Agreement to indemnification by the Company for some or a portion of the expenses, judgments, fines or penalties actually or reasonably incurred in the investigation, defense, appeal or settlement of any civil or criminal action, suit or proceeding, but not, however, for the total amount thereof, the Company shall nevertheless indemnify Indemnitee for the portion of such expenses, judgments, fines or penalties to which Indemnitee is entitled. -4- 6. MUTUAL ACKNOWLEDGMENT. Both the Company and Indemnitee acknowledge that in certain instances, Federal law or public policy may override applicable state law and prohibit the Company from indemnifying its directors and officers under this Agreement or otherwise. For example, the Company and Indemnitee acknowledge that the Securities and Exchange Commission (the "SEC") has taken the position that indemnification is not permissible for liabilities arising under certain federal securities laws, and federal legislation prohibits indemnification for certain ERISA violations. Indemnitee understands and acknowledges that the Company has undertaken or may be required in the future to undertake with the SEC to submit the question of indemnification to a court in certain circumstances for a determination of the Company's right under public policy to indemnify Indemnitee. 7. OFFICER AND DIRECTOR LIABILITY INSURANCE. The Company shall maintain, at its sole expense, during the period of your service as a director or officer of the Company or any of its affiliated entities and for such additional period of time as you are subject to claims arising therefrom, director and officer liability insurance in such amounts and subject to such limitations as the Company shall, in good faith, determine and Indemnitee shall be named as an insured in such a manner as to provide Indemnitee the same rights and benefits as are accorded to the most favorably insured of the Company's directors, if Indemnitee is a director; or of the Company's officers, if Indemnitee is not a director of the Company but is an officer; or of the Company's key employees, if Indemnitee is not an officer or director but is a key employee. Notwithstanding the foregoing, the Company shall have no obligation to obtain or maintain such insurance if the Company determines in good faith that such insurance cannot be obtained or maintained on terms that are commercially reasonable, if the premium costs for such insurance are substantially disproportionate to the amount of coverage provided, if the coverage provided by such insurance is limited by exclusions so as to provide an insufficient benefit, or if Indemnitee is covered by similar insurance maintained by a parent or subsidiary of the Company. 8. SEVERABILITY. Nothing in this Agreement is intended to require or shall be construed as requiring the Company to do or fail to do any act in violation of applicable law. The Company's inability, pursuant to court order, to perform its obligations under this Agreement shall not constitute a breach of this Agreement. The provisions of this Agreement shall be severable as provided in this Section 8. If this Agreement or any portion hereof shall be invalidated on any ground by any court of competent jurisdiction, then the Company shall nevertheless indemnify Indemnitee to the full extent permitted by any applicable portion of this Agreement that shall not have been invalidated, and the balance of this Agreement not so invalidated shall be enforceable in accordance with its terms. 9. EXCEPTIONS. Any other provision herein to the contrary notwithstanding, the Company shall not be obligated pursuant to the terms of this Agreement: (a) CLAIMS INITIATED BY INDEMNITEE. To indemnify or advance expenses to Indemnitee with respect to proceedings or claims initiated or brought voluntarily by Indemnitee and not by way of defense, except with respect to proceedings brought to establish or enforce a right to indemnification under this Agreement or any other statute or law or otherwise as required under Section 145 of the Delaware General Corporation Law, but such indemnification or -5- advancement of expenses may be provided by the Company in specific cases if the Board of Directors finds it to be appropriate; (b) LACK OF GOOD FAITH. To indemnify Indemnitee for any expenses incurred by Indemnitee with respect to any proceeding instituted by Indemnitee to enforce or interpret this Agreement, if a court of competent jurisdiction determines that each of the material assertions made by Indemnitee in such proceeding was not made in good faith or was frivolous; (c) INSURED CLAIMS. To indemnify 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 expenses or liabilities have been paid directly to Indemnitee by an insurance carrier under a policy of officers' and directors' liability insurance maintained by the Company; or (d) CLAIMS UNDER SECTION 16(b). To indemnify Indemnitee for expenses or the payment of profits arising from the purchase and sale by Indemnitee of securities in violation of Section 16(b) of the Securities Exchange Act of 1934, as amended, or any similar successor statute. 10. CONSTRUCTION OF CERTAIN PHRASES. (a) For purposes of this Agreement, references to the "Company" shall include, in addition to the resulting corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had continued, would have had power and authority to indemnify its directors, officers, and employees or agents, so that if Indemnitee is or was a director, officer, employee or agent of such constituent corporation, or is or was serving at the request of such constituent corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, Indemnitee shall stand in the same position under the provisions of this Agreement with respect to the resulting or surviving corporation as Indemnitee would have with respect to such constituent corporation if its separate existence had continued. (b) For purposes of this Agreement, references to "other enterprises" shall include employee benefit plans; references to "fines" shall include any excise taxes assessed on Indemnitee with respect to an employee benefit plan; and references to "serving at the request of the Company" shall include any service as a director, officer, employee or agent of the Company or any subsidiary or affiliated entity of the Company which imposes duties on, or involves services by, such director, officer, employee or agent with respect to an employee benefit plan, its participants, or beneficiaries; and if Indemnitee acted in good faith and in a manner Indemnitee reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan, Indemnitee shall be deemed to have acted in a manner "not opposed to the best interests of the Company" as referred to in this Agreement. 11. ATTORNEYS' FEES. In the event that any action is instituted by Indemnitee under this Agreement to enforce or interpret any of the terms hereof, Indemnitee shall be entitled to recover from the Company all court costs and expenses, including reasonable attorneys' fees, -6- incurred by Indemnitee with respect to such action or in negotiating such matter, unless as a part of such action, the court of competent jurisdiction determines that each of the material assertions made by Indemnitee as a basis for such action were not made in good faith or were frivolous. In the event of an action instituted by or in the name of the Company under this Agreement or to enforce or interpret any of the terms of this Agreement, Indemnitee shall be entitled to be paid all court costs and expenses, including attorneys' fees, incurred by Indemnitee in defense of such action (including with respect to Indemnitee's counterclaims and cross-claims made in such action), unless as a part of such action the court determines that each of Indemnitee's material defenses to such action were made in bad faith or were frivolous. 12. 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 regard to conflicts of law provisions thereof. (b) ENTIRE AGREEMENT; ENFORCEMENT OF RIGHTS. This Agreement, along with Indemnitee's offer letter agreement, sets 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. (c) 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. (d) NOTICES. Any notice, demand or request required or permitted to be given under this Agreement shall be in writing and shall be deemed sufficient when delivered personally or sent by telegram or fax, or forty-eight (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. (e) 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. (f) SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon the Company and its successors and assigns, and inure to the benefit of Indemnitee and Indemnitee's heirs, legal representatives and assigns. (g) SUBROGATION. In the event of payment under this Agreement, the Company shall be subrogated to the extent of such payment to all of the rights of recovery of -7- Indemnitee, who shall execute all documents required and shall do all acts that may be necessary to secure such rights and to enable the Company to effectively bring suit to enforce such rights. [Signature Page Follows] -8- The parties hereto have executed this Agreement as of the day and year set forth on the first page of this Agreement. RedEnvelope, Inc. By: /s/ Hilary Billings __________________________________ Title: Chairman / CMO __________________________________ Address: 201 Spear Street, 3rd Floor San Francisco, CA 94105 Facsimile: (415) 371-1134 AGREED TO AND ACCEPTED: ALISON L. MAY /s/ Alison L. May ________________________________________ (Signature) Address: 22 Jersey Street San Francisco, CA 94114 Facsimile:_________________________ -9- EX-10.14 24 f89225orexv10w14.txt EXHIBIT 10.14 EXHIBIT 10.14 April 10, 2002 Dear Hilary, This letter agreement sets forth the terms and conditions of your position with RedEnvelope, Inc. (the "Company"). 1. POSITION. a. You will continue to have the titles and responsibilities of the Chairman of the Board and Chief Marketing Officer of the Company. You will continue to report directly to the Company's Board of Directors in your capacity as Chairman and you will report to the Company's Chief Executive Officer in your capacity as Chief Marketing Officer. b. You agree to the best of your ability and experience that you will at all times loyally and conscientiously perform all of your duties and obligations to the Company. During your employment, you further agree that you (i) will devote substantially all of your business time and attention to the business of the Company, at the Company's headquarters or in your home office (as you determine and as is necessary, in your reasonable judgment, to fulfill your obligations hereunder); (ii) will not render commercial or professional services of any nature to any person or organization, whether or not for compensation, without the prior written consent of the Company's Board of Directors; and (iii) will not directly or indirectly engage or participate in any business or activity that is competitive in any manner with the business of the Company. Nothing in this letter agreement will prevent you from: (i) accepting speaking or presentation engagements in exchange for honoraria; (ii) serving on advisory boards or boards of charitable organizations, so long as such service does not unduly interfere with the performance of your duties to the Company; or (iii) owning, directly or indirectly, no more than one percent (1%) of the outstanding equity securities of a corporation whose stock is listed on a national stock exchange. 2. COMPENSATION. a. BASE SALARY. Commencing April 4, 2002, you will be paid a base monthly salary of $25,000, which is equivalent to $300,000 on an annualized basis, subject to applicable tax withholding. Your salary will be payable pursuant to the Company's regular payroll policy (or in the same manner as other similarly situated employees of the Company). b. BONUS. You will not be entitled to a bonus for fiscal year 2003 (i.e., the fiscal year ending March 31, 2003), unless otherwise determined by the Company's Board of Directors. You will be eligible, subject to approval by the Company's Board of Directors, for annual bonuses in subsequent fiscal years pursuant to an incentive compensation plan that will be developed by Company management and the Board of Directors. 3. STOCK OPTIONS. a. CURRENT OPTION. You currently hold a total of 888,888 shares, and unexercised options to purchase an additional 630,000 shares, of Company common stock, in each case subject to the vesting requirements and restrictions on transfer set forth in the respective stock purchase agreements and stock option agreements therefor. b. PERCENTAGE INTEREST. If, at any time prior to the earlier to occur of the closing of: (i) an initial public offering of the Company's Common Stock ("IPO") or (ii) a Change of Control (as defined below) of the Company, your total option and shareholdings in the Company are below three percent (3%) of the total outstanding shares, options, warrants and other convertible securities (including unallocated stock options), then the Company will recommend to the Board of Directors that additional options be granted to you at the then fair market value to ensure that your ownership percentage is equal to 3%. The vesting schedule associated with any such options will be identical to the vesting arrangement with the options and stock held by you. In other words, if you are 75% vested in your options and shares owned prior to such issuance, then the new issuance shall be vested in 75% of such amount. The rights granted pursuant to this paragraph shall immediately terminate upon the closing of an IPO or a Change of Control, whichever occurs first. c. ADDITIONAL GRANTS. Subject to the discretion of the Company's Board of Directors, you may be eligible to receive additional grants of stock options or purchase rights from time to time in the future, on such terms and subject to such conditions as the Board of Directors shall determine as of the date of any such grant. d. SPECIAL OPTION EXERCISE PROVISIONS. Notwithstanding anything to the contrary in any of your stock option agreements, the 1999 Plan or any other document or agreement, (i) you will have a period of 12 months following a termination of your employment relationship with the Company as a result of your death or disability (or, if earlier, the expiration date of the term of the option) to exercise any and all stock options held by you that are vested as of the date of such termination, (ii) your options will be transferable to a trust for your benefit, or for the benefit of an immediate family member, as permitted by applicable law, (iii) all of your options will permit the use of a full-recourse, five-year term promissory note, in the same form as previously used by you to exercise options (with such changes as the plan Administrator reasonably deems necessary), as an acceptable form of payment upon exercise of any of the Shares, and (iv) you will have three years from the date of termination of your employment (or, if earlier, the expiration date of the term of the option) for any reason (other than death or disability) to exercise any and all stock options held by you that are vested as of the date of such termination. e. SPECIAL VESTING. In the event of a Change of Control of the Company, then 25% of your unvested options or shares remaining as of the effective date of the Change of Control will become immediately vested. As used herein, a "Change of Control" shall mean any of the following: (i) a merger of the Company into another entity (other than a merger effected solely for the purpose of changing the state of domicile of the Company), (ii) any other transaction in which more than 50% of the voting control of the Company is transferred (other than an equity financing of the Company in which the Company is the surviving entity), including, without limitation, the sale of more than 50% of the outstanding shares of the Company's capital stock, (iii) the sale of all or substantially all of the assets of the Company, or (iv) immediately prior to the liquidation or dissolution of the Company. If your employment is terminated by the Company or its successor within the twelve (12) month period following a Change of Control, for any reason other than -2- Cause, then an additional 25% of your unvested options or shares remaining as of the effective date of the Change of Control will become immediately vested. f. NOTES EXTENSION. You and the Company acknowledge that there are currently two promissory notes (the "Notes") outstanding which you used to finance the purchase of shares of Company stock, each dated July 21, 1999, the first in the principal amount of $19,166.30 and the second in the principal amount of $24,389.20. The Company will, concurrently with the execution of this letter agreement, amend the Notes to extend the maturity dates thereof from July 20, 2003 until July 20, 2007. 4. BENEFITS. a. INSURANCE BENEFITS; INDEMNIFICATION. You will continue to participate in the standard benefits plans currently available to other similarly situated employees, including group medical insurance, subject to any eligibility requirements imposed by such plans. In addition, the Company currently indemnifies all officers and directors to the maximum extent permitted by law (and advances expenses for which indemnification is available to the maximum extent permitted by law) and the Company has entered into its standard form of Indemnification Agreement with you giving you such protection. The Company will also maintain, at its sole expense, during the period of your service as a director or officer of the Company or any of its affiliated entities and for such additional period of time as you are subject to claims arising therefrom, director and officer liability insurance in such amounts and subject to such limitations as the Company shall, in good faith, determine. Notwithstanding the foregoing, the Company shall have no obligation to obtain or maintain such insurance coverage if the Company determines in good faith that: (i) such insurance cannot be obtained or maintained on terms that are commercially reasonable; (ii) if the premium costs for such insurance are substantially disproportionate to the amount of coverage provided; (iii) if the coverage provided by such insurance is limited by exclusions so as to provide an insufficient benefit; or (iv) if you are covered by similar insurance maintained by a parent or subsidiary of the Company. b. VACATION. You will be entitled to twenty-three (23) days of paid time off per year (exclusive of Company holidays), subject to the applicable cap on accrual and other terms of the Company's vacation policy. 5. CONFIDENTIAL INFORMATION AND INVENTION ASSIGNMENT AGREEMENT. You have previously executed, and remain bound by the terms of, the Company's Confidential Information and Invention Assignment Agreement (the "Confidentiality Agreement"). 6. AT-WILL EMPLOYMENT. Subject only to the Company's obligations described in Section 7 below, your employment with the Company will be on an "at will" basis, meaning that either you or the Company may terminate your employment at any time for any reason or no reason, without further obligation. 7. SEVERANCE BENEFITS. Upon termination of your employment with the Company, you will be entitled to receive benefits only as set forth in this Section 7 or as otherwise provided by applicable law. Your entitlement to these severance benefits will be conditioned upon your signing (and not revoking) and delivering to the Company of (i) a general mutual release of all claims (provided that the Company shall not be required to release any claims arising from a -3- material breach by you of the Confidentiality Agreement) substantially in the form attached hereto as Exhibit A and (ii) a resignation from all of your positions with the Company. a. In the event of the termination of your employment by the Company without "Cause", or as a result of your "Constructive Termination" (as such terms are defined below), you will be entitled to receive (i) a cash amount equal to twelve (12) months of your then-current base salary (less applicable tax withholding), which benefit will be paid over the twelve (12) month period following your execution of the release agreement on the Company's normal payroll dates in equal installments, and (ii) twelve (12) months, measured from the date of termination, of continued insurance coverage under COBRA to be paid for by the Company. b. For purposes of this letter agreement, "Cause" for your termination by the Company will mean your: (i) gross negligence in the performance of your job responsibilities; (ii) failure or refusal to comply with the lawful directives of the Company's Board of Directors not inconsistent with your position and responsibilities (other than a refusal to incur any of (i) - (iv) under the definition of Constructive Termination below); (iii) willful misconduct that the Company reasonably determines is materially detrimental to the business or reputation of the Company; (iv) dishonest or fraudulent conduct in the performance of your job responsibilities or that the Company reasonably determines is materially detrimental to the business or reputation of the Company; (v) conviction of a felony; (vi) material breach of your Confidentiality Agreement or your duties of confidentiality owed to any third parties as a result of your position with the Company; or (vii) death; provided, however, that an occurrence of any of (i) through (iii) above shall constitute Cause hereunder only after the Company has provided you with written notice of such gross negligence, failure or misconduct and a reasonable opportunity for you to cure such gross negligence, failure or misconduct (assuming such gross negligence, failure or misconduct is capable of being cured). For purposes of the immediately preceding proviso, a majority of the disinterested members of the Company's Board of Directors shall determine whether a cure has been effected or whether a reasonable opportunity to cure was provided. c. For purposes of this letter agreement, "Constructive Termination" will mean your resignation from all of your positions with the Company within thirty (30) days following: (i) a material reduction or change in your title, job duties, authority, responsibilities or job requirements inconsistent with your position with the Company; (ii) any material reduction of your base compensation; (iii) any elimination of a material benefit provided to you pursuant to your employment with the Company; (iv) a relocation of your place of employment more than twenty-five (25) miles from San Francisco, California; (v) the Company's failure to cure any material breach by it of the terms of this letter agreement or the Indemnification Agreement referenced herein within a reasonable time following written notice from you to the Company's Board of Directors, in each case under (i) through (v) above, other than with your written consent; or (vi) the actual occurrence of any "constructive termination" of you by the Company under any applicable provision of California law. d. Notwithstanding the foregoing, in the event that the Company terminates your employment without Cause and as a result of your physical or mental impairment which prevents performance of the essential functions of your position, the amount of cash payment that you would otherwise be entitled to receive pursuant to Section 7(a)(i) above shall be reduced by -4- the gross amount of disability insurance proceeds that you are entitled to receive, due to such impairment, during the twelve (12) month period following such termination. 8. ATTORNEY FEES. The Company shall reimburse you for up to $5,000 of the attorney or other professional fees reasonably incurred by you in connection with the review and negotiation of the terms of this letter agreement prior to the date hereof upon submission of an invoice or other suitable documentation. 9. BUSINESS EXPENSES. The Company shall reimburse you, following submission of appropriate documentation, for the reasonable travel, entertainment, cellular telephone and other business expenses incurred in connection with your duties to the Company, subject to the Company's expenditure and reimbursement guidelines. [signature page follows] -5- To indicate your acceptance of these terms and conditions, please sign and date this letter in the space below. This letter agreement may not be modified or amended except by a written agreement, signed by the Company and by you. This letter agreement will be governed by California law, without regard to the conflicts of laws provisions thereof. This letter agreement, together with the related documents referenced above, constitutes the entire agreement between the parties with respect to the subject matter hereof, and supersedes and replaces any and all prior or contemporaneous agreements or understandings, either written or oral, relating to the subject matter hereof including, without limitation, the letter agreement dated July 1, 1999, along with any amendments thereto. Very truly yours, ACCEPTED AND AGREED: REDENVELOPE, INC. HILARY BILLINGS By: /s/ Alison L. May /s/ Hilary Billings ----------------------------------- ----------------------------------- Signature Title: Pres & CEO 6.10.02 ----------------------------------- Date -6- EX-10.15 25 f89225orexv10w15.txt EXHIBIT 10.15 EXHIBIT 10.15 EXHIBIT C PROMISSORY NOTE $19,166.30 San Francisco, California July 21, 1999 For value received, the undersigned promises to pay 911 Gifts, Inc., a Delaware corporation (the "Company"), at its principal office the principal sum of $19,166.30 with interest from the date hereof at a rate of 5.24% per annum, compounded semiannually, on the unpaid balance of such principal sum. Such principal and interest shall be due and payable on July 20, 2003. If the undersigned's employment or consulting relationship with the Company is terminated prior to payment in full of this Note, this Note shall be immediately due and payable. Principal and interest are payable in lawful money of the United States of America. AMOUNTS DUE UNDER THIS NOTE MAY BE PREPAID AT ANY TIME WITHOUT INTEREST OR PENALTY. Should suit be commenced to collect any sums due under this Note, such sum as the Court may deem reasonable shall be added hereto as attorneys' fees. The makers and endorsers have severally waived presentment for payment, protest notice of protest and notice of nonpayment of this Note. This Note, which is full recourse, is secured by a pledge of certain shares of Common Stock of the Company and is subject to the terms of a Pledge and Security Agreement between the undersigned and the Company of even date herewith. /s/ Hilary Billings ------------------------ Hilary Billings EXHIBIT D PLEDGE AND SECURITY AGREEMENT This Pledge and Security Agreement (the "Agreement") is entered into this 21st day of July by and between 911 Gifts, Inc., a Delaware corporation (the "Company") and Hilary Billings ("Purchaser"). RECITALS In connection with Purchaser's exercise of an option to purchase certain shares of the Company's Common Stock (the "Shares") pursuant to an Option Agreement dated June 28, 1997 between Purchaser and the Company, Purchaser is delivering a promissory note of even date herewith (the "Note") in full or partial payment of the exercise price for the Shares. The company requires that the Note be secured by a pledge of the Shares or the terms set forth below. AGREEMENT In consideration of the Company's acceptance of the Note as full or partial payment of the exercise price of the Shares, and for other good and valuable consideration, the receipt of which is hereby acknowledged, the parties hereto agree as follows: 1. The Note shall become payable in full upon the voluntary or involuntary termination or cessation of employment of Purchaser with the Company, for any reason, with or without cause (including death or disability). 2. Purchaser shall deliver to the Secretary of the Company, or his or her designee (hereinafter referred to as the "Pledge Holder"), all certificates representing the Shares, together with an Assignment Separate from Certificate in the form attached to this Agreement as Attachment A executed by Purchaser and by Purchaser's spouse (if required for transfer), in blank, for use in transferring all or a portion of the Shares to the Company if, as and when required pursuant to this Agreement. In addition, if Purchaser is married, Purchaser's spouse shall execute the signature page attached to this Agreement. 3. As security for the payment of the Note and any renewal, extension or modification of the Note. Purchaser hereby grants to the Company a security interest in and pledges with and delivers to the Company Purchaser's Shares (sometimes referred to herein as the "Collateral"). 4. In the event that Purchaser prepays all or a portion of the Note, in accordance with the provisions thereof, Purchaser intends, unless written notice to the contrary is delivered to the Pledge Holder, that the Shares represented by the portion of the Note so repaid, including annual interest thereon, shall continue to be so held by the Pledge Holder, to serve as independent collateral for the outstanding portion of the Note for the purpose of commencing the holding period set forth in Rule 144(d) promulgated under the Securities Act of 1933, as amended (the "Securities Act"). 5. In the event of any foreclosure of the security interest created by this Agreement, the Company may sell the Shares at a private sale or may repurchase the Shares itself. The parties agree that, prior to the establishment of a public market for the Shares of the Company, the securities laws affecting sale of the Shares make a public sale of the Shares commercially unreasonable. The parties further agree that the repurchasing of such Shares by the Company, or by any person to whom the Company may have assigned its rights under this Agreement, is commercially reasonable if made at a price determined by the Board of Directors in its discretion, fairly exercised, representing what would be the fair market value of the Shares reduced by any limitation on transferability, whether due to the size of the block of shares or the restrictions of applicable securities laws. 6. In the event of default in payment when due of any indebtedness under the Note, the Company may elect then, or at any time thereafter, to exercise all rights available to a secured party under the California Commercial Code including the right to sell the Collateral at a private or public sale or repurchase the Shares as provided above. The proceeds of any sale shall be applied in the following order: (a) To the extent necessary, proceeds shall be used to pay all reasonable expenses of the Company in enforcing this Agreement and the Note, including, without limitation, reasonable attorney's fees and legal expenses incurred by the Company. (b) To the extent necessary, proceeds shall be used to satisfy any remaining indebtedness under Purchaser's Note. (c) Any remaining proceeds shall be delivered to Purchaser. 7. Upon full payment by Purchaser of all amounts due under the Note, Pledge Holder shall deliver to Purchaser all Shares in Pledge Holder's possession belonging to Purchaser, and Pledge Holder shall thereupon be discharged of all further obligations under this Agreement; provided, however, that Pledge Holder shall nevertheless retain the Shares as escrow agent if at the time of full payment by Purchaser said Shares are still subject to a Repurchase Option in favor of the Company. -2- The parties have executed this Pledge and Security Agreement as of the date first set forth above. COMPANY: 911GIFTS, INC. By: /s/ Hilary Billings ------------------------------- Name: Hilary Billings ----------------------------- (print) Title: CEO & Pres. Address: 3647 India Street San Diego, CA 92103 PURCHASER: HILARY BILLINGS /s/ Hilary Billings ------------------------------------ (Signature) Hilary Billings ------------------------------------ (Print Name) Address: 2021 Lake Street San Francisco, CA 94121 ATTACHMENT A ASSIGNMENT SEPARATE FROM CERTIFICATE FOR VALUE RECEIVED and pursuant to that certain Pledge and Security Agreement between the undersigned ("Purchaser") and 911Gifts, Inc. (the "Company") dated _________, _____ (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 does hereby irrevocably constitute and appoint _______________________________ 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. Dated: ____________ Signature: /s/ Hilary Billings ------------------------------------------- Hilary Billings /s/ [ILLEGIBLE] ------------------------------------------- Spouse of Hilary Billings (if applicable) Instruction: Please do not fill in any blanks other than the signature line. The purpose of this assignment is to perfect the security interest of the Company pursuant to the Agreement. EX-10.16 26 f89225orexv10w16.txt EXHIBIT 10.16 EXHIBIT 10.16 EXHIBIT C PROMISSORY NOTE $24,389.20 San Francisco, California July 21, 1999 For value received, the undersigned promises to pay 911Gifts, Inc., a Delaware corporation (the "Company"), at its principal office the principal sum of $24,389.20 with interest from the date hereof at a rate of 5.74% per annum, compounded semiannually, on the unpaid balance of such principal sum. Such principal and interest shall be due and payable on July 20, 2003. If the undersigned's employment or consulting relationship with the Company is terminated prior to payment in full of this Note, this Note shall be immediately due and payable. Principal and interest are payable in lawful money of the United States of America. AMOUNTS DUE UNDER THIS NOTE MAY BE PREPAID AT ANY TIME WITHOUT INTEREST OR PENALTY. Should suit be commenced to collect any sums due under this Note, such sum as the Court may deem reasonable shall be added hereto as attorneys' fees. The makers and endorsers have severally waived presentment for payment, protest notice of protest and notice of nonpayment of this Note. This Note, which is full recourse, is secured by a pledge of certain shares of Common Stock of the Company and is subject to the terms of a Pledge and Security Agreement between the undersigned and the Company of even date herewith. /s/ Hilary Billings ------------------------ Hilary Billings EXHIBIT D PLEDGE AND SECURITY AGREEMENT This Pledge and Security Agreement (the "Agreement") is entered into this 21st day of July by and between 911Gifts, Inc., a Delaware corporation (the "Company") and Hilary Billings ("Purchaser"). RECITALS In connection with Purchaser's exercise of an option to purchase certain shares of the Company's Common Stock (the "Shares") pursuant to an Option Agreement dated May 18, 1999 between Purchaser and the Company, Purchaser is delivering a promissory note of even date herewith (the "Note") in full or partial payment of the exercise price for the Shares. The company requires that the Note be secured by a pledge of the Shares of the terms set forth below. AGREEMENT In consideration of the Company's acceptance of the Note as full or partial payment of the exercise price of the Shares, and for other good and valuable consideration, the receipt of which is hereby acknowledged, the parties hereto agree as follows: 1. The Note shall become payable in full upon the voluntary or involuntary termination or cessation of employment of Purchaser with the Company, for any reason, with or without cause (including death or disability). 2. Purchaser shall deliver to the Secretary of the Company, or his or her designee (hereinafter referred to as the "Pledge Holder"), all certificates representing the Shares, together with an Assignment Separate from Certificate in the form attached to this Agreement as Attachment A executed by Purchaser and by Purchaser's spouse (if required for transfer), in blank, for use in transferring all or a portion of the Shares to the Company if, as and when required pursuant to this Agreement. In addition, if Purchaser is married, Purchaser's spouse shall execute the signature page attached to this Agreement. 3. As security for the payment of the Note and any renewal, extension or modification of the Note, Purchaser hereby grants to the Company a security interest in and pledges with and delivers to the Company Purchaser's Shares (sometimes referred to herein as the "Collateral"). 4. In the event that Purchaser prepays all or a portion of the Note, in accordance with the provisions thereof, Purchaser intends, unless written notice to the contrary is delivered to the Pledge Holder, that the Shares represented by the portion of the Note so repaid, including annual interest thereon, shall continue to be so held by the Pledge Holder, to serve as independent collateral for the outstanding portion of the Note for the purpose of commencing the holding period set forth in Rule 144(d) promulgated under the Securities Act of 1933, as amended (the "Securities Act"). 5. In the event of any foreclosure of the security interest created by this Agreement, the Company may sell the Shares at a private sale or may repurchase the Shares itself. The parties agree that, prior to the establishment of a public market for the Shares of the Company, the securities laws affecting sale of the Shares make a public sale of the Shares commercially unreasonable. The parties further agree that the repurchasing of such Shares by the Company, or by any person to whom the Company may have assigned its rights under this Agreement, is commercially reasonable if made at a price determined by the Board of Directors in its discretion, fairly exercised, representing what would be the fair market value of the Shares reduced by any limitation on transferability, whether due to the size of the block of shares or the restrictions of applicable securities laws. 6. In the event of default in payment when due of any indebtedness under the Note, the Company may elect then, or at any time thereafter, to exercise all rights available to a secured party under the California Commercial Code including the right to sell the Collateral at a private or public sale or repurchase the Shares as provided above. The proceeds of any sale shall be applied in the following order: (a) To the extent necessary, proceeds shall be used to pay all reasonable expenses of the Company in enforcing this Agreement and the Note, including, without limitation, reasonable attorney's fees and legal expenses incurred by the Company. (b) To the extent necessary, proceeds shall be used to satisfy any remaining indebtedness under Purchaser's Note. (c) Any remaining proceeds shall be delivered to Purchaser. 7. Upon full payment by Purchaser of all amounts due under the Note, Pledge Holder shall deliver to Purchaser all Shares in Pledge Holder's possession belonging to Purchaser, and Pledge Holder shall thereupon be discharged of all further obligations under this Agreement; provided, however, that Pledge Holder shall nevertheless retain the Shares as escrow agent if at the time of full payment by Purchaser said Shares are still subject to a Repurchase Option in favor of the Company. -2- The parties have executed this Pledge and Security Agreement as of the date first set forth above. COMPANY: 911GIFTS, INC. By: /s/ Hilary Billings -------------------------------- Name: Hilary Billings ------------------------------ (print) Title: Pres. & CEO ----------------------------- Address: 3647 India Street San Diego, CA 92103 PURCHASER: HILARY BILLINGS /s/ Hilary Billings ------------------------------------ (Signature) /s/ Hilary Billings ------------------------------------ (Print Name) Address: 2021 Lake Street San Francisco, CA 94121 ATTACHMENT A ASSIGNMENT SEPARATE FROM CERTIFICATE FOR VALUE RECEIVED and pursuant to that certain Pledge and Security Agreement between the undersigned ("Purchaser") and 911 Gifts, Inc. (the "Company") dated ___________, _____ (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 does hereby irrevocably constitute and appoint ______________________ 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. Dated: ____________ Signature: /s/ Hilary Billings ------------------------------------------- Hilary Billings /s/ [ILLEGIBLE] ------------------------------------------- Spouse of Hilary Billings (if applicable) Instruction: Please do not fill in any blanks other than the signature line. The purpose of this assignment is to perfect the security interest of the Company pursuant to the Agreement. EX-10.17 27 f89225orexv10w17.txt EXHIBIT 10.17 EXHIBIT 10.17 AMENDMENT TO PROMISSORY NOTES This Amendment to Promissory Notes (the "Amendment") is entered into as of May 21, 2002 by and between RedEnvelope, Inc., formerly known as 911Gifts, Inc. (the "Company") and Hilary Billings (the "Employee"). A. On July 21, 1999, Employee issued to the Company two (2) promissory notes (the "Notes") in the aggregate principal amounts of $24,389.20 and $19,166.30. B. In connection therewith, Employee granted security interests in the Notes by pledging shares of the Company's common stock held by Employee pursuant to two (2) Pledge and Security Agreements (one with respect to each Note) dated July 21, 1999 (the "Pledge Agreements") The Company and Employee hereby agree to amend the Notes as follows: 1. The maturity date of the Notes shall be extended by four (4) years and, to effectuate the foregoing, the final sentence of the first paragraph of each Note shall be replaced in its entirely by the following sentence: "Such principal and interest shall be due and payable on July 20, 2007." 2. The parties acknowledge and agree that the defined term "Note" in each of the Pledge Agreements shall be deemed to refer to the Notes as amended hereby, and that the Company's obligations under Section 3(f) of that certain letter agreement dated April 10, 2002 between Employee and Company are satisfied in full by this Amendment. Except as amended by this Amendment, the Notes and the Pledge Agreements shall remain in full force and effect, enforceable in accordance with their respective terms. The parties have executed this Amendment as of the date first written above. COMPANY: REDENVELOPE, INC. /s/ Alison May ------------------------------------------- By: Alison May, President and Chief Executive Officer EMPLOYEE: Hilary Billings /s/ Hilary Billings ------------------------------------------- EX-10.18 28 f89225orexv10w18.txt EXHIBIT 10.18 EXHIBIT 10.18 May 20, 2003 Pamela Knox 34 Greenway Terrace Forest Hills, NY 11375 RE: EMPLOYMENT TERMS Dear Pamela: On behalf of RedEnvelope ("Company"), I am very pleased to offer you the position of Senior Vice President of Marketing on the following terms. You will report directly to the Chief Executive Officer, and will work in our San Francisco office. The position of Senior Vice President of Marketing is exempt from any overtime pay. Your primary duties in this position will be to: (1) provide leadership in developing and implementing marketing strategies which enhance the RedEnvelope brand, (2) manage all marketing and advertising investment in order to achieve growth and profitability targets, and (3) direct budgeting and tactical planning for the Marketing, Web Store and Customer Service areas. You will also be responsible for any other projects or assignments as directed by the CEO. At all times during employment with the Company, you will devote your full energies, abilities and productive business time to the performance of your job for the Company and will not engage in any activity that would in any way interfere or conflict with the full performance of any of your duties for the Company. You will receive a salary of $9,615.39 on a bi-weekly basis ($250,000 annualized), less applicable payroll deductions and all required withholdings, in accordance with the Company's regular payroll practices. The Company also agrees to pay for regular relocation expenses from Forest Hills, New York to San Francisco, California. In addition, the Company agrees to pay for temporary housing for up to 60 days. Commencing the month following your start date and while employed as a full-time employee on the regular payroll of the Company, you will be eligible to participate in the Company's standard benefits package. You will also be eligible for the Company's standard PTO and holiday benefits. According to the Company PTO policy, you will be eligible for 20 PTO days, plus 3 Float Days and 7 Holidays. After three years of service, the PTO allowance will increase to 22 days. The Company may modify or cancel benefits from time to time, as it deems appropriate in its sole discretion. Pamela Knox May 20, 2003 Page 2 In addition, after hiring, we will recommend that the Board of Directors of the Company ("Board") grant you an option to purchase 625,000 shares of the Company's common stock. The specific characteristics, terms and conditions of the options mentioned above, including the strike price and applicable vesting schedule, will be set forth in the option plan and grant documentation to follow after approval by the Board at the time of your start date. However, it has been agreed that 125,000 shares will vest immediately upon start date. Twenty-five percent (25%) of the remaining 500,000 shares shall vest on the one (1) year anniversary of the Vesting Commencement Date (start date) and the balance of the shares will vest in equal, successive monthly installments over the following 3-year period thereafter. Vesting will, of course, depend on your continued employment with the Company. Your employment with the company is for no specified duration and may be terminated either by you or the Company at any time and for any reason whatsoever, with or without cause or advance notice. The Company also retains the right to make all other decisions concerning your employment (e.g., changes to your position, title, level, responsibilities, compensation, job duties, reporting structure, work location, work schedule, goals or any other managerial decisions) at any time, with or without cause or advance notice, as it deems appropriate in its sole discretion. This at-will employment relationship cannot be changed except in writing signed by you and the Company's Chief Executive Officer. If the Company terminates your employment without cause, in exchange for you signing a general release of any and all claims, the Company will pay you severance in the total amount of $125,000, less applicable payroll deductions and all required withholdings. This severance amount will be paid in biweekly installments, less applicable payroll deductions and all required withholdings, in accordance with the Company's regular payroll schedule, during the six calendar months following the termination of your employment. In addition to this payment, your existing coverage under the Company's group health plan (and, if applicable, the existing group health coverage for your eligible dependents) will continue for the six calendar months following the termination of your employment. Your employment with the Company pursuant to this offer is contingent on you signing the Company's standard employee confidentiality and invention assignment agreement (attached) prior to your start date, providing satisfactory proof of your right to work in the United States as required by law, and on the Company's verification of your qualifications, background, experience and references. If employed, you will comply at all times with all Company policies, rules and procedures as they may be established, stated and/or modified from time to time at the Company's sole discretion. Prior to your first day of work with the Company, you will have previously returned any confidential, proprietary or trade secret information belonging to any prior employer and will not use such information in your employment with the Company. You will also strictly adhere to the terms of any lawful restrictive covenants entered into between you any prior employers. Except as specified below, to the fullest extent allowed by Law, any and all disputes, claims or controversies of any kind arising out of or related in any way to hiring, employment or the Pamela Knox Offer Pamela Knox May 20, 2003 Page 3 termination of employment with the Company (including without limitation any statutory or common law claims against the Company or any of its agents or employees) shall be fully and finally resolved through binding arbitration, between a neutral arbitrator, pursuant to the California Arbitration Act, California Code of Civil Procedure section 1280, et seq. You and the Company therefore waive any right to a jury trial on any such claims or matters. Any arbitration between the parties will be conducted before the American Arbitration Association ("AAA") in San Francisco, California, under the AAA's then existing national rules for the resolution of employment disputes, as modified in any respect necessary to comply with the requirements of California Law for enforcement of arbitration agreements regarding employment-related disputes. This arbitration provision shall not apply to any claims for injunctive or other similar equitable relief. Before commencing any arbitration proceedings, any dispute between you and the Company or any of its agents or employees shall first be submitted, in writing to the Company's Human Resource Officer (or if none, to the head of Finance & Accounting) for a good faith attempt at resolution. This letter sets forth the entire agreement between you and the Company on the terms of your employment with the Company and supersedes any prior representations, understandings, promises or agreements, whether oral or written, by anyone regarding employment with the Company. The employment terms in this letter may only be modified in writing signed by both you and the Company's Chief Executive Officer. If you wish to accept employment with the Company under the terms described above, please sign and date this letter and return it to me by 5:00 p.m. PST on May 21, 2003. If you accept our offer, we would like you to start with us on May 30, 2003 or as soon thereafter as possible. Pamela, we are excited for you to join our team, and look forward to working with you. Sincerely, RedEnvelope, Inc. By: _____________________________________ Title: __________________________________ ACCEPTED AND AGREED: PAMELA KNOX ________________________________________ ______________________ Signature Date Pamela Knox Offer EX-10.19 29 f89225orexv10w19.txt EXHIBIT 10.19 EXHIBIT 10.19 redENVELOPE February 18, 2003 John Roberts 1617 Belburn Drive Belmont, CA 94002 RE: EMPLOYMENT TERMS Dear John: On behalf of RedEnvelope ("Company"), I am very pleased to offer you the position of Vice President of Information Systems on the following terms. You will report directly to the Chief Executive Officer, and will work in our San Francisco office. The position of Vice President of Information Systems is exempt from any overtime pay. Your primary duties in this position will be to: (1) provide leadership in analyzing business requirements in conjunction with technical considerations and in proposing system solutions, (2) manage all computer operations, application development and business application areas and all associated personnel, and (3) direct budgeting, strategic and tactical planning for the Information Systems area. You will also be responsible for any other projects or assignments as directed by the CEO. At all times during employment with the Company, you will devote your full energies, abilities and productive business time to the performance of your job for the Company and will not engage in any activity that would in any way interfere or conflict with the full performance of any of your duties for the Company. You will receive a salary of $6,808.00 on a bi-weekly basis ($177,000.00 annualized), less applicable payroll deductions and all required withholdings, in accordance with the Company's regular payroll practices. You will also receive a one-time sign-on bonus of $10,000.00 to be paid in a lump sum, less applicable payroll deductions and required withholdings, within 30 days of your start date so long as you are still employed at that time. If your employment with the Company ends within 12 months of your start date due to termination with cause by the Company or voluntary resignation by you, on your last day of employment, you will repay the full amount of this sign-on bonus to the Company. For purposes of any such repayment to the Company, you authorize and consent to the deduction of the full amount of the sign-on bonus from the net amount of your final paycheck and any other amounts otherwise owed to you by the Company. Commencing the month following your start date and while employed as a full-time employee on the regular payroll of the Company, you will be eligible to participate in the Company's standard benefits package. You will also be eligible for the Company's standard PTO and holiday benefits. General information regarding the Company's current benefit plans is attached. The Company may modify or cancel benefits from time to time as it deems appropriate in its sole discretion. In addition, after hiring, we will recommend that the Board of Directors of the Company ("Board") grant you an option to purchase 165,000 shares of the Company's common stock. The specific characteristics, terms and conditions of the options mentioned above, including 201 Spear Street Suite 300 San Francisco California 94105 www.RedEnvelope.com John Roberts February 18, 2003 Page 2 the strike price and applicable vesting schedule, will be set forth in the option plan and grant documentation to follow after approval by the Board. Your employment with the Company is for no specified duration and may be terminated either by you or the Company at any time and for any reason whatsoever, with or without cause or advance notice. The Company also retains the right to make all other decisions concerning your employment (e.g., changes to your position, title, level, responsibilities, compensation, job duties, reporting structure, work location, work schedule, goals or any other managerial decisions) at any time, with or without cause or advance notice, as it deems appropriate in its sole discretion. This at-will employment relationship cannot be changed except in writing signed by you and the Company's Chief Executive Officer. If the Company terminates your employment without cause, in exchange for you signing a general release of any all claims, the Company will pay you severance in the total amount of $44,250.00, less applicable payroll deductions and all required withholdings. This severance amount will be paid in biweekly installments, less applicable payroll deductions and all required withholdings, in accordance with the Company's regular payroll schedule, during the three calendar months following the termination of your employment. In addition to this payment, your existing coverage under the Company's group health plan (and, if applicable, the existing group health coverage for your eligible dependents) will continue for the three calendar months following the termination of your employment. Your employment with the Company pursuant to this offer is contingent on you signing the Company's standard employee confidentiality and invention assignment agreement (attached) prior to your start date, providing satisfactory proof of your right to work in the United States as required by law, and on the Company's verification of your qualifications, background, experience and references. If employed, you will comply at all times with all Company policies, rules and procedures as they may be established, stated and/or modified from time to time at the Company's sole discretion. Prior to your first day of work with the Company, you will have previously returned any confidential, proprietary or trade secret information belonging to any prior employer and will not use such information in your employment with the Company. You will also strictly adhere to the terms of any lawful restrictive covenants entered into between you and any prior employers. Except as specified below, to the fullest extent allowed by law, any and all disputes, claims or controversies of any kind arising out of or related in any way to hiring, employment or the termination of employment with the Company (including without limitation any statutory or common law claims against the Company or any of its agents or employees) shall be fully and finally resolved through binding arbitration, before a neutral arbitrator, pursuant to the California Arbitration Act, California Code of Civil Procedure section 1280, et seq. You and the Company therefore waive any right to a jury trial on any such claims or matters. Any arbitration between the parties will be conducted before the American Arbitration Association ("AAA") in San Francisco, California, under the AAA's then existing national rules for the resolution of employment disputes, as modified in any respect necessary to comply with the requirements of California law for enforcement of arbitration agreements regarding employment-related disputes. This arbitration provision shall not apply to any claims for John Roberts Offer John Roberts February 18, 2003 Page 3 injunctive or other similar equitable relief. Before commencing any arbitration proceedings, any dispute between you and the Company or any of its agents or employees shall first be submitted, in writing, to the Company's Human Resource Officer (or if none, to the head of Finance & Accounting) for a good faith attempt at resolution. This letter sets forth the entire agreement between you and the Company on the terms of your employment with the Company and supersedes any prior representations, understandings, promises or agreements, whether oral or written, by anyone regarding employment with the Company. The employment terms in this letter may only be modified in a writing signed by both you and the Company's Chief Executive Officer. If you wish to accept employment with the Company under the terms described above, please sign and date this letter and return it to me by 5:00 p.m. PST on February 28, 2003. If you accept our offer, we would like you to start with us on March 10, 2003 or as soon thereafter as possible. John, we are excited for you to join our team and look forward to working with you. Sincerely, RedEnvelope, Inc. By: /s/ Alison L. May --------------------------------- Title: Pres & CEO ------------------------------ ACCEPTED AND AGREED: JOHN ROBERTS /s/ John Roberts 2/26/03 - ------------------------------------- ----------- Signature Date John Roberts Offer EX-10.23 30 f89225orexv10w23.txt EXHIBIT 10.23 EXHIBIT 10.23 REDENVELOPE, INC. TRANSITION AGREEMENT AND RELEASE This Transition Agreement and Release (the "AGREEMENT") is made by and between RedEnvelope, Inc., a Delaware corporation (the "COMPANY"), and Martin McClanan ("EXECUTIVE"). Executive has been employed by the Company pursuant to the terms of an offer letter dated January 23, 2000, as amended on November 30, 2000 (the "OFFER LETTER"). The Company and Executive have mutually agreed to the continuation of the employment relationship and the effects of a termination of such relationship and Executive has agreed to release the Company from any claims arising from or related to the employment relationship as described below. In consideration of the promises made herein, the Company and Executive (collectively referred to as the "PARTIES") hereby agree as follows: 1. TRANSITION OF EMPLOYMENT. (a) CONTINUED EMPLOYMENT; SEPARATION DATE. Executive and the Company acknowledge and agree that Executive's employment as Chief Executive Officer of the Company shall continue on an at-will basis under the terms of this Agreement. Without limiting the effect of the foregoing, Executive acknowledges that the Company may terminate his employment at any time for any reason or no reason. The date of the termination of Executive's employment with the Company shall be referred to in this Agreement as the "SEPARATION DATE." Executive acknowledges and agrees that prior to the Separation Date, Executive shall continue to be paid a gross monthly base salary of $16,666.67 pursuant to the Company's regular payroll policy (or in the same manner as other officers of the Company). Executive and the Company further agree that Executive shall continue in his capacity as a member of the Company's Board of Directors until such time that either he resigns or the Company requests his resignation from such position (at which time Executive agrees to resign as a director), which request shall occur no earlier than the Separation Date, and that Executive shall have no rights to any benefits or payments described herein solely as a result of the termination of Executive's service as a member of the Company's Board of Directors. (b) FINAL WAGES. Upon the termination of Executive's employment with the Company for any reason, the Company shall pay Executive the sum of (i) all earned salary through the Separation Date, the $70,000 cash bonus promised to Executive pursuant to Section 3(b) of the Offer Letter to the extent it has not been paid as of the Separation Date, and any other earned wages owed to the Executive through the Separation Date, except as otherwise set forth in this Agreement, (ii) payment for all accrued but unused vacation days of Executive, and (iii) payment of all unreimbursed business expenses properly incurred and submitted by Executive prior to the Separation Date. In addition, Company will reimburse Executive promptly for any additional unreimbursed business expenses (not submitted prior to the Separation Date) properly incurred by Executive prior to the Separation Date and submitted by Executive to the Company within one (1) week following the Separation Date. (c) REVISED OFFER LETTER BENEFITS. In the event of the termination of Executive's employment by the Company without "Cause" (as defined in Section 10(e) of the Offer Letter), or as a result of a "Constructive Termination" (as defined in Section 10(e) of the Offer Letter), or by Executive as a result of Executive commencing full-time employment with a third party, the Company shall pay Executive a sum of $100,000, which amount is equal to six (6) months of Executive's gross base salary. Executive acknowledges that this amount exceeds, and will be paid in lieu of, the cash severance amounts set forth in the Offer Letter, and is being offered in consideration for the release of claims and other obligations of Executive under this Agreement. The Company shall make such payment in two installments as follows: 50% of the amount shall be paid on or before the 30th day following the Separation Date and the remaining 50% shall be paid on or before the earlier of (i) the date upon which the Company has sufficient cash available to make such payment without undue burden on the Company or its operations in the sole discretion of the Company's Board of Directors, or (ii) the four (4) month anniversary of the Separation Date. 2. SEVERANCE BENEFITS. In consideration for the release of claims set forth below and other obligations under this Agreement, and provided that Executive's employment is terminated either by the Company without Cause, or as a result of a Constructive Termination, or by Executive as a result of Executive commencing full-time employment with a third party, and provided further that, as of the Separation Date, Executive has complied with his continuing obligations under this Agreement (including without limitation the execution of the Continuing Representations Certificate as described in Section 21 herein), the Company agrees to provide the following severance benefits to Executive as to which he is not otherwise entitled: (a) REIMBURSEMENT OF COBRA PREMIUMS. Provided Executive makes an accurate and timely election for continuation of health care coverage under the terms of the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended ("COBRA"), the Company agrees to reimburse Executive for the applicable premiums for continuation coverage for himself and his currently enrolled dependents (as applicable) for the first six (6) months of continuation coverage, up to a total of $5,000, as described in Section 3(a) below. (b) EXTENSION OF EXERCISE PERIOD. The Company shall extend the Option Exercise Period (as defined in Section 4(d) below) applicable to each of Executive's Options (as defined in Section 4(d) below) such that Executive may exercise the Options for a period of three (3) years following the Separation Date; provided, however, in no event may Executive exercise the Options later than the applicable expiration date of such Options. (c) 2002 BONUS. In the event that the Company establishes, and the Company's Board of Directors approves, a cash bonus plan for the Company's executive officers for Fiscal Year 2002 (i.e., the fiscal year concluding March 31, 2002) based on achievement of certain performance objectives (the "2002 CASH BONUSES"), the Company's Board of Directors shall determine the amount of such cash bonuses for each Company executive officer and the sales, profit and other performance targets (collectively, the "2002 TARGETS") that the Company must achieve as a condition to payment of such cash bonuses. In the event that 2002 Cash Bonuses are established as set forth herein, Executive shall be eligible to earn a 2002 Cash Bonus, subject to achievement of the 2002 Targets and the requirements of this Agreement, in an amount to be determined by the Company's Board of Directors, which amount shall be equal, on an aggregate annual basis, to the greater of $70,000 or the highest 2002 Cash Bonus established for any other executive officer of the Company (other than Hilary Billings). In the event that the 2002 Cash Bonuses are established as set forth herein and Executive's employment with the Company is terminated prior to the close of Fiscal Year 2002, then, upon achievement of the -2- 2002 Targets and subject to the requirements of this Agreement, Executive shall be entitled to a pro-rated payment of his 2002 Cash Bonus based on the number of whole calendar months in which Executive was employed by the Company in Fiscal Year 2002 and the percentage of the Company's Fiscal Year 2002 revenues that were recognized during those months of Executive's employment in Fiscal Year 2002. Any amounts owed to Executive pursuant to this Section 2(c) will be paid to Executive during the month of April 2002. (d) COMPUTER. Executive will retain possession of the notebook computer previously issued to him by the Company following the Separation Date; provided, however, that the Company shall first review the contents of such computer and remove all confidential and/or proprietary information therefrom prior to surrendering such computer to Executive following the Separation Date. (e) FRIENDS & FAMILY DISCOUNT. Executive will continue to be eligible to use the Company's twenty percent (20%) discount on Company products available to "Friends & Family" of the Company following the Separation Date, pursuant to the terms and conditions of such "Friends & Family" program, as it may be modified by the Company from time to time. 3. EMPLOYEE BENEFITS. (a) Executive shall continue to receive the Company's health insurance benefits at the Company's expense, to the same extent it pays such premiums for other similarly situated employees, until the Separation Date. Following such date, Executive shall have the right to continue coverage under the Company's health insurance programs as provided by COBRA at his own expense; provided, however, that if Executive makes an accurate and timely election for continuation coverage, in further consideration of Executive's release of claims herein and other obligations under this Agreement (including but not limited to Executive's execution of the Continuing Representations Certificate), the Company agrees to reimburse Executive for the applicable premiums for continuation coverage for himself and his then-currently enrolled dependents (as applicable) for the first six (6) months of continuation coverage, with such reimbursed amount not to exceed $5,000. (b) Executive shall continue to be eligible to participate in the Company's standard benefit programs available to similarly situated employees until the Separation Date, including but not limited to vacation and medical and dental insurance. Except as otherwise provided above, Executive shall not be entitled to participate in any of the Company's benefit plans or programs offered to employees or officers of the Company after the Separation Date. 4. EQUITY INTERESTS. (a) ORIGINAL OPTION. Pursuant to the terms of the Company's 1999 Stock Plan and the two stock option agreements dated February 16, 2000 (collectively, the "ORIGINAL OPTION AGREEMENT"), Executive was granted options (collectively, the "ORIGINAL OPTION") to purchase an aggregate of 840,000 shares of the Company's Common Stock (the "ORIGINAL SHARES"). (b) SUBSEQUENT GRANT OPTION. Pursuant to the terms of the Company's 1999 Stock Plan and the stock option agreement dated August 23, 2000 (the "SUBSEQUENT GRANT -3- OPTION AGREEMENT"), Executive was granted an option (the "SUBSEQUENT GRANT OPTION") to purchase 360,000 shares of the Company's Common Stock (the "SUBSEQUENT GRANT Shares"). (c) BONUS OPTION. Pursuant to the terms of the Company's 1999 Stock Plan and the stock option agreement dated June 1, 2001 (the "BONUS OPTION AGREEMENT"), Executive was granted an option (the "BONUS OPTION") to purchase 100,000 shares of the Company's Common Stock (the "BONUS SHARES") pursuant to Section 4(d) of the Offer Letter. (d) EXTENSION OF EXERCISE PERIOD. Pursuant to the terms of the Original Option Agreement, Subsequent Grant Option Agreement, and the Bonus Option Agreement (collectively, the "OPTION AGREEMENTS"), to the extent Executive does not exercise the Original Option, the Subsequent Grant Option, and the Bonus Option (collectively, the "OPTIONS") on or before the three (3) month anniversary of the Separation Date (with respect to each of the Options, the "OPTION EXERCISE PERIOD"), the Options shall lapse in their entirety. As set forth in Section 2(b) above, in further consideration for the release of claims set forth below and upon the fulfillment of Executive's other obligations under this Agreement (including but not limited to Executive's execution of the Continuing Representations Certificate), and notwithstanding the terms of the Option Agreements, the Company agrees to modify the Options and extend the Option Exercise Period such that Executive shall be permitted to exercise the Options as to the vested shares subject to each Option on or before the three (3) year anniversary of the Separation Date. In no event may the Executive exercise the Options later than the applicable expiration dates set forth in the Option Agreements. (e) RIGHTS OFFERING. In the event that, during the eighteen (18) month period following the Effective Date, (1) the Company sells shares of its capital stock or other securities in connection with a financing and, in consultation with legal counsel, determines that it is necessary or advisable in connection with such financing to offer, and does offer, such stock or securities to each of the Company's stockholders (other than those stockholders which the Company determines should be excluded from the offering to ensure compliance with applicable federal or state securities laws) based on their pro rata ownership of the Company's capital stock (a "RIGHTS OFFERING") and (2) Executive has not exercised the Options in full, the Company shall include Executive in the Rights Offering to the same extent he would have been included had he exercised in full the vested Options held by Executive as of the date notification regarding the Rights Offering is delivered to the Company's stockholders; provided, however, that the Company shall not be required to include Executive in the Rights Offering if such inclusion would cause the Rights Offering to violate the exemption from federal and state securities registration and qualification requirements upon which the Company is relying. (f) NO OTHER RIGHTS. Executive acknowledges and agrees that he remains bound by the terms of the Option Agreements, as modified herein. Executive acknowledges and agrees that Executive shall not be entitled to acceleration of vesting or exercisability of any of the Options as a result of the termination of his employment. Executive acknowledges and agrees that his Options shall lapse in their entirety as to any unvested shares as of the Separation Date. As of the Effective Date, except as set forth in this Section 4, Executive shall have no right, title or interest in or to any shares of the Company's capital stock or other securities under the Offer Letter, the Option Agreements or under any other document, instrument or arrangement, whether oral or written, with the Company. -4- (g) PAYMENT OF PURCHASE PRICE. Pursuant to the terms of the Option Agreements, Executive may pay the Exercise Price (as such term is defined in the Option Agreements) by surrender of other shares of common stock of the Company which (i) in the case of shares acquired pursuant to the exercise of an Option, have been owned by Executive for more than six (6) months on the date of surrender, and (ii) have a Fair Market Value (as such term is defined in the 1999 Stock Plan) on the date of surrender equal to the Exercise Price of the shares as to which the Option is being exercised. However, notwithstanding the definition of Fair Market Value set forth in the 1999 Stock Plan, in the event that there is no established market for the Company's common stock and Executive, in good faith, disagrees with the fair market value determined by the Company's Board of Directors (or committee thereof) in connection with Executive's use of Company common stock to pay the Exercise Price for his Options, Executive may, at his expense, obtain an independent third party appraisal of the stock's value from a reputable, nationally-recognized bank or similar financial institution, provided that such appraisal is obtained and provided to the Company within ten (10) business days of the Company's notification to Executive of the Board of Director's determination of fair market value. The Company acknowledges that it will notify Executive of the Board of Director's determination of the then-fair market value of the Company's common stock within ten (10) business days following written notification from Executive that he intends to pay the Exercise Price for his Options by surrender of Company common stock (as permitted by the Option Agreements) as soon as is reasonably practicable. In the event that such appraisal obtained by Executive exceeds the fair market value determined by the Company's Board of Directors, the parties shall resolve this discrepancy in accordance with Section 14 of this Agreement. 5. NO OTHER PAYMENTS DUE. Executive acknowledges and agrees that upon receipt of the payments to be made on and after the Effective Date pursuant to this Agreement, Executive will have received all salary, accrued vacation, commissions, bonuses, wages, compensation or other such sums due to Executive as of the Separation Date, other than amounts, if any, to be paid after the Separation Date pursuant to this Agreement. The Parties further acknowledge and agree that, upon the payment by the Company of all wages due, or to become due, to Executive, the California Labor Code Section 206.5 will not be applicable to the Parties hereto. That section provides in pertinent part as follows: NO EMPLOYER SHALL REQUIRE THE EXECUTION OF ANY RELEASE OF ANY CLAIM OR RIGHT ON ACCOUNT OF WAGES DUE, OR TO BECOME DUE, OR MADE AS AN ADVANCE ON WAGES TO BE EARNED, UNLESS PAYMENT OF SUCH WAGES HAS BEEN MADE. 6. RELEASE OF CLAIMS. In consideration for the Company's obligations set forth in this Agreement, Executive, on behalf of himself and his heirs, executors, and assigns, hereby fully and forever releases the Company and its officers, directors, employees, investors, attorneys, stockholders, administrators, predecessor and successor corporations and assigns, of and from any claim, duty, obligation or cause of action relating to any matters of any kind, whether presently known or unknown, suspected or unsuspected, that he may possess arising from any omissions, acts or facts that have occurred up until and including the date of this Agreement including, without limitation: -5- (a) any and all claims relating to or arising from Executive's employment relationship with the Company and the termination of that relationship; (b) any and all claims relating to Executive's right to receive, or receipt of, wages or other compensation; (c) any and all claims relating to, or arising from, Executive's right to purchase, or actual purchase of shares of the capital stock or other securities of the Company; (d) any and all claims for wrongful discharge of employment; breach of contract, both express and implied; breach of a covenant of good faith and fair dealing, both express and implied, negligent or intentional infliction of emotional distress; negligent or intentional misrepresentation; negligent or intentional interference with contract or prospective economic advantage; negligence; and defamation; (e) any and all claims for violation of any federal, state or municipal statute, including, but not limited to, Title VII of the Civil Rights Act of 1964, the Civil Rights Act of 1991, the Americans with Disabilities Act of 1990, the California Fair Employment and Housing Act, the Fair Labor Standards Act, and any family and medical leave acts; (f) any and all claims arising out of any other laws and regulations relating to employment or employment discrimination; and (g) any and all claims for attorneys' fees and costs. Executive agrees that the release set forth in this Section 6 shall be and remain in effect in all respects as a complete general release as to the matters released. This release does not extend to any obligations incurred or specified under this Agreement. 7. APPLICABLE TAX WITHHOLDING. All payments made under this Agreement shall be subject to reduction to reflect taxes or other charges required to be withheld by law or otherwise authorized to be withheld by Executive. 8. CIVIL CODE SECTION 1542. The Parties represent that they are not aware of any claim by either of them other than the claims that are released by this Agreement. Executive and the Company acknowledge that they have been advised by legal counsel and are familiar with the provisions of California Civil Code Section 1542, which provides as follows: A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS SETTLEMENT WITH THE DEBTOR. Executive and the Company, being aware of said Code section, agree to expressly waive any rights they may have thereunder, as well as under any other statute or common law principles of similar effect. 9. COVENANTS. -6- (a) GENERAL. Executive agrees that for all periods described in this Agreement, he shall continue to conduct himself in a professional manner that is supportive of the business of the Company. (b) NON-DISPARAGEMENT. Each Party agrees to refrain from any disparagement, criticism, defamation, or slander of the other Party, or tortious interference with the contracts and relationships of the other Party. (c) CONFIDENTIALITY. The Parties agree to maintain in strict confidence the existence of this Agreement, the contents and terms of this Agreement, and the consideration for this Agreement (hereinafter collectively referred to as "SETTLEMENT INFORMATION"). Each Party hereto agrees to take every reasonable precaution to prevent disclosure of any Settlement Information to third parties, and each agrees that there will be no publicity, directly or indirectly, concerning any Settlement Information. The Parties hereto agree to take every precaution to disclose Settlement Information only to those employees, officers and directors of the Company, and attorneys, accountants and governmental entities who have a reasonable need to know of such Settlement Information. (d) NONDISCLOSURE. Executive acknowledges and agrees that this Agreement in no way modifies Executive's obligations to the Company under the terms of the Confidential Information and Invention Assignment Agreement between Executive and the Company (the "CONFIDENTIALITY AGREEMENT"), a copy of which is attached hereto as Exhibit A. Executive shall continue to maintain the confidentiality of all confidential and proprietary information of the Company prior to and after the Separation Date as provided under the Confidentiality Agreement. Executive represents and warrants that at all times up until the Effective Date he has been in compliance with his obligations to the Company under the Confidentiality Agreement. Executive agrees to execute the Separation Certification, attached hereto as Exhibit B, and return it to the Company within seven (7) days following the Separation Date, which certifies that Executive will have returned all the Company's property and confidential and proprietary information in his possession to the Company. 10. BREACH OF THE AGREEMENT. Executive acknowledges that upon his breach of this Agreement or the Confidentiality Agreement, the Company would sustain irreparable harm from such breach, and, therefore, Executive agrees that in addition to any other remedies which the Company may have under this Agreement, the Confidentiality Agreement, or otherwise, the Company shall be entitled to obtain equitable relief, including specific performance and injunctions, restraining him from committing or continuing any such violation of the Agreement or the Confidentiality Agreement. Executive acknowledges and agrees that upon his material or intentional breach of any of the provisions of the Agreement or the Confidentiality Agreement, in addition to any other remedies the Company may have under this Agreement or otherwise, the Company's obligations to provide benefits to Executive as described in this Agreement, including without limitation those benefits provided in Sections 2, 3 and 4 herein, shall immediately terminate. 11. AUTHORITY. The Company represents and warrants that the undersigned has the authority to act on behalf of the Company and to bind the Company and all who may claim through it to the terms and conditions of this Agreement. Executive represents and warrants that -7- he has the capacity to act on his own behalf and on behalf of all who might claim through him to bind them to the terms and conditions of this Agreement. Executive represents and warrants that there are no liens or claims of lien or assignments in law or equity or otherwise of or against any of the claims or causes of action released herein. 12. NO REPRESENTATIONS. Executive has not relied upon any representations or statements made by the Company which are not specifically set forth in this Agreement. 13. SEVERABILITY. In the event that any provision hereof becomes or is declared by a court or other tribunal of competent jurisdiction to be illegal, unenforceable or void, this Agreement shall continue in full force and effect without said provision. 14. ARBITRATION. The Parties shall attempt to settle all disputes arising in connection with this Agreement through good faith consultation. In the event no agreement can be reached on such dispute within fifteen (15) days after notification in writing by either Party to the other concerning such dispute, the dispute shall be settled by binding arbitration to be conducted in San Francisco before the American Arbitration Association under its California Employment Dispute Resolution Rules, or by a judge to be mutually agreed upon. The arbitration decision shall be final, conclusive and binding on both Parties and any arbitration award or decision may be entered in any court having proper jurisdiction. The Parties agree that the prevailing party in any arbitration shall be entitled to injunctive relief in any court of competent jurisdiction to enforce the arbitration award. The Parties further agree that the prevailing Party in any such proceeding shall be awarded reasonable attorneys' fees and costs. This Section 14 shall not apply to the Confidentiality Agreement. THE PARTIES HEREBY WAIVE ANY RIGHTS THEY MAY HAVE TO TRIAL BY JURY IN REGARD TO ARBITRABLE CLAIMS. 15. ENTIRE AGREEMENT. This Agreement, and the exhibits hereto (including the Confidentiality Agreement, represents the entire agreement and understanding between the Company and Executive concerning Executive's separation from the Company, and supersedes and replaces any and all prior agreements and understandings on the matters addressed herein, including but not limited to the Offer Letter (with the exception of Sections 1 and 5 thereof, which shall survive until the Separation Date, and the definitions set forth in Section 10(e) thereof, which are incorporated herein by reference). The Parties expressly agree that nothing in this Agreement in any way alters the at-will nature of Executive's employment relationship with the Company and, to the extent such employment continues during any period, either party may terminate that employment relationship at any time for any or no reason. 16. NO ORAL MODIFICATION. This Agreement may only be amended in writing signed by Executive and the Company. 17. GOVERNING LAW. This Agreement shall be governed by the laws of the State of California, without regard to its conflicts of law provisions. 18. EFFECTIVE DATE. This Agreement shall be effective on the first date on which it has been signed by both parties and such date shall be referred to in this Agreement as the "EFFECTIVE DATE." -8- 19. COUNTERPARTS. This Agreement may be executed in counterparts, and each counterpart shall have the same force and effect as an original and shall constitute an effective, binding agreement on the part of each of the undersigned. 20. ASSIGNMENT. This Agreement may not be assigned by Executive or the Company without the prior written consent of the other party. Notwithstanding the foregoing, this Agreement may be assigned by the Company to a corporation controlling, controlled by or under common control with the Company or to an acquiror of all or substantially all of the Company's business, stock or assets, without the consent of Executive. 21. CONTINUING REPRESENTATIONS. Executive expressly acknowledges and agrees that Executive shall sign a Continuing Representations Certificate, in substantially the same form as attached hereto as Exhibit C, on the Separation Date, reaffirming each of the waivers, releases, warranties and representations contained in this Agreement as of such date and that Employee's rights continue to be as defined by the terms of this Agreement as of such date. 22. VOLUNTARY EXECUTION OF AGREEMENT. This Agreement is executed voluntarily and without any duress or undue influence on the part or behalf of the Parties hereto, with the full intent of releasing all claims. The Parties acknowledge that: (a) they have read this Agreement; (b) they have been represented in the preparation, negotiation, and execution of this Agreement by legal counsel of their own choice or that they have voluntarily declined to seek such counsel; (c) they understand the terms and consequences of this Agreement and of the releases it contains; and (d) they are fully aware of the legal and binding effect of this Agreement. [signature page follows] -9- IN WITNESS WHEREOF, the Parties have executed this Transition Agreement and Release on the respective dates set forth below. REDENVELOPE, INC. Dated as of September 26, 2001 By: /s/ Hilary Billings ------------------------------ Print Name: Hilary Billings Title: CHAIRMAN MARTIN MCCLANAN, an individual Dated as of September 25, 2001 /s/ MARTIN MCCLANAN ----------------------------------- Signature -10- EXHIBIT A CONFIDENTIALITY AGREEMENT -11- REDENVELOPE, INC. CONFIDENTIAL INFORMATION AND INVENTION ASSIGNMENT AGREEMENT As a condition of my becoming employed by or retained as a consultant by RedEnvelope, Inc., 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 "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 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. Personal, non-business oriented, works authored are exempt from this document. (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. -2- (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 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. 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. -3- (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. [Signature Page Follows] -4- The parties have executed this Agreement on the respective dates set forth below: COMPANY: EMPLOYEE: REDENVELOPE, INC. ___________________an Individual: /s/ Hilary Billings /s/ Martin McClanan - ----------------------------- ------------------------------------ Signature Signature By: HILARY BILLINGS Martin McClanan ------------------------------------ Printed Name Title: President & CEO Date: _____________________ Date: 2/16/00 Address:201 Spear Street, 3rd Floor Address:201 Spear Street, 3rd Floor San Francisco, CA 94105 SF, CA 94105 SIGNATURE PAGE TO CONFIDENTIAL INFORMATION AND INVENTION ASSIGNMENT AGREEMENT EXHIBIT A LIST OF PRIOR INVENTIONS AND ORIGINAL WORKS OF AUTHORSHIP EXCLUDED FROM SECTION 4 Title Date Identifying Number or Brief Description ___No inventions or improvements ___Additional Sheets Attached Signature of Employee/Consultant: _______________ Print Name of Employee/Consultant: ______________ Date: ___________________________________________ 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. EXHIBIT B SEPARATION 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, notebooks, flow charts, materials, equipment, other documents or property, or copies or reproductions of any aforementioned items belonging to RedEnvelope, Inc., its subsidiaries, affiliates, successors or assigns (together the "COMPANY"). I further certify that I have complied with all the terms of the Confidential Information and Invention Assignment Agreement dated _________, 200__ (see Exhibit A, the "CONFIDENTIALITY 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 Confidentiality 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. Date: _____________ ____________________________________ (Executive's Signature) ____________________________________ (Type/Print Executive's Name) -12- EXHIBIT C CONTINUING REPRESENTATIONS CERTIFICATE This is to certify that the waivers, covenants, warranties and representations made by me and set forth in the Transition Agreement and Release (the "Agreement") dated September __, 2001, between RedEnvelope, Inc. (the "Company") and me, continue to be true and correct as of the date hereof and that I remain bound by, and my rights continue to be defined by, the terms of the Agreement. The Agreement is hereby incorporated in its entirety into this Certificate and capitalized terms not defined in this Certificate have the same meanings as in the Agreement. In addition, I expressly agree and acknowledge as of the date hereof that: 1. Except as set forth in Section 4 of the Agreement, I have no right, title or interest in or to any shares of the Company's capital stock or other securities under the Option Agreements, the Offer Letter, or any other document, instrument or agreement (whether oral or written) with the Company; 2. I have received all salary, accrued vacation, commissions, bonuses, wages, compensation or other such sums due to me, other than amounts, if any, to be paid after the date hereof pursuant to the Agreement. I further acknowledge and agree that, upon the payment by the Company of all wages due, or to become due, to me, the California Labor Code Section 206.5 will not be applicable. That section provides in pertinent part as follows: NO EMPLOYER SHALL REQUIRE THE EXECUTION OF ANY RELEASE OF ANY CLAIM OR RIGHT ON ACCOUNT OF WAGES DUE, OR TO BECOME DUE, OR MADE AS AN ADVANCE ON WAGES TO BE EARNED, UNLESS PAYMENT OF SUCH WAGES HAS BEEN MADE; 3. I, on behalf of myself and my heirs, executors, and assigns, hereby fully and forever release the Company and its officers, directors, employees, investors, attorneys, stockholders, administrators, predecessor and successor corporations and assigns, of and from any claim, duty, obligation or cause of action relating to any matters of any kind, whether presently known or unknown, suspected or unsuspected, that I may possess arising from any omissions, acts or facts that have occurred up until and including the date of this Certificate including, without limitation: (a) any and all claims relating to or arising from my employment relationship with the Company and the termination of that relationship; (b) any and all claims relating to my right to receive, or receipt of, wages or other compensation; -13- (c) any and all claims relating to, or arising from, my right to purchase, or actual purchase of shares of the capital stock or other securities of the Company; (d) any and all claims for wrongful discharge of employment; breach of contract, both express and implied; breach of a covenant of good faith and fair dealing, both express and implied, negligent or intentional infliction of emotional distress; negligent or intentional misrepresentation; negligent or intentional interference with contract or prospective economic advantage; negligence; and defamation; (e) any and all claims for violation of any federal, state or municipal statute, including, but not limited to, Title VII of the Civil Rights Act of 1964, the Civil Rights Act of 1991, the Americans with Disabilities Act of 1990, the California Fair Employment and Housing Act, the Fair Labor Standards Act, and any family and medical leave acts; (f) any and all claims arising out of any other laws and regulations relating to employment or employment discrimination; and (g) any and all claims for attorneys' fees and costs. I agree that the release set forth herein shall be and remain in effect in all respects as a complete general release as to the matters released. This release does not extend to any obligations incurred or specified under this Certificate. I further acknowledge that I am not aware of any claim other than the claims that are released hereunder. I acknowledge that I have been advised by legal counsel and am familiar with the provisions of California Civil Code Section 1542, which provides as follows: A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS SETTLEMENT WITH THE DEBTOR. Being aware of said Code section, I agree to expressly waive any rights I may have thereunder, as well as under any other statute or common law principles of similar effect; and 4. I certify that I have complied with all of my obligations under the Agreement and the Confidentiality Agreement. I have executed this Certificate on the date set forth below. MARTIN MCCLANAN, an individual Dated as of MAY 17, 2002 /s/ Martin McClanan ----------------------------- Signature -14- EX-10.24 31 f89225orexv10w24.txt EXHIBIT 10.24 Exhibit 10.24 REDENVELOPE, INC. AMENDMENT TO TRANSITION AGREEMENT AND RELEASE This Amendment to Transition Agreement and Release (the "AMENDMENT") is made this 26th day of February, 2002, by and between RedEnvelope, Inc., a Delaware corporation (the "COMPANY"), and Martin McClanan ("EXECUTIVE"), and amends only as explicitly specified herein that certain Transition Agreement and Release between the Company and Executive dated September___, 2001 (the "AGREEMENT"). A. The Agreement sets forth the terms governing the continuation of Executive's employment relationship with the Company and the effects of, and covenants associated with, the termination of such relationship. B. The parties desire to establish additional terms concerning the continuation of Executive's employment relationship with the Company, as set forth herein. C. Any capitalized terms which are not defined herein shall have the same meanings as used in the Agreement. In consideration of the promises made herein, the Parties hereby agree as follows: 1. The Parties acknowledge and agree that Executive's employment relationship with the Company shall continue pursuant to the terms of the Agreement, as modified by the terms of this Amendment. The Parties acknowledge and agree that Executive's employment with the Company continues at all times on an at-will basis and that the Company may terminate Executive's employment at any time for any reason or no reason. 2. The Company agrees to modify Executive's existing compensation structure as follows: (a) Base Salary. If, while Executive remains employed by the Company in his current capacity as Chief Executive Officer, the Company increases the gross base salary of any other executive officer to an amount higher than Executive's then-current gross base salary (which amount as of the date hereof is as set forth in Section 1(a) of the Agreement), Executive's gross base salary will be increased thereafter (until the Separation Date) so that it equals the highest gross base salary paid to a member of the Company's executive officer team. (b) Additional Benefits upon Termination. In the event that Executive's employment with the Company is terminated (1) by the Company without Cause, (2) by Executive as a result of a Constructive Termination on or before June 30, 2002, or (3) by Executive subsequent to June 30, 2002 (or such earlier date as the Company and Executive may agree in writing), and provided that, on the Separation Date, Executive has complied with his continuing obligations under the Agreement (including without limitation the execution of the Continuing Representations Certificate as described in Section 21 of the Agreement) and provided further that Executive then resigns from the Company's Board of Directors, the Company will provide Executive with the following additional benefit as to which he is not otherwise entitled: (i) Repricing Bonus. If, prior to the earlier of December 31, 2002 and the date that is six (6) months after the initial closing of the Company's next preferred stock financing (i.e., the next sale by the Company of its preferred stock for capital raising purposes, other than through the exercise of outstanding warrants and other than as satisfaction for services rendered under any currently existing contract) (the "NEXT FINANCING "), the Company (A) effects a downward repricing of the outstanding $0.50 options to purchase Company common stock held by its executive officers (a " REPRICING") or, in lieu of a Repricing, (B) cancels existing $0.50 options held by the Company's executive officers and issues or agrees in writing to issue new options with an exercise price lower than $0.50 per share to such individuals, or (C) without canceling existing options, issues additional options to its executive officers to purchase shares of the Company's common stock at an exercise price lower than $0.50 per share (other than any options issued to new executive officers upon hire or issued to satisfy currently-existing contractual obligations) and the Company does not offer Executive the opportunity to participate in such Repricing or Repricing alternative on substantially the same terms as the Company's other executive officers, then the Company shall provide Executive with a one-time cash payment, on or after the Separation Date, in the amount of $50,000. In no event shall Executive be entitled to payment of more than $50,000 pursuant to this Section 2(b)(i). (ii) In addition to any other limitations set forth in this Section 2(b), in the event that the Company offers Executive the opportunity to participate in a Repricing (or Repricing alternative set forth above), then as a condition to Executive's participation, Executive shall be required to comply with the same terms and conditions required of the Company's executive officers in connection with the applicable benefit described in Section 2(b)(i) (A), (B) or (C) above. By way of example, if the Company's executive officers are required to modify the terms of, or forfeit any portion of, their options in connection with such benefit, Executive would be required to similarly modify, or forfeit the same portion of, his Options. 3. The Parties acknowledge and agree that, in the event of any change to Executive's base salary on or prior to the Separation Date as a result of Section 2(a) of this Amendment, then the amount of cash severance to which Executive is entitled pursuant to Section 1(c) of the Agreement shall be equal to six (6) months of Executive's gross base salary (subject to applicable tax withholding) in effect as of the Separation Date, provided, however, that Executive shall only be entitled to the cash severance set forth in Section 1(c) of the Agreement as amended by this Section 3 if Executive has complied with his continuing obligations under the Agreement, including without limitation his execution of the Continuing Representations Certificate on or after the Separation Date as described in Section 21 of the Agreement. Payment of the cash severance as set forth in Section 1(c) of the Agreement, as amended by this Section 3, shall be subject to all other terms and conditions of the Agreement. -2- 4. Executive acknowledges and agrees that nothing in this Amendment shall entitle Executive to any additional equity interest in the Company and that, except as set forth in Section 4 of the Agreement, Executive shall have no right, title or interest in or to any shares of the Company's capital stock or other securities. 5. The Parties further acknowledge and agree that Executive has previously received the $70,000 cash bonus promised to him pursuant to Section 3(b) of the Offer Letter (as defined in the Agreement) and that the Company has no further obligation with respect to such amounts. 6. Except as explicitly set forth herein, the Agreement shall remain in full force and effect, including without limitation Executive's obligations to execute the Continuing Representations Certificate attached as Exhibit C to the Agreement on or after the Separation Date and Executive's other covenants under the Agreement. 7. The terms of this Amendment may be modified only by written agreement of the Parties. 8. This Agreement shall be governed by the laws of the State of California, without regard to its conflicts of law provisions. 9. Any payments made pursuant to this Amendment shall be subject to reduction to reflect taxes or other charges required to be withheld by law or otherwise authorized to be withheld by Executive. 10. The Agreement (as revised by this Amendment), and the exhibits to the Agreement (including the Confidentiality Agreement), represents the entire agreement and understanding between the Company and Executive concerning Executive's separation from the Company, and supersedes and replaces any and all prior agreements and understandings on the matters addressed herein and therein, including but not limited to the Offer Letter (with the exception of Sections 1 and 5 thereof, which shall survive until the Separation Date, and the definitions set forth in Section 10(e) thereof, which are incorporated in the Agreement and this Amendment by reference). [Signature page follows] -3- The Parties have executed this Amendment on the respective dates set forth below. REDENVELOPE, INC. Dated as of February 26, 2002 By: /s/ Hilary Billings ------------------------------ Print Name: Hilary Billings Title: Chairman and CMO MARTIN MCCLANAN, an individual /s/ Martin McClanan Dated as of February 26, 2002 ------------------------------ Signature -4- EX-10.25 32 f89225orexv10w25.txt EXHIBIT 10.25 Exhibit 10.25 REDENVELOPE, INC. SECOND AMENDMENT TO TRANSITION AGREEMENT AND RELEASE This Second Amendment to Transition Agreement and Release (the "SECOND AMENDMENT") is entered into by and between RedEnvelope, Inc., a Delaware corporation (the "COMPANY"), and Martin McClanan ("EXECUTIVE"), and amends only as explicitly specified herein that certain Transition Agreement and Release between the Company and Executive dated September 26, 2001 (the " AGREEMENT"), as amended by that certain Amendment to Transition Agreement and Release between the Company and Executive dated February 26, 2002 (the "FIRST AMENDMENT"). Any capitalized terms which are not defined herein shall have the same meanings as used in the Agreement. The Agreement, as amended by the First Amendment, sets forth the amended terms governing the termination of Executive's employment relationship with the Company. The Parties desire to establish additional terms concerning the termination of Executive's employment relationship with the Company, as set forth herein. In consideration of the promises made herein, the Parties hereby agree as follows: 1. The Parties acknowledge and agree that Executive's employment relationship with the Company shall terminate at the end of business on May 3, 2002, pursuant to the terms of the Agreement, as amended by the First Amendment, and as modified by the terms of this Second Amendment. The Parties acknowledge and agree that Executive's employment as Chief Executive Officer of the Company terminated on April 8, 2002 and Executive's service as a member of the Company's Board of Directors terminated on April 8, 2002. 2. In consideration for Executive's execution of the Continuing Representations Certificate (as described in Section 21 of the Agreement), and provided Executive complies with all other of his continuing obligations as set forth in the Agreement, the First Amendment, and this Second Amendment, the Parties agree to modify Executive's rights to receive benefits upon the termination of his employment as set forth below: (a) Cash Severance . The Company shall pay Executive the sum of $170,000 (the "CASH SEVERANCE"). The Company shall make such payment in installments as follows: $70,000 of the Cash Severance shall be paid on or before the 15th day following the Separation Date and the remaining $100,000 shall be paid in six (6) equal monthly installments pursuant to the Company's regular payroll schedule and policies commencing with the first pay day following Executive's execution of the Continuing Representations Certificate. Executive acknowledges that the Cash Severance exceeds, and will be paid in lieu of, the cash severance benefits set forth in Section 1(c) of the Agreement, as amended by Sections 2(a) and 3 of the First Amendment. An additional $30,000 that would otherwise be payable to Executive as cash severance will be satisfied through the issuance of stock as set forth in Section 2(c) below. The only cash severence to which Executive shall be entitled is the Cash Severence. (b) Consulting Period . The Company and Executive will enter into a three (3) month consulting relationship on the terms set forth in Exhibit A (as attached hereto) (the -1- "CONSULTING AGREEMENT"). Executive acknowledges and agrees that the Company is not obligated to utilize Executive's services during the consulting period. (c) Series F Shares. At such time that the Company effects the final closing of its Series F Preferred Stock Financing (the "SERIES F FINANCING"), the Company will issue to Executive, pursuant to the terms of the Series F Preferred Stock Purchase Agreement executed by other investors in the Series F Financing (the "PURCHASE AGREEMENT"), 47,016 shares of Series F Preferred Stock, against delivery of signature pages to the Purchase Agreement and the other related agreements duly executed by Executive. The Parties agree that the Company will withhold from any cash payments made to Executive such amounts as are required to be withheld and paid to the applicable taxing authorities as a result of income recognized by Executive from the issuance of shares pursuant to this Section 2(c). (d) All Other Benefits. Executive's rights to all other severance benefits as described in Section 2 of the Agreement shall continue in full force and effect pursuant to the terms described therein; provided, however, that Executive acknowledges that he previously has been paid any and all 2002 Cash Bonuses that the Company was obligated to pay to Executive pursuant to Section 2(c) of the Agreement. 3. Repricing Rights. Executive acknowledges and agrees that, in consideration for the benefits described herein, he shall have no further rights to the benefits described in Section 2(b) of the First Amendment and shall have no other rights to have the exercise price of his Options reduced or to receive a cash bonus or grant of securities in lieu of a reduction in the exercise price of his Options under any prior agreement with the Company, whether oral or written. Executive acknowledges and agrees that nothing in this Second Amendment shall entitle Executive to any additional equity interest in the Company (other than to the limited extent that vesting of Executive's Options is continued during the term of the Consulting Agreement) and that Executive shall have no right, title or interest in or to any shares of the Company's capital stock or other securities other than as set forth in the Agreement. 4. Use of Promissory Notes. Pursuant to the terms of the Original Option Agreement, the Subsequent Grant Option Agreement, and the Bonus Option Agreement (collectively, the "OPTION AGREEMENTS") and in addition to the rights set forth in Section 4(g) of the Agreement, Executive shall be permitted to exercise the Options delivering a promissory note having such rate of interest, recourse, security, redemption, and other reasonable conditions as determined by the Company. In no event may the Executive exercise the Options later than the applicable expiration dates set forth in the Option Agreements. 5. Except as explicitly set forth herein, the Agreement and the First Amendment shall remain in full force and effect, including without limitation Executive's obligations to execute the Continuing Representations Certificate, attached as Exhibit C to the Agreement, on or after the Separation Date and Executive's other covenants under the Agreement. 6. The terms of this Second Amendment may be modified only by written agreement of the Parties. -2- 7. This Second Amendment shall be governed by the laws of the State of California, without regard to its conflicts of law provisions. 8. Any payments made or consideration provided pursuant to this Second Amendment shall be subject to reduction to reflect taxes or other charges required to be withheld by law or otherwise authorized to be withheld by Executive. 9. The Agreement (as revised by the First Amendment and this Second Amendment), and the exhibits hereto and thereto, represent the entire agreement and understanding between the Company and Executive concerning Executive's separation from the Company, and supersede and replace any and all prior agreements and understandings on the matters addressed herein and therein, including but not limited to the Offer Letter (with the exception of Sections 1 and 5 thereof, which shall survive until the Separation Date, and the definitions set forth in Section 10(e) thereof, which are incorporated in the Agreement and this Second Amendment by reference). The Parties have executed this Second Amendment on the respective dates set forth below. REDENVELOPE, INC. Dates as of May 14, 2002 By: /s/ Alison May ---------------------------------- Print Name: Alison May Title: President and CEO MARTIN MCCLANAN, an individual /s/ Martin McClanan Dated as of May 9, 2002 ---------------------------------- Signature -3- EXHIBIT A REDENVELOPE, INC. CONSULTING AGREEMENT This Consulting Agreement (the "Consulting Agreement") is entered into by and between RedEnvelope, Inc., (the "Company"), a Delaware corporation, and Martin McClanan ("Consultant"). 1. CONSULTING RELATIONSHIP. During the term of this Consulting Agreement, Consultant will provide consulting services (the "SERVICES") to the Company as described on Attachment A attached to this Consulting Agreement. Consultant represents that Consultant is duly licensed (as applicable) and has the qualifications, the experience and the ability to properly perform the Services. Consultant shall use Consultant's best efforts to perform the Services such that the results are satisfactory to the Company. 2. FEES. As consideration for the Services to be provided by Consultant and other obligations, the Company shall pay to Consultant the amounts specified in Attachment B attached to this Consulting Agreement at the times specified therein. 3. EXPENSES. Consultant shall not be authorized to incur on behalf of the Company any expenses without the prior consent of the Company's Chief Executive Officer. As a condition to receipt of reimbursement, Consultant shall be required to submit to the Company reasonable evidence that the amount involved was expended and related to Services provided under this Consulting Agreement. 4. TERM AND TERMINATION. Consultant shall serve as a consultant to the Company for a period commencing on May 3, 2002 and terminating on August 3, 2002, unless extended by the mutual written agreement of the parties hereto. Notwithstanding the foregoing, either party may terminate this Consulting Agreement at any time upon ten days' written notice and the Company may terminate this Consulting Agreement immediately following Consultant's material breach of the terms of the Confidentiality Agreement (as defined below). In the event of such termination, Consultant shall be paid for any portion of the Services that have been performed prior to the termination. 5. INDEPENDENT CONTRACTOR. Consultant's relationship with the Company will be that of an independent contractor and not that of an employee. (a) NO AUTHORITY TO BIND COMPANY. Neither Consultant, nor any partner, agent or employee of Consultant, has authority to enter into contracts that bind the Company or create obligations on the part of the Company without the prior written authorization of the Company. (b) NO BENEFITS. Consultant acknowledges and agrees that Consultant will not be eligible for any Company employee benefits and, to the extent Consultant otherwise would be eligible for any Company employee benefits but for the express terms of this -4- Consulting Agreement, Consultant hereby expressly declines to participate in such Company employee benefits. (c) WITHHOLDING; INDEMNIFICATION. Consultant shall have full responsibility for applicable withholding taxes for all compensation paid to Consultant, its partners, agents or its employees under this Consulting Agreement, and for compliance with all applicable labor and employment requirements with respect to Consultant's self-employment, sole proprietorship or other form of business organization, and Consultant's partners, agents and employees, including state worker's compensation insurance coverage requirements and any US immigration visa requirements. Consultant agrees to indemnify, defend and hold the Company harmless from any liability for, or assessment of, any claims or penalties with respect to such withholding taxes, labor or employment requirements, including any liability for, or assessment of, withholding taxes imposed on the Company by the relevant taxing authorities with respect to any compensation paid to Consultant or Consultant's partners, agents or its employees. 6. SUPERVISION OF CONSULTANT'S SERVICES. All of the services to be performed by Consultant, including but not limited to the Services, will be as agreed between Consultant and the Company's Chief Executive Officer. Consultant will be required to report to the Chief Executive Officer concerning the Services performed under this Consulting Agreement. The nature and frequency of these reports will be left to the discretion of the Chief Executive Officer. 7. CONFIDENTIALITY AGREEMENT. Consultant acknowledges and agrees that he remains bound by the terms of the Confidential Information and Invention Assignment Agreement (the "Confidentiality Agreement") which he executed on February 16, 2000. 8. MISCELLANEOUS. (a) AMENDMENTS AND WAIVERS. Any term of this Consulting Agreement may be amended or waived only with the written consent of the parties. (b) SOLE AGREEMENT. This Consulting Agreement, including the Exhibits hereto, constitutes the sole agreement of the parties and supersedes all oral negotiations and prior writings with respect to the subject matter hereof. (c) NOTICES. Any notice required or permitted by this Consulting Agreement shall be in writing and shall be deemed sufficient upon receipt, when delivered personally or by courier, overnight delivery service or confirmed facsimile, 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. (d) CHOICE OF LAW. The validity, interpretation, construction and performance of this Consulting Agreement shall be governed by the laws of the State of California, without giving effect to the principles of conflict of laws. (e) SEVERABILITY. If one or more provisions of this Consulting 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 -5- replacement for such provision, then (i) such provision shall be excluded from this Consulting Agreement, (ii) the balance of the Consulting Agreement shall be interpreted as if such provision were so excluded and (iii) the balance of the Consulting Agreement shall be enforceable in accordance with its terms. (f) COUNTERPARTS. This Consulting Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which together will constitute one and the same instrument. (g) ARBITRATION. The Parties shall attempt to settle all disputes arising in connection with this Consulting Agreement through good faith consultation. In the event no agreement can be reached on such dispute within fifteen (15) days after notification in writing by either Party to the other concerning such dispute, the dispute shall be settled by binding arbitration to be conducted in San Francisco before the American Arbitration Association under its California Employment Dispute Resolution Rules, or by a judge to be mutually agreed upon. The arbitration decision shall be final, conclusive and binding on both Parties and any arbitration award or decision may be entered in any court having proper jurisdiction. The Parties agree that the prevailing party in any arbitration shall be entitled to injunctive relief in any court of competent jurisdiction to enforce the arbitration award. The Parties further agree that the prevailing Party in any such proceeding shall be awarded reasonable attorneys' fees and costs. This Section 8(g) shall not apply to the Confidentiality Agreement. THE PARTIES HEREBY WAIVE ANY RIGHTS THEY MAY HAVE TO TRIAL BY JURY IN REGARD TO ARBITRABLE CLAIMS . (h) ADVICE OF COUNSEL. EACH PARTY ACKNOWLEDGES THAT, IN EXECUTING THIS CONSULTING AGREEMENT, SUCH PARTY HAS HAD THE OPPORTUNITY TO SEEK THE ADVICE OF INDEPENDENT LEGAL COUNSEL, AND HAS READ AND UNDERSTOOD ALL OF THE TERMS AND PROVISIONS OF THIS CONSULTING AGREEMENT. THIS CONSULTING AGREEMENT SHALL NOT BE CONSTRUED AGAINST ANY PARTY BY REASON OF THE DRAFTING OR PREPARATION HEREOF. [Signature Page Follows] -6- The parties have executed this Consulting Agreement on the respective dates set forth below. REDENVELOPE, INC. By: /s/ Alison L. May -------------------------- Title: President and CEO Address: 201 Spear St, Suite 300 San Francisco, CA 94105 Date: May 14, 2002 MARTIN MCCLANAN /s/ Martin McClanan -------------------------- Signature Address: 128 3rd Ave. San Francisco, CA 94118 Date: May 9, 2002 ATTACHMENT A DESCRIPTION OF CONSULTING SERVICES Consultant shall provide such information and advice as is reasonably requested in order to assist the Company in transitioning management of Company matters to the Company's current Chief Executive Officer. ATTACHMENT B COMPENSATION At the conclusion of every two-week period, Consultant shall deliver to the Chief Executive Officer of the Company a schedule that identifies the number of hours and the Services requested by and performed for the Company by Consultant during such period (each such schedule referred to herein as a "Pay Schedule"). For Services requested by the Company and performed by Consultant under this Consulting Agreement and listed on a Pay Schedule, the Company shall pay Consultant at the rate of $200 per hour, payable within two weeks of delivery of each Pay Schedule. In addition, Consultant's Continuous Status as an Employee or Consultant (as defined in Consultant's Options (as defined in the Transition Agreement and Release executed by the Company and Consultant on September 26, 2001)) will not be deemed to have terminated following his Separation Date (as defined in the Transition Agreement and Release) and the Options will continue to vest pursuant to their terms until the termination of this Consulting Agreement. EX-10.26 33 f89225orexv10w26.txt EXHIBIT 10.26 EXHIBIT 10.26 REDENVELOPE, INC. TRANSITION AGREEMENT AND RELEASE This Transition Agreement and Release (the "AGREEMENT") is made by and between RedEnvelope, Inc., a Delaware corporation (the "COMPANY") and Christopher Cunningham ("EXECUTIVE"). Executive has been employed by the Company pursuant to the terms of an offer letter dated August 4, 1999, as amended on November 30, 2000 (as amended, the "OFFER LETTER"). The Company and Executive (collectively referred to as the "PARTIES") acknowledge and agree that Executive's employment relationship with the Company shall terminate no later than August 31, 2002. Prior to August 31, 2002, Executive will transition his duties to such person(s) as directed by the Company. In consideration for Executive's release of all claims that he may have with respect to his employment by the Company, and provided Executive complies with all of his continuing obligations as set forth in this Agreement, the Parties agree to modify the terms of Executive's employment and Executive's rights to receive benefits upon the termination of his employment as set forth herein: 1. TRANSITION OF EMPLOYMENT. (a) SEPARATION DATE. Executive and the Company acknowledge and agree that Executive's employment as Chief Information Officer of the Company shall terminate no later than August 31, 2002. Without limiting the effect of the foregoing, Executive acknowledges that his employment continues to be "at-will" and that either Party may terminate his employment at any time for any reason or no reason. The date of the termination of Executive's employment with the Company shall be referred to in this Agreement as the "SEPARATION DATE." Executive acknowledges and agrees that the terms and conditions set forth in this Agreement neither give rise to a constructive termination pursuant to the terms of the Offer Letter nor constitute a Constructive Termination pursuant to Section 11(c) of this Agreement. (b) COMPENSATION. Executive acknowledges and agrees that during the period commencing on April 4, 2002 and ending on the Separation Date, Executive has received and will continue to earn a gross monthly base salary of $20,833.33 (the "BASE SALARY") pursuant to the Company's regular payroll policy (or in the same manner as other officers of the Company) and Executive will be eligible to accrue up to 1.91 days of vacation each month. Executive acknowledges and agrees that he will not be eligible to earn any bonus, whether in cash, equity or otherwise, for fiscal years 2003 and 2004. (c) FINAL WAGES. Upon the termination of Executive's employment with the Company for any reason, the Company shall pay Executive the sum of (i) all salary and any other earned but unpaid wages owed to the Executive through the Separation Date, (ii) payment for all accrued but unused vacation days of Executive, and (iii) payment of all unreimbursed business expenses properly incurred and submitted by Executive prior to the Separation Date. 2. SEVERANCE BENEFITS. In consideration for the release of claims set forth below and other obligations under this Agreement, and provided that Executive's employment is terminated (i) by mutual agreement of the Parties on or before August 31, 2002 as a result of the completion of the transition of Executive's duties (such termination, a "MUTUAL TERMINATION"), (ii) by the Company without Cause (as defined below), or (iii) as a result of a Constructive Termination (as defined below), and provided further that, as of the Separation Date, Executive has complied with his continuing obligations under this Agreement (including without limitation his execution of the Continuing Representations Certificate within twenty-one (21) days following the Separation Date as described in Section 22 herein), and provided further that Executive does not revoke the Continuing Representations Certificate (as set forth therein), the Company agrees to provide the severance benefits described in this Section 2 to Executive. Executive acknowledges that the benefits described in this Section 2 exceed, and will be paid in lieu of, the severance benefits set forth in the Offer Letter and any other prior agreement, whether oral or written, between the Executive and the Company. Executive further acknowledges and agrees that he will have no rights to any severance benefits if his employment is terminated (i) by him (other than as a result of a Constructive Termination or as part of a Mutual Termination) or (ii) by the Company for Cause. The Parties acknowledge and agree that if Executive's employment is terminated as a result of a physical or mental impairment that prevents his performance of the essential functions of his position, Executive will be entitled to the severance benefits on the terms and conditions described herein, subject to reduction in an amount equal to the gross amount of any insurance proceeds (including cash and medical benefits) paid to Executive, due to such impairment, during the six (6) month period following such termination. (a) CASH BENEFITS. The Company will continue to pay Executive, over the Company's regular payroll cycle, the Base Salary for the first six (6) months following the effective date of the Continuing Representations Certificate (or, at the Company's option, the first six (6) months following the Separation Date), subject to, and reduced by, applicable tax withholdings. (b) REIMBURSEMENT OF COBRA PREMIUMS. Provided Executive makes an accurate and timely election for continuation of medical insurance coverage under the terms of the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended ("COBRA"), the Company agrees to reimburse Executive for the applicable premiums for continuation coverage for himself and his currently enrolled dependents (as applicable) for the first six (6) months of continuation coverage. (c) EXTENSION OF EXERCISE PERIOD. The Parties hereby amend and restate the post-termination exercise period set forth in the respective Option Agreements (as defined below) for each of the Options (as defined below) such that Executive shall be permitted to exercise the Options as to the vested shares subject to each such option on or before (i) the one (1) year anniversary of the Separation Date in the event of a termination of Executive's employment as a result of his death or disability or (ii) the three (3) year anniversary of the Separation Date in the event of a termination of Executive's employment as a result of a Mutual Termination, a Constructive Termination or a termination by the Company without "Cause"; -2- provided, however, in no event may Executive exercise the Options later than the applicable expiration date of each such option. (d) RELOCATION. The Company will reimburse Executive for the reasonable expenses incurred by him to relocate himself and his family to the San Diego Area, up to a gross maximum amount of $6,000. (e) LAPTOP. Executive will retain possession of the IBM Thinkpad T-30 notebook computer previously issued to him by the Company following the Separation Date; provided, however, that the Company shall first review the contents of such computer and remove all confidential and/or proprietary information therefrom prior to surrendering such computer to Executive following the Separation Date. 3. EMPLOYEE BENEFITS. (a) GROUP MEDICAL INSURANCE. Executive shall continue to receive the Company's group medical insurance benefits at the Company's expense, to the same extent it pays such premiums for other similarly situated employees (subject to any applicable eligibility requirements) until the Separation Date. Following such date, Executive will be eligible to continue coverage under the Company's group medical insurance programs as provided by COBRA at his own expense, except as otherwise set forth in Section 2(b) of this Agreement. (b) OTHER BENEFITS. Executive shall continue to be eligible to participate in the Company's standard benefit programs available to similarly situated employees (subject to any applicable eligibility requirements) until the Separation Date. Except as otherwise provided above, Executive shall not be entitled to participate in any of the Company's benefit plans or programs offered to employees or officers of the Company after the Separation Date. 4. EQUITY INTERESTS. (a) EQUITY AWARDS. Pursuant to the terms of the Company's 1999 Stock Plan (the "PLAN") and six (6) stock option agreements (collectively, the "OPTION AGREEMENTS") dated, respectively, October 4, 1999, April 5, 2000, August 23, 2000 (two stock option agreements bearing such date), June 1, 2001, and July 25, 2002, Executive was granted stock options (the "OPTIONS") to purchase an aggregate of 1,116,630 shares of the Company's Common Stock, which Options vest in accordance with the vesting schedules set forth in the respective Option Agreements (or the Notices of Stock Option Grant attached thereto). The Parties acknowledge and agree that as of the date hereof, Executive has not exercised any of the Options and that, assuming a Separation Date of August 31, 2002, Executive will have vested in an aggregate of 450,341 shares subject to the Options, with 666,289 shares expiring unvested as of such date. (b) PROMISSORY NOTE. Executive acknowledges and agrees that he will not use a promissory note as consideration for any exercise of the Options. (c) CHANGE OF CONTROL. In the event of a Change of Control (as defined below) of the Company prior to the termination of Executive's employment with the Company -3- for any reason, the Company will accelerate the vesting of the Options such that 25% of the then-unvested shares subject to each such option will be immediately vested and exercisable as of the effective date of the Change of Control. (d) EFFECT ON ISO STATUS. Executive acknowledges and agrees that the amendments and modifications set forth in Section 2(c) may affect the ISO status of certain of his Options and may result in adverse tax consequences to him. Executive acknowledges and represents that he is not relying on the Company for advice regarding his individual tax situation, that he has been advised to consult his personal tax planner, attorney, or accountant with regard to these matters prior to executing this Agreement, and that he has done so or knowingly declined to do so. (e) NO OTHER RIGHTS. Executive acknowledges and agrees that he remains bound by the terms of the Option Agreements, as modified herein. Executive acknowledges and agrees that, notwithstanding anything contained in the Offer Letter or under any other agreement, whether oral or written, between the Executive and the Company, Executive shall not be entitled to any acceleration of vesting of any of the Options as a result of the termination of his employment with the Company or as a result of a Change of Control of the Company that occurs after the termination of his employment with the Company. Executive acknowledges and agrees that the Options lapse in their entirety as to any unvested shares as of the Separation Date. Except as set forth in Section 2(c) and this Section 4, Executive shall have no right, title or interest in or to any shares of the Company's capital stock or other securities under the Offer Letter, or under any other document, instrument or arrangement, whether oral or written, with the Company. 5. NO OTHER PAYMENTS DUE. Executive acknowledges and agrees that upon receipt of the payments to be made on and after the Separation Date pursuant to this Agreement, Executive will have received all salary, accrued vacation, commissions, bonuses, wages, compensation or other such sums due to Executive as of the Separation Date, other than amounts, if any, to be paid after the Separation Date pursuant to this Agreement. The Parties further acknowledge and agree that, upon the payment by the Company of all wages due, or to become due, to Executive, the California Labor Code Section 206.5 will not be applicable to the Parties hereto. That section provides in pertinent part as follows: NO EMPLOYER SHALL REQUIRE THE EXECUTION OF ANY RELEASE OF ANY CLAIM OR RIGHT ON ACCOUNT OF WAGES DUE, OR TO BECOME DUE, OR MADE AS AN ADVANCE ON WAGES TO BE EARNED, UNLESS PAYMENT OF SUCH WAGES HAS BEEN MADE. 6. RELEASE OF CLAIMS. In consideration for the Parties' obligations set forth in this Agreement, the Parties, on behalf of themselves and their heirs, executors, current and former officers, directors, employees, investors, attorneys, stockholders, administrators, predecessor and successor corporations and assigns, hereby fully and forever release the other Party and its/his heirs, executors, current and former officers, directors, employees, investors, attorneys, stockholders, administrators, predecessor and successor corporations and assigns, of and from -4- any claim, duty, obligation or cause of action relating to any matters of any kind, whether presently known or unknown, suspected or unsuspected, that the Party may possess arising from any omissions, acts or facts that have occurred up until and including the date of this Agreement including, without limitation: (a) any and all claims relating to or arising from Executive's employment relationship with the Company and the termination of that relationship; (b) any and all claims relating to Executive's right to receive, or receipt of, wages or other compensation; (c) any and all claims relating to, or arising from, Executive's right to purchase, or actual purchase of shares of the capital stock or other securities of the Company; (d) any and all claims for wrongful discharge of employment; breach of contract, both express and implied; breach of a covenant of good faith and fair dealing, both express and implied; negligent or intentional infliction of emotional distress; breach of privacy; negligent or intentional misrepresentation; negligent or intentional interference with contract or prospective economic advantage; negligence; and defamation; (e) any and all claims for violation of any federal, state or municipal statute, including, but not limited to, Title VII of the Civil Rights Act of 1964, the Civil Rights Act of 1991, the Employee Retirement Income Security Act of 1974, as amended ("ERISA") as related to severance benefits, the Equal Pay Act of 1963, the Age Discrimination in Employment Act of 1967, the Americans With Disabilities Act, California Labor Code Section 1197.5, the California Fair Employment and Housing Act, the Fair Labor Standards Act, and any family and medical leave acts; (f) any and all claims arising out of any other laws and regulations relating to employment or employment discrimination; and (g) any and all claims for attorneys' fees and costs. The Parties agree that the release set forth in this Section 6 shall be and remain in effect in all respects as a complete general release as to the matters released. This release does not extend to any obligations incurred or specified under this Agreement. In addition, the Parties acknowledge and agree that this release does not extend to any rights that Executive may have to be indemnified and held harmless with respect to his performance of his duties while he served as an officer to the fullest extent allowed by law, the Company's Amended and Restated Certificate of Incorporation, or D&O insurance policy. The Parties further acknowledge and agree that this release does not extend to any claims the Company may have under the Confidentiality Agreement (as defined below). 7. ACKNOWLEDGMENT OF WAIVER OF CLAIMS UNDER ADEA. Executive acknowledges that he is waiving and releasing any rights he may have under the Age Discrimination in Employment Act of 1967 ("ADEA") and that this waiver and release is knowing and voluntary. Executive and the Company agree that this waiver and release does not apply to any rights or -5- claims that may arise under ADEA after the Effective Date (as defined in Section 18 below) of this Agreement. Executive acknowledges that the consideration given for this waiver and release Agreement is in addition to anything of value to which Executive was already entitled. Executive further acknowledges that he has been advised by this writing that (a) he should consult with an attorney prior to executing this Agreement; (b) he may have at least twenty-one (21) days within which to consider this Agreement; (c) he has seven (7) days following his execution of this Agreement to revoke the Agreement (the "Revocation Period"). This Agreement shall not be effective until the Revocation Period has expired. 8. CIVIL CODE SECTION 1542. The Parties represent that they are not aware of any claim by either of them other than the claims that are released by this Agreement. Executive and the Company acknowledge that they have been advised by legal counsel and are familiar with the provisions of California Civil Code Section 1542, which provides as follows: A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS SETTLEMENT WITH THE DEBTOR. Executive and the Company, being aware of said Code section, agree to expressly waive any rights they may have thereunder, as well as under any other statute or common law principles of similar effect. 9. EXECUTIVE COVENANTS. (a) GENERAL. The Parties agree that for all periods described in this Agreement, they shall continue to conduct themselves in a professional manner. (b) NON-DISPARAGEMENT. The Parties agree to refrain from any disparagement, criticism, defamation, or slander of the other Party, or tortious interference with the contracts and relationships of the other Party. (c) CONFIDENTIALITY. The Parties agree to maintain in strict confidence the existence of this Agreement, the contents and terms of this Agreement, and the consideration for this Agreement (hereinafter collectively referred to as "SEPARATION INFORMATION"). Each Party hereto agrees to take every reasonable precaution to prevent disclosure of any Separation Information to third parties, and each agrees that there will be no publicity, directly or indirectly, concerning any Separation Information. The Parties hereto agree to take every precaution to disclose Separation Information only to those employees, officers and directors of the Company, and attorneys, accountants and governmental entities who have a reasonable need to know of such Separation Information. (d) NONDISCLOSURE. Executive acknowledges and agrees that this Agreement in no way modifies Executive's obligations to the Company under the terms of the Confidential Information and Invention Assignment Agreement between Executive and the Company (the -6- "CONFIDENTIALITY AGREEMENT"), a copy of which is attached hereto as Exhibit A. Executive shall continue to maintain the confidentiality of all confidential and proprietary information of the Company prior to and after the Separation Date as provided under the Confidentiality Agreement. Executive represents and warrants that at all times up until the Effective Date he has been in compliance with his obligations to the Company under the Confidentiality Agreement. Executive agrees to execute the Separation Certification, attached hereto as Exhibit B, and return it to the Company within seven (7) days following the Separation Date, which certifies that Executive will have returned all the Company's property and confidential and proprietary information in his possession to the Company. 10. BREACH OF THE AGREEMENT. Executive acknowledges that upon his breach of this Agreement or the Confidentiality Agreement, the Company would sustain irreparable harm from such breach, and, therefore, Executive agrees that in addition to any other remedies which the Company may have under this Agreement, the Confidentiality Agreement, or otherwise, the Company shall be entitled to obtain equitable relief, including specific performance and injunctions, restraining him from committing or continuing any such violation. Executive acknowledges and agrees that upon his material or intentional breach of any of the provisions of the Agreement or the Confidentiality Agreement, in addition to any other remedies the Company may have under this Agreement or otherwise, the Company's obligations to provide benefits to Executive as described in this Agreement, including without limitation those benefits provided in Sections 2 and 4 herein, shall immediately terminate. 11. DEFINITIONS. The definitions set forth in this Section 11 supercede and replace in their entirety any definitions of these terms as set forth in the Offer Letter and any prior agreement, whether oral or written, between Executive and the Company on the subjects set forth herein. (a) CAUSE. For the purposes of this Agreement, "Cause" for the Company's termination of Executive's employment will mean Executive's (i) gross negligence in the performance of his job responsibilities; (ii) failure or refusal to comply with the lawful directives of the Company's Board of Directors not inconsistent with his position and responsibilities (other than a refusal to incur any of (i) - (iii) under the definition of Constructive Termination below); (iii) willful misconduct that the Company reasonably determines is materially detrimental to the business or reputation of the Company; (iv) dishonest or fraudulent conduct in the performance of his job responsibilities or that the Company reasonably determines is materially detrimental to the business or reputation of the Company; (v) conviction of a felony; (vi) material breach of the Confidentiality Agreement or his duties of confidentiality owed to any third parties as a result of his position with the Company; or (vii) death; provided, however, that an occurrence of any of (i) through (iii) above shall constitute Cause hereunder only after the Company has provided Executive with written notice of such gross negligence, failure or misconduct and a reasonable opportunity for him to cure such gross negligence, failure or misconduct (assuming such gross negligence, failure or misconduct is capable of being cured). For purposes of the immediately preceding proviso, a majority of the members of the Company's Board of Directors shall determine whether a cure has been effected or whether a reasonable opportunity to cure was provided. -7- (b) CHANGE OF CONTROL. For the purposes of this Agreement, "Change of Control" shall mean any of the following: (i) a merger of the Company into another entity (other than a merger effected solely for the purpose of changing the state of domicile of the Company), (ii) any other transaction in which more than 50% of the voting control of the Company is transferred (other than an equity financing of the Company in which the Company is the surviving entity), including, without limitation, the sale of more than 50% of the outstanding shares of the Company's capital stock; (iii) the sale of all or substantially all of the assets of the Company, or (iv) immediately prior to the liquidation or dissolution of the Company. (c) CONSTRUCTIVE TERMINATION. For the purposes of this Agreement, "Constructive Termination" will mean Executive's resignation from his employment with the Company within thirty (30) days following: (i) a material reduction or change in his title, job duties, authority, responsibilities or job requirements inconsistent with his position with the Company; (ii) any material reduction of his base compensation; (iii) any elimination of a material benefit provided to him pursuant to his employment with the Company; (iv) the Company's failure to cure any material breach by it of the terms of this Agreement within a reasonable time following written notice from him to the Company's Board of Directors, in each case under (i) through (iv) above, other than with Executive's written consent. 12. AUTHORITY. The Company represents and warrants that the undersigned has the authority to act on behalf of the Company and to bind the Company and all who may claim through it to the terms and conditions of this Agreement. Executive represents and warrants that he has the capacity to act on his own behalf and on behalf of all who might claim through him to bind them to the terms and conditions of this Agreement. Executive represents and warrants that there are no liens or claims of lien or assignments in law or equity or otherwise of or against any of the claims or causes of action released herein. 13. NO REPRESENTATIONS. Executive has not relied upon any representations or statements made by the Company which are not specifically set forth in this Agreement. 14. SEVERABILITY. In the event that any provision hereof becomes or is declared by a court or other tribunal of competent jurisdiction to be illegal, unenforceable or void, this Agreement shall continue in full force and effect without said provision. 15. ARBITRATION. The Parties shall attempt to settle all disputes arising in connection with this Agreement through good faith consultation. In the event no agreement can be reached on such dispute within fifteen (15) days after notification in writing by either Party to the other concerning such dispute, the dispute shall be settled by binding arbitration to be conducted in San Francisco before the American Arbitration Association under its California Employment Dispute Resolution Rules, or by a judge to be mutually agreed upon. The arbitration decision shall be final, conclusive and binding on both Parties and any arbitration award or decision may be entered in any court having proper jurisdiction. The Parties agree that the prevailing party in any arbitration shall be entitled to injunctive relief in any court of competent jurisdiction to enforce the arbitration award. The Parties further agree that the prevailing Party in any such proceeding shall be awarded reasonable attorneys' fees and costs. This Section 15 shall not apply to the -8- Confidentiality Agreement. THE PARTIES HEREBY WAIVE ANY RIGHTS THEY MAY HAVE TO TRIAL BY JURY IN REGARD TO ARBITRABLE CLAIMS. 16. ENTIRE AGREEMENT. This Agreement, the Plan, the Option Agreements, and the exhibits hereto (including the Confidentiality Agreement), represent the entire agreement and understanding between the Company and Executive concerning Executive's separation from the Company, and supersede and replace any and all prior agreements and understandings on the matters addressed herein, including but not limited to the Offer Letter (except that Sections 1(b), 4(a), 5 and 6 of the Offer Letter shall continue pursuant to their terms). The Parties expressly agree that nothing in this Agreement in any way alters the "at-will" nature of Executive's employment relationship with the Company and, to the extent his employment continues during any period, either Party may terminate that employment relationship at any time for any or no reason. 17. NO ORAL MODIFICATION. This Agreement may only be amended in writing signed by Executive and the Company. 18. GOVERNING LAW. This Agreement shall be governed by the laws of the State of California, without regard to its conflicts of law provisions. 19. EFFECTIVE DATE. This Agreement is effective upon the expiration of the Revocation Period described in Section 7 and such date is referred to herein as the "EFFECTIVE DATE." 20. COUNTERPARTS. This Agreement may be executed in counterparts, and each counterpart shall have the same force and effect as an original and shall constitute an effective, binding agreement on the part of each of the undersigned. 21. ASSIGNMENT. This Agreement may not be assigned by Executive or the Company without the prior written consent of the other Party. Notwithstanding the foregoing, this Agreement may be assigned by the Company to a corporation controlling, controlled by or under common control with the Company or to an acquiror of all or substantially all of the Company's business, stock or assets, without the consent of Executive. 22. CONTINUING REPRESENTATIONS. Executive expressly acknowledges and agrees that, in order to be eligible for the benefits described in this Agreement, Executive must sign, and not revoke, a Continuing Representations Certificate, in substantially the same form as attached hereto as Exhibit C, within twenty-one (21) days following the Separation Date, reaffirming each of the waivers, releases, warranties and representations contained in this Agreement as of such date and that Executive's rights continue to be as defined by the terms of this Agreement as of such date. 23. APPLICABLE TAX WITHHOLDING. All payments made under this Agreement shall be subject to reduction to reflect taxes or other charges required to be withheld by law or otherwise authorized to be withheld by Executive. -9- 24. VOLUNTARY EXECUTION OF AGREEMENT. This Agreement is executed voluntarily and without any duress or undue influence on the part or behalf of the Parties hereto, with the full intent of releasing all claims. The Parties acknowledge that: (a) they have read this Agreement; (b) they have been represented in the preparation, negotiation, and execution of this Agreement by legal counsel of their own choice or that they have voluntarily declined to seek such counsel; (c) they understand the terms and consequences of this Agreement and of the releases it contains; and (d) they are fully aware of the legal and binding effect of this Agreement. [Signature Page Follows] -10- IN WITNESS WHEREOF, the Parties have executed this Transition Agreement and Release on the respective dates set forth below. REDENVELOPE, INC. Dated as of Aug 22, 2002 By: Alison L. May -------------------------------- Print Name: Alison L. May ----------------------- Title: Pres & CEO CHRISTOPHER CUNNINGHAM Dated as of Aug 28, 2002 /s/ Christopher Cunningham -------------------------------- Signature -11- EXHIBIT A CONFIDENTIALITY AGREEMENT -12- REDENVELOPE, INC. CONFIDENTIAL INFORMATION AND INVENTION ASSIGNMENT AGREEMENT As a condition of my becoming employed by or retained as a consultant by RedEnvelope, Inc., 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 "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 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) -2- 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. (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, -3- 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 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. 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. -4- (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. [Signature Page Follows] -5- The parties have executed this Agreement on the respective dates set forth below: COMPANY: EMPLOYEE: REDENVELOPE, INC. [ILLEGIBLE], an Individual: /s/ Thomas Bazzone /s/ Christopher Cunningham - -------------------------- ------------------------------ Signature Signature By: Thomas Bazzone Christopher Cunningham ------------------------------ Printed Name Title: CCO Date: 10/12/99 Date: 10-4-99 Address: 201 Spear St Address: _____________________ SF CA 94105 ______________________________ SIGNATURE PAGE TO CONFIDENTIAL INFORMATION AND INVENTION ASSIGNMENT AGREEMENT EXHIBIT A LIST OF PRIOR INVENTIONS AND ORIGINAL WORKS OF AUTHORSHIP EXCLUDED FROM SECTION 4
Identifying Number Title Date or Brief Description - --------- -------- ------------------------
[X] No inventions or improvements [ ] Additional Sheets Attached Signature of Employee/Consultant: /s/ Christopher Cunningham --------------------------- Print Name of Employee/Consultant: C. Cunningham -------------- Date: 10-4-99 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. 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 RedEnvelope, Inc., 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: SEPT. 3, 2002 /s/ Christopher Cunningham ------------------------------- (Employee's Signature) Christopher Cunningham ------------------------------- (Type/Print Employee's Name) EXHIBIT B SEPARATION 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, notebooks, flow charts, materials, equipment, other documents or property, or copies or reproductions of any aforementioned items belonging to RedEnvelope, Inc., its subsidiaries, affiliates, successors or assigns (together the "COMPANY"). I further certify that I have complied with, and will continue to comply with, all of the terms of the Confidential Information and Invention Assignment Agreement dated _________, 200__ (see Exhibit A, the "CONFIDENTIALITY 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 Confidentiality 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. Date: Aug 28, 2002 ----------------------------------------- (Executive's Signature) Christopher Cunningham ----------------------------------------- (Type/Print Executive's Name) -13- EXHIBIT C CONTINUING REPRESENTATIONS CERTIFICATE This is to certify that the waivers, covenants, warranties and representations made by me and set forth in the Transition Agreement and Release (the "Agreement") dated ________, 2002, between RedEnvelope, Inc. (the "Company") and me, continue to be true and correct as of the date hereof and that I remain bound by, and my rights continue to be defined by, the terms of the Agreement. The Agreement is hereby incorporated in its entirety into this Certificate and capitalized terms not defined in this Certificate have the same meanings as in the Agreement. In addition, I expressly agree and acknowledge as of the date hereof that: 1. Except as set forth in the Agreement, I have no right, title or interest in or to any shares of the Company's capital stock or other securities under the Option Agreements, the Offer Letter, or any other document, instrument or agreement (whether oral or written) with the Company; 2. I have received all salary, accrued vacation, commissions, bonuses, wages, severance payments, compensation or other such sums due to me, other than amounts, if any, to be paid after the date hereof pursuant to the Agreement. I further acknowledge and agree that, upon the payment by the Company of all wages due, or to become due, to me, the California Labor Code Section 206.5 will not be applicable. That section provides in pertinent part as follows: NO EMPLOYER SHALL REQUIRE THE EXECUTION OF ANY RELEASE OF ANY CLAIM OR RIGHT ON ACCOUNT OF WAGES DUE, OR TO BECOME DUE, OR MADE AS AN ADVANCE ON WAGES TO BE EARNED, UNLESS PAYMENT OF SUCH WAGES HAS BEEN MADE 3. I, on behalf of myself and my heirs, executors, and assigns, hereby fully and forever release the Company and its current and former officers, directors, employees, investors, attorneys, stockholders, administrators, predecessor and successor corporations and assigns, of and from any claim, duty, obligation or cause of action relating to any matters of any kind, whether presently known or unknown, suspected or unsuspected, that I may possess arising from any omissions, acts or facts that have occurred up until and including the date of this Certificate including, without limitation: (a) any and all claims relating to or arising from my employment relationship with the Company and the termination of that relationship; (b) any and all claims relating to my right to receive, or receipt of, wages, severance benefits, or other compensation; -14- (c) any and all claims relating to, or arising from, my right to purchase, or actual purchase of shares of the capital stock or other securities of the Company; (d) any and all claims for wrongful discharge of employment; breach of contract, both express and implied; breach of a covenant of good faith and fair dealing, both express and implied; negligent or intentional infliction of emotional distress; breach of privacy; negligent or intentional misrepresentation; negligent or intentional interference with contract or prospective economic advantage; negligence; and defamation; (e) any and all claims for violation of any federal, state or municipal statute, including, but not limited to, Title VII of the Civil Rights Act of 1964, the Civil Rights Act of 1991, the Employee Retirement Income Security Act of 1974, as amended ("ERISA") as related to severance benefits, the Equal Pay Act of 1963, the Age Discrimination in Employment Act of 1967, the Americans With Disabilities Act, California Labor Code Section 1197.5, the California Fair Employment and Housing Act, the Fair Labor Standards Act, and any family and medical leave acts; (f) any and all claims arising out of any other laws and regulations relating to employment or employment discrimination; and (g) any and all claims for attorneys' fees and costs. I agree that the release set forth herein shall be and remain in effect in all respects as a complete general release as to the matters released. This release does not extend to any obligations incurred or specified under this Certificate. In addition, this release does not extend to any rights I may have to be indemnified and held harmless with respect to my performance of my duties while I was an officer and/or member of the Company's Board to the fullest extent allowed by law, the Company's Amended and Restated Certificate of Incorporation, or D&O insurance policy. I further acknowledge that I am not aware of any claim other than the claims that are released hereunder. 3. I acknowledge that I am waiving and releasing any rights I may have under the Age Discrimination in Employment Act of 1967 ("ADEA") and that this waiver and release is knowing and voluntary. I agree that this waiver and release does not apply to any rights or claims that may arise under ADEA following the Certificate Effective Date. I acknowledge that the consideration given for this waiver and release is in addition to anything of value to which I was already entitled. I further acknowledge that I have been advised by this writing that (a) I should consult with an attorney prior to executing this Continuing Representations Certificate; (b) I may have at least twenty-one (21) days within which to consider this Continuing Representations Certificate; (c) I have seven (7) days following his execution of this Continuing Representations Certificate to revoke the Continuing Representations Certificate (the "Certificate Revocation Period"). This Continuing Representations Certificate shall not be effective until the Certificate Revocation Period has expired (the "Certificate Effective Date"). 4. I acknowledge that I have been advised by legal counsel and am familiar with the provisions of California Civil Code Section 1542, which provides as follows: -15- A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS SETTLEMENT WITH THE DEBTOR. Being aware of said Code section, I agree to expressly waive any rights I may have thereunder, as well as under any other statute or common law principles of similar effect; and 5. I certify that I have complied with all of my obligations under the Agreement and the Confidentiality Agreement. I have executed this Certificate on the date set forth below. CHRISTOPHER CUNNINGHAM Dated as of Aug 28, 2002 /s/ [ILLEGIBLE] ---------------------------- Signature -16- EX-10.27 34 f89225orexv10w27.txt EXHIBIT 10.27 EXHIBIT 10.27 SERVICING, WAREHOUSING & DISTRIBUTION AGREEMENT This Servicing, Warehousing and Distribution Agreement (the "Fulfillment Agreement" or "Agreement") is made as of the 1st day of October 2001, by and between, on the one hand, 3PF, INC., a Delaware corporation and wholly owned subsidiary of the Rentrak corporation, hereinafter referred to as "3PF", and RENTRAK CORPORATION , a [Delaware] corporation, hereinafter referred to as " RENTRAK", and, on the other hand, REDENVELOPE, INC. hereinafter referred to as "CUSTOMER." RECITALS WHEREAS 3PF provides customers with, among other things, warehousing, management, distribution, and inventory services. WHEREAS Customer is a distributor of goods and merchandise (hereinafter, "Stock") and desires to contract with 3PF for certain of 3PF's services under the convenants, terms, and restrictions contained herein. THEREFORE, for valuable consideration as set forth herein, Customer and 3PF agree as follows: SECTION I FULFILLMENT AND WAREHOUSING SERVICES 1.1. Warehousing Services: 3PF agrees to provide certain warehouse space, management, equipment and related services to Customer as set forth herein. The warehouse space shall be located at 3PF's facility at 3300 S.R. 73 South, Building 5, Wilmington, Ohio 45177 (hereinafter referred to as the "Facility"). The warehouse Facility space is approximately 102,400 square feet of floor space which includes office space of approximately 3,400 sq. ft. The Facility shall be maintained structurally and mechanically in good working order by 3PF as is required per 3PF's lease agreement. 3PF's services shall include without limitation payment of all common area maintenance charges, real estate taxes, HVAC, electrical, plumbing and water, security, insurance, janitorial and supplies, continuance of existing Internet access, and trash removal. Customer shall not be required to pay any expenses in connection with the maintenance or operation of the Facility except as expressly set forth Printed 12/14/2001 11:57 AM Initials (3PF) /s/ [ILLEGIBLE] Initials (Rentrak) /s/ [ILLEGIBLE] Initials (RedEnvelope) /s/ MWM - Page 1 of 21 - herein. 1.2. Equipment: 3PF agrees to provide the existing warehousing equipment in the Facility being 620 bays of pallet rack, 32 bays of flow rack, 1 forklift, 1 drexel truck, 4 order pickers and 6 pallet trucks. 3PF shall further provide all maintenance of existing equipment and replacement equipment if any of the foregoing is no longer fully operational at any time during the term of this Agreement. In addition to the afore-listed major equipment, the facility also includes various other smaller pieces of equipment which include but are not limited to: tape guns, air pillow machines, movable conveyor, jewelry storage lockers, security cameras, employee lockers, kitchen facilities, etc. 3PF will adequately outfit the facility with such items as to support the order/fulfillment volume projected for Customer's Christmas CY2001 season. This inventory of smaller equipment and items shall remain within the Facility and be considered part of this Agreement throughout the term of this Agreement. Any additional equipment for the Facility purchased by Customer ("Customer Owned Equipment") shall be Customer's property. 3PF shall hold all Customer Owned Equipment and shall exercise reasonable care in the use and custody of such property and shall use such property only in performing its obligations under this Agreement. Customer assumes full responsibility for all maintenance of Customer's owned equipment. 3PF shall not grant any security interest or incur any liens or any other encumbrances on the Customer Owned Equipment. Upon termination or expiration of this Agreement, or upon Customer's written request, 3PF will promptly return all Customer Owned Equipment. 1.3. Additions: Any additional structural and/or leasehold improvements of the Facility, other than regular maintenance and repairs or improvements required to keep the facility complaint with local building code, shall be at the expense of Customer and must be approved in writing by 3PF and the Facility's Landlord, which approval by 3PF shall not be unreasonably withheld. 1.4. Additional Space: In the event the Customer requires additional warehouse space, 3PF shall make a good faith effort to secure the necessary storage space on behalf of Customer at the same then current charge per square foot per month (i.e. $[*] per square foot per month). 1.5. Instructions; Shipments: 3PF shall respond to regular electronically transmitted instructions from Customer by providing the fulfillment services requested in accordance with this Agreement by such instructions and including packaging and shipment of the Stock identified in the instruction. Shipments will be completed on the same "day" in accordance with the Printed 12/14/2001 11:57 AM Initials (3PF) /s/ [ILLEGIBLE] Initials (Rentrak) /s/ [ILLEGIBLE] Initials (RedEnvelope) /s/ MWM - Page 2 of 21 - * Material has been omitted pursuant to a request for confidential treatment. following examples:
ORDER RECEIVED @3PF ORDER SHIPPED BY 3PF - ---------------------------------------------------------------------------- [*] By [*] - ---------------------------------------------------------------------------- [*] Within [*] - ----------------------------------------------------------------------------
Shipping cut-off times in this Agreement shall be the same as in the previous agreement between Customer and 3PF dated September 29th, 1999. In addition, 3PF will work with Customer to make a good faith effort to meet fulfillment goals of Customer surrounding specific holiday events. 1.6 Exclusions: The provisions of Section 1.5 shall not apply in the case of back orders, items which have not been received by 3PF or are not available to 3PF or for any inability to fill such orders due to strike, riots, storms, fires, explosions, acts of God, war or governmental action, or any other similar cause which is beyond the reasonable control of 3PF. In such case, 3PF will use all reasonable efforts to complete such instructions and shall promptly advise Customer of such action. 1.7 Provision of Services. All services provided by 3PF are subject to the provisions of this Fulfillment Agreement, including any Schedules, Exhibits and Appendices hereto. SECTION II TERM AND TERMINATION 2.1 Term. This Agreement shall be effective as of October 1, 2001, and shall continue in full force and in effect for twenty two (22) months and shall terminate on July 31st, 2003. 2.2 Termination for Cause. Either party may terminate this Agreement by written notice if the other party breaches any of its material obligations, representations or warranties under this Agreement and fails to cure such breach within thirty (30) days after receipt of written notice from the other party specifying such breach. Printed 12/14/2001 11:57 AM Initials (3PF) /s/ [ILLEGIBLE] Initials (Rentrak) /s/ [ILLEGIBLE] Initials (RedEnvelope) /s/ [ILLEGIBLE] - Page 3 of 21 - * Material has been omitted pursuant to a request for confidential treatment. 2.3 Termination for Insolvency. This Agreement may be terminated at any time by either party, effective immediately upon notice, if the other party: (1) becomes insolvent, (2) files a petition in bankruptcy, or (3) makes an assignment for the benefit of creditors. 2.4 Termination for Failure to Meet Service Level Commitment. If 3PF is unable to ship any order within the applicable time-frame set forth in Section 1.5 and subject to the limitations of paragraph 1.6, and such failure is not directly attributable to weather, computer problems, or demand exceeding 5% of order projections provided to 3PF by Customer, 3PF agrees to upgrade all delayed orders to a service level which provides comparable delivery to Customer's customers using the carrier of 3PF's choice, 3PF will pay the difference between the original service level and the upgraded service level. Furthermore, if in the course of any rolling twelve(12) month period, more than ten(10) such failures occur, Customer shall have the right to terminate this Agreement upon sixty(60) days written notice to 3PF. 2.5 Survival. Sections 4.1,5 and 6 (except for 6.11), and all accrued payment obligations, shall survive any termination or expiration of this Agreement. 2.6 Abandonment. All stock which remains at the facility more than 30 days after termination of this Agreement shall be deemed abandoned, and shall at the option of 3PF become property of 3PF. SECTION III PRICING AND PAYMENT 3.1 Payment. Customer shall pay for the services performed by 3PF in accordance with the schedule of fees, rates, charges, and terms set forth on the attached Schedule 1.1. Billing to Customer will be on a fiscal month basis and will conform to Customer's monthly fiscal calendar. 3.2 Additional Charges. If Customer requests 3PF to perform services not listed in Schedule 1.1 and 3PF is willing to provide such services, the parties shall agree in a prior writing as to the services to be performed and the charges to be paid for the services. 3.3 Pricing Changes. All rates, fees and charges set forth on Schedule 1.1 shall remain fixed Printed 12/14/2001 11:57 AM Initials (3PF) /s/ [ILLEGIBLE] Initials (Rentrak) /s/ [ILLEGIBLE] Initials (RedEnvelope) /s/ [ILLEGIBLE] - Page 4 of 21 - during the term of this Agreement. Notwithstanding the above, the freight rates set forth on Schedule 1.1 shall remain fixed during the term of this Agreement, provided, however, that such rates may be adjusted to reflect all rate changes imposed by the freight companies / commercial carriers selected by Customer and such rate increases shall become effective as of the date imposed by the applicable freight companies/ commercial carriers selected by Customer. Such rate changes shall not exceed actual changes in cost incurred by 3PF. 3.4 Delinquency. 3PF encourages prompt payment by its clients. Payment must be received by 3PF within (30) thirty days of date of invoice. In the event that payment is not received within thirty (30) days, 3PF may elect to suspend performance under this Agreement upon written notice to Customer. Until such late payment is cured, an interest charge shall be assessed on the balance owed in the amount of one and one-half percent (1 1/2%) per month or the maximum amount allowed by applicable law, whichever is lower. Assessment of such charge shall not be deemed a waiver of any other remedy 3PF may have hereunder or at law. SECTION IV WAREHOUSING 4.1 Ownership. Title and exclusive ownership to the Stock stored and warehoused by and in the possession and control of 3PF shall at all times remain with Customer. Neither this Agreement nor any warehouse receipt for the delivery and acceptance of the Stock by 3PF shall be construed to be anything other than a non-negotiable instrument of title. 4.2 Stock from Vendors. All Stock submitted for 3PF's services under this Agreement shall be delivered at Customer's expense to the 3PF dock at 3300 State Route 73 South, Building 5, Wilmington, Ohio, 45177. All such Stock shall be in good condition, properly marked, sized, and packaged for handling. Customer shall furnish at or prior to each inbound delivery, a manifest, packing list, order list, or other listing in such style and format as is consistent with the current format being supplied to 3PF by Customer or such new format as both parties may agree upon in the future, which identifies each container and its contents. Included therein shall be the brand names, serial numbers (if applicable), SKU numbers, part numbers, size, weight, and insured or declared value of items as are necessary for inventory and distribution, or as may be required by 3PF. Customer shall inform 3PF prior to or at delivery of any special precautions necessitated by the nature, conditions, or packaging of the Stock and of all Printed 12/14/2001 11:57 AM Initials (3PF) /s/ [ILLEGIBLE] Initials (Rentrak) /s/ [ILLEGIBLE] Initials (RedEnvelope) /s/ [ILLEGIBLE] - Page 5 of 21 - statutory requirements specific to the Stock with which 3PF does or may need to comply. In the event Customer acquires Stock from a third party and such Stock does not meet the above requirements, 3PF will use commercially reasonable efforts to accept such Stock subject to Customer paying all 3PF's reasonable costs and expenses in accepting and stocking such items at the charges shown on Schedule 1.1 as such may be amended from time to time upon the mutual written agreement of the parties. 4.3 Customer's Inventory. Any Stock delivered to 3PF from Customer's facility or from a third party facility shall be transported at the expense of Customer, freight prepaid and shall be subject to charges as defined in schedule 1.1 of this Agreement. 3PF shall have no duty or obligation to accept stock on a COD basis. 4.4 Inspection: 3PF reserves the right to open and inspect any packages of Stock received by it for warehousing or distribution. Stock shall not be deemed accepted by 3PF or become subject to this Agreement until it is delivered to the warehouse specified on Schedule 1.1 and the bill of lading accepting shipment is signed for by 3PF. 3PF shall not be responsible for any damage to the Stock caused in transit to 3PF's warehouse facility and all Stock is accepted subject to any pre-existing damage. 4.5 Facility Access. Employees of Customer with proper identification and proof of employment by Customer shall be allowed free access to the warehouse facility at any time. Customer agrees to provide 48-hours notice of any warehouse visitors who are not employees of Customer. 3PF reserves the right to refuse access to the facility for non-Customer employees, however, such refusal shall not be unreasonably given. In the event any employee, visitor, contractor or other person under the direction of Customer violates any employee or visitor policies of 3PF, including but not limited to creating a danger to other employees, causing harassment of employees, or disturbing the operation of 3PF, 3PF in its sole discretion shall have the right to have such employee removed from the Facility immediately. Customer shall be liable for and shall indemnify and hold 3PF harmless from any and all damages to property or equipment or injuries to persons caused Customer's representatives or agents. 4.6 Hours. Inbound shipments to 3PF warehouse and distribution center shall be during 3PF's normal hours as such may change from time to time unless alternative arrangements have been made with 3PF prior to arrival. Printed 12/14/2001 11:57 AM Initials (3PF) /s/ [ILLEGIBLE] Initials (Rentrak) /s/ [ILLEGIBLE] Initials (RedEnvelope) /s/ [ILLEGIBLE] - Page 6 of 21 - 4.7 Receipt and Verification. Promptly upon receipt and acceptance of Stock, 3PF shall initiate to Customer an electronic facsimile confirmation of receipt of the Stock. The original Vendor's packing slip will be forwarded daily to Customer via Airborne Express overnight priority service. 4.8 Identification. All Stock shall be kept and remain identifiable as Customer Stock. 4.9 Removal: No Stock shall be removed from 3PF's warehouses by anyone other than 3PF or its carriers without prior written authorization from Customer. Customer shall furnish in writing to 3PF the name, address, phone number and any security information required by Customer or 3PF of each person who shall have authorization to remove or direct removal of such Stock. Customer shall be responsible for updating such information. 4.10 Freight Charges. Distribution shall be at Customers expense at the prices and rates set forth on Schedule 1.1, and shall be made on or as soon as reasonably practicable after the date that 3PF receives valid written authorization from Customer. 4.11 Distribution. 3PF shall deliver outbound Stock to a carrier chosen by Customer for delivery in accordance with the authorized instructions of Customer. In the event distribution cannot be made as a result of 3PF's acts or omissions, 3PF will waive the handling charges for such shipment. 4.12 Commitment of Assets by 3PF: 3PF hereby acknowledges and agrees that it has not and will not claim any security interest, lien or other encumbrance (a "Lein") of any kind (whether consensual or otherwise) in and to all or any portion of the assets of Customer, including without limitation the Stock. To the extent any such Lien automatically arises by operation of law, 3PF hereby disclaims any such Lien and shall be deemed to have automatically released any such Lien in favor of Customer. SECTION V LIABILITY/INDEMNIFICATION/INSURANCE/SECURITY/WARRANTIES 5.1 Insurance. Stock stored or warehoused by 3PF is not insured against loss or damage unless Customer requests such coverage in writing and pays the applicable premium. In addition 3PF Printed 12/14/2001 11:57 AM Initials (3PF) /s/ [ILLEGIBLE] Initials (Rentrak) /s/ [ILLEGIBLE] Initials (RedEnvelope) /s/ [ILLEGIBLE] - Page 7 of 21 - will not be liable for any loss or damages relating to transportation carriers or packaging deficiencies. 5.2 Liability. 3PF shall not be liable to Customer for any damage, loss, demurrage, or injury to Stock of Customer unless such loss is the result of 3PF's failure, to exercise such care in regard to such Stock or the distribution thereof as a reasonably careful person would exercise under like circumstances, and 3PF shall not be liable for damages that could not have been avoided by the exercise of such care. Accordingly, 3PF shall be liable for all losses, demurrage or injury to Stock caused by the gross negligence or willful misconduct of 3PF. 3PF shall not under any circumstances be liable to Customer for any damage, injury, loss, demurrage, or default in its obligations of any kind which arise from the following (each, a "Force Majeure Event"): a) Fire, war, Act of God, acts of Terrorism, or any natural disaster or calamity, b) Power outages, c) Strikes, lockouts or labor disputes at 3PF, its carrier(s), or at any party providing services to 3PF, d) Any governmental actions, or e) Acts of gross, reckless, or willful misconduct of the employees of Customer If a Force Majeur Event which materially affects 3PF's ability to perform its obligations under this Agreement continues for more than fourteen (14) business days, then Customer may terminate this Agreement upon written notice to 3PF. 5.3 Consequential Damages. Neither party shall be liable to the other or any third party for any indirect or consequential loss or damages, however arising, including but not limited to, loss of income, loss of profit or loss of opportunity, provided that such loss is not caused by the negligence or willful misconduct of such party. 5.4 Inventory Shrinkage. 3PF does not anticipate inventory shrinkage for Stock held by 3PF. Shrinkage is an uncorrectable negative difference between physical and book inventory of stock. 3PF shall not be liable for any Customer losses as a result of inventory shrinkage, unless such shrinkage causes the inventory to fall below the Ninety-Eight and One-Half percent (98.5%) inventory accuracy level. 3PF shall be liable for the entire percentage of the discrepancy below this accuracy level. 3PF will replace such percentage of inventory below Printed 12/14/2001 11:57 AM Initials (3PF) /s/ [ILLEGIBLE] Initials (Rentrak) /s/ [ILLEGIBLE] Initials (RedEnvelope) /s/ [ILLEGIBLE] - Page 8 of 21 - this accuracy level as determined by Customer's external auditor and at price equal to the Customer's cost for those items. Inventory accuracy shall be defined as inventory overages minus inventory shortages, as measured by dollar value of the discrepancy and a percentage of total inventory value at cost. The measurement period shall constitute the period of time between physical inventories, which shall be no fewer than one (1) time per calendar year, and no more than twelve (12) times per year, as determined by Customer. Accountability shall begin as product is received, using the physical counts by 3PF as a beginning inventory. Shortages will become payable only after two (2) consecutive inventory shortages. The net shortage or overage over the previous two (2) inventories shall be carried to the next inventory. Payment of the first shortage after two (2) consecutive shortages will be made thirty (30) days after reconciliation of the second shortage. 5.5 Warranties; Representations; and Indemnity. 3PF represents and warrants that: (1) the services provided hereunder will be performed in a professional manner by qualified, competent personnel and in accordance with generally accepted industry standards applicable to such services; (2) the performance by 3PF of its obligations under this Agreement will not cause 3PF to be in breach of any agreement by which it is bound; (3) except as otherwise provided herein, 3PF's equipment at the Facility is not and will not be subject to any security interest, lien or other encumbrance; and (4) 3PF's underlying lease to the Facility does and will allow 3PF to perform its obligations during the term of this Agreement with the following exception: it is understood that 3PF is currently under negotiations with its landlord to extend its existing lease for the Facility. Should 3PF be unable to secure a renewal of or extension to its existing lease for the Facility, 3PF may notify Customer in writing prior to January 3, 2002, that 3PF has been unable to extend its lease for the period of this Agreement. Should such notice be received by Customer prior to January 3, 2002, the term of this agreement shall end on June 30, 2002. (5) 3PF and Customer shall defend, indemnify and hold each other harmless against any and all losses, costs, damages and liabilities, including without limitation reasonable attorneys' fees, arising out of any breach by either party of their representations, warranties or obligations under this Agreement. SECTION VI MISCELLANEOUS 6.1 Transferability: The rights and obligations of Customer created under this Agreement may not be transferred, or assigned to a third party, or for the benefit of a third party, either directly or Printed 12/14/2001 11:57 AM Initials (3PF) /s/ [ILLEGIBLE] Initials (Rentrak) /s/ [ILLEGIBLE] Initials (RedEnvelope) /s/ [ILLEGIBLE] - Page 9 of 21 - indirectly, without the prior written notice to 3PF. Customer can assign this Agreement in the event of the sale, merger, or acquisition of substantially all of the assets of the Customer. In the event of sale, merger, or acquisition of Customer by a third party, 3PF may choose to terminate this Agreement without penalty with six-month's written notice to the other party. In the event of sale, merger, or acquisition of 3PF by a third party, Customer may choose to terminate this Agreement without penalty with six-month's written notice to the other party. 6.2 Termination: Upon termination, Customer agrees to pay all transportation and shipping charges, fees and expenses incurred and owed by Customer to 3PF pursuant to this Agreement. Handling, order, packaging, insurance and all other non-transportation and shipping charges, fees and expenses shall be paid within five (5) days after final billing to Customer. Prior and subsequent to any termination, Customer shall be granted free access in accordance with this Agreement to the Stock and Customer Owned Equipment at any time and may remove any Stock and/or Customer Owned Equipment from the Facility. 6.3 Notice. All notices or notification required hereunder shall be deemed sufficient if in writing and sent via first-class mail, postage prepaid, with a copy sent by facsimile to the attention and address and facsimile number set forth below: 3PF: 3PF 3300 State Route 73 S. Wilmington, Ohio 45177 Attn.: Edward A. Barnick, Executive Vice President Facsimile Number-(937) 383-2649 Customer: RED ENVELOPE, INC. 201 Spear Street, 3rd Floor San Francisco, CA 94105 Attn: Christopher Cunningham, CIO Facsimile Number:(415) 371-1134 Printed 12/14/2001 11:57 AM Initials (3PF) /s/ [ILLEGIBLE] Initials (Rentrak) /s/ [ILLEGIBLE] Initials (RedEnvelope) /s/ [ILLEGIBLE] - Page 10 of 21 - 6.4 Severability. In the event that any of the terms of this Agreement shall be deemed invalid, unlawful, or unenforceable to any extent, such term shall be severed from the remaining terms, which shall continue to be valid to the fullest extent permitted by law. 6.5 Taxes. Customer agrees to pay and/or indemnify 3PF from all taxes applicable to the sale, delivery, shipment, or storage of Customer's Stock, including but not limited to sales, use, personal, franchise, gross receipts, excise, tariff, franchise and business taxes, together with any penalties, fines, or interest thereon, imposed by any federal, state, province, local government, or any other taxing authority, but excluding any taxes based on 3PF net income and any taxes based on 3PF's use, lease or ownership of the Facility, including without limitation any property taxes. 6.6 Governing Law, Jurisdiction. If any fees or costs are incurred to enforce this Agreement, or if any suit or action is brought to enforce any provision of this Agreement, or for damages for the breach of any of the terms of this Agreement, the prevailing party shall be entitled to reasonable attorney fees and costs as awarded through the arbitration process. This Agreement shall be interpreted and enforced in accordance with the laws of the State of Oregon, without reference to provisions of conflicts of laws. 6.7 Confidentiality. Customer and 3PF each acknowledge the sensitivity and importance of information and documents exchanged or acquired pursuant to this Agreement. Customer's client's names, Stock, prices for Stock, ordering and shipping quantities, prices for packaging materials and freight, the details of this Agreement, and any other information which is marked "confidential" or "proprietary" or which would reasonably be understood to be confidential, whether written or oral, are the confidential information property of Customer. The details of this Agreement, 3PF's logistics, software, quotations, operations, costs, customer's names, price schedules, and all other related documents, information, and appendixes are confidential and owned by 3PF. Neither party shall disclose any of the other party's confidential information to any third party except such party's attorneys and accountants (subject to the confidentiality provisions of this Agreement) without first obtaining the prior express written authorization of the other party. Neither party shall use the name or trademarks of the other in any advertisement without first obtaining the prior express written permission of such party. Notwithstanding the above, however, upon the prior written approval of Customer in each instance, 3PF may use Customer's name for the purpose of advertising the services, which 3PF renders to its customers, and upon the prior Printed 12/14/2001 11:57 AM Initials (3PF) /s/ [ILLEGIBLE] Initials (Rentrak) /s/ [ILLEGIBLE] Initials (RedEnvelope) /s/ [ILLEGIBLE] - Page 11 of 21 - written approval of 3PF in each instance, Customer may use 3PF's name in representing its services. This provision will remain in force for one year following the expiration or termination of this agreement. 6.8 Non-Solicitation: Customer and 3PF agree that during the term of this Agreement and for a period of two years after its termination, neither party nor its Representatives will hire, employ or solicit for employment, directly or indirectly, any employees of the other party without the prior written consent of the other party, which consent may be withheld in its sole discretion. For purposes of this Section 6, employees shall include all employees of 3PF or Customer as of the date of this Agreement and all new employees of 3PF and Customer that become employees after the date hereof up until the expiration of the no solicitation period provided for in this Section 6. 6.9 Entire Agreement. This Agreement and its appendices and exhibits contains the entire agreement and understanding of the parties as to the subject matter herein, and supersedes all other prior agreements, understandings and arrangements, written or oral, between the parties relating to the subject matter hereof. 6.10 Counterparts. 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 but one and the same instrument. 6.11 Binding Arbitration. In the event a dispute or claim arises between the parties hereto concerning this Agreement the parties agree to submit such disputes and/or claims to binding arbitration pursuant to the commercial arbitration rules of the American Arbitration Association ("AAA"). Either party may make a demand for arbitration. If either party demands such arbitration, arbitration shall be conducted in Portland, Oregon, before a single arbitrator jointly selected by the parties hereto. If the parties are unable to agree on an arbitrator within thirty (30) days after the arbitration demand is field, the AAA shall select the arbitrator. The arbitration filing fee, if any, and fees of the arbitrator shall initially be shared equally between the parties, provided, however, that the prevailing party shall be reimbursed for these costs by the non-prevailing party at the conclusion of the arbitration proceeding. Each side shall bear their own legal fees and costs and any other fees associated with participating in the arbitration process. Printed 12/14/2001 11:57 AM Initials (3PF) /s/ [ILLEGIBLE] Initials (Rentrak) /s/ [ILLEGIBLE] Initials (RedEnvelope) /s/ [ILLEGIBLE] - Page 12 of 21 - 6.12 Exclusive Use: For the duration of this Agreement, Customer agrees that it shall exclusively use 3PF as its primary third-party fulfillment shipper. This does not apply to the Customer's drop shipments by third party or to shipping arrangements which may be necessary to support volumes in excess of the capacity of the Facility. For the duration of this Agreement, Customer shall have exclusive use of the Facility and 3PF shall not use the Facility in connection with providing services to any third party or allow any third party to use the Facility. 6.13 Representation of Continuation of Services: 3PF agrees and represents that for the term of this Agreement, it shall not cease doing business as a third-party fulfillment company. 6.14 Independent Contractor: 3PF is an independent contractor and not an employee, partner or agent of Customer. Neither party shall have authority to commit or create any liability on the part of the other in any manner whatsoever. Personnel retained or assigned by 3PF to perform work under this Agreement shall at all times be considered employees, agents, or contractors of 3PF, and at no time employees of Customer, and 3PF shall be fully responsible for compensation, payroll taxes, workman's compensation coverage, and any other legal requirements associated with employment. SECTION VII RIGHT OF REFUSAL SECTION VIII GUARANTEE AND OTHER REPRESENTATIONS AND OBLIGATIONS 8.1 Rentrak Guarantee. Rentrak hereby gurantees the performance by 3PF of 3PF's obligations hereunder, including without limitation 3PF's indemnification obligations. Rentrak's gurantee shall not exceed the obligations of 3PF under this agreement. Rentrak shall be responsible for 3PF's obligations in the event that 3PF is unable to perform its obligations hereunder. Customer, in its sole discretion, shall have the right to bring action against Rentrak or 3PF, or both entities, in the event that 3PF breaches any of its obligations hereunder, including without limitation 3PF's failure to perform any of its indemnification obligations hereunder. Printed 12/14/2001 11:57 AM Initials (3PF) /s/ [ILLEGIBLE] Initials (Rentrak) /s/ [ILLEGIBLE] Initials (RedEnvelope) /s/ [ILLEGIBLE] - Page 13 of 21 - 8.2 Customer Payment: Should this agreement terminate prior to July 31, 2003, Customer agrees to pay 3PF a monthly sum equal to the actual monthly base rent paid by 3PF to its landlord, plus all CAMS, taxes, utilities, and insurance applicable specifically to the Facility and paid by 3PF. In the event of early termination, 3PF and Rentrak agree to make a good faith effort to re-lease/reuse the space vacated by Customer. Should this space be re-leased or used for other purposes by 3PF prior to July 31, 2003, Customer's monthly payment to 3PF shall be reduced on a pro-rated basis for the portion of space which has been re-leased. Printed 12/14/2001 11:57 AM Initials (3PF) /s/ [ILLEGIBLE] Initials (Rentrak) /s/ [ILLEGIBLE] Initials (RedEnvelope) /s/ [ILLEGIBLE] - Page 14 of 21 - Witness the execution of this agreement, this 14th day of December, 2001. 3PF,INC., A SUBSIDIARY OF RENTRAK REDENVELOPE, INC. By: /s/ Edward Barnick By: /s/ Martin McClanan ------------------- ----------------------- DATE: 12/18/01 DATE: December 14, 2001 Edward Barnick Martin McClanan Executive Vice President Chief Executive Officer With respect to Section VIII only: RENTRAK CORPORATION BY: /s/ Mark Thoenes ---------------- DATE: 12/19/01 Mark Thoenes Chief Financial Officer, Rentrak Corporation Printed 12/14/2001 11:57 AM Initials (3PF) /s/ [ILLEGIBLE] Initials (Rentrak) /s/ [ILLEGIBLE] Initials (RedEnvelope) /s/ [ILLEGIBLE] - Page 15 of 21 - SCHEDULE 1.1 TO SERVICING, WAREHOUSING & DISTRIBUTION AGREEMENT Fulfillment Services shall include the Facility and services listed below: RATE FOR FACILITY CHARGE: $[*] PER MONTH. Located at 3300 S.R. 73 South, Building 5, Wilmington, Ohio 45177, and hereinafter referred to as the "Facility". The warehouse Facility space is approximately 102,400 square feet of floor space which includes office space of approx. 3,400 sq. ft. 3PF services shall include payment of all common area maintenance charges, real estate taxes, HVAC, electrical, plumbing, water, security, insurance, janitorial and trash removal. NATURE OF STOCK: GIFT MERCHANDISE, NOTIONS, AND NOVELTIES SYSTEMS REQUIREMENTS: VIA THE CUSTOMER PROVIDED AND MAINTAINED MACS SYSTEM. MANAGEMENT: MANAGEMENT FEE: $[*] PER MONTH 3PF will provide a dedicated management team, including but not limited to five (5) "key" personnel, or their equivalently trained and competent replacement. This staff will be of a number adequate to professionally manage and supervise the warehousing operations of Customer. The management team's objective is to provide management, direction, support, and expertise in the areas of receiving, pick, pack, manifesting, inventory management, returns processing, transportation, logistics, and various duties relating to the physical fulfilment and distribution of Customer's stock. The 3PF management team will take direct operational instructions from a Customer representative. The 3PF management team will continue to have a reporting structure to 3PF in order to assure compliance with 3PF employee policies and guidelines. The 3PF management team, may from time to time offer recommendations to Customer which may Printed 12/14/2001 11:57 AM Initials (3PF) /s/ [ILLEGIBLE] Initials (Rentrak) /s/ [ILLEGIBLE] Initials (RedEnvelope) /s/ [ILLEGIBLE] - Page 16 of 21 - * Material has been omitted pursuant to a request for confidential treatment. recommend proposed efficiencies and cost reduction programs with the purpose of reducing the overall expenses to Customer and/or enhancing productivity. If in the event Customer requires additional dedicated management to be added to the 3PF management team, 3PF agrees to increase the additional management to Customer's account within thirty (30) days of the request. 3PF may increase the "Management Charge" for additional management at the fully burdened cost to 3PF, plus [*] percent ([*]%). Conversely, should Customer request that 3PF decrease the dedicated management servicing the account, 3PF will reduce the "Management Fee" by the same fully burdened cost sixty (60) days following the reduction in staffing. Customer may also, at its discretion, supplement the management team at the facility with staff who are directly employed by Customer and such action will not result in a change in the monthly management fee. It is understood and agreed that Customer shall commence immediately to replace two (2) of the five (5) dedicated "key" 3PF management personnel with Customer's employees. These employees shall be based at the Facility and take daily direction from 3PF's senior manager assigned to Customer's account. Customer may consider existing 3PF employees for these positions only with 3PF's consent. It is further understood that upon placement of Customer's employees in the facility, a reduction in the monthly management fee will occur in accordance with the guidelines stated in the preceding paragraph excepting should Customer hire a 3PF employee the sixty (60) day notice period shall be waived. PICK, PACK, AND MANIFEST CHARGE: $[*] PER ORDER, PLUS $[*] PER ITEM AFTER ONE UNIT. The pick, pack and manifest charge will be at the per order rate of $[*] per order and will include the order selection of one item. A per unit charge in the amount of $[*] per unit will apply to units beyond one unit on an order. 3PF will be responsible for performing the order selection of specifically identified items, ordered by Customer's customer. 3PF labor will perform the electronic and visual confirmation of the selected items into an over-wrap shipping container (when appropriate) and secure those items ordered using the necessary packing materials suitable for transportation and within carrier specifications. 3PF will print all customer order documents including the gift card and accurately match the order documents to an order. 3PF labor will accurately label and electronically manifest the finished, packed carton(s), include any designated inserts, and tender them to the appropriate/designated carrier. RECEIVING CHARGE: $[*] PER MONTH The "Receiving Charge" is based on the labor responsible to perform the physical receipt of goods, the confirmation of quantities delivered versus the quantities ordered, palletizing (when needed) and Printed 12/14/2001 11:57 AM Initials (3PF) /s/ [ILLEGIBLE] Initials (Rentrak) /s/ [ILLEGIBLE] Initials (RedEnvelope) /s/ [ILLEGIBLE] - page 17 of 21 - * Material has been omitted pursuant to a request for confidential treatment. physical "put-away"/stocking to a proper warehouse location. In addition, 3PF will perform random visual inspections of not less that ten percent (10%) of goods delivered. The purpose of inspecting items received is to validate vendor compliance to Customer's quality and standards of goods ordered. Customer and 3PF will jointly develop the written criteria, guidelines and instructions to be followed by 3PF staff for receiving processing and inspection. 3PF shall work to receive and put away all goods in a timely manner. The "Receiving Charge" is limited to receiving into the primary facility identified in this Agreement. Should additional space be occupied by Customer requiring receiving into a separate physical facility, an additional receiving charge will be negotiated. RETURNS PROCESSING CHARGE: $[*] PER RETURN AUTHORIZATION, PLUS $[*] PER ITEM. 3PF labor will physically receive and visually inspect all items returned to 3PF. 3PF labor will identify and/or determine the reason for return using criteria and/or per Customer's request. 3PF labor will perform any and all duties relating to the processing of returned goods including (but not limited to) data entry into customers MACS system. 3PF labor will physically stock and "put-away" inventory into a properly identified shelf location. 3PF will process all returns within [*] business days of receipt of goods at 3PF's facility during the months of February 1st through November 16th During the time period from November 19th through January 31st, 3PF will make every reasonable effort to process customer returns with [*] business days from date of receipt but no later than [*] calendar days. Returns will be sent to 3PF on a freight pre-paid basis. GIFT WRAPPING OR GIFT BOXING CHARGE: $[*] PER FINISHED ITEM 3PF labor will perform the physical gift wrapping or gift boxing of those items identified per the order request as requiring gift wrap or gift boxing. Such orders will include a hand tied ribbon, gift card, tissue wrapping, and portfolio insert in compliance with Customer's gift boxing/gift wrapping standards. ENGRAVING AND PERSONALIZATION CHARGE: PER ITEM CHARGE TBD 3PF and Customer agree to determine a per item charge for engraving based upon a time and motion study to determine the number of items which can be engraved in an hour and the hourly rate of $[*] per hour. In the event that engraving and personalization service is provided to Customer prior to the establishment of a per item rate, 3PF may invoice Customer at the rate of $[*] per hour for work performed in the engraving area in performing engraving tasks. Printed 12/14/2001 11:57 AM Initials (3PF) /s/ [ILLEGIBLE] Initials (Rentrak) /s/ [ILLEGIBLE] Initials (RedEnvelope) /s/ [ILLEGIBLE] - Page 18 of 21 - * Material has been omitted pursuant to a request for confidential treatment. SUPPLIES CHARGE: ONE TIME CHARGE Customer will order shipping supplies which will be received and stored in the facility. 3PF's management team and labor will work with Customer to support any inventory processes implemented by Customer to track and manage supplies inventory. The following additional stipulations apply: - Customer agrees to purchase its supplies through the vendor "xpedx" using their Portland, OR sales office as the primary point of contact. - Customer may from time-to-time request competitive bids for shipping supplies from other suppliers, in the event that Customer is able to obtain more favorable pricing from a vendor other than xpedx, Customer shall allow xpedx to meet the price obtained by Customer. Should xpedx be unable or unwilling to meet the price obtained by Customer, Customer shall be free from its obligation to purchase supplies from xpedx. - 3PF shall conduct an inventory of all shipping supplies currently on hand for use in the Customer account which are usable and applicable to Customer's business and combine this with a reasonable estimate of supplies consumed in service of Customer since October 1, 2001. 3PF shall present a one-time invoice to Customer for supplies on-hand plus supplies consumed. This invoice will price these supplies at the actual original price paid by 3PF for the supplies. CREDIT TERMS: Within ten (10) days of the commencement of this Agreement, Customer shall issue through its bank, and have delivered to 3PF an original, Letter of Credit (LOC) for the benefit of and in a form acceptable to 3PF in the amount of $[*] as security for payments due under the terms of this Agreement. 3PF may terminate this Agreement should Customer not deliver such LOC within ten (10) business days. To be deemed acceptable to 3PF, the LOC shall include the following covenants: a) the LOC shall be non-revocable during the term of the Agreement without 3PF's written permission which would be granted at 3PF's sole discretion, and; b) the LOC shall have a term equal to the term of this Agreement.Immediately upon receipt of written notification to 3PF confirming the execution of the LOC, 3PF will provide written notification to Customer acknowledging termination of the "Prior Agreement" entered into and dated September 29, 1999, including all of its amendments and extensions, for distribution and fulfillment services. The Customer shall also remit by wire transfer to 3PF, in a bank account designated by 3PF, during the peak season (Thanksgiving Day through December 31st) and in any other month during the calendar year in which Customer and 3PF agree that the value of 3PF's services (including freight) to Customer are anticipated to exceed $[*] for that month, estimated weekly payments in advance for services (including freight) to be provided by 3PF to Customer. Printed 12/14/2001 11:57 AM Initials (3PF) /s/ [ILLEGIBLE] Initials (Rentrak) /s/ [ILLEGIBLE] Initials (RedEnvelope) /s/ MWM - Page 19 of 21 - * Material has been omitted pursuant to a request for confidential treatment. The failure of the Customer to remit estimated advanced weekly payments during the peak season or any month in which the value of services (including freight) to be provided by 3PF to Customer are anticipated to exceed $[*] shall permit 3PF to terminate this Agreement. Should the Bank reduce the amount of their letter of credit to 3PF on behalf of Customer for any reason, without written consent of 3PF, then 3PF shall be permitted to terminate this Agreement. SPECIAL PROJECTS AND /OR HOURLY LABOR CHARGES: Normal hours: Includes: Monday through Friday Operation during normal operating hours (8 a.m. - 2 a.m.), Receiving (8 a.m. - 3 p.m.), Verification, Quality Control Stocking, Stocking, Order Picking (8 a.m. - 12 a.m.), Order Packing, Shipment Manifesting and Processing, Electronic Transfer Of Shipment Confirmation, order Tracking, Claims Processing with Carriers, Nightly 50 SKU Inventory. Straight time: $[*] per labor hour Overtime: (outside of normal operating hours): $[*] per labor hour Holiday time: $[*] per labor hour 3PF Holiday Schedule: New Year's Eve New Year's Day Memorial Day (observed) Independence Day (Observed) Labor Day (Observed) Thanksgiving Day Friday after Thanksgiving Christmas Eve Christmas Day 3PF may be requested to perform duties and functions from time to time that are outside the scope and pricing of the proposed schedule. In order to assure Customer that there will be no interruption of services, 3PF has provided a per labor charge that will apply to these instances. 3PF shall not incur such charges without the prior written approval of Customer. CARRIERS & RATES: USPS: Published Rates UPS: Ground Published Residential Rates - as published Published Commercial Rates - [*]% discount Published Domestic 2-3 Day Rates - [*]% discount Airborne (next day and second day air): See attached rate sheet DHL(International): See enclosed rate sheet Printed 12/14/2001 11:57 AM Initials (3PF) /s/ [ILLEGIBLE] Initials (Rentrak) /s/ [ILLEGIBLE] Initials (RedEnvelope) /s/ [ILLEGIBLE] - Page 20 of 21 - * Material has been omitted pursuant to a request for confidential treatment. The Airborne rates will be per the attached rate schedule. It is understood that a new Airborne agreement rate schedule is under negotiation between 3PF and Airborne Express. It is also understood that a new rate schedule may result in an increase in Airborne rates. Should 3PF receive from Airborne Express a new rate schedule(s), 3PF will be permitted to replace the attached schedule and charge Customer per the revised base rates. 3PF guarantees Customer that the new base rates offered to Customer will be charged at a rate not to exceed those rates offered by 3PF to Rentrak by [*]% and will be no less favorable than rates offered to any other customer receiving fulfillment services from 3PF of comparable carton volume. "Base rate" is defined as the rate as noted on the 3PF provided schedule and excludes any fuel surcharge(s), beyond charge(s), residential surcharge(s), Saturday delivery charge(s), dimensional charge(s) or hazardous material charge(s) which may be assessed to 3PF by the carrier. 3PF agrees that any charge(s) excluding the base charge will be charged to Customer, at the actual charge to 3PF from the carrier with no additional mark up. Customer also agrees not to solicit from any carrier, rates and/or services from any air, ground or LTL transportation carrier during the term of this Agreement without sixty (60) days prior written notice to 3PF. INVOICE TERMS: All charges due net thirty (30) days from date of invoice. ATTACHMENTS: Current Airborne rate schedule DHL rate schedule Printed 12/14/2001 11:57 AM Initials (3PF) /s/ [ILLEGIBLE] Initials (Rentrak) /s/ [ILLEGIBLE] Initials (RedEnvelope) /s/ [ILLEGIBLE] - Page 21 of 21 - * Material has been omitted pursuant to a request for confidential treatment. EX-10.28 35 f89225orexv10w28.txt EXHIBIT 10.28 Exhibit 10.28 Revised 6/14/02 AMENDMENT NO. 1 TO SERVICING, WAREHOUSING & DISTRIBUTION AGREEMENT THIS AMENDMENT NO. 1 is made as of June 18, 2002, between 3PF.COM, INC., a Delaware corporation, having an address at 3300 State Route 73, South Building 5, Wilmington, Ohio 45177 ("3PF"), RENTRAK CORPORATION, a Delaware corporation and parent corporation of 3PF ("RENTRAK"), and RED ENVELOPE, INC., a Delaware corporation, having an address at 201 Spear Street, 3rd Floor, San Francisco, California 94105 ("CUSTOMER"). RECITALS: A. Pursuant to Servicing, Warehousing & Distribution Agreement, dated October 1, 2001, between 3PF, Rentrak and Customer (the "FULFILLMENT AGREEMENT"), 3PF provides certain warehousing, management, distribution and inventory services to Customer. B. Concurrently with entering into this Amendment, 3PF and Customer have entered into a certain Sublease Agreement of even date herewith (the "SUBLEASE") by which 3PF has subleased to Customer a certain warehousing facility located at Creekside Industrial Center, Obetz, Ohio (the "SUBLEASED FACILITY"). C. Also concurrently with entering into this Amendment, 3PF and Customer have entered into a certain Equipment Lease Agreement of even date herewith (the "EQUIPMENT LEASE") by which 3PF has leased to Customer certain equipment (the "LEASED EQUIPMENT") to be used to warehouse, service and distribute Customer's Stock (as defined below). D. Customer intends upon the Term Commencement Date (as defined in the Sublease) to transfer to the Subleased Facility all of its goods and merchandise (the "STOCK") which it currently warehouses at the Wilmington, Ohio facility under the terms and conditions of the Fulfillment Agreement. E. 3PF and Customer desire to amend the Fulfillment Agreement, effective as of the Term Commencement Date, to reflect the change in warehouse location, the Sublease and Equipment Lease and to eliminate the facility and equipment charges. F. 3PF and Customer desire to make certain additional modifications to the Fulfillment Agreement, effective as of the date hereof. NOW, THEREFORE, for valuable consideration as set forth in the Fulfillment Agreement and the mutual benefits to be derived therefrom, 3PF and Customer agree as follows: 1. Effective as of the Term Commencement Date, Section 1.1 of the Fulfillment Agreement is amended to delete references to 3PF's provision of warehouse space insofar as Customer will use its Subleased Facility as its warehouse, and will read in its entirety as follows: "Warehousing Services: 3PF agrees to provide certain warehouse management, servicing, inventory and distribution services to Customer as set forth herein. The warehouse space shall be located at Customer's Subleased Facility, and Customer agrees that it shall comprise not less than 194,000 square feet of such facility. Subject to the terms of the Sublease, Customer shall maintain the facility structurally and mechanically in good working order and shall pay all common area maintenance charges, real estate taxes, unless abated by taxing authorities, HVAC, electrical, plumbing and water, security, insurance, janitorial and supplies, continuance of existing Internet access, and trash removal with respect to the Subleased Facility. 3PF shall not be required to pay any expenses in connection with the maintenance or operation of the Subleased Facility except as expressly set forth herein or in the Sublease." 2. Effective as of the Term Commencement Date, Section 1.2 of the Fulfillment Agreement is amended to delete references to 3PF's provision of warehousing equipment insofar as Customer will use the Leased Equipment, and will read in its entirety as follows: "Equipment: Subject to the terms of the Equipment Lease, Customer agrees to make available to 3PF the Leased Equipment in the Subleased Facility, including not less than 620 bays of pallet rack, 32 bays of flow rack, 1 forklift, 1 drexel truck, 4 order pickers and 6 pallet trucks. Subject to the terms of the Equipment Lease, Customer assumes full responsibility for all Leased Equipment and shall provide all maintenance and replacement of the Leased Equipment if any of it is no longer fully operational at any time during the term of this Agreement. 3PF shall exercise reasonable care in the use and custody of such Leased Equipment and shall use such Leased Equipment only in performing its obligations under this Agreement. 3PF will provide various smaller pieces of equipment which include but are not limited to: tape guns, air pillow machines, movable conveyor, jewelry storage lockers, security cameras, employee lockers, kitchen facilities, and such items as are adequate to support the order/fulfillment volume projected for Customer's Christmas CY2002 season. These smaller pieces of equipment, may remain in place in the Subleased Facility at the end of the term of this Agreement upon terms mutually agreeable to Rentrak and Customer." 3. Effective as of the Term Commencement Date, Section 1.3 Additions is deleted in its entirety. 4. Effective as of the Term Commencement Date, Section 1.4 Additional Space is deleted in its entirety. 2 5. Effective as of the date hereof; Section 1.5 Instructions; Shipments is amended to add the following sentence: "Notwithstanding anything stated herein to the contrary, 3PF and Customer agree that the earliest cut-off time for Airborne carrier services shall be 11:00 p.m." 6. Effective as of the Term Commencement Date, Section 2.6 Abandonment is deleted in its entirety. 7. Effective as of the Term Commencement Date, the first sentence of Section 4.2 Stock from Vendors shall be amended to read as follows: "All Stock submitted for 3PF's services under this Agreement shall be delivered at Customer's expense to Customer's dock at: Creekside Industrial Center, Village of Obetz, Ohio, 4000 Creekside Parkway, Lockbourne, Ohio 43137." 8. Effective as of the date hereof, Section 4.2 Stock from Vendors is amended to add the following sentences: "Prior to the Term Commencement Date, 3PF, at 3PF's expense, shall transfer a sufficient quantity of Customer's Stock located at the Facility to the Subleased Facility such that on the Term Commencement Date, and for a period of at least thirty (30) days thereafter, 3PF can fully perform its services under this Agreement at the Subleased Facility. Within fifteen (15) days after the Term Commencement Date, 3PF, at 3PF's expense, shall transfer the remaining Stock located at the Facility to the Subleased Facility." 9. Effective as of the Term Commencement Date, Section 4.5 shall be amended to read in its entirety as follows: "Facility Access. Employees of 3PF and Customer with proper identification and proof of employment shall be allowed free access to the Subleased Facility at any time. Customer agrees to provide reasonable prior notice (except in the event of an emergency, in which case no prior notice shall be required) of any warehouse visitors who are not employees of Customer. Such prior notice shall be required solely for the purpose of ensuring that only individuals authorized by Customer are granted access to the Subleased Facility. In the event any employee, visitor, contractor or other person under the direction of Customer violates any employee or visitor policies of 3PF, including but not limited to creating a danger to other employees, causing harassment of employees, or disturbing the operation of 3PF, 3PF in its reasonable discretion shall have the right to have such employee removed from the Subleased Facility immediately." 3 10. Effective as of the Term Commencement Date, Section 5.5 Warranties; Representations; and Indemnity shall be amended to read in its entirety as follows: "Warranties; Representations; and Indemnity. 3PF represents and warrants that: (1) the services provided hereunder will be performed in a professional manner by qualified, competent personnel and in accordance with generally accepted industry standards applicable to such services; and (2) the performance by 3PF of its obligations under this Agreement will not cause 3PF to be in breach of any agreement by which it is bound. 3PF and Customer shall defend, indemnify and hold each other harmless against any and all losses, costs, damages and liabilities, including without limitation reasonable attorneys' fees, arising out of any breach by either party of their representations, warranties or obligations under this Agreement." 11. Section 6.5 Taxes shall be subject to the terms of the Sublease defining Customer's obligation to pay real property taxes, personal property taxes and inventory taxes to the extent such taxes are not abated pursuant to certain abatement agreements, copies of which are attached to the Sublease as Exhibit G. 12. Effective as of the Term Commencement Date, Section 6.8 shall be amended to read in its entirety: "Non-Solicitation. Customer and 3PF agree that neither party nor its Representatives will hire, employ or solicit for employment, directly or indirectly, during the term of this Agreement, any employees of the other party without the prior written consent of the other party, which consent may be withheld in its sole discretion. Notwithstanding the foregoing, Customer shall have the right to approach 3PF employees for employment opportunities with Customer, on a basis agreeable to 3PF, for any period of time beyond the scheduled termination date of the Agreement. For purposes of this Section 6, employees shall include all employees of 3PF or Customer as of the date of this Agreement and all new employees of 3PF and Customer that become employees after the date hereof up until the expiration of the no solicitation period provided for in this Section 6." 13. Effective as the Term Commencement Date, Section 8.2 Customer Payment shall be deleted in its entirety. 14. Effective as of the Term Commencement Date, the Rate for Facility Charge of $[*] per month set forth in Schedule 1.1 to the Fulfillment Agreement is eliminated and the term "Facility" defined therein shall mean the Subleased Facility. 4 * Material has been omitted pursuant to a request for confidential treatment. 15. Effective as of the date hereof, the Engraving and Personalization Charge set forth in Schedule 1.1 to the Fulfillment Agreement is modified to provide a per item charge of [*] ($[*]). 16. Except as modified and amended herein, the Fulfillment Agreement shall remain in full force and effect. [Intentionally Blank; Signature Pages Follow] 5 * Material has been omitted pursuant to a request for confidential treatment. The parties hereto have caused this Amendment to be executed as of the date first above written. 3PF.COM, INC., a Delaware corporation By: /s/ [ILLEGIBLE] ------------------------------ Its: CHIEF FINANCIAL OFFICER RED ENVELOPE, INC., a Delaware corporation By: /s/ Alison May ------------------------------ Its: CEO + Pres With respect to Section 8.1 of the Fulfillment Agreement only: RENTRAK CORPORATION a Delaware corporation By: /s/ [ILLEGIBLE] ------------------------------ Its: CHIEF FINANCIAL OFFICER 6 EX-10.29 36 f89225orexv10w29.txt EXHIBIT 10.29 . . . EXHIBIT 10.29 MICROSOFT CORPORATION/WEBTV SHOPPING INSERTION ORDER ACCOUNT EXECUTIVE: KEVIN WILK EMAIL: kwilk@microsoft.com - ----------------------------------------------------------------------------------------- ADVERTISER: Red Envelope - ----------------------------------------------------------------------------------------- CONTACT: Chas Akers 201 Spear St San Francisco, CA 94105 (415) 371-9100 x260 cakers@redenvelope.com - ----------------------------------------------------------------------------------------- SITE URL: www.redenvelope.com TERM: July 1, 2000 - June 30, 2001 - ----------------------------------------------------------------------------------------- TOTAL FEES: $[*] ($[*]) ($[*]) - -----------------------------------------------------------------------------------------

ORDER SUMMARY (SEE ATTACHED SPREADSHEET): SUBJECT TO APPLICABLE TERMS AND CONDITIONS INCLUDED WITH THIS ORDER.
- ---------------------------------------------------------------------------------------------------------- MONTHLY AD ELEMENTS ORDER TOTAL GUARANTEED FEE TOTAL AD REQUEST - ---------------------------------------------------------------------------------------------------------- [*] [*] See attached spreadsheet - ---------------------------------------------------------------------------------------------------------- ADDITIONAL PLACEMENTS [*] See attached spreadsheet [*] - ----------------------------------------------------------------------------------------------------------
* Material has been omitted pursuant to a request for confidential treatment. - ---------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------- [*] $[*] See attached spreadsheet - ----------------------------------------------------------------------------------------------------------
ADDITIONAL TERMS: EMAIL USERS. 1. MS agrees that Advertiser may apply [*] dollars ($US[*]) from the MSN Shopping Order confirmation Premier Merchant Agreement dated October 18, 1999 between the parties toward [*] ([*]) e-mail ad requests in the following newsletters targeted at MSN users: (i) [*]; and (ii) [*]. Notwithstanding the foregoing, MS shall be relieved of its obligation to provide Emails once such Emails have met a metric of [*]: $[*] for the Term, where [*] (US$[*]) equals sales revenue to Advertiser and [*] (US$[*]) equals every [*] spent by Advertiser for the placements set forth herein. 2. The parties will meet during the Term to monitor and manage the progress of such e-mails and requests. Click-Through users. 1. (a) In the event that Advertiser implements its Passport Wallet Technology (as defined in attached Passport contract) on or before October 23, 2000, MS will provide a minimum of [*] ([*]) click-through users ("Click-Throughs") to Advertiser during the Term. Notwithstanding the foregoing, MS shall be relieved of its obligation to provide Click-Throughs once such Click-Throughs have met a metric of $[*]: $[*] for the Term, where [*] (US$[*]) equals sales revenue to Advertiser and $[*] equals every [*] spent by Advertiser for the placements set forth herein. (b) In the event that Advertiser does not implement its Passport Wallet Technology on or before October 23, 2000, MS will provide a minimum of [*] Click-Throughs to Advertiser during the Term. Notwithstanding the foregoing, MS shall be relieved of its obligation to provide Click-Throughs once such Click-Throughs have met a metric of $[ * ]: $[*] for the Term, where [*] (US$[*]) equals sales revenue to Advertiser and $[*] equals every [*] spent by Advertiser for the placements set forth herein. 2. The parties will meet during the Term to monitor and manage the progress of the Click-Throughs. 3. MS Shall be obligated solely to provide the quarterly Click-Through totals (each, a "Quarterly CT Benchmark") in each on-line property set forth in Exhibit A, attached hereto. In the event that MS determines that the Click-Throughs derived from the [*] will be insufficient to meet a Quarterly CT Benchmark, MS may supplement the banners and ads on the [*] with banners and ads on [*] and [*]; provided, however that the Click-Throughs from [*] and [*] required to offset a Click Through on the [*] shall be adjusted to account for the lower sales conversion ratio attributable to Click-Throughs from [*] and [*] as compared to Click-Throughs from [*]. The parties currently estimate that it will take [*] Click-Throughs from a banner or other ad placed on [*] or [*] to make good on one missed Click-Through from [*]. [*] Click-Throughs shall be determined by clicks from all [*]. [*] clicks shall be derived from [*] and [*] shall originate from small banners and text ads. If MS fails to deliver at least [*] percent [*] of the Quarterly CT Benchmark as set forth in Exhibit A, Advertiser will provide MS with additional Offers or ad creative elements within thirty (30) days of notification by MS. Thereafter, MS will provide additional Advertiser approved Microsoft -2- * Material has been omitted pursuant to a request for confidential treatment. Passport co-branded ad requests for the Offers in the form of [*] and [*] for the Offers ("Offer Ad Elements") at no charge to Advertiser until such Quarterly CT Benchmark is achieved. During any make-good period, the Offer Ad Element Click-Throughs shall solely count against the quarter during which the Quarterly CT Benchmark was not met, and such make-goods shall be Advertiser's sole remedy for MS' failure to deliver the Quarterly CT Benchmark. MS's obligation to make good on its Click-Through obligations shall survive the Term of this Agreement. Solely during such make-good period, Advertiser will be relieved of payment for the invoice for such quarter until the Quarterly CT Benchmark is met. 4. Advertiser will provide MS with promotional offers for MSN users ("Offers") during the Term. The Offers may include, but not be limited to, free or reduced shipping, discounts, free gift wrapping, exclusive product bundles or other compelling offers to increase MSN user response and Advertiser's sales. 5. MS will provide ad requests and Click-Throughs proportionally in accordance with the "Holiday Months", and the months of November, December, February, May and June are designated as such months. If MS fails to deliver higher Click-Throughs during the Holiday Months or does not provide the total Click-Throughs by the end of the Term, Advertiser's sole remedy for such failure will be (i) the extension of the Term during which MS will provide additional ad requests at no charge to Advertiser until the Click-Throughs are provided and (ii) the waiver of Advertiser's payment obligations as described in paragraph 3 above until the Click-Throughs are provided. MICROSOFT CORPORATION RED ENVELOPE One Microsoft Way Chas Akers Redmond, WA 98052-6399 201 Spear St San Francisco, CA 94105 (415) 371-9100 x260 cakers@redenvelope.com By (Sign) /s/ Jeff Bernstein By (Sign) /s/ Charles W. Akers -------------- -------------------- Name (Print) Jeff Bernstein Name (Print) Charles W. Akers Title: Group Manager Title: Director [ILLEGIBLE] Date: 9-15-00 Date: 9-6-00 By : /s/ Hilary Billings --------------------- Name: Hilary Billings Title: Chairman Date: 9-6-00 -3- * Material has been omitted pursuant to a request for confidential treatment. MICROSOFT CORPORATION NON-STANDARD TERMS AND CONDITIONS MSN SHOPPING CHANNEL WebTV SERVICE SHOPPING CENTER 1. MATERIAL SPECIFICATIONS: Specifications for the material elements that Advertiser must include in any link, advertisement or other submission to Microsoft Corporation ("MS") for MSN Shopping and WebTV Service Shopping Center ("WebTV") will be distributed to Advertiser. All submissions to MS for MSN Shopping or WebTV hereunder will comply with all such applicable elements. 2. ORDERS FOR ADVERTISEMENTS: All orders or other requests for advertising from an advertiser (whether made by the advertiser directly, or through an agency) ("Advertiser") are governed by these Standard Terms and Conditions and the attached Insertion Order (the "IO"). No other conditions, provisions, or terms of any sort appearing in any writings or other communications made in connection with such orders, including without limitation those contained on or accompanying checks or other forms of payment, shall be binding on MS, whether in conflict with or in addition to these Standard Terms and Conditions. MS reserves the right to refuse advertising buys from third parties that require ads to be served from that third party's servers. Except as otherwise specified by MS herein, all order provisions regarding positioning of advertisements shall be treated as requests, which requests shall be fulfilled at MS' sole discretion. 3. ACCEPTANCE: MS' offer to publish advertisements for Advertiser is made on these Standard Terms and Conditions and the attached IO, and the placement or other communication of an order for advertising with MS shall constitute Advertiser's unconditional acceptance of these Standard Terms and Conditions; no acceptance shall be effective until it is received by MS in Redmond, Washington. MS reserves the right not to publish any advertisement if MS, in its reasonable judgement, finds the ad would violate third party rights, is libelous, defamatory, obscene or pornographic or would violate applicable law. In this case, MS is required to inform Advertiser of the problem and allow Advertiser the opportunity to submit a revised advertisement. Failure by MS to publish any requested advertisement pursuant to this Section 3 does not constitute a breach of contract or otherwise entitle Advertiser to any legal remedy. Upon acceptance, Advertiser agrees to comply with all specifications for material elements required for the MSN Shopping Channel or WebTV as designated by MS. The content of each and every advertisement is subject to the reasonable approval of MS, in the sole discretion of MS, and will be subject to such limitations as MS may reasonably deem appropriate. MS and its network service providers may elect to cache certain Advertiser pages on MS' servers or other technologies, and Advertiser hereby consents to such caching for the Agreement Term and subject to the provisions of this Agreement. 4. FEES: A. During the Term of this Agreement, Advertiser shall pay MS the following as itemized on the attached IO: (i) a monthly guaranteed fee for placement in MSN Shopping or WebTV, in equal monthly installments; and (ii) for media on WebTV and/or for MSN.com or any of its affiliated channels in accordance with the fee schedule referenced in the Insertion Order of this Agreement. The first payment of the foregoing fees shall be delivered to MS with a signed original of this Agreement. MS will invoice Advertiser for each subsequent installment, and Advertiser will pay such invoiced amounts within thirty (30) days after the date of such invoice. If MS fails to deliver the agreed upon number of ad requests during the agreed upon period pursuant to subsection (i) or (ii) above, Advertiser's sole remedy for such failure will be the extension of the period until the agreed upon number of ad requests (or other ad requests as the parties may agree) are provided. B. MS will invoice Advertiser on a monthly basis, in arrears, for all amounts owing to MS pursuant to Section 4. Advertiser will pay each MS invoice pursuant to this paragraph within thirty (30) days after the date of such invoice, in readily available funds. All amounts are invoiced and payable in United States dollar currency. In addition to all other available rights and remedies, MS may cancel and remove any advertisement which is not paid for on a timely basis. C. The fees, advances and other amounts owing to MS pursuant to these Standard Terms and Conditions and the attached IO do not include taxes or other governmental fees. Advertiser will pay all taxes and other governmental fees arising out of or related to all transactions undertaken pursuant to this Agreement, other than taxes on MS income and revenue, and will provide MS with appropriate evidence of such payment upon request. 5. AUDITS: Upon request, but no more frequently than once in any twelve (12) month period, MS will provide Advertiser with the most recent process audit conducted by an independent auditing agency, pursuant to the then-current and applicable MS requirements. 6. CANCELLATION: On March 1, 2001 or thereafter, either party shall have the right to terminate these Standard Terms and Conditions and the attached IO upon sixty (60) days written (email if followed by U.S. mail no later than the next business day) notice to the other party. If either MS or Advertiser defaults under this Agreement, the non-defaulting party will notify the other in writing. If the failure is not cured within ten (10) business days after written notice is received by the notified party, the non- -4- defaulting party may, at any time prior to the default being cured, terminate this Agreement with no further obligation to the notified party; except for payment of any amount properly due MS pursuant to Section 4. 7. ADVERTISER REPORTING: Advertiser shall develop, implement and maintain the technology required to track usage of the Advertiser site by users linking to the Advertiser site from the MSN Shopping Channel, WebTV and/or any other MS site, and will provide MS with monthly usage reports no later than thirty (30) days following the end of each month of the Term. Such reports shall include traffic from referring URL to the Advertiser site, number of page views, number of unique users (unique user information will be provided starting in the month following the integration of the technology necessary to do so), number of weekly orders, total revenue and average revenue per order. 8. WARRANTIES: Advertiser warrants, represents and agrees that, during the Term of this Agreement, all products and/or services offered, sold or otherwise provided as part of the Advertiser site, and all Product Images (as defined in Section 11.C below): (a) are made, offered, sold or otherwise provided in compliance with applicable laws and will not infringe the copyrights, trademarks, service marks or any other proprietary, publicity or privacy right of any third party; (b) shall not be libelous, defamatory, obscene or pornographic; and (c) shall not violate other civil or criminal laws, including those regulating the use and distribution of content on the Internet and protection of personal privacy. Advertiser further warrants, represents and agrees that: (d) the Advertiser site is controlled and operated by Advertiser and/or its independent contractors and Advertiser will use commercially reasonable efforts to ensure that the Advertiser site will be functional and accessible at all times during the Term of this Agreement; (e) except as specifically provided for in the IO or as otherwise agreed to in writing by the parties, Advertiser will not use in any manner any trade names, trademarks, logos or product names of MS or its affiliated companies; (f) the Advertiser site and all actions occurring thereon during the Term of this Agreement are in compliance with all applicable laws; (g) the information technology, financial, operational, communication and other systems and processes used by Advertiser in connection with the Advertiser site shall not be interrupted or adversely affected by the manipulation, processing, comparison, display or calculation of dates from, into and between the twentieth and twenty-first centuries, including leap years; (h) Advertiser has the power and authority to enter into and perform its obligations under this Agreement; (i) Advertiser maintains and will maintain during the Term of this Agreement on Advertiser's site a clear privacy statement setting forth the information gathering, dissemination, privacy protection and other practices employed by Advertiser with respect to information collected by Advertiser from users, and Advertiser will adhere to all the provisions of such statement during the Term of this Agreement; and (j) Advertiser will use reasonable efforts during the Term of this Agreement to implement secure technology to protect user data for all commercial transactions following execution of this Agreement. MS warrants, represents and agrees that: (k) the MSN Shopping Channel and WebTV are in compliance with all applicable laws, and (I) MS has the power and authority to enter into and perform its obligations under this Agreement. Notwithstanding the foregoing, MS will not be responsible for third party content, products or services offered on the MSN Shopping Channel, WebTV or any Internet site owned, controlled or operated by MS or any of its affiliated companies and Advertiser will not be responsible for third party content, products or services offered by the MSN Shopping Channel, WebTV, or any Internet site owned, controlled or operated by MS or on any of its affiliated companies. THIS SECTION, SECTION 9, AND THE MS INSERTION ORDER FOR THIS CONTRACT CONTAIN THE ONLY WARRANTIES, EXPRESS OR IMPLIED, MADE BY ADVERTISER AND MS. ANY AND ALL OTHER WARRANTIES, EXPRESS OR IMPLIED, ARE EXPRESSLY EXCLUDED AND DECLINED. EACH PARTY DISCLAIMS ANY IMPLIED WARRANTIES, PROMISES AND CONDITIONS OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, TITLE AND/OR NON-INFRINGEMENT, WHETHER AS TO THE MSN SHOPPING CHANNEL, WEBTV, THE ADVERTISER SITE, ANY SERVICES RENDERED BY MS OR ADVERTISER AND/OR THE TECHNOLOGY DEPLOYED IN CONNECTION THEREWITH. 9. LINKS TO INTERNET SITES: Advertiser warrants and represents to MS that, during the Term of this Agreement, each Internet site identified by URLs in advertisements: (a) is controlled by Advertiser and operated by Advertiser and/or its independent contractors; (b) will use commercially reasonable efforts to ensure that the Advertiser site will be functional and accessible at all times; and (c) is in compliance with all applicable laws and regulations, and suitable in all technical respects to be linked to from the applicable site containing the advertisement. MS may refuse to provide links from the [*] or [*] to any materials on the Advertiser's site, or MS may reject any Advertiser content that, in MS' reasonable judgment (d) are factually inaccurate, misleading or deceptive; (e) infringe any third party intellectual property rights; (f) are libelous, defamatory, obscene or pornographic; (g) may violate other civil or criminal laws, including those regulating the use and distribution of content on the Internet and protection of personal privacy; and/or (h) contain any programs, application, interfaces or other functions that, given the nature of the [*] or [*] system and in MS' reasonable judgment would have a materially adverse effect on the [*] or [*] users' experience. In determining whether any materials on the Advertiser's site, or whether any Advertiser content would have a deleterious effect on the [*] or [*] users' experience, MS shall use standards consistent with those MS uses to determine quality standards for its other featured partners. MS may test Advertiser's URLs, and in MS' sole discretion may remove any URLs at any time that fail to comply with the above requirements. -5- * Material has been omitted pursuant to a request for confidential treatment. 10. REMOVAL OF LINK: If MS receives a claim of infringement concerning the Advertiser link or advertisement or a claim which alleges a breach of Section 8, 9, 11.D., 11.E. and/or 11.F, the parties agree that MS may, in addition to any other remedies provided for herein, immediately remove the Advertiser link or advertisement from any and all MS site(s), pending receipt of a non-infringing replacement link or satisfactory resolution of the claim, and any such removal shall not constitute a breach of this Agreement. Advertiser must provide a non-infringing replacement link or advertisement (as applicable), or resolve the claim to MS' satisfaction, within forty-eight (48) hours of notification of the precise concern. Following the removal of any link pursuant to this Section 10, at such time as Advertiser has resolve the claim to MS's reasonable satisfaction, MS shall reinsert such link or advertisement. Advertiser's obligation to pay the fees in Section 4, if any, shall be suspended during any period that MS has removed the Advertiser link or advertisement from the MSN Shopping Channel or WebTV, as set forth in this Section. MS shall provide a technical contact to remedy any technical problems resulting from the improper insertion of the Advertiser's linking URLs that impact the security of the Advertiser's site. -6- 11. ADVERTISER OBLIGATIONS: A. Advertiser will make regular updates of all pricing and inventory information available to MS in a reasonable time interval and in a format agreed to by the parties; B. Advertiser will provide MS with thirty (30) days notice if it intends to modify the format in which it has provided pricing and inventory information; C. Advertiser shall provide, to the extent such information exists, images for the products in its inventory in either gif or jpeg format ("Product Images"). Advertiser grants MS a non-exclusive, royalty free right and license to use the Product Images solely in conjunction with promotion of the Advertiser pursuant to this Agreement. MS acknowledges that its utilization of the Product Images will not create in it, nor will it represent it has, any right, title, or interest in or to such product images or other content contained on the Advertiser site other than the licenses expressly granted herein; D. Advertiser shall be solely responsible for customer service for users linking to the Advertiser site through the MS site(s), for product support, quality and availability of products and/or services made available at the Advertiser site, fulfillment of orders and returns; E. Advertiser shall ensure that all users of the Advertiser's site placing an order for product(s) and/or service(s) are timely advised of the status of such purchase(s) including the timely confirmation of all orders via electronic mail; F. Advertiser shall provide electronic mail capabilities between the user and Advertiser; G. Advertiser shall use its reasonable efforts optimize the Advertiser site for WebTV users by providing a "WebTV-friendly environment" and emphasizing clear page layouts designed for display on a television set, with a template that conforms to WebTV's website design guidelines for the size, color and layout of text and graphics; H. Advertiser will enter into the standard MS Passport Wallet Service Agreement and MS Passport SDK License and Single Sign-In Service Agreement promptly following the execution of this Agreement, Advertiser agrees to deploy such MS Passport services no later than November 30, 2000; and I. Advertiser agrees to participate in a case study for MS. 12. INDEMNIFICATION: Each party agrees to indemnify, defend, and hold each other harmless from any and all actions, causes of action, claims, demands, costs, liabilities, expenses (including reasonable attorneys' fees) and damages arising out of or in connection with any claim made by a third party that, if true, would be (a) a breach by Advertiser of Sections 11.D., 11.E. and/or 11.F; or (b) a breach by such party of any representation or warranty set forth in this Agreement. If any action shall be brought against either party ("Claimant") in respect to any allegation for which indemnity may be sought from the other party ("Indemnifying Party") pursuant to the provisions of this Section 12, Claimant shall promptly notify Indemnifying Party in writing, specifying the nature of the action and the total monetary amount sought or other such relief as is sought therein. Claimant shall not settle or otherwise compromise any claim without the written consent of Indemnifying Party. Claimant shall cooperate with Indemnifying Party at Indemnifying Party's expense in all reasonable respects in connection with the defense of any such action. Indemnifying Party may upon written notice to Claimant undertake to conduct all proceedings or negotiations in connection therewith, assume the defense thereof, and if it so undertakes, it shall also undertake all other required steps or proceedings to settle or defend any such action, including the employment of counsel that shall be satisfactory to Claimant, and payment of all expenses. Claimant shall have the right to employ separate counsel and participate in the defense at Claimant's sole expense. Indemnifying Party shall reimburse Claimant upon demand for any payments made or loss suffered by it at any time after the date of tender, based upon the judgment of any court of competent jurisdiction or pursuant to a bona fide compromise or settlement of claims, demands, or actions, in respect to any damages to which the foregoing relates. 13. LIMITATION OF LIABILITY: EXCEPT TO THE EXTENT ARISING PURSUANT TO SECTION 12 OR A BREACH OF SECTION 14, IN NO EVENT SHALL EITHER PARTY BE LIABLE FOR ANY CONSEQUENTIAL, INDIRECT, INCIDENTAL, SPECIAL OR EXEMPLARY DAMAGES WHATSOEVER, INCLUDING WITHOUT LIMITATION, DAMAGES FOR LOSS OF PROFITS, BUSINESS INTERRUPTION, LOSS OF OR UNAUTHORIZED ACCESS TO INFORMATION, AND THE LIKE, INCURRED BY THE OTHER PARTY ARISING OUT OF THIS AGREEMENT (PROVIDED THAT THIS LIMITATION SHALL NOT LIMIT EITHER PARTY'S OBLIGATION TO INDEMNIFY THE OTHER PARTY FOR THIRD PARTY CLAIMS WHICH INCLUDE SUCH DAMAGES), EVEN IF SUCH PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. IN NO EVENT WILL EITHER PARTY OR ANY OF ITS AFFILIATES BE LIABLE TO THE OTHER PARTY FOR AN AMOUNT IN EXCESS OF THE TOTAL DOLLAR AMOUNT ACTUALLY RECEIVED BY MS FROM ADVERTISER FOR THE ADVERTISEMENT(S) AT ISSUE. As a matter of clarity, MS' affiliate, WebTV Networks, Inc., shall have no liability whatsoever to advertiser. 14. CONFIDENTIALITY: Advertiser acknowledges that it has entered into a MS Non-Disclosure Agreement dated _____________, and the terms of such agreement shall be deemed incorporated herein, and further, that all terms and conditions of this Agreement shall be deemed Confidential Information as defined therein. 15. PRESS RELEASES: Neither party will issue any press release or make any public announcement(s) relating in any way whatsoever to this Agreement or the relationship established by this Agreement without the express prior written consent of the other party, which consent shall not be unreasonably withheld, provided that MS may make informational references to MSN Shopping and/or WebTV Service Shopping Center, and Advertiser's participation therein in publicity and press releases without obtaining Advertiser's consent. -7- 16. GENERAL PROVISIONS: These terms and conditions are governed by the laws of the State of Washington, USA. All capitalized terms used herein shall have the same meaning as in the IO. Advertiser hereby irrevocably consents to the personal jurisdiction of, and non-exclusive venue for any legal proceedings or actions undertaken by or on behalf of Advertiser in, the state and federal courts located in King County, Washington. The prevailing party in any dispute concerning the subject matter hereof shall be entitled to recover its reasonable attorney's fees and costs. The parties agree that this Agreement is deemed to have been made in the State of Washington, USA. No joint venture, partnership, employment, or agency relationship exists between Advertiser and MS. Neither party shall be deemed to have waived or modified any of these terms and conditions except by a writing signed by its duly authorized representative. Neither party may assign its rights hereunder to any third party (other than to a person, firm or entity controlling, controlled by or under common control with the assigning party or in connection with a sale of all or substantially all of assigning party's assets) unless the other party expressly consents to such assignment in writing, which consent shall not be unreasonably withheld. Any attempted assignment, sub-license, transfer, encumbrance or other disposal without such consent shall be void and shall constitute a material default and breach of this Agreement. If any provision of these Standard Terms and Conditions is found invalid or unenforceable pursuant to judicial decree or decision, the remaining provisions shall remain valid and enforceable, and the unenforceable provisions shall be deemed modified to the extent necessary to make them enforceable. Unless specifically stated otherwise, the applicable territory for the advertising shall be the United States and Canada. All notices to MS relating to any legal claims or matters must be made in writing to Microsoft Corporation, One Microsoft Way, Redmond, WA 98052-6399, attn. US Legal Group, Law & Corporate Affairs, attn: Ad Sales Attorney and will be deemed given as of the day they are received either by messenger, delivery service, or in the United States of America mails, postage prepaid, certified or registered, return receipt requested, and addressed to the party signing this Agreement. This Agreement constitutes the entire agreement between the parties with respect to the subject matter hereof and supersedes all prior and contemporaneous agreements or communications. This Agreement shall not be modified except by a written agreement dated subsequent to the date of this Agreement and signed on behalf of Advertiser and MS by their respective duly authorized representatives. This Agreement does not constitute an offer by MS and it shall not be effective until signed by both parties. Sections 5 (Audits), 7 (Advertiser Reporting), 8 (Warranties), 10 (Removal of Link), 12 (Indemnification), 13 (Limitation of Liability), 14 (Confidentiality) and 16 (General Provisions) shall survive any termination of this Agreement and will remain in full force, together with all rights and causes of action that may have accrued prior to termination, and any other provisions that might reasonably be deemed to survive such termination. -8- EXHIBIT A MSN/REDENVELOPE PROJECTED SESSIONS TO REDENVELOPE FROM [*] [*] [*] TOTAL EMAIL AD REQUESTS GUARANTEED CLICK THRUS BASED ON A 10/23/00 PASSPORT WALLET IMPLEMENTATION
MONTH [ * ] [ * ] [ * ] TOTALS ---------------------------------------------- JULY [* [* [* ---------------------------------------------- AUG * * * ---------------------------------------------- SEPT * * * ---------------------------------------------- Q1 Sub * * * [* ---------------------------------------------- OCT * * * ---------------------------------------------- NOV * * * ---------------------------------------------- DEC * * * ---------------------------------------------- Q2 Sub * * * * ---------------------------------------------- JAN * * * ---------------------------------------------- FEB * * * ---------------------------------------------- MAR * * * ---------------------------------------------- Q3 Sub * * * * ---------------------------------------------- APR * * * ---------------------------------------------- MAY * * * ---------------------------------------------- JUNE * * * ---------------------------------------------- Q4 Sub * * * * ---------------------------------------------- GRAND TOTAL *] *] *] *] ----------------------------------------------
GUARANTEED CLICK THRUS BASED ON A 11/30/00 PASSPORT WALLET IMPLEMENTATION
MONTH [ * ] [ * ] [ * ] TOTALS ---------------------------------------------- JULY ---------------------------------------------- AUG ---------------------------------------------- SEPT Q1 Sub [* [* [* [* ---------------------------------------------- OCT ---------------------------------------------- NOV ---------------------------------------------- DEC * * * ---------------------------------------------- Q2 Sub * * * * ---------------------------------------------- JAN * * * ---------------------------------------------- FEB * * * ---------------------------------------------- MAR * * * ---------------------------------------------- Q3 Sub * * * * ---------------------------------------------- APR * * * ---------------------------------------------- MAY * * * ---------------------------------------------- JUNE * * * ---------------------------------------------- Q4 Sub * * * * ---------------------------------------------- GRAND TOTAL *] *] *] *] ----------------------------------------------
* Material has been omitted pursuant to a request for confidential treatment. EX-10.30 37 f89225orexv10w30.txt EXHIBIT 10.30 EXHIBIT 10.30 AMENDMENT TO MICROSOFT CORPORATION/WEBTV SHOPPING INSERTION ORDER This Amendment is made pursuant to that certain Microsoft Corporation/WebTV Shopping Insertion Order (the "Agreement") dated September 15, 2000 by and between Microsoft Corporation ("Microsoft") and RedEnvelope, Inc. ("Company") and confirms the terms pursuant to which Company will participate in the MSN Shopping Channel ("eShop") and WebTV Service Shopping Center ("WebTV"). Microsoft and Company hereby agree to modify the Agreement as follows, effective immediately: 1. All references to "MS" and "Advertiser" in the Agreement shall be deemed deleted, and the words "Microsoft" and "Company" shall respectively be deemed inserted therein. 2. The parties agree that the Term, Total Fees and Order Summary outlined in the Agreement shall be deemed deleted, and such elements shall be amended and deemed inserted as set forth below: ACCOUNT EXECUTIVE: KERRY BENJAMIN EMAIL: KERRYB - ------------------------------------------------------------------------------------------ COMPANY: RedEnvelope, Inc. AGENCY: - ------------------------------------------------------------------------------------------ CONTACT: Chas Akers CONTACT: 201 Spear St. Suite 300 SF, CA 94105 - ------------------------------------------------------------------------------------------ SITE URL: www.redenvelope.com TERM: July 1, 2001 - June 30, 2002 - ------------------------------------------------------------------------------------------ TOTAL FEES: See Exhibit 1 - B - ------------------------------------------------------------------------------------------

Order Summary (see Exhibit 1-A attached):
- ------------------------------------------------------------------------------------------------------------------- AD ELEMENTS ORDER TOTAL MONTHLY GUARANTEED FEE TOTAL ESTIMATED AD REQUESTS - ------------------------------------------------------------------------------------------------------------------- [*] PLACEMENTS See Exhibit 1-B See Exhibit 1-B [*] [*} - ------------------------------------------------------------------------------------------------------------------- [*] PLACEMENTS Included n/a [*] [*] - -------------------------------------------------------------------------------------------------------------------
3. MAKE-GOOD POLICY: The parties agree that the following sentence shall be deleted from Section 4.A of the Agreement: If MS fails to deliver the agreed upon number of ad requests during the agreed upon period pursuant to subsection (i) or (ii) above, Advertiser's sole remedy for such failure will be the extension of the period until the agreed upon number of ad requests (or other ad requests as the parties may agree) are provided. 4. CANCELLATION: The parties agree that Section 6 of the Agreement shall be deemed deleted, and the following shall be deemed inserted therein: If either Microsoft or Company defaults under this Agreement, the non-defaulting party will notify the other in writing. If the failure is not cured within five (5) business days after written notice is received by the notified party, the non-defaulting party may terminate this Agreement immediately with no further obligation to the notified party. Upon termination or expiration of this Agreement, other than by Company due to an uncured default by Microsoft, Company will immediately pay Microsoft any amounts of The Fee not yet paid, however, Microsoft will be entitled to payment of Total Fees if it has provided [*] ([*]) or more clicks to Company. If Company terminates due to an uncured default by Microsoft, Company will be solely obligated to render payment to Microsoft through the effective date of termination. 5. COMPANY REPORTING: In addition to the obligations set forth in Section 7 of the Agreement, Company agrees to the following: If Company participates in a seasonal or other Microsoft promotion during the Term, Company shall develop, implement and maintain the technology required to track usage of the Company site by users linking to the Company site from [ * ], MICROSOFT CONFIDENTIAL [MICROSOFT LOGO] Page 1 of 8 * Material has been omitted pursuant to a request for confidential treatment. [ * ] and/or any other Microsoft site, and will provide Microsoft with reports detailing the qualifying transaction activity including but not limited to, the total number of qualifying transactions per customer check-out, and the URL for the corresponding order confirmation page on Company's site Company agrees to keep all usual and accurate records necessary to verify such promotion reporting under this section. 6. USE OF NAME OR MARKS: Each party hereby grants to the other the right during the Term to use, reproduce and publish the names and logos of the other party solely in the manner contemplated by this Agreement. Company must use the Microsoft names and logos in accordance with the names and logo guidelines set forth at http://www.microsoft.com/trademarks/t-mark/MS-Guide.htm as such guidelines may be updated by Microsoft from time to time. Company shall provide Company logos in accordance with the logo specifications required by Microsoft. Each party shall retain all interest in its logos, trade names, trademarks or service marks. 7. COMPANY OBLIGATIONS: In addition to the obligations set forth in Section 11 of the Agreement, Company agrees to the following: A. Company will make reasonable efforts to review the standard Microsoft Passport Wallet Service Agreement and Microsoft Passport SDK License and Single Sign-In Service Agreement promptly following the execution of this Agreement. Company agrees to upgrade current Microsoft Passport wallet service known as PPEP and will make that service available under existing referring URL restrictions, no later than November 15, 2001. Company will make reasonable efforts to deploy Microsoft Passport SDK License and Single Sign-In service within a reasonable time frame during the Term. In the event Company's review indicates that either SDK or SSI fails to deliver a satisfactory user experience or does not comply with the current functionality of Company's site, Microsoft will release Company from any further obligation to integrate any similar technology for the remainder of the Term. If Company has not deployed such Microsoft Passport services prior to implementing additional third party wallet technologies on Company's site, Microsoft Passport services will, upon deployment, receive a location and size at least as prominent as such third party wallet technology. B. For each category in which Company has placement (i.e., the "Desktop" category of the Hardware sub-department), Company will provide Microsoft with a minimum of fifty (50) sku's for MSN users ("Offers") throughout the Term. Offers may include, but not be limited to, Company's products or other compelling offers to increase MSN user response and Company's sales; C. Company will provide Microsoft with a minimum of six (6) optimized, exclusive offers for MSN Users ("Exclusive Offers") throughout the Term. Exclusive Offers may include, but not be limited to: (i) pervasive merchant discounts (i.e., dollar or percentage discounts off Company's entire inventory, a specific category or any large set of products); (ii) offer-specific discounts (i.e., an exclusive discount of a specific sku for MSN users); (iii): channel specific offers (i.e., offers exclusive to MSN users during the entire offer period or presented to MSN users in advance of an offering via another portal or channel); and/or (iv) bundled offers (i.e., offers tied to the purchase of another item [buy a 32" TV and receive a discount on a DSS receiver]); D. During sessions generated by users accessing Company's site from MSN, Company will maintain a Microsoft eshop frame ("Frame"). Such Frame will: (i) be in a format designated by Microsoft; (ii) include links back to eShop and MSN Search,; (iii) will not include links to other eShop merchants; and (iv) be subject to change; E. Company will cookie (as such term is commonly understood in the technology industry) MSN users. Such cookie will enable MSN users to file an order either. (i) immediately upon linking to Company's site from MSN; or (ii) within thirty (30) days after the cookie is issued upon linking to Company's site from MSN or any third party site. Company will credit Microsoft for orders from such MSN users, provided that such user places an order before the cookie expires; F. Company will at its sole discretion maintain a "on MSN" logo and URL on e-mail communications to its customers and Company's catalogs and packing materials in shipped boxes per Microsoft specifications; and G. Company shall not implement and/or use technology which prohibits users from using the "Back" button on such user's browser to return to the prior site and/or any Microsoft site. (Signature page follows) MICROSOFT CONFIDENTIAL * Material has been omitted pursuant to a request for confidential treatment. Page 2 of 8 Except as specifically modified herein or in prior amendments, all other terms and conditions of the Agreement shall remain in full force and effect. Whereby the parties enter into this Amendment as of the later of the two signatures dates below. Microsoft Company MICROSOFT CORPORATION REDENVELOPE, INC. One Microsoft Way 201 Spear St. Suite 300 Redmond, WA 98052-6399 San Francisco, CA 94105 By /s/ [ILLEGIBLE] /s/ Martin W. McClanan ------------------------- ----------------------------------- (Sign) (Sign) [ILLEGIBLE] Martin W. McClanan - ---------------------------- ----------------------------------- Name (Print) Name (Print) Unit Manager Chief Executive Officer - ---------------------------- ----------------------------------- Title Title 9/24/01 08/02/01 - ---------------------------- ---------------------------------- Date Date PROGRAM CONTACT: See Account Executive above MICROSOFT CONFIDENTIAL Page 3 of 8 EXHIBIT 1-A
[*] AD ELEMENTS PROJ IMPRESSIONS (000,000) [* [* [* * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * *] *] *]
MICROSOFT CONFIDENTIAL Page 4 of 8 * Material has been omitted pursuant to a request for confidential treatment. [* [* [* * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * *] *] *]

PROJ IMPRESSIONS [*] AD ELEMENTS (000,000) [*] [* [* [* * * * * * * * * * * * * * * * * * * * * * * * * *] * * * * [*] * * [* * * *] * * * * [*] * * [* * * * * * *] *] *]
MICROSOFT CONFIDENTIAL Page 5 of 8 * Material has been omitted pursuant to a request for confidential treatment.
PROJ IMPRESSIONS [*] AD ELEMENTS (000,000) ~~[*] [*] [*] [*]~~

PROJ [* IMPRESSIONS *] AD ELEMENTS (000,000) [* * [* [* * * * * * * * * * * * * * * * * * * * * * * * * *] *] *]
[*] (including [*], [*] and [*]) ad requests are estimates for each site. The actual ad request deliveries per MSN channel may differ from estimates, however, the total number of ad requests are guaranteed. Failure by Microsoft to meet a particular cost per acquisition or a certain return on investment metric and/or provide a certain number of ad requests shall not be deemed a breach of this Agreement or entitle Company to any legal remedy. MICROSOFT CONFIDENTIAL Page 6 of 8 * Material has been omitted pursuant to a request for confidential treatment. EXHIBIT - B The Total Fees shall be comprised of the following elements: A. Fee. Company will pay Microsoft a flat fee of [*] dollars (US$[*]) (the "Fee") in consideration for the guaranteed delivery of [*] ([*]) click thrus derived solely from the elements set forth in Exhibit 1-A. The Fee is a non-refundable, guaranteed payment to Microsoft. The Fee will be rendered to Microsoft in twelve (12) monthly installments. The first payment hereunder is due when this Agreement is signed and returned to Microsoft. Microsoft will invoice Company for each month's payment, and Company will pay such invoiced amounts within 30 days following the date of such invoice. B. Click fee. During the Term, Microsoft will guarantee to deliver clicks to Company's site. After Microsoft provides [*] clicks ([*]) to Company's site, Company will pay Microsoft a per click fee for each click thereafter as set forth below:
======================================================================= POSSIBLE CLICK CLICKS CLICK FEE FEES - ----------------------------------------------------------------------- [*] $ [*] $ [*] - ----------------------------------------------------------------------- [*] $ [*] $ [*] - ----------------------------------------------------------------------- [*] $ [*] $ [*] - ----------------------------------------------------------------------- TOTAL MAXIMUM CONTRACT VALUE (INCLUDING [*] FEE) $ [*] =======================================================================
C. Click Terms. (i) Clicks will be delivered from the placements set forth in Exhibit 1-A, the [*], [*] placements, or any other [*] placements. Notwithstanding the foregoing, Microsoft will obtain Company's prior approval if it intends to provide more than [*]([*])[*] placements in any given month of the Term, with the exception of December, February and May, when Microsoft shall have the right to provide up to [*]([*]) such placements. Microsoft will not provide clicks from alternate placements, unless such placements are agreed upon in writing by the parties. Company reserves the right to negotiate terms for any alternate placement. (ii) The parties will meet on a monthly basis during the Term to monitor and manage clicks. Following each such meeting, the parties may revise the placements in an effort to optimize total clicks. (iii) Total clicks hereunder will be based solely on Microsoft's tracking reports. (iv) Company will be billed for clicks actually delivered by Microsoft, however, in no event will Microsoft be required to refund or otherwise return to Company any portion of the Fee. Company will render such click fees to Microsoft within thirty (30) days after the date of each invoice. (v) Microsoft is not obligated to deliver such clicks evenly during the Term. (vi) Company agrees that Microsoft's reporting will be the basis for click fee billing. Microsoft will account for clicks on a monthly basis, and will report such click activity to Company during the Term. (vii) If Microsoft fails to provide [*] ([*]) clicks during the Term, Company's sole remedy for such failure will be the extension of the Term until such clicks are provided. (viii) If Microsoft falls short of any estimated monthly click allocation amount (as such benchmarks are set forth in Exhibit 1-C, attached hereto) by more than [*] percent ([*]%), Company will have the right to terminate the click portion of this Agreement upon sixty (60) days' written notice to Microsoft, Following Microsoft's receipt of such notice, Microsoft will have the right to cure such shortfall. If Microsoft remedies the click shortfall thru mutually agreed upon placements prior to the proposed effective date of click termination, the parties agree that Company's prior notice to terminate the click portion of this Agreement shall be deemed rescinded. If Company terminates the click portion of this Agreement pursuant to this Section 1.C.viii, the parties will be relieved of their respective obligations solely with regard to clicks, except Company shall remain obligated to render payment of any amount properly due Microsoft pursuant to Exhibit 1-B, Section B through the effective date of click termination. MICROSOFT CONFIDENTIAL Page 7 of 8 * Material has been omitted pursuant to a request for confidential treatment. EXHIBIT 1-C MONTHLY CLICK ALLOCATION
====================================== MONTH ESTIMATED CLICKS - -------------------------------------- July 2001 [* - -------------------------------------- August 2001 * - -------------------------------------- September 2001 * - -------------------------------------- October 2001 * - -------------------------------------- November 2001 * - -------------------------------------- December 2001 * - -------------------------------------- January 2002 * - -------------------------------------- February 2002 * - -------------------------------------- March 2002 * - -------------------------------------- April 2002 * - -------------------------------------- May 2002 * - -------------------------------------- June 2002 * - -------------------------------------- CONTRACT TOTAL *] ======================================
MICROSOFT CONFIDENTIAL Page 8 of 8 * Material has been omitted pursuant to a request for confidential treatment. EX-10.31 38 f89225orexv10w31.txt EXHIBIT 10.31 EXHIBIT 10.31 AMENDMENT 2 TO MICROSOFT CORPORATION / WEBTV SHOPPING INSERTION ORDER This Amendment 2 is made pursuant to that certain Microsoft Corporation / WebTV Shopping Insertion Order (the "AGREEMENT") dated September 15, 2000 by and between Microsoft Corporation ("MICROSOFT") and RedEnvelope, Inc. ("COMPANY"), and sets forth the terms pursuant to which Company will participate in the shopping placements in the MSN Shopping Channel ("eSHOP"), MSN TV Service Shopping Center ("MSN TV SHOPPING") as well as other Microsoft sites (collectively, the "MICROSOFT SHOPPING CHANNELS"). Microsoft and Company hereby agree to modify the Agreement as follows, effective immediately. 1. By copy of this Amendment 2, Microsoft requests permission to assign its rights and obligations hereunder to Microsoft Online, LP, an affiliate of Microsoft Corporation. Hereinafter, Microsoft Corporation and Microsoft Online, LP will be referred to either collectively or individually as "MICROSOFT". 2. All references to "WEBTV" in the Agreement will be deemed deleted, and the words "MSN TV SHOPPING" will respectively be deemed inserted therein. 3. The Term, Total Fees and Order Summary outlined in the Agreement will be deemed deleted, and such elements will be amended and deemed inserted as set forth below: ACCOUNT EXECUTIVE: KERRY BENJAMIN EMAIL: Kerryb@microsoft.com COMPANY: Red Envelope.com CONTACT: Chas Akers CONTACT: 201 Spear St. Suite 300 San Francisco, CA 94105 - -------------------------------------------------------------------------------- SITE URL: www.redenvelope.com TERM: July 1, 2002 - June 30, 2003 - -------------------------------------------------------------------------------- TOTAL FEES: SEE EXHIBIT 1-B - --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------- AD ELEMENTS ORDER TOTAL MONTHLY GUARANTEED FEE TOTAL AD REQUESTS - --------------------------------------------------------------------------------------------------------- [* See Exhibit 1-B $ [*] [*] * (SEE EXHIBIT 1-A) *] - --------------------------------------------------------------------------------------------------------- ADDITIONAL PLACEMENTS n/a n/a See Exhibit 1-A [* * *] - ---------------------------------------------------------------------------------------------------------
4. MAKE GOOD POLICY. The parties agree that the following sentence shall be deemed inserted in Section 4.A: If Microsoft fails to deliver the agreed upon number of ad requests during the Term, Company's sole remedy for such failure will be the extension of the Term by Microsoft at no additional cost to Company until the agreed upon number of ad requests as specified in Exhibit 1-A (the "TOTAL AD REQUESTS") (or other ad requests as the parties may agree) are provided. 5. CANCELLATION. The parties agree that Section 6 of the Agreement shall be deemed deleted, and the following shall be deemed inserted therein: If either Microsoft or Company defaults under this Agreement, the non-defaulting party will notify the other in writing. If the failure is not cured within five (5) business days after written notice is received by the notified party, the non-defaulting party may terminate this Agreement immediately with no further obligation to the notified party. Upon termination or expiration of this Agreement, other than by Company due to an uncured default by Microsoft, Company will immediately pay Microsoft any amounts of the Total Fee not yet paid. If Company terminates due to an uncured default by Microsoft Company will be solely obligated to render payment to Microsoft through the effective date of termination. MICROSOFT CONFIDENTIAL Page 1 of 9 [MICROSOFT LOGO] * Material has been omitted pursuant to a request for confidential treatment. 6. TESTING. In addition to the obligations set forth in Section 7, Company will, within thirty days after execution of this Amendment, Company will cooperate with Microsoft to conduct a 1 week test to verify that Company's technology accurately tracks MSN Users. Test will involve Company sending one or more tracking urls to Microsoft to test for click discrepancies. Company will make a reasonable effort with Microsoft to promptly resolve any discrepancies between Company's tracking results and Microsoft's tracking results. 7. In addition to the obligations set forth in Section 11, Company will ensure that web sites operated by or on behalf of Company comply with the Platform for Privacy Preferences Project requirements set forth in Exhibit 1-C. 8. FEATURED SITES: A. PLACEMENTS: Company will receive the Featured Sites words and closely related variants set forth in Exhibit 1-D on a non-exclusive basis commencing on the date of first exhibition of Company's links by Microsoft and continuing through the end of the Term. Company's site will receive placement in relevant MSN user searches, however, Microsoft cannot guarantee Company's placement and/or ranking within the "Featured Sites" section of MSN Search. Microsoft will deliver [*] ad requests in promotion of the Featured Sites words. If Microsoft fails to deliver such ad requests by the end of the Term or the effective date of cancellation of the Featured Sites placement (if the Featured Sites portion of this Agreement is terminated by either party pursuant to Section 8.C below), Microsoft will deliver ad requests in the placements set forth in Exhibit 1-A until the earlier of such Featured Site ad request shortfall is provided or until [*]% of the ad requests in Exhibit 1-A have been delivered. Microsoft reserves the right to update the MSN Search template at any time during the Term. B. DELIVERY: During the Term, Microsoft will make reasonable efforts to deliver clicks to Company's site from search results on any Microsoft site. Microsoft is not obligated to deliver such clicks evenly throughout the Term. Failure by Microsoft to deliver a certain number of clicks shall not be deemed a breach of this Agreement or entitle Company to any legal remedy. C. FEATURED SITES CANCELLATION: At any time during the Term, either party may terminate the Featured Sites portion of this Agreement upon thirty (30) days' prior written notice to the other party. In such event, the parties will be relieved of their respective obligations with respect to the MSN Search Featured Site placements, however, Microsoft will remain obligated to provide the Total Ad Requests to Company, as set forth in Section 8.A above. The cancellation rights set forth in this Section 8 will not pertain to Company's Microsoft Shopping Channel placements. D. SPECIAL TERMS: (i) The final keyword and advertisement content will be subject to mutual agreement of the parties. (ii) Microsoft reserves the right to immediately suspend distribution of Company's entire Featured Site listings ("LISTINGS") if five percent (5%) or more of the total URL links from Company are not functional and accessible, and any such removal shall not constitute a breach of this Agreement, (iii) Company may update or refresh the Listings once every ninety (90) days, or an alternate schedule contingent upon seasonal promotions or product changes and agreed upon by the parties. Updates will be scheduled by the parties following the date upon which the Listings are first displayed. Company will create and deliver to Microsoft all updated Listings at least fourteen (14) days' prior to the first run date for such Listing, and such updates will be subject to the same review by Microsoft as a new Listing. This Amendment 2 will be attached to and incorporated into the Agreement, and is subject to all the terms and conditions of the Agreement. Whereby the parties enter into this Amendment 2 as of the later of the two dates below. Microsoft Company MICROSOFT ONLINE, LP RED ENVELOPE.COM 6100 Neil Road 201 Spear St. Suite 300 Reno, NV 89570 San Francisco, CA 94103 By /s/ Kerry Benjamin /s/ Charles Akers and -------------------- Hilary Billings (Sign) ----------------------- (Sign) Kerry Benjamin Charles Akers and - ----------------------- Hilary Billings Name (Print) ----------------------- Name (Print) Account Executive - ----------------------- _______________________ Title Title 8/1/02 8/1/02 - ----------------------- ----------------------- Date Date PROGRAM CONTACT: See Account Executive above MICROSOFT CONFIDENTIAL Page 2 of 9 * Material has been omitted pursuant to a request for confidential treatment. EXHIBIT 1-A
FY03PROJ PRORATED AD [*] REQUESTS (000,000) [* [* * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * *

* * * * *]

* FLIGHT * *] [*]
MICROSOFT CONFIDENTIAL Page 3 of 9 * Material has been omitted pursuant to a request for confidential treatment. [ [* [* * * * * * * * * * * * * * * * * *] *] ]

1. Company is guaranteed a certain amount of ad requests as outlined in Exhibit 1-A: (a) [*] total ad requests in [*] and sponsored guides; (b) [*] total ad requests in [*]; (c) [*] total ad requests in [*]; (d) [*] total ad requests in [*] and (e) [*] total ad requests on [*]. 2. [*] ad requests are estimates for each site. 3. The parties will meet on a quarterly basis to review total ad requests delivered by Microsoft during the prior quarter. Microsoft's reporting will be the basis for counting ad request deliveries. 4. Microsoft will be deemed to have delivered [*] ([*]) ad requests each time the [*] placement is exhibited and [*] ([*]) ad requests each time the [*] is exhibited. Such ad requests will accrue toward the [*] placement total set forth in Section 1(a) above. Microsoft will provide Company with the total number of days Company appeared in all placements during the quarterly meeting. Such ad requests will count toward the overall ad request delivery obligation. 5. Failure by Microsoft to meet a particular cost per acquisition, or a certain return on investment metric will not be deemed a breach of this Agreement or entitle Company to any legal remedy. MICROSOFT CONFIDENTIAL Page 4 of 9 * Material has been omitted pursuant to a request for confidential treatment. EXHIBIT 1-B 1. Fee. Company will pay Microsoft a flat fee of [*] dollars (US$ [*]) (the "Fee") in consideration for delivery of [*] ([*])ad requests from the elements set forth [*] Exhibit 1-A. The Fee is a non-refundable, guaranteed payment to Microsoft. The Fee will be rendered to Microsoft in twelve (12) monthly installments. The first payment hereunder is due when this Agreement is signed and returned to Microsoft. Microsoft will invoice Company for each month's payment, and Company will pay such invoiced amounts within thirty (30) days following the date of such invoice. In the event that Microsoft fails to deliver the entire [*] ad requests as outlined in Exhibit 1-A by 06/30/2003, Company will hold final installment of the Fee until all guaranteed ad requests have been met. Company will be obligated to render such final installment immediately following receipt of reports and other applicable documentation by Microsoft that such ad requests have been delivered. 2. Commission. 2.1 If, at any time during the Term, the aggregate Net Sales generated during the Term by MSN Customers exceeds [*] dollars ($[*]) (the "REVENUE THRESHOLD"), Company shall pay to Microsoft [*] percent ([*]%) of Net Sales generated during the remainder of the Term in excess of the Revenue Threshold ("COMMISSION"). "NET SALES" means gross sales for completed sales through the Microsoft Shopping Channel placements from an MSN Customer less all service, shipping, handling and relay charges, applicable taxes, credits, chargebacks, refunds, rebates, discounts, gift certificates and credit card processing fees. A "MSN CUSTOMER" means a user who links to Company's site during the Term from a Microsoft tracking url generated by Company to Company's site and completes a transaction on Company's site: either (a) after clicking through to such site from Company's placement; or (b) subsequently revisiting Company's site within 30 days of the last click through either directly or by linking to Company's site from Company's placement or any Microsoft site. "Net Sales" will be reported solely by Company. 2.2 Payment of Commission (if any) called for by this Section 2 will be paid on a monthly basis, in arrears within thirty (30) days after the end of any month as to which any Commission is payable. Company will remit to Microsoft the aggregate Commission due, together with a statement specifying the aggregate number of MSN Customer transactions in the applicable month. 2.3 Company agrees to keep all usual and proper records and books of account and all usual and proper entries relating to Company's obligations described in this Section 2. Microsoft shall have the right to cause, at its sole cost and expense, an audit and/or an inspection to be made of the applicable Company records in order to verify Company's compliance with the terms of this Agreement. Any audit and/or inspection shall be conducted during regular business hours upon written notice. 3. Letter of Credit. Company will establish and maintain an irrevocable standby letter of credit (the "STANDBY LETTER") in the amount of [*] dollars ($[*]) following execution of this Amendment 2 and for a period of thirty (30) days thereafter. Company or Company's designated bank will provide the Standby Letter to Microsoft immediately upon execution of this Amendment 2. The Standby Letter will become null and void upon November 1, 2003 or upon delivery of the final installment of the contract fee by Company to Microsoft. MICROSOFT CONFIDENTIAL Page 5 of 9 * Material has been omitted pursuant to a request for confidential treatment. EXHIBIT 1-C PLATFORM FOR PRIVACY PREFERENCES PROJECT COMPLIANCE To successfully use cookies, the privacy features of Internet Explorer 6 require Web services to deploy compact privacy policies as defined by the Platform for Privacy Preferences (P3P) Project developed by the World Wide Web Consortium (W3C). The Internet Explorer 6 privacy features filter cookies based on these compact policies as well as the user's privacy settings. While some cookies might not require a compact policy, implementing policies for all cookies is strongly recommended. Online privacy has become increasingly important to consumers, privacy advocates and the government. Addressing these concerns is the responsibility of the entire internet community. To address this Microsoft has implemented new privacy tools into Internet Explorer 6 which utilize P3P. We urge you to consider deploying P3P on your site to ensure the proper use of cookies you may set and as a way to build a trust relationship with your users. We will be having regular chats at Microsoft TechNet in the IT community Technical Chats to discuss the privacy features, cookies and how to deploy P3P. Below are links to help you begin deployment of P3P. INTERNET EXPLORER PRIVACY FEATURE INFORMATION LINKS: Privacy in Internet Explorer 6, a comprehensive overview, is the best place to start learning about the new privacy features of Internet Explorer 6 and the Web site changes required to successfully utilize cookies. Alternatively the online presentation Internet Explorer 6 Privacy Features is a great introduction. How to deploy P3P privacy policies on your Web site This overview explains the steps to take when deploying P3P beginning with a natural language privacy policy. The examples are over-simplified and used only to illustrate the steps to deployment. The Microsoft Privacy Statement Wizard This wizard will help you to quickly and easily generate privacy policies and compact privacy policies to aid in P3P deployment. The Platform for Privacy Preferences 1.0 Deployment Guide is the deployment guide from the W3C. Resources For Creating P3P Based Privacy Statements is an online presentation which describes resources available to aid in P3P deployment. Internet Explorer 6 Privacy User Experience is an online presentation which explains how users will interact with IE 6 as they utilize the privacy features. Platform for Privacy Preferences (P3P1.0) Specification is the actual W3C candidate recommendation specifying P3P. Internet Explorer 6 Preview - Beta test the latest in privacy features by downloading the preview version. MICROSOFT CONFIDENTIAL Page 6 of 9 \ EXHIBIT 1-D MSN SEARCH FEATURED SITE LINKS KEY WORD LIST adult gifts christmas gift exchange friendship gifts anniversary christmas gift exchange fruit gift baskets anniversary gift games fruit gifts anniversary gift ideas christmas gift guide fun gifts anniversary gifts christmas gift idea funny gifts anniversary ideas christmas gift ideas garden gifts anniversary presents christmas gifts gardening gifts baby gift christmas gifts for dad get well baby gift baskets christmas gifts for guys get well gifts baby gifts christmas gifts for her gift baby shower christmas gifts for him gift and baskets baby shower gifts christmas gifts for kids gift and ideas baseball gifts christmas gifts for men gift basket bat mitzvah christmas gifts for mom gift basket ideas beer gifts christmas gifts for teens gift baskets best christmas gifts christmas gifts for women gift baskets etc best gifts christmas gifts ideas gift boxes birthday christmas present gift catalog birthday gift christmas present ideas gift catalogs birthday gift ideas christmas presents gift finder birthday gifts christmas gifts gift for men birthday greeting college gifts gift giving birthday ideas cookie gift baskets gift guide birthday presents cookie gifts gift guides birthday wishes cool gifts gift idea birthdays corporate gift gift ideas boss gifts corporate gift baskets gift ideas for christmas boyfriend gifts corporate gifts gift ideas for him bridesmaids gifts creative gift ideas gift ideas for men business gifts creative gifts gift ideas for mom channukah crystal gifts gift ideas for women chanukah gifts discount gifts gift items cheap christmas gifts dog gifts gift search cheap christmas presents electronic gifts gift shop cheap gift ideas employee gifts gift shopping cheap gifts engraved gifts gift shops cheese gifts erotic gifts gift stores childrens gifts executive gifts gift suggestions children's gifts exotic gifts giftbasket chocolate gift baskets expensive gifts giftbaskets chocolate gifts family gifts giftideas chrismas gifts fathers day gifting christening gifts father's day gifts christmas and gifts father's day gifts gifts and collectibles christmas crafts gifts fishing gifts gifts for boss christmas food gifts flower gifts gifts for bosses christmas gift flowers and gifts gifts for boyfriends christmas gift basket food gift gifts for boys christmas gift baskets food gift baskets gifts for christmas food gifts MICROSOFT CONFIDENTIAL Page 7 of 9

gifts for couples home interiors and gifts teen gifts gifts for dad hostess gifts thank you gifts for dads house warming gifts thank you gifts gifts for friends housewarming the perfect gift gifts for girlfriends housewarming gifts travel gifts gifts for girls inexpensive christmas gifts uncommon gifts gifts for ?ILLEGIBLE? inexpensive gift ideas unique christmas gifts gifts for grandma inexpensive gifts unique gift gifts for grandparents international gifts unique gift ideas gifts for guys kids gifts unique gifts gifts for her kitchen gifts unique wedding gifts gifts for him last minute christmas gifts unusual gifts gifts for kids last minute gifts valentine gifts gifts for men love gifts valentines gifts gifts for mom luxury gifts valentine's day gifts gifts for parents men gifts wedding gifts for teachers mens gifts wedding anniversary gifts for teenagers men's gifts wedding anniversary gift gifts for teens mothers day wedding anniversary gifts gifts for the boss mother's day wedding gift gifts for wife mother's day gifts wedding gift ideas gifts for women music gifts wedding gifts gifts ideas nautical gifts wedding ideas gifts in a jar new baby weddings gifts online new baby gifts women gifts gifts under $20 novelty gifts womens gifts giftware office gifts women's gifts golf gifts online gifts www.red envelope.com gourmet food gifts perfect gift www.redenvelope.com gourmet gift baskets perfect gifts xmas gifts gourmet gifts personalized gifts x-mas gifts graduation popcom gifts congratulations graduation gifts present gardening gifts grandma gifts presents going away gifts grandparent gifts promotional gifts gourmet gift great christmas gifts red envelope gourmet gifts great gift ideas red envelope.com graduation gift great gifts redenvelope.com graduation presents groomsmen gifts retirement holiday gift guy gifts retirement gifts holiday gifts handmade gifts romantic christmas gifts housewarming hannukah romantic gift ideas housewarming gift hanukkah gifts romantic gifts retirement gift happy birthday sailing gifts sympathy gifts holiday food gifts sexy gifts thank you gift holiday gift special gifts wedding present holiday gift basket specialty gifts wedding presents holiday gift baskets sports gifts holiday gift ideas sympathy holiday gifts sympathy flowers home interiors & gifts teacher gifts

~~MICROSOFT CONFIDENTIAL Page 8 of 9~~ EX-23.1 39 f89225orexv23w1.txt EXHIBIT 23.1 EXHIBIT 23.1 INDEPENDENT AUDITORS' CONSENT We consent to the use in this Registration Statement of Red Envelope, Inc. on Form S-1 of our report dated May 16, 2003 (June 13, 2003 as to Note 10), and to the reference to us under the heading "Experts" appearing in the Prospectus, which is part of this Registration Statement. /s/ DELOITTE & TOUCHE LLP Deloitte & Touche LLP San Francisco, California June 13, 2003 GRAPHIC 40 f89225orf8922501.gif GRAPHIC begin 644 f89225orf8922501.gif M1TE&.#EAYP`@`/?_````````,P``9@``F0``S```_P`S```S,P`S9@`SF0`S MS``S_P!F``!F,P!F9@!FF0!FS`!F_P"9``"9,P"99@"9F0"9S`"9_P#,``#, M,P#,9@#,F0#,S`#,_P#_``#_,P#_9@#_F0#_S`#__S,``#,`,S,`9C,`F3,` MS#,`_S,S`#,S,S,S9C,SF3,SS#,S_S-F`#-F,S-F9C-FF3-FS#-F_S.9`#.9 M,S.99C.9F3.9S#.9_S/,`#/,,S/,9C/,F3/,S#/,_S/_`#/_,S/_9C/_F3/_ MS#/__V8``&8`,V8`9F8`F68`S&8`_V8S`&8S,V8S9F8SF68SS&8S_V9F`&9F M,V9F9F9FF69FS&9F_V:9`&:9,V:99F:9F6:9S&:9_V;,`&;,,V;,9F;,F6;, MS&;,_V;_`&;_,V;_9F;_F6;_S&;__YD``)D`,YD`9ID`F9D`S)D`_YDS`)DS M,YDS9IDSF9DSS)DS_YEF`)EF,YEF9IEFF9EFS)EF_YF9`)F9,YF99IF9F9F9 MS)F9_YG,`)G,,YG,9IG,F9G,S)G,_YG_`)G_,YG_9IG_F9G_S)G__\P``,P` M,\P`9LP`F^=*B:\>63]_ M9[$$J1:)3)K-M-I>!U5F7($!`@A=)!*)MA](IA5T6(7'#3@<@P/UM&%[%\UG MX4.D@7A-;%)=.%6%HLD4FX$9/D>0@K"16*-:(T8H88WQ"82?05M-V*")(V%8 MFXP2B;AB9#X1J61!'!Z77GE'^E99A[(]2).6&MY8H6,G2I4A?A,RU.,U%R)5 M4H\O@A01F`A%62*2,1J9VW-M0DDDF'">*&>":@%G')9;ZFF?EW;9J>F:=F$6ZY*&&0D@AD9A*:1!@ETI*DX)B^LFDEV(B>,V:%%7_ M=6&7C\[9Y:N*JOI:K3I..JJ#"OW)*)&D\F;B5KZI&&NCJ=YY*Z%"?MI:J<.: MRA6O"#WIJZ[)+;OMD;D.6VBGE.(G9F^(4N3J9)I:FZIJ]5'[VJRAE8JBGY?& M%J^WGO+;K+AV(C=HG?N"6Y&POXY+Z)FN(KOLC(V&Z^Q)W^;I\$0(=WJIL*1R M]R^'%1Y&K<@6R9E6M$.R*&^_/G8[D;Z'71N6:,=;#=5:3=2=^A/#?@EL]=)-RYB4DR3X\G3G9:>S/]>>&1 M`?4DZW4C=*&0P)5N:Z/9EF?[ GRAPHIC 41 f89225orf8922500.gif GRAPHIC begin 644 f89225orf8922500.gif M1TE&.#EA9P$E`/?_````````,P``9@``F0``S```_P`S```S,P`S9@`SF0`S MS``S_P!F``!F,P!F9@!FF0!FS`!F_P"9``"9,P"99@"9F0"9S`"9_P#,``#, M,P#,9@#,F0#,S`#,_P#_``#_,P#_9@#_F0#_S`#__S,``#,`,S,`9C,`F3,` MS#,`_S,S`#,S,S,S9C,SF3,SS#,S_S-F`#-F,S-F9C-FF3-FS#-F_S.9`#.9 M,S.99C.9F3.9S#.9_S/,`#/,,S/,9C/,F3/,S#/,_S/_`#/_,S/_9C/_F3/_ MS#/__V8``&8`,V8`9F8`F68`S&8`_V8S`&8S,V8S9F8SF68SS&8S_V9F`&9F M,V9F9F9FF69FS&9F_V:9`&:9,V:99F:9F6:9S&:9_V;,`&;,,V;,9F;,F6;, MS&;,_V;_`&;_,V;_9F;_F6;_S&;__YD``)D`,YD`9ID`F9D`S)D`_YDS`)DS M,YDS9IDSF9DSS)DS_YEF`)EF,YEF9IEFF9EFS)EF_YF9`)F9,YF99IF9F9F9 MS)F9_YG,`)G,,YG,9IG,F9G,S)G,_YG_`)G_,YG_9IG_F9G_S)G__\P``,P` M,\P`9LP`FARZ4&7-H1)+'B7*M&G"GA`SEA1Z$&=(CT`=$H1JL6C6 MADL-#7K@FMJL0(E>?4GV MA6VEYE28%>M7@FH7BXT+X+#;N"(14IY[[69&RULTZ=3(RV>4._9 MCK$).@P[N[3,S,M%-_]_G;#Q[JPP@7N-&QQZ>?8'K<-7S1PJ;>BHI0^$#KY@ M\J#91>2<:^1IIQYBN-EW'FZ,'?@1>NNU1A]E[YTUEW"2R9;@6V9!9YM^\GT6 M'W\!AD;5=G!1)1];&V8X65`+RG02ANUMM((5_T78T(TY:O9281,=!M6-,NG8 MT&BZ=6B:?BQ.]=^%5W5FWD@#/AA5A_=%%]Y#2%:IH7(-/C8>:1.BQ>"729[Y M')DZU:49FX);OKFF>?\E^6*:S"UJ M9J-**MJD>(DY.BB>%4JJ4WYE/LKF;6RJ5*!XEP5*H*E6(ACGIP8E6F*DO%G_ M"6.G=T(**J.DPEJ@JI0:.F:7N\X9+(*<6OH:IG`J.M6H7,+)V:L$7DEK5(3Z MN*>P4X6(;+*>-FOL2;[*2N>TP$I[:[/59CIN4<4*>JR:M;RB MNZV!U^HZ%89:?ANMM^Z":RN_FA9ZY*_DCEGLOL2U>VZW=/8D[T9Z998Q>?8J MB:_"U$(\L(QAH@=PC;@2/'&MN1ZZKKLA'UQNN0_#&[%3A.YK\7[#9:=1QCP' MW.>](-,,,JLN`^A@P2,O++"X3OLK<6*5PFQTC,/>W%3.\.[<-$0^'YD=M-&. 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Delaware	5960	33-0844285
(State or other jurisdiction of incorporation or organization)	(Primary Standard Industrial Classification Code Number)	(I.R.S. Employer Identification Number)






Title of Each Class of	Proposed Maximum	Amount of
Securities to be Registered	Aggregate Offering Price(1)	Registration Fee


Common Stock, $0.001 par value	$41,000,000	$3,317


THE OFFERING	PER SHARE	TOTAL


Public Offering Price	$	$
Underwriting Discount	$	$
Proceeds to RedEnvelope	$	$


Common stock offered		shares

Common stock to be outstanding after this offering		shares

Use of proceeds		To fund working capital, including the build up of inventory prior to the holiday season, to fund new capital equipment and information technology projects and for other general corporate purposes

Proposed Nasdaq National Market Symbol		REDE



	Year ended

	April 1,			March 31,			March 30,
	2001			2002			2003


	(in thousands, except per share and
	per order data)
Statements of Operations Data:
Net revenues	$	32,565		$	55,778		$	70,059
Cost of sales		19,800			31,446			36,577

Gross profit		12,765			24,332			33,482
Loss from operations		(26,749	)		(13,532	)		(7,165	)

Net loss	$	(26,449	)	$	(14,109	)	$	(7,711	)

Net loss per common share — basic and diluted	$	(6.97	)	$	(3.71	)	$	(2.00	)
Weighted average shares — basic and diluted		3,797			3,800			3,858
Additional Operating Data:
Net revenues per order	$	64.53		$	68.62		$	73.61
Gross profit per order	$	25.29		$	29.93		$	35.18
Number of orders		505			813			952
Number of customers		448			853			1,297


Elias J. Blawie Keith A. Miller Peter D. Hadrovic Keith M. Valory Venture Law Group A Professional Corporation 2775 Sand Hill Road Menlo Park, California 94025 (650) 854-4488		Bruce A. Mann Russell J. Wood Harrison S. Clay Morrison & Foerster LLP 425 Market Street San Francisco, California 94105 (415) 268-7000


PROSPECTUS SUMMARY
THE OFFERING
SUMMARY FINANCIAL DATA
RISK FACTORS
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
USE OF PROCEEDS
DIVIDEND POLICY
CAPITALIZATION
DILUTION
SELECTED FINANCIAL DATA
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
BUSINESS
MANAGEMENT
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
PRINCIPAL STOCKHOLDERS
DESCRIPTION OF CAPITAL STOCK
SHARES ELIGIBLE FOR FUTURE SALE
PLAN OF DISTRIBUTION
LEGAL MATTERS
EXPERTS
WHERE YOU CAN FIND MORE INFORMATION
INDEX TO FINANCIAL STATEMENTS
SIGNATURES
EXHIBIT INDEX
EXHIBIT 3.1
EXHIBIT 3.3
EXHIBIT 4.2
EXHIBIT 4.3
EXHIBIT 4.4
EXHIBIT 4.5
EXHIBIT 4.6
EXHIBIT 4.7
EXHIBIT 4.8
EXHIBIT 4.9
EXHIBIT 10.1
EXHIBIT 10.2
EXHIBIT 10.4
EXHIBIT 10.5
EXHIBIT 10.7
EXHIBIT 10.8
EXHIBIT 10.9
EXHIBIT 10.10
EXHIBIT 10.11
EXHIBIT 10.12
EXHIBIT 10.13
EXHIBIT 10.14
EXHIBIT 10.15
EXHIBIT 10.16
EXHIBIT 10.17
EXHIBIT 10.18
EXHIBIT 10.19
EXHIBIT 10.23
EXHIBIT 10.24
EXHIBIT 10.25
EXHIBIT 10.26
EXHIBIT 10.27
EXHIBIT 10.28
EXHIBIT 10.29
EXHIBIT 10.30
EXHIBIT 10.31
EXHIBIT 23.1



	As of March 30, 2003

	Actual			As Adjusted


	(in thousands)
Balance Sheet Data:
Cash and equivalents	$	4,997
Working capital		7,179
Total assets		22,126
Total indebtedness		1,123
Stockholders’ deficit		(71,451	)


Public offering price per share			$
	Net tangible book value per share as of March 30, 2003	$
	Increase in net tangible book value per share attributable to this offering

As adjusted net tangible book value per share after offering

Dilution per share to new investors in this offering			$



			Year ended

			March 28,			April 2,			April 1,			March 31,			March 30,
			1999			2000			2001			2002			2003


			(in thousands, except for per share data)
Statements of Operations Data:
Net revenues			$	1,764		$	8,035		$	32,565		$	55,778		$	70,059
Cost of sales				1,257			5,899			19,800			31,446			36,577

Gross profit				507			2,136			12,765			24,332			33,482
Operating expenses:
	Fulfillment			48			1,774			6,160			9,030			10,769
	Marketing			795			18,077			21,613			13,411			15,280
	General and administrative			1,231			5,832			11,741			15,423			14,598

		Total operating expenses		2,074			25,683			39,514			37,864			40,647

Loss from operations				(1,567	)		(23,547	)		(26,749	)		(13,532	)		(7,165	)
Interest income				—			510			1,424			459			160
Interest expense				(1	)		(201	)		(1,124	)		(1,036	)		(706	)

Net loss			$	(1,568	)	$	(23,238	)	$	(26,449	)	$	(14,109	)	$	(7,711	)

Deemed preferred stock dividend				—			(1,032	)		—			—			—

Net loss attributable to common stockholders			$	(1,568	)	$	(24,270	)	$	(26,449	)	$	(14,109	)	$	(7,711	)
Net loss per common share — basic and diluted			$	(2.95	)	$	(6.43	)	$	(6.97	)	$	(3.71	)	$	(2.00	)
Weighted average shares — basic and diluted				531			3,772			3,797			3,800			3,858



	As of

	March 28,			April 2,			April 1,			March 31,			March 30,
	1999			2000			2001			2002			2003


	(in thousands)
Balance Sheet Data:
Cash and equivalents	$	1,723		$	14,842		$	11,248		$	4,910		$	4,997
Working capital		1,155			14,982			19,087			483			7,179
Total assets		1,847			21,237			32,951			18,482			22,126
Total indebtedness		—			6,614			6,797			6,000			1,123
Stockholders’ deficit		(1,997	)		(25,513	)		(51,439	)		(64,191	)		(71,451	)



			Three months ended

			July 1,			September 30,			December 30,			March 31,			June 30,			September 29,			December 29,			March 30,
			2001			2001			2001			2002			2002			2002			2002			2003


			(in thousands)
Statements of Operations Data:
Net revenues			$	12,382		$	4,366		$	26,155		$	12,875		$	15,287		$	5,366		$	34,290		$	15,116
Cost of sales				7,046			3,050			14,271			7,079			8,187			3,005			17,318			8,067

Gross profit				5,336			1,316			11,884			5,796			7,100			2,361			16,972			7,049
Operating expenses:
	Fulfillment			2,074			1,133			3,610			2,213			2,401			1,386			4,485			2,497
	Marketing			3,708			1,218			5,084			3,401			3,530			983			7,593			3,174
	General and administrative			3,302			3,422			3,408			5,291			3,346			3,535			3,790			3,927

		Total operating expenses		9,084			5,773			12,102			10,905			9,277			5,904			15,868			9,598

Income (loss) from operations			$	(3,748	)	$	(4,457	)	$	(218	)	$	(5,109	)	$	(2,177	)	$	(3,543	)	$	1,104		$	(2,549	)

Statements of Operations Data:
Net revenues				100.0	%		100.0	%		100.0	%		100.0	%		100.0	%		100.0	%		100.0	%		100.0	%
Cost of sales				57.0			70.0			54.6			55.0			53.6			56.0			50.5			53.4

Gross profit				43.0			30.0			45.4			45.0			46.4			44.0			49.5			46.6
Operating expenses:
	Fulfillment			16.8			26.0			13.8			17.2			15.7			25.8			13.1			16.5
	Marketing			30.0			27.9			19.4			26.4			23.1			18.3			22.1			21.0
	General and administrative			26.7			78.3			13.0			41.1			21.9			65.9			11.1			26.0

		Total operating expenses		73.5			132.2			46.2			84.7			60.7			110.0			46.3			63.5

Income (loss) from operations				(30.5	)%		(102.2	)%		(0.8	)%		(39.7	)%		(14.3	)%		(66.0	)%		3.2	%		(16.9	)%



	Payments Due by Period

	Total		Less than 1 year		1-3 years		4-5 years		After 5 years


	(in thousands)
Contractual Obligations:
Total indebtedness	$	1,123	$	1,123	$	—	$	—	$	—
Capital lease obligations		2,026		723		1,111		192		—
Operating leases		3,690		1,735		1,717		238		—
Series B convertible preferred stock*		2,255		—		—		2,255		—
Series C convertible preferred stock*		21,000		—		—		21,000		—
Series D convertible preferred stock*		11,060		—		—		11,060		—
Series E convertible preferred stock*		34,562		—		—		34,562		—
Series F convertible preferred stock*		13,743		—		—		13,743		—

Total contractual obligations	$	89,459	$	3,581	$	2,828	$	83,050	$	—


Name	Age		Position(s)

Alison L. May		53	Chief Executive Officer, President and Director
Hilary Billings		39	Brand Strategist and Director
Eric C. Wong		33	Chief Financial Officer and Secretary
Kristel Craven		38	Vice President of Customer Experience
Kristine Dang		35	General Merchandising Manager
Kathy M. Herzog		37	Vice President of Planning
Pamela Knox		44	Senior Vice President of Marketing
John W. Roberts		42	Vice President of Information Technology and Operations
Michael Moritz(1)		48	Director and Chairman of the Board
Michael E. Dunn(2)		39	Director
Scott Galloway		38	Director
Claire Gruppo(2)		50	Director
Charles Heilbronn(1)		48	Director
Jacqueline A. Macdonald(2)		41	Director


(1)	Member of the Compensation Committee

(2)	Member of the Audit Committee


	*Product Merchandising*


							Long Term
							Compensation

		2003 Annual Compensation					Securities
							Underlying
				All Other			2003 Option
Name and Principal Position		Salary		Compensation			Awards

Alison L. May		$	311,058	$	573	(1)		3,467,950
	President and Chief Executive Officer
Hilary Billings			297,116		4,166	(2)		1,082,075
	Brand Strategist
Kristine Dang			172,500		2,363	(3)		80,000
	General Merchandising Manager
Kathy Herzog			128,281		486	(4)		120,000
	Vice President of Planning
Martin McClanan			31,250		224,860	(6)		—
	Former Chief Executive Officer(5)
Walter Blum			160,437		3,351	(8)		30,000
	Former Vice President of Operations(7)
Charles Akers			155,615		2,026	(10)		40,000
	Former Vice President of Marketing(9)



	Option Grants in Last Fiscal Year									Potential Realizable
										Value at Assumed
	Number of		Percent of							Annual Rates of Stock
	Securities		Total			Exercise				Price Appreciation for
	Underlying		Options			Price				Options Terms
	Options		Granted to			Per		Expiration
Name	Granted		Employees			Share		Date		5%		10%

Alison L. May(1)		3,467,950		51.75	%	$	0.14		7/24/2012	$	305,337	$	773,783
Hilary Billings(2)		1,082,075		16.15	%		0.14		7/24/2012		95,272		241,437
Kristine Dang(3)		80,000		1.19	%		0.14		7/24/2012		7,044		17,850
Kathy Herzog(4)		100,000		1.49	%		0.14		7/24/2012		8,805		22,312
Kathy Herzog(5)		20,000		0.30	%		0.14		7/24/2012		1,761		4,462
Martin McClanan		—		—			—		—		—		—
Walter Blum(6)		30,000		0.45	%		0.14		7/24/2012		2,641		6,694
Charles Akers(7)		40,000		0.60	%		0.14		7/24/2012		3,522		8,925



	Number of Shares				Number of Securities				Value of Unexercised
	Acquired on Exercise				Underlying Unexercised				In-the-Money Options at
					Options at March 31, 2003				March 31, 2003
			Value
Name	Exercised		Realized		Exercisable(1)		Unexercisable		Exercisable		Unexercisable

Alison L. May		—	$	—		3,467,950		—	$	—	$	—
Hilary Billings		—		—		1,712,075		—		—		—
Kristine Dang		—		—		156,000		—		—		—
Kathy Herzog		—		—		120,000		—		—		—
Martin McClanan		—		—		781,249		—		—		—
Charles Akers		—		—		71,666		—		—		—
Walter Blum		—		—		180,000		—		—		—


	Series A		Series B		Series C		Series D		Series E		Series F
	Preferred		Preferred		Preferred		Preferred		Preferred		Preferred
Investors(1)	Stock		Stock		Stock		Stock		Stock		Stock

R. Ian Chaplin(2)		3,708,817		—		—		—		642,377		3,098,514
Capital Research & Management Company, on behalf of SMALLCAP World Fund, Inc.(2)		—		—		—		—		3,211,882		1,007,017
Direct Equity Partners(2)(3)		—		—		—		—		9,635,648		38,731
Scott Galloway(2)(4)		3,708,817		—		—		—		642,377		3,098,514
Moussenvelope, L.L.C.(2)(5)		—		—		—		—		—		8,520,914
Sequoia Capital(2)(6)		—		—		7,822,343		—		1,284,755		2,757,678
Sippl Macdonald Ventures(7)		—		600,000		147,182		—		642,377		619,703
Weston Presidio Capital(2)		—		—		—		3,334,951		775,348		1,239,405



				Percentage of Shares
				Outstanding
		Number of
Beneficial Owner (Name and Address)		Shares Owned		Before Offering			After Offering

5% Stockholders
Sequoia Capital(1)			11,864,776		16.1	%		.	%
	3000 Sand Hill Road, Suite 4-180
	Menlo Park, CA 94025
Direct Equity Partners(2)			9,674,379		13.1	%		.	%
	60 East 42nd Street, Suite 3810
	New York, NY 10165
Moussenvelope, L.L.C.			8,520,914		11.6	%		.	%
	9 West 57th Street
	Suite 4605
	New York, NY 10019
R. Ian Chaplin(3)			7,449,708		10.1	%		.	%
	716 La Canada Street
	La Jolla, CA 92037
Weston Presidio(4)			5,349,704		7.3	%		.	%
	2420 Sand Hill Road, Suite 206
	Menlo Park, CA 94025
Capital Research & Management Company, on behalf of			4,218,889		5.7	%		.	%
	SMALLCAP World Fund, Inc.
	333 South Hope Street, 55th Floor
	Los Angeles, CA 90071


Underwriters		Number of Shares

WR Hambrecht+Co, LLC
	Total



		Bid Information						Auction Results

										Approximate
				Cumulative						Allocated
		Shares		Shares				Shares		Requested			Clearing		Amount
		Requested		Requested		Bid Price		Allocated		Shares			Price		Raised

			200		200	$	10.00		180		90	%	$	8.00	$	1,440
			300		500		9.00		270		90			8.00		2,160
Clearing Price			600		1,100		8.00		550		90			8.00		4,400
			400		1,500		7.00		—		—			—		—
			800		2,300		6.00		—		—			—		—

	Total								1,000						$	8,000


		Page

RedEnvelope, Inc. Financial Statements
	Independent Auditors’ Report		F-2
	Balance Sheets		F-3
	Statements of Operations		F-4
	Statements of Stockholders’ Deficit		F-5
	Statements of Cash Flows		F-6
	Notes to Financial Statements		F-7



			Fiscal Year Ended

			April 1,			March 31,			March 30,
			2001			2002			2003


			(in thousands, except for per share data)
Net revenues			$	32,565		$	55,778		$	70,059
Cost of sales				19,800			31,446			36,577

	Gross profit			12,765			24,332			33,482

Operating expenses:
	Fulfillment			6,160			9,030			10,769
	Marketing			21,613			13,411			15,280
	General and administrative			11,741			15,423			14,598

		Total operating expenses		39,514			37,864			40,647

Loss from operations				(26,749	)		(13,532	)		(7,165	)
Interest income				1,424			459			160
Interest expense				(1,124	)		(1,036	)		(706	)

Net loss			$	(26,449	)	$	(14,109	)	$	(7,711	)

Net loss per share — basic and diluted			$	(6.97	)	$	(3.71	)	$	(2.00	)
Weighted average shares outstanding — basic and diluted				3,797			3,800			3,858



	Series A
	Preferred						Common Stock					Additional						Notes Receivable						Accumulated Other
												Paid-In			Deferred			From			Accumulated			Comprehensive			Stockholders’
	Shares			Amount			Shares			Amount		Capital			Compensation			Stockholders			Deficit			Income			Deficit


	(in thousands)
Balance at April 2, 2000		7,695		$	999			3,853		$	4	$	1,391		$	(1,579	)	$	(74	)	$	(25,255	)	$	—		$	(24,514	)
Exercise of common stock options		—			—			11			—		5			—			—			—			—			5
Repurchase of common stock		—			—			(90	)		—		(5	)		—			6			—			—			1
Surrender of preferred stock, Series A		(357	)		(46	)		—			—		46			—			—			—			—			—
Amortization of deferred stock compensation		—			—			—			—		—			425			—			—			—			425
Reversal of deferred compensation related to canceled options		—			—			—			—		(92	)		92			—			—			—			—
Other comprehensive income		—			—			—			—		—			—			—			—			46			46
Net loss		—			—			—			—		—			—			—			(26,449	)		—			(26,449	)

Balance at April 1, 2001		7,338			953			3,774			4		1,345			(1,062	)		(68	)		(51,704	)		46			(50,486	)
Exercise of common stock options		—			—			56			—		24			—			—			—			—			24
Exercise of common stock warrants		—			—			28			—		1			—			—			—			—			1
Repurchase of common stock		—			—			(3	)		—		—			—			—			—			—			—
Issuance of options for services		—			—			—			—		19			—			—			—			—			19
Amortization of deferred stock compensation		—			—			—			—		—			406			—			—			—			406
Reversal of deferred compensation related to canceled options		—			—			—			—		(29	)		29			—			—			—			—
Other comprehensive income (loss)		—			—			—			—		—			—			—			—			(46	)		(46	)
Net loss		—			—			—			—		—			—			—			(14,109	)		—			(14,109	)

Balance at March 31, 2002		7,338			953			3,855			4		1,360			(627	)		(68	)		(65,813	)		—			(64,191	)
Exercise of common stock options		—			—			154			—		70			—			—			—			—			70
Exercise of common stock warrants		—			—			181			—		10			—			—			—			—			10
Repurchase of common stock		—			—			(244	)		—		(12	)		—			24			—			—			12
Stock compensation charge		—			—			—			—		19			—			—			—			—			19
Amortization of deferred stock compensation		—			—			—			—		—			340			—			—			—			340
Reversal of deferred compensation related to canceled options		—			—			—			—		(125	)		125			—			—			—			—
Net loss		—			—			—			—		—			—			—			(7,711	)		—			(7,711	)

Balance at March 30, 2003		7,338		$	953			3,946		$	4	$	1,322		$	(162	)	$	(44	)	$	(73,524	)	$	—		$	(71,451	)


1.	BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES


	Capital			Operating
	Leases			Leases


	(in thousands)
Fiscal 2004	$	723		$	1,735
Fiscal 2005		626			1,002
Fiscal 2006		485			715
Fiscal 2007		192			238

Total minimum lease payments		2,026		$	3,690

Less: Amount representing interest		(251	)

Present value of capital lease obligations		1,775
Less: Current portion of capital lease obligations		(673	)

Long-term portion of capital lease obligations	$	1,102



	Year Fiscal

	2002		2003

Expected dividend rate		0%		0%
Expected volatility		60%		60%
Risk-free interest rate		3.63%		2.94%
Expected lives (years)		10.00		5.00


							Weighted
							Average
	Shares						Exercise
	Available			Options			Price
	for Grant			Outstanding			Per Share


	(in thousands)
Balance at April 2, 2000		1,641			1,681			0.46
Additional shares authorized		2,121			—			—
Granted (weighted average fair value $0.11)		(2,908	)		2,908			0.50
Cancelled		478			(478	)		0.49
Exercised		—			(11	)		0.49

Balance at April 1, 2001		1,332			4,100			0.48
Additional shares authorized		—			—			—
Granted (weighted average fair value $0.08)		(2,057	)		2,057			0.50
Cancelled		1,135			(1,135	)		0.49
Exercised		—			(56	)		0.42

Balance at March 31, 2002		410			4,966		$	0.49
Additional shares authorized		7,479			—			—
Granted (weighted average fair value $0.02)		(6,701	)		6,701			0.14
Cancelled		2,218			(2,218	)		0.37
Exercised		—			(154	)		0.46

Balance at March 30, 2003		3,406			9,295		$	0.27

Exercisable, April 1, 2001		1,155						0.48
Exercisable, March 31, 2002		2,280						0.48
Exercisable, March 30, 2003		3,980						0.38



		Options Outstanding						Options Exercisable

				Weighted		Weighted				Weighted
				Average		Average				Average
				Remaining		Exercise				Exercise
Exercise		Number		Contractual		Price Per		Number		Price Per
Price		Outstanding		Life (Years)		Share		Outstanding		Share


(in 000’s except for per share amounts)
$	0.14		5,931		9.34	$	0.14		1,233	$	0.14
	0.35		234		6.49		0.35		229		0.35
	0.50		3,130		7.59		0.50		2,518		0.50

			9,295		8.68	$	0.27		3,980	$	0.38


Item 13.	*Other Expenses of Issuance and Distribution*


		Amount
		to be Paid

SEC registration fee		$	3,317
NASD filing fee			4,600
Nasdaq National Market listing fee			150,000
Printing and engraving expenses			*
Legal fees and expenses			*
Accounting fees and expenses			*
Transfer Agent and Registrar fees			*
Miscellaneous fees and expenses			*

	Total	$	*


Item 16.	*Exhibits and Financial Statement Schedules*


Number		Description

	1.1*	Form of Underwriting Agreement.
	3.1	Amended and Restated Certificate of Incorporation of RedEnvelope currently in effect.
	3.2*	Form of Amended and Restated Certificate of Incorporation of RedEnvelope to be in effect after the closing of the offering made pursuant to this Registration Statement.
	3.3	Amended and Restated Bylaws of RedEnvelope currently in effect.
	3.4*	Form of Amended and Restated Bylaws of RedEnvelope to be in effect after the closing of the offering made pursuant to this Registration Statement.
	4.1*	Specimen stock certificate for RedEnvelope’s common stock.
	4.2	Amended and Restated Investors’ Rights Agreement dated April 17, 2002 between RedEnvelope and certain investors.


Number		Description

	4.3	Omnibus Amendment to Investors’ Rights Agreement, Right of First Refusal and Co-Sale Agreement and Voting Agreement dated May 29, 2003 between RedEnvelope and certain investors.
	4.4	Common Stock Purchase Warrant dated March 9, 2000 issued to Lighthouse Capital Partners III, L.P.
	4.5	Series F Preferred Stock Purchase Warrant dated September 6, 2002 issued to Lighthouse Capital Partners III, L.P.
	4.6	Series F Preferred Stock Purchase Warrant dated October 15, 2002 issued to Lighthouse Capital Partners III, L.P.
	4.7	Warrant Purchase Agreement dated November 13, 2001 between RedEnvelope and Camelot Ventures, LLC.
	4.8	Preferred Stock Purchase Warrant dated November 13, 2002 issued to Camelot Ventures, LLC.
	4.9	Warrant Agreement dated February 10, 2000 issued to Comdisco, Inc.
	5.1*	Opinion of Venture Law Group, A Professional Corporation.
	10.1	Form of Indemnification Agreement between RedEnvelope and each of its officers and directors.
	10.2	Series F Preferred Stock Purchase Agreement dated April 17, 2002 between RedEnvelope and certain investors.
	10.3	Amended and Restated Investors’ Rights Agreement dated April 17, 2002 between RedEnvelope and certain investors (filed as Exhibit 4.2).
	10.4	Amended and Restated Right of First Refusal and Co-Sale Agreement dated April 17, 2002 between RedEnvelope and certain investors.
	10.5	Amended and Restated Voting Agreement dated April 17, 2002 between RedEnvelope and certain investors.
	10.6	Omnibus Amendment to Investors’ Rights Agreement, Right of First Refusal and Co-Sale Agreement and Voting Agreement dated May 29, 2003 between RedEnvelope and certain investors (filed as Exhibit 4.3).
	10.7	Office Lease dated September 1, 1999 between RedEnvelope and the Equitable Life Assurance Society of the United States.
	10.8	Assignment of Lease dated April 18, 2000 between RedEnvelope and Mission Valley Christian Fellowship of San Diego.
	10.9	Assignment of Lease dated April 18, 2000 between RedEnvelope and Mission Valley Christian Fellowship of San Diego.
	10.10	Lease dated March 28, 2000 between RedEnvelope and Four Amigos.
	10.11	Sublease Agreement dated June 18, 2002 between 3PF.Com, Inc. and RedEnvelope.
	10.12	Offer Letter to Alison May dated March 12, 2002.
	10.13	Indemnification Agreement between RedEnvelope and Alison May dated April 8, 2002
	10.14	Offer Letter to Hilary Billings dated April 10, 2002.
	10.15	Promissory Note issued by Hilary Billings, dated July 21, 1999.
	10.16	Promissory Note issued by Hilary Billings dated July 21, 1999.
	10.17	Amendment to Promissory Notes issued by Hilary Billings dated May 21, 2002.
	10.18	Offer Letter to Pamela Knox dated May 20, 2003.
	10.19	Offer Letter to John Roberts dated February 18, 2003.
	10.20*	1999 Stock Plan, as amended on April 11, 2003, and form agreements thereunder.
	10.21*	2003 Directors’ Stock Option Plan and form agreements thereunder.