<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 15, 1998
REGISTRATION NO. 333-
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
EBAY INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 7389 77-0430924
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
---------------
2005 HAMILTON AVENUE, SUITE 350
SAN JOSE, CALIFORNIA 95125
(408) 369-4830
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
---------------
GARY F. BENGIER
VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
2005 HAMILTON AVENUE, SUITE 350
SAN JOSE, CALIFORNIA 95125
(408) 369-4830
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
---------------
COPIES TO:
LAIRD H. SIMONS III, ESQ. WILLIAM H. HINMAN, JR., ESQ.
MATTHEW P. QUILTER, ESQ. SHEARMAN & STERLING
JEFFREY R. VETTER, ESQ. 555 CALIFORNIA ST.
TYLER R. COZZENS, ESQ. SAN FRANCISCO, CALIFORNIA 94104
DOROTHY L. HINES, ESQ. (415) 616-1100
FENWICK & WEST LLP
TWO PALO ALTO SQUARE
PALO ALTO, CALIFORNIA 94306
(650) 494-0600
---------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
CALCULATION OF REGISTRATION FEE
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PROPOSED
TITLE OF EACH CLASS OF MAXIMUM AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED OFFERING PRICE(1) REGISTRATION FEE
- -------------------------------------------------------------------------------
<S> <C> <C>
Common Stock, par value $0.001 per share... $64,400,000 $18,998.00
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(1) Estimated pursuant to Rule 457(o) solely for the purpose of calculating
the amount of the registration fee.
---------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED JULY 15, 1998
SHARES
[LOGO]
EBAY INC.
COMMON STOCK
(PAR VALUE $.001 PER SHARE)
-----------
Of the shares of Common Stock offered hereby, shares are being sold by
eBay Inc. and shares are being sold by a Selling Stockholder on behalf of a
charitable foundation established by the Company. See "Principal and Selling
Stockholders". The Company will not receive any of the proceeds from the sale
of the shares being sold by the Selling Stockholder.
Prior to the offering, there has been no public market for the Common Stock
of the Company. It is currently estimated that the initial public offering
price will be between $ and $ per share. For factors to be considered in
determining the initial public offering price, see "Underwriting".
SEE "RISK FACTORS" ON PAGE 6 FOR CERTAIN CONSIDERATIONS RELEVANT TO AN
INVESTMENT IN THE COMMON STOCK.
Application has been made for quotation of the Common Stock on the Nasdaq
National Market under the symbol "EBAY".
-----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
-----------
<TABLE>
<CAPTION>
INITIAL PUBLIC UNDERWRITING PROCEEDS TO PROCEEDS TO
OFFERING PRICE DISCOUNT (1) COMPANY (2) SELLING STOCKHOLDER
--------------- ------------ ----------- -------------------
<S> <C> <C> <C> <C>
Per Share......... $ $ $ $
Total (3)......... $ $ $ $
</TABLE>
- -----
(1) The Company and the Selling Stockholder have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended. See "Underwriting."
(2) Before deducting estimated expenses of $ payable by the Company.
(3) The Company has granted the Underwriters an option for 30 days to purchase
up to an additional shares at the initial public offering price per
share, less the underwriting discount, solely to cover over-allotments. If
such option is exercised in full, the total initial public offering price,
underwriting discount and proceeds to Company will be $ , $ and $ ,
respectively. See "Underwriting".
-----------
The shares offered hereby are offered severally by the Underwriters, as
specified herein, subject to receipt and acceptance by them and subject to
their right to reject any order in whole or in part. It is expected that the
shares will be ready for delivery in New York, New York on or about , 1998,
against payment therefor in immediately available funds.
GOLDMAN, SACHS & CO.
DONALDSON, LUFKIN & JENRETTE
BANCAMERICA ROBERTSON STEPHENS
BT ALEX. BROWN
-----------
The date of this Prospectus is , 1998.
<PAGE>
[Picture of sample items available for auction by community members of eBay
with the following text at bottom of page: Still Searching the Internet?]
eBay(TM), the eBay logo, SafeHarbor(TM), Up4Sale(TM) and the "World's
Personal Trading Community(TM)" are trademarks of the Company. This Prospectus
also includes trade dress, trade names and trademarks of other companies. Use
or display by eBay of other parties' trademarks, trade dress or products is
not intended to and does not imply a relationship with, or endorsement or
sponsorship of eBay by, the trademark or trade dress owners.
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK OF
THE COMPANY, INCLUDING OVER-ALLOTMENT, STABILIZING AND SHORT-COVERING
TRANSACTIONS IN SUCH SECURITIES, AND THE IMPOSITION OF A PENALTY BID, IN
CONNECTION WITH THE OFFERING. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE
"UNDERWRITING."
2
<PAGE>
DESCRIPTION OF ARTWORK:
The gatefold includes a sample picture of the eBay homepage
The following text is contained on this gatefold:
[Two page screen shot of eBay home page with textual descriptions of eBay
service attributes, surrounded by the following text flowed to both sides]
Welcome to the place where buyers and sellers deal with each other directly.
This is eBay. It's an online auction community where over a million people
visit every month. And they certainly seem to love their eBay (some have
called it the thrill of the hunt)! In fact, this year alone, more than 500,000
new users have joined eBay--that's nearly 3,000 new community members just
like you every day.
With a total of 846 categories, and about half a million items available on
any given day, eBay is already the largest and most popular person-to-person
trading community on the Internet--and there are an average of over 70,000 new
items every day. All kinds of people are turning to eBay to find all kinds of
stuff that was costly or difficult to find before.
Collectors and people with small businesses have often been able to expand
in ways they'd never thought they could before coming to eBay (boundaries,
geography, and distribution are kind of irrelevant on eBay).
It doesn't seem to matter whether they're buying, selling, devoted to a
hobby or collection or even running a little business--a lot of people are
talking about the kind of success they're finding on eBay.
When you buy or sell on eBay, you're dealing with another individual--
someone who knows exactly what they're selling or what they're looking for.
Everyone is encouraged to (and most do) talk about what it's like to trade
with someone. This feedback and rating system is an efficient way to check out
the integrity of sellers and buyers. A positive eBay rating is worth its
weight in gold...but beware...get too many negative ratings, and nobody in the
community is going to do business with you (wouldn't it be nice if the rest of
life was this clear cut?)
So whether you're looking for a rare 1922 Hamilton pocket watch or a retired
Chilly the Polar Bear Beanie Baby(R), give it a try--and see if you'd like to
make eBay your personal trading community--because even if you could find it
somewhere else...what fun would that be?
[Artwork]
(C)1998 eBay Inc. All rights reserved.
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and Financial Statements and Pro Forma Financial Information and
Notes thereto appearing elsewhere in this Prospectus, including the information
under "Risk Factors." Unless otherwise indicated, all information in this
Prospectus (i) reflects the conversion of all outstanding shares of Preferred
Stock of the Company into shares of Common Stock upon the consummation of this
offering, (ii) reflects a three-for-one stock split of the Company's Common
Stock to be effected prior to the effectiveness of the Registration Statement
of which this Prospectus forms a part and (iii) assumes the Underwriters' over-
allotment option will not be exercised. See "Description of Capital Stock" and
"Underwriting." Unless otherwise indicated, the terms "Company" and "eBay"
refer to eBay Inc., its California predecessor and its consolidated subsidiary.
THE COMPANY
eBay is the world's largest and most popular person-to-person trading
community on the Internet. eBay pioneered online person-to-person trading by
developing a Web-based community in which buyers and sellers are brought
together in an efficient and entertaining auction format to buy and sell
personal items such as antiques, coins, collectibles, computers, memorabilia,
stamps and toys. The eBay service permits sellers to list items for sale,
buyers to bid on items of interest and all eBay users to browse through listed
items in a fully-automated, topically-arranged, intuitive and easy-to-use
online service that is available 24 hours a day, seven days a week. From
inception through June 30, 1998, eBay hosted over 15 million auctions resulting
in gross merchandise sales in excess of $340 million. During the first half of
1998, the number of registered eBay users grew from approximately 340,000 to
over 850,000 and the number of simultaneous auctions being conducted through
eBay increased from approximately 200,000 to over 500,000. The Company believes
that this critical mass of buyers, sellers and items listed for sale creates a
cycle that helps eBay continue to grow its user base. Sellers are attracted to
eBay as a result of the large number of potential buyers, and buyers in turn
are attracted to eBay by the broad selection of goods listed on eBay. eBay
provides buyers and sellers a place to socialize, to discuss topics of common
interest and, ultimately, to conduct business in a compelling trading
environment, thus fostering a large and growing commerce-oriented online
community.
The Internet offers for the first time the opportunity to create a compelling
global marketplace for person-to-person trading--the exchange of goods between
individuals. This trading has traditionally been conducted through trading
forums, such as classified advertisements, collectibles shows, garage sales and
flea markets, or through intermediaries, such as auction houses and local
dealer shops. These markets are highly inefficient because: (i) their
fragmented, regional nature makes it difficult and expensive for buyers and
sellers to meet, exchange information and complete transactions; (ii) they
offer a limited variety and breadth of goods; (iii) they often have high
transaction costs from intermediaries; and (iv) they are information
inefficient, as buyers and sellers lack a reliable and convenient means of
setting prices for sales or purchases. Despite these inefficiencies, the
Company believes that the market for traditional person-to-person trading in
the U.S. through auctions and classified ads exceeded $50 billion in goods sold
in 1997. An Internet-based centralized trading place can overcome the
inefficiencies associated with traditional person-to-person trading by
facilitating buyers and sellers meeting, listing items for sale, exchanging
information, interacting with each other and, ultimately, consummating
transactions. Through such a trading place, buyers can access a significantly
broader selection of goods to purchase and sellers have the opportunity to sell
their goods efficiently to a broader base of buyers. As a result, a significant
market opportunity exists for an Internet-based centralized trading place that
applies the unique attributes of the Internet to facilitate person-to-person
trading.
3
<PAGE>
eBay offers Web users the opportunity to join the world's largest Internet-
based, person-to-person trading community. Any visitor to eBay can browse among
over 500,000 items for sale, many of which are unique or otherwise hard to
find, organized across 846 product categories, facilitating easy exploration.
Browsers and buyers can also search auction listings for specific items or
search by category, keyword, seller name, recently-commenced auctions or
auctions about to end. eBay's auction format fosters a sense of urgency among
buyers to bid for goods and creates an entertaining and compelling trading
environment. Within minutes of registering as an eBay user, a seller can
immediately list an item for sale, identify a minimum price for opening bids
and specify how long the auction will last. Sellers pay a nominal placement fee
for an item based on the seller's minimum price for the item, ranging from
$0.25 to $2.00, and can highlight their auction for additional fees, ranging
from $2.00 to $49.95. At the end of the auction period, if a bid exceeds the
seller's minimum price, eBay automatically notifies the buyer and seller via
email and then the buyer and seller consummate the transaction independently of
eBay. At the time of notification, eBay charges the seller a success fee that
steps down from 5% to 1.25% based on the closing price of the item. Buyers are
not charged for making bids or purchases through eBay. At no point during the
process does the Company take possession of either the item being sold or the
buyer's payment for the item. Following completion of a transaction, each user
is encouraged to submit compliments or criticism to the trading profile of his
or her trading partner on eBay's "Feedback Forum." This Feedback Forum, which
was pioneered by eBay, is intended to reduce the anonymity and uncertainty of
dealing with an unknown trading partner and to help overcome initial user
hesitancy when trading over the Web. eBay's Feedback Forum and comprehensive
community services, such as chat rooms, bulletin boards and email, are designed
to foster safe, direct interaction between buyers and sellers with similar
interests, thus promoting a sense of community among users and encouraging
consumer loyalty and repeat usage. These benefits have contributed to the
successful completion of well over 50% of all auctions listed on eBay since
inception.
eBay's objective is to enhance its position as the world's leading online
person-to-person trading community. Key elements of the Company's strategy
include: (i) growing the eBay community and eBay brand, both to attract new
members and to maintain the vitality of the eBay community; (ii) broadening
eBay's trading platform by growing existing product categories, promoting new
product categories and expanding internationally; (iii) fostering eBay
community affinity; (iv) enhancing eBay site features and functionality through
the introduction of personalization features, new auction formats and category-
specific content; (v) introducing pre- and post-trade value-added services,
such as shipping and third-party escrow services; and (vi) leveraging its
unique business model, which does not require it to carry inventory or maintain
a sales force, to grow its business.
The Company was formed as a sole proprietorship in September 1995,
incorporated in California in May 1996 and reincorporated in Delaware in April
1998. The Company's principal executive offices are located at 2005 Hamilton
Avenue, Suite 350, San Jose, California 95125. The Company's telephone number
is (408) 369-4830 and its Web site is located at www.ebay.com. Information
contained on the Company's Web site shall not constitute a part of this
Prospectus.
EBAY FOUNDATION
In June 1998, the Company established a charitable fund known as the eBay
Foundation, which is administered by the Community Foundation Silicon Valley.
To capitalize this foundation, eBay donated 107,250 shares of Common Stock to
the Community Foundation Silicon Valley on behalf of the eBay Foundation. The
Community Foundation Silicon Valley is selling 10,725 shares of Common Stock in
this offering on behalf of the eBay Foundation. Through the Community
Foundation Silicon Valley, the eBay Foundation will make grants to charitable
organizations. The Company intends to involve the members of the eBay community
in determining the charitable purposes to which proceeds from the sale of these
shares will be devoted.
4
<PAGE>
THE OFFERING
<TABLE>
<C> <S>
Common Stock offered by the Company... shares
Common Stock offered by the Selling
Stockholder on behalf of the eBay
Foundation........................... shares
Common Stock to be outstanding after shares(1)
this offering........................
Use of proceeds....................... For general corporate purposes,
including to fund working capital, and
to repay indebtedness. See "Use of
Proceeds."
Proposed Nasdaq National Market sym- "EBAY"
bol..................................
</TABLE>
SUMMARY FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, JUNE 30,
-------------- ----------------
1996 1997 1997 1998
------ ------- ------- --------
<S> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Net Revenues................................... $ 372 $ 5,744 $ 1,658 $ 14,922
Gross profit................................... 358 4,998 1,498 13,186
Income from operations......................... 253 1,487 844 2,824
Net income..................................... 148 874 486 348
Net income per share (2):
Basic......................................... $ 0.07 $ 0.11 $ 0.08 $ 0.03
Weighted average shares--basic................ 2,125 7,438 6,163 10,711
Diluted....................................... $ 0.01 $ 0.03 $ 0.02 $ 0.01
Weighted average shares--diluted.............. 14,315 27,553 25,811 34,231
Pro forma net income per share (3):
Basic......................................... $ 0.06 $ 0.02
Weighted average shares--basic................ 14,591 19,145
Diluted....................................... $ 0.03 $ 0.01
Weighted average shares--diluted.............. 27,553 34,231
SUPPLEMENTAL OPERATING DATA:
Number of registered users at end of period.... 41 341 150 851
Gross merchandise sales ....................... $7,279 $95,271 $26,967 $243,745
Number of auctions listed...................... 289 4,394 1,237 10,793
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1998
----------------------------------------
PRO FORMA
ACTUAL PRO FORMA (4) AS ADJUSTED (4)(5)
------- ------------- ------------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............ $10,716 $10,716 $
Working capital...................... 8,803 8,803
Total assets......................... 19,815 19,815
Debt and leases, long-term portion... 167 167
Series B Mandatorily Redeemable Con-
vertible Preferred Stock............ 5,157 --
Total stockholders' equity........... 9,122 14,279
</TABLE>
- --------
(1) Based on shares of Common Stock outstanding as of June 30, 1998. Excludes
(i) 1,071,159 shares of Common Stock issuable upon the exercise of stock
options outstanding as of June 30, 1998, at a weighted average per share
exercise price of $3.52, under the Company's 1996 Stock Option Plan (the
"1996 Plan"), the Company's 1997 Stock Option Plan (the "1997 Plan") and
option grants outside of the 1996 Plan and 1997 Plan, (ii) 961,500 shares
of Common Stock available for future grant as of June 30, 1998 under the
Company's 1997 Plan, (iii) an additional 4,700,000 shares available for
future grant or issuance under the Company's 1998 Equity Incentive Plan
(the "Equity Incentive Plan") and 1998 Directors Stock Option Plan (the
"Directors Plan") and (iv) 300,000 shares available for issuance under the
Company's 1998 Employee Stock Purchase Plan (the "Purchase Plan") which
number is subject to automatic annual increases up to a maximum of
1,500,000 shares. Subsequent to June 30, 1998, the Company granted options
to purchase an additional 584,250 shares of Common Stock under the 1997
Plan. See "Capitalization," "Management--Director Compensation,"
"Management--Employee Benefit Plans," "Description of Capital Stock" and
Notes 8, 9, 10 and 11 of Notes to Consolidated Financial Statements.
(2) See Note 1 of Notes to Consolidated Financial Statements for a description
of the method used to compute basic and diluted net income per share.
(3) Pro forma net income per share gives effect to the conversion of all
outstanding shares of the Company's Series A Convertible Preferred Stock
and Series B Mandatorily Redeemable Convertible Preferred Stock into Common
Stock upon the closing of this offering as if such conversion had occurred
on January 1, 1997, or the date of original issuance, if later. See Note 1
of Notes to Consolidated Financial Statements for a description of the
method used to compute pro forma basic and diluted net income per share.
(4) Gives effect to the conversion of all outstanding shares of the Company's
Series A Convertible Preferred Stock and Series B Mandatorily Redeemable
Convertible Preferred Stock into Common Stock upon the closing of this
offering. See "Capitalization."
(5) Adjusted to give effect to the sale of the shares of Common Stock offered
by the Company hereby, at an assumed initial public offering price of
$ per share and after deducting the estimated underwriting discount and
estimated offering expenses, and the application of the net proceeds
therefrom. See "Use of Proceeds" and "Capitalization."
5
<PAGE>
RISK FACTORS
This offering involves a high degree of risk. In addition to the other
information set forth in this Prospectus, the following risk factors should be
considered carefully in evaluating the Company and its business before
purchasing any of the shares of Common Stock of the Company. This Prospectus
contains certain forward-looking statements that involve risks and
uncertainties, such as statements of the Company's plans, objectives,
expectations and intentions. When used in this Prospectus, the words
"expects," "anticipates," "intends" and "plans" and similar expressions are
intended to identify certain of these forward-looking statements. The
cautionary statements made in this Prospectus should be read as being
applicable to all related forward-looking statements wherever they appear in
this Prospectus. The Company's actual results could differ materially from
those discussed in this Prospectus. Factors that could cause or contribute to
such differences include those discussed below, as well as those discussed
elsewhere in this Prospectus.
LIMITED OPERATING HISTORY; NO ASSURANCE OF CONTINUED PROFITABILITY
The Company was formed as a sole proprietorship in September 1995 and
incorporated in May 1996. Thus, it has only a limited operating history on
which to base an evaluation of its business and prospects. The Company's
prospects must be considered in light of the risks, uncertainties, expenses
and difficulties frequently encountered by companies in their early stages of
development, particularly companies in new and rapidly evolving markets such
as online commerce. To address these risks and uncertainties, the Company
must, among other things, maintain and increase the number of its registered
users, items listed on its service, completed auctions, maintain and enhance
its brand, implement and execute its business and marketing strategy
successfully, continue to develop and upgrade its technology and information-
processing systems, continue to enhance the eBay service to meet the needs of
a changing market, provide superior customer service, respond to competitive
developments and attract, integrate, retain and motivate qualified personnel.
There can be no assurance that the Company will be successful in accomplishing
all of these things, and the failure to do so could have a material adverse
effect on the Company's business, results of operations and financial
condition.
The Company believes that its continued growth and profitability will depend
in large part on its ability to (i) increase its brand name awareness, (ii)
provide its customers with superior community and trading experiences and
(iii) maintain sufficient transaction volume to attract buyers and sellers.
Accordingly, the Company intends to invest heavily in marketing and promotion,
site development, technology and operating infrastructure development.
Although the Company has experienced significant revenue growth and
significant growth in the number of its registered users and items listed for
auction by its users in recent periods, such growth rates are not sustainable
and will decrease in the future. In view of the rapidly evolving nature of the
Company's business and its limited operating history, the Company believes
that period-to-period comparisons of its operating results are not necessarily
meaningful and should not be relied upon as indications of future performance.
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations."
POTENTIAL FLUCTUATIONS IN RESULTS OF OPERATIONS; SEASONALITY
The Company's operating results have varied on a quarterly basis during its
short operating history and may fluctuate significantly as a result of a
variety of factors, many of which are outside the Company's control. Factors
that may affect the Company's quarterly operating results include: (i) the
Company's ability to retain an active user base, attract new users who list
items for sale and who complete transactions through its service and maintain
customer satisfaction; (ii) the Company's ability to manage the number of
items listed on its service; (iii) the announcement or introduction of new
sites, services and products by the Company or its competitors; (iv) the
success of the Company's brand building and marketing campaigns; (v) price
competition; (vi) the level of use of the Internet and online
6
<PAGE>
services; (vii) increasing consumer confidence in and acceptance of the
Internet and other online services for commerce and, in particular, the trading
of products such as those listed on eBay; (viii) consumer confidence in the
security of transactions over the Internet; (ix) the Company's ability to
upgrade and develop its systems and infrastructure to accommodate growth; (x)
the Company's ability to attract new personnel in a timely and effective
manner; (xi) the volume of items listed on the Company's Web site; (xii) the
timing, cost and availability of advertising in traditional media and on other
Web sites and online services; (xiii) technical difficulties or service
interruptions; (xiv) the amount and timing of operating costs and capital
expenditures relating to expansion of the Company's business, operations and
infrastructure; (xv) consumer trends and popularity of certain categories of
collectible items; (xvi) volume, size, timing and completion rate of trades on
eBay; (xvii) governmental regulation by Federal or local governments; and
(xviii) general economic conditions as well as economic conditions specific to
the Internet and online commerce industries.
As a result of the Company's limited operating history and the emerging
nature of the markets in which it competes, it is difficult for the Company to
forecast its revenues or earnings accurately. In addition, the Company has no
backlog and a significant portion of the Company's net revenues for a
particular quarter are derived from auctions that are listed and completed
during that quarter. The Company's current and future expense levels are based
largely on its investment plans and estimates of future revenues and are, to a
large extent, fixed. The Company may be unable to adjust spending in a timely
manner to compensate for any unexpected revenue shortfall. Accordingly, any
significant shortfall in revenues relative to the Company's planned
expenditures would have an immediate adverse effect on the Company's business,
results of operations and financial condition. Further, as a strategic response
to changes in the competitive environment, the Company may from time to time
make certain pricing, service or marketing decisions that could have a material
adverse effect on its business, results of operations and financial condition.
The Company believes that its results of operations are somewhat seasonal in
nature, with fewer auctions listed around the Thanksgiving and Christmas
holidays in the fourth quarter. The Company's limited operating history,
however, makes it difficult to fully assess the impact of these seasonal
factors or whether or not its business is susceptible to cyclical fluctuations
in the U.S. economy. In addition, the Company believes that its rapid growth
may have overshadowed whatever seasonal or cyclical factors might have
influenced its business to date. There can be no assurance that seasonal or
cyclical variations in the Company's operations will not become more pronounced
over time or that they will not materially adversely affect its results of
operations in the future. Moreover, consumer "fads" and other changes in
consumer trends may cause significant fluctuations in the Company's operating
results from one quarter to the next. See "--Risks Related to Consumer Trends."
Due to the foregoing factors, the Company's quarterly revenues and operating
results are difficult to forecast. The Company believes that period-to-period
comparisons of its operating results may not be meaningful and should not be
relied upon as an indication of future performance. In addition, it is likely
that in one or more future quarters the Company's operating results will fall
below the expectations of securities analysts and investors. In such event, the
trading price of the Common Stock would almost certainly be materially
adversely affected. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
MANAGEMENT OF POTENTIAL GROWTH; NEW MANAGEMENT TEAM; DEPENDENCE ON KEY
PERSONNEL
The Company is currently experiencing a period of significant expansion and
anticipates that further expansion will be required to address potential growth
in its customer base and market opportunities. This expansion has placed, and
is expected to continue to place, a significant strain on the Company's
management, operational and financial resources. From inception to June 30,
1998, the Company expanded from one to 76 employees. Certain members of the
Company's management, including the Company's President and Chief Executive
Officer, have joined the Company within the
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last year. The Company's new employees include a number of key managerial,
marketing, planning, technical and operations personnel who have not yet been
fully integrated into the Company, and the Company expects to add additional
key personnel in the near future. To manage the expected growth of its
operations and personnel, the Company will be required to improve existing and
implement new transaction processing, operational and financial systems,
procedures and controls, and to expand, train and manage its growing employee
base. The Company also will be required to expand its finance, administrative
and operations staff. Further, the Company may be required to enter into
relationships with various strategic partners, Web sites and other online
service providers and other third parties necessary to the Company's business.
There can be no assurance that the Company's current and planned personnel,
systems, procedures and controls will be adequate to support the Company's
future operations, that management will be able to hire, train, retain,
motivate and manage required personnel or that Company management will be able
to identify, manage and exploit existing and potential strategic relationships
and market opportunities. The failure of the Company to manage growth
effectively could have a material adverse effect on the Company's business,
results of operations and financial condition. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Business--
Employees."
The Company's performance is substantially dependent on the continued
services and on the performance of its senior management and other key
personnel. The Company's performance also depends on the Company's ability to
retain and motivate its other officers and key employees. The loss of the
services of any of its executive officers or other key employees could have a
material adverse effect on the Company's business, results of operations and
financial condition. The Company does not have long-term employment agreements
with any of its key personnel and maintains no "key person" life insurance
policies. The Company's future success also depends on its ability to identify,
attract, hire, train, retain and motivate other highly skilled technical,
managerial, marketing and customer service personnel. Competition for such
personnel is intense, and there can be no assurance that the Company will be
able to successfully attract, integrate or retain sufficiently qualified
personnel. In particular, the Company has encountered difficulties in
attracting a sufficient number of qualified software developers for its Web
site and transaction processing systems, and there can be no assurance that the
Company will be able to retain and attract such developers. The failure to
retain and attract the necessary personnel could have a material adverse effect
on the Company's business, results of operations and financial condition. See
"Business--Employees" and "Management."
DEVELOPING MARKET; DEPENDENCE ON CONTINUED GROWTH OF ONLINE PERSON-TO-PERSON
COMMERCE
The market for the sale of goods over the Internet, particularly through
person-to-person trading, is a new and emerging market. The Company's future
revenues and profits are substantially dependent upon the widespread acceptance
and use of the Internet and other online services as a medium for commerce by
consumers. Rapid growth in the use of and interest in the Web, the Internet and
other online services is a recent phenomenon and there can be no assurance that
this acceptance and use will continue to develop or that a sufficiently broad
base of consumers will adopt, and continue to use, the Internet as a medium of
commerce. Demand and market acceptance for recently introduced services and
products over the Internet are subject to a high level of uncertainty, and
there exist few proven services and products. Growth in the Company's user base
relies on obtaining consumers who have historically used traditional means of
commerce to purchase goods. For the Company to be successful, these consumers
must accept and use novel ways of conducting business and exchanging
information.
In addition, the Internet may not be commercially viable in the long term for
a number of reasons, including potentially inadequate development of the
necessary network infrastructure or delayed development of enabling
technologies, performance improvements and security measures. To the extent
that the Internet continues to experience significant growth in the number of
users, their frequency of use or their bandwidth requirements, there can be no
assurance that the infrastructure
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for the Internet and other online services will be able to support the demands
placed upon them. In addition, the Internet or other online services could lose
their viability due to delays in the development or adoption of new standards
and protocols required to handle increased levels of Internet or other online
service activity, or due to increased governmental regulation. Changes in or
insufficient availability of telecommunications services to support the
Internet or other online services also could result in slower response times
and adversely affect usage of the Internet and other online services generally
and the eBay service in particular. If use of the Internet and other online
services does not continue to grow or grows more slowly than expected, if the
infrastructure for the Internet and other online services does not effectively
support growth that may occur, or if the Internet and other online services do
not become a viable commercial marketplace, the Company's business, results of
operations and financial condition would be materially adversely affected.
RISK OF CAPACITY CONSTRAINTS
The Company seeks to generate a high volume of traffic and transactions on
the eBay service. Accordingly, the satisfactory performance, reliability and
availability of the Company's Web site, processing systems and network
infrastructure are critical to the Company's reputation and its ability to
attract and retain large numbers of users who bid for or sell items on its
service while maintaining adequate customer service levels. The Company's
revenues depend on the number of items listed by users, the volume of user
auctions that are successfully completed and the final prices paid for the
items listed. Any system interruptions that result in the unavailability of the
Company's service or reduced customer activity would reduce the volume of items
listed and auctions completed and could affect the average selling price of the
items. Interruptions of service may also diminish the attractiveness of the
Company and its services. The Company has experienced periodic system
interruptions, which it believes will continue to occur from time to time. Any
substantial increase in the volume of traffic on the Company's Web site or in
the number of auctions being conducted by customers will require the Company to
expand and upgrade its technology, transaction processing systems and network
infrastructure. There can be no assurance that the Company will be able to
accurately project the rate or timing of increases, if any, in the use of the
eBay service or timely expand and upgrade its systems and infrastructure to
accommodate such increases in a timely manner. Any failure to expand or upgrade
its systems could have a material adverse effect on the Company's business,
results of operations and financial condition.
The Company uses internally developed systems for its service and transaction
processing, including billing and collections processing. The Company must
continually enhance and improve these systems in order to accommodate the level
of use of eBay. Furthermore, in the future, the Company may add additional
features and functionality to its services that would result in the need to
develop or license additional technologies. The Company's inability to add
additional software and hardware or to develop and further upgrade its existing
technology, transaction processing systems or network infrastructure to
accommodate increased traffic on the eBay service or increased transaction
volume through its processing systems or to provide new features or
functionality may cause unanticipated system disruptions, slower response
times, degradation in levels of customer service, impaired quality of the
user's experience on the eBay service, and delays in reporting accurate
financial information. In addition, although the Company works to prevent
unauthorized access to Company data, it is impossible to completely eliminate
this risk. There can be no assurance that the Company will be able in a timely
manner to effectively upgrade and expand its systems or to integrate smoothly
any newly developed or purchased technologies with its existing systems. Any
inability to do so would have a material adverse effect on the Company's
business, results of operations and financial condition. See "--Risk of System
Failures" and "Business--Operations and Technology."
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RISK OF SYSTEM FAILURES
The Company's success, and in particular its ability to facilitate trades
successfully and provide high quality customer service, depends on the
efficient and uninterrupted operation of its computer and communications
hardware systems. Substantially all of the Company's computer hardware for
operating the eBay service is currently located at the facilities of Exodus
Communications, Inc. ("Exodus") in Santa Clara, California. These systems and
operations are vulnerable to damage or interruption from earthquakes, floods,
fires, power loss, telecommunication failures, break-ins, sabotage, intentional
acts of vandalism and similar events. The Company does not presently have fully
redundant systems, a formal disaster recovery plan or alternative providers of
hosting services and does not carry sufficient business interruption insurance
to compensate it for losses that may occur. Despite any precautions taken by,
and planned to be taken by the Company, the occurrence of a natural disaster or
other unanticipated problems at the Exodus facility could result in
interruptions in the services provided by the Company. In addition, the failure
by Exodus to provide the data communications capacity required by the Company,
as a result of human error, natural disaster or other operational disruption,
could result in interruptions in the Company's service. Any damage to or
failure of the systems of the Company could result in reductions in, or
terminations of, the eBay service, which could have a material adverse effect
on the Company's business, results of operations and financial condition.
In the case of frequent or persistent system failures, the Company's
reputation and name brand could be materially adversely affected. Although the
Company has implemented certain network security measures, its servers are also
vulnerable to computer viruses, physical or electronic break-ins and similar
disruptions, which could lead to interruptions, delays, loss of data or the
inability to complete customer auctions, any and all of which could have a
material adverse effect on the Company's business, results of operations and
financial condition. See "Business--Operations and Technology" and "--
Facilities. "
INTENSE COMPETITION
The market for person-to-person trading over the Internet is new, rapidly
evolving and intensely competitive, and the Company expects competition to
intensify further in the future. Barriers to entry are relatively low, and
current and new competitors can launch new sites at a relatively low cost using
commercially-available software. The Company currently or potentially competes
with a number of other companies. The Company's direct competitors include
various online person-to-person auction services, including Onsale Exchange, a
division of Onsale, Inc. ("Onsale"); Auction Universe, a Times-Mirror Company;
Excite, Inc. ("Excite"); and a number of other small services, including those
that serve specialty markets. The Company also competes indirectly with
business-to-consumer online auction services such as Onsale, First Auction,
ZAuction and Surplus Auction. The Company potentially faces competition from a
number of large online communities and services that have expertise in
developing online commerce and in facilitating online person-to-person
interaction. Certain of these potential competitors, including Amazon.com,
America Online, Inc. ("AOL"), Microsoft Corporation ("Microsoft") and Yahoo!
Inc. ("Yahoo!"), currently offer a variety of business-to-consumer trading
services and classified ad services and certain of these companies may
introduce person-to-person trading to their large user populations. Other large
companies with strong brand recognition and experience in online commerce, such
as Cendant Corporation, QVC and large newspaper or media companies may also
seek to compete in the online auction market. Competitive pressures created by
any one of these companies, or by the Company's competitors collectively, could
have a material adverse effect on the Company's business, results of operations
and financial condition.
The Company believes that the principal competitive factors in its market are
volume and selection of goods, population of buyers and sellers, community
cohesion and interaction, customer service, reliability of delivery and payment
by users, brand recognition, Web site convenience and accessibility,
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price, quality of search tools and system reliability. Many of the Company's
current and potential competitors have longer operating histories, larger
customer bases, greater brand recognition and significantly greater financial,
marketing, technical and other resources than the Company. In addition, other
online trading services may be acquired by, receive investments from or enter
into other commercial relationships with larger, well-established and well-
financed companies as use of the Internet and other online services increases.
Therefore, certain of the Company's competitors with other revenue sources may
be able to devote greater resources to marketing and promotional campaigns,
adopt more aggressive pricing policies and devote substantially more resources
to Web site and systems development than the Company or may try to attract
traffic by offering services for free. Increased competition may result in
reduced operating margins, loss of market share and diminished value in the
Company's brand. There can be no assurance that the Company will be able to
compete successfully against current and future competitors. Further, as a
strategic response to changes in the competitive environment, the Company may,
from time to time, make certain pricing, service or marketing decisions or
acquisitions that could have a material adverse effect on its business, results
of operations and financial condition. New technologies and the expansion of
existing technologies may increase the competitive pressures on the Company by
enabling the Company's competitors to offer a lower-cost service. Certain Web-
based applications that direct Internet traffic to certain Web sites may
channel users to trading services that compete with the Company. Although the
Company has established Internet traffic arrangements with several large online
services and search engine companies, there can be no assurance that these
arrangements will be renewed on commercially reasonable terms or that they will
otherwise continue to result in increased usage of the eBay service. In
addition, companies that control access to transactions through network access
or Web browsers could promote the Company's competitors or charge the Company
substantial fees for inclusion. Any and all of these events could have a
material adverse effect on the Company's business, results of operations and
financial condition. See "Business--Competition."
RISKS ASSOCIATED WITH BRAND DEVELOPMENT
The Company believes that its historical growth has been largely attributable
to word-of-mouth. Despite this historical organic growth, the Company believes
that continuing to strengthen its brand is critical to achieving widespread
acceptance of eBay, particularly in light of the competitive nature of the
Company's market. Promoting and positioning its brand will depend largely on
the success of the Company's marketing efforts and the ability of the Company
to provide high quality services. In order to promote its brand, the Company
will need to increase its marketing budget and otherwise increase its financial
commitment to creating and maintaining brand loyalty among users. There can be
no assurance that brand promotion activities will yield increased revenues or
that any such revenues would offset the expenses incurred by the Company in
building its brand. Further, there can be no assurance that any new users
attracted to eBay will conduct transactions over eBay on a regular basis. If
the Company fails to promote and maintain its brand or incurs substantial
expenses in an attempt to promote and maintain its brand or if the Company's
existing or future strategic relationships fail to promote the Company's brand
or increase brand awareness, the Company's business, results of operations and
financial condition would be materially adversely affected. See "Business--eBay
Strategy."
RAPID TECHNOLOGICAL CHANGE; RISKS ASSOCIATED WITH NEW SERVICES, FEATURES AND
FUNCTIONS
The market in which the Company competes is characterized by rapidly changing
technology, evolving industry standards, frequent new service and product
announcements, introductions and enhancements and changing customer demands.
These market characteristics are exacerbated by the emerging nature of the Web
and the apparent need of companies from a multitude of industries to offer Web-
based products and services. Accordingly, the Company's future success will
depend on its ability to adapt to rapidly changing technologies, to adapt its
services to evolving industry standards and to continually improve the
performance, features and reliability of its service in response to competitive
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service and product offerings and evolving demands of the marketplace. The
failure of the Company to adapt to such changes would have a material adverse
effect on the Company's business, results of operations and financial
condition. In addition, the widespread adoption of new Internet, networking or
telecommunications technologies or other technological changes could require
substantial expenditures by the Company to modify or adapt its services or
infrastructure, which could have a material adverse effect on the Company's
business, results of operations and financial condition. See "Business--
Operations and Technology."
The Company plans to expand its operations by developing and promoting new or
complementary services, products or transaction formats or expanding the
breadth and depth of services. There can be no assurance that the Company would
be able to expand its operations in a cost-effective or timely manner or that
any such efforts would maintain or increase overall market acceptance.
Furthermore, any new business or service launched by the Company that is not
favorably received by consumers could damage the Company's reputation and
diminish the value of its brand name. Expansion of the Company's operations in
this manner would also require significant additional expenses and development,
operations and other resources and would strain the Company's management,
financial and operational resources. The lack of market acceptance of such
services or the Company's inability to generate satisfactory revenues from such
expanded services to offset their cost could have a material adverse effect on
the Company's business, results of operations and financial condition.
RISKS RELATED TO CONSUMER TRENDS
The Company derives substantially all of its revenues from fees from sellers
for listing products for sale on its service and fees from successfully
completed auctions. The Company's future revenues will depend upon continued
demand for the types of goods that are listed by users of the eBay service. The
popularity of certain categories of items, such as toys, dolls and memorabilia,
among consumers may vary over time due to perceived scarcity, subjective value,
and societal and consumer trends in general. For example during the three
months ended June 30, 1998, the Company had, at times, over 30,000 simultaneous
auctions listed in its "Beanie Babies" category. A decline in the popularity
of, or demand for, certain collectibles or other items sold through the eBay
service could reduce the overall volume of transactions on the eBay service,
resulting in reduced revenues. In addition, certain consumer "fads" may
temporarily inflate the volume of certain types of items listed on the eBay
service, placing a significant strain upon the Company's infrastructure and
transaction capacity. These trends may also cause significant fluctuations in
the Company's operating results from one quarter to the next. Any decline in
demand for the goods offered through the eBay service as a result of changes in
consumer trends could have a material adverse effect on the Company's business,
results of operations and financial condition.
RISKS ASSOCIATED WITH CERTAIN ACTIVITIES ON THE COMPANY'S SERVICE
The law relating to the liability of providers of online services for
activities of their users on the service is currently unsettled. While the
Company does not pre-screen the types of goods offered on eBay, the Company is
aware that certain goods, such as alcohol, tobacco, firearms, adult material
and other goods that may be subject to regulation by local, state or federal
authorities have been traded on the eBay service. There can be no assurance
that the Company will be able to prevent the unlawful exchange of goods on its
service or that it will successfully avoid civil or criminal liability for
unlawful activities carried out by users through the Company's service. The
imposition upon the Company of potential liability for unlawful activities of
users of the eBay service could require the Company to implement measures to
reduce its exposure to such liability, which may require, among other things,
the Company to spend substantial resources and/or or to discontinue certain
service offerings. Any costs incurred as a result of such liability or asserted
liability could have a material adverse effect on the Company's business,
results of operations and financial condition. See "Business--Government
Regulation."
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In addition, the Company's success depends largely upon sellers reliably
delivering and accurately representing the listed goods and buyers paying the
agreed purchase price. The Company takes no responsibility for delivery of
payment or goods to any user of the eBay service. The Company has received in
the past, and anticipates that it will receive in the future, communications
from users who did not receive the purchase price or the goods that were to
have been exchanged. While the Company can suspend the accounts of users who
fail to fulfill their delivery obligations to other users, the Company, beyond
crediting sellers with the amount of their fees in certain circumstances, does
not have the ability to otherwise require users to make payments or deliver
goods and the Company does not compensate users who believe they have been
defrauded by other users. The Company also from time to time receives
complaints from buyers as to the quality of the goods purchased. Although the
Company has attempted to reduce its liability to buyers for unfulfilled
transactions or other claims related to the quality of the purchased goods and
although the average transaction size is approximately $40.00, the Company may
in the future receive additional requests from users requesting reimbursement
or threatening legal action against the Company if no reimbursement is made.
Any resulting litigation could be costly for the Company, divert management
attention and could result in increased costs of doing business, or otherwise
have a material adverse effect on the Company's business, results of operations
and financial condition. Any negative publicity generated as a result of
fraudulent or deceptive conduct by users of eBay could damage the Company's
reputation and diminish the value of its brand name, which could have a
material adverse effect on the Company's business, results of operations and
financial condition.
The Company does not pre-screen the goods that are listed by users on eBay or
the contents of their listings, which may include text and images. The Company
has received in the past, and anticipates that it will receive in the future,
communications alleging that certain items sold through the eBay service
infringe third-party copyrights, trademarks or other intellectual property
rights. While the Company's user policy prohibits the sale of goods which may
infringe third-party intellectual property rights and the Company is empowered
to suspend the account of any user who infringes third-party intellectual
property rights, there can be no assurance that an allegation of infringement
will not result in litigation against the Company. Any such litigation could be
costly for the Company and could result in increased costs of doing business,
or could in some other manner have a material adverse effect on the Company's
business, results of operations and financial condition. See "Business--The
eBay Service."
ONLINE COMMERCE SECURITY RISKS
A significant barrier to online commerce and communications is the secure
transmission of confidential information over public networks. Currently, a
significant number of eBay users authorize the Company to bill their credit
card accounts directly for all transaction fees charged by the Company. The
Company relies on encryption and authentication technology licensed from third
parties to provide the security and authentication technology to effect secure
transmission of confidential information, including customer credit card
numbers. There can be no assurance that advances in computer capabilities, new
discoveries in the field of cryptography, or other events or developments will
not result in a compromise or breach of the technology used by the Company to
protect customer transaction data. If any such compromise of the Company's
security were to occur, it could have a material adverse effect on the
Company's reputation and, therefore, on its business, results of operations and
financial condition. Furthermore, a party who is able to circumvent the
Company's security measures could misappropriate proprietary information or
cause interruptions in the Company's operations. The Company may be required to
expend significant capital and other resources to protect against such security
breaches or to alleviate problems caused by such breaches. Concerns over the
security of transactions conducted on the Internet and other online services
and the privacy of users may also inhibit the growth of the Internet and other
online services generally, and the Web in particular, especially as a means of
conducting commercial transactions. To the extent that activities of the
Company involve the storage and transmission of proprietary information, such
as credit card numbers,
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security breaches could damage the Company's reputation and expose the Company
to a risk of loss or litigation and possible liability. The Company's insurance
policies carry low coverage limits, which may not be adequate to reimburse the
Company for losses caused by security breaches. There can be no assurance that
the Company's security measures will prevent security breaches or that failure
to prevent such security breaches will not have a material adverse effect on
the Company's business, results of operations and financial condition. See
"Business--Operations and Technology."
RISKS ASSOCIATED WITH ACQUISITIONS
If appropriate opportunities present themselves, the Company intends to
acquire businesses, technologies, services or products that the Company
believes are strategic. For example, the Company recently acquired Jump
Incorporated ("Jump") the developer and operator of Up4Sale, an advertising-
supported online trading service for an aggregate transaction value of $2.3
million. The Company currently has no understandings, commitments or agreements
with respect to any other material acquisition and no other material
acquisition is currently being pursued. There can be no assurance that the
Company will be able to identify, negotiate or finance future acquisitions
successfully, or to integrate such acquisitions with its current business. The
process of integrating an acquired business, technology, service or product
into the Company may result in unforeseen operating difficulties and
expenditures and may absorb significant management attention that would
otherwise be available for ongoing development of the Company's business.
Moreover, there can be no assurance that the anticipated benefits of any
acquisition, including Jump, will be realized. Future acquisitions could result
in potentially dilutive issuances of equity securities, the incurrence of debt,
contingent liabilities and/or amortization expenses related to goodwill and
other intangible assets, which could materially adversely affect the Company's
business, results of operations and financial condition. Any such future
acquisitions of other businesses, technologies, services or products might
require the Company to obtain additional equity or debt financing, which might
not be available on terms favorable to the Company, or at all, and such
financing, if available, might be dilutive. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Business--
Acquisition of Jump."
DEPENDENCE ON THE WEB INFRASTRUCTURE
The success of the eBay service will depend in large part upon the
development and maintenance of the Web infrastructure, such as a reliable
network backbone with the necessary speed, data capacity and security, or
timely development of complementary products such as high speed modems, for
providing reliable Web access and services. Because global commerce and the
online exchange of information is new and evolving, it is difficult to predict
with any assurance whether the Web will prove to be a viable commercial
marketplace in the long term. The Web has experienced, and is expected to
continue to experience, significant growth in the numbers of users and amount
of traffic. To the extent that the Web continues to experience increased
numbers of users, frequency of use or increased bandwidth requirements of
users, there can be no assurance that the Web infrastructure will continue to
be able to support the demands placed on it by this continued growth or that
the performance or reliability of the Web will not be adversely affected.
Furthermore, the Web has experienced a variety of outages and other delays as a
result of damage to portions of its infrastructure, and could face such outages
and delays in the future, including outages and delays resulting from the
inability of certain computers or software to distinguish dates in the 21st
century from dates in the 20th century. See "--Year 2000 Implications." These
outages and delays could adversely affect the level of Web usage and also the
level of traffic and the processing of auctions on eBay. In addition, the Web
could lose its viability due to delays in the development or adoption of new
standards and protocols to handle increased levels of activity or due to
increased governmental regulation. There can be no assurance that the
infrastructure or complementary products or services necessary to make the Web
a viable commercial marketplace for the long term will be developed or that if
they are developed, that the Web will become a viable commercial marketplace
for services such as those
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offered by the Company. If the necessary infrastructure, standard or protocols
or complementary products, services or facilities are not developed, or if the
Web does not become a viable commercial marketplace, the Company's business,
results of operations and financial condition will be materially and adversely
affected. Even if the infrastructure, standards or protocols or complementary
products, services or facilities are developed and the Web becomes a viable
commercial marketplace in the long term, the Company might be required to incur
substantial expenditures in order to adapt its service to changing Web
technologies, which could have a material adverse effect on the Company's
business, results of operations and financial condition. See "Business--
Industry Background."
RISKS ASSOCIATED WITH INFORMATION DISSEMINATED THROUGH THE COMPANY'S SERVICE
The law relating to the liability of online services companies for
information carried on or disseminated through their services is currently
unsettled. It is possible that claims could be made against online services
companies under both United States and foreign law for defamation, libel,
invasion of privacy, negligence, copyright or trademark infringement, or other
theories based on the nature and content of the materials disseminated through
their services. Several private lawsuits seeking to impose such liability upon
other online services companies are currently pending. In addition, legislation
has been proposed that imposes liability for or prohibits the transmission over
the Internet of certain types of information. The eBay service features a
Feedback Forum, which includes information from users regarding the reliability
of other users in promptly paying or delivering goods sold in an auction
transaction. Although all such feedback is generated by users and not by the
Company, it is possible that a claim of defamation or other injury could be
made against the Company for content posted in the Feedback Forum. The
imposition upon the Company and other online services providers of potential
liability for information carried on or disseminated through their services
could require the Company to implement measures to reduce its exposure to such
liability, which may require the Company to expend substantial resources and/or
to discontinue certain service offerings. In addition, the increased attention
focused upon liability issues as a result of these lawsuits and legislative
proposals could impact the growth of Internet use. While the Company carries
liability insurance, it may not be adequate to fully compensate the Company in
the event the Company becomes liable for information carried on or disseminated
through its service. Any costs not covered by insurance incurred as a result of
such liability or asserted liability could have a material adverse effect on
the Company's business, results of operations and financial condition. See
"Business--Government Regulation" and "--Privacy Policy."
GOVERNMENTAL REGULATION AND LEGAL UNCERTAINTIES
The Company is not currently subject to direct federal, state or local
regulation, and laws or regulations applicable to access to or commerce on the
Internet, other than regulations applicable to businesses generally. However,
due to the increasing popularity and use of the Internet and other online
services, it is possible that a number of laws and regulations may be adopted
with respect to the Internet or other online services covering issues such as
user privacy, freedom of expression, pricing, content and quality of products
and services, taxation, advertising, intellectual property rights and
information security. Although sections of the Communications Decency Act of
1996 (the "CDA") that, among other things, proposed to impose criminal
penalties on anyone distributing "indecent" material to minors over the
Internet, were held to be unconstitutional by the U.S. Supreme Court, there can
be no assurance that similar laws will not be proposed and adopted. Certain
members of Congress have recently discussed proposing legislation that would
regulate the distribution of "indecent" material over the Internet in a manner
that they believe would withstand challenge on constitutional grounds. The
nature of such similar legislation and the manner in which it may be
interpreted and enforced cannot be fully determined and, therefore, legislation
similar to the CDA could subject the Company and/or its customers to potential
liability, which in turn could have an adverse effect on the Company's
business, results of operations and financial condition. The adoption of any
such laws or regulations might also decrease the rate of growth of Internet
use, which in turn could decrease the demand for
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the eBay service or increase the cost of doing business or in some other manner
have a material adverse effect on the Company's business, results of operations
and financial condition. In addition, applicability to the Internet of existing
laws governing issues such as property ownership, copyrights and other
intellectual property issues, taxation, libel, obscenity and personal privacy
is uncertain. The vast majority of such laws were adopted prior to the advent
of the Internet and related technologies and, as a result, do not contemplate
or address the unique issues of the Internet and related technologies. In
addition, numerous states, including the State of California in which the
Company's headquarters are located, have regulations regarding the manner in
which "auctions" may be conducted and the liability of "auctioneers" in
conducting such auctions. The Company does not believe that such regulations,
which were adopted prior to the advent of the Internet, govern the operations
of the Company's business nor have any claims been filed by any state implying
that the Company is subject to such legislation. There can be no assurance,
however, that a state will not attempt to impose these regulations upon the
Company in the future or that such imposition will not have a material adverse
effect on the Company's business, results of operations and financial
condition.
Several states have also 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 also initiated
action against at least one online service regarding the manner in which
personal information is collected from users and provided to third parties.
Changes to existing laws or the passage of new laws intended to address these
issues, including some recently proposed changes, could create uncertainty in
the marketplace that could reduce demand for the services of the Company or
increase the cost of doing business as a result of litigation costs or
increased service delivery costs, or could in some other manner have a material
adverse effect on the Company's business, results of operations and financial
condition. In addition, because the Company's services are accessible
worldwide, and the Company facilitates sales of goods to users worldwide, other
jurisdictions may claim that the Company is required to qualify to do business
as a foreign corporation in a particular state or foreign country. The Company
is qualified to do business in two states in the United States, and failure by
the Company to qualify as a foreign corporation in a jurisdiction where it is
required to do so could subject the Company to taxes and penalties for the
failure to qualify and could result in the inability of the Company to enforce
contracts in such jurisdictions. Any such new legislation or regulation, or the
application of laws or regulations from jurisdictions whose laws do not
currently apply to the Company's business, could have a material adverse effect
on the Company's business, results of operations and financial condition. See
"Business--Government Regulation" and "--Privacy Policy."
SALES AND OTHER TAXES
The Company does not collect sales or other similar taxes in respect of goods
sold by users through the eBay service. However, one or more states may seek to
impose sales tax collection obligations on out-of-state companies such as the
Company which engage in or facilitate online commerce, and a number of
proposals have been made at the state and local level that would impose
additional taxes on the sale of goods and services through the Internet. Such
proposals, if adopted, could substantially impair the growth of electronic
commerce, and could adversely affect the Company's opportunity to derive
financial benefit from such activities. Moreover, a successful assertion by one
or more states or any foreign country that the Company should collect sales or
other taxes on the exchange of merchandise on its system could have a material
adverse effect on the Company's business, results of operations and financial
condition.
Legislation limiting the ability of the states to impose taxes on Internet-
based transactions has been proposed in the U.S. Congress. There can be no
assurance that this legislation will ultimately be enacted into law or that the
final version of this legislation will not contain a limited time period in
which such tax moratorium will apply. In the event that the tax moratorium is
imposed for a limited time period, there
16
<PAGE>
can be no assurance that the legislation will be renewed at the end of such
period. Failure to enact or renew this legislation could allow various states
to impose taxes on Internet-based commerce and the imposition of such taxes
could have a material adverse affect on the Company's business, results of
operations and financial condition.
RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS
A component of the Company's strategy is to expand internationally. Expansion
into the international markets will require management attention and resources.
The Company has limited experience in localizing its service, and the Company
believes that many of its competitors are also undertaking expansion into
foreign markets. There can be no assurance that the Company will be successful
in expanding into international markets. In addition to the uncertainty
regarding the Company's ability to generate revenues from foreign operations
and expand its international presence, there are certain risks inherent in
doing business on an international basis, including, among others, regulatory
requirements, legal uncertainty regarding liability, tariffs, and other trade
barriers, difficulties in staffing and managing foreign operations, longer
payment cycles, different accounting practices, problems in collecting accounts
receivable, political instability, seasonal reductions in business activity and
potentially adverse tax consequences, any of which could adversely affect the
success of the Company's international operations. To the extent the Company
expands its international operations and has additional portions of its
international revenues denominated in foreign currencies, the Company could
become subject to increased risks relating to foreign currency exchange rate
fluctuations. There can be no assurance that one or more of the factors
discussed above will not have a material adverse effect on the Company's future
international operations and, consequently, on the Company's business, results
of operations and financial condition. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Business--eBay
Strategy."
PROTECTION AND ENFORCEMENT OF INTELLECTUAL PROPERTY RIGHTS
The Company regards the protection of its copyrights, service marks,
trademarks, trade dress and trade secrets as critical to its future success and
relies on a combination of copyright, trademark, service mark and trade secret
laws and contractual restrictions to establish and protect its proprietary
rights in products and services. The Company has entered into confidentiality
and invention assignment agreements with its employees and contractors, and
nondisclosure agreements with parties with which it conducts business in order
to limit access to and disclosure of its proprietary information. There can be
no assurance that these contractual arrangements or the other steps taken by
the Company to protect its intellectual property will prove sufficient to
prevent misappropriation of the Company's technology or to deter independent
third-party development of similar technologies. The Company pursues the
registration of its trademarks and service marks in the U.S. and
internationally. Effective trademark, service mark, copyright and trade secret
protection may not be available in every country in which the Company's
services are made available online. The Company has licensed in the past, and
expects that it may license in the future, certain of its proprietary rights,
such as trademarks or copyrighted material, to third parties. While the Company
attempts to ensure that the quality of the eBay brand is maintained by such
licensees, there can be no assurance that such licensees will not take actions
that might materially adversely affect the value of the Company's proprietary
rights or reputation, which could have a material adverse effect on the
Company's business, results of operations and financial condition. The Company
also relies on certain technologies that it licenses from third parties, such
as Oracle Corporation ("Oracle"), Microsoft and Sun Microsystems Inc. ("Sun"),
the suppliers of key database technology, the operating system and specific
hardware components for the eBay service. There can be no assurance that these
third-party technology licenses will continue to be available to the Company on
commercially reasonable terms. The loss of such technology could require the
Company to obtain substitute technology of lower quality or performance
standards or at greater cost, which could materially adversely affect the
Company's business, results of operations and financial condition.
17
<PAGE>
To date, the Company has not been notified that its technologies infringe the
proprietary rights of third parties, but there can be no assurance that third
parties will not claim infringement by the Company with respect to past,
current or future technologies. The Company expects that participants in its
markets will be increasingly subject to infringement claims as the number of
services and competitors in the Company's industry segment grows. Any such
claim, whether meritorious or not, could be time-consuming, result in costly
litigation, cause service upgrade delays or require the Company to enter into
royalty or licensing agreements. Such royalty or licensing agreements might not
be available on terms acceptable to the Company or at all. As a result, any
such claim could have a material adverse effect upon the Company's business,
results of operations and financial condition. See "Business--Intellectual
Property Rights."
YEAR 2000 IMPLICATIONS
Many current installed computer systems and software products are coded to
accept only two-digit entries in the date code field and cannot reliably
distinguish dates beginning on January 1, 2000 from dates prior to the year
2000. Many companies' software and computer systems may need to be upgraded or
replaced in order to correctly process dates beginning in 2000 and to comply
with the "Year 2000" requirements. The Company has reviewed its internal
programs and has determined that there are no significant Year 2000 issues
within the Company's systems or services. However, although the Company
believes that its systems are Year 2000 compliant, the Company utilizes third-
party equipment and software that may not be Year 2000 compliant. Failure of
such third-party equipment or software to properly process dates for the year
2000 and thereafter could require the Company to incur unanticipated expenses
to remedy any problems, which could have a material adverse effect on the
Company's business, results of operations and financial condition. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
POSSIBLE VOLATILITY OF STOCK PRICE
The trading price of the Common Stock is likely to be highly volatile and
could be subject to wide fluctuations in response to factors such as actual or
anticipated variations in the Company's quarterly operating results,
announcements of technological innovations, or new services by the Company or
its competitors, changes in financial estimates by securities analysts,
conditions or trends in the Internet and online commerce industries, changes in
the market valuations of other Internet or online service companies,
announcements by the Company or its competitors of significant acquisitions,
strategic partnerships, joint ventures or capital commitments, additions or
departures of key personnel, sales of Common Stock or other securities of the
Company in the open market and other events or factors, many of which are
beyond the Company's control. Further, the stock markets in general, and the
Nasdaq National Market and the market for Internet-related and technology
companies in particular, have experienced extreme price and volume fluctuations
that have often been unrelated or disproportionate to the operating performance
of such companies. The trading prices of many technology companies' stocks are
at or near historical highs and reflect valuations substantially above
historical levels. There can be no assurance that these trading prices and
valuations will be sustained. These broad market and industry factors may
materially and adversely affect the market price of the Common Stock,
regardless of the Company's operating performance. Market fluctuations, as well
as general political and economic conditions such as recession or interest rate
or currency rate fluctuations, may also adversely affect the market price of
the Common Stock. In the past, following periods of volatility in the market
price of a company's securities, securities class-action litigation has often
been instituted against such company. Such litigation, if instituted, could
result in substantial costs and a diversion of management's attention and
resources, which would have a material adverse effect on the Company's
business, results of operations and financial condition.
18
<PAGE>
CONTROL BY PRINCIPAL STOCKHOLDERS, EXECUTIVE OFFICERS AND DIRECTORS
Upon completion of this offering, the Company's executive officers and
directors (and their affiliates) will, in the aggregate, own approximately %
of the Company's outstanding Common Stock ( % if the Underwriters' over-
allotment option is exercised in full). As a result, such persons, acting
together, will have the ability to control all matters submitted to
stockholders of the Company for approval (including the election and removal of
directors and any merger, consolidation or sale of all or substantially all of
the Company's assets) and to control the management and affairs of the Company.
Accordingly, such concentration of ownership may have the effect of delaying,
deferring or preventing a change in control of the Company, impede a merger,
consolidation, takeover or other business combination involving the Company or
discourage a potential acquirer from making a tender offer or otherwise
attempting to obtain control of the Company, which in turn could have an
adverse effect on the market price of the Company's Common Stock. See
"Management" and "Principal and Selling Stockholders."
FUTURE CAPITAL NEEDS
The Company currently anticipates that the net proceeds of this offering,
together with its available funds, will be sufficient to meet its anticipated
needs for working capital, capital expenditures and business expansion through
at least the next 18 months. Thereafter, the Company may need to raise
additional funds. The Company may need to raise additional funds sooner in
order to fund more rapid expansion, to develop new or enhanced services or
products, to respond to competitive pressures or to acquire complementary
products, businesses or technologies. If additional funds are raised through
the issuance of equity or convertible debt securities, the percentage ownership
of the stockholders of the Company will be reduced, stockholders may experience
additional dilution and such securities may have rights, preferences and
privileges senior to those of the Company's Common Stock. There can be no
assurance that additional financing will be available on terms favorable to the
Company or at all. If adequate funds are not available or are not available on
acceptable terms, the Company may not be able to fund its expansion, take
advantage of unanticipated acquisition opportunities, develop or enhance
services or products or respond to competitive pressures. Such inability could
have a material adverse effect on the Company's business, results of operations
and financial condition. See "Use of Proceeds" and "Management's Discussion and
Analysis of Financial Conditions and Results of Operations--Liquidity and
Capital Resources."
SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of the Company's Common Stock (including shares
issued upon the exercise of outstanding options) in the public market after
this offering could adversely affect the market price of the Common Stock. Such
sales also might make it more difficult for the Company to sell equity or
equity-related securities in the future at a time and price that the Company
deems appropriate. In addition to the shares of Common Stock offered hereby
(assuming no exercise of the Underwriters' over-allotment option), as of the
date of this Prospectus, there will be 36,249,801 shares of Common Stock
outstanding, all of which are restricted securities ("Restricted Securities")
under the Securities Act of 1933, as amended (the "Securities Act"). As of such
date, no Restricted Securities will be eligible for sale in the public market,
and Restricted Securities will remain subject to the Company's right to
repurchase such shares at the original purchase price. Following the expiration
of 120-day lock-up agreements with the representatives of the Underwriters,
23,671,779 Restricted Securities will be available for sale in the public
market (excluding those that remain subject to the right of repurchase) and the
remaining Restricted Securities will be eligible for sale from time to time
thereafter upon expiration of applicable holding periods under Rule 144 under
the Securities Act and the Company's right to repurchase unvested shares. In
addition, as of June 30, 1998, there were outstanding options to purchase
1,071,159 shares of the Company's Common Stock, all of which were exercisable.
Substantially, all of the shares issuable upon exercise of such options will be
subject to
19
<PAGE>
lock-up agreements. The representatives of the several underwriters acting
together may, in their sole discretion and at any time without notice, release
all or any portion of the securities subject to lock-up agreements. In
addition, the holders of 29,629,425 Restricted Securities are entitled to
certain rights with respect to registration of such shares for sale in the
public market. If such holders sell in the public market, such sales could have
a material adverse effect on the market price of the Company's Common Stock.
Immediately after this offering, the Company intends to register
approximately 7,032,659 shares of Common Stock subject to outstanding options
and reserved for issuance under its stock option and purchase plans. See
"Shares Eligible for Future Sale."
CERTAIN ANTI-TAKEOVER PROVISIONS
Upon the closing of this offering, the Company's Board of Directors will have
the authority to issue up to 5,000,000 shares of Preferred Stock and to
determine the price, rights, preferences, privileges and restrictions,
including voting rights, of those shares without any further vote or action by
the stockholders. The rights of the holders of Common Stock will be subject to,
and may be adversely affected by, the rights of the holders of any Preferred
Stock that may be issued in the future. The issuance of Preferred Stock, while
providing flexibility in connection with possible acquisitions and other
corporate purposes, could have the effect of delaying, deferring or preventing
a change in control of the Company, may discourage bids for the Company's
Common Stock at a premium over the market price of the Common Stock, and may
adversely affect the market price of, and the voting and other rights of the
holders of, the Common Stock. The Company has no current plans to issue shares
of Preferred Stock. In addition, certain provisions of the Company's Amended
and Restated Certificate of Incorporation and Bylaws, including provisions that
divide the Board of Directors into three classes to serve staggered three-year
terms, prohibit the stockholders from taking action by written consent and
restrict the ability of stockholders to call special meetings, may also make it
more difficult for a third party to acquire a majority of the Company's voting
stock or effect a change in control of the Company. The Company is also subject
to certain provisions of Delaware law that could have the effect of delaying,
deterring or preventing a change in control of the Company, including Section
203 of the Delaware General Corporation Law, which prohibits a Delaware
corporation from engaging in any business combination with any interested
stockholder for a period of three years from the date the person became an
interested stockholder unless certain conditions are met. In addition, the
Company's certificate of incorporation and bylaws contain certain provisions
that, together with the ownership position of the Company's executive officers
and directors and their affiliates, could discourage potential takeover
attempts and make more difficult attempts by stockholders to change management
which could adversely affect the market price of the Company's Common Stock.
See "Description of Capital Stock."
BROAD MANAGEMENT DISCRETION OVER ALLOCATION OF PROCEEDS
The net proceeds to the Company from the sale of the shares of Common Stock
offered hereby at an assumed initial public offering price of $ per share,
after deducting the estimated underwriting discount and estimated offering
expenses, are estimated to be approximately $ million. The primary purposes
of this offering are to obtain additional capital, create a public market for
the Common Stock and facilitate future access to public markets. The Company
expects to use the net proceeds primarily for working capital, to repay certain
indebtedness and for other general corporate purposes. A portion of the net
proceeds also may be used to acquire or invest in complementary businesses,
technologies, products or services. Accordingly, the Company's management will
retain broad discretion as to the allocation of the proceeds of this offering.
The failure of management to apply such funds effectively could have a material
adverse effect on the Company's business, results of operations and financial
condition. See "Use of Proceeds."
20
<PAGE>
NO PRIOR MARKET FOR COMMON STOCK
Prior to this offering, there has been no public market for the Company's
Common Stock, and there can be no assurance that an active public market will
develop or be sustained after this offering or that investors will be able to
sell the Common Stock should they desire to do so. The initial public offering
price will be determined by negotiations between the Company and the
representatives of the Underwriters and may bear no relationship to the price
at which the Common Stock will trade upon completion of this offering. See
"Underwriting" for a discussion of the factors to be considered in determining
the initial public offering price.
IMMEDIATE AND SUBSTANTIAL DILUTION
The initial public offering price is substantially higher than the net
tangible book value per outstanding share of Common Stock. Purchasers of the
Common Stock in this offering will suffer immediate and substantial dilution of
$ per share in the net tangible book value of the Common Stock from the
initial public offering price. To the extent that outstanding options to
purchase the Company's Common Stock are exercised, there may be further
dilution. See "Dilution."
21
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the shares of Common Stock
offered by the Company hereby are estimated to be approximately $ million
(approximately $ million if the over-allotment option is exercised in full)
at an assumed initial public offering price of $ per share and after
deducting the estimated underwriting discount and estimated offering expenses.
The primary purposes of this offering are to obtain additional capital, create
a public market for the Common Stock and facilitate future access to public
markets. The Company will not receive any proceeds from the sale of the Common
Stock by the Selling Stockholder.
The Company intends to use substantially all of the net proceeds of this
offering for general corporate purposes, including working capital. The Company
also intends to use a portion of the net proceeds to repay all outstanding
indebtedness under a bank credit line ($431,000 at June 30, 1998). This credit
line matures on January 5, 2000 and bears interest at the bank's prime rate
plus 1.25%. The Company may also use a portion of the net proceeds, currently
intended for general corporate purposes, to acquire or invest in businesses,
technologies or products that are complementary to the Company's business. The
Company has no present plans or commitments and is not currently engaged in any
negotiations with respect to such transactions that are material. Pending such
uses, the Company intends to invest the net proceeds from this offering in
short-term, interest-bearing, investment-grade securities. The Company will
have significant discretion as to the use of the net proceeds from this
offering. See "Risk Factors--Future Capital Needs" and "--Broad Management
Discretion Over Allocation of Proceeds."
DIVIDEND POLICY
The Company has not declared or paid any cash dividends on its capital stock
and does not anticipate paying any cash dividends in the foreseeable future. In
addition, the terms of the Company's credit line prohibit the payment of cash
dividends on its capital stock.
22
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of June
30, 1998: (i) on an actual basis; (ii) on a pro forma basis to reflect the
conversion of all outstanding shares of Preferred Stock into Common Stock upon
the closing of this offering; and (iii) on a pro forma as adjusted basis to
reflect this conversion and the application of the net proceeds from the sale
of the shares of Common Stock offered by the Company hereby at an assumed
initial public offering price of $ per share and after deducting the
estimated underwriting discount and estimated offering expenses.
<TABLE>
<CAPTION>
JUNE 30, 1998
------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Debt and leases, current portion(1)............. $ 314 $ 314 $
------- ------- ----
Debt and leases, long-term portion(1)........... 167 167
------- ------- ----
Series B Mandatorily Redeemable Convertible Pre-
ferred Stock................................... 5,157 --
------- ------- ----
Stockholders' equity:
Series A Preferred Stock, $0.001 par value per
share; actual--1,676 shares authorized, 1,676
shares issued and outstanding; pro forma--
6,000 shares authorized, no shares issued and
outstanding; pro forma as adjusted--5,000
shares authorized, no shares issued and
outstanding.................................. 4 --
Common Stock, $0.001 par value per share;
actual--60,000 shares authorized, 26,974
shares issued and outstanding; pro forma--
60,000 shares authorized, 36,250 shares
issued and outstanding; pro forma as
adjusted--200,000 shares authorized,
shares issued and outstanding(2)............. 27 36
Additional paid-in capital.................... 14,150 19,302
Notes receivable from stockholders............ (1,536) (1,536)
Unearned compensation......................... (4,801) (4,801)
Retained earnings............................. 1,278 1,278
------- ------- ----
Total stockholders' equity.................. 9,122 14,279
------- ------- ----
Total capitalization...................... $14,760 $14,760 $
======= ======= ====
</TABLE>
- --------
(1) See Note 5 of Notes to Consolidated Financial Statements.
(2) Excludes (i) 1,071,159 shares of Common Stock issuable upon the exercise
of stock options outstanding as of June 30, 1998, at a weighted average
per share exercise price of $3.52, under the 1996 Plan, the 1997 Plan and
outside the 1996 Plan and 1997 Plan, (ii) 961,500 shares of Common Stock
available for future grant as of June 30, 1998 under the 1997 Plan, (iii)
an additional 4,700,000 shares available for future grant or issuance
immediately after the offering under the Equity Incentive Plan and the
Directors Plan and (iv) 300,000 shares initially available for issuance
immediately after the offering under the Purchase Plan which number is
subject to automatic annual increases, up to a maximum of 1,500,000
shares. Subsequent to June 30, 1998, the Company granted options to
purchase an additional 584,250 shares of Common Stock under the 1997
Plan. See "Management--Director Compensation," "Management--Employee
Benefit Plans," "Description of Capital Stock" and Notes 8, 9, 10 and 11
of Notes to Consolidated Financial Statements.
23
<PAGE>
DILUTION
The pro forma net tangible book value of the Company as of June 30, 1998 was
$12.1 million, or $0.33 per share of Common Stock. "Pro forma net tangible
book value per share" is determined by dividing the pro forma number of
outstanding shares of Common Stock (assuming the conversion of all outstanding
shares of Preferred Stock into shares of Common Stock) into the net tangible
book value of the Company (total tangible assets less total liabilities).
After giving effect to the receipt of the estimated net proceeds from the sale
by the Company of the shares of Common Stock offered by the Company hereby
(based upon an assumed initial public offering price of $ per share and
after deducting the estimated underwriting discount and estimated offering
expenses), the pro forma net tangible book value of the Company as of June 30,
1998 would have been approximately $ million, or $ per share. This
represents an immediate increase in pro forma net tangible book value of $
per share to existing stockholders and an immediate dilution of $ per share
to new investors purchasing shares at the initial public offering price. The
following table illustrates the per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share................. $
Pro forma net tangible book value per share as of June 30,
1998.......................................................... $0.33
Increase per share attributable to new investors...............
-----
Pro forma net tangible book value per share after the offering..
----
Dilution per share to new investors............................. $
====
</TABLE>
The following table summarizes as of June 30, 1998, on the pro forma basis
described above, the number of shares of Common Stock purchased from the
Company, the total consideration paid to the Company and the average price per
share paid by existing stockholders and by investors purchasing shares of
Common Stock in this offering (before deducting the estimated underwriting
discount and estimated offering expenses):
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
------------------ ------------------------ PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ------------- -------------------
<S> <C> <C> <C> <C> <C>
Existing stockholders...... 36,249,801 % $ 8,236,000 % $0.23
New investors(1)...........
---------- --- ------------- ------
Total...................... 100% $ 100%
========== === ============= ======
</TABLE>
- --------
(1) If the Underwriters' over-allotment is exercised in full, the number of
shares held by new investors will be increased to , or % of the total
shares of Common Stock to be outstanding after this offering.
The foregoing discussion and tables assume no exercise of any stock options
outstanding as of June 30, 1998. As of June 30, 1998, there were options
outstanding to purchase a total of 1,071,159 shares of Common Stock with a
weighted average exercise price of $3.52 per share. In addition, subsequent to
June 30, 1998, the Company issued options to purchase an aggregate of 584,250
shares of Common Stock under the 1997 Plan. To the extent that any of these
options are exercised, there will be further dilution to new public investors.
See "Capitalization," "Management--Employee Benefit Plans" and Note 10 of
Notes to Consolidated Financial Statements.
24
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data should be read in
conjunction with, and are qualified by reference to, the Consolidated
Financial Statements and Notes thereto and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" appearing elsewhere
in this Prospectus. The consolidated statement of income data for the years
ended December 31, 1996 and 1997 and the consolidated balance sheet data at
December 31, 1996 and 1997, are derived from, and are qualified by reference
to, the audited consolidated financial statements of the Company included
elsewhere in this Prospectus. The consolidated statement of income data for
the six months ended June 30, 1997 and 1998 and the consolidated balance sheet
data at June 30, 1998 have been derived from the unaudited consolidated
financial statements included elsewhere in this Prospectus. The unaudited
consolidated financial statements have been prepared on substantially the same
basis as the audited consolidated financial statements and include all
adjustments, consisting only of normal recurring adjustments that the Company
considers necessary for a fair presentation of the financial position and
results of operations for the period. Operating results for the six months
ended June 30, 1998 are not necessarily indicative of the results that may be
expected for the year ending December 31, 1998.
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
-------------------- ---------------------
1996(1) 1997 1997 1998
-------------------- --------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF INCOME
DATA:
Net revenues....................... $ 372 $ 5,744 $ 1,658 $ 14,922
Cost of net revenues............... 14 746 160 1,736
-------- --------- --------- ----------
Gross profit....................... 358 4,998 1,498 13,186
-------- --------- --------- ----------
Operating expenses
Sales and marketing............... 32 1,730 212 4,610
Product development............... 28 831 209 1,548
General and administrative........ 45 950 233 4,054
Acquired research and
development...................... -- -- -- 150
-------- --------- --------- ----------
Total operating expenses.......... 105 3,511 654 10,362
-------- --------- --------- ----------
Income from operations............. 253 1,487 844 2,824
Interest and other income, net..... 1 56 4 76
-------- --------- --------- ----------
Income before income taxes......... 254 1,543 848 2,900
Provision for income taxes......... (106) (669) (362) (2,552)
-------- --------- --------- ----------
Net income......................... $ 148 $ 874 $ 486 $ 348
======== ========= ========= ==========
Net income per share(2):
Basic............................. $ 0.07 $ 0.11 $ 0.08 $ 0.03
======== ========= ========= ==========
Weighted average shares--basic.... 2,125 7,438 6,163 10,711
======== ========= ========= ==========
Diluted........................... $ 0.01 $ 0.03 $ 0.02 $ 0.01
======== ========= ========= ==========
Weighted average shares--diluted.. 14,315 27,553 25,811 34,231
======== ========= ========= ==========
SUPPLEMENTAL OPERATING DATA:
Number of registered users at end
of period......................... 41 341 150 851
Gross merchandise sales(3)......... $ 7,279 $ 95,271 $ 26,967 $ 243,745
Number of auctions listed.......... 289 4,394 1,237 10,793
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
------------- JUNE 30,
1996 1997 1998
------------- --------
<S> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents.............................. $ 103 $ 3,723 $10,716
Working capital........................................ 194 3,843 8,803
Total assets........................................... 308 5,619 19,815
Debt and leases, long-term portion..................... -- 305 167
Series B Mandatorily Redeemable Convertible Preferred
Stock and Series B warrants........................... -- 3,018 5,157
Total stockholders' equity............................. 162 1,015 9,122
</TABLE>
- --------
(1) Includes the results of operations for the Company's predecessor sole
proprietorship from September 1995 to December 1995. The sole
proprietorship had no revenues and immaterial expenses prior to January
1, 1996.
(2) See Note 1 of Notes to Consolidated Financial Statements for a
description of the method used to compute basic and diluted net income
per share, respectively.
(3) Represents the aggregate sales prices of all goods for which an auction
was successfully concluded (i.e., there was at least one bid above the
seller's specified minimum price or reserve price, whichever is higher).
25
<PAGE>
SELECTED PRO FORMA CONSOLIDATED FINANCIAL DATA
Effective June 30, 1998, the Company acquired all the outstanding shares of
Jump Incorporated ("Jump"), the developer and operator of Up4Sale, an
advertising-supported online trading service in an auction format. The
acquisition has been accounted for using the purchase method of accounting,
and accordingly the purchase price has been allocated to the tangible and
intangible assets acquired and liabilities assumed on the basis of their
respective fair values on the acquisition date. The total purchase price of
approximately $2.3 million consisted of 142,848 shares of the Company's Common
Stock with an estimated fair value of approximately $2.0 million and other
acquisition-related expenses of approximately $335,000, consisting primarily
of payments for non-compete agreements totaling approximately $208,000 and
legal and other professional fees. Of the total purchase price, approximately
$150,000 was allocated to in-process technology and was immediately charged to
operations as the technology had not reached technological feasibility as of
the acquisition date and had no alternative future use. The remainder of the
purchase price was allocated to net tangible liabilities assumed ($31,000) and
intangible assets, including completed technology ($500,000), the customer
list ($1.5 million), covenants not to compete ($208,000) and goodwill
($24,000). The intangible assets will be amortized over their estimated useful
lives, which range from eight to 24 months. The unaudited pro forma
consolidated statement of income data reflects the acquisition of Jump as if
such acquisition had occurred on January 1, 1997. The pro forma consolidated
statement of income data is presented for informational purposes only and may
not be indicative of the results of operations had the acquisition occurred on
January 1, 1997, nor do they purport to indicate the future results of
operations of the Company.
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS
DECEMBER 31, 1997 ENDED JUNE 30, 1998
------------------ -------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C>
PRO FORMA CONSOLIDATED STATEMENT
OF INCOME DATA:
Net revenues..................... $ 5,755 $ 14,934
Cost of net revenues............. 755 1,739
------------------ ------------------
Gross profit..................... 5,000 13,195
------------------ ------------------
Operating expenses
Sales and marketing............. 1,897 4,445
Product development............. 841 1,556
General and administrative...... 957 4,075
Amortization of intangible
assets......................... 1,810 354
------------------ ------------------
Total operating expenses........ 5,505 10,430
------------------ ------------------
Income (loss) from operations.... (505) 2,765
Interest and other income, net... 56 75
------------------ ------------------
Income (loss) before income tax-
es.............................. (449) 2,840
Provision for income taxes....... (600) (2,483)
------------------ ------------------
Net income (loss)................ $ (1,049) $ 357
================== ==================
Pro forma net income (loss) per
share(1):
Basic........................... $ (0.07) $ .02
================== ==================
Weighted average shares--basic.. 14,734 19,287
================== ==================
Diluted......................... $ (0.07) $ .01
================== ==================
Weighted average shares--dilut-
ed............................. 14,734 34,374
================== ==================
</TABLE>
- --------
(1) See Note D of Notes to Consolidated Pro Forma Financial Information for a
description of the method used to compute basic and diluted net income per
share, respectively.
26
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
eBay is the world's largest and most popular person-to-person trading
community on the Internet. eBay pioneered online person-to-person trading by
developing a Web-based community in which buyers and sellers are brought
together in an efficient and entertaining auction format to buy and sell
personal items such as antiques, coins, collectibles, computers, memorabilia,
stamps and toys. The eBay service permits sellers to list items for sale,
buyers to bid on items of interest and all eBay users to browse through listed
items in a fully-automated, topically-arranged, intuitive and easy-to-use
service that is available online 24 hours a day, seven days a week.
eBay was formed as a sole proprietorship in September 1995 and operated its
online auction service under the name of "Auction Web." In order to build a
critical mass of customers, it offered this service without charge until
February 1996. The Company was incorporated in May 1996, but had no employees
other than the founder until July 1996 and, at December 31, 1996, had only six
employees. During its first two years, eBay attracted buyers and sellers almost
exclusively through word of mouth. In September 1997, the Company began to
target potential customers and to build and promote its brand through online
banner ads and promotions and advertisements in targeted publications. Also in
September 1997, the Company renamed its auction service to "eBay" and launched
a second generation of this service with a redesigned user interface and a new
robust, scalable "backend" transaction processing architecture. The Company's
total headcount grew to 41 by December 31, 1997 and to 76 by June 30, 1998.
From December 31, 1997 to June 30, 1998, the number of registered eBay users
grew from approximately 340,000 to over 850,000 and the number of simultaneous
auctions being conducted through eBay increased from approximately 200,000 to
over 500,000. During the same period, aggregate cumulative gross merchandise
sales to date grew from approximately $100 million to over $340 million.
Substantially all of the Company's revenues come from placement and success
fees paid by sellers; eBay charges no fees to buyers and, to date, has chosen
to sell almost no advertising on its Web site. Sellers pay a nominal placement
fee to list items for sale: $0.25 for an auction with a minimum starting price
of less than $10.00; $0.50 for a minimum starting price of $10.00 to $24.99;
$1.00 for a minimum starting price of $25.00 to $49.99; and $2.00 for a minimum
starting price of $50.00 or more. By paying additional placement fees, sellers
can have items featured in various ways. Sellers can highlight their auctions
by utilizing a bold font for the auction heading for an additional fee of
$2.00. Sellers with a favorable feedback rating can have their auctions
featured as "Super Featured Auctions" for $49.95, which allows their items to
be rotated on the eBay home page, or as "Category Featured Auctions" for $9.95,
which allows their items to be featured within a particular eBay product
category. Sellers for whom a three, five or seven day auction is successfully
concluded (i.e., there is at least one bid above the seller's specified minimum
or reserve price, whichever is higher) also pay a success fee for each item
sold that is equal to 5% of the first $25 of the purchase price, 2.5% of any
purchase price between $25.01 and $1,000 and 1.25% of any purchase price over
$1,000. Revenues from placement fees are recognized at the time that the item
is listed; revenues related to success fees are recognized at the time that the
auction is successfully concluded. At no point during the auction process does
the Company take possession of either the item being sold or the buyer's
payment for the item. Fees to sellers are aggregated and billed on a monthly
basis. A substantial majority of customer accounts are settled by directly
charging credit card numbers provided by sellers. Provisions for estimated
uncollectible accounts and authorized credits resulting from incomplete auction
transactions are provided for at the time of revenue recognition. To date, the
Company has not incurred a material amount of customer credits. In certain
instances, customers will deposit funds with eBay in anticipation of future
transactions; these prepayments appear on the Company's balance sheet
27
<PAGE>
as customer advances. For the six months ended June 30, 1998, the average sales
price of goods sold through eBay was approximately $40.00.
The Company's business model is significantly different from many existing
online auction and other electronic commerce businesses. Because individual
sellers and not the Company sell the items listed, the Company has no product
cost of goods sold, no procurement, carrying or shipping costs and no inventory
risk. The Company's rate of expense growth is primarily driven by increases in
headcount and expenditures on advertising and promotion. Since neither of these
types of expenses is directly linked to revenue growth, the Company has
operated profitably since the first full quarter that it charged fees for its
auction service and the Company's business model has the potential for
significant additional operating leverage. However, in the short term, the
Company intends to increase its expenses significantly, and in particular its
advertising and promotion expenses, in an effort to maintain a high level of
revenue growth.
Effective June 30, 1998, the Company acquired all the outstanding shares of
Jump, the developer and operator of Up4Sale, an advertising-supported online
trading service in an auction format. The acquisition has been accounted for
using the purchase method of accounting, and accordingly the purchase price has
been allocated to the tangible and intangible assets acquired and liabilities
assumed on the basis of their respective fair values on the acquisition date.
The fair value of intangible assets was determined using a combination of
methods, including replacement cost estimates for acquired research and
development and completed technology, a risk-adjusted income approach for the
acquired customer list and the amounts paid for covenants not to compete. The
total purchase price of approximately $2.3 million consisted of 142,848 shares
of the Company's Common Stock with an estimated fair value of approximately
$2.0 million and other acquisition related expenses of approximately $335,000,
consisting primarily of payments for non-compete agreements totaling
approximately $208,000 and legal and other professional fees. Of the total
purchase price, approximately $150,000 was allocated to in-process technology
and was immediately charged to operations as the technology had not reached
technological feasibility as of the acquisition date and had no alternative
future use. The remainder of the purchase price was allocated to net tangible
liabilities assumed ($31,000) and intangible assets, including completed
technology ($500,000), the customer list ($1.5 million), covenants not to
compete ($208,000) and goodwill ($24,000). The intangible assets will be
amortized over their estimated useful lives which range from eight to 24
months.
The Company has only a limited operating history on which to base an
evaluation of its business and prospects. The Company's prospects must be
considered in light of the risks, uncertainties, expenses and difficulties
frequently encountered by companies in their early stages of development,
particularly companies in new and rapidly evolving markets such as online
commerce.
28
<PAGE>
QUARTERLY RESULTS OF OPERATIONS
The following table sets forth, for the periods presented, certain data from
the Company's consolidated statement of income, such data as a percentage of
net revenues and certain supplemental operating data. The consolidated
statement of income data has been derived from the Company's unaudited
consolidated financial statements, which, in management's opinion, have been
prepared on substantially the same basis as the audited consolidated financial
statements and include all adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation of the financial information for
the periods presented. This information should be read in conjunction with the
Consolidated Financial Statements and Notes thereto included elsewhere in this
Prospectus. The operating results in any quarter are not necessarily indicative
of the results that may be expected for any future period.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30,
1997 1997 1997 1997 1998 1998
-------- -------- --------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Net revenues............ $ 604 $ 1,054 $ 1,459 $ 2,627 $ 5,981 $ 8,941
Cost of net revenues.... 33 127 253 333 630 1,106
------ ------- ------- ------- -------- --------
Gross profit............ 571 927 1,206 2,294 5,351 7,835
------ ------- ------- ------- -------- --------
Operating expenses:
Sales and marketing... 83 129 369 1,149 2,106 2,504
Product development... 58 151 257 365 518 1,030
General and adminis-
trative.............. 95 138 260 457 962 3,092
Acquired research and
development.......... -- -- -- -- -- 150
------ ------- ------- ------- -------- --------
Total operating ex-
penses.............. 236 418 886 1,971 3,586 6,776
------ ------- ------- ------- -------- --------
Income from operations.. 335 509 320 323 1,765 1,059
Interest and other in-
come, net.............. 2 2 26 26 22 54
------ ------- ------- ------- -------- --------
Income before income
taxes.................. 337 511 346 349 1,787 1,113
Provision for income
taxes.................. (144) (218) (147) (160) (1,573) (979)
------ ------- ------- ------- -------- --------
Net income.............. $ 193 $ 293 $ 199 $ 189 $ 214 $ 134
====== ======= ======= ======= ======== ========
AS A PERCENTAGE OF NET
REVENUES:
Net revenues............ 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of net revenues.... 5.5 12.0 17.3 12.7 10.5 12.4
------ ------- ------- ------- -------- --------
Gross profit............ 94.5 88.0 82.7 87.3 89.5 87.6
------ ------- ------- ------- -------- --------
Operating expenses:
Sales and marketing... 13.7 12.3 25.3 43.7 35.2 28.0
Product development... 9.6 14.3 17.6 13.9 8.7 11.5
General and adminis-
trative.............. 15.7 13.1 17.9 17.4 16.1 34.6
Acquired research and
development.......... -- -- -- -- -- 1.7
------ ------- ------- ------- -------- --------
Total operating ex-
penses.............. 39.0 39.7 60.8 75.0 60.0 75.8
------ ------- ------- ------- -------- --------
Income from operations.. 55.5 48.3 21.9 12.3 29.5 11.8
Interest and other in-
come, net.............. 0.3 0.2 1.8 1.0 0.4 0.6
------ ------- ------- ------- -------- --------
Income before income
taxes.................. 55.8 48.5 23.7 13.3 29.9 12.4
Provision for income
taxes.................. (23.8) (20.7) (10.1) (6.1) (26.3) 10.9
------ ------- ------- ------- -------- --------
Net income.............. 32.0% 27.8% 13.6% 7.2% 3.6% 1.5%
====== ======= ======= ======= ======== ========
SUPPLEMENTAL OPERATING
DATA (IN THOUSANDS):
Number of registered us-
ers at end of period... 88 150 223 341 580 851
Gross merchandise sales
(1).................... $9,337 $17,630 $24,281 $44,022 $104,113 $139,632
Number of auctions list-
ed..................... 442 794 1,178 1,979 4,209 6,584
</TABLE>
- --------
(1) Represents the aggregate sales prices of all goods for which an auction
was successfully concluded (i.e., there was at least one bid above the
seller's specified minimum price or reserve price, whichever is higher).
29
<PAGE>
NET REVENUES
The Company's net revenues increased sequentially each quarter throughout
the comparison periods. Substantially all of these increases resulted from
growth in the number of items of merchandise listed by sellers for auction on
the Company's Web site and from the number of auction transactions
successfully concluded by the Company. The Company did not increase the
amounts of its basic placement fees or success fees during the comparison
periods. Increases in fees for specific featured placements and in average
transaction size did not have a material impact on net revenue growth. The
Company expects that the rate of its net revenue growth in future periods will
decline significantly from the rates of net revenue growth experienced in
recent quarters.
COST OF NET REVENUES
Cost of net revenues primarily represents costs for customer support and Web
site operations, including fees for independent contractors, compensation for
Company customer support and site operations personnel and, to a lesser
extent, ISP connectivity charges, bank processing charges for customer fees
paid by credit cards and depreciation of the equipment required for the
Company's site operations. The Company's cost of net revenues increased
substantially each quarter throughout the comparison periods. Cost of net
revenues increased rapidly from the first quarter of 1997 through the third
quarter of 1997 due to significantly increased expenditures for contractors
and for new employees as the Company began to build an in-house customer
support group. The Company also incurred substantial additional ISP
connectivity charges in anticipation of launching the Company's renamed "eBay"
person-to-person trading service in the third quarter of 1997. Bank processing
charges for customer fees paid by credit cards also increased from the first
quarter of 1997 through the third quarter of 1997 as the number of placements
and successfully completed auctions increased. These rapid increases, coupled
with slower growth in net revenues from the second quarter to the third
quarter of 1997, caused cost of net revenues to peak at 17.3% of net revenues
in the third quarter of 1997. Thereafter, extremely rapid net revenue growth
and the partially fixed nature of certain components of cost of net revenues
caused cost of net revenues to decline to 10.5% of net revenues in the first
quarter of 1998. With a slowing of the Company's net revenue growth rate in
the second quarter of 1998 and significant increases in bank processing
charges for customer fees paid by credit cards, depreciation of the equipment
required for the Company's site operations, and ISP connectivity charges, cost
of net revenues again increased as a percentage of net revenues to 12.4%. The
Company anticipates that its costs of net revenues will vary, and may
increase, as a percentage of net revenues in future quarters as the Company
expands its Web site operations group and pays royalties for software licenses
to enhance its Web site.
SALES AND MARKETING
The Company's sales and marketing expenses are comprised primarily of
compensation for the Company's sales and marketing personnel, advertising,
trade show and other promotional costs, expenses for creative design of the
Company's Web site and an allocation of the Company's occupancy costs and
other overhead. Sales and marketing expenses increased substantially each
quarter throughout the comparison periods driven by increases in compensation
associated with additional headcount and, in the last two quarters of 1997 and
the first quarter of 1998, increases in advertising and promotional expenses.
The rapid growth in personnel-related expenses in the third and fourth
quarters of 1997, together with the significant increases in advertising and
promotional expenses in the third and especially the fourth quarters of 1997,
resulted in sales and marketing expenses increasing from 12.3% of net revenues
in the second quarter of 1997 to 43.7% of net revenues in the fourth quarter
of 1997. A reduction in the growth rate of personnel costs, coupled with the
128% growth in net revenues from the fourth quarter of 1997 to the first
quarter of 1998, caused sales and marketing expenses to decline to 35.2% of
net revenues. A reduction in advertising and promotional expenses from the
first quarter of 1998 to the second quarter of 1998 caused sales and marketing
expenses to
30
<PAGE>
decline to 28.0% of net revenues in the second quarter of 1998. The Company
expects to increase its sales and marketing expenses substantially in future
quarters, particularly for advertising and promotion, and, as a result,
expects that its sales and marketing expenses will increase both in absolute
dollars and as a percentage of net revenues for at least the next several
quarters.
PRODUCT DEVELOPMENT
The Company's product development expenses consist primarily of compensation
for the Company's product development staff and payments to outside
contractors and, to a lesser extent, of depreciation on equipment used for
development and an allocation of the Company's occupancy costs and other
overhead. The Company expenses product development costs as they are incurred.
Product development expenses increased substantially each quarter throughout
the comparison periods. Compensation and other personnel-related expenses grew
most rapidly on a percentage basis between the first quarter of 1997 and the
second quarter of 1997 and net revenues grew most slowly between the second
and third quarters of 1997, causing product development expenses as a
percentage of net revenues to increase from 9.6% in the first quarter of 1997
to 17.6% in the third quarter of 1997. With accelerating net revenue growth
rates, product development expenses declined to 8.7% of net revenues by the
first quarter of 1998. Product development expenses increased to 11.5% of net
revenues in the second quarter of 1998 as the Company significantly increased
its engineering staff and use of outside contractors and the rate of net
revenue growth again declined. The Company anticipates that product
development expenses will increase as a percentage of net revenues in the
third and fourth quarters of 1998 due to significant additional hiring.
Thereafter, the Company expects that product development expenses will
increase in absolute dollars but may begin to decline as a percentage of net
revenues.
GENERAL AND ADMINISTRATIVE
The Company's general and administrative expenses consist primarily of
compensation for personnel and, to a lesser extent, fees for outside
professional advisors and an allocation of the Company's occupancy costs and
other overhead. General and administrative expenses increased as a percentage
of net revenues from 13.1% in the second quarter of 1997 to 17.9% in the third
quarter of 1997 as personnel-related costs increased and the rate of net
revenue growth declined, and declined as a percentage of net revenues in the
fourth quarter of 1997 and first quarter of 1998 as a result of the extremely
rapid growth in net revenues. General and administrative expenses increased as
a percentage of net revenues to 34.6% in the second quarter of 1998 because,
in that quarter, the Company donated 107,250 shares of its Common Stock, with
an estimated fair value of $1.2 million, to a charitable foundation and
recorded compensation expense of $429,000 associated with purchases of Common
Stock by its outside directors. The Company expects that general and
administrative expenses will continue to grow in absolute dollars but may
decline gradually as a percentage of net revenues, and fluctuate from quarter
to quarter depending on the rate of net revenue growth.
INTEREST AND OTHER INCOME, NET
Interest and other income, net, in each quarter resulted primarily from
interest on cash and cash equivalents offset in part by interest expense on
the Company's borrowings under its line of credit. The increase in interest
and other income, net between the second and third quarters of 1997 was a
result of interest earned on the net proceeds from the Company's sale of
Series B Mandatorily Redeemable Convertible Preferred Stock ("Series B
Preferred Stock") and warrants to purchase such shares of stock (the "Series B
Warrants") in June 1997. The decrease in the first quarter of 1998 was due to
increased interest expense, partially offset by increased interest income
earned on proceeds from employee stock option exercises. The increase in the
second quarter of 1998 was a result of interest earned on proceeds from the
May 1998 exercise of the Series B Warrants and employee stock option
exercises.
31
<PAGE>
PROVISION FOR INCOME TAXES
The Company's effective federal and state income tax rate was approximately
43.0% in each quarter of 1997 and 88.0% in the first two quarters of 1998. The
Company's effective tax rate during the comparison periods varied significantly
as a result of non-deductible stock compensation and the tax-free acquisition
of Jump.
STOCK-BASED COMPENSATION
In the quarters ended June 30, September 30 and December 31, 1997 and March
31 and June 30, 1998, the Company recorded aggregate unearned compensation
totalling $5.8 million in connection with the grant of certain stock options
subsequent to April 1997, which amount is being amortized over the four-year
vesting period of such options. Of the total unearned compensation,
approximately $25,000, $355,000 and $583,000 was amortized in the quarters
ended December 31, 1997 and March 31 and June 30, 1998, respectively. The
Company expects per quarter amortization of approximately $750,000 during the
remainder of 1998, between $370,000 and $630,000 during 1999 and between
$200,000 and $330,000 during 2000 and annual amortization of $450,000 during
2001 and $75,000 during 2002 related to these options. These amortization
amounts are allocated among operating expense categories based upon the primary
activity of the related employee. See Note 10 of Notes to Consolidated
Financial Statements.
YEARS ENDED DECEMBER 31, 1996 AND 1997 AND SIX MONTHS ENDED JUNE 30, 1997 AND
1998.
The following table sets forth, for the periods presented, certain data from
the Company's consolidated statement of income as a percentage of net revenues.
The information for the six-month periods has been derived from the Company's
unaudited consolidated financial statements, which, in management's opinion,
have been prepared on substantially the same basis as the audited consolidated
financial statements and include all adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation of the financial
information for the periods presented. This information should be read in
conjunction with the Consolidated Financial Statements and Notes thereto
included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
-------------- ------------------
1996 1997 1997 1998
------ ------ -------- --------
<S> <C> <C> <C> <C>
Net revenues................................ 100.0% 100.0% 100.0% 100.0%
Cost of net revenues........................ 3.8 13.0 9.7 11.6
------ ------ -------- --------
Gross profit................................ 96.2 87.0 90.3 88.4
------ ------ -------- --------
Operating expenses
Sales and marketing....................... 8.6 30.1 12.8 30.9
Product development....................... 7.5 14.5 12.6 10.4
General and administrative................ 12.1 16.5 14.0 27.2
Acquired research and development......... -- -- -- 1.0
------ ------ -------- --------
Total operating expenses................ 28.2 61.1 39.4 69.5
------ ------ -------- --------
Income from operations...................... 68.0 25.9 50.9 18.9
Interest and other income, net.............. 0.3 1.0 0.2 0.5
------ ------ -------- --------
Income before income taxes.................. 68.3 26.9 51.1 19.4
Provision for income taxes.................. (28.5) (11.6) (21.8) (17.1)
------ ------ -------- --------
Net income.................................. 39.8% 15.2% 29.3% 2.3%
====== ====== ======== ========
</TABLE>
32
<PAGE>
NET REVENUES
The Company's net revenues increased from $372,000 in 1996 to $5.7 million in
1997 and from $1.7 million in the first six months of 1997 to $14.9 million in
the first six months of 1998. The increases between the comparison periods were
primarily the result of growth in the number of items of merchandise listed by
sellers for auction on the Company's Web site and from the number of auction
transactions successfully concluded by the Company. The increase from 1996 to
1997 was, to a lesser extent, the result of small increases in average
transaction size and certain increases in the placement fees for various forms
of featured placements for listed items. The total number of items listed grew
from approximately 285,000 in 1996 to approximately 4.4 million in 1997 and
from approximately 1.2 million in the first six months of 1997 to approximately
10.8 million in the first six months of 1998.
COST OF NET REVENUES
Cost of net revenues increased from $14,000, or 3.8% of net revenues, in 1996
to $746,000, or 13.0% of net revenues, in 1997. Cost of net revenues increased
from $160,000, or 9.7% of net revenues, in the first six months of 1997 to $1.7
million, or 11.6% of net revenues, in the first six months of 1998. The
increase in absolute dollars and percentages between the comparison periods
resulted primarily from the Company's building of a customer support
organization, increases in bank processing charges for customer fees paid by
credit cards, depreciation of the equipment required for the Company's site
operations and ISP connectivity charges.
SALES AND MARKETING
The Company's sales and marketing expenses increased from $32,000, or 8.6% of
net revenues, in 1996 to $1.7 million, or 30.1% of net revenues, in 1997. Sales
and marketing expenses increased from $212,000, or 12.8% of net revenues, in
the first six months of 1997 to $4.6 million, or 30.9% of net revenues, in the
first six months of 1998. The increases from 1996 to 1997 resulted primarily
from the building of a sales and marketing organization, which began late in
the fourth quarter of 1996, and the decision to begin substantial advertising
and promotional activities, which occurred in the third quarter of 1997. The
increases from the first six months of 1997 to the first six months of 1998
resulted primarily from continued growth in the number of sales and marketing
personnel and from increases in advertising and promotional expenses, which
were less than $20,000 in the first six months of 1997 and over $2.6 million in
the first six months of 1998.
PRODUCT DEVELOPMENT
The Company's product development expenses increased from $28,000, or 7.5% of
net revenues, in 1996 to $831,000, or 14.5% of net revenues, in 1997. Product
development expenses increased in absolute dollars but decreased as a
percentage of net revenues from $209,000, or 12.6% of net revenues, in the
first six months of 1997 to $1.5 million, or 10.4 % of net revenues, in the
first six months of 1998. The increases in absolute dollars between the
comparison periods resulted primarily from increases in salaries, benefits and
other personnel-related expenses as the Company significantly increased the
size of its research and development staff.
GENERAL AND ADMINISTRATIVE
The Company's general and administrative expenses increased from $45,000, or
12.1% of net revenues, in 1996 to $950,000, or 16.5% of net revenues, in 1997.
General and administrative expenses increased from $233,000, or 14.0% of net
revenues, in the first six months of 1997 to $4.1 million, or 27.2% of net
revenues, in the first six months of 1998. The increases from 1996 to 1997
resulted primarily from increases in salaries, benefits and other personnel-
related expenses and, to a lesser extent, from increases in the allowance for
doubtful accounts, fees for professional services and allocations of occupancy
costs and other overhead. The increases from the first six months of 1997 to
33
<PAGE>
the first six months of 1998 resulted primarily from the Company's
contribution in June 1998 of 107,250 shares of the Company's Common Stock with
an estimated fair value of $1.2 million to a charitable foundation. In June
1998 the Company also recorded compensation expense of $429,000 associated
with purchases of restricted shares of Common Stock by its outside directors.
Increases in personnel-related expenses, the allowance for doubtful accounts,
fees for professional services and allocations of occupancy costs and other
overhead also contributed to the increase.
ACQUIRED RESEARCH AND DEVELOPMENT
During the six months ended June 30, 1998, the Company recognized $150,000
for in-process technology acquired in the acquisition of Jump. See Note 2 of
Notes to Consolidated Financial Statements and the Notes to Consolidated Pro
Forma Financial Information included elsewhere in this Prospectus.
INTEREST AND OTHER INCOME, NET
The Company's interest and other income, net increased from $1,000 in 1996
to $56,000 in 1997 and from $4,000 in the first six months of 1997 to $76,000
in the first six months of 1998. Substantially all of the increases between
the comparison periods were a result of increased cash and cash equivalents,
which resulted from interest earned on the net proceeds from the Company's
sales of Series B Preferred Stock and Series B Warrants in June 1997 and, in
the case of the six-month comparison periods, the exercise of those warrants
in May 1998 and the exercise of employee stock options.
PROVISION FOR INCOME TAXES
The Company's effective federal and state income tax rate was 41.7% in 1996,
43.4% in 1997 and 88.0% in the first six months of 1998. The Company's
effective tax rate during the comparison periods varied significantly as a
result of non-deductible stock compensation and the tax-free acquisition of
Jump.
STOCK-BASED COMPENSATION
In 1997 and 1998, the Company recorded aggregate unearned compensation
totaling $5.8 million in connection with the grant of certain stock options
subsequent to April 1997, which amount is being amortized over the four-year
vesting period of such options. Of the total unearned compensation,
approximately $25,000 and $1.0 million was amortized in 1997 and the first six
months of 1998, respectively. These amortization amounts are allocated among
operating expense categories based upon the primary activity of the related
employee. See Note 10 of Notes to Consolidated Financial Statements.
FACTORS AFFECTING RESULTS OF OPERATIONS AND FINANCIAL CONDITION
eBay was formed as a sole proprietorship in September 1995 and incorporated
in May 1996. Thus, it has only a limited operating history on which to base an
evaluation of its business and prospects. The Company's prospects must be
considered in light of the risks, uncertainties, expenses and difficulties
frequently encountered by companies in their early stages of development,
particularly companies in new and rapidly evolving markets such as online
commerce. To address these risks and uncertainties, the Company must, among
other things, maintain and increase the number of its registered users, items
listed on its service and completed auctions, maintain and enhance its brand,
implement and execute its business and marketing strategy successfully,
continue to develop and upgrade its technology and information-processing
systems, continue to enhance the eBay service to meet the needs of a changing
market, provide superior customer service, respond to competitive
developments, and attract, integrate, retain and motivate qualified personnel.
There can be no
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assurance that the Company will be successful in accomplishing all of these
things, and the failure to do so could have a material adverse effect on the
Company's business, results of operations and financial condition.
The Company believes that its continued growth will depend in large part on
its ability to: (i) increase its brand name awareness, (ii) provide its
customers with superior community and trading experiences and (iii) maintain
sufficient transaction volume to attract buyers and sellers. Accordingly, the
Company intends to invest heavily in marketing and promotion, site development,
technology and operating infrastructure development. Although the Company has
experienced significant revenue growth and significant growth in the number of
its registered users and items listed for auction by its users in recent
periods, such growth rates are not sustainable and will decrease in the future.
In view of the rapidly evolving nature of the Company's business and its
limited operating history, the Company believes that period-to-period
comparisons of its operating results are not necessarily meaningful and should
not be relied upon as indications of future performance.
The Company's operating results have varied on a quarterly basis during its
short operating history and may fluctuate significantly as a result of a
variety of factors, many of which are outside the Company's control. Factors
that may affect the Company's quarterly operating results include: (i) the
Company's ability to retain an active user base, attract new users who effect
transactions through its service and maintain customer satisfaction; (ii) the
Company's ability to manage the number of items listed on its service; (iii)
the announcement or introduction of new sites, services and products by the
Company or its competitors; (iv) the success of the Company's brand building
and marketing campaigns; (v) price competition; (vi) the level of use of the
Internet and online services; (vii) increasing consumer confidence in and
acceptance of the Internet and other online services for commerce and, in
particular, the trading of products such as those listed on eBay; (viii)
consumer confidence in the security of transactions over the Internet; (ix) the
Company's ability to upgrade and develop its systems and infrastructure to
accommodate growth; (x) the Company's ability to attract new personnel in a
timely and effective manner; (xi) the volume of items listed on the Company's
Web site; (xii) the timing, cost and availability of advertising in traditional
media and on other Web sites and online services; (xiii) technical difficulties
or service interruptions; (xiv) the amount and timing of operating costs and
capital expenditures relating to expansion of the Company's business,
operations and infrastructure; (xv) consumer trends and popularity of certain
categories of collectible items; (xvi) volume, size, timing and completion rate
of trades on eBay; (xvii) governmental regulation by Federal or local
governments; and (xviii) general economic conditions and economic conditions
specific to the Internet and online commerce industries.
As a result of the Company's limited operating history and the emerging
nature of the markets in which it competes, it is difficult for the Company to
forecast its revenues or earnings accurately. In addition, the Company has no
backlog and a significant portion at the Company's net revenues for a
particular quarter are derived from auctions that are listed and completed
during that quarter. The Company's current and future expense levels are based
largely on its investment plans and estimates of future revenues and are, to a
large extent, fixed. The Company may be unable to adjust spending in a timely
manner to compensate for any unexpected revenue shortfall. Accordingly, any
significant shortfall in revenues relative to the Company's planned
expenditures would have an immediate adverse effect on the Company's business,
results of operations and financial condition. Further, as a strategic response
to changes in the competitive environment, the Company may from time to time
make certain pricing, service or marketing decisions that could have a material
adverse effect on its business, results of operations and financial condition.
The Company believes that its results of operations are somewhat seasonal in
nature, with fewer auctions around the Thanksgiving and Christmas holidays in
the fourth quarter. The Company's limited operating history, however, makes it
difficult to fully assess the impact of these seasonal factors or whether or
not its business is susceptible to cyclical fluctuations in the U.S. economy.
In addition, the
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Company believes that its rapid growth may have overshadowed whatever seasonal
or cyclical factors might have influenced its business to date. There can be
no assurance that seasonal or cyclical variations in the Company's operations
will not become more pronounced over time or that they will not materially
adversely affect its results of operations in the future. Moreover, consumer
"fads" and other changes in consumer trends may cause significant fluctuations
in the Company's operating results from one quarter to the next.
Due to the foregoing factors, the Company's quarterly revenues and operating
results are difficult to forecast. The Company believes that period-to-period
comparisons of its operating results may not be meaningful and should not be
relied upon as an indication of future performance. In addition, it is likely
that in one or more future quarters the Company's operating results will fall
below the expectations of securities analysts and investors. In such event,
the trading price of the Common Stock would almost certainly be materially
adversely affected.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, the Company has financed its operations primarily from net
cash generated from operating activities and, to a lesser extent, from the
sale of Series B Preferred Stock and Series B Warrants, proceeds from the
exercise of those warrants and proceeds from the exercise of stock options.
Net cash provided by operating activities was $113,000, $789,000 and $5.2
million in 1996, 1997 and the first six months of 1998, respectively. Net cash
provided by operating activities resulted primarily from the Company's net
income before non-cash charges for amortization of unearned compensation, the
provision for doubtful accounts and depreciation and amortization, as well as
increases in various liability categories, offset in part by increases in
accounts receivable.
Net cash used in investing activities was $25,000, $680,000 and $3.3 million
in 1996, 1997 and the first six months of 1998, respectively. Net cash used in
investing activities in each of these periods was entirely the result of
purchases of property and equipment, primarily computer equipment and
furniture and fixtures.
Net cash provided by financing activities was $15,000, $3.5 million and $5.1
million in 1996, 1997 and the first six months of 1998, respectively. Net cash
provided by financing activities in 1996 resulted almost entirely from sales
of Common Stock and Series A Preferred Stock. Net cash provided by financing
activities in 1997 resulted primarily from the sale of $3.0 million of Series
B Preferred Stock and Series B Warrants and borrowings of $545,000 against a
bank line of credit. See Notes 5 and 8 of Notes to Consolidated Financial
Statements. Net cash provided by financing activities in the first six months
of 1998 resulted primarily from proceeds from the exercise of Series B
Warrants of $2.0 million and proceeds from the sale of restricted Common Stock
in the aggregate amount of $3.2 million.
At June 30, 1998, the principal source of liquidity for the Company was
$10.7 million of cash and cash equivalents. As of that date, the Company also
had a line of credit in the amount of $750,000, none of which remained
available for borrowing. Borrowings under the line of credit accrue interest
at a variable rate determined by the bank, are repayable in 24 monthly
installments of principal and interest through January 2000 and are secured by
certain assets of the Company. Under the line of credit, the Company is
required to maintain certain financial covenants. The Company was in
compliance with all of these covenants at June 30, 1998. See Note 5 of Notes
to Consolidated Financial Statements.
The Company had no material commitments for capital expenditures at June 30,
1998 but expects such expenditures to be at least $1.1 million in the second
half of 1998 and at least $6.1 million in 1999. Such expenditures will
primarily be for computer equipment, furniture and fixtures and leasehold
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improvements. In addition, the Company anticipates implementing a mirrored Web
site outside of California during the second half of 1998 and moving to a new
facility in the second half of 1999. The Company also has total minimum lease
obligations of $1.7 million under certain noncancellable operating leases and
$23,000 under certain capital leases. The Company believes that its existing
cash and cash equivalents, the net proceeds from this offering and any cash
generated from operations will be sufficient to fund its operating activities,
capital expenditures and other obligations through at least the next 18 months.
However, if during that period or thereafter the Company is not successful in
generating sufficient cash flow from operations or in raising additional
capital when required in sufficient amounts and on terms acceptable to the
Company, these failures could have a material adverse effect on the Company's
business, results of operations and financial condition. If additional funds
are raised through the issuance of equity securities, the percentage ownership
of its then-current stockholders would be reduced.
RECENT ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standard Board ("FASB") recently issued Statement of
Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive
Income." SFAS No. 130 establishes standards for reporting and displaying
comprehensive income and its components in financial statements. Comprehensive
income, as defined, includes all changes to equity (net assets) during a period
from non-owner sources. SFAS No. 130 is effective for financial statements for
fiscal years beginning after December 15, 1997. To date, the Company has not
had any transactions that are required to be reported in comprehensive income.
The FASB recently issued SFAS No. 131, "Disclosure about Segments of an
Enterprise and Related Information." SFAS No. 131 establishes standards for the
way public business enterprises are to report information about operating
segments in annual financial statements and requires those enterprises to
report selected information about operating segments in interim financial
reports. SFAS No. 131 is effective for financial statements for fiscal years
beginning after December 15, 1997. The Company has determined that it does not
have any separately reportable business segments.
The American Institute of Certified Public Accountants issued Statement of
Position ("SOP") No. 98-1, "Software for Internal Use," which provides guidance
on accounting for the cost of computer software developed or obtained for
internal use. SOP No. 98-1 is effective for financial statements for fiscal
years beginning after December 15, 1998. The Company does not expect that the
adoption of SOP No. 98-1 will have a material impact on its financial
statements.
YEAR 2000 ISSUES
Many current installed computer systems and software products are coded to
accept only two-digit entries in the date code field and cannot reliably
distinguish dates beginning on January 1, 2000 from dates prior to the year
2000. Many companies' software and computer systems may need to be upgraded or
replaced in order to correctly process dates beginning in 2000 and to comply
with the "Year 2000" requirements. The Company has reviewed its internal
programs and has determined that there are no significant Year 2000 issues
within the Company's systems or services. However, the Company utilizes third-
party equipment and software that may not be Year 2000 compliant. Failure of
such third-party equipment or software to process properly dates for the year
2000 and thereafter could require the Company to incur unanticipated expenses
to remedy any problems, which could have a material adverse effect on the
Company's business, results of operations and financial condition.
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BUSINESS
This Prospectus contains forward-looking statements that involve risks and
uncertainties. The Company's actual results may differ significantly from the
results discussed in these forward-looking statements. Factors that may cause
such a difference include, but are not limited to, those discussed in "Risk
Factors."
THE COMPANY
eBay is the world's largest and most popular person-to-person trading
community on the Internet. eBay pioneered online person-to-person trading by
developing a Web-based community in which buyers and sellers are brought
together in an efficient and entertaining auction format to buy and sell
personal items such as antiques, coins, collectibles, computers, memorabilia,
stamps and toys. The eBay service permits sellers to list items for sale,
buyers to bid on items of interest and all eBay users to browse through listed
items in a fully-automated, topically-arranged, intuitive and easy-to-use
online service that is available 24 hours a day, seven days a week. From
inception through June 30, 1998, eBay hosted over 15 million auctions resulting
in gross merchandise sales in excess of $340 million. During the first half of
1998, the number of registered eBay users grew from approximately 340,000 to
over 850,000 and the number of simultaneous auctions being conducted through
eBay increased from approximately 200,000 to over 500,000. The Company believes
that this critical mass of buyers, sellers and items listed for sale creates a
cycle that helps eBay to continue to grow its user base. Sellers are attracted
to eBay as a result of the large number of potential buyers, and buyers in turn
are attracted to eBay by the broad selection of goods listed on eBay. eBay
provides buyers and sellers a place to socialize, to discuss topics of common
interest and, ultimately, to conduct business in a compelling trading
environment, thus fostering a large and growing commerce-oriented online
community.
INDUSTRY BACKGROUND
GROWTH OF THE INTERNET AND ONLINE COMMERCE
The Internet has emerged as a global medium enabling millions of people
worldwide to share information, communicate and conduct business
electronically. International Data Corporation ("IDC") estimates that the
number of Web users will grow from approximately 69 million worldwide in 1997
to approximately 320 million worldwide by the end of 2002. This growth is
expected to be driven by the large and growing number of PCs installed in homes
and offices, the decreasing cost of PCs, easier, faster and cheaper access to
the Internet, improvements in network infrastructure, the proliferation of
Internet content and the increasing familiarity and acceptance of the Internet
by businesses and consumers. The Internet possesses a number of unique
characteristics that differentiate it from traditional media: users communicate
or access information without geographic or temporal limitations; users access
dynamic and interactive content on a real-time basis; and users communicate and
interact instantaneously with a single individual or with entire groups of
individuals. As a result of these characteristics, Web usage is expected to
continue to grow rapidly.
The growing adoption of the Web represents an enormous opportunity for
businesses to conduct commerce over the Internet. IDC estimates that commerce
over the Internet will increase from approximately $32 billion worldwide in
1998 to approximately $130 billion worldwide in 2000. While companies initially
focused on facilitating and conducting transactions between businesses over the
Internet, a number of companies more recently have focused on facilitating a
wide variety of business-to-consumer transactions. These companies typically
use the Internet to offer standard products and services that can be easily
described with graphics and text and do not necessarily require physical
presence for purchase, such as books, CDs, videocassettes, automobiles, home
loans, airline tickets and online banking and stock trading. The Internet gives
these companies the opportunity to develop one-to-one relationships with
customers worldwide from a central location without having to make the
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significant investments required to build a number of local retail presences,
manage a worldwide distribution infrastructure or develop the printing and
mailing infrastructure associated with traditional direct marketing
activities. While companies have generally focused on applying these benefits
in business-to-business and business-to-consumer transactions, a significant
market opportunity exists to apply these same advantages to facilitate person-
to-person trading over the Internet.
THE PERSON-TO-PERSON TRADING MARKET OPPORTUNITY
The exchange of goods between individuals--person-to-person trading--has
traditionally been conducted through trading forums such as classified
advertisements, collectibles shows, garage sales and flea markets or through
intermediaries, such as auction houses and local dealer shops. These markets
are highly inefficient, making person-to-person trading difficult for buyers
and sellers. Their fragmented, regional nature makes it difficult and
expensive for buyers and sellers to meet, exchange information and complete
transactions. The localized nature of these markets also results in a limited
variety and breadth of goods available in any one location. Buyers are limited
to searching through local classified ads or to traveling to numerous
geographically-dispersed flea markets, trade shows or dealer shops in order to
find items of interest. These markets often have high transaction costs
because intermediaries either mark up goods for resale or charge a commission.
Because these markets are information inefficient, buyers and sellers lack a
reliable and convenient means of setting prices for sales or purchases.
Despite these inefficiencies, the Company believes that the market for
traditional person-to-person trading in the U.S. through auctions and
classified ads exceeded $50 billion in goods sold in 1997.
The Internet offers for the first time the opportunity to create a
compelling global marketplace that overcomes the inefficiencies associated
with traditional person-to-person trading while offering the benefits of
Internet-based commerce to the person-to-person trading market. An Internet-
based centralized trading place facilitates buyers and sellers meeting,
listing items for sale, exchanging information, interacting with each other
and, ultimately, consummating transactions. It allows buyers and sellers to
trade directly, bypassing traditional intermediaries and lowering costs for
both parties. This trading place is global in reach, offering buyers a
significantly broader selection of goods to purchase and providing sellers the
opportunity to sell their goods efficiently to a broader base of buyers. It
offers significant convenience, allowing trading at all hours and providing
continually-updated information. By leveraging the interactive nature of the
Internet, this trading place also facilitates a sense of community through
direct buyer and seller communication, thereby enabling the interaction
between individuals with mutual interests. In addition, this community
orientation, facilitation of direct buyer and seller communication and
efficient access to information on a particular buyer or seller's trading
history can help alleviate the risks of anonymous trading. As a result, there
exists a significant market opportunity for an Internet-based centralized
trading place that applies the unique attributes of the Internet to facilitate
person-to-person trading.
THE EBAY SOLUTION
eBay pioneered person-to-person trading of a wide range of goods over the
Internet using an efficient and entertaining auction format and has grown into
the largest and most popular person-to-person trading community on the
Internet. The core eBay service permits sellers to list items for sale, buyers
to bid for and purchase items of interest and all eBay users to browse through
listed items from any place in the world at any time. eBay offers buyers a
large selection of new and used items that can be difficult and costly to find
through traditional means such as classified advertisements, collectibles
shows, garage sales and flea markets or through intermediaries, such as
auction houses and local dealer shops. eBay also enables sellers to reach a
larger number of buyers more cost-effectively than traditional person-to-
person trading forums.
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The eBay service was originally introduced in September 1995 to create an
efficient marketplace for individuals to trade with one another. Begun as a
grassroots online trading community, eBay primarily attracted buyers and
sellers through word-of-mouth and by providing buyers and sellers with a place
to socialize, to discuss topics of common interest and ultimately to trade
goods with one another. The number of categories under which eBay users list
goods for auction has grown from 10 categories, when eBay was first introduced,
to 846 categories of items as of June 30, 1998. Categories on eBay currently
include antiques, coins, collectibles, computers, memorabilia, stamps and toys.
From inception through June 30, 1998, eBay hosted over 15 million auctions,
resulting in gross merchandise sales of over $340 million. From December 31,
1997 to June 30, 1998, the number of registered eBay users grew from
approximately 340,000 to over 850,000 and the number of simultaneous auctions
being conducted through eBay increased from approximately 200,000 to over
500,000.
The principal reasons for eBay's success are the following:
LARGEST ONLINE TRADING MARKET. Unlike traditional person-to-person trading
forums, eBay has aggregated a critical mass of buyers, sellers and items listed
for sale. As a result, eBay has become the largest online person-to-person
trading market. As of June 30, 1998, eBay had over 850,000 registered users and
was offering 846 product categories with over 500,000 items for auction, many
of which were unique or otherwise hard to find. The Company believes that this
critical mass of buyers, sellers and items listed for sale creates a cycle that
helps eBay to continue to grow its user base. Sellers are attracted to eBay as
a result of the large number of potential buyers and buyers in turn are
attracted to eBay by the broad selection of goods listed on eBay.
COMPELLING TRADING ENVIRONMENT. eBay has created a distinctive trading
environment by utilizing an entertaining auction format, establishing
procedural rules and promoting community values that are designed to facilitate
trade and communications between buyers and sellers, without the need for eBay
to intervene and play a significant role in the trading process. The auction
format creates a sense of urgency among buyers to bid for goods because of the
uncertain future availability of a unique item on the site. Similarly, by
accepting multiple bids at increasing prices, its auction format provides
sellers a more efficient means of obtaining a maximum price for their products.
To date, well over 50% of auctions listed on eBay have been successfully
completed. The Company encourages every eBay user to provide comments and
feedback on other eBay users with whom they interact and offers user profiles
that provide feedback ratings and incorporate these comments. The Company
believes that this Feedback Forum helps make users more comfortable with
dealing with an unknown trading partner over the Web. The Company also offers a
SafeHarbor program, which provides guidelines for trade, helps provide
information to resolve user disputes and responds to reports of misuse of the
eBay service.
COST EFFECTIVE, CONVENIENT TRADING. eBay allows its buyers and sellers to
bypass traditionally expensive, regionally-fragmented intermediaries and
transact business on a 24 hour a day, seven day a week basis. Because eBay
carries no inventory, sellers bypass costly traditional intermediaries, thus
allowing for a lower selling costs and increasing the sellers' likelihood of
finding buyers willing to pay his or her target price. To list an item on eBay,
sellers pay only a nominal placement fee ranging from $0.25 to $2.00 and then
pay an additional success fee that steps down from 5% to 1.25% of the
transaction value only if an auction is concluded with a successful bid. As a
result, sellers for the first time can sell relatively inexpensive items which
had previously been prohibitively expensive to list through most traditional
trading forums. By allowing sellers to conveniently reach a broad range of
buyers, eBay also ameliorates the time-consuming, logistical inconvenience of
individual selling. Buyers have access to a broad selection of items and avoid
the need to pay expensive markups or commissions to intermediaries. Buyers are
not charged for trading through eBay. The critical mass of items listed on eBay
provides a mutual benefit for buyers and sellers to more effectively determine
an appropriate price for an item.
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STRONG COMMUNITY AFFINITY. The Company believes that fostering direct
interaction between buyers and sellers with similar interests has enabled it
to create a loyal, active community of users. eBay has introduced a variety of
features and services designed to strengthen this sense of community among
eBay users. The Company facilitates communications between buyers and sellers
by offering chat rooms, bulletin boards and customer support assistance from
eBay personnel and other eBay users and by providing community features that
are designed to encourage consumer loyalty and repeat usage.
INTUITIVE USER EXPERIENCE. The eBay service is a fully-automated, topically-
arranged, intuitive and easy-to-use online service that is available on a 24
hour a day, seven day a week basis. Within minutes of completing a simple
online form, a seller can immediately list items for sale on the service, and
buyers can submit bids for items quickly and easily. Buyers can easily search
the hundreds of thousands of items listed by category or specific item. During
the course of the auction, bidders are notified by email of the status of
their bids on a daily basis and are notified immediately if they are outbid.
Sellers and successful bidders are automatically notified when an auction is
completed. To assist users further, the Company offers customer support via
email and support bulletin boards staffed on a 24 hour a day, seven day a week
basis.
EBAY STRATEGY
The Company's objective is to build upon its position as the world's leading
online person-to-person trading community. The key elements of eBay's strategy
are:
GROW THE EBAY COMMUNITY AND THE EBAY BRAND. The Company believes that
building greater awareness of the eBay brand within and beyond the eBay
community is critical to expanding its user base and to maintaining the
vitality of the eBay community. Although the Company's historical growth has
been largely attributable to word-of-mouth, the Company intends to build its
user base and its brand name aggressively. The Company has prepared a
substantial national advertising campaign, both in traditional media and
online, that is designed to attract new eBay users. The campaign will include
advertising in targeted publications, strategic advertising and sponsorship
placements on high-traffic Web sites, radio and television advertising
campaigns and active participation in other forums such as selected trade
shows. The Company intends to focus on reinforcing its brand within the
existing eBay community through marketing programs on eBay and sales of eBay-
branded merchandise.
BROADEN THE EBAY TRADING PLATFORM. The Company intends to pursue a multi-
pronged strategy for growing the eBay platform within existing product
categories, across new product categories and internationally. The Company
will target key vertical markets in its user programs and marketing
activities. The Company also intends to grow existing product categories by
introducing category-specific bulletin boards and chat rooms, integrating
category-specific content, advertising its service in targeted publications
and participating in targeted trade shows. In addition, the Company intends to
broaden the range of products offered on its trading platform by seeking to
attract new users from the general audience of Internet users and adding
product categories, content and other services or features to meet this new
user demand. The Company believes that there are significant opportunities for
person-to-person trading worldwide and therefore intends to leverage the eBay
service and brand name internationally by developing eBay for selected
international markets and marketing and promoting these services actively.
FOSTER EBAY COMMUNITY AFFINITY. The Company believes that it has developed
the largest and one of the most loyal person-to-person trading communities on
the Web and that enhancing the eBay community experience will help the Company
foster further growth and a greater sense of loyalty among eBay users. The
Company seeks to maintain a critical mass of frequent buyers and sellers with
a vested interest in the eBay community so that sellers will continue to be
attracted to the service by
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the large number of potential buyers and buyers will be attracted to eBay by
the large number of items listed by these sellers. Consistent with its desire
to foster community, the Company has organized a charitable fund, known as the
eBay Foundation, and intends to involve the members of the eBay community in
determining to which charitable purposes the eBay Foundation's funds will be
applied.
ENHANCE FEATURES AND FUNCTIONALITY. The Company intends to update and
enhance the features and functionality of eBay frequently in order to continue
to improve the user trading experience through eBay. The Company recently
introduced personalization features such as My eBay, a customizable user
interface that tracks a user's recent auction activity and account balance
information and highlights auctions of specified items. The Company intends to
introduce other features, such as new auction formats, category-specific
content and other features designed to enhance the eBay experience. The
Company will continue to provide rapid system response and transaction
processing time by investing in its infrastructure in order to accommodate
additional users, content and auctions.
EXPAND VALUE-ADDED SERVICES. In order to offer an "end-to-end" person-to-
person trading service, the Company intends to offer a variety of pre- and
post-trade services to enhance the user experience. The Company intends to
introduce pre-trade services, such as services to facilitate scanning and
uploading of photographs of listed items, and post-trade services, such as
third-party escrow services and arrangements with shippers to help sellers
ship their products more easily. The Company may pursue strategic
relationships with third parties to provide many of these value-added
services.
LEVERAGE UNIQUE BUSINESS MODEL. The Company believes that its business
model, which does not require it to carry an inventory or to maintain a sales
force, provides a number of competitive advantages. The Company intends to
devote the capital that would otherwise be used for those purposes towards
growing eBay's business, enhancing its person-to-person trading services,
building brand awareness and pursuing other strategic opportunities.
THE EBAY SERVICE
The eBay trading platform is a robust, Internet-based, person-to-person
centralized trading place that facilitates buying and selling of a wide
variety of items.
[DIAGRAM OF BUYING-SELLING PROCESS]
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REGISTRATION. While any visitor to eBay can browse through the eBay service
and view the items listed for auction, in order to bid for an item or to list
an item for sale, buyers and sellers must first register with eBay. Users
register by completing a short online form and thereafter can immediately bid
for an item or list an item for sale.
BUYING ON EBAY. Buyers typically enter eBay through its home page, which
contains a listing of product categories that allows for easy exploration of
current auctions. Bidders can search for specific items by browsing through a
list of auctions within a category or subcategory and then "click through" to
a detailed description for a particular item. Bidders can also search specific
categories or the entire database of auction listings using keywords to
describe the types of products in which they are interested, and eBay's search
engine will generate a list of relevant auctions with links to the detailed
descriptions. Each auction is assigned a unique identifier so that users can
easily search for and track specific auctions. Users can also search for a
particular bidder or seller by name in order to review his or her auction and
feedback history. Within each category section eBay highlights auctions
commenced within the past 24 hours in a "New Today" section; auctions ending
on that day in an "Ending Today" section; and auctions ending within three
hours under a "Going, Going, Gone" section. Once a bidder has found an item of
interest and registered with eBay, the bidder enters the maximum amount he or
she is willing to pay at that time. In the event of competitive bids, the eBay
service automatically increases bidding in increments based upon the then
current highest bid for the item, up to the bidder's maximum price. As eBay
encourages direct interaction between buyers and sellers, bidders wishing
additional information about a listed item can access the seller's email
address and contact the seller for additional information. The Company
believes that this interaction between bidders and sellers leverages the
personal, one-to-one nature of person-to-person trading on the Web and is an
important element of the eBay experience. Once each bid is made, a
confirmation is sent to the bidder via email, an outbid notice is sent to the
next highest bidders and the item's auction status is automatically updated.
During the course of the auction, bidders are notified of the status of their
bids via email on a daily basis and are notified immediately after they are
outbid. Bidders are not charged for making bids or purchases through eBay.
SELLING ON EBAY. A seller registered with eBay can list a product for
auction by completing a short online form. The seller selects a minimum price
for opening bids for the item and chooses whether the auction will last three,
five or seven days. Additionally, a seller may select a reserve price for an
item, which is the minimum price at which the seller is willing to sell the
item and is typically higher than the minimum price set for opening bids. The
reserve price is not disclosed to bidders. A seller can elect to sell items in
individual auctions or, if he or she has multiple identical items, can elect
to hold a "Dutch Auction." For example, an individual wishing to sell 10
identical watches could hold 10 individual auctions or hold a Dutch Auction in
which the 10 highest bidders would each receive a watch and all lower bids
would be rejected. A seller may also specify that an auction will be a private
auction. With this format, bidders' e-mail addresses are not disclosed on the
item screen or bidding history screen. Sellers pay a nominal placement fee to
list items for sale--$0.25 for an auction with a minimum starting price of
less than $10.00, $0.50 for a minimum starting price of $10.00 to $24.99,
$1.00 for a minimum starting price of $25.00 to $49.99 and $2.00 for a minimum
starting price of $50.00 or more. By paying incremental placement fees,
sellers can have items featured in various ways. The seller can highlight his
or her auctions by utilizing a bold font for the auction heading for an
additional fee of $2.00. A seller with a favorable feedback rating can have
his or her auction featured as a "Super Featured Auction" for $49.95, which
allows the seller's item to be rotated on the eBay home page, or as a
"Category Featured Auction" for $9.95, which allows the seller's item to be
featured within a particular eBay category. A seller can also include a
description of the product with links to the seller's Web site. In addition,
the seller can include a photograph in the description if the seller posts the
photograph on a Web site and provides eBay with the appropriate Web address.
During the course of an auction, sellers are notified of the status of their
auctions on a daily basis via email.
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HOW TRANSACTIONS ARE COMPLETED. At the end of an auction period, if a bid
exceeds the minimum price and, if one is set, the reserve price, eBay
automatically notifies the buyer and seller via email and the buyer and seller
can then consummate the transaction independently of eBay. At the time of the
email notification, eBay charges the seller a success fee equal to 5% of the
first $25 of the purchase price, 2.5% of any purchase price between $25.01 and
$1,000 and 1.25% of any purchase price over $1,000. At no point during the
process does the Company take possession of either the item being sold or the
buyer's payment for the item. Rather, the buyer and seller must independently
arrange for the shipment of and payment for the item, with the buyer typically
paying for shipping. A seller can view the buyer's feedback rating and then
determine the manner of payment, such as personal check, cashier's check or
credit card, and also whether to ship the item before or after the payment is
received. In the event the buyer and seller are unable to complete the
transaction, eBay credits the seller the amount of the success fee. Invoices
for placement fees, additional listing fees and success fees are sent via
email to sellers on a monthly basis. Typically, sellers have a credit card
account on file with eBay and that account is charged shortly after the
invoice is sent.
FEEDBACK FORUM. eBay pioneered this feature to facilitate the establishment
of reputations within its community by encouraging individuals to record
comments about their trading partners on each transaction or other eBay users
with whom they have interacted. Every registered eBay user is issued a trading
profile, on which users who have conducted business or interacted with the
person may submit compliments or criticism. This information is recorded in a
feedback profile that includes a feedback rating for the person and indicates
comments from other eBay users who have interacted with that person over the
past seven days, the past month, the past six months and beyond. Users who
have developed positive reputations over time will have a star symbol
displayed next to their user name, which is color coded to indicate the amount
of positive feedback as compared to negative feedback received by the user.
eBay users may review a person's feedback profile to check on the person's
reputation within the eBay community before deciding to bid on an item listed
by that person or in determining how to complete the payment for and delivery
of the item. The Company believes its Feedback Forum is extremely useful in
overcoming initial user hesitancy when trading over the Web as it reduces the
anonymity and uncertainty of dealing with an unknown trading partner.
WHAT CAN BE PURCHASED OR SOLD ON EBAY. The eBay service has grown from
offering 10 product categories when it was first introduced in September 1995
to offering over 846 categories as of June 30, 1998. As the number of product
categories has grown, the Company periodically organizes the categories under
different headings to reflect the major types of items currently listed. As of
June 30, 1998, these product categories were organized under the following
headings:
Antiques Memorabilia
Dolls, Figures Books, Magazines
Collectibles Trading Cards
Coins Jewelry, Gemstones
Computers Toys
Stamps Miscellaneous
Each category has numerous subcategories. Today eBay offers a selection of
over 500,000 items, with the most popular items sold on eBay being those that
are relatively standardized or are well-represented with a photo (and
therefore can be evaluated to some degree without a physical inspection), are
small and easily shippable, and are relatively inexpensive. As the eBay
community grows and additional items are listed, the Company will continue to
organize auctions under additional categories to respond to the needs of the
eBay community.
COMMUNITY SERVICES. Beyond providing a convenient means of trading, eBay has
devoted substantial resources to building an online person-to-person trading
community, which the Company believes is one of the strongest on the Web. Key
components of the Company's community philosophy
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are maintaining an honest and open marketplace and treating individual users
with respect. The Company offers a variety of community and support features
that are designed to solidify the growth of the eBay community and to build
eBay user affinity and loyalty. eBay facilitates email communications between
buyers and sellers and offers category-specific chat rooms, the eBay Cafe (a
chat room for the entire eBay community), question and answer sections, a
bulletin board devoted to user feedback on new features, an announcements
section that covers new features on eBay or other eBay news, customer support
boards and "items wanted" listings where users can post notices seeking
specific items. eBay also offers My eBay, which permits users to receive a
report of their recent activity on eBay, including bidding activity, selling
activity, account balances, favorite categories and recent feedback. Users with
their own Web pages can also post link buttons from the user's page to eBay and
to a list of items the user has for sale on eBay. In addition, in June 1998,
the Company donated 107,250 shares of Common Stock to the Community Foundation
Silicon Valley, a tax-exempt donor-advised public charity and established a
fund, known as the "eBay Foundation." Through the Community Foundation Silicon
Valley, the eBay Foundation will make grants to charitable organizations. The
Company intends to involve the members of the eBay community in determining the
charitable purposes to which proceeds from the sale of these shares will be
devoted.
CUSTOMER SUPPORT. The Company devotes significant resources to providing
personalized, timely customer service and support. eBay offers customer support
on a 24 hour a day, seven day a week basis. Most customer support inquiries are
handled via email, with customer email inquiries typically being answered
within 24 hours after submission. The Company offers an online tutorial for new
eBay users and maintains two live customer support bulletin boards, where users
can post questions that will be answered by eBay customer support personnel or
other eBay users. In addition, the Company offers the SafeHarbor program which
provides guidelines for trade, helps provide information to resolve user
disputes and responds to reports of misuses of the eBay service.
ACQUISITION OF JUMP
On June 30, 1998, the Company acquired Jump, the developer and operator of
Up4Sale, an advertising-supported online trading service in an auction format.
The Company acquired Jump in order to provide it with an additional environment
in which to introduce complementary future services. In order to bid or sell on
Up4Sale, users must first register and neither buyers nor sellers currently pay
any fees to bid for or list items for auction. Once an auction is successfully
completed, the buyer and seller then independently complete the sale. In
connection with the acquisition of Jump, which was accounted for under the
purchase method of accounting, the Company issued 142,848 shares of its Common
Stock in exchange for all of the outstanding capital stock of Jump. In
addition, the four principal employees of Jump entered into four year
employment agreements with the Company. The Company currently operates Up4Sale
as an independent service, but may, in the future, integrate Up4Sale and its
users into the eBay service.
MARKETING
eBay's marketing strategy is to promote its brand and attract buyers and
sellers to the eBay service. To attract users to its site, eBay historically
has relied primarily on word-of-mouth and, to a lesser extent, on distribution
or sponsorship relationships with high traffic Web sites. Today, the Company
employs a variety of methods to promote its brand and attract potential buyers
and sellers. Currently, eBay utilizes strategic purchases of online advertising
to place advertisements in areas in which it believes it can reach its target
audience. The Company also engages in a number of marketing activities in
traditional media such as advertising in print media and at trade shows and
other events. eBay also advertises in a number of targeted publications. The
Company recently began a substantial national advertising campaign, both in
traditional media and online, that is designed to attract new eBay users. This
campaign will include print, radio and television campaigns, strategic
advertising and sponsorship placements on high-traffic Web sites and
advertising in other media. eBay also engages
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in a number of on-site marketing programs, including offering a variety of
eBay-branded merchandise through the online "eBay Store."
OPERATIONS AND TECHNOLOGY
eBay has built a robust, scalable user interface and transaction processing
system that is based on internally-developed proprietary software. The
Company's system maintains data records for over 850,000 registered users, over
500,000 simultaneous, open auctions, and over 2 million closed, but viewable,
auctions from the previous 30 days. During June 1998, the eBay service served
over 11 million page views per day, processed over 1.2 million searches per
day, received over 80,000 new listings per day and received over 280,000 bids
per day. During that month, eBay also sent out more than 500,000 registration-
and auction-related emails per day to users. The eBay system also handles all
other aspects of the auction process including notifying users via email when
they initially register for the service, they place a successful bid, they are
outbid, they place an item for sale and an auction ends. Furthermore, the
system sends daily status updates to any active sellers and bidders regarding
the state of their current auctions. The system maintains user registration
information, billing accounts, current auctions and historical listings. All
data are regularly archived to a data warehouse. Complete listings of all items
for sale are generated every hour. The system updates a text-based search
engine hourly with the titles and descriptions of new items, as well as pricing
and bidding updates for active items. Every time an item is listed on the
service, a listing enhancement option is selected by a seller, or an auction
closes with a bid in excess of the seller-specified minimum bid, the system
makes an entry into the seller's billing account. The system sends electronic
invoices to all sellers via email on a monthly basis. For convenience, sellers
may place a credit card account number on file with eBay and their account
balance is billed directly. In addition to these features, the eBay service
also supports a number of community bulletin board and chat areas where users
and eBay support personnel can interact.
The Company's system has been designed around industry standard architectures
and has been designed to reduce downtime in the event of outages or
catastrophic occurrences. The eBay service provides 24 hour a day, seven day a
week availability, subject to a short maintenance period for a few hours during
one night per week. eBay's system hardware is hosted at the Exodus facility in
Santa Clara, California, which provides redundant communications lines and
emergency power backup. The Company's system consists of Sun database servers
running Oracle relational database management systems and a suite of Pentium-
based Microsoft Internet servers running on the Windows NT operating system.
The Company's Internet servers also utilize VeriSign Inc. digital certificates
for authentication. The Company uses Resonate's load balancing systems and its
own redundant servers to provide for fault tolerance.
As of June 30, 1998, the Company had 23 personnel on its development staff.
The Company incurred $28,000, $831,000 and $1.5 million in product development
expenses in 1996, 1997 and the six months ended June 30, 1998, respectively.
The Company anticipates that it will continue to devote significant resources
to product development in the future as it adds new features and functionality
to the eBay service. The market in which the Company competes is characterized
by rapidly changing technology, evolving industry standards, frequent new
service and product announcements, introductions and enhancements and changing
customer demands. Accordingly, the Company's future success will depend on its
ability to adapt to rapidly changing technologies, to adapt its services to
evolving industry standards and to continually improve the performance,
features and reliability of its service in response to competitive service and
product offerings and evolving demands of the marketplace. The failure of the
Company to adapt to such changes would have a material adverse effect on the
Company's business, results of operations and financial condition. In addition,
the widespread adoption of new Internet, networking or telecommunications
technologies or other technological changes could require substantial
expenditures by the Company to modify or adapt its services or infrastructure
which could have a material adverse effect on the Company's business,
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results of operations and financial condition. See "Risk Factors--Rapid
Technological Change; Risks Associated with New Services, Features and
Functions."
COMPETITION
The market for person-to-person trading over the Internet is new, rapidly
evolving and intensely competitive, and the Company expects competition to
intensify further in the future. Barriers to entry are relatively low, and
current and new competitors can launch new sites at a relatively low cost using
commercially available software. The Company currently or potentially competes
with a number of other companies. The Company's direct competitors include
various online person-to-person auction services, including Onsale Exchange, a
division of Onsale; Auction Universe, a Times-Mirror Company; Excite; and a
number of other small services, including those that serve specialty markets.
The Company also competes indirectly with business-to-consumer online auction
services such as Onsale, First Auction, ZAuction and Surplus Auction. The
Company potentially faces competition from a number of large online communities
and services that have expertise in developing online commerce and in
facilitating online person-to-person interaction. Certain of these potential
competitors, including Amazon.com, AOL, Microsoft and Yahoo! currently offer a
variety of business-to-consumer trading services and classified ad services,
and certain of these companies may introduce person-to-person trading to their
large user populations. Other large companies with strong brand recognition and
experience in online commerce, such as Cendant Corporation, QVC and large
newspaper or media companies may also seek to compete in the online auction
market. Competitive pressures created by any one of these companies, or by the
Company's competitors collectively, could have a material adverse effect on the
Company's business, results of operations and financial condition.
The Company believes that the principal competitive factors in its market are
volume and selection of goods, population of buyers and sellers, community
cohesion and interaction, customer service, reliability of delivery and payment
by users, brand recognition, Web site convenience and accessibility, price,
quality of search tools and system reliability. Many of the Company's current
and potential competitors have longer operating histories, larger customer
bases, greater brand recognition and significantly greater financial,
marketing, technical and other resources than the Company. In addition, other
online trading services may be acquired by, receive investments from or enter
into other commercial relationships with larger, well-established and well-
financed companies as use of Internet and other online services increases.
Therefore, certain of the Company's competitors may be able to devote greater
resources to marketing and promotional campaigns, adopt more aggressive pricing
policies or may try to attract traffic by offering services for free and devote
substantially more resources to Web site and systems development than the
Company. Increased competition may result in reduced operating margins, loss of
market share and diminished value in the Company's brand. There can be no
assurance that the Company will be able to compete successfully against current
and future competitors. Further, as a strategic response to changes in the
competitive environment, the Company may, from time to time, make certain
pricing, service or marketing decisions or acquisitions that could have a
material adverse effect on its business, results of operations and financial
condition. New technologies and the expansion of existing technologies may
increase the competitive pressures on the Company by enabling the Company's
competitors to offer a lower-cost service. Certain Web-based applications that
direct Internet traffic to certain Web sites may channel users to trading
services that compete with the Company. Although the Company has established
Internet traffic arrangements with several large online services and search
engine companies, there can be no assurance that these arrangements will be
renewed on commercially reasonable terms or that they will otherwise continue
to result in increased users of the eBay service. In addition, companies that
control access to transactions through network access or Web browsers could
promote the Company's competitors or charge the Company substantial fees for
inclusion. Any and all of these events could have a material adverse effect on
the Company's business, results of operations and financial condition. See
"Risk Factors--Intense Competition."
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INTELLECTUAL PROPERTY
The Company regards the protection of its copyrights, service marks,
trademarks, trade dress and trade secrets as critical to its future success and
relies on a combination of copyright, trademark, service mark and trade secret
laws and contractual restrictions to establish and protect its proprietary
rights in products and services. The Company has entered into confidentiality
and invention assignment agreements with its employees and contractors, and
nondisclosure agreements with its suppliers and strategic partners in order to
limit access to and disclosure of its proprietary information. There can be no
assurance that these contractual arrangements or the other steps taken by the
Company to protect its intellectual property will prove sufficient to prevent
misappropriation of the Company's technology or to deter independent third-
party development of similar technologies. The Company pursues the registration
of its trademarks and service marks in the U.S. and internationally. Effective
trademark, service mark, copyright and trade secret protection may not be
available in every country in which the Company's services are made available
online. The Company has licensed in the past, and expects that it may license
in the future, certain of its proprietary rights, such as trademarks or
copyrighted material, to third parties. While the Company attempts to ensure
that the quality of the eBay brand is maintained by such licensees, there can
be no assurance that such licensees will not take actions that might materially
adversely affect the value of the Company's proprietary rights or reputation,
which could have a material adverse effect on the Company's business, results
of operations and financial condition. The Company also relies on certain
technologies that it licenses from third parties, such as Oracle, Microsoft and
Sun, the suppliers of key database technology, the operating system and
specific hardware components for the eBay service. There can be no assurance
that these third-party technology licenses will continue to be available to the
Company on commercially reasonable terms. The loss of such technology could
require the Company to obtain substitute technology of lower quality or
performance standards or at greater cost, which could materially adversely
affect the Company's business, results of operations and financial condition.
To date, the Company has not been notified that its technologies infringe the
proprietary rights of third parties, but there can be no assurance that third
parties will not claim infringement by the Company with respect to past,
current or future technologies. The Company expects that participants in its
markets will be increasingly subject to infringement claims as the number of
services and competitors in the Company's industry segment grows. Any such
claim, whether meritorious or not, could be time-consuming, result in costly
litigation, cause service upgrade delays or require the Company to enter into
royalty or licensing agreements. Such royalty or licensing agreements might not
be available on terms acceptable to the Company or at all. As a result, any
such claim could have a material adverse effect upon the Company's business,
results of operations and financial condition. See "Risk Factors--Protection
and Enforcement of Intellectual Property Rights."
PRIVACY POLICY
The Company believes that issues relating to privacy and use of personal
information relating to Internet users are becoming increasingly important as
the Internet and its commercial use grow. The Company has adopted a detailed
privacy policy that outlines how eBay uses information concerning its users and
the extent to which other registered eBay users may have access to this
information. Users must acknowledge and agree to this policy when registering
for the eBay service. The Company does not sell or rent any personally
identifiable information about its users to any third party, however, the
Company does disclose information to sellers and winning bidders that contains
the seller's and winning bidder's name, email address and telephone number. The
Company also uses information about its users for internal purposes only in
order to improve marketing and promotional efforts, to analyze site usage
statistically, and to improve content, product offerings and site layout. eBay
is a member of the TRUSTe program, a non-profit independent organization which
audits Web sites' privacy statements and audits their adherence thereto.
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GOVERNMENT REGULATION
The Company is not currently subject to direct federal, state or local
regulation, and laws or regulations applicable to access to or commerce on the
Internet, other than regulations applicable to businesses generally. However,
due to the increasing popularity and use of the Internet and other online
services, it is possible that a number of laws and regulations may be adopted
with respect to the Internet or other online services covering issues such as
user privacy, freedom of expression, pricing, content and quality of products
and services, taxation, advertising, intellectual property rights and
information security. Although sections of the CDA that, among other things,
proposed to impose criminal penalties on anyone distributing "indecent"
material to minors over the Internet, were held to be unconstitutional by the
U.S. Supreme Court, there can be no assurance that similar laws will not be
proposed and adopted. Certain members of Congress have recently discussed
proposing legislation that would regulate the distribution of "indecent"
material over the Internet in a manner that they believe would withstand
challenge on constitutional grounds. The nature of such similar legislation and
the manner in which it may be interpreted and enforced cannot be fully
determined and, therefore, legislation similar to the CDA could subject the
Company and/or its customers to potential liability, which in turn could have
an adverse effect on the Company's business, results of operations and
financial condition. The adoption of any such laws or regulations might also
decrease the rate of growth of Internet use, which in turn could decrease the
demand for the eBay service or increase the cost of doing business or in some
other manner have a material adverse effect on the Company's business, results
of operations and financial condition. In addition, applicability to the
Internet of existing laws governing issues such as property ownership,
copyrights and other intellectual property issues, taxation, libel, obscenity
and personal privacy is uncertain. The vast majority of such laws were adopted
prior to the advent of the Internet and related technologies and, as a result,
do not contemplate or address the unique issues of the Internet and related
technologies. In addition, numerous states, including the State of California
in which the Company's headquarters are located, have regulations regarding the
manner in which "auctions" may be conducted and the liability of "auctioneers"
in conducting such auctions. The Company does not believe that such
regulations, which were adopted prior to the advent of the Internet, govern the
operations of the Company's business nor have any claims been filed by any
state implying that the Company is subject to such legislation. There can be no
assurance, however, that a state will not attempt to impose these regulations
upon the Company in the future or that such imposition will not have a material
adverse effect on the Company's business, results of operations and financial
condition.
Several states have also 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 also initiated
action against at least one online service regarding the manner in which
personal information is collected from users and provided to third parties.
Changes to existing laws or the passage of new laws intended to address these
issues, including some recently proposed changes, could create uncertainty in
the marketplace that could reduce demand for the services of the Company or
increase the cost of doing business as a result of litigation costs or
increased service delivery costs, or could in some other manner have a material
adverse effect on the Company's business, results of operations and financial
condition. In addition, because the Company's services are accessible worldwide
and the Company facilitates sales of goods to users worldwide, other
jurisdictions may claim that the Company is required to qualify to do business
as a foreign corporation in a particular state or foreign country. The Company
is qualified to do business in two states in the United States, and failure by
the Company to qualify as a foreign corporation in a jurisdiction where it is
required to do so could subject the Company to taxes and penalties for the
failure to qualify and could result in the inability of the Company to enforce
contracts in such jurisdictions. Any such new legislation or regulation, or the
application of laws or regulations from jurisdictions whose laws do not
currently apply to the Company's business, could have a material adverse effect
on the Company's business, results of operations and financial condition. See
"Risk Factors--Governmental Regulation and Legal Uncertainties."
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EMPLOYEES
As of June 30, 1998, the Company had 76 employees, including 11 in customer
support, 23 in product development, 19 in sales, marketing and business
development, and 23 in administration. The Company has never had a work
stoppage, and no employees are represented under collective bargaining
agreements. The Company considers its relations with its employees to be good.
The Company believes that its future success will depend in part on its
continued ability to attract, integrate, retain and motivate highly qualified
technical and managerial personnel, and upon the continued service of its
senior management and key technical personnel, none of whom is bound by an
employment agreement. Competition for qualified personnel in the Company's
industry and geographical location is intense, and there can be no assurance
that the Company will be successful in attracting, integrating, retaining and
motivating a sufficient numbers of qualified personnel to conduct its business
in the future. See "Risk Factors--Management of Growth; Dependence on Key
Personnel."
FACILITIES
The Company's principal administrative, marketing and product development
facilities are located in approximately 22,148 square feet of office space in
San Jose, California. Currently, 12,733 square feet of this facility are
occupied under a sub-lease expiring in December 1999, 2,978 square feet are
occupied under a lease expiring in October 1999 and 6,437 square feet are
occupied under a lease expiring in June 2001. Neither the sub-lease nor the
leases provide for a renewal option. As a result of the Company's recent
acquisition of Jump, the Company also has facilities in Cincinnati, Ohio that
are leased on a month to month basis. The Company intends to obtain additional
office space in 1999 to accommodate its anticipated growth. The Company
believes that this additional space will be available and that its current
facilities, together with this additional space, will be adequate to meet its
needs for the foreseeable future.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information regarding the executive
officers and directors of the Company:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Pierre M. Omidyar....... 31 Founder, Chairman of the Board and a director
Margaret C. Whitman..... 41 President, Chief Executive Officer and a director
Gary F. Bengier......... 43 Chief Financial Officer and Vice President Operations
Jeffrey S. Skoll........ 33 Vice President Strategic Planning and Analysis
Steven P. Westly........ 41 Vice President Marketing and Business Development
Michael K. Wilson....... 41 Vice President Product Development and Site Operations
Scott D. Cook (1)....... 45 Director
Robert C. Kagle (1)(2).. 42 Director
Howard D. Schultz (2)... 44 Director
</TABLE>
- --------
(1) Member of the Audit Committee.
(2) Member of the Compensation Committee.
Each director will hold office until the next Annual Meeting of Stockholders
and until his or her successor is elected and qualified or until his or her
earlier resignation or removal. Each officer serves at the discretion of the
Board of Directors (the "Board").
Pierre M. Omidyar founded the Company as a sole proprietorship in September
1995. He has been a director and Chairman of the Board since the Company's
incorporation in May 1996 and also served as its Chief Executive Officer, Chief
Financial Officer and President from inception to February 1998, November 1997
and August 1996, respectively. Prior to founding eBay, Mr. Omidyar was a
developer services engineer at General Magic, a mobile communication platform
company from December 1994 to July 1996. Mr. Omidyar co-founded Ink Development
Corp. (later renamed eShop) in May 1991 and served as a software engineer there
from May 1991 to September 1994. Mr. Omidyar holds a B.S. degree in Computer
Science from Tufts University.
Margaret C. Whitman has served as President and Chief Executive Officer of
the Company since February 1998 and a director since March 1998. From January
1997 to February 1998, she was General Manager of the Preschool Division of
Hasbro Inc., a toy company. From February 1995 to December 1997, Ms. Whitman
was employed by FTD, Inc. ("FTD"), a floral products company, most recently as
President, Chief Executive Officer and a director. From October 1992 to
February 1995, Ms. Whitman was employed by The Stride Rite Corporation, in
various capacities, including President, Stride Rite Children's Group and
Executive Vice President, Product Development, Marketing & Merchandising, Keds
Division. From May 1989 to October 1992, Ms. Whitman was employed by The Walt
Disney Company ("Disney"), an entertainment company, most recently as Senior
Vice President, Marketing, Disney Consumer Products. Before joining Disney, Ms.
Whitman was at Bain & Co., a consulting firm, most recently as a Vice
President. Ms. Whitman holds an A.B. degree in Economics from Princeton
University and an M.B.A. degree from the Harvard Business School.
Gary F. Bengier has served as Chief Financial Officer of the Company since
November 1997. From February 1997 to October 1997, Mr. Bengier was Vice
President and Chief Financial Officer of VXtreme, Inc. a developer of Internet
video streaming products. Prior to that time, Mr. Bengier was Corporate
Controller at Compass Design Automation, a publisher of electronic circuit
design software,
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from February 1993 to February 1997. Mr. Bengier holds a B.B.A. degree in
Computer Science and Operations Research from Kent State University and an
M.B.A. degree from the Harvard Business School.
Jeffrey S. Skoll has served as the Company's Vice President Strategic
Planning and Analysis since February 1998, its President from August 1996 to
February 1998 and as a director from December 1996 to March 1998. From July
1995 to July 1996, Mr. Skoll served as Channel Marketing Manager for Knight-
Ridder Information Inc., an online information services company and from
September 1993 to July 1995 was a student at the Stanford Graduate School of
Business. Prior to that time, Mr. Skoll was President of Skoll Engineering, a
systems consulting firm that he founded, from September 1987 to August 1993.
Mr. Skoll has a B.a.S.C. degree in Electrical Engineering from the University
of Toronto and an M.B.A. degree from the Stanford Graduate School of Business.
Steven P. Westly has served as the Company's Vice President Marketing and
Business Development since August 1997. From July 1996 to August 1997, Mr.
Westly was Vice President, Business Development of WhoWhere?, an Internet
directory and Web-based email company. Prior to that time, Mr. Westly was
Director of Sales for Netcom, an Internet service provider, from August 1995 to
July 1996 and was Deputy Director of Office of Economic Development, City of
San Jose, California, from April 1991 to August 1995. Before joining the Office
of Economic Development, Mr. Westly served as President of Codd and Date
International, a relational database consulting firm, from January 1990 to
March 1992 and was the Managing Director of Bridgemere Capital, an investment
banking firm, from 1987 to 1990. Mr. Westly holds a B.A. degree in History from
Stanford University and an M.B.A. degree from the Stanford Graduate School of
Business.
Michael K. Wilson has served as the Company's Vice President Product
Development and Site Operations since January 1997. From October 1995 to
January 1997, Mr. Wilson was Vice President of WELL Engaged, L.L.C., a wholly-
owned subsidiary of The Well, a software company. Prior to that time, Mr.
Wilson was an engineer for daVinci Time and Space, a television company, from
February 1995 to October 1995, an engineer for eShop, a software company, from
February 1992 to August 1994 and a Director of Mainframe Engineering for Neuron
Data, an engineering company, from 1987 to 1991. Before joining Neuron Data,
Mr. Wilson worked in several capacities at Oracle Corporation from 1982 to
1987, Chevron from 1979 to 1983, and Macy's, a retailer, from 1975 to 1979.
Scott D. Cook has served as a director of the Company since June 1998. Mr.
Cook is the founder of Intuit Inc. ("Intuit") and has been a director of
Intuit, a financial software developer, since March 1984 and its Chairman of
the Board since March 1993. From March 1984 to April 1994, Mr. Cook served as
President and Chief Executive Officer of Intuit. Mr. Cook also serves on the
board of directors of Amazon.com and Broderbund Software, Inc. Mr. Cook holds a
Bachelor of Arts degree in Economics and Mathematics from the University of
Southern California and an M.B.A. degree from the Harvard Business School.
Robert C. Kagle has served as a director of the Company since June 1997. Mr.
Kagle has been a Member of Benchmark Capital Management Co., L.L.C.
("Benchmark"), the General Partner of Benchmark Capital Partners, L.P. and
Benchmark Founders' Fund, L.P., since its founding in May 1995. Mr. Kagle also
has been a General Partner of Technology Venture Investors since January 1984.
Mr. Kagle holds a B.S. degree in Electrical and Mechanical Engineering from the
General Motors Institute (renamed Kettering University in January 1998) and an
M.B.A. degree from the Stanford Graduate School of Business.
Howard D. Schultz has served as a director of the Company since June 1998.
Mr. Schultz is the founder of Starbucks Corp ("Starbucks"), a provider of
gourmet coffee, and has been its Chairman of the Board and Chief Executive
Officer since its inception in 1985. From 1985 to June 1994, Mr. Schultz was
also President of Starbucks. Mr. Schultz was the director of Retail Operations
and Marketing for
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Starbucks Coffee Company, a predecessor to Starbucks from September 1982 to
December 1985 and was the Chairman of the Board, Chief Executive Officer and
President of Il Giornale Coffee Company, a predecessor to Starbucks, from
January 1986 to July 1987. Mr. Schultz is also one of two founding members of
Maveron LLC, a company providing advisory services to consumer-based
businesses, and is one of two members of a limited liability company that
serves as a general partner of its affiliated venture capital fund, Maveron
Equity Partners, L.P. (together, "Maveron").
BOARD COMMITTEES
The Audit Committee of the Board consists of Robert C. Kagle and Scott D.
Cook. The Audit Committee reviews the Company's financial statements and
accounting practices, makes recommendations to the Board regarding the
selection of independent auditors and reviews the results and scope of the
audit and other services provided by the Company's independent auditors. The
Compensation Committee of the Board consists of Robert C. Kagle and Howard D.
Schultz. The Compensation Committee makes recommendations to the Board
concerning salaries and incentive compensation for the Company's officers and
employees and administers the Company's employee benefit plans.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
None of the members of the Compensation Committee of the Board was at any
time since the formation of the Company an officer or employee of the Company.
No executive officer of the Company serves as a member of the board of
directors or compensation committee of any entity that has one or more
executive officers serving on the Company's Board or Compensation Committee.
DIRECTOR COMPENSATION
Directors of the Company do not receive cash compensation for their services
as directors but are reimbursed for their reasonable expenses for attending
Board and Board Committee meetings. In June 1998, Mr. Cook and Mr. Schultz were
each granted an option to purchase 150,000 shares of Common Stock of the
Company at an exercise price of $9.33 per share in connection with their
service on the Board. Such options were immediately exercisable. Prior to
exercise, Mr. Schultz assigned the beneficial interest in his option to acquire
112,500 of these shares to his affiliate, Maveron. Mr. Schultz thereafter
exercised his option to acquire 37,500 shares in exchange for a full recourse
five year promissory note for $350,000 at an interest rate of 8% per year.
Interest on the note is payable annually and the principal is due June 30,
2003. In addition, Mr. Schultz exercised, on behalf of Maveron, the assigned
portion of the option to acquire the remaining 112,500 shares in exchange for
$1.05 million in cash. The shares of Common Stock received are subject to the
Company's right of repurchase at a repurchase price equal to the exercise price
of the option that lapses as to 25% of the shares on the first anniversary of
the date of grant and 2.08% each full succeeding month thereafter. Unvested
shares at termination of service are subject to the Company's right of
repurchase. Also in June 1998, each of Mr. Cook and Mr. Schultz's Maveron
affiliate purchased an additional 107,250 shares of Common Stock at a price of
$9.33 per share for cash.
In July 1998, the Board adopted, subject to stockholder approval, the
Directors Plan and reserved a total of 200,000 shares of the Company's Common
Stock for issuance thereunder. Members of the Board who are not employees of
the Company, or any parent, subsidiary or affiliate of the Company, are
eligible to participate in the Directors Plan. The option grants under the
Directors Plan are automatic and nondiscretionary, and the exercise price of
the options must be 100% of the fair market value of the Common Stock on the
date of grant. Each eligible director who first becomes a member of the Board
on or after the effective date of the Registration Statement of which this
Prospectus forms a part (the "Effective Date") will initially be granted an
option to purchase 30,000 shares (an "Initial Grant") on the date such director
first becomes a director. Immediately following each Annual Meeting
53
<PAGE>
of the Company, each eligible director will automatically be granted an
additional option to purchase 5,000 shares if such director has served
continuously as a member of the Board since the date of such director's
Initial Grant or, if such director was ineligible to receive an Initial Grant,
since the Effective Date. The term of such options is ten years, provided that
they will terminate 7 months following the date the director ceases to be a
director or a consultant of the Company (twelve months if the termination is
due to death or disability). All options granted under the Directors Plan will
vest as to 25% of the shares on the first anniversary of the date of grant and
as to 2.08% of the shares each month thereafter, provided the optionee
continues as a member of the Board or as a consultant to the Company.
EXECUTIVE COMPENSATION
The following table sets forth all compensation awarded to, earned by or
paid for services rendered to the Company in all capacities during the year
ended December 31, 1997 by the Company's Chief Executive Officer (the "Named
Executive Officer"). No other executive officer who held office at December
31, 1997 met the definition of "most highly compensated officer" within the
meaning of the SEC's executive compensation disclosure rules.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM
--------------------- AND
OTHER ANNUAL OTHER
NAME AND PRINCIPAL POSITIONS YEAR SALARY(1) BONUS COMPENSATION COMPENSATION
- ---------------------------- ---- ---------- ----- ------------ ------------
<S> <C> <C> <C> <C> <C>
Pierre Omidyar(2).............. 1997 $65,446.16 -- -- --
Founder and Chief Executive
Officer
</TABLE>
- --------
(1) Ms. Whitman and Messrs. Bengier, Westly and Wilson, currently the
executive officers of the Company with the highest annual rates of
compensation, but who did not otherwise meet the definition of "most
highly compensated officer" at December 31, 1997, are compensated at
annual salary rates of $175,000, $125,000, $120,000 and $120,000,
respectively.
(2) Mr. Omidyar was the Chief Executive Officer of the Company at December 31,
1997. In February 1998, Margaret C. Whitman was hired as the Company's
Chief Executive Officer.
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<PAGE>
The Named Executive Officer has never been granted options by the Company.
The following executive officers received grants of options during the period
from January 1, 1997 to June 30, 1998 pursuant to the 1996 Plan or the 1997
Plan.
OPTION GRANTS FROM JANUARY 1, 1997 TO JUNE 30, 1998
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
PERCENTAGE OF VALUE AT ASSUMED
NUMBER OF TOTAL OPTIONS ANNUAL RATES OF STOCK
SECURITIES GRANTED TO PRICE APPRECIATION
UNDERLYING EMPLOYEES FROM FOR OPTION TERM(3)
OPTIONS 1/1/97 TO EXERCISE PRICE EXPIRATION ----------------------
NAME GRANTED(1) 6/30/98(2) PER SHARE DATE 5% 10%
---- ---------- -------------- -------------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Margaret C. Whitman..... 2,400,000 30.8% $0.20 1/20/2008 $ 301,869 $ 764,996
Gary F. Bengier......... 525,000 6.7 0.10 12/3/2007 33,017 83,671
Steven P. Westly........ 792,000 10.2 0.10 10/30/2007 49,808 126,224
9,000 0.1 0.20 1/20/2008 1,132 2,869
12,000 0.2 0.67 3/4/2008 5,031 12,750
9,000 0.1 2.00 4/13/2008 11,320 28,687
6,000 0.1 9.33 6/8/2008 35,218 89,250
Michael K. Wilson....... 600,000 7.7 0.02 1/13/2007 6,289 15,937
300,000 3.9 0.10 10/30/2007 18,867 47,812
</TABLE>
- -------
(1) Options granted in 1997 and 1998 were granted under either the 1996 Plan
or the 1997 Plan. All options granted are immediately exercisable and are
either incentive stock options or nonqualified stock options that were
granted at fair market value and generally vest over four years at the
rate of 25% of the shares subject to the option on the first anniversary
of either the vesting base date specified in the Stock Option Agreement if
the option was granted under the 1996 Plan or the first vesting date
specified in the Stock Option Agreement if the option was granted under
the 1997 Plan and 2.08% per month thereafter. Upon certain changes in
control of the Company, this vesting schedule will accelerate as to all
shares that are then unvested. Unvested shares are subject to the
Company's right of repurchase upon termination of employment. Options
expire ten years from the date of grant. See "--Employee Benefit Plans"
and "--Compensation Arrangements" for a description of the material terms
of these options.
(2) Based on granted options to purchase 7,789,500 shares of Common Stock of
the Company during the period from January 1, 1997 to June 30, 1998.
(3) Potential realizable values are net of the exercise price but before any
payment of taxes, and are based on the assumption that the Common Stock of
the Company appreciates at the annual compounded rate shown from the date
of grant until the expiration of the ten-year term. The 5% and 10% assumed
annual rates of stock price appreciation are mandated by the rules of the
Securities and Exchange Commission and do not represent the Company's
estimate or projection of future Common Stock prices.
55
<PAGE>
The following table sets forth the number of shares acquired and the value
realized upon exercise of stock options during the period from January 1, 1997
to June 30, 1998 and the number of shares of Common Stock covered by both
exercisable and unexercisable stock options held as of June 30, 1998 by each
of the executive officers of the Company described in footnote (1) to the
previous table. Also reported are values of "in-the-money" options, which
represent the positive spread between the respective exercise prices of
outstanding stock options and an assumed initial public offering price of
$ per share.
AGGREGATE OPTION EXERCISES FROM JANUARY 1, 1997 TO JUNE 30, 1998 AND VALUES AT
JUNE 30, 1998
<TABLE>
<CAPTION>
VALUE OF
NUMBER OF SECURITIES UNEXERCISED
NUMBER OF UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
SHARES OPTIONS AT JUNE 30, 1998 JUNE 30, 1998
ACQUIRED ON VALUE ------------------------- -------------------------
NAME EXERCISE(1) REALIZED(2) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Margaret C. Whitman..... 2,400,000 $ -- -- -- --
Gary F. Bengier......... 525,000 -- -- -- --
Steven P. Westly........ 828,000 -- -- -- --
Michael K. Wilson....... 600,000(3) 300,000 -- $ (4) --
</TABLE>
- --------
(1) Except as otherwise noted, all of the shares acquired are unvested as of
June 30, 1998 and subject to the Company's right of repurchase upon
termination of employment at a price equal to the exercise price of the
option pursuant to which the shares were acquired.
(2) Based on a value of $ , the assumed initial public offering price
per share, minus the per share exercise price, multiplied by the number of
shares issued upon exercise of the option.
(3) As of June 30, 1998, 212,499 shares of the 600,000 shares acquired are
vested and 387,501 shares are unvested and subject to the Company's right
of repurchase upon termination of employment. All of the 300,000 shares
underlying the immediately exercisable option are unvested as of June 30,
1998 and are subject to the Company's right of repurchase upon termination
of Mr. Wilson's employment.
(4) Based on a value of $ , the assumed initial public offering price per
share, minus the per share exercise price, multiplied by the number of
shares issuable upon exercise of the option.
EMPLOYEE BENEFIT PLANS
1996 STOCK OPTION PLAN. In December 1996 the Board adopted, and in December
1997 the stockholders approved, the 1996 Plan. At that time, 5,100,000 shares
of Common Stock were reserved for issuance under the 1996 Plan, which number
was decreased to 2,100,000 in June 1997 and further decreased to 1,506,000 in
December 1997. Shares covered by any option granted under the 1996 Plan which
expires unexercised become available again for grant under the 1996 Plan. As
of June 30, 1998, options to purchase 1,473,375 shares had been exercised and
options to purchase 32,625 of Common Stock were outstanding with a weighted
average exercise price of $0.10 and no shares were available for future
grants. Following the closing of this offering, no additional options will be
granted under the 1996 Plan. Options granted under the 1996 Plan are subject
to terms substantially similar to those described below with respect to
options to be granted under the 1998 Equity Incentive Plan. The 1996 Plan does
not provide for issuance of restricted stock or stock bonus awards.
1997 STOCK OPTION PLAN. In June 1997, the Board adopted and in December
1997, the stockholders approved the 1997 Plan. At that time, 6,000,000 shares
of Common Stock were reserved for issuance under the 1997 Plan, which number
was increased to 6,594,000 in December 1997. As of June 30, 1998, options to
purchase 4,868,961 shares of Common Stock had been exercised, options to
purchase 888,534 shares of Common Stock were outstanding under the 1997 Plan
with a
56
<PAGE>
weighted average exercise price of $2.66 and 961,500 shares were available for
future grants. Following the closing of this offering, no additional options
will be granted under the 1997 Plan. Options granted under the 1997 Plan are
subject to terms substantially similar to those described below with respect to
options to be granted under the 1998 Equity Incentive Plan. The 1997 Plan does
not provide for issuance of restricted stock or stock bonus awards.
1998 EQUITY INCENTIVE PLAN. In July 1998, the Board adopted, subject to
stockholder approval the Equity Incentive Plan and reserved 4,500,000 shares
for issuance thereunder. The Equity Incentive Plan will become effective on the
Effective Date and will serve as the successor to the 1996 Plan and the 1997
Plan (the "Prior Plans"). Options granted under the Prior Plans before their
termination will remain outstanding according to their terms, but no further
options will be granted under the Prior Plans after the Effective Date. Shares
that: (a) are subject to issuance upon exercise of an option granted under the
Equity Incentive Plan that cease to be subject to such option for any reason
other than exercise of such option; (b) have been issued pursuant to the
exercise of an option granted under the Equity Incentive Plan that are
subsequently forfeited or repurchased by the Company at the original purchase
price; (c) are subject to an award granted pursuant to a restricted stock
purchase agreement under the Equity Incentive Plan that are subsequently
forfeited or repurchased by the Company at the original issue price; or (d) are
subject to stock bonuses granted under the Equity Incentive Plan that otherwise
terminate without shares being issued, will again be available for grant and
issuance under the Equity Incentive Plan. In addition, any authorized shares
not issued or subject to outstanding grants under the Prior Plans on the
Effective Date and any shares issued under the Prior Plans that are forfeited
or repurchased by the Company or that are issuable upon exercise of options
granted pursuant to the Prior Plans that expire or become unexercisable for any
reason without having been exercised in full, will no longer be available for
grant and issuance under the Prior Plans but will be available for grant and
issuance under the Equity Incentive Plan. The Equity Incentive Plan will
terminate in July 2008, unless sooner terminated in accordance with the terms
of the Equity Incentive Plan. The Equity Incentive Plan authorizes the award of
options, restricted stock awards and stock bonuses (each an "Award"). No person
will be eligible to receive more than 1,000,000 shares in any calendar year
pursuant to Awards under the Equity Incentive Plan other than a new employee of
the Company who will be eligible to receive no more than 2,000,000 shares in
the calendar year in which such employee commences employment. The Equity
Incentive Plan is administered by the Compensation Committee, which currently
consists of Messrs. Kagel and Schultz, both of whom are "non-employee
directors" under applicable federal securities laws and "outside directors" as
defined under applicable federal tax laws. The committee has the authority to
construe and interpret the Equity Incentive Plan and any agreement made
thereunder, grant Awards and make all other determinations necessary or
advisable for the administration of the Equity Incentive Plan.
The Equity Incentive Plan provides for the grant of both incentive stock
options ("ISOs") that qualify under Section 422 of the Internal Revenue Code of
1986, as amended (the "Code"), and nonqualified stock options ("NQSOs"). ISOs
may be granted only to employees of the Company or of a parent or subsidiary of
the Company. NQSOs (and all other Awards other than ISOs) may be granted to
employees, officers, directors, consultants, independent contractors and
advisors of the Company or any parent or subsidiary of the Company, provided
such consultants, independent contractors and advisors render bona fide
services not in connection with the offer and sale of securities in a capital-
raising transaction ("Eligible Service Providers"). The exercise price of ISOs
must be at least equal to the fair market value of the Company's Common Stock
on the date of grant. (The exercise price of ISOs granted to 10% stockholders
must be at least equal to 110% of that value.) The exercise price of NQSOs must
be at least equal to 85% of the fair market value of the Company's Common Stock
on the date of grant. The maximum term of options granted under the Equity
Incentive Plan is ten years. Awards granted under the Equity Incentive Plan may
not be transferred in any manner other than by will or by the laws of descent
and distribution and may be exercised during the lifetime of the optionee only
by the optionee (unless otherwise determined by the Compensation Committee and
set forth in
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the Award agreement with respect to Awards that are not ISOs). Options granted
under the Equity Incentive Plan generally expire three months after the
termination of the optionee's service to the Company or a parent or subsidiary
of the Company, except in the case of death or disability, in which case the
options generally may be exercised up to 12 months following the date of death
or termination of service. Options will generally terminate immediately upon
termination for cause. In the event of the Company's dissolution or liquidation
or a "change in control" transaction, outstanding Awards may be assumed or
substituted by the successor corporation (if any). In the discretion of the
Compensation Committee the vesting of such Awards may accelerate upon such
transaction.
1998 EMPLOYEE STOCK PURCHASE PLAN. In July 1998, the Board adopted, subject
to stockholder approval, the Purchase Plan and reserved a total of 300,000
shares of the Company's Common Stock for issuance thereunder. On each January
1, the aggregate number of shares reserved for issuance under the Purchase Plan
shall be increased automatically by the number of shares purchased under the
Purchase Plan in the preceding calendar year. The aggregate number of shares
reserved for issuance under the Purchase Plan shall not exceed 1,500,000
shares. The Purchase Plan will be administered by the Compensation Committee of
the Board. The Compensation Committee will have the authority to construe and
interpret the Purchase Plan and its decision in such capacity will be final and
binding. The Purchase Plan will become effective on the first business day on
which price quotations for the Company's Common Stock are available on the
Nasdaq National Market. Employees generally will be eligible to participate in
the Purchase Plan if they are customarily employed by the Company (or its
parent or any subsidiaries that the Company designates) for more than 20 hours
per week and more than five months in a calendar year and are not (and would
not become as a result of being granted a right to participate in the Purchase
Plan) 5% stockholders of the Company (or its designated parent or
subsidiaries). Under the Purchase Plan, eligible employees will be permitted to
acquire shares of the Company's Common Stock through payroll deductions.
Eligible employees may select a rate of payroll deduction between 2% and 10% of
their W-2 cash compensation and are subject to certain maximum purchase
limitations described in the Purchase Plan. A participant may change the rate
of payroll deductions or withdraw from an Offering Period by notifying the
Company in writing. Participation in the Purchase Plan will end automatically
upon termination of employment for any reason. Each Offering Period under the
Purchase Plan will be for two years and consist of four six-month Purchase
Periods. The first Offering Period is expected to begin on the first business
day on which price quotations for the Company's Common Stock are available on
the Nasdaq National Market. Depending on the Effective Date, the first Purchase
Period may be more or less than six months long. Offering Periods and Purchase
Periods thereafter will begin on May 1 and November 1. The purchase price for
the Company's Common Stock purchased under the Purchase Plan is 85% of the
lesser of the fair market value of the Company's Common Stock on the first day
of the applicable Offering Period or the last day of each Purchase Period. The
Compensation Committee will have the power to change the duration of Offering
Periods without stockholder approval, if such change is announced at least 15
days prior to the beginning of the Offering Period to be affected. The Purchase
Plan is intended to qualify as an "employee stock purchase plan" under Section
423 of the Code. Rights granted under the Purchase Plan will not be
transferable by a participant other than by will or the laws of descent and
distribution. The Purchase Plan will provide that, in the event of the proposed
dissolution or liquidation of the Company, each Offering Period that commenced
prior to the closing of such proposed transaction shall continue for the
duration of such Offering Period, provided that the Compensation Committee may
fix a different date for termination of the Purchase Plan. The Purchase Plan
will terminate in July 2008, unless earlier terminated pursuant to the terms of
the Purchase Plan. The Board will have the authority to amend, terminate or
extend the term of the Purchase Plan, except that no such action may adversely
affect any outstanding options previously granted under the Purchase Plan and
stockholder approval is required to increase the number of shares that may be
issued or to change the terms of eligibility under the Purchase Plan.
Notwithstanding the foregoing, the Board may make such amendments to the
Purchase Plan as the Board determines to be advisable if the financial
accounting treatment for the
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<PAGE>
Purchase Plan is different than the financial accounting treatment in effect on
the date the Purchase Plan was adopted by the Board.
401(k) Plan. The Company sponsors the eBay, Inc. 401(k) Savings Plan (the
"401(k) Plan"), a defined contribution plan intended to qualify under Section
401 of the Internal Revenue Code of 1986, as amended. All employees who are 21
years old are eligible to participate and may enter the 401(k) Plan as of the
first day of any month ("Participants"). Participants may make pre-tax
contributions to the 401(k) Plan of up to 25% of their eligible earnings,
subject to a statutorily prescribed annual limit. The Company may make matching
contributions on a discretionary basis to the 401(k) Plan. Each Participant is
fully vested in his or her contributions, any Company matching contributions,
and the investment earnings thereon. Contributions by the participants or the
Company to the 401(k) Plan, and the income earned on such contributions, are
generally not taxable to the participants until withdrawn. Contributions by the
Company, if any, are generally deductible by the Company when made. Participant
and Company contributions are held in trust as required by law. Individual
Participants may direct the trustee to invest their accounts in authorized
investment alternatives. The Company has made no matching contributions to the
401(k) Plan as of June 30, 1998.
COMPENSATION ARRANGEMENTS
Ms. Whitman's employment offer letter provides for an initial annual base
salary of $175,000 and an initial bonus of up to $100,000. It also provides
that in the event Ms. Whitman's employment is terminated for other than cause,
she will continue to receive her salary compensation for six months and, if at
the end of such period Ms. Whitman remains unemployed, she will be eligible to
receive additional salary compensation for the lesser of six months or until
she becomes employed. Ms. Whitman was also granted an immediately exercisable
option to purchase 2,400,000 shares of Common Stock. As described under
"Certain Transactions," Ms. Whitman exercised this option. The shares issued to
her remain subject to the Company's right to repurchase "unvested" shares upon
the termination of her employment. This right to repurchase has lapsed with
respect to 30,000 shares, will lapse with respect to 570,000 shares on February
14, 1999 and will lapse with respect to a number of shares equal to one forty-
eighth of the total shares granted at the end of each month thereafter;
provided, however, that if Ms. Whitman's employment with the Company is
terminated by the Company without cause prior to February 14, 1999, such
repurchase rights will lapse at a rate of one forty-eighth of the total shares
originally subject to the option at the end of each full month following
February 14, 1998.
Mr. Bengier's employment offer letter provides for an initial annual base
salary of $125,000. Mr. Bengier was also granted an immediately exercisable
option to purchase 525,000 shares of Common Stock, which he exercised in full
in January 1998. The shares are subject to the Company's right to repurchase
unvested shares upon termination of employment, which right lapses at a rate of
25% of the shares on the first anniversary of his employment and one forty-
eighth of the total shares at the end of each month thereafter. Upon the
occurrence of certain change-in-control transactions during Mr. Bengier's first
year of employment, such repurchase rights will lapse at the rate of one forty-
eighth of the total shares originally subject to the option at the end of each
full month following the date of grant.
Mr. Westly's employment offer letter provides for an initial annual base
salary of $120,000 and a $25,000 signing bonus. Mr. Westly was also granted
immediately exercisable options to purchase 828,000 shares of Common Stock
which he exercised in full in January, May and June 1998 subject to the
Company's right to repurchase unvested shares upon termination of employment,
which lapses at a rate of 25% of the shares originally subject to the option on
the first anniversary of his employment and one forty-eighth of the shares
originally subject to the option at the end of each month thereafter; provided,
however, that in the event Mr. Westly's employment is terminated by the Company
without cause during his first year of employment then one forty-eighth of the
total shares subject to the option will vest at the end of each full month
following the date of grant. During his first year of employment,
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<PAGE>
Mr. Westly received an additional $30,000 bonus and was granted an option to
purchase an additional 36,000 shares of Common Stock.
Mr. Wilson's employment offer letter provides for an initial annual base
salary of $78,000. Mr. Wilson was also granted an immediately exercisable
option to purchase 600,000 shares of Common Stock which he exercised in full
in January 1998 subject to the Company's right to repurchase unvested shares
upon termination of employment, which lapses at a rate of 25% of the shares on
the first anniversary of his employment and one forty-eighth of the total
shares at the end of each month thereafter.
Mr. Skoll's employment offer letter of October 16, 1996 provided for an
initial annual salary of $30,000 and a 30-day right to purchase the shares of
Common Stock which he currently owns subject to the Company's right of
repurchase through June 30, 2000. The right of repurchase lapses with respect
to seven forty-eighths of the total shares purchased on February 1, 1997 and
with respect to an additional one forty-eighth of the shares on the first day
of each month thereafter. In the event of an acquisition of the Company or
other similar transaction, the right of repurchase will expire with respect to
all of the shares subject to the Company's right of repurchase.
INDEMNIFICATION OF DIRECTORS AND EXECUTIVE OFFICERS AND LIMITATION OF
LIABILITY
As permitted by the Delaware General Corporation Law (the "DGCL"), the
Company's Amended and Restated Certificate of Incorporation, which will become
effective upon the closing of this offering, includes a provision that
eliminates the personal liability of its directors for monetary damages for
breach of fiduciary duty as a director, except for liability (i) for any
breach of the director's duty of loyalty to the Company or its stockholders,
(ii) for acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law, (iii) under section 174 of the DGCL
(regarding unlawful dividends and stock purchases) or (iv) for any transaction
from which the director derived an improper personal benefit.
As permitted by the DGCL, the Company's Amended and Restated Bylaws, which
will become effective upon the completion of this offering, provide that (i)
the Company is required to indemnify its directors and officers to the fullest
extent permitted by the DGCL, subject to certain very limited exceptions, (ii)
the Company may indemnify its other employees and agents to the extent that it
indemnifies its officers and directors, unless otherwise required by law, its
Amended and Restated Certificate of Incorporation, its Amended and Restated
Bylaws or agreements, (iii) the Company is required to advance expenses, as
incurred, to its directors and executive officers in connection with a legal
proceeding to the fullest extent permitted by the DGCL, subject to certain
very limited exceptions and (iv) the rights conferred in the Amended and
Restated Bylaws are not exclusive.
Prior to the completion of this offering, the Company intends to enter into
Indemnification Agreements with each of its current directors and officers to
give such directors and officers additional contractual assurances regarding
the scope of the indemnification set forth in the Company's Amended and
Restated Certificate of Incorporation and Amended and Restated Bylaws and to
provide additional procedural protections. At present, there is no pending
litigation or proceeding involving a director, officer or employee of the
Company regarding which indemnification is sought, nor is the Company aware of
any threatened litigation that may result in claims for indemnification.
The Registrant, with approval by the Registrant's Board of Directors,
expects to obtain directors' and officers' liability insurance.
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CERTAIN TRANSACTIONS
Since inception (May 13, 1996), there has not been, nor is there currently
proposed, any transaction or series of similar transactions to which the
Company was or is to be a party in which the amount involved exceeds $60,000
and in which any director, executive officer or holder of more than 5% of the
Common Stock of the Company had or will have a direct or indirect interest
other than (i) compensation arrangements, which are described where required
under "Management" and (ii) the transactions described below.
For clarity of presentation, share numbers and per share prices for the
transactions described below are for a three-for-one stock split of both Common
and Preferred Stock to be effected prior to the effective date of the
Registration Statement of which this Prospectus forms a part. Although not
actually split, each share of Preferred Stock will automatically convert into
three shares of Common Stock upon the closing of this offering.
Common Stock at Formation. Pursuant to a Stock Purchase and Restriction
Agreement dated May 20, 1996, the Company sold an aggregate of 14,700,000
shares of Common Stock to Pierre Omidyar, the Company's founder. Mr. Omidyar
has served as a director of the Company since its inception and was the
Company's Chief Executive Officer from its inception until February 1998. In
consideration for the shares issued, Mr. Omidyar transferred to the Company
certain assets valued at $14,262. Of these shares, 4,500,000 were subsequently
exchanged for shares of the Company's Series A Preferred Stock as discussed
below.
All of Mr. Omidyar's remaining 10,200,000 shares of Common Stock are subject
to a Stock Restriction Agreement dated December 12, 1996 between Mr. Omidyar
and the Company ("Stock Restriction Agreement") and a Stock Restriction and Co-
Sale Agreement dated as of June 20, 1997 between Benchmark Capital Partners,
L.P. and Benchmark Founders' Fund, L.P. (collectively, the "Investors"), Pierre
Omidyar and Jeffrey Skoll (collectively, the "Founders") and the Company (the
"Co-Sale Agreement"). Under the Stock Restriction Agreement, all of the
10,200,000 shares of Common Stock are subject to the Company's right to
repurchase unvested shares if Mr. Omidyar's employment terminates. The
10,200,000 shares vested as to 3,612,501 shares on February 1, 1997 and vest as
to 212,499.99 shares on the first day of each month thereafter through the
close of business on September 1, 1999, at which time all of the shares will be
vested. The vesting of shares accelerates such that any unvested shares become
fully vested in the event of a sale of the Company, which includes a sale,
lease or disposition of substantially all of the Company's assets, any merger
or consolidation of the Company into another entity, or any other corporate
reorganization where the stockholders immediately prior to such event do not
retain at least 50% of the voting power of and interest in the successor entity
or any transaction or series of related transactions in which more than 50% of
the Company's voting power is transferred ("Sale of the Company"). In addition
to the foregoing, under the Co-Sale Agreement, the vesting of shares will
accelerate upon termination of employment, such that immediately prior to such
termination an additional 1,275,000 shares will become vested and not subject
to repurchase by the Company. See "Principal and Selling Stockholders."
Series A Preferred Stock and Recapitalization. In December 1996, the Company
created a class of Preferred Stock and designated 4,500,000 shares of such
Preferred Stock as Series A Preferred Stock, all of which stock the Company
issued to Pierre Omidyar in exchange for 4,500,000 shares of his Common Stock.
In June 1997, pursuant to an Anti-Dilution Agreement dated December 30, 1996
between the Company, Pierre Omidyar and Jeffrey Skoll, Mr. Omidyar's Series A
Preferred Stock holdings were increased to 5,029,425.
In December 1996, pursuant to a Restricted Stock Purchase Agreement dated
December 12, 1996 between the Company and Jeffrey Skoll ("Restricted Stock
Agreement"), the Company sold
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<PAGE>
10,200,000 shares of its Common Stock to Mr. Skoll at a purchase price of
$0.0066 per share or an aggregate of $68,000, which price was determined by the
Board to be the fair market value of the Common Stock. Mr. Skoll, the first
full-time employee of the Company and its President from August 1996 to
February 1998, has served as the Company's Vice President Strategic Planning
and Analysis since February 1998. Mr. Skoll acquired the shares of Common Stock
with the proceeds from a full recourse loan governed by the Loan and Pledge
Agreement between Mr. Skoll and the Company. Under such agreement, Mr. Skoll
must repay the entire principal of the loan by December 31, 2002 and pay
interest, which accrues at the rate of 6% per year, simple interest, on the
first anniversary of the exercise date and on each subsequent anniversary until
all principal and accrued interest is paid in full.
All of Mr. Skoll's 10,200,000 shares of Common Stock are subject to the
Restricted Stock Agreement. Under the Restricted Stock Agreement, Mr. Skoll's
shares of Common Stock are subject to the Company's right to repurchase
unvested shares if his employment terminates. The 10,200,000 shares vested as
to 1,487,499 shares on February 1, 1997 and vest as to 212,499.99 shares on the
first day of each month thereafter through the close of business on June 30,
2000, at which time all of the shares will be vested. The vesting of shares
accelerates such that any unvested shares become fully vested in the event of a
Sale of the Company. In addition to the foregoing, under the Co-Sale Agreement,
the vesting of shares will accelerate upon termination of employment, such that
immediately prior to such termination an additional 1,275,000 shares will
become vested and not subject to repurchase by the Company. See "Principal and
Selling Stockholders."
Series B Preferred Stock. In June 1997, the Company sold an aggregate of
2,632,122 shares and 367,878 shares of Series B Preferred Stock at a purchase
price of $1.00 per share and issued warrants to purchase 1,052,850 and 147,150
shares of Series B Preferred Stock at an exercise price of $1.66 per share to
Benchmark Capital Partners, L.P. and Benchmark Founders' Fund, L.P.,
respectively, for an aggregate purchase price of $3,000,000, which amount was
paid in cash. The warrants were exercised in May 1998. Benchmark Capital
Partners, L.P. and Benchmark Founders' Fund, L.P. each exercised all of their
warrants to purchase Series B Preferred Stock in May 1998 for an aggregate
purchase price of $2,000,000, the entire amount of which was paid in cash. See
"Principal and Selling Stockholders."
Investor Rights Agreement. In June 1997, the Company, the Investors and the
Founders entered into an Investor Rights Agreement under which the Investors
and Founders have certain registration rights with respect to their shares of
Common Stock following this offering. See "Description of Capital Stock--
Registration Rights."
Officer Loans. In December 1996, as discussed above, Jeffrey Skoll purchased
10,200,000 shares of the Company's Common Stock for $68,000 under the terms of
a Loan and Pledge Agreement effective as of December 1996 between Mr. Skoll and
the Company.
From January 1998 through June 1998, in connection with the exercise of stock
options granted under the 1996 Plan and the 1997 Plan, the Company permitted
Margaret C. Whitman, the Company's President and Chief Executive Officer since
February 1998 to purchase 2,400,000 shares of Common Stock in exchange for a
$60,000 cash payment, a $180,000 Secured Full Recourse Promissory Note dated
February 3, 1998 and a $240,000 Secured Non-Recourse Promissory Note dated
February 3, 1998; Steven P. Westly, the Company's Vice President Marketing and
Business Development since August 1997, to purchase 828,000 shares of Common
Stock in exchange for cash payments totaling $17,920 and Secured Full Recourse
Promissory Notes dated January 27, 1998, May 21, 1998, May 26, 1998 and June
26, 1998 in the amounts of $71,280, $16,200, $7,200 and $50,400, respectively;
Michael K. Wilson, the Company's Vice President Product Development and Site
Operations since January 1997, to purchase 600,000 shares of Common Stock in
exchange for a $1,000 cash payment and a Secured Full Recourse Promissory Note
dated January 28, 1998 in the amount of $9,000 and
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Gary F. Bengier, the Company's Chief Financial Officer and Vice President
Operations since November 1997, to purchase 525,000 shares of Common Stock in
exchange for a $5,250 cash payment and a Secured Full Recourse Promissory Note
dated January 26, 1998 in the amount of $47,250. Each note is secured by the
Common Stock purchased with the note except for Ms. Whitman's notes which are
each secured by all the shares purchased with both the full recourse and the
non-recourse notes. Each note bears interest at the rate of 8%, compounded
semi-annually. Interest on the unpaid principal is due on December 1 of each
year and the principal balance is due in full on December 1, 2002. See
"Principal and Selling Stockholders."
eBay Foundation. In June 1998, the Company established a fund known as the
eBay Foundation, which is administered by the Community Foundation Silicon
Valley, and donated 107,250 shares of Common Stock to the Community Foundation
Silicon Valley on behalf of the eBay Foundation. The Community Foundation
Silicon Valley is selling 10,725 shares of Common Stock in this offering on
behalf of the eBay Foundation.
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PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information known to the Company with
respect to beneficial ownership of the Company's Common Stock as of June 30,
1998 by (i) each stockholder known by the Company to be the beneficial owner
of more than 5% of the Company's Common Stock, (ii) each director of the
Company, (iii) the Named Executive Officer, (iv) all executive officers and
directors as a group and (v) the Selling Stockholder.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY
SHARES BENEFICIALLY OWNED
OWNED PRIOR TO OFFERING(1) NUMBER OF AFTER OFFERING(1)
------------------------------ SHARES ---------------------
NAME OF BENEFICIAL OWNER NUMBER PERCENT BEING OFFERED NUMBER PERCENT(2)
- ------------------------ ---------------- ------------- ------------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Pierre M. Omidyar(3).... 15,229,425 42.0% -- 15,229,425
Jeffrey S. Skoll(4)..... 10,200,000 28.1 -- 10,200,000
Robert C. Kagle
Benchmark Funds(5)..... 8,791,836 21.5 -- 8,791,836
Margaret C. Whitman(6).. 2,400,000 6.6 -- 2,400,000
Scott D. Cook(7)........ 257,250 * -- 257,250
Howard D. Schultz(8).... 257,250 * -- 257,250
Community Foundation
Silicon Valley(9)...... 107,250 * 10,725 96,525
All directors and
executive officers as a
group (9 persons)(10).. 39,388,761 95.7 -- 39,388,761
</TABLE>
- --------
* Represents beneficial ownership of less than 1%.
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or
investment power with respect to securities. Unless otherwise indicated
below, the persons and entities named in the table have sole voting and
sole investment power with respect to all shares beneficially owned,
subject to community property laws where applicable. Shares of Common
Stock subject to options that are currently exercisable or exercisable
within 60 days of June 30, 1998 are deemed to be outstanding and to be
beneficially owned by the person holding such options for the purpose of
computing the percentage ownership of such person but are not treated as
outstanding for the purpose of computing the percentage ownership of any
other person.
(2) Assumes that the Underwriters' over-allotment option to purchase up to
shares from the Company is not exercised.
(3) Mr. Omidyar is the Founder and Chairman of the Board of the Company.
Included in the number of shares he beneficially owns are an aggregate of
2,295,918 shares held of record ("Omidyar Pledged Shares"), 2,014,378.5
shares of which are pledged to Benchmark Capital Partners, L.P. and
281,539.5 shares of which are pledged to Benchmark Founders Fund, L.P.,
to secure a $749,999.88 full recourse loan made to Mr. Omidyar pursuant
to the Loan and Pledge Agreement dated June 27, 1997. All of the Omidyar
Pledged Shares are also subject to an immediately exercisable call option
pursuant to the Call Option Agreement dated June 27, 1997 among the
Benchmark Funds and Mr. Omidyar and are covered by a put option pursuant
to the Put Option Agreement dated June 27, 1997 among the same parties.
Also included in the number of shares Mr. Omidyar beneficially owns are
(i) approximately 3,187,500 shares that were unvested as of June 30, 1998
and subject to the Company's right of repurchase at $.0066 per share,
(ii) 150,000 shares held of record by The Cyrus Omidyar Income Trust
dated May 4, 1998 and (iii) 150,000 shares held of record by The Elahe
Mir-Djalali Income Trust dated May 4, 1998. See "Certain Transactions"
and "Description of Capital Stock." The address for Mr. Omidyar is 2005
Hamilton Avenue, Suite 350, San Jose, California 95125.
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<PAGE>
(4) Mr. Skoll is the Vice President Strategic Planning and Analysis of the
Company. Included in the number of shares he beneficially owns are an
aggregate of 2,295,918 shares held of record ("Skoll Pledged Shares"),
2,014,378.5 shares of which are pledged to Benchmark Capital Partners,
L.P. and 281,539.5 shares of which are pledged to Benchmark Founders
Fund, L.P. to secure a $749,999.88 full recourse loan made to Mr. Skoll
pursuant to the Loan and Pledge Agreement dated June 27, 1997. All of the
Skoll Pledged Shares are also subject to an immediately exercisable call
option pursuant to the Call Option Agreement dated June 27, 1997 among
the Benchmark Funds and Mr. Skoll and are covered by a put option
pursuant to the Put Option Agreement dated June 27, 1997 among the same
parties. Also included in the number of shares Mr. Skoll beneficially
owns are (i) approximately 5,312,502 shares that were unvested as of June
30, 1998 and subject to the Company's right of repurchase at their
original issue price of $0.0066 per share and (ii) 60,000 shares held of
record by The Skoll Family 1998 Trust. See "Certain Transactions" and
"Description of Capital Stock." The address for Mr. Skoll is 2005
Hamilton Avenue, Suite 350, San Jose, California 95125.
(5) Represents 3,684,972 shares held of record and 4,028,757 shares held
beneficially by Benchmark Capital Partners, L.P. and 515,028 shares held
of record and 563,079 shares held beneficially by Benchmark Founders'
Fund, L.P. (collectively, the "Benchmark Funds"). Of the shares held
beneficially by the Benchmark Funds, 4,591,836 of such shares are also
included in the above table as shares held of record by Pierre Omidyar
and Jeffrey Skoll. Messers. Omidyar and Skoll pledged such shares to
secure full recourse loans obtained from the Benchmark Funds pursuant to
separate Loan and Pledge Agreements each dated June 27, 1997 between the
Benchmark Funds and each Founder individually. Such shares are also
covered by put options and immediately exercisable call options pursuant
to Put Option Agreements and Call Option Agreements, each of which is
dated June 27, 1997, between the Benchmark Funds and each Founder
individually. See "Description of Capital Stock." Mr. Kagle, a director
of the Company, is a Member of Benchmark Capital Management Co., L.L.C.,
which is the General Partner of Benchmark Capital Partners, L.P. and
Benchmark Founders' Fund, L.P. Mr. Kagle disclaims beneficial ownership
of shares held by such entities except for his proportional interest
therein. The address for Mr. Kagle and these entities is c/o Benchmark
Capital Management Co., L.L.C., 2480 Sand Hill Road, Suite 200, Menlo
Park, California 94025.
(6) Ms. Whitman is the President and Chief Executive Officer of the Company.
All of the shares owned by Ms. Whitman are unvested as of June 30, 1998
and subject to the Company's right of repurchase at their original issue
price of $0.20 per share. Includes 27,000 shares held by eight relatives
of Ms. Whitman. The address for Ms. Whitman is 2005 Hamilton Avenue,
Suite 350, San Jose, California 95125.
(7) Includes 150,000 shares which are unvested as of June 30, 1998 and
subject to the Company's right of repurchase at their original issue
price of $9.33 per share. See "Management-Director Compensation."
(8) Includes 107,250 shares held of record by Maveron. Also includes 150,000
shares issued to Mr. Schultz upon exercise of an option that were
unvested as of June 30, 1998 and subject to the Company's right of
repurchase at their original issue price of $9.33 per share. Of these
150,000 unvested shares, Mr. Schultz has transferred 112,500 shares to
Maveron. See "Management--Director Compensation."
(9) In June 1998, the Company established a fund known as the eBay
Foundation, which is administered by the Community Foundation Silicon
Valley, and to capitalize this foundation, donated 107,250 shares of
Common Stock to the Community Foundation Silicon Valley. The Community
Foundation Silicon Valley is selling 10,725 shares of Common Stock in
this offering.
(10) Includes 300,000 shares subject to immediately exercisable options
outstanding as of June 30,
1998 and 1,953,000 unvested shares as of June 30, 1998 subject to the
Company's right of repurchase at such shares' original issue price held
by three executive officers not named in this table.
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DESCRIPTION OF CAPITAL STOCK
Immediately following the closing of this offering, the authorized capital
stock of the Company will consist of 200,000,000 shares of Common Stock, $0.001
par value per share, and 5,000,000 shares of Preferred Stock, $0.001 par value
per share. As of June 30, 1998, and assuming the conversion of all outstanding
Preferred Stock into Common Stock upon the closing of this offering, there were
outstanding 36,249,801 shares of Common Stock held of record by 67 stockholders
and options to purchase 1,071,159 shares of Common Stock.
COMMON STOCK
Subject to preferences that may apply to shares of Preferred Stock
outstanding at the time, the holders of outstanding shares of Common Stock are
entitled to receive dividends out of assets legally available therefor at such
times and in such amounts as the Board of Directors may from time to time
determine. Each stockholder is entitled to one vote for each share of Common
Stock held on all matters submitted to a vote of stockholders. Cumulative
voting for the election of directors is not provided for in the Company's
Certificate of Incorporation, which means that the holders of a majority of the
shares voted can elect all of the directors then standing for election. The
Common Stock is not entitled to preemptive rights and is not subject to
conversion or redemption. Upon a liquidation, dissolution or winding-up of the
Company, the assets legally available for distribution to stockholders are
distributable ratably among the holders of the Common Stock and any
participating Preferred Stock outstanding at that time after payment of
liquidation preferences, if any, on any outstanding Preferred Stock and payment
of other claims of creditors. Each outstanding share of Common Stock is, and
all shares of Common Stock to be outstanding upon completion of this offering
will be, fully paid and nonassessable.
PREFERRED STOCK
Upon the closing of this offering, each outstanding share of Preferred Stock
(the "Convertible Preferred" ) will be converted into shares of Common Stock.
See Note 8 of Notes to Consolidated Financial Statements for a description of
the Convertible Preferred. Following the offering, the Company will be
authorized, subject to limitations prescribed by Delaware law, to provide for
the issuance of Preferred Stock in one or more series, to establish from time
to time the number of shares to be included in each such series, to fix the
rights, preferences and privileges of the shares of each wholly unissued series
and any qualifications, limitations or restrictions thereon, and to increase or
decrease the number of shares of any such series (but not below the number of
shares of such series then outstanding) without any further vote or action by
the stockholders. The Board may authorize the issuance of Preferred Stock with
voting or conversion rights that could adversely affect the voting power or
other rights of the holders of the Common Stock. The issuance of Preferred
Stock, while providing flexibility in connection with possible acquisitions and
other corporate purposes, could, among other things, have the effect of
delaying, deferring or preventing a change in control of the Company and may
adversely affect the market price of the Common Stock and the voting and other
rights of the holders of Common Stock. The Company has no current plans to
issue any shares of Preferred Stock.
REGISTRATION RIGHTS
Pursuant to an Investor Rights Agreement dated June 20, 1997 between the
Company, the Founders and the Investors (the "Rights Agreement"), the
Investors, holding an aggregate of 4,200,000 shares of Common Stock of the
Company issuable upon conversion of the Series B Preferred Stock, and the
Founders, holding an aggregate of 25,429,425 shares of Common Stock of the
Company, 5,029,425 shares of which are issuable upon conversion of the Series A
Preferred Stock, (collectively the "Registrable Securities"), have certain
registration rights for the Registrable
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<PAGE>
Securities at any time after six months following the closing of this offering.
Under the Rights Agreement, the Investors, by written request of at least two-
thirds of the holders of the Investors' Registrable Securities then
outstanding, may demand that the Company file a registration statement under
the Securities Act covering all or a portion of the Investors' Registrable
Securities, provided that, in the case of a registration on a form other than a
Form S-3, the offering is for at least 50% of the then outstanding Investors'
Registrable Securities, or in the case of a registration on a Form S-3, there
is a reasonably anticipated aggregate offering price to the public of at least
$1,000,000. The Investors have the right to demand two registrations on a form
other than Form S-3 and not more than one Form S-3 registration in any six-
month period. These registration rights are subject to the Company's right to
delay the filing of a registration statement, not more than once in a 12-month
period, for not more than 90 days, in the case of a registration on a form
other than a Form S-3, and 60 days, in the case of a registration on a Form S-
3, after receiving the registration demand.
In addition, the Investors and Founders have certain "piggyback" registration
rights. If the Company proposes to register any of its Common Stock under the
Securities Act (other than pursuant to the Investors' demand registration
rights noted above), the Investors or Founders may require the Company to
include all or a portion of their Registrable Securities in such registration;
provided, however, that the managing underwriter, if any, of any such offering
has certain rights to limit the number of, or in the case of the Company's
initial public offering, to exclude all or a portion of the Registrable
Securities proposed to be included in such registration.
All registration expenses incurred in connection with the above registrations
will be borne by the Company. The selling Investor or Founder pays all
underwriting discounts, selling commissions and stock transfer taxes applicable
to the sale of his or its Registrable Securities.
Demand and piggyback registration rights under the Rights Agreement terminate
with respect to each Investor or Founder, as applicable, seven years after the
closing date of this offering; provided, however, that each Investor's and
Founder's rights under the Rights Agreement will terminate earlier when such
Investor or Founder may sell all its shares in a three-month period under Rule
144 of the Securities Act.
PUT/CALL OPTIONS ON COMMON STOCK
In June 1997, each Founder entered into a separate Loan and Pledge Agreement
dated June 27, 1997 with the Investors under which each Founder obtained a full
recourse loan of $749,999.88, of which $658,030.39 was made by Benchmark
Capital Partners, L.P. and $91,969.49 was made by Benchmark Founders Fund, L.P.
Each Founder secured his loan with a pledge of 2,295,918 shares of Common Stock
for an aggregate of 4,591,836 shares, of which 4,028,757 shares were pledged to
Benchmark Capital Partners, L.P. and 563,079 shares were pledged to Benchmark
Founders Fund, and a security interest in such Founder's rights under the Put
Option Agreement and the Call Option Agreement each dated June 27, 1997 among
the Investors and each Founder individually. The loans are due June 27, 2002
and bear interest, compounded annually, at a rate of 7% per annum.
Under each Call Option Agreement, each Founder granted the Investors an
option to call all of the shares covered by each option at any time from the
date of the agreement up to June 27, 2001 at an exercise price equal to an
aggregate of $749,999.88 together with the aggregate amount of interest accrued
through the date of exercise under the applicable Loan and Pledge Agreement of
even date. Under each Put Option Agreement, the Investors granted to each
Founder an option to put all of the shares covered by each option to the
Investors at any time during the six month period that follows the four year
and six month "blackout period" commencing on the date of the agreement.
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ANTI-TAKEOVER PROVISIONS
Delaware Law
Upon the closing of this offering, the Company will be subject to the
provisions of Section 203 of the Delaware General Corporation Law (the "Anti-
Takeover Law") regulating corporate takeovers. The Anti-Takeover Law prevents
certain Delaware corporations, including those whose securities are listed on
the Nasdaq National Market, from engaging, under certain circumstances, in a
"business combination" (which includes a merger or sale of more than 10% of the
corporation's assets) with any "interested stockholder" (a stockholder who owns
15% or more of the corporation's outstanding voting stock, as well as
affiliates and associates of any such persons) for three years following the
date that such stockholder became an "interested stockholder" unless (i) the
transaction is approved by the Board of Directors prior to the date the
"interested stockholder" attained such status, (ii) upon consummation of the
transaction that resulted in the stockholder's becoming an "interested
stockholder," the "interested stockholder" owned at least 85% of the voting
stock of the corporation outstanding at the time the transaction commenced
(excluding those shares owned by (a) persons who are directors and also
officers and (b) employee stock plans in which employee participants do not
have the right to determine confidentially whether shares held subject to the
plan will be tendered in a tender or exchange offer), or (iii) on or subsequent
to such date the "business combination" is approved by the Board of Directors
and authorized at an annual or special meeting of stockholders by the
affirmative vote of at least two-thirds of the outstanding voting stock that is
not owned by the "interested stockholder." A Delaware corporation may "opt out"
of the Anti-Takeover Law with an express provision in its original certificate
of incorporation or an express provision in its certificate or incorporation or
bylaws resulting from a stockholders' amendment approved by at least a majority
of the outstanding voting shares. The Company has not "opted out" of the
provisions of the Anti-Takeover Law. The statute could prohibit or delay
mergers or other takeover or change-in-control attempts with respect to the
Company and, accordingly, may discourage attempts to acquire the Company.
Charter and Bylaw Provisions
The Company's Amended and Restated Bylaws, which will be in effect upon the
completion of this offering, will provide for the division of the Board into
three classes as nearly equal in size as possible with staggered three-year
terms. The classification of the Board could have the effect of making it more
difficult for a third party to acquire, or of discouraging a third party from
acquiring, control of the Company. In addition, the Amended and Restated Bylaws
will provide that any action required or permitted to be taken by the
stockholders of the Company at an annual meeting or a special meeting of the
stockholders may only be taken if it is properly brought before such meeting
and may not be taken by written action in lieu of a meeting. The Amended and
Restated Bylaws will provide that special meetings of the stockholders may only
be called by the Chairman of the Board, the Chief Executive Officer or, if
none, the President of the Company or by the Board.
The Company's Amended and Restated Certificate of Incorporation and its
Amended and Restated Bylaws will provide that the Company will indemnify
officers and directors against losses that they may incur in investigations and
legal proceedings resulting from their services to the Company, which may
include services in connection with takeover defense measures. Such provisions
may have the effect of preventing changes in the management of the Company.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Company's Common Stock is
ChaseMellon Shareholder Services L.L.C.
LISTING
The Company has applied to list its Common Stock on the Nasdaq National
Market under the trading symbol "EBAY."
68
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no market for the Common Stock of the
Company, and there can be no assurance that a significant public market for the
Common Stock will develop or be sustained after this offering. Future sales of
substantial amounts of Common Stock (including shares issued upon exercise of
outstanding options) in the public market after this offering could adversely
affect market prices prevailing from time to time and could impair the
Company's ability to raise capital through sale of its equity securities. As
described below, no shares currently outstanding will be available for sale
immediately after this offering due to certain contractual restrictions on
resale. Sales of substantial amounts of Common Stock of the Company in the
public market after the restrictions lapse could adversely affect the
prevailing market price and the ability of the Company to raise equity capital
in the future.
Upon completion of this offering, the Company will have outstanding shares
of Common Stock, assuming no exercise of the Underwriters' over-allotment
option and no exercise of outstanding options. Of these shares, the shares
sold in this offering will be freely tradable without restriction under the
Securities Act unless purchased by "affiliates" of the Company as that term is
defined in Rule 144 under the Securities Act. The remaining shares held by
existing stockholders are subject to lock-up agreements generally providing
that, with certain limited exceptions, the stockholder will not (i) offer to
sell, sell, contract to sell, pledge or otherwise dispose of any shares of
Common Stock owned of record or beneficially prior to the offering or any
securities convertible into or exchangeable for such shares of Common Stock,
(ii) establish a "put equivalent position" with respect to such Common Stock
within the meaning of Rule 16a-1(h) under the Securities Exchange Act of 1934,
as amended, or (iii) publicly announce an intention to take any of the actions
set forth in (i) or (ii) for a period of 120 days following the date of the
final Prospectus for this offering without the prior written consent of Goldman
Sachs & Co. acting alone or each of the above listed representatives acting
together. As a result of these lock-up agreements, notwithstanding possible
earlier eligibility for sale under the provisions of Rules 144, 144(k) and 701,
none of these shares will be saleable until 121 days after the date of the
final Prospectus. Beginning 121 days after the date of the final Prospectus,
23,671,779 of these shares will be eligible for sale in the public market,
although a portion of such shares will be subject to certain volume limitations
pursuant to Rule 144. The remaining Restricted Shares will become eligible for
sale from time to time thereafter upon expiration of applicable holding periods
under Rule 144 under the Securities Act and the Company's right to repurchase
unvested shares. Holders of options to purchase Common Stock of the Company are
also subject to 120-day lock-up agreements.
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this Prospectus, a person (or persons whose shares are aggregated)
who has beneficially owned Restricted Shares for at least one year (including
the holding period of any prior owner except an affiliate) would be entitled to
sell within any three-month period a number of shares that does not exceed the
greater of (i) 1% of the number of shares of Common Stock then outstanding
(which will equal approximately shares immediately after this offering) or
(ii) the average weekly trading volume of the Common Stock during the four
calendar weeks preceding the filing of a Form 144 with respect to such sale.
Sales under Rule 144 are also subject to certain manner of sale provisions and
notice requirements and to the availability of current public information about
the Company. Under Rule 144(k), a person who is not deemed to have been an
affiliate of the Company at any time during the three months preceding a sale,
and who has beneficially owned the shares proposed to be sold for at least two
years (including the holding period of any prior owner except an affiliate), is
entitled to sell such shares without complying with the manner of sale, public
information, volume limitation or notice provisions of Rule 144.
Rule 701 permits resales of shares in reliance upon Rule 144 but without
compliance with certain restrictions, including the holding period requirement,
of Rule 144. Any employee, officer or director of
69
<PAGE>
or consultant to the Company who purchased his or her shares pursuant to a
written compensatory plan or contract may be entitled to rely on the resale
provisions of Rule 701. Rule 701 permits affiliates to sell their Rule 701
shares under Rule 144 without complying with the holding period requirements of
Rule 144. Rule 701 further provides that non-affiliates may sell such shares in
reliance on Rule 144 without having to comply with the holding period, public
information, volume limitation or notice provisions of Rule 144. All holders of
Rule 701 shares are required to wait until 90 days after the date of this
Prospectus before selling such shares. However, all shares issued pursuant to
Rule 701 are subject to lock-up agreements and will only become eligible for
sale at the earlier of the expiration of the 120-day lock-up agreements or no
sooner than 90 days after the offering upon obtaining the prior written consent
of Goldman Sachs & Co. or the representatives of the Underwriters.
Immediately after this offering, the Company intends to file a registration
statement under the Securities Act covering shares of Common Stock subject to
outstanding options under the 1996 Plan or the 1997 Plan or reserved for
issuance under the Equity Incentive Plan, the Directors Plan or the Purchase
Plan. Based on the number of shares subject to outstanding options at June 30,
1998 and currently reserved for issuance under all such plans, such
registration statement would cover approximately 7,032,659 shares. Such
registration statement will automatically become effective upon filing.
Accordingly, shares registered under such registration statement will be
available for sale in the open market immediately after the 120-day lock-up
agreements expire. Also beginning six months after the date of this offering,
certain holders of shares of Common Stock will be entitled to certain rights
with respect to registration of such shares of Common Stock for offer and sale
to the public. See "Description of Capital Stock--Registration Rights."
LEGAL MATTERS
The validity of the issuance of the shares of Common Stock offered hereby
will be passed upon for the Company by Fenwick & West LLP, Palo Alto,
California. Certain legal matters in connection with this offering will be
passed upon for the Underwriters by Shearman & Sterling, San Francisco,
California.
EXPERTS
The financial statements included in this Prospectus have been audited by
PricewaterhouseCoopers LLP independent accountants. The companies and periods
covered by these audits are indicated in the individual reports of
PricewaterhouseCoopers LLP. Such financial statements have been so included in
reliance on the reports of PricewaterhouseCoopers LLP given on the authority of
said firm as experts in auditing and accounting.
70
<PAGE>
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-1 under the Securities Act
with respect to the shares of Common Stock offered hereby. This Prospectus does
not contain all of the information set forth in the Registration Statement and
the exhibits and schedule thereto. For further information with respect to the
Company and the Common Stock offered hereby, reference is made to the
Registration Statement and the exhibits and schedule thereto. Statements
contained in this Prospectus regarding the contents of any contract or any
other document to which reference is made are not necessarily complete, and, in
each instance, reference is made to the copy of such contract or other document
filed as an exhibit to the Registration Statement, each such statement being
qualified in all respects by such reference. A copy of the Registration
Statement and the exhibits and schedule thereto may be inspected without charge
at the offices of the Commission at Judiciary Plaza, 450 Fifth Street,
Washington, D.C. 20549, and copies of all or any part of the Registration
Statement may be obtained from the Public Reference Section of the Commission,
Washington, D.C. 20549 upon the payment of the fees prescribed by the
Commission. The Commission maintains a Web site (http://www.sec.gov) that
contains reports, proxy and information statements and other information
regarding registrants, such as the Company, that file electronically with the
Commission. Information concerning the Company is also available for inspection
at the offices of the Nasdaq National Market, Reports Section, 1735 K Street,
N.W., Washington, D.C. 20006.
71
<PAGE>
EBAY INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
EBAY INC. CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Accountants........................................ F-2
Consolidated Balance Sheet............................................... F-3
Consolidated Statement of Income......................................... F-4
Consolidated Statement of Stockholders' Equity........................... F-5
Consolidated Statement of Cash Flows..................................... F-6
Notes to Consolidated Financial Statements............................... F-7
PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
Overview................................................................. F-23
Pro Forma Consolidated Statement of Operations........................... F-24
Notes to Pro Forma Consolidated Financial Information.................... F-25
JUMP INCORPORATED FINANCIAL STATEMENTS
Report of Independent Accountants........................................ F-26
Balance Sheet............................................................ F-27
Statement of Operations.................................................. F-28
Statement of Shareholders' Deficit....................................... F-29
Statement of Cash Flows.................................................. F-30
Notes to Financial Statements............................................ F-31
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
eBay Inc.
The stock split described in Note 11 to the consolidated financial
statements has not been consummated at July 15, 1998. When it has been
consummated, we will be in a position to furnish the following report:
"In our opinion, the accompanying balance sheet and the related
statements of income, of stockholders' equity and of cash flows present
fairly, in all material respects, the financial position of eBay Inc. at
December 31, 1996 and 1997, and the results of its operations and its cash
flows for the years ended December 31, 1996 and 1997, in conformity with
generally accepted accounting principles. These financial statements are
the responsibility of the Company's management; our responsibility is to
express an opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with generally
accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant
estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable
basis for the opinion expressed above."
Price Waterhouse LLP
San Jose, California
March 31, 1998
F-2
<PAGE>
EBAY INC.
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA
DECEMBER 31, STOCKHOLDERS'
-------------- JUNE 30, EQUITY AT
1996 1997 1998 JUNE 30, 1998
------ ------- -------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............. $103 $ 3,723 $10,716
Accounts receivable, net.............. 166 1,024 2,846
Other current assets.................. 16 220 453
----- ------- -------
Total current assets................ 285 4,967 14,015
Property and equipment, net............. 23 652 3,584
Intangible assets, net.................. -- -- 2,216
----- ------- -------
$308 $ 5,619 $19,815
===== ======= =======
LIABILITIES, MANDATORILY REDEEMABLE
CONVERTIBLE PREFERRED STOCK AND
STOCKHOLDERS' EQUITY
Current liabilities:
Debt and leases, current portion...... $ 1 $ 258 $ 314
Accounts payable...................... 23 252 1,841
Customer advances..................... -- 128 390
Income taxes payable.................. 50 169 1,033
Other current liabilities............. 17 317 1,634
----- ------- -------
Total current liabilities........... 91 1,124 5,212
Debt and leases, long-term portion...... -- 305 167
Deferred tax liabilities................ 55 157 157
----- ------- -------
146 1,586 5,536
----- ------- -------
Series B Mandatorily Redeemable
Convertible Preferred Stock and Series
B warrants (Notes 8 and 11)............ -- 3,018 5,157 $ --
----- ------- ------- -------
Commitments (Note 6)
Stockholders' equity:
Series A Convertible Preferred Stock,
$0.001 par value; 1,676 shares
authorized, 1,676 shares issued and
outstanding, no shares pro forma
(unaudited).......................... 4 4 4 --
Common Stock, $0.001 par value, 60,000
shares authorized; 20,400, 20,400 and
26,974 (unaudited) shares issued and
outstanding; 36,250 (unaudited)
shares issued and outstanding pro
forma................................ 20 20 27 36
Additional paid-in capital............ 58 877 14,150 19,302
Notes receivable from stockholders.... (68) (68) (1,536) (1,536)
Unearned compensation................. -- (794) (4,801) (4,801)
Retained earnings..................... 148 976 1,278 1,278
----- ------- ------- -------
Total stockholders' equity.......... 162 1,015 9,122 $14,279
===== ======= ======= =======
$308 $ 5,619 $19,815
===== ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
EBAY INC.
CONSOLIDATED STATEMENT OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
---------------- ------------------
1996 1997 1997 1998
------- ------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C>
Net revenues.............................. $ 372 $ 5,744 $ 1,658 $ 14,922
Cost of net revenues...................... 14 746 160 1,736
------- ------- -------- --------
Gross profit.......................... 358 4,998 1,498 13,186
Operating expenses:
Sales and marketing..................... 32 1,730 212 4,610
Product development..................... 28 831 209 1,548
General and administrative.............. 45 950 233 4,054
Acquired research and development....... -- -- -- 150
------- ------- -------- --------
Total operating expenses.............. 105 3,511 654 10,362
------- ------- -------- --------
Income from operations.................... 253 1,487 844 2,824
Interest and other income, net............ 1 59 6 101
Interest expense.......................... -- (3) (2) (25)
------- ------- -------- --------
Income before income taxes................ 254 1,543 848 2,900
Provision for income taxes................ (106) (669) (362) (2,552)
------- ------- -------- --------
Net income................................ $ 148 $ 874 $ 486 $ 348
======= ======= ======== ========
Net income per share:
Basic................................... $ 0.07 $ 0.11 $ 0.08 $ 0.03
======= ======= ======== ========
Weighted average shares--basic.......... 2,125 7,438 6,163 10,711
======= ======= ======== ========
Diluted................................. $ 0.01 $ 0.03 $ 0.02 $ 0.01
======= ======= ======== ========
Weighted average shares--diluted........ 14,315 27,553 25,811 34,231
======= ======= ======== ========
Pro forma net income per share:
Basic................................... $ 0.06 $ 0.02
======= ========
Weighted average shares--basic.......... 14,591 19,145
======= ========
Diluted................................. $ 0.03 $ 0.01
======= ========
Weighted average shares--diluted........ 27,553 34,231
======= ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
EBAY INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
SERIES A
CONVERTIBLE NOTES
PREFERRED STOCK COMMON STOCK ADDITIONAL RECEIVABLE TOTAL
---------------- ------------- PAID-IN FROM UNEARNED RETAINED STOCKHOLDERS'
SHARES AMOUNT SHARES AMOUNT CAPITAL STOCKHOLDERS COMPENSATION EARNINGS EQUITY
------- ------- ------ ------ ---------- ------------ ------------ -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Issuance of Common
Stock for cash and
note.................. -- $ -- 20,400 $ 20 $ 58 $ (68) $ -- $ -- $ 10
Issuance of Preferred
Stock................. 1,676 4 -- -- -- -- -- -- 4
Net income............. -- -- -- -- -- -- -- 148 148
------- ------- ------ ---- ------- ------- ------- ------ ------
Balance at
December 31, 1996...... 1,676 4 20,400 20 58 (68) -- 148 162
Accretion of Series B
Mandatorily Redeemable
Convertible Preferred
Stock to redemption
value................. -- -- -- -- -- -- -- (46) (46)
Unearned compensation.. -- -- -- -- 819 -- (819) -- --
Amortization of
unearned
compensation.......... -- -- -- -- -- -- 25 -- 25
Net income............. -- -- -- -- -- -- -- 874 874
------- ------- ------ ---- ------- ------- ------- ------ ------
Balance at
December 31, 1997...... 1,676 4 20,400 20 877 (68) (794) 976 1,015
Accretion of Series B
Mandatorily Redeemable
Convertible Preferred
Stock to redemption
value (Unaudited)..... -- -- -- -- -- -- -- (46) (46)
Unearned compensation
(Unaudited)........... -- -- -- -- 5,375 -- (5,375) -- --
Amortization of
unearned compensation
(Unaudited)........... -- -- -- -- -- -- 1,368 -- 1,368
Issuance of Common
Stock for cash and
notes (Unaudited)..... -- -- 6,324 7 4,683 (1,468) -- -- 3,222
Issuance of Common
Stock for acquisition
of Jump Incorporated
(Unaudited)........... -- -- 143 -- 2,000 -- -- -- 2,000
Contribution of Common
Stock to charitable
foundation
(Unaudited)........... -- -- 107 -- 1,215 -- -- -- 1,215
Net income
(Unaudited)........... -- -- -- -- -- -- -- 348 348
------- ------- ------ ---- ------- ------- ------- ------ ------
Balance at
June 30, 1998
(Unaudited)............ 1,676 $ 4 26,974 $ 27 $14,150 $(1,536) $(4,801) $1,278 $9,122
======= ======= ====== ==== ======= ======= ======= ====== ======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
EBAY INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
-------------- -----------------
1996 1997 1997 1998
----- ------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income................................. $ 148 $ 874 $ 486 $ 348
Adjustments to reconcile net income to net
cash
provided by operating activities:
Provision for doubtful accounts............ 18 290 30 765
Depreciation and amortization.............. 2 74 3 388
Amortization of unearned compensation...... -- 25 -- 1,368
Charitable contribution of Common Stock.... -- -- -- 1,215
Series B Preferred Stock issued for servic-
es........................................ -- -- -- 93
Acquired research and development.......... -- -- -- 150
Changes in current assets and liabilities:
Accounts receivable....................... (184) (1,148) (301) (2,575)
Other current assets...................... (16) (204) (9) (233)
Accounts payable.......................... 23 229 33 1,574
Customer advances......................... -- 128 28 262
Income taxes payable...................... 50 119 261 864
Other current liabilities................. 17 300 137 980
Deferred tax liabilities.................. 55 102 55 --
----- ------- ------- --------
Net cash provided by operating activities... 113 789 723 5,199
----- ------- ------- --------
Cash flows from investing activities:
Purchases of property and equipment........ (25) (680) (72) (3,311)
----- ------- ------- --------
Net cash used in investing activities....... (25) (680) (72) (3,311)
----- ------- ------- --------
Cash flows from financing activities:
Proceeds from Series A Preferred Stock..... 4 -- -- --
Proceeds from Series B Preferred Stock and
Series B warrants......................... -- 2,972 2,972 2,000
Proceeds from Common Stock................. 10 -- -- 3,222
Proceeds from debt issuance................ 1 545 -- --
Principal payments on debt and leases...... -- (6) (2) (117)
----- ------- ------- --------
Net cash provided by financing activities... 15 3,511 2,970 5,105
----- ------- ------- --------
Net increase in cash and cash equivalents... 103 3,620 3,621 6,993
Cash and cash equivalents at beginning of
period..................................... -- 103 103 3,723
----- ------- ------- --------
Cash and cash equivalents at end of period.. $ 103 $ 3,723 $ 3,724 $ 10,716
===== ======= ======= ========
Supplemental cash flow disclosures:
Cash paid for interest..................... $ -- $ 3 $ 2 $ 22
Cash paid for income taxes................. $ 1 $ 452 $ 48 $ 1,684
Non-cash investing and financing activities:
Property and equipment leases.............. $ -- $ 23 $ 23 $ --
Common Stock issued for notes receivable... $ 68 $ -- $ -- $ 1,468
Common Stock issued for acquisition........ $ -- $ -- $ -- $ 2,000
Series B Preferred Stock issued for servic-
es........................................ $ -- $ -- $ -- $ 93
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
EBAY INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1--THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
THE COMPANY
eBay Inc. (the "Company") was incorporated in California in May 1996, and
operates an online person-to-person trading community. eBay pioneered online
person-to-person trading by developing a Web-based community in which buyers
and sellers are brought together in an auction format to trade personal items
such as antiques, coins, collectibles, computers, memorabilia, stamps and
toys. The eBay service permits sellers to list items for sale, buyers to bid
on items of interest and all eBay users to browse through listed items in a
fully-automated, topically-arranged service that is available online 24 hours
a day, seven days a week. The Company operates in one business segment.
REINCORPORATION
In March 1998, the Company's Board of Directors authorized the
reincorporation of the Company in the State of Delaware. As a result of the
reincorporation, the Company is authorized to issue 60,000,000 shares of $.001
par value Common Stock and 6,000,000 shares of $.001 par value Preferred
Stock. The Board of Directors has the authority to issue the undesignated
Preferred Stock in one or more series and to fix the rights, preferences,
privileges and restrictions thereof.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION
The financial statements as of June 30, 1998 and for the six months then
ended are consolidated and include the accounts of the Company and its wholly
owned subsidiary. All significant intercompany balances and transactions have
been eliminated in consolidation.
From September 1995 ("Inception") through May 1996, eBay operated as a sole
proprietorship. The sole proprietorship recognized no revenues and incurred no
expenses during the period from Inception to December 31, 1995. The sole
proprietorship recognized revenue totaling $30,000 and incurred expenses
totaling $29,000 during the period from January 1, 1996 until incorporation in
May 1996. The results of operations for this period have been included in the
1996 financial statements to facilitate presentation.
CASH EQUIVALENTS
The Company considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents. Cash equivalents
consist primarily of deposits in money market funds.
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to a
concentration of credit risk consist of cash and cash equivalents and accounts
receivable. Cash and cash equivalents are deposited with high credit quality
financial institutions. The Company's accounts receivable are derived from
revenue earned from customers located in the U.S. and throughout the world and
are denominated in U.S.
F-7
<PAGE>
EBAY INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
dollars. Accounts receivable balances are typically settled through customer
credit cards and, as a result, the majority of accounts receivable are
collected upon processing of credit card transactions. The Company maintains
an allowance for doubtful accounts receivable based upon the expected
collectibility of accounts receivable.
During the years ended December 31, 1996 and 1997, and the six months ended
June 30, 1997 and 1998 (unaudited), no customers accounted for more than 10%
of net revenues or net accounts receivable.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments, including cash and cash equivalents,
accounts receivable, accounts payable and capital lease obligations are
carried at cost, which approximates their fair value because of the short-term
maturity of these instruments.
PROPERTY AND EQUIPMENT
Property and equipment are stated at historical cost. Depreciation and
amortization is computed using the straight-line method over the estimated
useful lives of the assets, generally three years or less, or the shorter of
the lease term or the estimated useful lives of the assets, if applicable.
INTANGIBLE ASSETS
Goodwill and other intangible assets resulting from the acquisition of Jump
Incorporated were estimated by management to be primarily associated with the
acquired customer list, workforce and technological know how. As a result of
the rapid technological changes occurring in the Internet industry and the
intense competition for qualified Internet professionals, recorded goodwill
and other intangible assets are amortized on a straight-line basis over the
estimated periods of benefit, which range from 8 to 24 months. See Note 2--
Acquisition.
REVENUE RECOGNITION
Revenues are derived primarily from placement fees charged for the listing
of items for auction and success fees calculated as a percentage of the final
sales transaction value. Revenues related to placement fees are recognized at
the time the item is listed, while those related to success fees are
recognized at the time that the auction is successfully concluded. Provisions
for doubtful accounts and authorized credits resulting from incomplete auction
transactions are provided at the time of revenue recognition based upon the
Company's historical experience.
PRODUCT DEVELOPMENT COSTS
Product development costs include expenses incurred by the Company to
develop, enhance, manage, monitor and operate the Company's Web site. Product
development costs are expensed as incurred.
ADVERTISING EXPENSE
Advertising costs are expensed as incurred and totaled $0, $478,000, $0
(unaudited) and $2.0 million (unaudited) during the years ended December 31,
1996 and 1997 and the six months ended June 30, 1997 and 1998, respectively.
F-8
<PAGE>
EBAY INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
STOCK-BASED COMPENSATION
The Company accounts for stock-based employee compensation arrangements in
accordance with provisions of Accounting Principles Board ("APB") Opinion No.
25, "Accounting for Stock Issued to Employees," and complies with the
disclosure provisions of Statement of Financial Accounting Standards ("SFAS")
No. 123, "Accounting for Stock-Based Compensation." Under APB No. 25,
compensation expense is based on the difference, if any, on the date of the
grant, between the fair value of the Company's stock and the exercise price.
INCOME TAXES
Income taxes are accounted for using an asset and liability approach, which
requires the recognition of taxes payable or refundable for the current year
and deferred tax liabilities and assets for the future tax consequences of
events that have been recognized in the Company's financial statements or tax
returns. The measurement of current and deferred tax liabilities and assets
are based on provisions of the enacted tax law; the effects of future changes
in tax laws or rates are not anticipated. The measurement of deferred tax
assets is reduced, if necessary, by the amount of any tax benefits that, based
on available evidence, are not expected to be realized.
NET INCOME PER SHARE
The Company computes net income per share in accordance with SFAS No. 128,
"Earnings per Share" and SEC Staff Accounting Bulletin No. 98 ("SAB 98").
Under the provisions of SFAS No. 128 and SAB 98, basic net income per share is
computed by dividing the net income available to common stockholders for the
period by the weighted average number of common shares outstanding during the
period. Diluted net income per share is computed by dividing the net income
for the period by the weighted average number of common and common equivalent
shares outstanding during the period. Common equivalent shares, composed of
unvested restricted Common Stock and incremental common shares issuable upon
the exercise of stock options and warrants and upon conversion of Series A and
Series B Convertible Preferred Stock, are included in diluted net income per
share to the extent such shares are dilutive.
F-9
<PAGE>
EBAY INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The following table sets forth the computation of basic and diluted net
income per share for the periods indicated, (in thousands, except per share
amounts):
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
--------------- ------------------
1996 1997 1997 1998
------ ------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C>
Numerator:
Net income.............................. $ 148 $ 874 $ 486 $ 348
Accretion of Series B Mandatorily
Redeemable Convertible Preferred Stock
to redemption value.................... -- (46) -- (46)
------ ------- -------- --------
Net income available to common
stockholders........................... $ 148 $ 828 $ 486 $ 302
====== ======= ======== ========
Denominator:
Weighted average shares................. 10,200 20,400 20,400 25,519
Weighted average unvested common shares
subject to repurchase agreements....... (8,075) (12,962) (14,237) (14,808)
------ ------- -------- --------
Denominator for basic calculation....... 2,125 7,438 6,163 10,711
Weighted average effect of dilutive
securities:
Series A Preferred Stock.............. 4,115 5,029 5,029 5,029
Series B Preferred Stock.............. -- 2,124 166 3,404
Series B Preferred Stock warrants..... -- -- -- 229
Unvested common shares subject to
repurchase agreements................ 8,075 12,962 14,237 14,808
Employee stock options................ -- -- 216 50
------ ------- -------- --------
Denominator for diluted calculation..... 14,315 27,553 25,811 34,231
====== ======= ======== ========
Net income per share:
Basic................................... $ 0.07 $ 0.11 $ 0.08 $ 0.03
====== ======= ======== ========
Diluted................................. $ 0.01 $ 0.03 $ 0.02 $ 0.01
====== ======= ======== ========
</TABLE>
PRO FORMA NET INCOME PER SHARE (UNAUDITED)
Pro forma net income per share for the year ended December 31, 1997 and the
six months ended June 30, 1998 is computed using the weighted average number
of common shares outstanding, including the pro forma effects of the automatic
conversion of the Company's Series A and Series B Convertible Preferred Stock
into shares of the Company's Common Stock effective upon the closing of the
Company's initial public offering as if such conversion occurred on January 1,
1997, or at date of original issuance, if later. The resulting pro forma
adjustment includes an increase in the weighted average shares used to compute
basic net income per share of 7,153,000 and 8,434,000 for the year ended
December 31, 1997 and the six months ended June 30, 1998, respectively. Pro
forma diluted net income per share is computed using the pro forma weighted
average number of common and common equivalent shares outstanding. Pro forma
common equivalent shares, composed of unvested restricted Common Stock and
incremental common shares issuable upon the exercise of stock options and
warrants, are included in diluted net income per share to the extent such
shares are dilutive.
F-10
<PAGE>
EBAY INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
PRO FORMA STOCKHOLDERS' EQUITY (UNAUDITED)
Effective upon the closing of this Offering, the outstanding shares of
Series A and Series B Convertible Preferred Stock will automatically convert
into 5,029,425 and 4,246,248 shares, respectively, of Common Stock. The pro
forma effects of these transactions are unaudited and have been reflected in
the accompanying pro forma consolidated balance sheet at June 30, 1998. See
Note 11--Subsequent Events.
UNAUDITED INTERIM RESULTS
The accompanying interim consolidated financial statements as of June 30,
1998, and for the six months ended June 30, 1997 and 1998, are unaudited. The
unaudited interim consolidated financial statements have been prepared on the
same basis as the annual consolidated financial statements and, in the opinion
of management, reflect all adjustments, which include only normal recurring
adjustments, necessary to present fairly the Company's financial position,
results of operations and cash flows as of June 30, 1998 and for the six
months ended June 30, 1997 and 1998. The financial data and other information
disclosed in these notes to consolidated financial statements related to these
periods are unaudited. The results for the six months ended June 30, 1998 are
not necessarily indicative of the results to be expected for the year ending
December 31, 1998.
COMPREHENSIVE INCOME
Effective January 1, 1998 the Company adopted the provisions of SFAS No.
130, "Reporting Comprehensive Income." SFAS No. 130 establishes standards for
reporting comprehensive income and its components in financial statements.
Comprehensive income, as defined, includes all changes in equity (net assets)
during a period from non-owner sources. To date, the Company has not had any
transactions that are required to be reported in comprehensive income.
RECLASSIFICATIONS
Certain reclassifications have been made to the prior year financial
statements to conform to the current period presentation.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information." This
statement establishes standards for the way companies report information about
operating segments in annual financial statements. It also establishes
standards for related disclosures about products and services, geographic
areas and major customers. The disclosures prescribed by SFAS No. 131 will be
effective for the year ending December 31, 1998. The Company has determined
that it does not have any separately reportable business segments as of June
30, 1998.
In March 1998, the American Institute of Certified Public Accountants issued
Statement of Position ("SOP") No. 98-1, "Software for Internal Use," which
provides guidance on accounting for the cost of computer software developed or
obtained for internal use. SOP No. 98-1 is effective for financial statements
for fiscal years beginning after December 15, 1998. The Company does not
expect that the adoption of SOP No. 98-1 will have a material impact on its
consolidated financial statements.
F-11
<PAGE>
EBAY INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 2--ACQUISITION (UNAUDITED):
Effective June 30, 1998, the Company acquired all the outstanding shares of
Jump Incorporated ("Jump"), which provides a forum where Internet users can
buy and sell items in an online auction format. The acquisition has been
accounted for using the purchase method of accounting and accordingly, the
purchase price has been allocated to the tangible and intangible assets
acquired and liabilities assumed on the basis of their respective fair values
on the acquisition date. The fair value of intangible assets was determined
using a combination of methods, including replacement cost estimates for
acquired research and development and completed technology, a risk-adjusted
income approach for the acquired customer list and the amounts paid for
covenants not to compete.
The total purchase price of approximately $2.3 million consisted of 142,848
shares of the Company's Common Stock with an estimated fair value of
approximately $2.0 million and other acquisition related expenses of
approximately $335,000, consisting primarily of payments for non-compete
agreements totaling approximately $208,000 and legal and other professional
fees. Of the total purchase price, approximately $150,000 was allocated to in-
process technology and was immediately charged to operations because such in-
process technology had not reached the stage of technological feasibility at
the acquisition date and had no alternative future use. The remainder of the
purchase price was allocated to net tangible liabilities assumed ($31,000) and
intangible assets, including completed technology ($500,000), customer list
($1.5 million), covenants not to compete ($208,000) and goodwill ($24,000).
The intangible assets will be amortized over their estimated useful lives of 8
to 24 months.
The acquisition has been structured as a tax free exchange of stock,
therefore, the differences between the recognized fair values of the acquired
assets, including tangible assets, and their historical tax bases are not
deductible for tax purposes.
The following unaudited pro forma consolidated financial information
reflects the results of operations for the year ended December 31, 1997 and
the six months ended June 30, 1998, as if the acquisition had occurred on
January 1, 1997 and 1998, respectively, and after giving effect to purchase
accounting adjustments. These pro forma results have been prepared for
comparative purposes only and do not purport to be indicative of what
operating results would have been had the acquisitions actually taken place on
January 1, 1997 or 1998, and may not be indicative of future operating
results, (in thousands, except per share amounts).
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS
DECEMBER 31, ENDED
1997 JUNE 30, 1998
------------ -------------
(UNAUDITED)
<S> <C> <C>
Revenues............................................. $ 5,755 $14,934
Loss from operations................................. (655) 1,774
Net loss............................................. (1,199) (565)
Net loss per share:
Basic and diluted.................................. $ (0.16) $ (0.06)
Weighted average shares............................ 7,581 10,854
</TABLE>
F-12
<PAGE>
EBAY INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 3--BALANCE SHEET COMPONENTS (IN THOUSANDS):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------
1996 1997 JUNE 30, 1998
------ ------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Accounts receivable, net:
Accounts receivable............................ $ 184 $ 1,385 $ 4,482
Less: Allowance for doubtful accounts.......... (18) (308) (1,073)
Allowance for authorized credits............. -- (53) (563)
----- ------- -------
$ 166 $ 1,024 $ 2,846
===== ======= =======
Property and equipment, net:
Computer equipment............................. $ 25 $ 608 $ 3,784
Furniture and fixtures......................... -- 115 226
Leasehold improvements......................... -- 5 38
----- ------- -------
25 728 4,048
Less: Accumulated depreciation and amortiza-
tion.......................................... (2) (76) (464)
----- ------- -------
$ 23 $ 652 $ 3,584
===== ======= =======
</TABLE>
Property and equipment includes $0, $23,000 and $23,000 (unaudited) of
equipment under capital leases at December 31, 1996 and 1997 and June 30,
1998, respectively. Accumulated depreciation of assets under capital leases
totaled $0, $7,000 and $11,000 (unaudited) at December 31, 1996 and 1997, and
June 30, 1998, respectively.
<TABLE>
<CAPTION>
DECEMBER 31,
-------------
1996 1997 JUNE 30, 1998
------ ------ -------------
(UNAUDITED)
<S> <C> <C> <C>
Intangible assets, net:
Purchased technology.............................. $ -- $ -- $ 500
Covenants not to compete.......................... -- -- 208
Customer list..................................... -- -- 1,484
Goodwill.......................................... -- -- 24
------ ------ ------
-- -- 2,216
Less: Accumulated amortization.................... -- -- --
------ ------ ------
$ -- $ -- $2,216
====== ====== ======
Other current liabilities:
Accrued compensation and related benefits......... $ 17 $ 68 $ 213
Advertising accruals.............................. -- -- 546
Other accruals.................................... -- 249 875
------ ------ ------
$ 17 $ 317 $1,634
====== ====== ======
</TABLE>
F-13
<PAGE>
EBAY INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 4--RELATED PARTY TRANSACTIONS:
NOTES RECEIVABLE FROM STOCKHOLDERS
At December 31, 1996 and 1997 and June 30, 1998 (unaudited), the Company
held a note receivable from an officer of the Company totaling $68,000. The
note is full recourse, is secured by Common Stock and bears simple interest at
6% per annum. Interest is due and payable on each anniversary date of the
note. The principal is due on or before December 31, 2002. At June 30, 1998,
the Company also held notes receivable from employees and a director totaling
$1.5 million (unaudited) representing amounts owed to the Company from the
early exercise of stock options. These notes include full recourse and non-
recourse obligations, are secured by common stock and bear interest at a rate
of 8% per annum. Interest is due and payable on December 1st of each year, and
the principal is due on or before December 1, 2002.
PROFESSIONAL SERVICES
In connection with the recruitment of its Chief Executive Officer, the
Company engaged the services of an executive search firm affiliated with a
holder of the Company's Series B Mandatorily Redeemable Convertible Preferred
Stock. During the six months ended June 30, 1998, the Company paid total fees
for services performed of $93,000 (unaudited) and issued 46,248 shares
(unaudited) of Series B Mandatorily Redeemable Convertible Preferred Stock
with a fair value on the date earned of $93,000 (unaudited). The amount paid
for the services and the fair value of the shares are included in general and
administrative expenses in the consolidated statement of income for the six
months ended June 30, 1998.
NOTE 5--DEBT:
LINE OF CREDIT
At December 31, 1997 and June 30, 1998, the Company had $545,000 and
$431,000 (unaudited), respectively, outstanding under a line of credit with a
financial institution. The line of credit provides for a revolving line,
including an equipment sub-limit facility, of up to $750,000 and is secured by
certain assets of the Company. Advances under the equipment sub-limit facility
were limited to specific property and equipment acquisitions through January
5, 1998. The line of credit accrues interest at a variable rate determined by
the bank (9.75% at December 31, 1997 and June 30, 1998 (unaudited)) and is
repayable in twenty-four monthly installments of principal and accrued
interest through January 5, 2000. Under the line of credit, the Company is
required to comply with certain financial covenants. The Company was in
compliance with all such covenants at December 31, 1997 and June 30, 1998,
(unaudited).
As of December 31, 1997, the future payments under the line of credit were
as follows, (in thousands):
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
------------
<S> <C>
1998................................................................ $ 251
1999................................................................ 272
2000................................................................ 22
-----
545
Less current portion................................................ (251)
-----
Long-term portion................................................... $ 294
=====
</TABLE>
F-14
<PAGE>
EBAY INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 6--COMMITMENTS:
LEASES
The Company leases office space and equipment under noncancelable operating
and capital leases with various expiration dates through the year 2001. Rent
expense for the years ended December 31, 1996 and 1997, and for the six months
ended June 30, 1997 and 1998, totaled $9,000, $223,000, $32,000 (unaudited)
and $271,000 (unaudited), respectively.
Future minimum lease payments under non-cancelable operating leases and
capital leases, including lease commitments entered into subsequent to
December 31, 1997, are as follows, (in thousands):
<TABLE>
<CAPTION>
YEARS ENDING CAPITAL OPERATING
DECEMBER 31, LEASES LEASES
------------ ------- ---------
<S> <C> <C>
1998..................................................... $10 $ 653
1999..................................................... 10 701
2000..................................................... 3 247
2001..................................................... -- 108
--- ------
Total minimum lease payments............................. 23 $1,709
======
Less amount representing interest........................ (5)
---
Present value of capital lease obligations............... 18
Less current portion..................................... (7)
---
Long-term portion........................................ $11
===
</TABLE>
LETTER OF CREDIT
At December 31, 1997 and June 30, 1998 (unaudited), the Company maintained a
$202,000 letter of credit to secure the lease deposit on its office facility.
The letter of credit expires December 1, 1999, and is secured by the line of
credit.
ADVERTISING
At December 31, 1997 the Company had $750,000 committed under certain non-
cancelable advertising agreements extending into fiscal 1998.
NOTE 7--INCOME TAXES:
The provision for income taxes consists of the following, (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS
DECEMBER 31, ENDED JUNE 30,
------------- ---------------
1996 1997 1997 1998
------ ------ ---------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Current:
Federal......................................... $ 40 $ 450 $ 294 $ 2,020
State and local................................. 11 117 68 532
------ ------ ------ --------
51 567 362 2,552
------ ------ ------ --------
Deferred:
Federal......................................... 47 87 -- --
State and local................................. 8 15 -- --
------ ------ ------ --------
55 102 -- --
------ ------ ------ --------
$ 106 $ 669 $ 362 $ 2,552
====== ====== ====== ========
</TABLE>
F-15
<PAGE>
EBAY INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The following is a reconciliation of the difference between the actual
provision for income taxes and the provision computed by applying the federal
statutory rate of 34% to income before income taxes, (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS
DECEMBER 31, ENDED JUNE 30,
------------- ---------------
1996 1997 1997 1998
------ ------ ---------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Provision at statutory rate...................... $ 87 $ 525 $ 288 $ 986
Permanent differences:
Acquisition costs.............................. -- -- -- 295
Stock compensation............................. -- -- -- 705
Other.......................................... -- 12 6 34
State taxes, net of federal benefit.............. 19 132 68 532
------ ------ ------ --------
$ 106 $ 669 $ 362 $ 2,552
====== ====== ====== ========
</TABLE>
Under SFAS No. 109, deferred tax assets and liabilities are recognized for
the future tax consequences of differences between the carrying amounts of
assets and liabilities and their respective tax bases using enacted tax rates
in effect for the year in which the differences are expected to reverse.
Deferred tax liabilities consist of the following, (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------- JUNE 30,
1996 1997 1998
------ ------ -----------
(UNAUDITED)
<S> <C> <C> <C>
Deferred tax liabilities:
Accruals and reserves............................... $ 54 $ 154 $154
Depreciation........................................ 1 3 3
----- ------ ----
$ 55 $ 157 $157
===== ====== ====
</TABLE>
NOTE 8--CONVERTIBLE PREFERRED STOCK:
Convertible Preferred Stock at December 31, 1997 was composed of the
following, (in thousands):
<TABLE>
<CAPTION>
SHARES
---------------------- LIQUIDATION REDEMPTION
AUTHORIZED OUTSTANDING AMOUNT AMOUNT
---------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
Series A.......................... 1,676 1,676 $1,000 $ --
Series B.......................... 1,415 1,000 4,500 3,000
Undesignated...................... 2,909 -- -- --
----- ----- ------ ------
6,000 2,676 $5,500 $3,000
===== ===== ====== ======
</TABLE>
At June 30, 1998, the redemption amount of the Series B Mandatorily
Redeemable Convertible Preferred Stock was $5.1 million (unaudited) based on
1.4 million shares outstanding. See Note 11--Subsequent Events.
The holders of Preferred Stock have various rights and preferences as
follows:
VOTING
Each share of Series A and Series B has voting rights equal to the number of
shares of Common Stock into which it is convertible and votes together as one
class with the Common Stock.
F-16
<PAGE>
EBAY INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
As long as shares of Series B remain outstanding, the Company must obtain
the approval of the holders of not less than two-thirds of the shares of
Series B to alter the articles of incorporation as related to Series B, change
the number of shares of Preferred Stock or Series B Preferred Stock, authorize
or issue shares of any class of stock having rights and privileges superior to
or in parity with Series B, authorize a liquidation event, increase the
authorized number of directors, pay or declare dividends, or repurchase or
acquire any shares of Common Stock other than pursuant to the terms of an
equity incentive agreement giving the Company the right to repurchase the
shares upon termination of the agreement.
DIVIDENDS
Holders of Series B are entitled to receive cumulative dividends at the per
annum rate of $0.30 per share, payable as and when declared by the Board of
Directors in preference and priority to payment of any dividend on any shares
of Series A Preferred or Common Stock. Holders of Series A are entitled to
receive non-cumulative dividends at the per annum rate of $0.05 per share,
payable as and when declared by the Board of Directors in preference and
priority to any payment of any dividend on any shares of Common Stock. No
dividends have been declared or paid from inception through December 31, 1997,
or during the six months ended June 30, 1998 (unaudited).
LIQUIDATION
In the event of any liquidation, dissolution or winding up of the Company,
including a merger, acquisition or sale of assets where the beneficial owners
of the Company's Common Stock and Preferred Stock own less than 51% of the
resulting voting power of the surviving entity, the holders of Series B are
entitled to receive an amount equal to $4.50 per share plus any declared but
unpaid dividends prior and in preference to any distribution to the holders of
Series A or the holders of Common Stock. If the assets and funds thus
distributed are insufficient to permit full payment to holders of Series B,
all assets and funds will be distributed ratably among the holders of Series
B.
After payment has been made to the holders of Series B, the holders of
Series A are entitled to receive an amount equal to $0.5965 per share plus any
declared but unpaid dividends prior and in preference to the holders of Common
Stock. If the assets and funds thus distributed are insufficient to permit
full payment to holders of Series A, all remaining assets and funds will be
distributed ratably among the holders of all classes of stock based on the
number of shares held by each holder.
After payment has been made to the holders of Series B and Series A, the
remaining assets of the Company will be distributed ratably among the holders
of all classes of stock based on the number of shares held by each holder.
Distribution rights for the holders of Series B, as described, will cease at
such time as the holders receive an aggregate of $9.00 per share.
REDEMPTION
Upon the request of holders of at least two-thirds of the outstanding shares
of Series B, the shares may be redeemed in three annual installments beginning
not earlier than January 1, 2003 and continuing thereafter on the first and
second anniversaries of the initial redemption date. The shares may be
redeemed at a price equal to the original issue price, subject to adjustment
for dilution and declared but unpaid dividends. The difference between the
Series B carrying value and its redemption value (resulting primarily from the
value attributed to the Series B warrants) is being accreted ratably as a
charge to retained earnings through January 1, 2003.
F-17
<PAGE>
EBAY INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Series A Convertible Preferred Stock has no redemption privileges.
CONVERSION
Each share of Series A and Series B is convertible, at the option of the
holder, according to a conversion ratio which is three-for-one, subject to
adjustment for dilution. Each share of Series A and Series B automatically
converts into the number of shares of Common Stock into which such shares are
convertible at the then effective conversion ratio upon either the closing of
a public offering of Common Stock at a per share price of at least $4.00 per
share with gross proceeds of at least $7,500,000, or the date upon which a
total of two-thirds of the number of shares of such series of Preferred Stock
originally issued have been converted into shares of Common Stock.
WARRANTS FOR SERIES B MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED STOCK
In connection with the issuance of Series B, the Company issued warrants to
purchase 400,000 additional shares of Series B with an exercise price of $5.00
per share. The warrants can be exercised up to the earlier of the closing of a
public offering, the proceeds of which exceed $7,500,000, or June 2000. The
Company determined that the fair value of the warrants approximated $278,000
on the date of grant. See Note 11--Subsequent Events.
NOTE 9--COMMON STOCK:
The Company's Certificate of Incorporation, as amended, authorizes the
Company to issue 60,000,000 shares of Common Stock. A portion of the shares
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. At December
31, 1997 and June 30, 1998, there were 11,050,000 and 14,115,442 (unaudited)
shares, respectively, subject to repurchase rights at an average price of
$0.01 and $0.19 (unaudited), respectively, per share.
At June 30, 1998, the Company had reserved shares of Common Stock for future
issuance as follows, (in thousands):
<TABLE>
<CAPTION>
JUNE 30, 1998
-------------
(UNAUDITED)
<S> <C>
Conversion of Series A Preferred Stock......................... 5,029
Conversion of Series B Preferred Stock......................... 4,246
Exercise of options under stock option plans................... 2,033
------
11,308
======
</TABLE>
NOTE 10--EMPLOYEE BENEFIT PLANS:
401(K) SAVINGS PLAN
The Company has a savings plan (the "Savings Plan") that qualifies as a
deferred salary arrangement under Section 401(k) of the Internal Revenue Code.
Under the Savings Plan, participating employees may defer a percentage (not to
exceed 25%) of their eligible pretax earnings up to the Internal Revenue
Service's annual contribution limit. All employees on the United States
payroll of the Company are eligible to participate in the Plan. The Company is
not required to contribute to the Savings Plan and has made no contributions
since the inception of the Savings Plan.
F-18
<PAGE>
EBAY INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
STOCK OPTION PLANS
In December 1996, the Company's Board of Directors adopted the 1996 Stock
Option Plan, and in June 1997, adopted the 1997 Stock Option Plan
(collectively, the "Plans"). The Plans provide for the granting of stock
options to employees and consultants of the Company. Options granted under the
Plans may be either incentive stock options ("ISO") or nonqualified stock
options ("NSO"). ISOs may be granted only to Company employees (including
officers and directors who are also employees). NSOs may be granted to Company
employees and consultants.
Options under the Plans may be granted for periods of up to ten years and at
prices no less than 85% of the estimated fair value of the shares on the date
of grant as determined by the Board of Directors, provided, however, that (i)
the exercise price of an ISO may not be less than 100% of the estimated fair
value of the shares on the date of grant, and (ii) the exercise price of an
ISO granted to a 10% shareholder may not be less than 110% of the estimated
fair value of the shares on the date of grant. Options are exercisable
immediately, subject to repurchase rights held by the Company which lapse over
a maximum period of ten years, at such times and under such conditions as
determined by the Board of Directors, generally four years.
The following table summarizes activity under the Plans for the years ended
December 31, 1996 and 1997 and the six months ended June 30, 1998 (shares in
thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED
-------------------------------- JUNE 30,
1996 1997 1998
--------------- ---------------- -------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
------ -------- ------ -------- -------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning
of period................ -- $ -- 225 $0.01 3,930 $ 0.07
Granted................... 225 0.01 3,864 0.07 3,702 1.74
Exercised................. -- -- -- -- (6,492) 0.43
Cancelled................. -- -- (159) 0.03 (69) 1.88
--- ----- --------
Outstanding at end of
period................... 225 0.01 3,930 0.07 1,071 3.52
=== ===== ========
Options exercisable at
period end............... 225 3,930 0.07 1,071 3.52
=== ===== ========
Weighted average minimum
value of
options granted during
period................... 0.01 0.29 3.20
</TABLE>
The following table summarizes information about fixed stock options
outstanding at December 31, 1997:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING AT OPTIONS EXERCISABLE AT
DECEMBER 31, 1997 DECEMBER 31, 1997
------------------------------------- ------------------------
WEIGHTED-
AVERAGE WEIGHTED WEIGHTED-
NUMBER OF REMAINING AVERAGE NUMBER OF AVERAGE
RANGE OF EXERCISE SHARES CONTRACTUAL EXERCISE SHARES EXERCISE
PRICES OUTSTANDING LIFE PRICE EXERCISABLE PRICE
- ----------------- -------------- ----------- -------- -------------- ---------
(IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
$0.01-$0.01...... 872 9.0 years $0.01 872 $0.01
0.03- 0.10...... 3,058 9.7 0.09 3,058 0.09
----- -----
3,930 9.6 0.07 3,930 0.07
===== =====
</TABLE>
F-19
<PAGE>
EBAY INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The following table summarizes information about fixed stock options
outstanding at June 30, 1998 (unaudited):
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING AT OPTIONS EXERCISABLE AT
JUNE 30, 1998 JUNE 30, 1998
-------------------------------------- ------------------------
WEIGHTED-
AVERAGE WEIGHTED- WEIGHTED-
NUMBER OF REMAINING AVERAGE NUMBER OF AVERAGE
RANGE OF EXERCISE SHARES CONTRACTUAL EXERCISE SHARES EXERCISE
PRICES OUTSTANDING LIFE PRICE EXERCISABLE PRICE
----------------- -------------- ----------- --------- -------------- ---------
(IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
$0.03-$0.20............. 429 9.3 years $0.10 429 $0.10
0.67- 2.00............. 244 9.8 1.97 244 1.97
3.00- 3.00............. 75 9.9 3.00 75 3.00
9.33- 9.33............. 323 9.9 9.33 323 9.33
----- -----
1,071 9.6 3.52 1,071 3.52
===== =====
</TABLE>
FAIR VALUE DISCLOSURES
The Company calculated the minimum fair value of each option grant on the
date of grant using the Black-Scholes option pricing model as prescribed by
SFAS No. 123 using the following assumptions:
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS
DECEMBER 31, ENDED
--------------- JUNE 30,
1996 1997 1998
------ ------ -----------
(UNAUDITED)
<S> <C> <C> <C>
Risk-free interest rates....................... 6.0% 5.9% 5.5%
Expected lives (in years)...................... 5.0 5.0 3.5
Dividend yield................................. 0% 0% 0%
Expected volatility............................ 0% 0% 0%
</TABLE>
The compensation cost associated with the Company's stock-based compensation
plans, determined using the minimum value method prescribed by SFAS No. 123,
did not result in a material difference from the reported net income for the
years ended December 31, 1996 and 1997 and for the six months ended June 30,
1997 and 1998 (unaudited).
UNEARNED STOCK-BASED COMPENSATION
In connection with certain stock option grants during the year ended
December 31, 1997 and the six months ended June 30, 1998, the Company
recognized unearned compensation totaling $819,000 and $5.0 million
(unaudited), respectively, which is being amortized over the four year vesting
periods of the related options. Amortization expense recognized during the
year ended December 31, 1997 and the six months ended June 30, 1998 totaled
approximately $25,000 and $1.0 million (unaudited), respectively.
F-20
<PAGE>
EBAY INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 11--SUBSEQUENT EVENTS (UNAUDITED):
STOCK SPLIT
Prior to the effectiveness of the Company's initial public offering, the
Company's Board of Directors intends to effect a three-for-one stock split of
the outstanding shares of Common Stock. All share and per share information
included in these consolidated financial statements have been retroactively
adjusted to reflect this stock split.
SERIES B WARRANTS
In May 1998, the Series B warrants were exercised, resulting in the issuance
of 400,000 shares of Series B Mandatorily Redeemable Convertible Preferred
Stock in exchange for cash proceeds totaling $2.0 million. See Note 8--
Convertible Preferred Stock.
SALE OF COMMON STOCK
In June 1998, in connection with the appointment of two outside directors,
the Company sold an aggregate of 214,500 shares of Common Stock to two
directors and realized net proceeds of $2.0 million. The Company recognized
the $429,000 difference between the estimated fair value of the stock and the
price paid by the two directors as general and administrative expense during
the six months ended June 30, 1998.
EMPLOYEE STOCK PURCHASE PLAN
In July 1998, the Board adopted, subject to stockholder approval, the 1998
Employee Stock Purchase Plan (the "Purchase Plan") and reserved 300,000 shares
of Common Stock for issuance thereunder. On each January 1, the aggregate
number of shares reserved for issuance under the Purchase Plan will be
increased automatically by the number of shares purchased under the Purchase
Plan in the preceding calendar year. The aggregate number of shares reserved
for issuance under the Purchase Plan shall not exceed 1,500,000 shares. The
Purchase Plan will become effective on the first business day on which price
quotations for the Company's Common Stock are available on the Nasdaq National
Market. Employees generally will be eligible to participate in the Purchase
Plan if they are customarily employed by the Company for more than 20 hours
per week and more than five months in a calendar year and are not (and would
not become as a result of being granted an option under the Purchase Plan) 5%
stockholders of the Company. Under the Purchase Plan, eligible employees may
select a rate of payroll deduction between 2% and 10% of their W-2 cash
compensation subject to certain maximum purchase limitations. Each offering
period will have a maximum duration of two years and consists of four six-
month Purchase Periods. The first Offering Period is expected to begin on the
first business day on which price quotations for the Company's Common Stock
are available on the Nasdaq National Market. Depending on the Effective Date,
the first Purchase Period may be more or less than six months long. Offering
Periods and Purchase Periods thereafter will begin on April 1 and November 1.
The price at which the Common Stock is purchased under the Purchase Plan is
85% of the lesser of the fair market value of the Company's Common Stock on
the first day of the applicable offering period or on the last day of that
purchase period. The Purchase Plan will terminate after a period of ten years
unless terminated earlier as permitted by the Purchase Plan.
F-21
<PAGE>
EBAY INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
1998 EQUITY INCENTIVE PLAN
In July 1998, the Board adopted, subject to stockholder approval, the 1998
Equity Incentive Plan (the "1998 Plan") and reserved 4,500,000 shares of
Common Stock for issuance thereunder. The 1998 Plan authorized the award of
options, restricted stock awards and stock bonuses (each an "Award"). No
person will be eligible to receive more than 1,000,000 shares in any calendar
year pursuant to Awards under the 1998 Plan other than a new employee of the
Company who will be eligible to receive no more than 2,000,000 shares in the
calendar year in which such employee commences employment. Options granted
under the 1998 Plan may be either incentive stock options ("ISO") or
nonqualified stock options ("NSO"). ISOs may be granted only to Company
employees (including officers and directors who are also employees). NSOs may
be granted to Company employees, officers, directors, consultants, independent
contractors and advisors of the Company.
Options under the Plan may be granted for periods of up to ten years and at
prices no less than 85% of the estimated fair value of the shares on the date
of grant as determined by the Board of Directors, provided, however, that (i)
the exercise price of an ISO may not be less than 100% of the estimated fair
value of the shares on the date of grant, and (ii) the exercise price of an
ISO granted to a 10% shareholder may not be less than 110% of the estimated
fair value of the shares on the date of grant. The maximum term of options
granted under the 1998 Plan is ten years.
1998 DIRECTORS STOCK OPTION PLAN
In July 1998, the Board adopted, subject to stockholder approval, the
Directors Plan and reserved a total of 200,000 shares of the Company's Common
Stock for issuance thereunder. Members of the Board who are not employees of
the Company, or any parent, subsidiary or affiliate of the Company, are
eligible to participate in the Directors Plan. The option grants under the
Directors Plan are automatic and nondiscretionary, and the exercise price of
the options must be 100% of the fair market value of the Common Stock on the
date of grant. Each eligible director who first becomes a member of the Board
on or after the effective date of the Registration Statement of which this
Prospectus forms a part (the "Effective Date") will initially be granted an
option to purchase 30,000 shares (an "Initial Grant") on the date such
director first becomes a director. Immediately following each Annual Meeting
of the Company, each eligible director will automatically be granted an
additional option to purchase 5,000 shares if such director has served
continuously as a member of the Board since the date of such director's
Initial Grant or, if such director was ineligible to receive an Initial Grant,
since the Effective Date. The term of such options is ten years, provided that
they will terminate 7 months following the date the director ceases to be a
director or a consultant of the Company (twelve months if the termination is
due to death or disability). All options granted under the Directors Plan will
vest as to 25% of the shares on the first anniversary of the date of grant and
as to 2.08% of the shares each month thereafter, provided the optionee
continues as a member of the Board or as a consultant to the Company.
F-22
<PAGE>
EBAY INC.
PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
OVERVIEW
Effective June 30, 1998, the Company acquired all the outstanding shares of
Jump Incorporated ("Jump"), which provides a forum where Internet users can
buy and sell items in an online auction format. The acquisition has been
accounted for using the purchase method of accounting and accordingly, the
purchase price has been allocated to the tangible and intangible assets
acquired and liabilities assumed on the basis of their respective fair values
on the acquisition date. The fair value of intangible assets was determined
using a combination of methods, including replacement cost estimates for
acquired research and development and completed technology, a risk-adjusted
income approach for the acquired customer list and the amounts paid for
covenants not to compete.
The total purchase price of approximately $2.3 million consisted of 142,848
shares of the Company's Common Stock with an estimated fair value of
approximately $2.0 million and other acquisition related expenses of
approximately $335,000, consisting primarily of payments for non-compete
agreements totaling approximately $208,000 and legal and other professional
fees. Of the total purchase price, approximately $150,000 was allocated to in-
process technology and immediately charged to operations because such in-
process technology had not reached the stage of technological feasibility at
the acquisition date and had no alternative future use. The remainder of the
purchase price was allocated to net tangible liabilities assumed ($31,000) and
intangible assets, including completed technology ($500,000), customer list
($1.5 million), covenants not to compete ($208,000) and goodwill ($24,000).
The acquired intangible assets will be amortized over their estimated useful
lives of 8 to 24 months.
The acquisition has been structured as a tax free exchange of stock,
therefore, the differences between the recognized fair values of acquired
assets, including tangible assets, and their historical tax bases are not
deductible for tax purposes.
The following unaudited pro forma consolidated financial statement of
operations gives effect to this acquisition as if it had occurred on January
1, 1997, by consolidating the results of operations of Jump with the results
of operations of eBay Inc. for the year ended December 31, 1997 and the six
months ended June 30, 1998.
The unaudited pro forma consolidated statement of operations are not
necessarily indicative of the operating results that would have been achieved
had the transactions been in effect as of the beginning of the periods
presented and should not be construed as being representative of future
operating results.
The historical financial statements of the Company and Jump are included
elsewhere in this Prospectus and the unaudited pro forma consolidated
financial information presented herein should be read in conjunction with
those financial statements and related notes.
F-23
<PAGE>
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997 SIX MONTHS ENDED JUNE 30, 1998
------------------------------------------------ --------------------------------------------
JUMP JUMP
EBAY INC. INCORPORATED ADJUSTMENTS PRO FORMA EBAY INC. INCORPORATED ADJUSTMENTS PRO FORMA
--------- ------------ ----------- --------- --------- ------------ ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net revenues............ $5,744 $ 11 $ -- $ 5,755 $14,922 $ 12 $ -- $14,934
Cost of net revenues.... 746 9 -- 755 1,736 3 -- 1,739
------ ---- ------- ------- ------- ---- ----- -------
Gross profit........... 4,998 2 -- 5,000 13,186 9 -- 13,195
------ ---- ------- ------- ------- ---- ----- -------
Operating expenses:
Sales and marketing.... 1,730 2 165(C) 1,897 4,445 -- -- 4,445
Product development.... 831 10 841 1,548 8 -- 1,556
General and
administrative........ 950 7 957 4,054 21 -- 4,075
Amortization of
intangible assets..... -- -- 1,810(A)(B) 1,810 -- -- 354(B) 354
------ ---- ------- ------- ------- ---- ----- -------
Total operating
expenses.............. 3,511 19 1,975 5,505 10,047 29 354 10,430
------ ---- ------- ------- ------- ---- ----- -------
Income from
operations............ 1,487 (17) (1,975) (505) 3,139 (20) (354) 2,765
------ ---- ------- ------- ------- ---- ----- -------
Interest and other
income, net............ 59 -- -- 59 101 -- -- 101
Interest expense........ (3) -- -- (3) (25) (1) -- (26)
------ ---- ------- ------- ------- ---- ----- -------
Income (loss) before
income taxes........... 1,543 (17) (1,975) (449) 3,215 (21) (354) 2,840
------ ---- ------- ------- ------- ---- ----- -------
Provision for income
taxes.................. (669) -- 69(C) (600) (2,483) -- -- (2,483)
------ ---- ------- ------- ------- ---- ----- -------
Net income (loss)....... $ 874 $(17) $(1,906) $(1,049) $ 732 $(21) $(354) $ 357
====== ==== ======= ======= ======= ==== ===== =======
Pro forma net income per
share (D):
Basic.................. $ (0.07) $ .02
======= =======
Weighted average
shares--basic......... 14,734 19,287
======= =======
Diluted................ $ (0.07) $ .01
======= =======
Weighted average
shares--diluted....... 14,734 34,374
======= =======
</TABLE>
See accompanying notes to Pro Forma Consolidated Financial Information
F-24
<PAGE>
EBAY INC.
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
(UNAUDITED)
(IN THOUSANDS)
The following adjustments were applied to the Company's historical financial
statements and those of Jump to arrive at the pro forma consolidated financial
information. The pro forma consolidated financial information excludes the
non-recurring charge for acquired in-process technology associated with the
acquisition totaling $150,000.
(A) To record amortization of acquired completed technology totaling
$500,000 over the estimated period of benefit of 8 months.
(B) To record amortization of: acquired customer list totaling $1.5
million over the estimated period of benefit of 15 months, covenants not to
compete totaling $208,000 over the estimated period of benefit of 24
months, and acquired goodwill totaling $24,000 over the estimated period of
benefit of 15 months.
(C) To record employment agreement signing bonuses and related income tax
effect totaling $165,000 and $69,000, respectively, for employees of Jump
subsequently retained by the Company.
(D) Pro forma basic net income per share for the year ended December 31,
1997 and the six months ended June 30, 1998 is computed using the weighted
average number of common shares outstanding, including the pro forma
effects of the automatic conversion of the Company's Series A and Series B
Convertible Preferred Stock into shares of the Company's Common Stock
effective upon the closing of this Offering as if such conversion occurred
on January 1, 1997, or at date of original issuance, if later. Pro forma
diluted net income per share is computed using the pro forma weighted
average number of common and common equivalent shares outstanding. Pro
forma common equivalent shares, composed of unvested restricted Common
Stock and incremental common shares issuable upon the exercise of stock
options and warrants, are included in diluted net income per share to the
extent such shares are dilutive. Differences between historical weighted
average shares outstanding and pro forma weighted average shares
outstanding used to compute net income per share result from the inclusion
of shares issued in conjunction with the acquisition as if such shares were
outstanding from January 1, 1997 and from the automatic conversion of the
Company's Series A and Series B Convertible Preferred Stock effective upon
the close of this Offering.
F-25
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders
of Jump Incorporated
In our opinion, the accompanying balance sheet and the related statements of
operations, of shareholders' deficit and of cash flows present fairly, in all
material respects, the financial position of Jump Incorporated at December 31,
1997, and the results of its operations and its cash flows for the year then
ended in conformity with generally accepted accounting principles. These
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audit. We conducted our audit of these statements in accordance with
generally accepted auditing standards which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for the
opinion expressed above.
PricewaterhouseCoopers LLP
San Jose, California
July 10, 1998
F-26
<PAGE>
JUMP INCORPORATED
BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1997 1998
------------ -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash................................................. $ 1,112 $ 1,200
Accounts receivable, net............................. 5,344 12,243
-------- --------
Total current assets............................... 6,456 13,443
Property and equipment, net............................ 8,997 8,668
-------- --------
$ 15,453 $ 22,111
======== ========
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities:
Accounts payable..................................... $ 3,475 $ 18,148
Accrued interest on notes payable to shareholders.... 435 1,093
Notes payable to shareholders........................ 21,786 34,128
-------- --------
25,696 53,369
-------- --------
Shareholders' deficit
Common Stock, no par value; 500 shares authorized;
300 issued and outstanding.......................... 6,900 6,900
Accumulated deficit.................................. (17,143) (38,158)
-------- --------
Total shareholders' deficit........................ (10,243) (31,258)
-------- --------
$ 15,453 $ 22,111
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-27
<PAGE>
JUMP INCORPORATED
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
YEAR SIX MONTHS
ENDED ENDED
DECEMBER 31, JUNE 30,
1997 1998
------------ -----------
(UNAUDITED)
<S> <C> <C>
Revenue:
Advertising.......................................... $ -- $ 12,243
Consulting services.................................. 11,344 --
-------- --------
Total revenues..................................... 11,344 12,243
-------- --------
Cost of revenues:
Advertising.......................................... -- 3,000
Consulting services.................................. 8,766 --
-------- --------
Total cost of revenues............................. 8,766 3,000
-------- --------
Gross profit........................................... 2,578 9,243
Operating expenses:
General and administrative........................... 7,314 21,223
Product development.................................. 10,410 8,377
Sales and marketing.................................. 1,562 --
-------- --------
Total operating expenses........................... 19,286 29,600
-------- --------
Loss from operations................................... (16,708) (20,357)
Interest expense....................................... (435) (658)
-------- --------
Net loss............................................... $(17,143) $(21,015)
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-28
<PAGE>
JUMP INCORPORATED
STATEMENT OF SHAREHOLDERS' DEFICIT
<TABLE>
<CAPTION>
COMMON STOCK
------------- ACCUMULATED
SHARES AMOUNT DEFICIT TOTAL
------ ------ ----------- --------
<S> <C> <C> <C> <C>
Issuance of Common Stock................... 300 $6,900 $ -- $ 6,900
Net loss................................... -- -- (17,143) (17,143)
--- ------ -------- --------
Balance at December 31, 1997............... 300 6,900 (17,143) (10,243)
Net loss (Unaudited)....................... -- -- (21,015) (21,015)
--- ------ -------- --------
Balance at June 30, 1998 (Unaudited)....... 300 $6,900 $(38,158) $(31,258)
=== ====== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-29
<PAGE>
JUMP INCORPORATED
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS
DECEMBER 31, JUNE 30,
1997 1998
------------ -----------
(UNAUDITED)
<S> <C> <C>
Cash flows from operating activities:
Net loss............................................ $(17,143) $(21,015)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization..................... 1,365 1,896
Changes in current assets and liabilities:
Accounts receivable.............................. (5,344) (6,899)
Accounts payable................................. 3,475 14,673
Accrued interest on notes payable to sharehold-
ers............................................. 435 658
-------- --------
Net cash used in operating activities................. (17,212) (10,687)
-------- --------
Cash flows from investing activities:
Purchase of property and equipment.................. (10,362) (1,567)
-------- --------
Net cash used in investing activities................. (10,362) (1,567)
-------- --------
Cash flows from financing activities:
Proceeds for issuance of Common Stock............... 6,900 --
Proceeds from notes payable to shareholders......... 21,786 12,342
-------- --------
Net cash provided by financing activities............. 28,686 12,342
-------- --------
Net increase in cash.................................. 1,112 88
Cash at beginning of period........................... -- 1,112
-------- --------
Cash at end of period................................. $ 1,112 $ 1,200
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-30
<PAGE>
JUMP INCORPORATED
NOTES TO FINANCIAL STATEMENTS
NOTE 1--THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
THE COMPANY
Jump Incorporated (the "Company") was incorporated in Ohio in October 1996.
The Company provides a forum where Internet users can buy and sell items in an
online auction format.
For the period from inception (October 1996) through December 31, 1996, the
Company had no revenues and incurred no expenses.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to a
concentration of credit risk consist of cash and accounts receivable. Cash is
deposited with high credit quality financial institutions. The Company's
accounts receivable are derived from revenue earned from customers located in
the U.S. and are denominated in U.S. dollars.
The Company had a single customer for the year ended December 31, 1997 that
accounted for all of the consulting revenue and accounts receivable.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments, including cash, accounts receivable,
accounts payable and accrued interest to shareholders are carried at cost,
which approximates their fair value because of the short-term maturity of
these instruments.
PROPERTY AND EQUIPMENT
Property and equipment are stated at historical cost. Depreciation is
computed using the straight-line method over the estimated useful lives of the
assets, generally three years.
PRODUCT DEVELOPMENT COST
Product development costs include expenses incurred by the Company to
develop, enhance, manage, monitor and operate the Company's Web site. Product
development costs are expensed as incurred.
REVENUE RECOGNITION
Advertising revenue is derived from the sale of advertising space on the
Company's Web site. Advertising revenue is recognized over the period the
advertisement is displayed.
F-31
<PAGE>
JUMP INCORPORATED
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Consulting revenue was derived from a single time and material agreement and
was recognized and billed as services were provided.
INCOME TAXES
Income taxes are accounted for using an asset and liability approach, which
requires the recognition of taxes payable or refundable for the current year
and deferred tax liabilities and assets for the future tax consequences of
events that have been recognized in the Company's financial statements or tax
returns. The measurement of current and deferred tax liabilities and assets
are based on provisions of the enacted tax law; the effects of future changes
in tax laws or rates are not anticipated. The measurement of deferred tax
assets is reduced, if necessary, by the amount of any tax benefits that, based
on available evidence, are not expected to be realized.
UNAUDITED INTERIM RESULTS
The accompanying interim financial statements as of June 30, 1998, and for
the six months ended June 30, 1998, are unaudited. The unaudited interim
financial statements have been prepared on the same basis as the annual
financial statements and, in the opinion of management, reflect all
adjustments, which include only normal recurring adjustments, necessary to
present fairly the Company's financial position, results of operations and its
cash flows as of June 30, 1998 and for the six months ended June 30, 1998. The
financial data and other information disclosed in these notes to financial
statements related to these periods are unaudited. The results for the six
months ended June 30, 1998 are not necessarily indicative of the results to be
expected for the year ending December 31, 1998.
COMPREHENSIVE INCOME
Effective January 1, 1998, the Company adopted the provisions of Statement
of Financial Accounting Standard ("SFAS") No. 130, "Reporting Comprehensive
Income." SFAS No. 130 establishes standards for reporting comprehensive income
and its components in financial statements. Comprehensive income, as defined,
includes all changes in equity (net assets) during a period from nonowner
sources. To date, the Company has not had any transactions that are required
to be reported in comprehensive income.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information." This
statement establishes standards for the way companies report information about
operating segments in annual financial statements. It also establishes
standards for related disclosures about products and services, geographic
areas and major customers. The disclosures prescribed by SFAS No. 131 will be
effective for the year ending December 31, 1998. The Company has determined
that it does not have any separately reportable business segments as of June
30, 1998.
In March 1998, the American Institute of Certified Public Accountants issued
Statement of Position ("SOP") No. 98-1, "Software for Internal Use," which
provides guidance on accounting for the cost of computer software developed or
obtained for internal use. SOP No. 98-1 is effective for financial statements
for fiscal years beginning after December 15, 1998. The Company does not
expect that the adoption of SOP No. 98-1 will have a material impact on its
consolidated financial statements.
F-32
<PAGE>
JUMP INCORPORATED
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 2--BALANCE SHEET COMPONENTS:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1997 1998
------------ -----------
(UNAUDITED)
<S> <C> <C>
Property and equipment,
net:
Computer equipment...... $10,362 $11,929
Less: Accumulated depre-
ciation and amortiza-
tion................... (1,365) (3,261)
------- -------
$ 8,997 $ 8,668
======= =======
</TABLE>
NOTE 3--INCOME TAXES:
No deferred provision or benefit for income taxes has been recorded as the
Company is in a net deferred tax asset position as a result of net operating
losses for which a full valuation has been provided as management believes
that it is more likely than not, based on available evidence, that the
deferred tax assets will not be realized.
At June 30, 1998, the Company has federal net operating loss carryforwards
of approximately $16,000, which expire in 2012. The income tax benefit from
the utilization of net operating loss carryforwards may be limited in certain
circumstances including, but not limited to, cumulative stock ownership
changes of more than 50% over a three year period.
NOTE 4--BORROWINGS:
NOTES PAYABLE
At December 31, 1997 and June 30, 1998, notes payable consists of amounts
payable to shareholders of the Company totaling 21,786 and 34,128 (unaudited),
respectively. The notes are payable upon demand by the holders and bear simple
interest from 5.6% to 6.2% per annum.
NOTE 6--SUBSEQUENT EVENTS (UNAUDITED):
On June 30, 1998, eBay Inc. acquired all of the Company's outstanding shares
of Common Stock, at which time the Company became a wholly owned subsidiary of
eBay Inc.
F-33
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Company and the Selling Stockholders have agreed to sell to each of the
Underwriters named below (the "Underwriters"), and each of such Underwriters,
for whom Goldman, Sachs & Co., Donaldson, Lufkin & Jenrette Securities
Corporation, BancAmerica Robertson Stephens and BT Alex. Brown Incorporated
are acting as representatives, has severally agreed to purchase from the
Company and the Selling Stockholders, the respective number of shares of
Common Stock set forth opposite its name below:
<TABLE>
<CAPTION>
NUMBER OF
SHARES OF
COMMON
UNDERWRITER STOCK
----------- ---------
<S> <C>
Goldman, Sachs & Co...............................................
Donaldson, Lufkin & Jenrette Securities Corporation...............
BancAmerica Robertson Stephens....................................
BT Alex. Brown Incorporated.......................................
---
Total.........................................................
===
</TABLE>
Under the terms and conditions of the Underwriting Agreement, the
Underwriters are committed to take and pay for all of the shares offered
hereby, if any are taken.
The Underwriters propose to offer the shares of Common Stock in part
directly to the public at the initial public offering price set forth on the
cover page of this Prospectus and in part to certain securities dealers at
such price less a concession of $ per share. The Underwriters may allow,
and such dealers may reallow, a concession of not in excess of $ per share
to certain brokers and dealers. After the shares of Common Stock are released
for sale to the public, the offering price and other selling terms may from
time to time be varied by the representatives.
The Company has granted the Underwriters an option exercisable for 30 days
after the date of this Prospectus to purchase up to an aggregate
of additional shares of Common Stock at the initial public offering price
per share, less the underwriting discount, solely to cover over-allotments, if
any. If the Underwriters exercise their over-allotment option, the
Underwriters have severally agreed, subject to certain conditions, to purchase
approximately the same percentage thereof that the number of shares to be
purchased by each of them, as shown in the foregoing table, bears to the
shares of Common Stock offered hereby.
The Company has agreed that, during the period beginning from the date of
this Prospectus and continuing to and including the date 120 days after the
date of the final Prospectus for this offering, it will not offer, sell,
contract to sell or otherwise dispose of any securities of the Company (other
than pursuant to employee stock option or stock purchase plans existing, or on
the conversion or exchange of convertible or exchangeable securities
outstanding, on the date of this Prospectus) which are substantially similar
to the Common Stock or which are convertible into or exchangeable for
securities which are substantially similar to the Common Stock without the
prior written consent of the representatives, except for the shares of Common
Stock offered in connection with the offering.
U-1
<PAGE>
In addition, the Company's officers and directors and substantially all
holders of shares of capital stock of the Company, including the Selling
Stockholder, have agreed that, subject to certain limited exceptions, they
will not (i) offer to sell, sell, contract to sell, pledge or otherwise
dispose of any shares of Common Stock owned of record or beneficially prior to
the offering or any securities convertible into or exchangeable for such
shares of Common Stock, (ii) establish a "put equivalent position" with
respect to such Common Stock within the meaning of Rule 16a-1(h) under the
Securities Exchange Act of 1934, as amended, or (iii) publicly announce an
intention to take any of the actions set forth in (i) or (ii) for a period of
120 days following the date of the final Prospectus for this offering without
the prior written consent of the representatives.
At the request of the Company, the Underwriters have reserved up to shares
of Common Stock for sale, at the initial public offering price, to employees
and friends of the Company through a directed share program. The number of
shares of Common Stock available for sale to the general public in the public
offering will be reduced to the extent such persons purchase such reserved
shares.
The representatives of the Underwriters have informed the Company that they
do not expect sales to accounts over which the Underwriters exercise
discretionary authority to exceed 5% of the total number of shares of Common
Stock offered by them.
Prior to the offering, there has been no public market for the shares. The
initial public offering price will be negotiated among the Company and the
representatives of the Underwriters. Among the factors to be considered in the
determining the initial public offering price of the Common Stock, in addition
to prevailing market conditions, will be the Company's historical performance,
estimates of the business potential and earnings prospects of the Company, an
assessment of the Company's management and the consideration of the above
factors in relation to market valuation of companies in related business.
In connection with the offering, the Underwriters may purchase and sell the
Common Stock in the open market. These transactions may include over-allotment
and stabilizing transactions and purchases to cover syndicate short positions
created by the Underwriters in connection with the offering. Stabilizing
transactions consist of certain bids or purchases for the purpose of
preventing or retarding a decline in the market price of the Common Stock; and
syndicate short positions created by the Underwriters involve the sale by the
Underwriters of a greater number of shares of Common Stock than they are
required to purchase from the Company in the offering. The Underwriters also
may impose a penalty bid, whereby selling concessions allowed to syndicate
members or other broker-dealers in respect of the securities sold in the
offering for their account may be reclaimed by the syndicate if such shares of
Common Stock are repurchased by the syndicate in stabilizing or covering
transactions. These activities may stabilize, maintain or otherwise affect the
market price of the Common Stock which may be higher than the price that might
otherwise prevail in the open market; and these activities, if commenced, may
be discontinued at any time. These transactions may be effected on the Nasdaq
National Market, in the over-the-counter market or otherwise.
Application has been made for quotation of the Common Stock on the Nasdaq
National Market under the symbol "EBAY".
The Company has agreed to indemnify the several Underwriters against certain
liabilities, including liabilities under the Securities Act.
U-2
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRE-
SENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO
WHICH IT RELATES OR AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY
SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS
UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFOR-
MATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
-----------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary....................................................... 3
Risk Factors............................................................. 6
Use of Proceeds.......................................................... 22
Dividend Policy.......................................................... 22
Capitalization........................................................... 23
Dilution................................................................. 24
Selected Consolidated Financial Data..................................... 25
Selected Pro Forma Consolidated
Financial Data.......................................................... 26
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 27
Business................................................................. 38
Management............................................................... 51
Certain Transactions..................................................... 61
Principal and Selling Stockholders....................................... 64
Description of Capital Stock............................................. 66
Shares Eligible for Future Sale.......................................... 69
Legal Matters............................................................ 70
Experts.................................................................. 70
Additional Information................................................... 71
Index to Financial Statements............................................ F-1
Underwriting............................................................. U-1
</TABLE>
THROUGH AND INCLUDING , 1998 (THE 25TH DAY AFTER THE DATE OF THIS PROSPEC-
TUS), ALL DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SHARES
EBAY INC.
COMMON STOCK
(PAR VALUE $.001 PER SHARE)
-----------
[LOGO]
-----------
GOLDMAN, SACHS & CO.
DONALDSON, LUFKIN & JENRETTE
BANCAMERICA ROBERTSON STEPHENS
BT ALEX. BROWN
REPRESENTATIVES OF THE UNDERWRITERS
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the costs and expenses to be paid by the
Company in connection with the sale of the shares of Common Stock being
registered hereby. All amounts are estimates except for the Securities and
Exchange Commission registration fee, the NASD filing fee and the Nasdaq
National Market filing fee.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee................. $18,998
NASD filing fee..................................................... 6,940
Nasdaq National Market filing fee................................... *
Accounting fees and expenses........................................ *
Legal fees and expenses............................................. *
Road show expenses.................................................. *
Printing and engraving expenses..................................... *
Blue sky fees and expenses.......................................... *
Transfer agent and registrar fees and expenses...................... *
Miscellaneous....................................................... *
-------
Total............................................................. $ *
=======
</TABLE>
- --------
*To be completed by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law authorizes a court to
award, or a corporation's board of directors to grant, indemnity to directors
and officers in terms sufficiently broad to permit such indemnification under
certain circumstances for liabilities (including reimbursement for expenses
incurred) arising under the Securities Act of 1933, as amended (the
"Securities Act").
As permitted by the Delaware General Corporation Law, the Registrant's
Amended and Restated Certificate of Incorporation, which will become effective
upon the closing of this offering, includes a provision that eliminates the
personal liability of its directors for monetary damages for breach of
fiduciary duty as a director, except for liability (i) for any breach of the
director's duty of loyalty to the Registrant or its stockholders, (ii) for
acts or omissions not in good faith or that involve intentional misconduct or
a knowing violation of law, (iii) under section 174 of the Delaware General
Corporation Law (regarding unlawful dividends and stock purchases) or (iv) for
any transaction from which the director derived an improper personal benefit.
As permitted by the Delaware General Corporation Law, the Amended and
Restated Bylaws of the Registrant, which will become effective upon the
closing of this offering, provide that (i) the Registrant is required to
indemnify its directors and officers to the fullest extent permitted by the
Delaware General Corporation Law, subject to certain very limited exceptions,
(ii) the Registrant may indemnify its other employees and agents as set forth
in the Delaware General Corporation Law, (iii) the Registrant is required to
advance expenses, as incurred, to its directors and officers in connection
with a legal proceeding to the fullest extent permitted by the Delaware
General Corporation Law, subject to certain very limited exceptions and (iv)
the rights conferred in the Amended and Restated Bylaws are not exclusive.
The Registrant intends to enter into Indemnification Agreements with each of
its current directors and officers to give such directors and officers
additional contractual assurances regarding the scope
II-1
<PAGE>
of the indemnification set forth in the Registrant's Amended and Restated
Certificate of Incorporation and to provide additional procedural protections.
At present, there is no pending litigation or proceeding involving a director,
officer or employee of the Registrant regarding which indemnification is
sought, nor is the Registrant aware of any threatened litigation that may
result in claims for indemnification.
Reference is also made to Section of the Underwriting Agreement, which
provides for the indemnification of officers, directors and controlling
persons of the Registrant against certain liabilities. The indemnification
provision in the Registrant's Amended and Restated Certificate of
Incorporation, Amended and Restated Bylaws and the Indemnification Agreements
entered into between the Registrant and each of its directors and officers may
be sufficiently broad to permit indemnification of the Registrant's directors
and officers for liabilities arising under the Securities Act.
The Registrant, with approval by the Registrant's Board of Directors,
expects to obtain directors' and officers' liability insurance.
See also the undertakings set out in response to Item 17.
Reference is made to the following documents filed as exhibits to this
Registration Statement regarding relevant indemnification provisions described
above and elsewhere herein:
<TABLE>
<CAPTION>
EXHIBIT
DOCUMENT NUMBER
-------- ------
<S> <C>
Form of Underwriting Agreement*....................................... 1.01
Registrant's Amended and Restated Certificate of Incorporation........ 3.01
Registrant's Amended and Restated Bylaws.............................. 3.05
Investor Rights Agreement dated June 20, 1997......................... 4.02
Form of Indemnification Agreement..................................... 10.01
</TABLE>
- --------
* To be supplied by amendment.
II-2
<PAGE>
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
The following table sets forth information regarding all securities sold by
the Registrant since its inception on May 13, 1996. All share numbers reflect
a 3-for-1 stock split to be effected immediately prior to the effectiveness of
this offering. For clarity of presentation, share numbers for the transactions
described below are adjusted for this proposed stock split and reflect a split
of both Common and Preferred Stock, although not actually split, each share of
Preferred Stock will convert into three shares of Common Stock upon the
closing of this offering.
<TABLE>
<CAPTION>
NUMBER OF AGGREGATE PURCHASE PRICE
CLASS OF PURCHASERS DATE OF SALE TITLE OF SECURITIES SECURITIES AND FORM OF CONSIDERATION
------------------- ------------ --------------------- ---------- -------------------------
<S> <C> <C> <C> <C>
Pierre M. Omidyar 5/20/96 Common Stock 14,700,000 $14,262 consisting of
cash of $10,167 and
accounts receivable
of $4,095 from
Founder's sole
proprietorship.
Pierre M. Omidyar 12/12/96 Series A Preferred 5,029,425 In exchange for
Stock 4,500,000 of the
above listed shares
of Common Stock
Jeffrey S. Skoll 12/12/96 Common Stock 10,200,000 $68,000 Promissory
Note due December 31,
2002 with simple
interest at 6% per
year
Two affiliated venture 6/27/97 Series B Preferred 3,000,000 $3,000,000 cash
capital funds Stock and Warrants to
purchase 1,200,000
shares of Series B
Preferred Stock at
$1.66 per share
Consultant 3/13/98 Series B Preferred 46,248 Payment of $92,496
Stock for certain executive
recruiting services
provided to the
Company.
Two affiliated venture 5/7/98 Series B Preferred 1,200,000 $2,000,000 cash
capital funds Stock (Warrant
Exercise)
Scott D. Cook 6/30/98 Common Stock 107,250 $1,001,000 cash
Howard D. Schultz 6/30/98 Common Stock (option 150,000 $1,050,000 cash and
exercise) $350,000 Promissory
Note due June 30,
2003 with interest at
8% per year
Maveron Equity Partners, 6/30/98 Common Stock 107,250 $1,001,000 cash
L.P.
Four individuals 6/30/98 Common Stock 142,848 Issued in exchange
for all of the
outstanding shares of
Jump Incorporated
acquired by
Registrant
Employee/optionees 1/1/98- Common Stock (option 6,342,336 $1,410,544 cash and
6/30/98 exercises) Promissory Notes
</TABLE>
II-3
<PAGE>
All sales of Common Stock made pursuant to the exercise of stock options
granted under the 1996 Plan and the 1997 Plan to Registrant's officers,
directors, employees and consultants were made in reliance on Rule 701 under
the Securities Act or on Section 4(2) of the Securities Act.
All other sales were made in reliance on Section 4(2) of the Securities Act
and/or Regulation D promulgated under the Securities Act. These sales were
made without general solicitation or advertising. Each purchaser was a
sophisticated investor with access to all relevant information necessary to
evaluate the investment and represented to the Registrant that the shares were
being acquired for investment.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) The following exhibits are filed herewith:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE
------- -------------
<C> <S>
1.01 Form of Underwriting Agreement*.
2.01 Agreement and Plan of Merger by and between eBay, Inc., a California
Corporation, and Registrant.
2.02 Agreement and Plan of Merger and Reorganization among Registrant, Jump
Acquisition Sub, Inc., Jump Incorporated and Certain Shareholders of
Jump Incorporated dated as of June 30, 1998.
3.01 Registrant's Certificate of Incorporation.
3.02 Registrant's Certificate of Designation of Preferred Stock.
3.03 Form of Registrant's Certificate of Amendment of Certificate of
Incorporation*.
3.04 Form of Registrant's Amended and Restated Certificate of Incorporation
to be effective upon the closing of this offering*.
3.05 Registrant's Bylaws.
3.06 Form of Registrant's Amended and Restated Bylaws to be effective
immediately upon the closing of this offering*.
4.01 Form of Specimen Certificate for Registrant's Common Stock*.
4.02 Investor Rights Agreement, dated June 20, 1997, between the Registrant
and certain stockholders named therein.
5.01 Opinion of Fenwick & West LLP regarding legality of the securities
being registered*.
10.01 Form of Indemnity Agreement entered into by Registrant with each of
its directors and executive officers.
10.02 Registrant's 1996 Stock Option Plan and related documents.
10.03 Registrant's 1997 Stock Option Plan and related documents.
10.04 Registrant's 1998 Equity Incentive Plan and related documents.
10.05 Registrant's 1998 Directors Stock Option Plan and related documents.
10.06 Registrant's 1998 Employee Stock Purchase Plan.
10.07 Office Lease between Connecticut General Life Insurance Company, a
Connecticut corporation, and the Registrant dated September 30, 1996,
as amended through March 1998.
10.08 Sublease between Information Storage Devices, Inc., a California
corporation, and Registrant dated August 4, 1997.
10.09 Office Lease between Connecticut General Life Insurance Company, a
Connecticut corporation, and the Registrant dated April 10, 1998, as
amended June 9, 1998.
10.10 Imperial Bank Starter Kit Loan and Security Agreement dated July 20,
1997 between Imperial Bank and Registrant.
10.11 Intellectual Property Security Agreement dated July 20, 1997 between
Imperial Bank and Registrant.
10.12 Exodus Communications, Inc. Internet Services and Products Agreement
and Co-Location Addendum effective as of May 1, 1997*.
10.13 License Agreement between Thunderstone Software and Registrant.
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE
------- -------------
<C> <S>
10.14 Employment Letter Agreement dated October 16, 1996 between Jeffrey
Skoll and Registrant.
10.15 Employment Letter Agreement dated December 9, 1996 between Michael
Wilson and Registrant.
10.16 Employment Letter Agreement dated August 8, 1997 between Steven Westly
and Registrant.
10.17 Employment Letter Agreement dated September 15, 1997 between Gary
Bengier and Registrant.
10.18 Employment Letter Agreement dated January 16, 1998 between Margaret C.
Whitman and Registrant.
21.01 List of Subsidiaries.
23.01 Consent of Fenwick & West LLP (included in Exhibit 5.01).*
23.02 Consent of PricewaterhouseCoopers LLP, independent accountants.
24.01 Power of Attorney (see Page II-6 of this Registration Statement).
27.01 Financial Data Schedule.
</TABLE>
- --------
* To be supplied by amendment.
(B) FINANCIAL STATEMENT SCHEDULES.
No financial statement schedules are provided because the information called
for is not required or is shown either in the financial statements or the
notes thereto.
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes to provide to the Underwriters
at the closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions described under Item 14 above, or
otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other
than the payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the successful defense of
any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-5
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THE REGISTRANT HAS DULY
CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF SAN JOSE, STATE OF
CALIFORNIA, ON THE 10TH DAY OF JULY, 1998.
eBay Inc.
By: /s/ Margaret C. Whitman
_________________________________
MARGARET C. WHITMAN PRESIDENT AND
CHIEF EXECUTIVE OFFICER
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS that each individual whose signature
appears below constitutes and appoints Margaret C. Whitman, Pierre M. Omidyar
and Gary F. Bengier, and each of them, his or her true and lawful attorneys-
in-fact and agents with full power of substitution, for him or her and in his
or her name, place and stead, in any and all capacities, to sign any and all
amendments (including post-effective amendments) to this Registration
Statement, and to sign any registration statement for the same offering
covered by the Registration Statement that is to be effective upon filing
pursuant to Rule 462(b) promulgated under the Securities Act, and all post-
effective amendments thereto, and to file the same, with all exhibits thereto
and all documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he or she might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents or any of
them, or his, her or their substitute or substitutes, may lawfully do or cause
to be done or by virtue hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THIS REGISTRATION
STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON
THE DATES INDICATED.
NAME TITLE DATE
PRINCIPAL EXECUTIVE OFFICER
/s/ Margaret C. Whitman President and Chief July 10, 1998
- ------------------------------------- Executive Officer
MARGARET C. WHITMAN
PRINCIPAL FINANCIAL OFFICER AND
PRINCIPAL ACCOUNTING OFFICER:
/s/ Gary F. Bengier Vice President and July 10, 1998
- ------------------------------------- Chief Financial
GARY F. BENGIER Officer
ADDITIONAL DIRECTORS:
/s/ Pierre M. Omidyar Director July 10, 1998
- -------------------------------------
PIERRE M. OMIDYAR
/s/ Scott D. Cook Director July 10, 1998
- -------------------------------------
SCOTT D. COOK
/s/ Robert C. Kagle Director July 10, 1998
- -------------------------------------
ROBERT C. KAGLE
/s/ Howard D. Schultz Director July 10, 1998
- -------------------------------------
HOWARD D. SCHULTZ
II-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE
------- -------------
<C> <S>
1.01 Form of Underwriting Agreement*.
2.01 Agreement and Plan of Merger by and between eBay, Inc., a California
Corporation, and Registrant.
2.02 Agreement and Plan of Merger and Reorganization among Registrant, Jump
Acquisition Sub, Inc., Jump Incorporated and Certain Shareholders of
Jump Incorporated dated as of June 30, 1998.
3.01 Registrant's Certificate of Incorporation.
3.02 Registrant's Certificate of Designation of Preferred Stock.
3.03 Form of Registrant's Certificate of Amendment of Certificate of
Incorporation*.
3.04 Form of Registrant's Amended and Restated Certificate of Incorporation
to be effective upon the closing of this offering*.
3.05 Registrant's Bylaws.
3.06 Form of Registrant's Amended and Restated Bylaws to be effective
immediately upon the closing of this offering*.
4.01 Form of Specimen Certificate for Registrant's Common Stock*.
4.02 Investor Rights Agreement, dated June 20, 1997, between the Registrant
and certain stockholders named therein.
5.01 Opinion of Fenwick & West LLP regarding legality of the securities
being registered*.
10.01 Form of Indemnity Agreement entered into by Registrant with each of
its directors and executive officers.
10.02 Registrant's 1996 Stock Option Plan and related documents.
10.03 Registrant's 1997 Stock Option Plan and related documents.
10.04 Registrant's 1998 Equity Incentive Plan and related documents.
10.05 Registrant's 1998 Directors Stock Option Plan and related documents.
10.06 Registrant's 1998 Employee Stock Purchase Plan.
10.07 Office Lease between Connecticut General Life Insurance Company, a
Connecticut corporation, and the Registrant dated September 30, 1996,
as amended through March 1998.
10.08 Sublease between Information Storage Devices, Inc., a California
corporation, and Registrant dated August 4, 1997.
10.09 Office Lease between Connecticut General Life Insurance Company, a
Connecticut corporation, and the Registrant dated April 10, 1998, as
amended June 9, 1998.
10.10 Imperial Bank Starter Kit Loan and Security Agreement dated July 20,
1997 between Imperial Bank and Registrant.
10.11 Intellectual Property Security Agreement dated July 20, 1997 between
Imperial Bank and Registrant.
10.12 Exodus Communications, Inc. Internet Services and Products Agreement
and Co-Location Addendum effective as of May 1, 1997*.
10.13 License Agreement between Thunderstone Software and Registrant.
10.14 Employment Letter Agreement dated October 16, 1996 between Jeffrey
Skoll and Registrant.
10.15 Employment Letter Agreement dated December 9, 1996 between Michael
Wilson and Registrant.
10.16 Employment Letter Agreement dated August 8, 1997 between Steven Westly
and Registrant.
10.17 Employment Letter Agreement dated September 15, 1997 between Gary
Bengier and Registrant.
10.18 Employment Letter Agreement dated January 16, 1998 between Margaret C.
Whitman and Registrant.
21.01 List of Subsidiaries.
23.01 Consent of Fenwick & West LLP (included in Exhibit 5.01).*
23.02 Consent of PricewaterhouseCoopers LLP, independent accountants.
24.01 Power of Attorney (see Page II-6 of this Registration Statement).
27.01 Financial Data Schedule.
</TABLE>
- -------
* To be supplied by amendment.
<PAGE>
EXHIBIT 2.01
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (this "Merger Agreement") is made as
----------------
of April 28, 1998 by and between eBay, Inc., a California corporation ("eBay
----
California"), and eBay Inc., a Delaware corporation ("eBay Delaware"). eBay
- ---------- -------------
California and eBay Delaware are hereinafter sometimes collectively referred to
as the "Constituent Corporations."
------------------------
R E C I T A L S
----------------
A. eBay California was incorporated on May 13, 1996. Its current
authorized capital stock consists of: (1) 20,000,000 shares of Common Stock, no
par value ("eBay California Common Stock"), of which 7,299,000 shares are issued
----------------------------
and outstanding; and (2) 6,000,000 shares of Preferred Stock, no par value
("eBay California Preferred Stock"), of which 2,676,475 shares are issued and
- ---------------------------------
outstanding (consisting of 1,676,475 shares of Series A Preferred Stock and
1,000,000 shares of Series B Preferred Stock).
B. eBay Delaware was incorporated on March 13, 1998. Its authorized
capital stock consists of: (1) 20,000,000 shares of Common Stock, with a par
value of $0.001 per share ("eBay Delaware Common Stock"), of which 1,000 shares
--------------------------
are issued and outstanding; and (2) 6,000,000 shares of Preferred Stock, $0.001
par value ("eBay Delaware Preferred Stock"), none of which shares are issued and
-----------------------------
outstanding.
C. The respective Boards of Directors of eBay California and eBay
Delaware deem it advisable and to the advantage of each of the Constituent
Corporations that eBay California merge with and into eBay Delaware upon the
terms and subject to the conditions set forth in this Merger Agreement for the
purpose of effecting a change of the state of incorporation of eBay California
from California to Delaware.
D. The Boards of Directors of each of the Constituent Corporations
have approved this Merger Agreement.
NOW, THEREFORE, the parties do hereby adopt the plan of reorganization
set forth in this Merger Agreement and do hereby agree that eBay California
shall merge with and into eBay Delaware on the following terms, conditions and
other provisions:
1. MERGER AND EFFECTIVE TIME. At the Effective Time (as defined
-------------------------
below), eBay California shall be merged with and into eBay Delaware (the
"Merger"), and eBay Delaware shall be the surviving corporation of the Merger
------
(the "Surviving Corporation"). The Merger shall become effective upon the close
---------------------
of business on the date when a duly executed copy of this Merger Agreement,
along with all required officers' certificates, is filed with the Secretary of
State of the State of Delaware, (the "Effective Time").
--------------
<PAGE>
eBay, Inc.
Agreement and Plan of Merger
2. EFFECT OF MERGER. At the Effective Time, the separate corporate
----------------
existence of eBay California shall cease; the corporate identity, existence,
powers, rights and immunities of eBay Delaware as the Surviving Corporation
shall continue unimpaired by the Merger; and eBay Delaware shall succeed to and
shall possess all the assets, properties, rights, privileges, powers,
franchises, immunities and purposes, and be subject to all the debts,
liabilities, obligations, restrictions and duties of eBay California, all
without further act or deed. The Certificate of Incorporation of the Surviving
Corporation shall be the Certificate of Incorporation.
3. GOVERNING DOCUMENTS. At the Effective Time, the Certificate of
-------------------
Incorporation of eBay Delaware in effect immediately prior to the Effective Time
shall become the Certificate of Incorporation of the Surviving Corporation and
the Bylaws of eBay Delaware in effect immediately prior to the Effective Time
shall become the Bylaws of the Surviving Corporation.
4. DIRECTORS AND OFFICERS. At the Effective Time, the directors and
----------------------
officers of eBay Delaware shall be and become the directors and officers
(holding the same titles and positions) of the Surviving Corporation and after
the Effective Time shall serve in accordance with the Certificate of
Incorporation and Bylaws of the Surviving Corporation.
5. CONVERSION OF SHARES OF EBAY CALIFORNIA. Subject to the terms and
---------------------------------------
conditions of this Agreement, at the Effective Time, each share of eBay
California Common Stock outstanding immediately prior thereto shall be
automatically changed and converted into one fully paid and nonassessable,
issued and outstanding share of eBay Delaware Common Stock. At the Effective
Time: (a) each share of eBay California Series A Preferred Stock outstanding
immediately prior thereto shall be automatically changed and converted into one
fully paid and nonassessable, issued and outstanding share of eBay Delaware
Series A Preferred Stock; and (b) each share of eBay California Series B
Preferred Stock outstanding immediately prior thereto shall be automatically
changed and converted into one fully paid and nonassessable, issued and
outstanding share of eBay Delaware Series B Preferred Stock.
6. CANCELLATION OF SHARES OF EBAY DELAWARE. At the Effective Time,
---------------------------------------
all of the previously issued and outstanding shares of eBay Delaware Common
Stock that were issued and outstanding immediately prior to the Effective Time
shall be automatically retired and canceled.
7. STOCK CERTIFICATES. At and after the Effective Time, all of the
------------------
outstanding certificates that, prior to that date, represented shares of eBay
California Common Stock shall be deemed for all purposes to evidence ownership
of and to represent the number of shares of eBay Delaware Common Stock into
which such shares of eBay California Common Stock are converted as provided
herein. At and after the Effective Time, all of the outstanding certificates
that, prior to that date, represented shares of a series of eBay California
Preferred Stock shall be deemed for all purposes to evidence ownership of and to
represent the number of shares of the series of eBay Delaware Preferred Stock
into which such shares of eBay California Preferred Stock are converted as
provided herein. The registered owner on the books and records of eBay
California of any such outstanding stock certificate for eBay California Common
Stock or eBay California Preferred Stock shall, until such certificate shall
have been surrendered for transfer or otherwise accounted for to eBay Delaware
or its transfer agent, be entitled to exercise any voting and other rights with
respect to, and to receive any dividend and other distributions upon, the
2
<PAGE>
eBay, Inc.
Agreement and Plan of Merger
shares of eBay Delaware Common Stock or eBay Delaware Preferred Stock evidenced
by such outstanding certificate as above provided.
8. CONVERSION OF OPTIONS AND WARRANTS. At the Effective Time, all
----------------------------------
outstanding and unexercised portions of all options to purchase a share of eBay
California Common Stock under the eBay California 1996 Stock Option Plan and the
eBay California 1997 Stock Option Plan shall become options to purchase a share
of eBay Delaware Common Stock (subject to the elimination of fractional shares
as provided in Section 9 below) at the original exercise price per share and
shall, to the extent permitted by law and otherwise reasonably practicable, have
the same term, exercisability, vesting schedule, status as an "incentive stock
option" under Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code"), if applicable, and all other material terms and conditions (including
----
but not limited to the terms and conditions applicable to such options by virtue
of the eBay California 1996 Stock Option Plan and the eBay California 1997 Stock
Option Plan). Continuous employment with eBay California will be credited to an
optionee for purposes of determining the vesting of the number of shares of eBay
Delaware Common Stock under a converted eBay California option at the Effective
Time. Additionally, at the Effective Time, eBay Delaware shall adopt and assume
the eBay California 1996 Stock Option Plan and the eBay California 1997 Stock
Option Plan. At the Effective Time, all outstanding and unexercised portions of
all warrants to purchase or acquire eBay California Preferred Stock shall become
warrants to purchase or acquire, on the same terms and conditions, the same
number of shares of the same series of eBay Delaware Preferred Stock.
9. FRACTIONAL SHARES. No fractional shares of eBay Delaware Common
-----------------
Stock or Preferred Stock will be issued in connection with the Merger. In lieu
thereof, eBay Delaware shall pay each shareholder of eBay California who would
otherwise be entitled to receive a fractional share of eBay Delaware Common
Stock or Preferred Stock (assuming the aggregation of all shares held by the
same holder of more than one stock certificate representing shares of eBay
California Common Stock or Preferred Stock, as the case may be) a cash amount
equal to the applicable fraction multiplied by the fair market value of a share
of eBay Delaware Common Stock or Preferred Stock, as the case may be, as
determined by the Board of Directors of eBay Delaware in good faith (the "Fair
----
Market Value Per Share"). Upon exercise of each assumed option of eBay
- ----------------------
California to purchase eBay Delaware Common Stock, cash will be paid by eBay
Delaware in lieu of any fractional share of eBay Delaware Common Stock,
respectively, issuable upon exercise of such option, and the amount of cash
received for such fractional share shall be the Fair Market Value Per Share upon
exercise thereof multiplied by the applicable fraction, less the unpaid exercise
price per share for such fraction.
10. EMPLOYEE BENEFIT PLANS. At the Effective Time, the obligations
----------------------
of eBay California under or with respect to every plan, trust, program and
benefit then in effect or administered by eBay California for the benefit of the
directors, officers and employees of eBay California or any of its subsidiaries
shall become the lawful obligations of eBay Delaware and shall be implemented
and administered in the same manner and without interruption until the same are
amended or otherwise lawfully altered or terminated. Effective at the Effective
Time, eBay Delaware hereby expressly adopts and assumes all obligations of eBay
California under such employee benefit plans.
11. FURTHER ASSURANCES. From time to time, as and when required by
------------------
the Surviving Corporation or by its successors or assigns, there shall be
executed and delivered on behalf of eBay California such deeds, assignments and
other instruments, and there shall be taken
3
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eBay, Inc.
Agreement and Plan of Merger
or caused to be taken by it all such further action as shall be appropriate,
advisable or necessary in order to vest, perfect or confirm, of record or
otherwise, in the Surviving Corporation the title to and possession of all
property, interests, assets, rights, privileges, immunities, powers, franchises
and authority of eBay California, and otherwise to carry out the purposes of
this Merger Agreement. The officers and directors of the Surviving Corporation
are fully authorized in the name of and on behalf of eBay California, or
otherwise, to take any and all such actions and to execute and deliver any and
all such deeds and other instruments as may be necessary or appropriate to
accomplish the foregoing.
12. CONDITION. The consummation of the Merger is subject to the
---------
approval of this Merger Agreement and the Merger contemplated hereby by the
shareholders of eBay California and by the sole stockholder of eBay Delaware,
prior to or at the Effective Time.
13. ABANDONMENT. At any time before the Effective Time, this Merger
-----------
Agreement may be terminated and the Merger abandoned by the Board of Directors
of eBay California or eBay Delaware, notwithstanding approval of this Merger
Agreement by the Boards of Directors and shareholders of eBay California and
eBay Delaware.
14. AMENDMENT. At any time before the Effective Time, this Merger
---------
Agreement may be amended, modified or supplemented by the Boards of Directors of
the Constituent Corporations, notwithstanding approval of this Merger Agreement
by the shareholders of eBay California and eBay Delaware; provided, however,
-------- -------
that any amendment made subsequent to the adoption of this Agreement by the
shareholders of eBay California or the sole stockholder of eBay Delaware shall
not: (i) alter or change the amount or kind of shares, securities, cash,
property and/or rights to be received in exchange for or upon conversion of any
shares of any class or series of eBay California; (ii) alter or change any of
the terms of the Certificate of Incorporation of the Surviving Corporation to be
effected by the Merger; or (iii) alter or change any of the terms or conditions
of this Merger Agreement if such alteration or change would adversely affect the
holders of any shares of any class or series of eBay California or eBay
Delaware.
15. TAX-FREE REORGANIZATION. The Merger is intended to be a tax-free
-----------------------
plan of reorganization within the meaning of Section 368(a)(1)(F) of the Code.
16. GOVERNING LAW. This Agreement shall be governed by and construed
-------------
under the internal laws of the State of Delaware as applied to agreements among
California residents entered into and to be performed entirely within
California, without reference to the principles of conflicts of law or choice of
laws, except to the extent that the laws of the State of Delaware would apply in
matters relating to the internal affairs of eBay Delaware and the Merger.
17. COUNTERPARTS. In order to facilitate the filing and recording of
------------
this Merger Agreement, it may be executed in any number of counterparts, each of
which shall be deemed to be an original.
4
<PAGE>
eBay, Inc.
Agreement and Plan of Merger
IN WITNESS WHEREOF, this Merger Agreement is hereby executed on behalf
of each of the Constituent Corporations and attested by their respective
officers hereunto duly authorized.
eBAY, INC. eBAY INC.
a California corporation a Delaware corporation
By: /s/ Gary Bengier By: /s/ Gary Bengier,
----------------------------- -----------------------------
Gary Bengier Gary Bengier,
Vice President and Vice President and
Chief Financial Officer Chief Financial Officer
ATTEST: ATTEST:
- ------ ------
By: /s/ Matthew P. Quilter By: /s/ Matthew P. Quilter
----------------------------- -----------------------------
Matthew P. Quilter, Secretary Matthew P. Quilter, Secretary
[SIGNATURE PAGE TO AGREEMENT AND PLAN OF MERGER]
5
<PAGE>
EXHIBIT 2.02
================================================================================
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
among:
eBay Inc.,
a Delaware corporation;
Jump Acquisition Sub, Inc.
an Ohio corporation;
Jump Incorporated,
an Ohio corporation;
and
Certain Shareholders of Jump Incorporated
___________________________
Dated as of June 30, 1998
___________________________
================================================================================
1.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
SECTION 1. DESCRIPTION OF TRANSACTION................................................................... 1
1.1 Merger of Merger Sub into the Company.................................................... 1
1.2 Effect of the Merger..................................................................... 1
1.3 Closing; Effective Time.................................................................. 2
1.4 [Articles of Incorporation] and Bylaws; Directors and Officers........................... 3
1.5 Conversion of Shares..................................................................... 3
1.6 Closing of the Company's Transfer Books.................................................. 3
1.7 Exchange of Certificates................................................................. 4
1.8 Tax Consequences......................................................................... 4
1.9 Prepayment of Loans to Company Shareholders.............................................. 4
1.10 Further Action........................................................................... 5
SECTION 2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE COMPANY SHAREHOLDERS................... 5
2.1 Due Organization; No Subsidiaries; Etc................................................... 5
2.2 Articles of Incorporation and Bylaws; Records............................................ 6
2.3 Capitalization, Etc...................................................................... 6
2.4 Financial Statements..................................................................... 7
2.5 Absence of Changes....................................................................... 7
2.6 Title to Assets.......................................................................... 8
2.7 Bank Accounts............................................................................ 8
2.8 Equipment; Leasehold..................................................................... 8
2.9 Proprietary Assets....................................................................... 9
2.10 Contracts................................................................................ 10
2.11 Liabilities.............................................................................. 11
2.12 Compliance with Legal Requirements....................................................... 11
2.13 Governmental Authorizations.............................................................. 11
2.14 Tax Matters.............................................................................. 12
2.15 Employee and Labor Matters; Benefit Plans................................................ 13
2.16 Environmental Matters.................................................................... 13
</TABLE>
<PAGE>
Table Of Contents
(continued)
<TABLE>
<CAPTION>
Page
<S> <C>
2.17 Related Party Transactions............................................................... 13
2.18 Legal Proceedings; Orders................................................................ 14
2.19 Authority; Binding Nature of Agreement................................................... 14
2.20 Non-Contravention; Consents.............................................................. 14
2.21 Full Disclosure.......................................................................... 15
2.22 Investment Representations............................................................... 15
SECTION 3. REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB...................................... 16
3.1 Authority; Binding Nature of Agreement................................................... 16
3.2 Valid Issuance........................................................................... 17
SECTION 4. INDEMNIFICATION, ETC......................................................................... 17
4.1 Survival of Representations, Etc......................................................... 17
4.2 Indemnification by Company Shareholders.................................................. 17
4.3 Threshold; Recourse...................................................................... 18
4.4 Escrow of Shares; Satisfaction of Indemnification Claim.................................. 18
4.5 No Contribution.......................................................................... 22
4.6 Defense of Third Party Claims............................................................ 22
4.7 Exercise of Remedies by Indemnitees Other Than Parent.................................... 23
SECTION 5. MISCELLANEOUS PROVISIONS..................................................................... 24
5.1 Designated Shareholders' Agent........................................................... 24
5.2 Further Assurances....................................................................... 24
5.3 Fees and Expenses........................................................................ 24
5.4 Attorneys' Fees.......................................................................... 24
5.5 Notices.................................................................................. 25
5.6 Confidentiality.......................................................................... 25
5.7 Headings................................................................................. 25
5.8 Counterparts............................................................................. 26
5.9 Governing Law............................................................................ 26
5.10 Successors and Assigns................................................................... 26
5.11 Specific Performance..................................................................... 26
</TABLE>
ii.
<PAGE>
Table Of Contents
(continued)
<TABLE>
<CAPTION>
Page
<S> <C>
5.12 Waiver.................................................................................... 26
5.13 Amendments................................................................................ 26
5.14 Severability.............................................................................. 27
5.15 Parties in Interest....................................................................... 27
5.16 Entire Agreement.......................................................................... 27
5.17 Construction.............................................................................. 27
</TABLE>
iii.
<PAGE>
AGREEMENT AND PLAN
OF MERGER AND REORGANIZATION
This Agreement And Plan Of Merger And Reorganization ("Agreement") is made
and entered into as of June 30, 1998, by and among: eBay Inc., a Delaware
corporation ("Parent"); Jump Acquisition Sub, Inc., an Ohio corporation and a
wholly owned subsidiary of Parent ("Merger Sub"); Jump Incorporated, an Ohio
corporation (the "Company"); and Walter N. Carroll, Christopher M. Downie,
Thomas P. Duvall and Robert J. Ratterman (the "Company Shareholders").
Recitals
A. Parent, Merger Sub and the Company intend to effect a merger of Merger
Sub into the Company in accordance with this Agreement and the Ohio General
Corporation Law (the "Merger"). Upon consummation of the Merger, Merger Sub
will cease to exist, and the Company will become a wholly owned subsidiary of
Parent.
B. It is intended that the Merger qualify as a tax-free reorganization
within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as
amended (the "Code").
C. This Agreement has been approved by the respective boards of directors
of Parent, Merger Sub and the Company and has been approved by the shareholders
of Merger Sub and the shareholders of the Company.
D. The Company Shareholders own a total of 300 shares of the Common Stock,
no par value per share, of the Company constituting all of the outstanding
capital stock of the Company (the "Company Shares").
Agreement
The parties to this Agreement agree as follows:
SECTION 1. Description of Transaction.
1.1 Merger of Merger Sub into the Company. Upon the terms and subject
to the conditions set forth in this Agreement, at the Effective Time (as defined
in Section 1.3), Merger Sub shall be merged with and into the Company, and the
separate existence of Merger Sub shall cease. The Company will continue as the
Surviving corporation in the Merger (the "Surviving Corporation").
1.2 Effect of the Merger. The Merger shall have the effects set forth
in this Agreement and in the applicable provisions of the Ohio General
Corporation Law.
1.
<PAGE>
1.3 Closing; Effective Time.
(a) The consummation of the transactions contemplated by this
Agreement (the "Closing") shall take place at the offices of Cooley Godward llp,
Five Palo Alto Square, Palo Alto, California 94306 at 10:00 a.m. Ohio time on
June 30, 1998 (the "Closing Date"). Contemporaneously with or as promptly as
practicable after the Closing, a properly executed certificate of merger
conforming to the requirements of (S)1701.81(A) of the Ohio General Corporation
Law shall be filed with the Secretary of State of the State of Ohio. The Merger
shall become effective at the time such certificate of merger is filed with and
accepted by the Secretary of State of the State of Ohio (the "Effective Time").
(b) in addition to the foregoing, at the Closing:
(i) the Company and each Company Shareholder shall enter into
an employment agreement in substantially the form attached hereto as Exhibit
1.3(b)(i) (each, an "Employment Agreement");
(ii) the Company and each Company Shareholder shall enter into
an non-competition agreement in substantially the form attached hereto as
Exhibit 1.3(b)(ii) (each, a "Non-Competition Agreement"); and
(iii) each Company Shareholder shall tender his resignation as a
director and officer of the Company.
(iv) the Company, (or the Company Shareholders, as applicable)
shall deliver, or provide with respect to 1.3(b)(iv)(2)-(3) an affidavit of
intended filing within 60 days of the Closing Date, the following documents:
(1) Copies of the Company's charter documents and copies
of the resolutions approving this transaction all certified by an appropriate
officer of the Company;
(2) A recently-updated "good standing" certificate of the
Company;
(3) A recently-dated certificate from the applicable
taxing agency in Ohio showing payment of all recent franchise taxes, if
applicable;
(4) Stock Certificates representing all of the
outstanding common stock of the Company for cancellation at the Closing;
(5) The Company's minute books;
(6) A legal opinion of Taft, Stettinius & Hollister,
L.L.P. in form and substance reasonably acceptable to parent and its counsel
carry the matters set forth in Exhibit 1.3(b)(iv)(6);
2.
<PAGE>
(7) Such other documents as may reasonably be requested
by Parent and its counsel; and
(v) Parent shall deliver the following day:
(1) Stock certificates, in the name of each Company
Shareholder, representing the number of shares of the common stock of Parent,
par value $.001 per share, ("Parent Common Stock") to each Company Shareholder
equal to the Exchange Ratio (as defined in Section 1.5 below) times the number
of shares of Company Common Stock owned) by each Company Shareholder, less such
Common Shareholder's share of the Escrow Fund;
(2) Such other documents as the Company or it's counsel
shall reasonably request;
(3) Check in the amount required to be paid at closing
pursuant to the terms of the Employment Agreements and Non-Competition
Agreements; and
1.4 Articles of Incorporation and Code of Regulations; Directors and
Officers. (a) The Articles of Incorporation of the Surviving Corporation
shall be amended and restated as of the Effective Time to conform to the
Articles of Incorporation of Merger Sub as in effect immediately prior to the
Effective Time; (b) the Code of Regulations of the Surviving Corporation shall
be amended and restated as of the Effective Time to conform to the Code of
Regulations of Merger Sub as in effect immediately prior to the Effective Time;
and (c) the directors and officers of the Surviving Corporation immediately
after the Effective Time shall be the individuals identified on Exhibit 1.4.
1.5 Conversion of Shares. At the Effective Time, by virtue of the
Merger and without any further action on the part of Parent, Merger Sub, the
Company or any shareholder of the Company: (a) each share of Company Common
Stock outstanding immediately prior to the Effective Time shall be converted
into the right to receive 158.73 (the "Exchange Ratio") shares of Parent Common
Stock (and cash in lieu of any fractional share of Parent Common Stock; and (b)
each share of the common stock, no par value per share, of Merger Sub
outstanding immediately prior to the Effective Time shall be converted into one
share of common stock of the Surviving Corporation.
No fractional shares of Parent Common Stock shall be issued, but in lieu
thereof each holder of shares of Company Common Stock who would otherwise be
entitled to receive a fraction of a share of Parent Common Stock shall receive
from Parent a cash amount equal to $42.00 multiplied by the fraction of a share
of Parent Common Stock to which such holder would otherwise be entitled.
1.6 Closing of the Company's Transfer Books. At the Effective Time,
holders of certificates representing shares of the Company's capital stock that
were outstanding immediately prior to the Effective Time shall cease to have any
rights as shareholders of
3.
<PAGE>
the Company, and the stock transfer books of the Company shall be closed with
respect to all shares of such capital stock outstanding immediately prior to the
Effective Time. No further transfer of any such shares of the Company's capital
stock shall be made on such stock transfer books after the Effective Time. If,
after the Effective Time, a valid certificate previously representing any of
such shares of the Company's capital stock (a "Company Stock Certificate") is
presented to the Surviving Corporation or Parent, such Company Stock Certificate
shall be canceled and shall be exchanged as provided in Section 1.7.
1.7 Exchange of Certificates.
(a) Immediately after the Effective Time, each Company Shareholder
shall surrender each Company Stock Certificate held by such Company Shareholder,
together with such other documents as may be reasonably required by Parent, to
Parent, in exchange for a certificate representing the number of whole shares of
Parent Common Stock that such holder has the right to receive pursuant to the
provisions of this Section 1 (less the number of shares that such holder has the
right to receive but which are being placed in the Escrow Fund in accordance
with Section 4.4), and the Company Stock Certificate so surrendered shall be
canceled. Until surrendered as contemplated by this Section 1.7, each Company
Stock Certificate shall be deemed, from and after the Effective Time, to
represent only the right to receive upon such surrender a certificate
representing shares of Parent Common Stock as contemplated by this Section 1.
(b) Parent and the Surviving Corporation shall be entitled to deduct
and withhold from any consideration payable or otherwise deliverable to any
holder or former holder of capital stock of the Company pursuant to this
Agreement such amounts as Parent or the Surviving Corporation may be required to
deduct or withhold therefrom under the Code or under any provision of state,
local or foreign tax law. To the extent such amounts are so deducted or
withheld, such amounts shall be treated for all purposes under this Agreement as
having been paid to the person or entity to whom such amounts would otherwise
have been paid.
(c) Neither Parent nor the Surviving Corporation shall be liable to
any holder or former holder of capital stock of the Company for any shares of
Parent Common Stock (or dividends or distributions with respect thereto), or for
any cash amounts, delivered to any public official pursuant to any applicable
abandoned property, escheat or similar law.
1.8 Tax Consequences. For federal income tax purposes, the Merger is
intended to constitute a reorganization within the meaning of Section 368 of the
Code. The parties to this Agreement hereby adopt this Agreement as a "plan of
reorganization" within the meaning of Sections 1.368-2(g) and 1.368-3(a) of the
United States Treasury Regulations.
1.9 Prepayment of Loans to Company Shareholders. Immediately after the
Effective Time, Parent shall cause the Company to repay, at any time within one
year of the Closing Date, the Shareholder Indebtedness (as such term is defined
in Section 2.4) to the Company's Shareholders.
4.
<PAGE>
1.10 Further Action. If, at any time after the Effective Time, any
further action is determined by Parent to be necessary or desirable to carry out
the purposes of this Agreement or to vest the Surviving Corporation or Parent
with full right, title and possession of and to all rights and property of
Merger Sub and the Company, the officers and directors of the Surviving
Corporation and Parent shall be fully authorized (in the name of Merger Sub, in
the name of the Company and otherwise) to take such action.
SECTION 2. Representations and Warranties of the Company and the Company
Shareholders.
Except as set forth on a disclosure schedule delivered to Parent on
the date of this Agreement and certified by the Company Shareholders (the
"Disclosure Schedule"). The Company and the Company Shareholders jointly and
severally represent and warrant, to and for the benefit of the Indemnitees, as
follows:
2.1 Due Organization; No Subsidiaries; Etc.
(a) The Company is a corporation duly organized, validly existing and
in good standing under the laws of the State of Ohio and has all necessary power
and authority: (i) to conduct its business in the manner in which its business
is currently being conducted; (ii) to own and use its assets in the manner in
which its assets are currently owned and used; and (iii) to perform its
obligations under all Company Contracts (as defined in Section 2.10).
(b) The Company has not conducted any business under or otherwise
used, for any purpose or in any jurisdiction, any fictitious name, assumed name,
trade name or other name, other than the name "Jump Incorporated" and "Up4Sale".
(c) To the best of the knowledge of the Company and the Company
Shareholders, the Company is qualified, authorized, registered or licensed to do
business as a foreign corporation in, and is in good standing as a foreign
corporation in, each jurisdiction where such qualification, authorization,
registration licensing or good standing is required.
(d) The entire board of directors of the Company is comprised of
Company Shareholders.
(e) The Company does not own any interest in any corporation,
partnership, limited liability company, joint venture or similar entity
("Entity") and has never owned, beneficially or otherwise, any shares or other
securities of, or any direct or indirect equity interest in, any Entity. The
Company has not agreed and is not obligated to make any future investment in or
capital contribution to any Entity. Part 2.1(e) of the Disclosure Schedule
accurately describes the Company's "Spark! Leadership" program. The Company has
no Liabilities associated with the Spark! Leadership program and the Company may
discontinue its Spark! Leadership program at any time without any penalty or any
other Liability to the Company.
5.
<PAGE>
2.2 Articles of Incorporation and Code of Regulations; Records. The
Company has delivered to Parent accurate and complete copies of: (1) the
Company's articles of incorporation and Code of Regulations; (2) the stock
records of the Company; and (3), the minutes and other records of the meetings
and other proceedings (including any actions taken by written consent or
otherwise without a meeting) of the shareholders of the Company, the board of
directors of the Company and all committees of the board of directors of the
Company. There have been no formal meetings or other proceedings of the
shareholders of the Company, the board of directors of the Company or any
committee of the board of directors of the Company that are not fully reflected
in such minutes or other records. There has not been any violation of any of
the provisions of the Company's articles of incorporation or Code of
Regulations, and the Company has not taken any action that is inconsistent in
any material respect with any resolution adopted by the Company's shareholders,
the Company's board of directors or any committee of the Company's board of
directors. The books of account, stock records, minute books and other records
of the Company are accurate, up-to-date and complete in all material respects,
and have been maintained in accordance with prudent business practices. The
Company has never amended its articles of incorporation or Code of Regulations.
The Company has not effected or been a party to any merger, consolidation,
business combination, reorganization, or sale of all or a portion of the assets
or capital stock of the Company, recapitalization, reclassification of shares,
stock split, reverse stock split or similar transaction.
2.3 Capitalization, Etc.
(a) The authorized capital stock of the Company consists of: 500
shares of Common Stock, no par value, of which 300 shares have been issued and
are outstanding as of the date of this Agreement. All of the outstanding shares
of Company Common Stock have been duly authorized and validly issued, and are
fully paid and non-assessable. The Company Shareholders collectively own, of
record and beneficially, all of the issued and outstanding shares of Company
Common Stock.
(b) There is no: (i) outstanding subscription, option, call, warrant
or right (whether or not currently exercisable) to acquire any shares of the
capital stock or other securities of the Company; (ii) outstanding security,
instrument or obligation that is or may become convertible into or exchangeable
for any shares of the capital stock or other securities of the Company; (iii)
written, oral or other agreement, contract, understanding, note or other legally
binding commitment or instrument ("Contract") under which the Company is or may
become obligated to sell or otherwise issue any shares of its capital stock or
any other securities; or (iv) to the best of the knowledge of the Company and
the Company Shareholders, condition or circumstance that may give rise to or
provide a basis for the assertion of a claim by any person or entity to the
effect that such person or entity is entitled to acquire or receive any shares
of capital stock or other securities of the Company.
6.
<PAGE>
(c) All outstanding shares of Company Common Stock have been issued
and granted in compliance with (i) all applicable securities laws and other
applicable Legal Requirements, and (ii) all requirements set forth in applicable
Contracts.
(d) The Company has never declared, accrued, set aside or paid any
dividend or made any other distribution in respect of any shares of capital
stock, and has not repurchased, redeemed or otherwise reacquired any shares of
capital stock or other securities of the Company;
(e) Other than in connection with the issuance of the Company Common
Stock to the Company Shareholders in connection with the Company's formation,
the Company has never sold, issued or authorized the issuance of (i) any capital
stock or other security, (ii) any option or right to acquire any capital stock
or any other security, or (iii) any instrument convertible into or exchangeable
for any capital stock or other security;
2.4 Financial Statements.
(a) The Company has delivered to Parent unaudited balance sheets of
the Company as of June 26, 1998 (the "Interim Balance Sheet") and the related
unaudited income statement, statement of stockholders' equity and statement of
cash flows of the Company for the periods then ended (collectively, the
"Financial Statements"). The Financial Statements: (i) were prepared in
accordance with generally accepted accounting principles applied on a consistent
basis throughout the periods covered (except that the Financial Statements do
not contain footnotes and the Financial Statement for the period ended June 30,
1998 is subject to normal and recurring year-end adjustments which will not,
individually or in the aggregate, be material in amount), and (ii) fairly
present the financial position of the Company as of the respective dates thereof
and the results of operations of the Company for the periods covered thereby.
(b) All debts, obligations and other liabilities of any nature of the
Company ("Liabilities") are accurately and completely recorded on the Interim
Balance Sheet or Part 2.4(b) of the Disclosure Schedule regardless of whether
any such Liability would be required to be disclosed on a balance sheet in
accordance with generally accepted accounting principles. Any and all past,
present or future Shareholder Indebtedness is accurately reflected in the
Financial Statements.
2.5 Absence of Changes. Since the date of the Interim Balance Sheet:
(a) there has not been any material adverse change in the Company's
business, condition, assets, liabilities or operations, and, to the best of the
knowledge of the Company and the Company Shareholders, no event has occurred
that could reasonably be expected to have a material adverse effect on the
Company's business, condition, assets, liabilities, operations, financial
performance or prospects (a "Material Adverse Effect").
(b) there has not been any material loss, damage or destruction to,
or any material interruption in the use of, any of the Company assets;
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(c) the Company has not incurred or guaranteed any indebtedness for
borrowed money or any other Liabilities in excess of $5,000.00;
(d) the Company has not entered into any transaction or taken any
other material action outside the ordinary course of business or inconsistent
with its past practices;
(e) the Company has not entered into any transaction with any Related
Party (or such term is defined in Section 2.17) including any loan to any
Company Shareholder; and
(f) the Company has not agreed or committed to take any of the
actions referred to in clauses "(c)" through "(e)" above.
2.6 Title to Assets.
(a) The Company owns, and has good, valid and marketable title to,
all assets purported to be owned by it, including: (i) all assets reflected on
the Interim Balance Sheet; (ii) all assets referred to in Part 2.9 of the
Disclosure Schedule and all of the Company's rights under the Company Contracts
and User Agreements (as defined in Section 2.10); and (iii) all other assets
reflected in the Company's books and records as being owned by the Company. All
of said assets are owned by the Company free and clear of any lien, pledge,
charge, mortgage, security interest, encumbrance, claim, infringement,
interference, option, right of first refusal, preemptive right, community
property interest or other restriction or encumbrance of any nature
("Encumbrance"), except for any immaterial lien for current taxes not yet due
and payable which has arisen in the ordinary course of business.
(b) The assets referred to in clauses (i) and (ii) of subsection
2.6(a) above constitute all of the assets that are material to the business of
the Company or are necessary to conduct such business as it has been and is
being conducted.
(c) As of the date hereof, not less than 53,000 member accounts have
been established for use of the Company's online auction services.
2.7 Bank Accounts. The Company has provided Parent with accurate
information with respect to each account maintained by or for the benefit of the
Company at any bank or other financial institution.
2.8 Equipment; Leasehold.
(a) All material items of equipment and other tangible assets owned
by or leased to the Company are adequate for the uses to which they are being
put, are in good condition and repair (ordinary wear and tear excepted) and are
adequate for the conduct of the Company's business in the manner in which such
business is currently being conducted.
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(b) The Company does not own any real property or any interest in
real property, except for the leasehold created under the real property lease
identified in Part 2.10(b) of the Disclosure Schedule.
2.9 Proprietary Assets.
(a) Part 2.9 of the Disclosure Schedule identifies all Proprietary
Assets owned by the Company ("Company Proprietary Assets"). No Proprietary
Asset is licensed to the Company by any person or entity (except for any
Proprietary Asset that is licensed to the Company under any third party software
license generally available to the public at a cost of less than $10,000). The
Company has good, valid and marketable title to all of the Company Proprietary
Assets free and clear of all liens and other Encumbrances. The Company is not
obligated to make any payment to any person or entity for the use of any Company
Proprietary Asset. The Company has not developed jointly with any other person
or entity any Proprietary Asset with respect to which such other person or
entity has any rights.
(b) The Company has taken all measures and precautions as are
consistent with prudent business practices to protect and maintain the
confidentiality and secrecy of all Company Proprietary Assets (except Company
Proprietary Assets whose value would be unimpaired by public disclosure) and
otherwise to maintain and protect the value of all Company Proprietary Assets.
The Company has not disclosed or delivered to any person or entity or entity, or
permitted the disclosure or delivery to any person or entity or entity of the
source code, or any portion or aspect of the source code, of any Company
Proprietary Asset.
(c) The Company is not infringing, misappropriating or making any
unlawful use of, and the Company has not at any time infringed, misappropriated
or made any unlawful use of and none of the Company Proprietary Assets infringes
or conflicts with, any Proprietary Asset owned or used by any other person or
entity. To the best of the knowledge of the Company and the Company
Shareholders, no other person or entity is infringing, misappropriating or
making any unlawful use of, and no Proprietary Asset owned or used by any other
person or entity infringes or conflicts with, any Company Proprietary Asset.
(d) The Company Proprietary Assets constitute all the Proprietary
Assets necessary to enable the Company to conduct its business in the manner in
which such business has been and is being conducted. The Company has not
entered into any covenant not to compete or Contract limiting its ability to
exploit fully and freely any of its Proprietary Assets or to transact business
in any market or geographical area or with any person or entity.
For purposes of this Agreement "Proprietary Asset" shall mean any: (a)
patent, patent application, trademark (whether registered or unregistered),
trademark application, trade name, fictitious business name, service mark
(whether registered or unregistered), service mark application, copyright
(whether registered or unregistered), copyright
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application, maskwork, maskwork application, trade secret, know-how, customer
list, franchise, system, computer software, computer program, invention, design,
blueprint, engineering drawing, proprietary product, technology, proprietary
right or other intellectual property right or intangible asset; or (b) right to
use or exploit any of the foregoing.
(e) No IP addresses owned, controlled or used by the Company has been
blocked or is currently blocked by any third party, nor is the Company aware of
any threats to block such IP addresses. To the best of the knowledge of the
Company and the Company Shareholders, the Company (or its domain names or any IP
address owned, controlled or used by the Company) is not currently and has not
been on the Realtime Blackhole List or any other similar list of rogue or
blacklisted websites, nor is the Company aware of any threats to place the
Company on such lists.
2.10 Contracts.
(a) There is no, and there has never been any Contract between the
Company and its customers relating to the online services provided by the
Company to is customers other than Contracts with terms identical to the form(s)
of user agreement(s) previously provided to Parent (the "User Agreements");
(b) Part 2.10(b) of the Disclosure Schedule is a complete and
accurate list of each Contract other than a User Agreement: (i) to which the
Company is a party; (ii) by which the Company or any of its assets is or may
become bound or under which the Company has, or may become subject to, any
obligation; or (iii) under which the Company has or may acquire any right or
interest involving or potentially involving more than $5,000.00 (each such
Contract being referred to herein as a "Company Contract").
(c) The Company has delivered to Parent accurate and complete copies
of all written Contracts identified in Part 2.10(b) of the Disclosure Schedule,
including all amendments thereto. There is no Company Contract that is not in
written form.
(d) (i) The Company has not violated or breached, or committed any
default under, any Company Contract or User Agreement; (ii) to the best of the
knowledge of the Company and the Company Shareholders, no event has occurred,
and no circumstance or condition exists, that (with or without notice or lapse
of time) will, or could reasonably be expected to, result in any such violation
or breach; and (iii) the Company has not waived any of its material rights under
any Company Contract.
(e) The Company Contracts and User Agreements collectively constitute
all of the Contracts necessary to enable the Company to conduct its business in
the manner in which its business is currently being conducted.
(f) Except as described on Part 2.10(b) of the Disclosure Schedule,
each Contract listed or required to be listed on Part 2.10(b) of the Disclosure
Schedule is terminable by the Company on no more than 90-days written notice
without any penalty or
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any other Liability to the Company (including any advertising Contract listed
or required to be listed on such Schedule).
2.11 Liabilities.
(a) The Company has no accrued, contingent or other liabilities of
any nature, either matured or unmatured (whether or not required to be reflected
in financial statements in accordance with generally accepted accounting
principles, and whether due or to become due), except for liabilities identified
as such in the "liabilities" column of the Interim Balance Sheet.
(b) Following the consummation of the Merger, should Parent
discontinue the online auction services offered by the Company, neither Parent
nor the Company will be liable or have any continuing obligations as a result of
any promotional policy or program that the Company maintains, supports or has
any obligations with respect to (including its "Free Auctions Forever" "Spark!
Leadership" and "Tell A Friend" programs) or that the Company has ever
maintained supported or had obligations with respect to ("Promotional Policy").
The Company is not currently in violation of or in breach under the terms of any
Promotional Policy. All Liabilities associated with any Promotional Policy are
fully reflected on the Interim Balance Sheet.
2.12 Compliance with Legal Requirements. To the best of the knowledge of
the Company and the Company Shareholders, the Company is, and has at all times
since inception been, in compliance with all applicable federal, state, local,
municipal or other laws, statutes, ordinances, codes, or other similar rules and
regulations ("Legal Requirements") issued, enacted, adopted, promulgated,
implemented or otherwise put into effect by or under the authority of any
federal, state, local, municipal, foreign or other government or governmental or
quasi-governmental authority ("Governmental Body"). The Company has not
received any notice or other communication from any person, entity or
Governmental Body regarding any actual or possible violation of, or failure to
comply with, any Legal Requirement. Part 2.12 of the Disclosure Schedule
describes each inquiry, notice and other communication received by the Company
and the Company Shareholders from any Governmental Body (including the Federal
Bureau of Alcohol, Tobacco and Firearms or the Federal Trade Commission)
regarding the operation of the Company's website, any members using the
Company's website or any items offered for sale on such website.
2.13 Governmental Authorizations. Part 2.13 of the Disclosure Schedule
identifies each permit, license, registration, qualification, approval, or
similar authorization issued or granted by a Governmental Body (a "Governmental
Authorization") to the Company, and the Company has delivered to Parent accurate
and complete copies of all Governmental Authorizations identified in Part 2.13
of the Disclosure Schedule. The Governmental Authorizations identified in Part
2.13 of the Disclosure Schedule are valid and in full force and effect, and
collectively constitute all Governmental Authorizations necessary to enable the
Company to conduct its business in the manner in which its
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business is currently being conducted. The Company is, and at all times since
inception has been, in substantial compliance with the terms and requirements of
the respective Governmental Authorizations identified in Part 2.13 of the
Disclosure Schedule. Since inception, the Company has not received any notice or
other communication from any Governmental Body regarding (a) any actual or
possible violation of or failure to comply with any term or requirement of any
Governmental Authorization, or (b) any actual or possible revocation,
withdrawal, suspension, cancellation, termination or modification of any
Governmental Authorization.
2.14 Tax Matters.
(a) All Tax Returns required to be filed by or on behalf of the
Company with any Governmental Body with respect to any taxable period ending on
or before the Closing Date (the "Company Returns") (i) have been filed on or
before the applicable due date (including any extensions of such due date), and
(ii) have been, or will be when filed, accurately and completely prepared in all
material respects in compliance with all applicable Legal Requirements. All
amounts shown on the Company Returns to be due on or before the Closing Date
have been paid. The Company has delivered to Parent accurate and complete
copies of all Company Returns filed since inception.
(b) No Company Return relating to income Taxes has ever been examined
or audited by any Governmental Body. No claim or Proceeding is pending or has
been threatened against or with respect to the Company in respect of any Tax and
no notice of deficiency or similar document has been received by the Company
with respect to any Tax. There are no liens for Taxes upon any of the assets of
the Company except liens for current Taxes not yet due and payable. The Company
has not entered into or become bound by any agreement or consent with any
Governmental Body relating to Taxes and the Company is not, and has never been,
a party to or bound by any tax indemnity agreement, tax sharing agreement, tax
allocation agreement or similar Contract. The Company has properly withheld all
amounts required to be withheld for its employees for all federal, state and
local tax purposes.
For purposes of this Agreement:
"Tax" shall mean any tax (including any income tax, franchise tax, capital
gains tax, gross receipts tax, value-added tax, surtax, excise tax, ad valorem
tax, transfer tax, stamp tax, sales tax, use tax, property tax, business tax,
withholding tax or payroll tax), levy, assessment, tariff, duty (including any
customs duty), deficiency or fee, and any related charge or amount (including
any fine, penalty or interest), imposed, assessed or collected by or under the
authority of any Governmental Body; and
"Tax Return" shall mean any return (including any information return),
report, statement, declaration, estimate, schedule, notice, notification, form,
election, certificate or other document or information filed with or submitted
to, or required to be filed with or submitted to, any Governmental Body in
connection with the determination, assessment,
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collection or payment of any Tax or in connection with the administration,
implementation or enforcement of or compliance with any Legal Requirement
relating to any Tax.
2.15 Employee and Labor Matters; Benefit Plans.
(a) Except as set forth on Part 2.15(a) of the Disclosure Schedule,
the Company does not sponsor, maintain, contribute to and is not required to
contribute to any salary, bonus, deferred compensation, incentive compensation,
stock purchase, stock option, severance pay, termination pay, hospitalization,
medical, life or other insurance, supplemental unemployment benefits, profit-
sharing, pension or retirement plan (including any employee pension benefit plan
(as defined in Section 3(2) of the Employee Retirement Income Security Act of
1974, as amended)), program or agreement for the benefit of any current or
former employee, director shareholder or other person.
(b) Except as set forth on Part 2.15(b) of the Disclosure Schedule,
other than the Company Shareholders, the Company does not and has not employed
or utilized the services of any employees or consultants. All individuals who
are performing or have performed services for the Company and are or were
classified as "independent contractors" for tax purposes qualify for such
classification.
(c) The "Advisory Board" is a voluntary program and the Company has
not paid, reimbursed, incentivized, granted any interests, rights or equity to
or made any commitment or promise to (written or oral) and has no obligation or
Contract to, pay, reimburse, incentivize, grant any interests, rights or equity
to or otherwise compensate the members of the Advisory Board.
2.16 Environmental Matters. The Company is in compliance with all
applicable federal, state and local Legal Requirements relating to pollution or
protection of human health or the environment ("Environmental Laws"). The
Company is not required to possess any permits or other Governmental
Authorizations under applicable Environmental Laws for the ownership of its
properties or conduct of its business.
2.17 Related Party Transactions. Except as set forth in Part 2.17 of
the Disclosure Schedule, no Related Party (a) has any direct or indirect
interest in any material asset used in or otherwise relating to the business of
the Company (other than the Company Shareholders by virtue of their ownership of
the Company Shares); (b) has loaned money to or is indebted to the Company; (c)
has entered into, or has had any direct or indirect financial interest in, any
material Contract, transaction or business dealing involving the Company; (d) is
competing directly or indirectly, with the Company; or (e) has any claim or
right against the Company. (For purposes of this Section 2.17 each of the
following shall be deemed to be a "Related Party": (i) each of the Company
Shareholders; (ii) each individual who is, or who has at any time since
inception been, an officer of the Company; (iii) each member of the immediate
family of each of the individuals referred to in clauses "(i)" and "(ii)" above;
and (iv) any trust or other Entity (other than the Company) in which any one of
the individuals referred to in clauses "(i)", "(ii)" and "(iii)" above holds
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(or in which more than one of such individuals collectively hold), beneficially
or otherwise, a material voting, proprietary or equity interest.)
2.18 Legal Proceedings; Orders.
(a) There is no action, suit, litigation, arbitration, proceeding
(including any civil, criminal, administrative, investigative or appellate
proceeding), hearing, inquiry, audit, examination or investigation commenced,
brought, conducted or heard by or before, or otherwise involving, any court or
other Governmental Body or any arbitrator or arbitration panel ("Legal
Proceeding") pending or, to the best of the knowledge of the Company and the
Company Shareholders threatened, against the Company or any of the Company
Shareholders relating to the business of the Company: (i) that involves the
Company or any of the assets owned or used by the Company or any person or
whose liability the Company has or may have retained or assumed, either
contractually or by operation of law; or (ii) that challenges, or that may have
the effect of preventing, delaying, making illegal or otherwise interfering
with, the Merger or any of the other transactions contemplated by this
Agreement. No event has occurred, and no claim, dispute or other condition or
circumstance exists, that will, or that could reasonably be expected to, give
rise to or serve as a basis for the commencement of any such Legal Proceeding.
No Legal Proceeding has ever been commenced by or has ever been pending against
the Company.
(b) There is no order, writ, injunction, judgment or decree to which
the Company, or any of the assets owned or used by the Company, is subject.
None of the Company Shareholders is subject to any order, writ, injunction,
judgment or decree that relates to the Company's business or to any of the
assets owned or used by the Company. No officer or other employee of the
Company is subject to any order, writ, injunction, judgment or decree that
prohibits such officer or other employee from engaging in or continuing any
conduct, activity or practice relating to the Company's business.
2.19 Authority; Binding Nature of Agreement. The Company has the
absolute and unrestricted right, power and authority to enter into and to
perform its obligations under this Agreement; and the execution, delivery and
performance by the Company of this Agreement have been duly authorized by all
necessary action on the part of the Company, its shareholders and its board of
directors. This Agreement constitutes the legal, valid and binding obligation
of the Company and each Company Shareholder, enforceable against the Company and
each Company Shareholder in accordance with its terms, subject to (i) laws of
general application relating to bankruptcy, insolvency and the relief of
debtors, and (ii) rules of law governing specific performance, injunctive relief
and other equitable remedies.
2.20 Non-Contravention; Consents. Neither (1) the execution, delivery
or performance of this Agreement or any of the other agreements referred to in
this Agreement, nor (2) the consummation of the Merger or any of the other
transactions contemplated by this Agreement, will directly or indirectly (with
or without notice or lapse of time): (a) contravene, conflict with or result in
a violation of (i) any of the provisions of
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the Company's articles of incorporation or Code of Regulations, or (ii) any
resolution adopted by the Company's shareholders, the Company's board of
directors or any committee of the Company's board of directors; (b) contravene,
conflict with or result in a violation of any of the terms or requirements of,
or give any Governmental Body the right to revoke, withdraw, suspend, cancel,
terminate or modify, any Governmental Authorization that is held by the Company
or that otherwise relates to the Company's business or to any of the assets
owned or used by the Company; (c) contravene, conflict with or result in a
violation or breach of, or result in a default under, any provision of any
Company Contract, or give any person or the right to (i) declare a default or
exercise any remedy under any such Company Contract, (ii) accelerate the
maturity or performance of any such Company Contract, or (iii) cancel, terminate
or modify any such Company Contract; or (d) result in the imposition or creation
of any lien or other Encumbrance upon or with respect to any asset owned or used
by the Company (except for minor liens that will not, in any case or in the
aggregate, materially detract from the value of the assets subject thereto or
materially impair the operations of the Company).
The Company is not and will not be required to make any filing with or give
any notice to, or to obtain any consent, approval or other authorization from,
any person or in connection with (x) the execution, delivery or performance of
this Agreement or any of the other agreements referred to in this Agreement, or
(y) the consummation of the Merger or any of the other transactions contemplated
by this Agreement.
2.21 Full Disclosure. This Agreement (including the Disclosure
Schedule) does not (i) contain any representation, warranty or information that
is false or misleading with respect to any material fact, or (ii) omit to state
any material fact or necessary in order to make the representations, warranties
and information contained and to be contained herein and therein (in the light
of the circumstances under which such representations, warranties and
information were or will be made or provided) not false or misleading.
2.22 Investment Representations.
(a) Each Company Shareholder is acquiring the Parent Common Stock
solely for his own account for investment and not with a view to distribution or
resale. Each Company Shareholder agrees that he will not sell, hypothecate,
pledge or otherwise dispose of the Parent Common Stock to be received by him in
the Merger in whole or in part unless such Parent Common Stock either has been
registered under the Securities Act of 1933, as amended (the "Securities Act")
and any applicable state securities law, or is exempt from the registration
requirements of the Securities Act and any such state securities law.
(b) Each Company Shareholder has sufficient knowledge and experience
in (i) business and financial matters and (ii) the technology of Parent and
industry in which Parent operates, such that he is able to evaluate Parent, its
proposed activities and the risks and merits of an investment in Parent Common
Stock. Each Company Shareholder has the ability to accept the high risk and
lack of liquidity inherent in this type of investing.
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(c) Each Company Shareholder recognizes that investment in Parent
involves certain risks and has reviewed and understands all of the risk factors
related to an investment in Parent.
(d) Each Company Shareholder has had the opportunity to ask questions
of and receive answers from the representatives of Parent concerning the terms,
conditions and activities of Parent and to obtain any additional information
necessary to verify the accuracy of the information provided.
(e) Each Company Shareholder has been advised to consult with its own
attorney regarding legal matters concerning this investment in Parent.
(f) Each Company Shareholder is aware that the Parent Common Stock it
will receive in the Merger has not been registered under the Securities Act (and
that no such registration is contemplated) and are being sold in reliance upon
the exemption from the registration requirements under that Act provided in
Regulation D and/or Section 4(2). Each Company Shareholder further understands
that it is not anticipated that there will be any market for its interest in
Parent and that he must therefore bear the economic risk of this investment for
indefinitely. Each Company Shareholder is also aware that: (i) Parent is under
no obligation to file a registration statement with respect to such Parent
Common Stock to be issued to him in the Merger; and (ii) the provisions of Rule
144 under the Act will permit resale of the Parent Common Stock to be issued to
him in the Merger only under limited circumstances. The undersigned
acknowledges that transfer of the Parent Common Stock is restricted by state and
federal securities laws and that each certificate representing such shares shall
bear a legend identical or similar in effect to the following legend (together
with any legend or legends required by state securities laws or otherwise):
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE "ACT") AND
MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED,
ASSIGNED, PLEDGED OR HYPOTHECATED UNLESS REGISTERED UNDER
THE ACT OR UNLESS AN EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THE ACT IS AVAILABLE"
SECTION 3. Representations and Warranties of Parent and Merger Sub.
Parent and Merger Sub jointly and severally represent and warrant
to the Company and the Signing Shareholders as follows:
3.1 Authority; Binding Nature of Agreement. Parent and Merger Sub have
the absolute and unrestricted right, power and authority to perform their
obligations under this Agreement; and the execution, delivery and performance by
Parent and Merger Sub of this Agreement (including the contemplated issuance of
Parent Common Stock in the Merger in accordance with this Agreement) have been
duly authorized by all necessary
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action on the part of Parent and Merger Sub and their respective boards of
directors. No vote of Parent's stockholders is needed to approve the Merger.
This Agreement constitutes the legal, valid and binding obligation of Parent and
Merger Sub, enforceable against them in accordance with its terms, subject to
(i) laws of general application relating to bankruptcy, insolvency and the
relief of debtors, and (ii) rules of law governing specific performance,
injunctive relief and other equitable remedies.
3.2 Valid Issuance. The Parent Common Stock to be issued in the Merger
will, when issued in accordance with the provisions of this Agreement be validly
issued, fully paid and nonassessable.
SECTION 4. Indemnification, Etc.
4.1 Survival of Representations, Etc. The representations and
warranties made by the Company Shareholders in this Agreement shall survive the
Closing and shall expire on the first anniversary of the Closing Date; provided,
however, that if, at any time prior to the first anniversary of the Closing
Date, any Indemnitee (acting in good faith) delivers to any of the Company
Shareholders a written notice alleging the existence of an inaccuracy in or a
breach of any of the representations and warranties made by the Company
Shareholders (and setting forth in reasonable detail the basis for such
Indemnity's belief that such an inaccuracy or breach may exist) and asserting a
claim for recovery under Section 4.2 based on such alleged inaccuracy or breach,
then the claim asserted in such notice shall survive the first anniversary of
the Closing until such time as such claim is fully and finally resolved. The
representations, warranties, covenants and obligations of the Company and the
Company Shareholders, and the rights and remedies that may be exercised by the
Indemnitees, shall not be limited or otherwise affected by or as a result of any
information furnished to, or any investigation made by or knowledge of, any of
the Indemnitees or any of their Representatives.
For purposes of this Agreement, the term Indemnitee shall mean the
following person or Entities: (a) Parent; (b) Parent's current and future
affiliates (including the Surviving Corporation); (c) the respective attorneys,
accountants and other representatives of the person or Entities referred to in
clauses "(a)" and "(b)" above; and (c) the respective successors and assigns of
the person or Entities referred to in clauses "(a)", "(b)" and "(c)" above;
provided, however, that the Company Shareholders shall not be deemed to be
"Indemnitees."
4.2 Indemnification by Company Shareholders.
(a) From and after the Effective Time (but subject to Section 4.1),
the Company Shareholders, jointly and severally, shall hold harmless and
indemnify each of the Indemnitees from and against, and shall compensate and
reimburse each of the Indemnitees for, any loss, damage, injury, liability,
claim, demand, settlement, judgment, fine, penalty, Tax, fee (including
reasonable attorneys' fees), charge, cost (including costs of investigation) or
expense of any nature ("Damages") which are directly or indirectly suffered or
incurred by any of the Indemnitees or to which any of the Indemnitees may
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otherwise become subject (regardless of whether or not such Damages relate to
any third-party claim) and which arise from or as a result of, or are directly
or indirectly connected with: (i) any inaccuracy in or breach of any
representation or warranty set forth in Section 2 (without giving effect to any
"Material Adverse Effect" or other materiality qualification or any similar
qualification contained or incorporated directly or indirectly in such
representation or warranty); (ii) any breach of any covenant or obligation of
the Company or any of the Company Shareholders contained in this Agreement or in
any of the other agreements and instruments delivered in connection with the
transactions contemplated hereby; or (iii) any Legal Proceeding relating to any
inaccuracy or breach of the type referred to in clause "(i)" or "(ii)" above
(including any Legal Proceeding commenced by any Indemnitee for the purpose of
enforcing any of its rights under this Section 4).
(b) The Company Shareholders acknowledge and agree that, if the
Surviving Corporation suffers, incurs or otherwise becomes subject to any
Damages as a result of or in connection with any inaccuracy in or breach of any
representation, warranty, covenant or obligation, then (without limiting any of
the rights of the Surviving Corporation as an Indemnitee) Parent shall also be
deemed, by virtue of its ownership of the stock of the Surviving Corporation, to
have incurred Damages as a result of and in connection with such inaccuracy or
breach.
4.3 Threshold; Recourse.
(a) The Company Shareholders shall not be required to make any
indemnification payment pursuant to Section 4.2(a) for any inaccuracy in or
breach of any of their representations and warranties set forth in Section 2
unless the Damages arising from such inaccuracy or breach that have been
directly or indirectly suffered or incurred by any one or more of the
Indemnitees, or to which any one or more of the Indemnitees has or have
otherwise become subject, exceed $5,000 in any individual case and $25,000 in
the aggregate. If the total amount of such Damages exceed $5,000 or $25,000 as
the case may be, then the Indemnitees shall be entitled to be indemnified
against and compensated and reimbursed for the full amount of such Damages and
not merely for the portion of such damages exceeding $5,000 or $25,000 as the
case may be.
(b) Other than in the case of fraud or willful misconduct, in the
event that any Indemnitee shall become entitled to any indemnification under
this Section 4, resort to the Escrow Shares (as defined in Section 4.4) shall be
the sole and exclusive remedy for such Indemnitee. In the case of fraud or
willful misconduct, the Indemnitees may seek recourse against the Escrow Shares
as well as any such other remedies as may be available in law or in equity.
4.4 Escrow of Shares; Satisfaction of Indemnification Claim.
(a) On the date hereof, Parent shall issue a certificate for 9,524
shares of Parent Common Stock (the "Escrow Shares") in the name of the eBay Inc.
as escrow agent (the "Escrow Agent"), evidencing the shares of Parent Common
Stock to be held in escrow (the "Escrow Fund") in accordance with this
Agreement. The Escrow Fund shall be held
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as a trust fund and shall not be subject to any lien, attachment, trustee
process or any other judicial process of any creditor of any party hereto. The
Escrow Agent agrees to accept delivery of the Escrow Fund and to hold the Escrow
Fund in escrow (the "Escrow"), subject to the terms and conditions of this
Agreement.
In the event that, after the Closing, the Company Shareholders desire to
replace the Escrow Agent with an independent third party escrow agent, Parent
and the Company Shareholders hereby agree to replace eBay Inc. as Escrow Agent
with a third party escrow agent reasonably acceptable to Parent and the Company
Shareholders and to enter into an Escrow Agreement with such third party with
terms substantially similar to the terms contained herein. In such event,
Parent on the one hand and the Company Shareholders on the other hand agree that
they would each be responsible for the paying of 50% of the legal and other fees
and expenses associated with establishing and maintaining such third party
escrow account.
(b) The Escrow Shares shall be used to compensate and reimburse each
of the Indemnitees for indemnifiable claims as set forth herein. The Escrow
Fund shall be security for such indemnity obligation, subject to the
limitations, and in the manner provided, in this Agreement.
(c) On any matter brought before the Parent stockholders for a vote,
the Escrow Agent shall vote the Escrow Shares in the Escrow Fund as directed by
the Company Shareholders individually. Each Company Shareholder shall have the
right to direct the vote of 25% of the number of Escrow Shares then held in the
Escrow Account.
(d) Any distributions of cash, securities or other property in
respect of or in exchange for any of the Escrow Shares in the Escrow Fund, other
than distributions of capital stock of Parent (by way of stock dividend, stock
split or otherwise) not constituting a dividend for purposes of Section 301 of
the Code, shall be payable and distributed directly to the Escrow and shall
become a part of the Escrow Fund and become included in the definition of
"Escrow Shares". At the time any of the Escrow Shares in the Escrow Fund are
required to be released from the Escrow to any person pursuant to this Escrow
Agreement, any distributions of capital stock of Parent previously made in
respect of such released Escrow Shares and held in the Escrow shall be released
from the Escrow to such person. Each certificate representing shares deposited
in the Escrow Fund shall be accompanied by executed stock powers, executed in
blank as to the assignee and certificate number, in form sufficient for the
transfer thereof. It is understood that shares of Parent Common Stock which may
be distributed on or with respect to the shares in the Escrow Fund during the
term of this Agreement by reason of stock dividends, stock splits or otherwise
shall be deposited directly by Parent with the Escrow Agent (with the applicable
executed stock powers) pursuant to the terms and conditions hereof (such
additional shares shall be deemed to become a part of the Escrow Fund when
deposited with the Escrow Agent).
19.
<PAGE>
(e) The interests of the Company Shareholders in the Escrow and in
the Escrow Shares in the Escrow Fund shall not be assignable or transferable,
other than by operation of law.
(f) No fractional shares of Parent Common Stock shall be retained in
or released from the Escrow pursuant to this Agreement. In connection with any
release of Shares from the Escrow, the Escrow Agent shall be permitted to "round
down" or to follow such other rounding procedures as the Escrow Agent reasonably
determines to be appropriate in order to avoid (i) retaining any fractional
shares in the Escrow Fund or (ii) releasing any fractional shares from the
Escrow.
(g) If Parent determines in good faith that it is entitled, under the
terms of this Agreement, to make a claim against the Escrow for indemnification,
then Parent may deliver to the Designated Shareholders" Agent (as defined in
Section 5.1) a written notice of such inaccuracy or breach (a "Claim Notice")
setting forth (i) a brief description of the circumstances supporting Parent's
reasonable belief that such inaccuracy or breach exists or has occurred, and
(ii) to the extent possible, a non-binding, preliminary estimate of the
aggregate dollar amount of all indemnifiable claims that have arisen and may
arise as a result of such inaccuracy or breach (such aggregate amount being
referred to as the "Claim Amount"). Such Claim Notice must be delivered on or
before the first anniversary of the Closing Date.
(h) Within thirty (30) days after the delivery of a Claim Notice to
the Designated Shareholders" Agent, the Designated Shareholders" Agent shall
deliver to the Escrow Agent, a written notice (the "Response Notice")
containing: (i) instructions to the effect that Shares having a Fair Market
Value (as defined below) equal to the entire Claim Amount set forth in such
Claim Notice is to be released from the Escrow to Parent; or (ii) instructions
to the effect that Escrow Shares having a Fair Market Value equal to a specified
portion (but not the entire amount) of the Claim Amount set forth in such Claim
Notice are to be released from the Escrow to Parent, together with a statement
that the remaining portion of such Claim Amount is being disputed; or (iii) a
statement that the entire Claim Amount set forth in such Claim Notice is being
disputed. If no Response Notice is received by Parent from the Designated
Shareholders" Agent within thirty (30) days after the delivery of a Claim Notice
to the Designated Shareholders" Agent, then the Designated Shareholders" Agent
shall be deemed to have given instructions that shares of Parent Common Stock
having a Fair Market Value equal to the entire Claim Amount set forth in such
Claim Notice are to be released to Parent from the Escrow.
(i) If the Designated Shareholders" Agent gives (or is deemed to have
given) instructions that Escrow Shares having a Fair Market Value equal to the
entire Claim Amount set forth in a Claim Notice are to be released from the
Escrow to Parent, then the Escrow Agent shall promptly following the required
delivery date for the Response Notice transfer, deliver and assign to Parent
such number of Escrow Shares from the Escrow Fund as have a Fair Market Value
equal to the Claim Amount (or such lesser amount as is then held in Escrow).
20.
<PAGE>
(j) If a Response Notice delivered by the Designated Shareholders"
Agent in response to a Claim Notice contains instructions to the effect that
Shares having a Fair Market Value equal to a specified portion (but not the
entire amount) of the Claim Amount set forth in such Claim Notice are to be
released from the Escrow to Parent, then (i) the Escrow Agent shall promptly
following the required delivery date for the Response Notice transfer, deliver
and assign to Parent such number of Shares from the Escrow Fund as have a Fair
Market Value equal to such specified portion of such Claim Amount, and (ii) the
procedures set forth in subsection 4.4(k) of this Agreement shall be followed
with respect to the remaining portion of such Claim Amount.
(k) If a Response Notice delivered by the Designated Shareholders"
Agent in response to a Claim Notice contains a statement that all or a portion
of the Claim Amount set forth in such Claim Notice is being disputed (such Claim
Amount or the disputed portion thereof being referred to as the "Disputed
Amount"), then, notwithstanding anything contained in Section 4 of this
Agreement, the Escrow Agent shall continue to hold in Escrow (in addition to any
other Shares of Parent Common Stock permitted to be retained in Escrow, whether
in connection with any other dispute or otherwise) Shares of Parent Common Stock
having a Fair Market Value equal to 120% of the Disputed Amount. Such amount
shall continue to be held in the Escrow until (i) delivery of a notice executed
by Parent and the Designated Shareholders" Agent setting forth instructions to
the Escrow Agent regarding the release of such Escrow Shares, or (ii) delivery
of a copy of a final and non-appealable judgment of a court setting forth
instructions to the Escrow Agent as to the release of such shares. The Escrow
Agent shall thereupon release shares of Parent Common Stock from the Escrow in
accordance with the instructions set forth in such notice or arbitrator's award.
(l) In the event that any Response Notice indicates that there is a
Disputed Amount, the Designated Shareholders" Agent and Parent shall for a
period of 60 days attempt in good faith to resolve the rights of the respective
parties with respect to such claims. If the Designated Shareholders" Agent and
Parent should so agree, a notice setting forth such agreement shall be signed by
both parties and delivered to the Escrow Agent who shall thereupon transfer,
deliver and assign to Parent such amount as is equal to the agreed upon amount
(or such lesser amount as is then held in Escrow).
(m) After the first anniversary of the Closing Date, the Escrow Agent
shall release to the Company Shareholders from the Escrow all shares then held
in the Escrow, except for any amounts that are to be retained in the Escrow in
accordance with subsection 4.4(k) of this Agreement.
(n) If the Escrow Agent becomes obligated to transfer to Parent any
shares held in the Escrow Fund in accordance with the terms of this Agreement,
the Escrow Agent shall deliver certificates representing such shares together
with a completed stock power to Parent. If the Escrow Agent becomes obligated
to transfer to the Company Shareholders any Escrow Shares held in the Escrow
Fund in accordance with the terms of this Agreement, the Escrow Agent shall
deliver the certificate representing the shares in the
21.
<PAGE>
Escrow Fund, together with a completed stock power, to the Parent. Any
distribution of all or a portion of the Shares in the Escrow Fund to the Company
Shareholders shall be made 25% to each Company Shareholder and in such event,
Parent agrees to issue one or more certificates representing each Company
Shareholder's pro rata portion of the Escrow Fund and to deliver such
certificates or to cause its transfer agent to deliver such certificate to each
respective Company Shareholder at the address set forth on the transfer agent's
books and records or, at the request of the Company Shareholder, and upon
submission of evidence satisfactory to Parent of such designation, to deliver
such certificate to the Company Shareholder's designee.
(o) For purposes of this Agreement, the "Fair Market Value" of each
of the Escrow Shares in the Escrow Fund shall be deemed to be the average
closing price for a share of Parent Common Stock for the ten trading days
immediately prior to the release of shares of Parent Common Stock from the
Escrow; provided, however, that, in the event that the Parent Common Stock is
not listed or quoted on a securities exchange or quotation system at the time
the Escrow Shares are to be release from Escrow, the Fair Market Value of each
of the Escrow Shares shall be $42.00 (as adjusted as appropriate to reflect any
stock split, reverse stock split, stock dividend, recapitalization or other
similar transaction effected by Parent between the Effective Time and the date
such liability is to be satisfied).
4.5 No Contribution. Each Company Shareholder waives, and acknowledges
and agrees that he shall not have and shall not exercise or assert (or attempt
to exercise or assert), any right of contribution, right of indemnity or other
right or remedy against the Surviving Corporation in connection with any
indemnification obligation or any other liability to which he may become subject
under or in connection with this Agreement.
4.6 Defense of Third Party Claims. In the event of the assertion or
commencement by any person, Entity or Governmental Body of any claim or Legal
Proceeding (whether against the Surviving Corporation, against Parent or against
any other person, Entity or Governmental Body) with respect to which any of the
Company Shareholders may become obligated to hold harmless, indemnify,
compensate or reimburse any Indemnitee pursuant to this Section 4, Parent shall
have the right, at its election, to proceed with the defense of such claim or
Legal Proceeding on its own. If Parent so proceeds with the defense of any such
claim or Legal Proceeding: (a) all reasonable expenses relating to the defense
of such claim or Legal Proceeding shall be borne and paid exclusively by the
Company Shareholders; (b) each Company Shareholder shall make available to
Parent any documents and materials in his possession or control that may be
necessary to the defense of such claim or Legal Proceeding; and (c) Parent shall
have the right to settle, adjust or compromise such claim or Legal Proceeding
with the consent of the Company Shareholders" Agent (as defined in Section 5.1);
provided, however, that such consent shall not be unreasonably withheld.
Parent shall give the Designated Shareholders" Agent prompt notice of the
commencement of any such Legal Proceeding against Parent or the Surviving
Corporation; provided, however, that any failure on the part of Parent to so
notify the Designated
22.
<PAGE>
Shareholders" Agent shall not limit any of the obligations of the Company
Shareholders under this Section 4 (except to the extent such failure materially
prejudices the defense of such Legal Proceeding).
4.7 Exercise of Remedies by Indemnitees Other Than Parent. No
Indemnitee (other than Parent or any successor thereto or assign thereof) shall
be permitted to assert any indemnification claim or exercise any other remedy
under this Agreement unless Parent (or any successor thereto or assign thereof)
shall have consented to the assertion of such indemnification claim or the
exercise of such other remedy.
4.8 General Release.
(a) Each Company Shareholder, for himself and for each of such
Company Shareholder's Associated Parties, hereby generally, irrevocably,
unconditionally and completely releases and forever discharges each of the
Releasees from, and hereby irrevocably, unconditionally and completely waives
and relinquishes, each of the Released Claims.
(b) Each Company Shareholder also hereby waives the benefits of, and
any rights such Company Shareholder may have under, any statute or common law
principle of similar effect in any jurisdiction.
For purposes of this Agreement:
"Associated Parties", when used herein with respect to a Company
Shareholder, shall mean and include: (i) such Company Shareholder's
predecessors, successors, executors, administrators, heirs and estate; (ii) such
Company Shareholder's past, present and future assigns, agents and
representatives; (iii) each entity that such Company Shareholder has the power
to bind (by such Company Shareholder's acts or signature) or over which such
Company Shareholder directly or indirectly exercises control; and (iv) each
entity of which such Company Shareholder owns, directly or indirectly, at least
50% of the outstanding equity, beneficial, proprietary, ownership or voting
interests.
"Releasees" shall mean and include: (i) Parent; (ii) the Company;
(iii) each of the direct and indirect subsidiaries of the Company; (iv) each
other affiliate of the Company; and (v) the successors and past, present and
future assigns, directors, officers, employees, agents, attorneys and
representatives of the respective entities identified or otherwise referred to
in clauses "(i)" through "(iv)" of this sentence, other than the Company
Shareholders.
"Claims" shall mean and include all past, present and future disputes,
claims, controversies, demands, rights, obligations, liabilities, actions and
causes of action of every kind and nature, including: (i) any unknown,
unsuspected or undisclosed claim; (ii) any claim or right that may be asserted
or exercised by a Company Shareholder in such Company Shareholder's capacity as
a stockholder, director, officer or employee of the
23.
<PAGE>
Company or in any other capacity; and (iii) any claim, right or cause of action
based upon any breach of any express, implied, oral or written contract or
agreement.
"Released Claims" shall mean and include each and every Claim that (i) any
Company Shareholder or any Associated Party of any Company Shareholder may have
had in the past, may now have or may have in the future against any of the
Releasees, and (ii) has arisen or arises directly or indirectly out of, or
relates directly or indirectly to, any circumstance, agreement, activity,
action, omission, event or matter occurring or existing on or prior to the date
of this General Release (excluding only claims related to the Shareholder
Indebtedness and such Company Shareholder's rights, if any, under this
Agreement, the Employment Agreement and the Non-Competition Agreement).
SECTION 5. Miscellaneous Provisions.
5.1 Designated Shareholders' Agent. The Company Shareholders hereby
irrevocably appoint Walter Carroll as their agent for purposes of Section 4 (the
"Designated Shareholders" Agent"), and Walter Carroll hereby accepts his
appointment as the Designated Shareholders" Agent. Parent shall be entitled to
deal exclusively with the Designated Shareholders" Agent on all matters relating
to Section 4, and shall be entitled to rely conclusively (without further
evidence of any kind whatsoever) on any document executed or purported to be
executed on behalf of any Company Shareholder by the Designated Shareholders"
Agent, and on any other action taken or purported to be taken on behalf of any
Company Shareholder by the Designated Shareholders" Agent, as fully binding upon
such Company Shareholder. If the Designated Shareholders" Agent shall die,
become disabled or otherwise be unable to fulfill his responsibilities as agent
of the Company Shareholders, then the Company Shareholders shall, within ten
days after such death or disability, appoint a successor agent and, promptly
thereafter, shall notify Parent of the identity of such successor. Any such
successor shall become the "Designated Shareholders" Agent" for purposes of
Section 4 and this Section 5.1. If for any reason there is no Designated
Shareholders" Agent at any time, all references herein to the Designated
Shareholders" Agent shall be deemed to refer to the Company Shareholders.
5.2 Further Assurances. Each party hereto shall execute and cause to be
delivered to each other party hereto such instruments and other documents, and
shall take such other actions, as such other party may reasonably request (prior
to, at or after the Closing) for the purpose of carrying out or evidencing any
of the transactions contemplated by this Agreement.
5.3 Fees and Expenses. Each party to this Agreement shall bear and pay
all fees, costs and expenses (including legal fees and accounting fees) that
have been incurred or that are incurred by such party in connection with the
transactions contemplated by this Agreement.
5.4 Attorneys' Fees. If any action or proceeding relating to this
Agreement or the enforcement of any provision of this Agreement is brought
against any party hereto, the prevailing party shall be entitled to recover
reasonable attorneys' fees, costs and
24.
<PAGE>
disbursements (in addition to any other relief to which the prevailing party may
be entitled).
5.5 Notices. Any notice or other communication required or permitted to be
delivered to any party under this Agreement shall be in writing and shall be
deemed properly delivered, given and received when delivered (by hand, by
registered mail, by courier or express delivery service or by facsimile) to the
address or facsimile telephone number set forth beneath the name of such party
below (or to such other address or facsimile telephone number as such party
shall have specified in a written notice given to the other parties hereto):
if to Parent:
eBay Inc.
2005 Hamilton Ave.
Ste. #350
Attention:Legal Department
Telephone: (408) 369-4830
Fax: (408) 369-0667
if to the Company:
Jump Incorporated
5592 Sidney Rd.
Cincinnati, OH 54238
Attention: Walter Carroll
Telephone: (513) 922-9752
if to any of the Company Shareholders:
Walter Carroll
5592 Sidney Rd.
Cincinnati, OH 54238
Telephone: (513) 922-9752
5.6 Confidentiality. On and at all times after the Closing Date, each
Company Shareholder shall keep confidential, and shall not use or disclose to
any other person or entity, any non-public document or other non-public
information in such Company Shareholder's possession that relates to the
business of the Company or Parent.
5.7 Headings. The underlined headings contained in this Agreement are for
convenience of reference only, shall not be deemed to be a part of this
Agreement and shall not be referred to in connection with the construction or
interpretation of this Agreement.
25.
<PAGE>
5.8 Counterparts. This Agreement may be executed in several
counterparts, each of which shall constitute an original and all of which,
when taken together, shall constitute one agreement.
5.9 Governing Law. This Agreement shall be construed in accordance
with, and governed in all respects by, the internal laws of the State of
California (without giving effect to principles of conflicts of laws).
5.10 Successors and Assigns. This Agreement shall be binding upon: the
Company and its successors and assigns (if any); the Company Shareholders
and their respective personal representatives, executors, administrators,
estates, heirs, successors and assigns (if any); Parent and its successors
and assigns (if any); and Merger Sub and its successors and assigns (if
any). This Agreement shall inure to the benefit of: the Company; the
Company Shareholders; Parent; Merger Sub; the other Indemnitees (subject to
Section 4.8); and the respective successors and assigns (if any) of the
foregoing. Parent may freely assign any or all of its rights under this
Agreement (including its indemnification rights under Section 4), in whole
or in part, to any other person or entity without obtaining the consent or
approval of any other party hereto or of any other person or entity.
5.11 Specific Performance. The parties to this Agreement agree that,
in the event of any breach or threatened breach by any party to this
Agreement of any covenant, obligation or other provision set forth in this
Agreement for the benefit of any other party to this Agreement, such other
party shall be entitled (in addition to any other remedy that may be
available to it) to (a) a decree or order of specific performance or
mandamus to enforce the observance and performance of such covenant,
obligation or other provision, and (b) an injunction restraining such
breach or threatened breach.
5.12 Waiver.
(a) No failure on the part of any person or entity to exercise
any power, right, privilege or remedy under this Agreement, and no delay on
the part of any person or entity in exercising any power, right, privilege
or remedy under this Agreement, shall operate as a waiver of such power,
right, privilege or remedy; and no single or partial exercise of any such
power, right, privilege or remedy shall preclude any other or further
exercise thereof or of any other power, right, privilege or remedy.
(b) No person or entity shall be deemed to have waived any claim
arising out of this Agreement, or any power, right, privilege or remedy
under this Agreement, unless the waiver of such claim, power, right,
privilege or remedy is expressly set forth in a written instrument duly
executed and delivered on behalf of such person or entity; and any such
waiver shall not be applicable or have any effect except in the specific
instance in which it is given.
5.13 Amendments. This Agreement may not be amended, modified, altered
or supplemented other than by means of a written instrument duly executed
and delivered on behalf of all of the parties hereto.
26.
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5.14 Severability. In the event that any provision of this Agreement,
or the application of any such provision to any person or entity or set of
circumstances, shall be determined to be invalid, unlawful, void or
unenforceable to any extent, the remainder of this Agreement, and the
application of such provision to person or entitys or circumstances other
than those as to which it is determined to be invalid, unlawful, void or
unenforceable, shall not be impaired or otherwise affected and shall
continue to be valid and enforceable to the fullest extent permitted by
law.
5.15 Parties in Interest. Except for the provisions of Section 4, none
of the provisions of this Agreement is intended to provide any rights or
remedies to any person or entity other than the parties hereto and their
respective successors and assigns (if any).
5.16 Entire Agreement. This Agreement and the other agreements
referred to herein set forth the entire understanding of the parties hereto
relating to the subject matter hereof and thereof and supersede all prior
agreements and understandings among or between any of the parties relating
to the subject matter hereof and thereof;
5.17 Construction.
(a) For purposes of this Agreement, whenever the context
requires: the singular number shall include the plural, and vice versa; the
masculine gender shall include the feminine and neuter genders; the
feminine gender shall include the masculine and neuter genders; and the
neuter gender shall include the masculine and feminine genders.
(b) The parties hereto agree that any rule of construction to the
effect that ambiguities are to be resolved against the drafting party shall
not be applied in the construction or interpretation of this Agreement.
(c) As used in this Agreement, the words "include" and
"including," and variations thereof, shall not be deemed to be terms of
limitation, but rather shall be deemed to be followed by the words "without
limitation."
(d) Except as otherwise indicated, all references in this
Agreement to "sections" and "Exhibits" are intended to refer to Sections of
this Agreement and Exhibits to this Agreement.
27.
<PAGE>
The parties hereto have caused this Agreement to be executed and delivered
as of June 30, 1998.
eBay Inc., a Delaware corporation Jump Incorporated, an Ohio corporation
By: /s/ J Skoll By:/s/ Robert J. Ratterman
- --------------------------------- ---------------------------------------
Name:Jeff Skoll Name:Robert J. Ratterman
Title:Vice President Strategic Planning Title:Co-President
By:/s/ Christopher M. Downie
------------------------------------
Name:Christopher M. Downie
Title:Co-President
Jump Acquisition Corp., an Ohio corporation Company Shareholders
By:/s/ J Skoll /s/ Walter N. Carroll
--------------------------------- -------------------------------
Name: Jeff Skoll Walter N. Carroll
Title: President
/s/ Christopher M. Downie
-------------------------------
Christopher M. Downie
/s/ Thomas D. Duvall
-------------------------------
Thomas D. Duvall
/s/ Robert J. Ratterman
-------------------------------
Robert J. Ratterman
28.
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EXHIBIT 3.01
CERTIFICATE OF INCORPORATION
OF
eBAY INC.
ARTICLE I
The name of the corporation is eBay Inc.
ARTICLE II
The address of the registered office of the corporation in the State of
Delaware is 15 East North Street, City of Dover, County of Kent. The name of
its registered agent at that address is Incorporating Services, Ltd..
ARTICLE III
The purpose of the corporation is to engage in any lawful act or activity
for which corporations may be organized under the General Corporation Law of the
State of Delaware.
ARTICLE IV
The total number of shares of all classes of stock which the corporation
has authority to issue is Twenty Six Million (26,000,000) shares, consisting of
two classes: Twenty Million (20,000,0000 shares of Common Stock, $0.001 par
value per share, and Six Million (6,000,000) shares of Preferred Stock, $0.001
par value per share.
The Board of Directors is authorized, subject to any limitations prescribed
by the law of the State of Delaware, to provide for the issuance of the shares
of Preferred Stock in one or more series, and, by filing a Certificate of
Designation pursuant to the applicable law of the State of Delaware, to
establish from time to time the number of shares to be included in each such
series, to fix the designation, powers, preferences and rights of the shares of
each such series and any qualifications, limitations or restrictions thereof,
and to increase or decrease the number of shares of any such series (but not
below the number of shares of such series then outstanding). The number of
authorized shares of Preferred Stock may also be increased or decreased (but not
below the number of shares thereof then outstanding) by the affirmative vote of
the holders of a majority of the stock of the corporation entitled to vote,
unless a vote of any other holders is required pursuant to a Certificate or
Certificates establishing a series of Preferred Stock.
Except as otherwise expressly provided in any Certificate of Designation
designating any series of Preferred Stock pursuant to the foregoing provisions
of this Article IV, any new series of Preferred Stock may be designated, fixed
and determined as provided herein by the Board of Directors without approval of
the holders of Common Stock or the holders of Preferred Stock, or
<PAGE>
any series thereof, and any such new series may have powers, preferences and
rights, including, without limitation, voting rights, dividend rights,
liquidation rights, redemption rights and conversion rights, senior to, junior
to or pari passu with the rights of the Common Stock, the Preferred Stock, or
any future class or series of Preferred Stock or Common Stock.
ARTICLE V
The Board of Directors of the corporation shall have the power to adopt,
amend or repeal Bylaws of the corporation.
ARTICLE VI
Election of directors need not be by written ballot unless the Bylaws of
the corporation shall so provide.
ARTICLE VII
To the fullest extent permitted by law, no director of the corporation
shall be personally liable for monetary damages for breach of fiduciary duty as
a director. Without limiting the effect of the preceding sentence, if the
Delaware General Corporation Law is hereafter amended to authorize the further
elimination or limitation of the liability of a director, then the liability of
a director of the corporation shall be eliminated or limited to the fullest
extent permitted by the Delaware General Corporation Law, as so amended.
Neither any amendment nor repeal of this Article VII, nor the adoption of
any provision of this Certificate of Incorporation inconsistent with this
Article VII, shall eliminate, reduce or otherwise adversely affect any
limitation on the personal liability of a director of the corporation existing
at the time of such amendment, repeal or adoption of such an inconsistent
provision.
ARTICLE VIII
The name and mailing address of the incorporator is Matthew P. Quilter, c/o
Fenwick & West LLP, Two Palo Alto Square, Palo Alto, California 94306.
The undersigned incorporator hereby acknowledges that the foregoing
certificate is his act and deed and that the facts stated herein are true.
Date: March 12, 1998
/s/ Matthew P. Quilter
------------------------------------
Matthew P. Quilter, Incorporator
-2-
<PAGE>
EXHIBIT 3.02
eBAY INC.
CERTIFICATE OF DESIGNATION OF
PREFERRED STOCK
eBay Inc., a Delaware corporation (the "Corporation"), does hereby certify
that pursuant to the authority contained in Article IV of its Certificate of
Incorporation, and in accordance with the provisions of Section 151 of the
Delaware General Corporation Law, the Corporation's Board of Directors has duly
adopted the following resolution creating three separate series of Preferred
Stock designated as Series A Preferred Stock, Series B Preferred Stock and
Series B1 Preferred Stock.
RESOLVED, that the Corporation hereby designates and creates three (3)
separate series of the authorized Preferred Stock designated respectively,
as Series A Preferred Stock, Series B Preferred Stock and Series B1
Preferred Stock as follows:
A. Of the six million (6,000,000) shares of Preferred Stock, par value
$0.001, authorized to be issued by the Corporation, one million six hundred
seventy-six thousand, four hundred seventy-five (1,676,475) are hereby
designated as "Series A Preferred," one million four hundred thousand
(1,415,416) shares are hereby designated as "Series B Preferred" and one million
four hundred thousand (1,415,416) shares are hereby designated as "Series B1
Preferred." Any shares of Series A Preferred, Series B Preferred or Series B1
Preferred that are acquired by the Corporation, whether by redemption, purchase,
conversion or otherwise, so that such shares are issued but not outstanding, may
not be reissued as shares of any such series or as shares of the class of
Preferred Stock. Upon the retirement of any such shares and the filing of a
certificate of retirement pursuant to Sections 103 and 243 of the Delaware
General Corporation Law with respect thereto, the shares of such series shall be
eliminated and the number of shares of Preferred Stock shall be reduced
accordingly. The rights, preferences, privileges and restrictions granted to
and imposed upon the respective classes and series of the Corporation's capital
stock are set forth below in Article B. Nothing in this Article A shall limit
the Board of Directors' ability to designate and establish the rights,
preferences, privileges and restrictions of the remaining authorized but
unissued Preferred Stock of the Corporation.
B. Rights, Preferences and Restrictions of Preferred Stock. The rights,
-------------------------------------------------------
preferences, restrictions and other matters relating to the Series A Preferred,
Series B Preferred and Series B1 Preferred are as follows:
1. Dividends.
---------
(a) The holders of Series B Preferred and Series B1 Preferred shall
be entitled to receive, out of any funds legally available therefor, dividends
on each outstanding share of Series B Preferred and Series B1 Preferred at an
annual rate of $0.30 per share of Series B Preferred and Series B1 Preferred
held by them, adjusted for any combinations, consolidations,
<PAGE>
subdivisions, or stock splits with respect to such shares, payable when and as
declared by the Board of Directors, in preference and priority to any payment of
any dividend on any shares of Series A Preferred or Common Stock (other than
those payable solely in Common Stock or involving the repurchase of shares of
Common Stock from terminated employees, officers, directors, or consultants
pursuant to contractual arrangements). The holders of Series A Preferred shall
be entitled to receive, out of any funds legally available therefor, dividends
on each outstanding share of Series A Preferred at an annual rate of $0.05 per
share of Series A Preferred held by them, adjusted for any combinations,
consolidations, subdivisions, or stock splits with respect to such shares,
payable when and as declared by the Board of Directors, in preference and
priority to any payment of any dividend on any shares of Common Stock (other
than those payable solely in Common Stock or involving the repurchase of shares
of Common Stock from terminated employees, officers, directors, or consultants
pursuant to contractual arrangements). The right to such dividends shall be
cumulative as to the Series B Preferred and Series B1 Preferred and shall be
non-cumulative as to the Series A Preferred. No right shall accrue to holders of
Series A Preferred by reason of the fact that dividends on such shares are not
declared or paid in any prior year whether or not the earnings of the
Corporation in that prior year were sufficient to pay such dividends in whole or
in part. No dividends shall be paid on the Common Stock or the Series A
Preferred at a rate greater than the rate at which dividends are paid on the
Series B Preferred and the Series B1 Preferred (based on the number of shares of
Common Stock into which the Series B Preferred or the Series B1 Preferred, as
the case may be, is convertible on the date the dividend is declared). In the
event that the Corporation shall have declared but unpaid dividends outstanding
immediately prior to, and in the event of, a conversion of Preferred Stock (as
provided in Section 5 hereof), the Corporation shall, at the option of the
holder, pay in cash to the holder(s) of Preferred Stock subject to conversion
the full amount of any such dividends or allow such dividends to be converted
into Common Stock in accordance with, and pursuant to the terms specified in,
Section 5 hereof.
(b) Dividends shall be paid by forwarding a check, postage prepaid,
to the address of each holder (or, in the case of joint holders, to the address
of any such holder) of Series B Preferred, Series B1 Preferred, and Series A
Preferred as shown on the books of the Corporation, or to such other address as
such holder specified for such purpose by written notice to the Corporation. The
forwarding of such check shall satisfy all obligations of the Corporation with
respect to such dividends, unless such check is not paid upon timely
presentation.
2. Liquidation Preference. In the event of any liquidation, dissolution,
----------------------
or winding up of the Corporation (each a "Liquidation Event"), whether voluntary
or involuntary, distributions to the stockholders of the Corporation shall be
made in the following manner:
(a) The holders of Series B Preferred and Series B1 Preferred shall
be entitled to receive, prior and in preference to any distribution of any of
the assets or surplus funds of the Corporation to the holders of the Common
Stock, by reason of their ownership of such stock, an amount per share equal to
the sum of (i) $4.50 for each share of Series B Preferred and Series B1
Preferred then held by them, adjusted for any combinations, consolidations,
subdivisions, or stock splits with respect to such shares, and (ii) all declared
but unpaid dividends on such shares of Series B Preferred and Series B1
Preferred (the "Series B Preference"). If the assets and funds thus distributed
among the holders of the Series B Preferred and Series B1 Preferred shall be
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<PAGE>
insufficient to permit the payment to such holders of the full aforesaid Series
B Preference, then the entire assets and funds of the Corporation legally
available for distribution shall be distributed ratably among the holders of the
Series B Preferred and Series B1 Preferred in proportion to the number of shares
of Series B Preferred and Series B1 Preferred held by each holder.
(b) After payment has been made to the holders of the Series B
Preferred and Series B1 Preferred of the full Series B Preference pursuant to
paragraph (a) above, each holder of Series A Preferred shall be entitled to
receive prior and in preference to any distribution to the holders of Common
Stock, an amount equal to $0.59650 (the "Original Series A Issue Price") for
each share of Series A Preferred then held by such holder plus an amount equal
to all declared but unpaid dividends on such shares of Series A Preferred (the
"Series A Preference"). If upon the occurrence of a Liquidation Event the
assets and funds available to be distributed among the holders of the Series A
Preferred shall be insufficient to permit the payment to such holders of the
full Series A Preference, then the entire assets and funds of the Corporation
legally available for distribution to such holder shall be distributed ratably
based on the number of shares of Series A Preferred held by each holder.
(c) After payment has been made to the holders of the Series A
Preferred, the Series B Preferred, and the Series B1 Preferred of the full
amounts to which they are entitled pursuant to paragraphs (a) and (b) above, the
remaining assets and funds of the Corporation available for distribution shall
be distributed ratably among all holders of Series B Preferred, Series B1
Preferred, and Common Stock based on the number of shares of Common Stock held
by each holder (assuming conversion of all Series B Preferred and Series B1
Preferred). Notwithstanding the foregoing sentence, the right to receive the
remaining assets as so described shall cease as to the holders of Series B
Preferred and Series B1 Preferred at such time as the holders of Series B
Preferred and Series B1 Preferred receive an aggregate of $9.00 per share
(including amounts previously paid as the Series B Preference).
(d) For purposes of this Section 2, any transaction or series of
transactions, including without limitation a merger, consolidation, or other
corporate reorganization of the Corporation with or into any other corporation
or corporations in which more than fifty percent (50%) of the outstanding voting
power of this corporation is disposed of or transferred, a sale of all or
substantially all of the assets of the Corporation or a liquidation or winding
up, shall be treated as a Liquidation Event, irrespective of the form of payment
made in such transaction or series of transactions.
(e) Nothing in this Section 2 shall affect in any way the right of
each holder of Series A Preferred, Series B Preferred, and Series B1 Preferred
to convert such shares at any time and from time to time into Common Stock in
accordance with Section 5 hereof. If any holder of Series A Preferred, Series B
Preferred, or Series B1 Preferred would have received greater consideration as a
result of the Liquidation Event if such holder had converted its shares of
Series A Preferred, Series B Preferred, or Series B1 Preferred, as applicable,
into Common Stock in accordance with Section 5 hereof immediately prior to the
Liquidation Event, then for purposes of distributing the consideration received
in connection with the Liquidation Event to the stockholder of the Corporation
pursuant to this Section 2, such holder shall be treated as if
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<PAGE>
such holder had converted such shares of Series A Preferred, Series B Preferred,
or Series B1 Preferred, as applicable, into Common Stock immediately prior to
the Liquidation Event.
(f) Each holder of Preferred Stock shall be deemed to have consented,
so long as the Corporation is deemed a "foreign corporation" as defined under
Section 2115 of the California Corporations Code, for purposes of Section
502,503, and 506 of the California Corporations Code, to distributions made by
the Corporation in connection with the repurchase at the original issue price by
the Corporation of shares of Common Stock issued to or held by employees,
officers, directors, or consultants of the Corporation or its subsidiaries upon
termination of their employment or services pursuant to an agreement (whether
now existing or hereafter entered into) providing for the right of said
repurchase.
(g) The value of securities and property paid or distributed pursuant
to this Section 2 shall be computed at fair market value at the time of payment
as determined by the Board of Directors in the good faith exercise of its
reasonable business judgment, provided that (i) if such securities are listed on
any established stock exchange or a national market system, their fair market
value shall be the closing sales price for such securities as quoted on such
system or exchange (or the largest such exchange) for the date the value is to
be determined (or if there are no sales for such date, then for the last
preceding business day on which there were sales), as reported in the Wall
Street Journal or similar publication, and (ii) if such securities are regularly
quoted by a recognized securities dealer but selling prices are not reported,
their fair market value shall be the mean between the high bid and low asked
prices for such securities on the date the value is to be determined (or if
there are not quoted prices for such date, then for the last preceding business
day on which there were quoted prices); and provided, further, that if the
securities described in (i) or (ii) are subject to restrictions on transfer, the
Board of Directors shall apply an appropriate discount in determining the value
thereof.
3. Redemption Rights.
-----------------
(a) Series A Preferred. The Series A Preferred shall be
------------------
nonredeemable.
(b) Series B Preferred. At the election in writing of the holders of
------------------
not less than sixty-six and two-thirds percent (66-2/3%) of the outstanding
shares of Series B Preferred and Series B1 Preferred, delivered to the
Corporation at least sixty (60) days in advance by certified or registered mail,
postage prepaid, the Corporation shall redeem, on the terms and conditions
stated herein, out of funds legally available therefor, all of the Series B
Preferred and Series B1 Preferred in three (3) annual installments beginning not
earlier than January 1, 2003 (such date to be referred to as the "Initial
Redemption Date"), and continuing thereafter on the first and second
anniversaries of the Initial Redemption Date (each a "Series B Redemption
Date"), by paying in cash therefor a sum equal to $3.00 per share (the "Original
Series B Issue Price") for each share of Series B Preferred and Series B1
Preferred, plus an amount equal to all accumulated but unpaid dividends from the
date on which the first share of Series B Preferred was issued (the "Original
Issue Date") to the applicable Series B Redemption Date (the "Series B
Redemption Price"). The number of shares of Series B Preferred and Series B1
Preferred that the Corporation shall be required to redeem under this paragraph
(b) on any one Series B Redemption Date shall be equal to the amount determined
by dividing (x) the aggregate number of shares of Series B Preferred and Series
B1 Preferred outstanding immediately prior to that
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<PAGE>
Series B Redemption Date by (y) the number of remaining Series B Redemption
Dates (including the Series B Redemption Date to which such calculation
applies).
(c) In the event that the Corporation is unable to redeem the full
number of shares of Series B Preferred and Series B1 Preferred to be redeemed on
any Series B Redemption Date, the shares not redeemed shall be redeemed by this
Corporation as provided in this Section 3 as soon as practicable after funds are
legally available therefor. Any redemption effected pursuant to this Section 3
shall be made ratably among the holders of the Series B Preferred and Series B1
Preferred in proportion to the aggregate Series B Redemption Price to which each
holder is entitled under paragraph (b) of this Section 3.
(d) If the holders of Series B Preferred and Series B1 Preferred have
elected to have the shares of Series B Preferred and Series B1 Preferred that
they hold redeemed as provided in paragraph (b) above, then at least thirty (30)
but no more than sixty (60) days prior to each Redemption Date, the Corporation
shall give written notice by certified or registered mail, postage prepaid, to
all holders of outstanding Series B Preferred and Series B1 Preferred at the
address last shown on the records of the Corporation for such holder, stating
such Series B Redemption Date, the Series B Redemption Price, the then current
conversion rate (as provided in Section 5(a)) for such shares, and the date of
termination of the right to convert (which date shall not be earlier than twenty
(20) days after the written notice by the Corporation has been given) and shall
call upon such holder to surrender to the Corporation on such Series B
Redemption Date at the place designated in the notice such holder's certificate
or certificates representing the shares to be redeemed. On or after the Series
B Redemption Date stated in such notice, the holder of each share of Series B
Preferred and Series B1 Preferred called for redemption shall surrender the
certificate evidencing such shares to the Corporation at the place designated in
such notice and shall thereupon be entitled to receive payment of the Series B
Redemption Price for the shares surrendered. If less than all the shares
represented by any such surrendered certificate are redeemed, a new certificate
shall be issued representing the unredeemed shares. If such notice of
redemption shall have been duly given, and if on such Series B Redemption Date
funds necessary for the redemption shall be available therefor, then, as to any
certificates evidencing any Series B Preferred and Series B1 Preferred so called
for redemption and not surrendered, all rights of the holders of such shares so
called for redemption and not surrendered shall cease with respect to such
shares, except only the right of the holders to receive the Series B Redemption
Price for the Series B Preferred and Series B1 Preferred which they hold,
without interest, upon surrender of their certificates therefor.
(e) Notwithstanding anything herein to the contrary, if, on or prior
to a Series B Redemption Rate (and after a redemption election has been made
pursuant to this Section 3), the Corporation deposits, with any bank or trust
company in the State of California having aggregate capital and surplus in
excess of $100,000,000, as a trust fund, a sum sufficient to redeem on such
Series B Redemption Date the shares called for redemption, with irrevocable
instructions and authority to the bank or trust company to give the notice of
redemption thereof (or to complete the giving of such notice if theretofore
commenced) and to pay, on or after the Series B Redemption Date or prior
thereto, the Series B Redemption Price of the shares to their respective holders
upon the surrender of their share certificates, then from and after the date of
the deposit (although prior to such Series B Redemption Date), the shares so
called for
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<PAGE>
redemption on such Series B Redemption Date (but not any subsequent Series B
Redemption Date) shall be redeemed. The deposit of such sum shall constitute
full payment of such shares to their holders and from and after the date of the
deposit such shares shall no longer be outstanding, and the holders thereof
shall cease to be stockholders with respect to such shares, and shall have no
rights with respect thereto except the right to receive from the bank or trust
company payment of the Series B Redemption Price for the Series B Preferred and
Series B1 Preferred called for redemption on such Series B Redemption Date
without interest, upon the surrender of their certificates therefor and the
right to convert said shares as provided herein at any time up to but not after
the close of business on the fifth day prior to the Series B Redemption Date of
such shares (which conversion date will not be earlier than twenty (20) days
after the written notice of redemption has been given). Any monies so deposited
on account of the Series B Redemption Price of the Series B Preferred and Series
B1 Preferred converted into Common Stock subsequent to the making of such
deposit shall be repaid to the Corporation forthwith upon the conversion of such
Series B Preferred and Series B1 Preferred. Any interest accrued any funds so
deposited shall be the property of, and paid to, the Corporation. If the holders
of Series B Preferred and Series B1 Preferred so called for redemption shall
not, at the end of two (2) years after the applicable Series B Redemption Date,
have claimed any funds so deposited, such bank or trust company shall thereupon
pay over to the Corporation such unclaimed funds, and such bank or trust company
shall thereafter be relieved of all responsibility in respect thereof to such
holders and such holders shall look only to the Corporation for payment of the
Series B Redemption Price for the Series B Preferred and Series B1 Preferred
which they hold.
4. Voting Rights.
-------------
(a) Except as otherwise required by law or hereunder, the holder of
each share of Common Stock issued and outstanding shall have one vote and the
holder of each share of Preferred Stock shall be entitled to the number of votes
equal to the number of shares of Common Stock into which such share of Preferred
Stock could be converted at the record date for determination of the
stockholders entitled to vote on such matters, or, if no such record date is
established, at the date such vote is taken or any written consent of
stockholders is solicited, such votes to be counted together with all other
shares of stock of the Corporation having general voting power and not
separately as a class. Fractional votes by the holders of Preferred Stock shall
not, however be permitted and any fractional voting rights shall (after
aggregating all shares into which shares of Preferred Stock held by each holder
could be converted) be rounded to the nearest whole number (with one half being
rounded upward). Holders of Common Stock and Preferred Stock shall be entitled
to notice of any stockholders' meeting in accordance with the Bylaws of the
Corporation.
(b) Notwithstanding the provisions of paragraph (a), at each annual
or special meeting called for the purpose of electing directors, the holders of
the Series B Preferred and Series B1 Preferred, voting as a separate class,
shall be entitled to elect one (1) member of the Board of Directors, and the
holders of the Series A Preferred and Common Stock, voting together as a single
class, shall be entitled to elect two (2) members of the Board of Directors. The
remaining directors will be elected by the holders of Preferred Stock and the
holders of Common Stock voting together as a single class on an as-converted
into Common Stock basis.
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<PAGE>
In the case of any vacancy in the office of a director elected by a specified
group of stockholders, a successor shall be elected to hold office for the
unexpired term of such director by the affirmative vote of a majority of the
shares of such specified group given at a special meeting of such stockholders
duly called or by an action by written consent for that purpose. Subject to
Section 303 of the California Corporations Code, but only so long as the
Corporation is deemed a "foreign corporation" as defined under Section 2115 of
the California Corporations Code, any director who shall have been elected by a
specified group of stockholders may be removed during the aforesaid term of
office, either for or without cause, by, and only by, the affirmative vote of
the holders of a majority of the shares of such specified group, given at a
special meeting of such stockholders duly called or by an action by written
consent for that purpose, and any such vacancy thereby created may be filled by
the vote of the holders of a majority of the shares of such specified group
represented at such meeting or in such consent.
5. Conversion. The holders of the Preferred Stock shall have conversion
----------
rights as follows (the "Conversion Rights"):
(a) Right to Convert. Each share of Preferred Stock shall be
----------------
convertible, at the option of the holder thereof, at any time after the date of
issuance of such share at the office of the Corporation or any transfer agent
for such Preferred Stock into such number of fully-paid and non-assessable
shares of Common Stock as (i) in the case of the Series A Preferred is
determined by dividing the Original Series A Issue Price by the Series A
Conversion Price, determined as hereinafter provided, in effect at the time of
conversion, (ii) in the case of the Series B Preferred as determined by dividing
the Original Series B Issue Price by the Series B Conversion Price, determined
as hereinafter provided, in effect at the time of conversion, and (iii) in the
case of the Series B1 Preferred is determined by dividing the Original Series B
Issue Price by the Series B1 Conversion Price. The Initial Series A Conversion
Price shall be $0.59650 per share, the initial Series B Conversion Price shall
be $3.00 per share, and the Initial Series B1 Preferred Conversion Price shall
be $3.00 per share. Each of these Conversion Prices shall be subject to
adjustment as provided in accordance with Section 5(d) of this Article B.
(b) Automatic Conversion. Each share of Series A Preferred, Series B
--------------------
Preferred, and Series B1 Preferred shall automatically be converted into shares
of Common Stock at the then effective Conversion Price for such series of
Preferred Stock upon the earlier of: (i) the closing of a firm commitment
underwritten public offering pursuant to an effective registration statement
under the Securities Act of 1933, as amended, covering the offer and sale of
Common Stock for the account of the Corporation to the public with aggregate
proceeds to the Company in excess of Seven Million Five Hundred Thousand Dollars
($7,500,000) (before deduction for underwriters commissions and expenses) and a
per share price not less than $12.00 (appropriately adjusted for any stock
combination, stock split, stock dividend, recapitalization, or other similar
transaction) and (ii) the date on which a total of two-thirds of the shares of
such series of Preferred Stock originally issued have been converted into shares
of Common Stock (each such event is an "Automatic Conversion"). In the event of
an Automatic Conversion of the Preferred Stock upon a public offering as
aforesaid, the person(s) entitled to receive the Common Stock issuable upon such
conversion of Preferred Stock shall not be deemed to have converted such
Preferred Stock until immediately prior to the closing of such sale of
securities.
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<PAGE>
(c) Mechanics of Conversion. No fractional shares of Common Stock
-----------------------
shall be issued upon conversion of Preferred Stock. All shares of Common Stock
(including fractions thereof) issuable upon conversion of more than one share of
Preferred Stock by a holder thereof shall be aggregated for purposes of
determining whether the conversion would result in the issuance of any
fractional share. If, after the aforementioned aggregation, the conversion
would result in the issuance of a fraction of a share of Common Stock, the
Corporation shall, in lieu of issuing any fractional shares to which the holder
would otherwise be entitled, pay cash equal to such fraction multiplied by the
then effective Conversion Price for such series of Preferred Stock. Before any
holder of Preferred Stock shall be entitled to convert the same into full shares
of Common Stock and to receive certificates therefor, such holder 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 such office that he or she elects to
convert the same; provided, however, that in the event of an Automatic
Conversion pursuant to Section 5(b), the outstanding shares of Preferred Stock
shall be converted automatically without any further action by the holders of
such shares and whether or not the certificates representing such shares are
surrendered to the Corporation or its transfer agent, and provided further that
the Corporation shall not be obligated to issue certificates evidencing the
shares of Common Stock issuable upon such Automatic Conversion unless the
certificates evidencing such shares of Preferred Stock are either delivered to
the Corporation or its transfer agent as provided above, or the holder notifies
the Corporation or its transfer agent that such certificates have been lost,
stolen or destroyed and executes an agreement satisfactory to the Corporation to
indemnify the Corporation from any loss incurred by it in connection with such
certificates. The Corporation shall, as soon as practicable after such
delivery, or such agreement and indemnification in the case of a lost
certificate, issue and deliver at such office to such holder of Preferred Stock,
a certificate or certificates for the number of shares of Common Stock to which
such holder shall be entitled as aforesaid and a check payable to the holder in
the amount of any cash amounts payable as the result of a conversion into
fractional shares of Common Stock. 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, or in the case of Automatic
Conversion, on the date of closing of the offering or the date on which a total
of two-thirds of the shares of such series of Preferred Stock originally issued
have been converted into shares of Common Stock, as applicable, 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 on such date.
(d) Adjustments to Conversion Price.
-------------------------------
(i) Adjustments for Dividends, Splits, Subdivisions,
------------------------------------------------
Combinations, or Consolidation of Common Stock. In the event the outstanding
- ----------------------------------------------
shares of Common Stock shall be increased by stock dividend payable in Common
Stock, stock split, subdivision, or other similar transaction occurring after
the filing of this Certificate of Designation into a greater number of shares of
Common Stock, the Conversion Price then in effect for each series of Preferred
Stock shall, concurrently with the effectiveness of such event, be decreased in
proportion to the percentage increase in the outstanding number of shares of
Common Stock. In the event the outstanding shares of Common Stock shall be
decreased by reverse stock split,
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<PAGE>
combination, consolidation, or other similar transaction occurring after the
filing of this Certificate of Designation into a lesser number of shares of
Common Stock, the Conversion Price then in effect for each series of Preferred
Stock shall, concurrently with the effectiveness of such event, be increased in
proportion to the percentage decrease in the outstanding number of shares of
Common Stock.
(ii) Adjustments for Other Distributions. In the event the
-----------------------------------
Corporation at any time or from time to time makes, or fixes a record date for
the determination of holders of Common Stock entitled to receive, any
distribution payable in securities of the Corporation other than shares of
Common Stock and other than as otherwise adjusted in this Section 5, then and in
each such event provision shall be made so that the holders of Preferred Stock
shall receive upon conversion thereof, in addition to the number of shares of
Common Stock receivable thereupon, the amount of securities of the Corporation
which they would have received had their Preferred Stock been converted into
Common Stock on the date of such event and had they thereafter, during the
period from the date of such event to and including the date of conversion,
retained such securities receivable by them as aforesaid during such period,
subject to all other adjustments called for during such period under this
Section 5 with respect to the rights of the holders of the Preferred Stock.
(iii) Adjustments for Reclassification, Exchange and
----------------------------------------------
Substitution. If the Common Stock issuable upon conversion of the Preferred
- ------------
Stock shall be changed into the same or a different number of shares of any
other class or classes of stock, whether by capital reorganization,
reclassification, or otherwise (other than subdivision or combination of shares
provided for above), the Conversion Price then in effect for each series of
Preferred Stock shall, concurrently with the effectiveness of such
reorganization or reclassification, be proportionately adjusted such that the
Preferred Stock shall be convertible into, in lieu of the number of shares of
Common Stock which the holders would otherwise have been entitled to receive, a
number of shares of such other class or classes of stock equivalent to the
number of shares of Common Stock that would have been subject to receipt by the
holders upon conversion of such Preferred Stock immediately before that change.
(iv) Adjustment of Series B Conversion Price Upon Issuance of
--------------------------------------------------------
Additional Stock. If on or after the Original Issue Date the Corporation shall
- ----------------
issue "Additional Stock" (as defined below) for a consideration per share less
than the Series B Conversion Price then in effect on the date and immediately
prior to such issue, then and in each such event, such Series B Conversion Price
shall be reduced concurrently with such issue, to a price (calculated to three
decimal places) determined by multiplying such Series B Conversion Price by a
fraction (1) the numerator of which shall be the number of shares of Common
Stock outstanding immediately prior to such issue (including all shares of
Common Stock issuable upon conversion of the outstanding Preferred Stock and
upon exercise of outstanding stock options) plus the number of shares of Common
Stock which the aggregate consideration received by the Corporation for the
total number of Additional Stock so issued (or deemed to be issued) would
purchase at such Series B Conversion Price; and (2) the denominator of which
shall be the number of shares of Common Stock outstanding immediately prior to
such issue (including all shares of Common Stock issuable upon conversion of the
outstanding Preferred Stock and upon exercise of outstanding stock options) plus
the number of shares of Additional Stock so issued.
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<PAGE>
For purposes of this subsection (iv) "Additional Stock" shall mean all Common
Stock issued by the Corporation after the Original Issue Date other than Common
Stock issued or issuable at any time (1) upon conversion of the Preferred Stock,
(2) to officers, directors, and employees of, and consultants to, the
Corporation after the Original Issue Date as designated and approved by the
Board of Directors but not to exceed 2,700,000 shares (net of repurchases and
option expirations); (3) in connection with equipment leasing or commercial
lending or financing transactions approved by the Corporation's Board of
Directors so long as such transactions are not primarily for equity financing
purposes; (4) as described in subparagraphs (i), (ii) and (iii) of this Section
5(d).
For the purpose of making any adjustment in the Series B Conversion
Price as provided above, the consideration received by the Corporation for any
issue or sale of Common Stock will be computed:
(1) to the extent it consists of cash, as the amount of cash
received by the Corporation before deduction of any offering expenses payable by
the Corporation and any underwriting or similar commissions, compensation, or
concessions paid or allowed by the Corporation in connection with such issue or
sale;
(2) to the extent it consists of property other than cash, at
the fair market value of that property as determined in good faith by the
Corporation's Board of Directors in accordance with the provisions of Section
2(g); and
(3) if Common Stock is issued or sold together with other stock
or securities or other assets of the Corporation for a consideration which
covers both, as the portion of the consideration so received that may be
reasonably determined in good faith by the Board of Directors to be allocable to
such Common Stock.
If the Corporation (1) grants any rights or options to subscribe for,
purchase, or otherwise acquire shares of Common Stock, or (2) issues or sells
any security convertible into shares of Common Stock, then, in each case, the
price per share of Common Stock issuable on the exercise of the rights or
options or the conversion of the securities will be determined by dividing the
total amount, if any, received or receivable by the Corporation as consideration
for the granting of the rights or options or the issue or sale of the
convertible securities, plus the minimum aggregate amount of additional
consideration payable to the Corporation on exercise or conversion of the
securities, by the maximum number of shares of Common Stock issuable on the
exercise of conversion. Such granting or issue or sale will be considered to be
an issue or sale for cash of the maximum number of shares of Common Stock
issuable on exercise or conversion at the price per share determined under this
subsection, and the Series B Conversion Price will be adjusted as above provided
to reflect (on the basis of that determination) the issue or sale. No further
adjustment of the Series B Conversion Price will be made as a result of the
actual issuance of shares of Common Stock on the exercise of any such rights or
options or the conversion of any such convertible securities.
Upon the redemption or repurchase of any such securities or the expiration
or termination of the right to convert into, exchange for, or exercise with
respect to, Common Stock, the Series B Conversion Price will be readjusted to
such price as would have been
10
<PAGE>
obtained had the adjustment made upon their issuance been made upon the basis of
the issuance of only the number of such securities as were actually converted
into, exchanged for, or exercised with respect to, Common Stock. If the purchase
price or conversion or exchange rate provided for in any such security changes
at any time, then, upon such change becoming effective, the Series B Conversion
Price then in effect will be readjusted forthwith to such price as would have
been obtained had the adjustment made upon the issuance of such securities been
made upon the basis of (1) the issuance of only the number of shares of Common
Stock theretofore actually delivered upon the conversion, exchange or exercise
of such securities, and the total consideration received therefor, and (2) the
granting or issuance, at the time of such change, of any such securities then
still outstanding for the consideration, if any, received by the Company
therefor and to be received on the basis of such changed price or rate.
No adjustment to the Series A Conversion Price or the Series B1 Conversion
Price shall be made in respect of the issuance, or deemed issuance, of
Additional Stock.
(e) No Impairment. Except as provided in Section 7, the Corporation
-------------
will not, by amendment of its Certificate of Incorporation or through any
reorganization, transfer of assets, consolidation, merger, dissolution, issue or
sale of securities, or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms 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 5 and in the taking of all
such action as may be necessary or appropriate in order to protect the
conversion rights of the holders of the Preferred Stock against impairment.
(f) Certificate as to Adjustments. Upon the occurrence of each
-----------------------------
adjustment or readjustment of the Conversion Price of each series of Preferred
Stock pursuant to this Section 5, the Corporation at its expense shall promptly
compute such adjustment or readjustment in accordance with the terms hereof and
furnish to each holder of Preferred Stock a certificate setting forth such
adjustment or readjustment and showing in detail the facts upon which such
adjustment or readjustment is based. The Corporation shall, upon the written
request of any holder of Preferred Stock, furnish or cause to be furnished to
such holder a like certificate setting forth (i) such adjustments and
readjustments, (ii) the Conversion Price at the time in effect, and (iii) the
number of shares of Common Stock and the amount, if any, of other property which
at the time would be received upon the conversion of the Preferred Stock.
(g) Notices of Record Date. In the event that this Corporation shall
----------------------
propose at any time:
(i) to declare any dividend or distribution upon its Common
Stock, whether in cash, property, stock, or other securities, whether or not a
regular cash dividend and whether or not out of earnings or earned surplus;
(ii) to offer for subscription pro rata to the holders of any
class or series of its stock any additional shares of stock of any class or
series of other rights;
(iii) to effect any reclassification or recapitalization of its
Common Stock outstanding involving a change in the Common Stock; or
11
<PAGE>
(iv) to merge or consolidate with or into any other
corporation, or sell, lease, or convey all or substantially all its property or
business, or to liquidate, dissolve, or wind up; then, in connection with each
such event, this Corporation shall send to the holders of the Preferred Stock:
(1) at least 20 days' prior written notice of the date on
which a record shall be taken for such dividend, distribution, or subscription
rights (and specifying the date on which the holders of Common Stock shall be
entitled thereto) or for determining rights to vote in respect of the matters
referred to in (iii) and (iv) above; and
(2) in the case of the matters referred to in (iii) and
(iv) above, at least 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 the occurrence of such event or the record date for
the determination of such holders if such record date is earlier).
Each such written notice shall be delivered personally or given by first
class mail, postage prepaid, addressed to the holders of the Preferred Stock at
the address for each such holder as shown on the books of this Corporation.
(h) Issue Taxes. The Corporation shall pay any and all issue and
-----------
other taxes (other than income taxes) that may be payable in respect of any
issue or delivery of shares of Common Stock on conversion of shares of Preferred
Stock pursuant hereto; provided, however, that the Corporation shall not be
obligated to pay any transfer taxes resulting from any transfer requested by any
holder in connection with any such conversion.
(i) 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 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 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 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 purpose,
including, without limitation, engaging in best efforts to obtain the requisite
stockholder approval of any necessary amendment to its Certificate of
Incorporation.
(j) Status of Converted Stock. In case any series of Preferred Stock
-------------------------
shall be converted pursuant to this Section 5, the shares so converted shall
resume the status of authorized but unissued shares of Preferred Stock
undesignated as to series.
6. Special Mandatory Conversion.
----------------------------
(a) At any time following the Original Issue Date, if (i) any holder
of shares of Series B Preferred is entitled to exercise the right of first
refusal as set forth in Section 5 of that certain Investor Rights Agreement
dated as of June 20, 1997 (the "Right of First Refusal")
12
<PAGE>
with respect to an equity financing of the Corporation at a price per share
which is less than the then current Series B Conversion Price (the "Equity
Financing"), (ii) the Corporation has complied with its obligations under the
Right of First Refusal in respect thereof, and (iii) such holder (a "Non-
Participating Holder") does not by exercise of such holder's Right of First
Refusal acquire its Pro Rata Share (as defined in the Investor Rights Agreement)
offered in such Equity Financing (a "Mandatory Offering"), then all of such
holder's shares of Series B Preferred shall automatically and without further
action on the part of such holder be converted into an equivalent number of
shares of Series B1 Preferred, effective immediately prior to the consummation
of the Mandatory Offering (the "Mandatory Offering Date"), provided, however,
that no such conversion shall occur in connection with a particular Equity
Financing if, pursuant to the written request of the Corporation, the Right of
First Refusal with respect to such Equity Financing is waived; provided further,
however, that no such conversion shall occur in connection with a particular
Equity Financing with respect to a particular holder of shares of Series B
Preferred if, pursuant to the written request of the Corporation, such holder
agrees in writing to waive his or its Right of First Refusal with respect to
such Equity Financing and pursuant to the written request of the Corporation,
each other holder of shares of Series B Preferred agrees in writing that such
particular holder of shares of Series B Preferred may waive his or its Right of
First Refusal with respect to such Equity Financing. Upon conversion pursuant to
this Section 6, the shares of Series B Preferred so converted shall be canceled
and not subject to reissuance.
(b) The holder of any shares of Series B Preferred converted pursuant
to Section 6(a) hereof shall deliver to the Corporation during regular business
hours at the office of any transfer agent of the Corporation for the Preferred
Stock, or at such other place as may be designated by the Corporation, the
certificate or certificates for the shares so converted, duly endorsed or
assigned in blank or to the Corporation. As promptly as practicable thereafter,
the Corporation shall issue and deliver to such holder, at the place designated
by such holder, a certificate or certificates for the number of full shares of
the Series Bl Preferred to which such holder is entitled. The person in whose
name the certificate for such shares of Series B1 Preferred is to be issued
shall be deemed to have become a stockholder of record on the Mandatory Offering
Date unless the transfer books of the Corporation are closed on that date, in
which event he or it shall be deemed to have become a stockholder of record on
the next succeeding date on which the transfer books are open.
(c) In the event that any shares of Series B1 Preferred are issued,
concurrently with such issuance, the Corporation shall use its best efforts to
take all such action as may be required, including amending the Certificate of
Incorporation, (i) to cancel all authorized shares of Series B1 Preferred that
remain unissued after such issuance, (ii) to create and reserve for issuance
upon Special Mandatory Conversion of the Series B Preferred a new series of
Preferred Stock equal in number to the number of shares of Series B1 Preferred
so canceled and designated Series B2 Preferred, with the designations, powers,
preferences, and rights and the qualifications, limitations and restrictions
identical to those then applicable to the Series B Preferred, except that the
Conversion Prices for such shares of Series B2 Preferred once initially issued
shall be the Conversion Prices in effect for the Series B Preferred immediately
prior to such issuance and shall no longer be subject to adjustment under
Section 5(d)(iv) hereof, and (iii) to amend the provisions of this Section 6 to
provide that any
13
<PAGE>
subsequent Special Mandatory Conversion will be into shares of Series B2
Preferred rather than Series B1 Preferred. The Corporation shall take the same
actions with respect to the Series B2 Preferred, and each subsequently issued
series of Preferred Stock upon initial issuance of shares of the last such
series to be authorized.
7. Covenants. In addition to any other rights provided by law, this
---------
Corporation shall not without first obtaining the affirmative vote or written
consent of the holders of not less than two-thirds of the outstanding shares of
Series B Preferred and Series B1 Preferred:
(a) amend or repeal any provision of, or add any provision to, this
Corporation's Certificate of Incorporation, this Certificate of Designation or
Bylaws if such action would adversely alter or change the preferences, rights,
privileges, or powers of, or the restrictions provided for the benefit of or
imposed upon, the Series B Preferred or the Series B1 Preferred;
(b) increase the authorized number of shares of Preferred Stock, of
the Series B Preferred, or of the Series B1 Preferred;
(c) authorized or issue shares of any class or series of stock having
any rights, preferences or privileges superior to or on a parity with any
rights, preferences or privileges of the Series B Preferred or the Series B1
Preferred;
(d) authorize or approve a Liquidation Event;
(e) pay or declare any dividends on the Common Stock or Preferred
Stock;
(f) repurchase or acquire any shares of Common Stock other than
pursuant to the terms of any equity incentive agreement with a service provider
giving the Corporation the right to repurchase shares upon the termination of
such services; or
(g) increase the authorized number of directors.
14
<PAGE>
IN WITNESS WHEREOF, said Corporation has caused this Certificate of
Designation to be signed and attested by its duly authorized officers this 13
day of March, 1998.
/s/ Gary Bengier
----------------
Gary Bengier,
Vice President and Chief Financial Officer
ATTEST:
/s/ Matthew P. Quilter
- ----------------------
Matthew P. Quilter, Secretary
[SIGNATURE PAGE TO CERTIFICATE OF DESIGNATION OF PREFERRED STOCK]
15
<PAGE>
EXHIBIT 3.05
BYLAWS
OF
eBAY INC.
(a Delaware corporation)
As Adopted March 13, 1998
<PAGE>
BYLAWS
OF
eBAY INC.
A Delaware Corporation
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE I - STOCKHOLDERS..................................................................
Section 1.1: Annual Meetings...................................................... 1
Section 1.2: Special Meetings..................................................... 1
Section 1.3: Notice of Meetings................................................... 1
Section 1.4: Adjournments......................................................... 1
Section 1.5: Quorum............................................................... 2
Section 1.6: Organization......................................................... 2
Section 1.7: Voting; Proxies...................................................... 2
Section 1.8: Fixing Date for Determination of Stockholders
of Record............................................................ 3
Section 1.9: List of Stockholders Entitled to Vote................................ 3
Section 1.10: Action by Written Consent of Stockholders............................ 3
Section 1.11: Inspectors of Elections.............................................. 4
ARTICLE II - BOARD OF DIRECTORS...........................................................
Section 2.1: Number; Qualifications............................................... 5
Section 2.2: Election; Resignation; Removal; Vacancies............................ 5
Section 2.3: Regular Meetings..................................................... 6
</TABLE>
i
<PAGE>
BYLAWS
OF
eBAY INC.
A Delaware Corporation
TABLE OF CONTENTS (cont'd)
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Section 2.4: Special Meetings..................................................... 6
Section 2.5: Telephonic Meetings Permitted........................................ 6
Section 2.6: Quorum; Vote Required for Action..................................... 6
Section 2.7: Organization......................................................... 6
Section 2.8: Written Action by Directors.......................................... 6
Section 2.9: Powers............................................................... 6
Section 2.10: Compensation of Directors............................................ 7
ARTICLE III - COMMITTEES.................................................................
Section 3.1: Committees........................................................... 7
Section 3.2: Committee Rules...................................................... 7
ARTICLE IV - OFFICERS....................................................................
Section 4.1: Generally............................................................ 8
Section 4.2: Chief Executive Officer.............................................. 8
Section 4.3: Chairman of the Board................................................ 8
Section 4.4: President............................................................ 9
Section 4.5: Vice President....................................................... 9
Section 4.6: Chief Financial Officer.............................................. 9
Section 4.7: Treasurer............................................................ 9
Section 4.8: Secretary............................................................ 9
</TABLE>
ii
<PAGE>
BYLAWS
OF
eBAY INC.
A Delaware Corporation
TABLE OF CONTENTS (cont'd)
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Section 4.9: Delegation of Authority.............................................. 9
Section 4.10: Removal.............................................................. 9
ARTICLE V - STOCK........................................................................
Section 5.1: Certificates......................................................... 10
Section 5.2: Lost, Stolen or Destroyed Stock Certificates;
Issuance of New Certificate.......................................... 10
Section 5.3: Other Regulations.................................................... 10
ARTICLE VI - INDEMNIFICATION.............................................................
Section 6.1: Indemnification of Officers and Directors............................ 10
Section 6.2: Advance of Expenses.................................................. 11
Section 6.3: Non-Exclusivity of Rights............................................ 11
Section 6.4: Indemnification Contracts............................................ 11
Section 6.5: Effect of Amendment..................................................
ARTICLE VII - NOTICES ...................................................................
Section 7.1: Notice............................................................... 11
Section 7.2: Waiver of Notice..................................................... 12
ARTICLE VIII - INTERESTED DIRECTORS......................................................
Section 8.1: Interested Directors; Quorum......................................... 12
</TABLE>
iii
<PAGE>
BYLAWS
OF
eBAY INC.
A Delaware Corporation
TABLE OF CONTENTS (cont'd)
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE IX - MISCELLANEOUS ............................................................. 13
Section 9.1: Fiscal Year.......................................................... 13
Section 9.2: Seal................................................................. 13
Section 9.3: Form of Records...................................................... 13
Section 9.4: Reliance Upon Books and Records...................................... 13
Section 9.5: Certificate of Incorporation Governs................................. 13
Section 9.6: Severability......................................................... 13
ARTICLE X - AMENDMENT....................................................................
Section 10.1: Amendments........................................................... 14
</TABLE>
iv
<PAGE>
BYLAWS
OF
eBAY INC.
(a Delaware corporation)
As Adopted March 13, 1998
ARTICLE I
STOCKHOLDERS
Section 1.1: Annual Meetings. An annual meeting of stockholders shall be
----------- ---------------
held for the election of directors at such date, time and place, either within
or without the State of Delaware, as the Board of Directors shall each year fix.
Any other proper business may be transacted at the annual meeting.
Section 1.2: Special Meetings. Special meetings of stockholders for any
----------- ----------------
purpose or purposes may be called at any time by the Board of Directors, the
Chairman of the Board, the Chief Executive Officer, the President, the holders
of shares of the Corporation that are entitled to cast not less than one-tenth
of the votes at the meeting or by a majority of the members of the Board of
Directors. Special meetings may not be called by any other person or persons.
If a special meeting of stockholders is called by any person or persons other
-----
than by a majority of the members of the Board of Directors, then such person or
- ----
persons shall call such meeting by delivering a written request to call such
meeting to each member of the Board of Directors, and the Board of Directors
shall then determine the time, date and place of such special meeting, which
shall be held not more than one hundred twenty (120) nor less than thirty-five
(35) days after the written request to call such special meeting was delivered
to each member of the Board of Directors.
Section 1.3: Notice of Meetings. Written notice of all meetings of
----------- ------------------
stockholders shall be given stating the place, date and time of the meeting and,
in the case of a special meeting, the purpose or purposes for which the meeting
is called. Unless otherwise required by applicable law or the Certificate of
Incorporation of the Corporation, such notice shall be given 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.
Section 1.4: Adjournments. Any meeting of stockholders may adjourn from
----------- ------------
time to time to reconvene at the same or another place, and notice need not be
given of any such adjourned meeting if the time, date and place thereof are
announced at the meeting at which the adjournment is taken; provided, however,
-------- -------
that if the adjournment is for more than thirty (30)
<PAGE>
days, or if after the adjournment a new record date is fixed for the adjourned
meeting, then a notice of the adjourned meeting shall be given to each
stockholder of record entitled to vote at the meeting. At the adjourned meeting
the Corporation may transact any business that might have been transacted at the
original meeting.
Section 1.5: Quorum. At each meeting of stockholders the holders of a
----------- ------
majority of the shares of stock entitled to vote at the meeting, present in
person or represented by proxy, shall constitute a quorum for the transaction of
business, except if otherwise required by applicable law. If a quorum shall
fail to attend any meeting, the chairman of the meeting or the holders of a
majority of the shares entitled to vote who are present, in person or by proxy,
at the meeting may adjourn the meeting. Shares of the Corporation's stock
belonging to the Corporation (or to another corporation, if a majority of the
shares entitled to vote in the election of directors of such other corporation
are held, directly or indirectly, by the Corporation), shall neither be entitled
to vote nor be counted for quorum purposes; provided, however, that the
-------- -------
foregoing shall not limit the right of the Corporation or any other corporation
to vote any shares of the Corporation's stock held by it in a fiduciary
capacity.
Section 1.6: Organization. Meetings of stockholders shall be presided
----------- ------------
over by such person as the Board of Directors may designate, or, in the absence
of such a person, the Chairman of the Board, or, in the absence of such person,
the President of the Corporation, or, in the absence of such person, 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, at the meeting. Such person shall be
chairman of the meeting and, subject to Section 1.11 hereof, shall determine the
order of business and the procedure at the meeting, including such regulation of
the manner of voting and the conduct of discussion as seems to him or her to be
in order. The Secretary of the Corporation shall act as secretary of the
meeting, but in his or her absence the chairman of the meeting may appoint any
person to act as secretary of the meeting.
Section 1.7: Voting; Proxies. Unless otherwise provided by law or the
----------- ---------------
Certificate of Incorporation, and subject to the provisions of Section 1.8 of
these Bylaws, each stockholder shall be entitled to one (1) vote for each share
of stock held by such stockholder. 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 proxy. Such a proxy may be prepared, transmitted and
delivered in any manner permitted by applicable law. Voting at meetings of
stockholders need not be by written ballot unless such is demanded at the
meeting before voting begins by a stockholder or stockholders holding shares
representing at least one percent (1%) of the votes entitled to vote at such
meeting, or by such stockholder's or stockholders' proxy; provided, however,
-------- -------
that an election of directors shall be by written ballot if demand is so made by
any stockholder at the meeting before voting begins. If a vote is to be taken
by written ballot, then each such ballot shall state the name of the stockholder
or proxy voting and such other information as the chairman of the meeting deems
appropriate. Unless otherwise provided in the Certificate of Incorporation or a
Certificate of Designation relating to a series of Preferred Stock, directors
shall be elected by a plurality of the votes of the shares present in person or
represented by proxy at the meeting and entitled to vote on the election of
directors. Unless otherwise provided by
-2-
<PAGE>
applicable law, the Certificate of Incorporation or these Bylaws, every matter
other than the election of directors shall be decided by the affirmative vote of
the holders of a majority of the shares of stock entitled to vote thereon that
are present in person or represented by proxy at the meeting and are voted for
or against the matter.
Section 1.8: Fixing Date for Determination of Stockholders of Record.
----------- -------------------------------- ----------------------
(a) Generally. 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 to express consent to corporate action in writing
without a meeting, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock or for the purpose of any
other lawful action, the Board of Directors may fix, in advance, a record date,
which shall not precede the date upon which the resolution fixing the record
date is adopted by the Board of Directors and 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 no record date is fixed by the
Board of Directors, then the record date shall be as provided by applicable law.
A determination of stockholders of record entitled to notice of or to vote at a
meeting of stockholders shall apply to any adjournment of the meeting; provided,
--------
however, that the Board of Directors may fix a new record date for the adjourned
- -------
meeting.
Section 1.9: List of Stockholders Entitled to Vote. A complete list of
----------- -------------------------------------
stockholders entitled to vote at any meeting of stockholders, arranged in
alphabetical order and showing the address of each stockholder and the number of
shares registered in the name of each stockholder, shall be open to the
examination of any stockholder, for any purpose germane to the meeting, during
ordinary business hours, for a period of at least ten (10) days prior to the
meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The list shall also be
produced and kept at the time and place of the meeting during the whole time
thereof and may be inspected by any stockholder who is present at the meeting.
Section 1.10: Action by Written Consent of Stockholders.
------------ -----------------------------------------
(a) Procedure. Unless otherwise provided by the Certificate of
---------
Incorporation, and except as set forth in Section 1.8(b) above, any action
required or permitted to be taken at any annual or special meeting of the
stockholders may be taken without a meeting, without prior notice and without a
vote, if a consent or consents in writing, setting forth the action so taken,
shall be signed by the holders of outstanding stock having not less than the
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.
Written stockholder consents shall bear the date of signature of each
stockholder who signs the consent and shall be delivered to the Corporation by
delivery to its registered office in the State of Delaware, to its principal
place of business or to any officer or agent of the Corporation having custody
of the book in which proceedings of meetings of stockholders are recorded.
Delivery made to the Corporation's registered office shall be by hand or by
certified or registered mail, return receipt requested. No written consent
shall
-3-
<PAGE>
be effective to take the action set forth therein unless, within sixty (60) days
of the earliest dated consent delivered to the Corporation in the manner
provided above, written consents signed by a sufficient number of stockholders
to take the action set forth therein are delivered to the Corporation in the
manner provided above.
(b) Notice of Consent. Prompt notice of the taking of corporate action by
-----------------
stockholders without a meeting by less than unanimous written consent of the
stockholders shall be given to those stockholders who have not consented thereto
in writing and, in the case of a Certificate Action (as defined below), if the
Delaware General Corporation Law so requires, such notice shall be given prior
to filing of the certificate in question. If the action which is consented to
requires the filing of a certificate under the Delaware General Corporation Law
(a "Certificate Action"), then if the Delaware General Corporation Law so
------------------
requires, the certificate so filed shall state that written stockholder consent
has been given in accordance with Section 228 of the Delaware General
Corporation Law and that written notice of the taking of corporate action by
stockholders without a meeting as described herein has been given as provided in
such section.
Section 1.11: Inspectors of Elections.
------------ -----------------------
(a) Applicability. Unless otherwise provided in the Corporation's
-------------
Certificate of Incorporation or required by the Delaware General Corporation
Law, the following provisions of this Section 1.11 shall apply only if and when
the Corporation has a class of voting stock that is: (i) listed on a national
securities exchange; (ii) authorized for quotation on an interdealer quotation
system of a registered national securities association; or (iii) held of record
by more than 2,000 stockholders; in all other cases, observance of the
provisions of this Section 1.11 shall be optional, and at the discretion of the
Corporation.
(b) Appointment. The Corporation shall, in advance of any meeting of
-----------
stockholders, appoint one or more inspectors of election to act at the meeting
and make a written report thereof. The Corporation may designate one or more
persons as alternate inspectors to replace any inspector who fails to act. If
no inspector or alternate is able to act at a meeting of stockholders, the
person presiding at the meeting shall appoint one or more inspectors to act at
the meeting.
(c) Inspector's Oath. Each inspector of election, before entering upon the
----------------
discharge of his duties, shall take and sign an oath faithfully to execute the
duties of inspector with strict impartiality and according to the best of his
ability.
(d) Duties of Inspectors. At a meeting of stockholders, the inspectors of
--------------------
election shall (i) ascertain the number of shares outstanding and the voting
power of each share, (ii) determine the shares represented at a meeting and the
validity of proxies and ballots, (iii) count all votes and ballots, (iv)
determine and retain for a reasonable period of time a record of the disposition
of any challenges made to any determination by the inspectors, and (v) certify
their determination of the number of shares represented at the meeting, and
their count of all votes and ballots. The inspectors may appoint or retain
other persons or entities to assist the inspectors in the performance of the
duties of the inspectors.
-4-
<PAGE>
(e) Opening and Closing of Polls. The date and time of the opening and the
----------------------------
closing of the polls for each matter upon which the stockholders will vote at a
meeting shall be announced by the inspectors at the meeting. No ballot, proxies
or votes, nor any revocations thereof or changes thereto, shall be accepted by
the inspectors after the closing of the polls unless the Court of Chancery upon
application by a stockholder shall determine otherwise.
(f) Determinations. In determining the validity and counting of proxies
--------------
and ballots, the inspectors shall be limited to an examination of the proxies,
any envelopes submitted with those proxies, any information provided in
connection with proxies in accordance with Section 212(c)(2) of the Delaware
General Corporation Law, ballots and the regular books and records of the
Corporation, except that the inspectors may consider other reliable information
for the limited purpose of reconciling proxies and ballots submitted by or on
behalf of banks, brokers, their nominees or similar persons which represent more
votes than the holder of a proxy is authorized by the record owner to cast or
more votes than the stockholder holds of record. If the inspectors consider
other reliable information for the limited purpose permitted herein, the
inspectors at the time they make their certification of their determinations
pursuant to this Section 1.11 shall specify the precise information considered
by them, including the person or persons from whom they obtained the
information, when the information was obtained, the means by which the
information was obtained and the basis for the inspectors' belief that such
information is accurate and reliable.
ARTICLE II
BOARD OF DIRECTORS
Section 2.1: Number; Qualifications. The Board of Directors shall consist
----------- ----------------------
of one or more members. The initial number of directors shall be five (5), and
thereafter shall be fixed from time to time by resolution of the Board of
Directors. No decrease in the authorized number of directors constituting the
Board of Directors shall shorten the term of any incumbent director. Directors
need not be stockholders of the Corporation.
Section 2.2: Election; Resignation; Removal; Vacancies. The Board of
----------- -----------------------------------------
Directors shall initially consist of the person or persons elected by the
incorporator or named in the Corporation's initial Certificate of Incorporation.
Each director shall hold office until the next annual meeting of stockholders
and until his or her successor is elected and qualified, or until his or her
earlier death, resignation or removal. Any director may resign at any time upon
written notice to the Corporation. Subject to the rights of any holders of
Preferred Stock then outstanding: (i) 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 and (ii) any
vacancy occurring in the Board of Directors for any cause, and any newly created
directorship resulting from any increase in the authorized number of directors
to be elected by all stockholders having the right to vote as a single class,
may be filled by the stockholders, by a majority of the directors then in
office, although less than a quorum, or by a sole remaining director.
-5-
<PAGE>
Section 2.3: Regular Meetings. Regular meetings of the Board of Directors
----------- ----------------
may be held at such places, within or without the State of Delaware, and at such
times as the Board of Directors may from time to time determine. Notice of
regular meetings need not be given if the date, times and places thereof are
fixed by resolution of the Board of Directors.
Section 2.4: Special Meetings. Special meetings of the Board of Directors
----------- ----------------
may be called by the Chairman of the Board, the President or a majority of the
members of the Board of Directors then in office and may be held at any time,
date or place, within or without the State of Delaware, as the person or persons
calling the meeting shall fix. Notice of the time, date and place of such
meeting shall be given, orally or in writing, by the person or persons calling
the meeting to all directors at least four (4) days before the meeting if the
notice is mailed, or at least forty-eight (48) hours before the meeting if such
notice is given by telephone, hand delivery, telegram, telex, mailgram,
facsimile or similar communication method. Unless otherwise indicated in the
notice, any and all business may be transacted at a special meeting.
Section 2.5: Telephonic Meetings Permitted. Members of the Board of
----------- -----------------------------
Directors, or any committee of the Board, may participate in a meeting of the
Board or such committee by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and participation in a meeting pursuant to
conference telephone or similar communications equipment shall constitute
presence in person at such meeting.
Section 2.6: Quorum; Vote Required for Action. At all meetings of the
----------- --------------------------------
Board of Directors a majority of the total number of authorized directors shall
constitute a quorum for the transaction of business. Except as otherwise
provided herein or in the Certificate of Incorporation, or required by law, the
vote of a majority of the directors present at a meeting at which a quorum is
present shall be the act of the Board of Directors.
Section 2.7: Organization. Meetings of the Board of Directors shall be
----------- ------------
presided over by the Chairman of the Board, or in his or her absence by the
President, or in his or her absence by a chairman chosen at the meeting. The
Secretary shall act as secretary of the meeting, but in his or her absence the
chairman of the meeting may appoint any person to act as secretary of the
meeting.
Section 2.8: Written Action by Directors. 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
such committee, as the case may be, consent thereto in writing, and the writing
or writings are filed with the minutes of proceedings of the Board or committee,
respectively.
Section 2.9: Powers. The Board of Directors may, except as otherwise
------------ ------
required by law or the Certificate of Incorporation, exercise all such powers
and do all such acts and things as may be exercised or done by the Corporation.
-6-
<PAGE>
Section 2.10: Compensation of Directors. Directors, as such, may receive,
------------ -------------------------
pursuant to a resolution of the Board of Directors, fees and other compensation
for their services as directors, including without limitation their services as
members of committees of the Board of Directors.
ARTICLE III
COMMITTEES
Section 3.1: Committees. The Board of Directors may, by resolution passed
----------- ----------
by a majority of the whole Board, designate one or more committees, each
committee to consist of one or more of the directors of the Corporation. The
Board may designate one or more directors as alternate members of any committee,
who may replace any absent or disqualified member at any meeting of the
committee. In the absence or disqualification of a member of the committee, the
member or members thereof present at any meeting of such committee who are not
disqualified from voting, whether or not he, she or they constitute a quorum,
may unanimously appoint another member of the Board of Directors to act at the
meeting in place of any such absent or disqualified member. Any such committee,
to the extent provided in a resolution of the Board of Directors, shall have and
may exercise all the powers and authority of the Board of Directors in the
management of the business and affairs of the Corporation and may authorize the
seal of the Corporation to be affixed to all papers that may require it; but no
such committee shall have the power or authority in reference to amending the
Certificate of Incorporation (except that a committee may, to the extent
------
authorized in the resolution or resolutions providing for the issuance of shares
of stock adopted by the Board of Directors as provided in subsection (a) of
Section 151 of the Delaware General Corporation Law, fix the designations and
any of the preferences or rights of such shares relating to dividends,
redemption, dissolution, any distribution of assets of the Corporation, or the
conversion into, or the exchange of such shares for, shares of any other class
or classes or any other series of the same or any other class or classes of
stock of the Corporation, or fix the number of shares of any series of stock or
authorize the increase or decrease of the shares of any series), adopting an
agreement of merger or consolidation under Sections 251 or 252 of the Delaware
General Corporation Law, recommending to the stockholders the sale, lease or
exchange of all or substantially all of the Corporation's property and assets,
recommending to the stockholders a dissolution of the Corporation or a
revocation of a dissolution, or amending the Bylaws of the Corporation; and
unless the resolution of the Board of Directors expressly so provides, no such
committee shall have the power or authority to declare a dividend, authorize the
issuance of stock or adopt a certificate of ownership and merger pursuant to
section 253 of the Delaware General Corporation Law.
Section 3.2: Committee Rules. Unless the Board of Directors otherwise
----------- ---------------
provides, each committee designated by the Board may make, alter and repeal
rules for the conduct of its business. In the absence of such rules each
committee shall conduct its business in the same manner as the Board of
Directors conducts its business pursuant to Article II of these Bylaws.
-7-
<PAGE>
ARTICLE IV
OFFICERS
Section 4.1: Generally. The officers of the Corporation shall consist of
----------- ---------
a Chief Executive Officer and/or a President, one or more Vice Presidents, a
Secretary, a Treasurer and such other officers, including a Chairman of the
Board of Directors and/or Chief Financial Officer, as may from time to time be
appointed by the Board of Directors. All officers shall be elected by the Board
of Directors; provided, however, that the Board of Directors may empower the
-------- -------
Chief Executive Officer of the Corporation to appoint officers other than the
Chairman of the Board, the Chief Executive Officer, the President, the Chief
Financial Officer or the Treasurer. Each officer shall hold office until his or
her successor is elected and qualified or until his or her earlier resignation
or removal. Any number of offices may be held by the same person. Any officer
may resign at any time upon written notice to the Corporation. Any vacancy
occurring in any office of the Corporation by death, resignation, removal or
otherwise may be filled by the Board of Directors.
Section 4.2: Chief Executive Officer. Subject to the control of the Board
----------- -----------------------
of Directors and such supervisory powers, if any, as may be given by the Board
of Directors, the powers and duties of the Chief Executive Officer of the
Corporation are:
(a) To act as the general manager and, subject to the control of the Board
of Directors, to have general supervision, direction and control of the business
and affairs of the Corporation;
(b) To preside at all meetings of the stockholders;
(c) To call meetings of the stockholders to be held at such times and,
subject to the limitations prescribed by law or by these Bylaws, at such places
as he or she shall deem proper; and
(d) To affix the signature of the Corporation to all deeds, conveyances,
mortgages, guarantees, leases, obligations, bonds, certificates and other papers
and instruments in writing which have been authorized by the Board of Directors
or which, in the judgment of the Chief Executive Officer, should be executed on
behalf of the Corporation; to sign certificates for shares of stock of the
Corporation; and, subject to the direction of the Board of Directors, to have
general charge of the property of the Corporation and to supervise and control
all officers, agents and employees of the Corporation.
The President shall be the Chief Executive Officer of the Corporation unless the
Board of Directors shall designate another officer to be the Chief Executive
Officer. If there is no President, and the Board of Directors has not
designated any other officer to be the Chief Executive Officer, then the
Chairman of the Board shall be the Chief Executive Officer.
Section 4.3: Chairman of the Board. The Chairman of the Board shall have
----------- ---------------------
the power to preside at all meetings of the Board of Directors and shall have
such other powers and duties as provided in these bylaws and as the Board of
Directors may from time to time prescribe.
-8-
<PAGE>
Section 4.4: President. The President shall be the Chief Executive
----------- ---------
Officer of the Corporation unless the Board of Directors shall have designated
another officer as the Chief Executive Officer of the Corporation. Subject to
the provisions of these Bylaws and to the direction of the Board of Directors,
and subject to the supervisory powers of the Chief Executive Officer (if the
Chief Executive Officer is an officer other than the President), and subject to
such supervisory powers and authority as may be given by the Board of Directors
to the Chairman of the Board, and/or to any other officer, the President shall
have the responsibility for the general management the control of the business
and affairs of the Corporation and the general supervision and direction of all
of the officers, employees and agents of the Corporation (other than the Chief
Executive Officer, if the Chief Executive Officer is an officer other than the
President) and shall perform all duties and have all powers that are commonly
incident to the office of President or that are delegated to the President by
the Board of Directors.
Section 4.5: Vice President. Each Vice President shall have all such
----------- --------------
powers and duties as are commonly incident to the office of Vice President, or
that are delegated to him or her by the Board of Directors or the Chief
Executive Officer. A Vice President may be designated by the Board to perform
the duties and exercise the powers of the Chief Executive Officer in the event
of the Chief Executive Officer's absence or disability.
Section 4.6: Chief Financial Officer. Subject to the direction of the
----------- -----------------------
Board of Directors and the President, the Chief Financial Officer shall perform
all duties and have all powers that are commonly incident to the office of chief
financial officer.
Section 4.7: Treasurer. The Treasurer shall have custody of all monies
----------- ---------
and securities of the Corporation. The Treasurer shall make such disbursements
of the funds of the Corporation as are authorized and shall render from time to
time an account of all such transactions. The Treasurer shall also perform such
other duties and have such other powers as are commonly incident to the office
of Treasurer, or as the Board of Directors or the President may from time to
time prescribe.
Section 4.8: Secretary. The Secretary shall issue or cause to be issued
----------- ---------
all authorized notices for, and shall keep, or cause to be kept, minutes of all
meetings of the stockholders and the Board of Directors. The Secretary shall
have charge of the corporate minute books and similar records and shall perform
such other duties and have such other powers as are commonly incident to the
office of Secretary, or as the Board of Directors or the President may from time
to time prescribe.
Section 4.9: Delegation of Authority. The Board of Directors may from
----------- -----------------------
time to time delegate the powers or duties of any officer to any other officers
or agents, notwithstanding any provision hereof.
Section 4.10: Removal. Any officer of the Corporation shall serve at the
------------ -------
pleasure of the Board of Directors and may be removed at any time, with or
without cause, by the Board of Directors. Such removal shall be without
prejudice to the contractual rights of such officer, if any, with the
Corporation.
-9-
<PAGE>
ARTICLE V
STOCK
Section 5.1: Certificates. Every holder of stock 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 a Vice
President, and by the Treasurer or an Assistant Treasurer, or the Secretary or
an Assistant Secretary, of the Corporation, certifying the number of shares
owned by such stockholder in the Corporation. Any or all of the signatures on
the certificate may be a facsimile.
Section 5.2: Lost, Stolen or Destroyed Stock Certificates; Issuance of New
----------- -------------------------------------------------------------
Certificates. The Corporation may issue a new certificate of stock 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 such owner's legal representative, to agree to
indemnify the Corporation and/or 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.
Section 5.3: Other Regulations. The issue, transfer, conversion and
----------- -----------------
registration of stock certificates shall be governed by such other regulations
as the Board of Directors may establish.
ARTICLE VI
INDEMNIFICATION
Section 6.1 Indemnification of Officers and Directors. Each person who
----------- -----------------------------------------
was or is made a party to, or is threatened to be made a party to, or is
involved in any action, suit or proceeding, whether civil, criminal,
administrative or investigative (a "proceeding"), by reason of the fact that he
----------
or she (or a person of whom he or she is the legal representative), is or was a
director, officer or employee of the Corporation or a Reincorporated Predecessor
(as defined below) or is or was serving at the request of the Corporation or a
Reincorporated Predecessor (as defined below) as a director, officer or employee
of another corporation, or of a partnership, joint venture, trust or other
enterprise, including service with respect to employee benefit plans, shall be
indemnified and held harmless by the Corporation to the fullest extent permitted
by the Delaware General Corporation Law, against all expenses, liability and
loss (including attorneys' fees, judgments, fines, ERISA excise taxes and
penalties and amounts paid or to be paid in settlement) reasonably incurred or
suffered by such person in connection therewith, and such indemnification shall
continue as to a person who has ceased to be a director or officer and shall
inure to the benefit of his or her heirs, executors and administrators;
provided, however, that the Corporation shall indemnify any such person seeking
- -------- -------
indemnity in connection with a proceeding (or part thereof) initiated by such
person only if such proceeding (or part thereof) was authorized by the Board of
Directors of the Corporation. As used herein, the term "Reincorporated
--------------
Predecessor" means a corporation that is merged with and into the Corporation
- -----------
-10-
<PAGE>
in a statutory merger where (a) the Corporation is the surviving corporation of
such merger; (b) the primary purpose of such merger is to change the corporate
domicile of the Reincorporated Predecessor to Delaware.
Section 6.2: Advance of Expenses. The Corporation shall pay all expenses
----------- -------------------
(including attorneys' fees) incurred by such a director or officer in defending
any such proceeding as they are incurred in advance of its final disposition;
provided, however, that if the Delaware General Corporation Law then so
- -------- -------
requires, the payment of such expenses incurred by such a director or officer in
advance of the final disposition of such proceeding shall be made only upon
delivery to the Corporation of an undertaking, by or on behalf of such director
or officer, to repay all amounts so advanced if it should be determined
ultimately that such director or officer is not entitled to be indemnified under
this Article VI or otherwise; and provided, further, that the Corporation shall
-------- -------
not be required to advance any expenses to a person against whom the Corporation
directly brings a claim, in a proceeding, alleging that such person has breached
his or her duty of loyalty to the Corporation, committed an act or omission not
in good faith or that involves intentional misconduct or a knowing violation of
law, or derived an improper personal benefit from a transaction.
Section 6.3: Non-Exclusivity of Rights. The rights conferred on any
------------ -------------------------
person in this Article VI shall not be exclusive of any other right that such
person may have or hereafter acquire under any statute, provision of the
Certificate of Incorporation, Bylaw, agreement, vote or consent of stockholders
or disinterested directors, or otherwise. Additionally, nothing in this Article
VI shall limit the ability of the Corporation, in its discretion, to indemnify
or advance expenses to persons whom the Corporation is not obligated to
indemnify or advance expenses pursuant to this Article VI.
Section 6.4: Indemnification Contracts. The Board of Directors is
----------- -------------------------
authorized to cause the Corporation to enter into indemnification contracts with
any director, officer, employee or agent of the Corporation, or any person
serving at the request of the Corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise, including employee benefit plans, providing indemnification rights
to such person. Such rights may be greater than those provided in this Article
VI.
Section 6.5: Effect of Amendment. Any amendment, repeal or modification
----------- -------------------
of any provision of this Article VI shall be prospective only, and shall not
adversely affect any right or protection conferred on a person pursuant to this
Article VI and existing at the time of such amendment, repeal or modification.
ARTICLE VII
NOTICES
Section 7.1: Notice. Except as otherwise specifically provided herein or
----------- ------
required by law, all notices required to be given pursuant to these Bylaws shall
be in writing and may in every instance be effectively given by hand delivery
(including use of a delivery service), by depositing such notice in the mail,
postage prepaid, or by sending such notice by prepaid
-11-
<PAGE>
telegram, telex, overnight express courier, mailgram or facsimile. Any such
notice shall be addressed to the person to whom notice is to be given at such
person's address as it appears on the records of the Corporation. The notice
shall be deemed given (i) in the case of hand delivery, when received by the
person to whom notice is to be given or by any person accepting such notice on
behalf of such person, (ii) in the case of delivery by mail, upon deposit in the
mail, (iii) in the case of delivery by overnight express courier, on the first
business day after such notice is dispatched, and (iv) in the case of delivery
via telegram, telex, mailgram, or facsimile, when dispatched.
Section 7.2: Waiver of Notice. Whenever notice is required to be given
----------- ----------------
under any provision of these bylaws, a written waiver of notice, signed by the
person entitled to notice, whether before or after the time stated therein,
shall be deemed equivalent to notice. Attendance of a person at a meeting shall
constitute a waiver of notice of such meeting, except when the person attends a
meeting for the express purpose of objecting at the beginning of the meeting to
the transaction of any business because the meeting is not lawfully called or
convened. Neither the business to be transacted at, nor the purpose of, any
regular or special meeting of the stockholders, directors or members of a
committee of directors need be specified in any written waiver of notice.
ARTICLE VIII
INTERESTED DIRECTORS
Section 8.1: Interested Directors; Quorum. No contract or transaction
----------- ----------------------------
between the Corporation and one or more of its directors or officers, or between
the Corporation and any other corporation, partnership, association or other
organization in which one or more of its directors or officers are directors or
officers, or have a financial interest, shall be void or voidable solely for
this reason, or solely because the director or officer is present at or
participates in the meeting of the Board or committee thereof that authorizes
the contract or transaction, or solely because his, her or their votes are
counted for such purpose, if: (i) the material facts as to his, her or their
relationship or interest and as to the contract or transaction are disclosed or
are known to the Board of Directors or the committee, and the Board or committee
in good faith authorizes the contract or transaction by the affirmative votes of
a majority of the disinterested directors, even though the disinterested
directors be less than a quorum; (ii) the material facts as to his, her or their
relationship or interest and as to the contract or transaction are disclosed or
are known to the stockholders entitled to vote thereon, and the contract or
transaction is specifically approved in good faith by vote of the stockholders;
or (iii) the contract or transaction is fair as to the Corporation as of the
time it is authorized, approved or ratified by the Board of Directors, a
committee thereof, or the stockholders. Common or interested directors may be
counted in determining the presence of a quorum at a meeting of the Board of
Directors or of a committee which authorizes the contract or transaction.
-12-
<PAGE>
ARTICLE IX
MISCELLANEOUS
Section 9.1: Fiscal Year. The fiscal year of the Corporation shall be
----------- -----------
determined by resolution of the Board of Directors.
Section 9.2: Seal. The Board of Directors may provide for a corporate
----------- ----
seal, which shall have the name of the Corporation inscribed thereon and shall
otherwise be in such form as may be approved from time to time by the Board of
Directors.
Section 9.3: Form of Records. Any records maintained by the Corporation
----------- ---------------
in the regular course of its business, including its stock ledger, books of
account and minute books, may be kept on, or be in the form of, magnetic tape,
diskettes, photographs, microphotographs or any other information storage
device, provided that the records so kept can be converted into clearly legible
form within a reasonable time. The Corporation shall so convert any records so
kept upon the request of any person entitled to inspect the same.
Section 9.4: Reliance Upon Books and Records. A member of the Board of
----------- -------------------------------
Directors, or a member of any committee designated by the Board of Directors
shall, in the performance of his or her duties, be fully protected in relying in
good faith upon records of the Corporation and upon such information, opinions,
reports or statements presented to the Corporation by any of the Corporation's
officers or employees, or committees of the Board of Directors, or by any other
person as to matters the member reasonably believes are within such other
person's professional or expert competence and who has been selected with
reasonable care by or on behalf of the Corporation.
Section 9.5: Certificate of Incorporation Governs. In the event of any
----------- ------------------------------------
conflict between the provisions of the Corporation's Certificate of
Incorporation and Bylaws, the provisions of the Certificate of Incorporation
shall govern.
Section 9.6: Severability. If any provision of these Bylaws shall be held
----------- ------------
to be invalid, illegal, unenforceable or in conflict with the provisions of the
Corporation's Certificate of Incorporation, then such provision shall
nonetheless be enforced to the maximum extent possible consistent with such
holding and the remaining provisions of these Bylaws (including without
limitation, all portions of any section of these Bylaws containing any such
provision held to be invalid, illegal, unenforceable or in conflict with the
Certificate of Incorporation, that are not themselves invalid, illegal,
unenforceable or in conflict with the Certificate of Incorporation) shall remain
in full force and effect.
-13-
<PAGE>
ARTICLE X
AMENDMENT
Section 10.1: Amendments. Stockholders of the Corporation holding a
------------ ----------
majority of the Corporation's outstanding voting stock shall have the power to
adopt, amend or repeal Bylaws. To the extent provided in the Corporation's
Certificate of Incorporation, the Board of Directors of the Corporation shall
also have the power to adopt, amend or repeal Bylaws of the Corporation, except
insofar as Bylaws adopted by the stockholders shall otherwise provide.
-14-
<PAGE>
CERTIFICATION OF BYLAWS
OF
eBAY INC.
(A DELAWARE CORPORATION)
KNOW ALL BY THESE PRESENTS:
I, Matthew P. Quilter, certify that I am Secretary of eBay Inc., a Delaware
corporation (the "Company"), that I am duly authorized to make and deliver this
certification, that the attached Bylaws are a true and correct copy of the
Bylaws of the Company in effect as of the date of this certificate.
Dated: March 13, 1998
/s/ Matthew P. Quilter
-----------------------------
Matthew P. Quilter, Secretary
<PAGE>
EXHIBIT 4.02
EBAY, INC.
INVESTOR RIGHTS AGREEMENT
JUNE 20, 1997
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
1. Certain Definitions....................................................................................1
2. Financial Statements And Reports To Investors..........................................................3
3. Additional Information.................................................................................3
4. Inspection.............................................................................................4
5. Right Of First Refusal.................................................................................4
6. Termination Of Covenants...............................................................................5
7. Demand Registration....................................................................................6
7.1 Request for Registration on Form Other Than Form S-3..........................................6
7.2 Right of Deferral of Registration on Form Other Than Form S-3.................................6
7.3 Request for Registration on Form S-3..........................................................6
7.4 Registration of Other Securities in Demand Registration.......................................7
7.5 Underwriting in Demand Registration...........................................................7
7.6 Blue Sky in Demand Registration...............................................................9
8. Piggyback Registration.................................................................................9
8.1 Notice of Piggyback Registration and Inclusion of Registrable Securities......................9
8.2 Underwriting in Piggyback Registration........................................................9
8.3 Blue Sky in Piggyback Registration...........................................................11
9. Expenses Of Registration..............................................................................11
10. Termination Of Registration Rights....................................................................11
11. Registration Procedures And Obligations...............................................................12
12. Information Furnished By Holder.......................................................................13
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
13. Indemnification.......................................................................................13
13.1 Company's Indemnification of Holders.........................................................13
13.2 Holder's Indemnification of Company..........................................................14
13.3 Indemnification Procedure....................................................................14
13.4 Contribution.................................................................................15
14. Limitations On Registration Rights Granted To Other Securities........................................15
15. Transfer Of Rights....................................................................................16
16. Market Stand-Off......................................................................................16
17. No-Action Letter Or Opinion Of Counsel In Lieu Of
Registration; Conversion Of Preferred Stock...........................................................16
18. Conversion Of Preferred Stock.........................................................................17
19. Reports Under Exchange Act............................................................................17
20. Miscellaneous.........................................................................................18
20.1 Entire Agreement; Successors and Assigns.....................................................18
20.2 Governing Law................................................................................18
20.3 Counterparts.................................................................................18
20.4 Headings.....................................................................................18
20.5 Notices......................................................................................18
20.6 Amendment of Agreement.......................................................................29
20.7 Severability.................................................................................19
20.8 Aggregation of Stock.........................................................................19
</TABLE>
ii
<PAGE>
INVESTOR RIGHTS AGREEMENT
This INVESTOR RIGHTS AGREEMENT (the "Agreement") is made as of June 20,
1997, by and among eBay, Inc., a California corporation (the "Company"), Pierre
Omidyar and Jeff Skoll (the "Founders") and the persons listed on the attached
Schedule 1.1 who become signatories to this Agreement (collectively, the
"Investors").
RECITALS
--------
A. The Company and the Investors have entered into one or more agreements
for sale by the Company and purchase by the Investors of the Company's Series B
Preferred Stock.
B. In connection with the purchase and sale of the Company's Series B
Preferred Stock, the Company and the Investors desire to provide for the rights
of the Investors with respect to information about the Company and registration
of the Common Stock issued upon conversion or exercise of the Series B Preferred
Stock according to the terms of this Agreement.
THE PARTIES AGREE AS FOLLOWS:
1. Certain Definitions
-------------------
As used in this Agreement, the following terms shall have the
following respective meanings:
1.1 "Commission" shall mean the Securities and Exchange Commission or
----------
any other federal agency at the time administering the Securities Act.
1.2 "Convertible Securities" shall mean securities of the Company
----------------------
(including securities of the Company issuable upon exercise of options granted
by a Founder to an Investor) convertible into or exchangeable for Common Stock
of the Company or into other securities that are convertible into or
exchangeable for Common Stock.
1.3 "Exchange Act" shall mean the Securities and Exchange Act of
------------
1934, as amended, or any similar federal statute, and the rules and regulations
of the Commission thereunder, all as the same shall be in effect at the time.
1.4 "Form S-3" shall mean Form S-3 issued by the Commission or any
--------
substantially similar form then in effect.
1.5 "Holder" shall mean any holder of outstanding Registrable
------
Securities which have not been sold to the public, but only if such holder is
one of the Investors or an assignee or transferee of Registration rights as
permitted by Section 15.
1.6 "Initiating Holders" shall mean Holders who in the aggregate hold
------------------
at least two-thirds of the Registrable Securities.
<PAGE>
1.7 "Major Investor" shall mean an investor that, together with any
--------------
affiliate, holds not less than 200,000 shares of the Convertible Securities
indoor Registrable Securities (as equitably adjusted for stock splits,
subdivisions, stock dividends, changes, combinations, or the like).
1.8 "Material Adverse Event" shall mean an occurrence having a
----------------------
consequence that either (a) is materially adverse as to the business,
properties, prospects, or financial condition of the Company or (b) is
reasonably foreseeable, has a reasonable likelihood of occurring, and if it were
to occur might materially adversely affect the business, properties, prospects,
or financial condition of the Company.
1.9 The Terms "Register", "Registered", and "Registration" refer to
-------- ---------- ------------
a registration effected by preparing and filing a regulation statement in
compliance with the Securities Act ("Registration Statement"), and the
declaration or ordering of the effectiveness of such Registration Statement.
1.10 "Registrable Securities" shall mean all Common Stock issued or
----------------------
issuable upon conversion of the Company's Convertible Securities purchased by or
issued to the Investors, including Common Stock issued pursuant to stools
splits, stock dividends and similar distributions, and any securities of the
Company granted registration rights pursuant to Section 14 of this Agreement
unless such Common Stock has previously been sold to the public; provided,
however, that for purposes of Section 8 of this Agreement, Registrable
Securities shall also include shares of Common Stock or Convertible Securities
held by a Founder.
1.11 "Registration Expenses" shall mean all expenses incurred by the
---------------------
Company in complying with Sections 7 or 8 of this Agreement, including, without
limitation, all federal and state registration, qualification, and filing fees,
printing expenses, fees and disbursements of counsel for the Company, blue sky
fees and expenses, fees of special counsel for the Holders if Company counsel
does not males itself available for this purpose, and the expense of any special
audits incident to or required by any such registration.
1.12 "Securities Act" shall mean the Securities Act of 1933, as
--------------
amended, or any similar federal statute, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the time.
1.13 "Selling Expenses" shall mean all underwriting discounts,
----------------
selling commissions and stock transfer taxes applicable to the sale of
Registrable Securities pursuant to this Agreement.
2. Financial Statements and Reports to Investors.
---------------------------------------------
The Company shall deliver to each Investor:
(i) As soon as practicable after the end of each fiscal year of
the Company, and in any event within 90 days thereafter, an audited consolidated
balance sheet of the Company as of the end of such year and audited consolidated
statements of income,
<PAGE>
shareholders' equity and cash flow for such year, which year-end financial
reports shall be in reasonable detail and shall be prepared in accordance with
generally accepted accounting principles and accompanied by the opinion of
independent public accountants of nationally recognized standing selected by the
Company;
(ii) After the end of each the first three fiscal quarters of
each year, and in any event within 45 days of the end of each such fiscal
quarter, unaudited quarterly financial statements of income, shareholders'
equity, and cash flow for such quarter, which quarterly statements shall be in
reasonable detail and shall be prepared in accordance with generally accepted
accounting principles;
(iii) Contemporaneously with delivery to holders of Common
Stock, a copy of each report of the Company delivered to holders of Common
Stock; and
(iv) On or before January 31 of each year, an annual
capitalization summary.
3. Additional Information.
----------------------
The Company shall deliver to each Major Investor:
(i) As soon as practicable after the end of each fiscal month,
and in any event within 30 days thereafter, consolidated balance sheets of the
Company and its subsidiaries, if any, as of the end of such month, and
consolidated statements of income and cash flow for such month and for the
current fiscal year to date, prepared in accordance with generally accepted
accounting principles (other than for accompanying notes) and signed by the
Chief Financial Officer or President of the Company certifying that they fairly
and accurately present the financial condition and results of operation of the
Company, subject to changes resulting from year-end audit adjustment;
(ii) As soon as practicable following submission to and
approval by the Board of Directors of the Company an operating budget and plan
(the "Plan") respecting the next fiscal year and a summary of such Plan,
together with any update of the Plan as such update is prepared and approved by
the Board of Directors; and
(iii) Such other information relating to the financial
condition, business, prospects, or corporate affairs of the Company as such
Investor may from time to time request, provided, however, that the Company
shall not be obligated under this subsection or any other subsection of Section
3 to provide information which it deems in good faith to be a trade secret or
confidential information unless such Investor executes an appropriate non-
disclosure agreement and is neither a competitor nor a potential competitor of
the Company.
4 Inspection.
----------
The Company shall permit each Investor, 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
<PAGE>
Company's affairs, finances, and accounts with its officers, all at such
reasonable times as may be requested by each such Investor, provided, however,
that the Company shall not be obligated pursuant to this Section 4 to provide
any information which it reasonably considers to be a trade secret or
confidential information unless such Investor executes an appropriate non-
disclosure agreement and is neither a competitor nor a potential competitor of
the Company. The rights of an Investor under this Section 4 may not be assigned
as part of such Investor's sale of any of the Registrable Securities or
Convertible Securities except in accordance with the provisions of Section 15.
5. Right of First Refusal.
----------------------
5.1 The Company hereby grants to each Major Investor the right of
first refusal to purchase up to its Pro Rata Share of the New Securities (as
defined below) which the Company may, Tom time to time, propose to sell and
issue. The Major Investors may purchase said New Securities on the same terms
and at the same price at which the Company proposes to sell the New Securities.
The "Pro Rata Share" of each Major Investor, for purposes of this right of first
refusal, is the ratio of (i) the total number of shares of Common Stock held by
such Major Investor (including any shares of Common Stock into which shares of
the Convertible Securities held by such Major Investor are convertible) to (ii)
the total number of shares of Common Stock outstanding immediately prior to the
issuance of the New Securities (including any shares of Common Stock into which
outstanding shares of the Convertible Securities are convertible and treating as
outstanding the maximum number of shares of Common Stock that can be issued
under the Company's Stock Option Plan).
5.2 "New Securities" shall mean any capital stock of the Company,
whether authorized or not, and any rights, options, or warrants to purchase said
capital stock, and securities of any type whatsoever that are, or may become,
convertible into said capital stock; provided that "New Securities" does not
include (i) the Series B Preferred Stock issued pursuant to that certain Series
B Preferred Stock Purchase Agreement Fox as of June 20, 1997 or the Common Stock
issuable upon conversion of any Convertible Securities; (ii) securities offered
pursuant to the registration statement filed under the Securities Act; (iii)
securities issued by the Company pursuant to the acquisition of another
corporation by merger, purchase of substantially all of the assets, or other
reorganization; (iv) shares issued or issuable to employees, directors
consultants, advisers and others performing services for the Company or its
subsidiaries, pursuant to a plan or arrangement approved by the Company's Board
of Directors; (v) shares issued without consideration pursuant to a stock
dividend, stock split, or similar transaction; (vi) warrants, and shares
issuable upon exercise of such warrants, issued in connection with equipment
leasing or credit transactions with commercial lending institutions and approved
by the Company's Board of Directors provided such transactions are not primarily
for equity financing purposes; and (vii) Registrable Securities issued or
issuable upon conversion, exercise, or exchange of New Securities.
5.3 In the event the Company proposes to undertake an issuance of New
Securities, it shall give to each Major Investor written notice (the "Notice")
of its intention, describing the type of New Securities, the price, the terms
upon which the Company proposes to
<PAGE>
issue the same, the number of shares which Major Investor is entitled to
purchase, and a statement that each Major Investor shall have twenty (20) days
to respond to such Notice. Each Major Investor shall have twenty (20) days from
the date of receipt of the Notice to agree to purchase any portion of or all of
its Pro Rata Share of the New Securities for the price and upon the terms
specified in the Notice by giving written notice to the Company and stating
therein the quantity of New Securities to be purchased and forwarding payment
for such New Securities to the Company if immediate payment is Squired by such
terms.
5.4 In the event a Major Investor fails to exercise in full the right
of first refusal within said twenty (20) day period, the Company shall have
sixty (60) days thereafter to sell or eater into an agreement (pursuant to which
the sale of New Securities covered thereby shall be closed, if at all, within
thirty (30) days from date of said agreement) to sell the New Securities
respecting which such Major Investor's rights were not exercised, at a price and
upon general terms no more favorable to the purchaser thereof than specified in
the Notice. In the event the Company has not sold the New Securities within
said sixty (60) day period (or sold and issued New Securities in accordance with
the foregoing within thirty (30) days from the date of said agreement), the
Company shall not thereafter issue or sell any New Securities without first
offering such securities to such Major Investor in the manner provided above.
5.5 The right of first refusal granted under this Section 5 is
assignable by the Major Investors to (i) any transferee of a minimum of 200,000
shares of Common Stock (including any shares of Common Stock into which shares
of Convertible Securities then held by it are convertible), (ii) any wholly
owned subsidiary or parent of, or any corporation or entity that is, within the
meaning of the Securities Act, controlling, controlled by or under common
control with, any such Major Investor, or (iii) any Major Investor.
6. Termination of Covenants.
------------------------
The covenants of the Company set forth in Sections 2, 3, 4, and 5
shall be terminated and be of no further force or effect immediately prior to
the closing of the first public offering office Common Stock of the Company that
is effected pursuant to a Registration Statement filed with, and declared
effective by, the Commission under the Securities Act (other than either a
public offering limited solely to employees of the Company or an offering
pursuit to Rule 145 under the Securities Act), and such covenants shall
terminate as to any Investor as of the date such Investor no longer holds any
shares of the capital stock of the Company.
7. Demand Registration.
-------------------
7.1 Request for Registration on Form Other Than Form S-3. Subject to
----------------------------------------------------
the terms of this Agreement, in the event that the Company shall receive from
the Initiating Holders at any time after the earlier of (a) June 20, 2001 and
(b) six months after the closing of the Company's initial public offering of
shares of Common Stock under a Registration Statement, a written request that
the Company effect any Registration with respect to all or a part of the
Registrable Securities on a Form other than Form S-3 for an offering of at least
50% of the then outstanding Registrable Securities (or any lesser percent if the
reasonably anticipated aggregate offering price to the public would exceed
$7,500,000), the Company shall (i) promptly give
<PAGE>
written notice of the proposed Registration to all other Holders and shall (ii)
use its best efforts to effect as soon as practicable, and in any event within
60 days of the receipt of such request, Registration of the Registrable
Securities specified in such request, together with any Registrable Securities
of any Holder joining in such request as are specified in a written request
given within 20 days after written notice from the Company. The Company shall
not be obligated to take any action to effect any such registration pursuant to
this Section 7.1 (i) for the six (6) month period immediately following the
effective date of a Registration pertaining to securities of the Company (other
than a registration of securities in a Rule 145 transaction or with respect to
an employee benefit plan) provided that the Company is employing all reasonable
efforts in good faith to cause such Registration to become effective or (ii)
after the Company has effected two such Registrations pursuant to this Section
7.1 and such Registrations have been declared effective. The substantive
provisions of Section 7.5 shall be applicable to each Registration initiated
under this Section 7.1.
7.2 Right of Deferral of Registration on Form Other Than Form S-3.
-------------------------------------------------------------
If the Company shall furnish to all such Holders who joined in the request a
certificate signed by the President of the Company stating that, in the good
faith judgment of the Board of Directors of the Company, it would be seriously
detrimental to the Company for any Registration to be effected as requested
under Section 7.1, the Company shall have the right, exercisable not more than
once in any twelve-month period, to defer the filing of a Registration Statement
with respect to such offering for a period of not more than 90 days from
delivery of the request of the Initiating Holders.
7.3 Request for Registration on Form S-3.
------------------------------------
(a) If the Initiating Holders request that the Company file a
Registration Statement on Form S-3 (or any successor form to Form S-3) for a
public offering of shares of Registrable Securities the reasonably anticipated
aggregate price to the public of which would not be less than $1,000,000, and
the Company is a registrant entitled to use Form S-3 to register the Registrable
Securities for such an offering, the Company shall (i) promptly give written
notice of the proposed registration to all other Holders, and (ii) use all
reasonable efforts to cause such Registrable Securities to be Registered for the
offering on such form and to cause such Registrable Securities to be qualified
in such jurisdictions as the Holder or Holders may reasonably request; provided,
however, that the Company shall not be required to effect more than one
Registration pursuant to this Section 7.3 in any six (6) month period. The
substantive provisions of Section 7.5 shall be applicable to each Registration
initiated under this Section 7.3.
(b) Notwithstanding the foregoing, the Company shall not be
obligated to file a registration statement pursuant to this Section 7.3:
(i) in any particular jurisdiction in which the Company
would be required to execute a general consent to service of process in
effecting such registration, qualification, or compliance unless the Company is
already subject to service in such jurisdiction and except as may be required by
the Securities Act;
<PAGE>
(ii) if the Company, within ten (10) days of the receipt
of the request of the Initiating Holders, gives notice of its bona fide
intention to effect the filing of a Registration Statement with the Commission
within sixty (60) days of receipt of such request (other the with respect to a
Registration Statement relating to a Rule 145 transaction or an offering solely
to employees), provided that the Company is actively employing in good faith all
reasonable efforts to malice such Registration Statement to become effective;
(iii) within six months immediately following the effective
date of any Registration Statement pertaining to the securities of the Company
(other than a registration of securities in a Rule 145 transaction or with
respect to an employee benefit plan); or
(iv) if the Company shall furnish to such Initiating
Holders a certificate signed by the President of the Company stating that in the
good faith judgment of the Board of Directors it would be seriously detrimental
to the Company or its shareholders for a Registration Statement to be filed in
the near future, then the Company's obligation to use its best efforts to file a
Registration Statement shall be deferred for a period not to exceed 60 days from
the receipt of the request to file such registration by such Holder provided
that the Company shall not exercise the right contained in this paragraph (iv)
more than once in any twelve (12) month period.
7.4 Registration of Other Securities in Demand Registration.
-------------------------------------------------------
Any Registration Statement filed pursuant to the request of the
Initiating Holders under this Section 7 may, subject to the provisions of
Section 7.5, include securities of the Company other than Registrable
Securities.
7.5 Underwriting in Demand Registration
-----------------------------------
(a) Notice of Underwriting. If the Initiating Holders intend to
----------------------
distribute the Registrable Securities covered by their request by means of an
underwriting, they shall so advise the Company as a part of their request made
pursuant to this Section 7, and the Company shall include such information in
the written notice referred to in Section 7.1 or 7.3. The right of any Holder to
Registration pursuant to Section 7 shall be conditioned upon such Holder's
agreement to participate in such underwriting and the inclusion of such Holder's
Registrable Securities in the underwriting.
(b) Inclusion of Other Holders in Demand Registration. If the
-------------------------------------------------
Company, officers, or directors of the Company holding Common Stock other than
Registrable Securities, or holders of securities other than Registrable
Securities, request inclusion in such Registration, the Initiating Holders, to
the extent they deem advisable and consistent with the goals of such
Registration and subject to Section 7.5(d), may, in their sole discretion, on
behalf of all Holders, offer to any or all of the Company, such officers or
directors, and such holders of securities other than Registrable Securities that
such securities other than Registrable Securities be included in the
underwriting and may condition such offer on the acceptance by such persons of
the terms of this Section 7. In the event, however, that the number of shares
so included
<PAGE>
exceeds the number of shares of Registrable Securities included by all Holders,
such Registration shall be treated as governed by Section 8 hereof rather than
Section 7, and it shall not count as a Registration for purposes of Section 7.1
hereof.
(c) Selection of Underwriter in Demand Registration. The Company
-----------------------------------------------
shall (together with all Holders and other security holders, if any, proposing
to distribute their securities through such underwriting) enter into an
underwriting agreement with the representative ("Underwriter's Representative")
of the underwriter or underwriters selected for such underwriting by the Company
and reasonably acceptable to the Holders of a majority of the Registrable
Securities being registered by the Initiating Holders.
(d) Marketing Limitation in Demand Registration. In the event
-------------------------------------------
the Underwriter's Representative advises the Initiating Holders in writing that
market factors (including, without limitation, the aggregate number of shares of
Common Stock requested to be Registered, the general condition of the market,
and the status of the persons proposing to sell securities pursuant to the
Registration) require a limitation of the number of shares to be underwritten,
the underwriter and the Company may limit the number of Registrable Securities
to be included in the Registration and underwriting; provided, however, that no
Registrable Securities shall be so excluded unless (i) first, the Common Stock
(other than Registrable Securities) held by officers or employees of the
Company, (ii) second, the securities other than Registrable Securities, and
(iii) third the securities requested to be registered by the Company, shall be
excluded from such Registration to the extent required by such limitation. If a
limitation of the number of shares is still required, the Company shall so
advise all Holders and the number of shares of Registrable Securities that may
be included in the Registration and underwriting shall be allocated among all
Holders in proportion, as nearly as practicable, to the respective amounts of
Registrable Securities otherwise entitled to inclusion in such Registration held
by such Holders at the time of filing the Registration Statement. No Registrable
Securities or other securities excluded from the underwriting by reason of this
Section 7.5(d) shall be included in such Registration Statement.
(e) Right of Withdrawal in Demand Registration. If any Holder of
------------------------------------------
Registrable Securities, or a holder of other securities entitled (upon request)
to be included in such Registration, disapproves of the terms of the
underwriting, such person may elect to withdraw therefrom by written notice to
the Company, the Underwriter's Representative and the Initiating Holders
delivered at least seven days prior to the effective date of the Registration
Statement. The securities so withdrawn shall also be withdrawn from the
Registration Statement. If the remaining Holders are not Initiating Holders,
then the Company may discontinue the Registration.
7.6 Blue Sky in Demand Registration. In the event of any
-------------------------------
Registration pursuant to this Section 7, the Company will exercise its best
efforts to Register and qualify the securities covered by the Registration
Statement under such other securities or Blue Sky laws of such jurisdictions as
shall be reasonably appropriate for the distribution of such securities;
provided, however, that (i) the Company shall not be required to qualify to do
business or to file a general consent to service of process in any such states
or jurisdictions unless the Company is
<PAGE>
already subject to service in such jurisdiction and except as may be required by
the Securities Act, and (ii) notwithstanding anything in this Agreement to the
contrary, in the event any jurisdiction in which the securities shall be
qualified imposes a non-waivable requirement that expenses incurred in
connection with the qualification of the securities be borne by selling
shareholders, such expenses shall be payable pro rata by selling shareholders.
8. Piggyback Registration.
----------------------
8.1 Notice of Piggyback Registration and Inclusion of Registrable
-------------------------------------------------------------
Securities. Subject to the terms of this Agreement, in the event the Company
- ----------
decides to Register any of its Common Stock (either for its own account or the
account of a security holder or holders exercising their respective demand
registration rights other than pursuant to Section 7 hereof) on a form that
would be suitable for a registration involving Registrable Securities, the
Company will: (i) promptly give each Holder written notice thereof (which shall
include a list of the jurisdictions in which the Company intends to attempt to
qualify such securities under the applicable Blue Sky or other state securities
laws) and (ii) include in such Registration (and any related qualification under
Blue Sky laws or other compliance), and in any underwriting involved therein,
all the Registrable Securities specified in a written request delivered to the
Company by any Holder within 20 days after delivery of such written notice from
the Company.
8.2 Underwriting in Piggyback Reparation.
------------------------------------
(a) Notice of Underwriting in Piggyback Registration. 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 8.1 In such event, the
right of any Holder to Registration shall be conditioned upon such underwriting
and the inclusion of such Holder's Registrable Securities in such underwriting
to the extent provided in this Section 8. All Holders proposing to distribute
their securities through such underwriting shall (together with the Company and
the other holders distributing their securities through such underwriting) enter
into an underwriting agreement with the Underwriter's Representative for such
offering. The Holders shall have no right to participate in the selection of the
underwriters for an offering pursuant to this Section 8.
(b) Marketing Limitation in Piggyback Registration. In the event
----------------------------------------------
the Underwriter's Representative advises the Company that market factors
(including, without limitation, the aggregate number of shares of Common Stock
requested to be Registered, the general condition of the market, and the status
of the persons proposing to sell securities pursuant to the Registration)
require a limitation of the number of shares to be underwritten, the
Underwriter's Representative and the Company (subject to the allocation priority
set forth in Section 8.2(c)) may:
(i) in the case of the Company's initial Registered public
offering, exclude some or all Registrable Securities from such registration and
underwriting; and
(ii) in the case of any Registered public offering
subsequent to the initial public offering, limit the number of shares of
Registrable Securities to be included in
<PAGE>
such Registration and underwriting to not less than twenty percent (20%) of the
securities included in such Registration (based on aggregate market values).
(c) Allocation of Shares in Piggyback Registration. In the
----------------------------------------------
event that the Underwriter's Representative and the Company limit the number of
shares to be included in a Registration pursuant to Section 8.2(b), the shares
(other than Registrable Securities) held by officers or employees of the Company
shall be excluded from such registration and underwriting to the extent required
by such limitation. If a limitation of the number of shares is still required
after such exclusion, the number of shares held by all other holders of
securities (other than Registrable Securities) requesting and legally entitled
to include such securities in such Registration shall be excluded from such
registration and underwriting to the extent required by such limitation, in
proportion, as nearly as practicable, to the respective amounts of securities
which such other holders would otherwise be entitled to include in such
Registration. If a limitation of the number of shares is still required after
such exclusion, first Registrable Securities held by Founders shall be excluded
from such registration and underwriting to the extent required by such
limitation and, thereafter, the number of shares held by all other Holders
thereof requesting and legally entitled to include such securities in such
Registration of securities shall be excluded from such registration and
underwriting to the extent required by such limitation, in proportion, as nearly
as practicable, to the respective amounts of securities (including Registrable
Securities) which such other holders would otherwise be entitled to include in
such Registration; provided, however, that in the case of an offering to which
Section 7.5(b) applies, the number of shares of Registrable Securities held by
Initiating Holders to be included in such Registration and underwriting shall
not be limited to less than twenty percent (20%) of the securities included in
such Registration (based on aggregate market value). No Registrable Securities
or other securities excluded from the underwriting by reason of this Section
8.2(c) shall be included In the Registration Statement.
(d) Withdrawal in Piggyback Registration. If any Holder
------------------------------------
disapproves of the terms of any such underwriting, such person may elect to
withdraw therefrom by written notice to the Company and the Underwriter's
Representative delivered at least seven days prior to the effective date of the
Registration Statement. Any Registrable Securities or other securities excluded
or withdrawn from such underwriting shall be withdrawn from such Registration.
8.3 Blue Sky in Piggyback Registration.
----------------------------------
In the event of any Registration of Registrable Securities
pursuant to this Section 8, the Company will exercise its best efforts to
Register and qualify the securities covered by the Registration Statement under
such other securities or Blue Sky laws of such jurisdictions as shall be
reasonably appropriate for the distribution of such securities; provided,
however, that (i) the Company shall not be required to qualify to do business or
to file a general consent to service of process in any such states or
jurisdictions unless the Company is already subject to service in such
jurisdiction and except as may be required by the Securities Act, and (ii)
notwithstanding anything in this Agreement to the contrary, in the event any
jurisdiction in which the securities shall be qualified impose a non-waivable
requirement that expenses incurred
<PAGE>
in connection with the qualification of the securities be borne by selling
shareholders, such expenses shall be payable pro rata by selling shareholders.
9. Expenses of Registration.
------------------------
All Registration Expenses incurred in connection with all Registrations
pursuant to Section 7 and Section 8 shall be borne by the Company.
Notwithstanding the above, the Company shall not be required to pay for any
expenses of any registration proceeding begun pursuant to Section 7 if the
registration request is subsequently withdrawn at the request of the Holders of
a majority of the Registrable Securities to be registered (which Holders shall
bear such expenses unless the Holders of a majority of the Registrable
Securities agree to forfeit their right to such registration), provided however,
that if at the tine of such withdrawal, the Holders have learned of a Material
Adverse Event with respect to the condition, business, or prospects of the
Company not known to the Holders at the time of their request, then the Holders
shall not be required to pay any of such expenses and shall retain their rights
pursuant to Section 7.
10. Termination of Registration Rights.
----------------------------------
The rights to cause the Company to register securities granted under
Sections 7 and 8 of this Agreement shall terminate, with respect to each Holder
seven (7) years after the closing date of the Company's initial public offering;
provided, however, that a Holder's rights provided for under Sections 7 and 8
shall terminate earlier when (i) such Holder owns less than one percent (1%) of
the outstanding securities of the Company, (ii) such Holder may sell all its
shares in a three (3) month period under Rule 144 of the Act, and (iii) the
Company is then subject to the reporting requirements of Section 13(a) or 1 5(d)
of the Exchange Act.
11. Registration Procedures and Obligations.
---------------------------------------
Whenever required under this Agreement to effect the registration of
any Registrable Securities, the Company shall, as expeditiously as reasonably
possible:
(i) Prepare and file with the Commission a Registration
Statement with respect to such Registrable Securities and use its 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 up to one hundred
twenty (120) days.
(ii) Prepare and file with the Commission such amendments and
supplements to such Registration Statement and the prospectus used in connection
with such registration statement as may be necessary to comply with the
provisions of the Securities Act with respect to the disposition of all
securities covered by such Registration Statement.
(iii) Furnish to the Holders such numbers of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the Securities Act, and such other documents as they may
reasonably request in order to facilitate the disposition of Registrable
Securities owned by them.
<PAGE>
(iv) 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.
(v) 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. Each Holder
participating in such underwriting shall also enter into and perform its
obligations under such an agreement.
(vi) 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 Securities 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.
(vii) Provide a transfer agent and registrar for all Registrable
Securities registered pursuant to such Registration Statement and a CUSIP number
for all such Registrable Securities, in each case not later than the effective
date of such registration.
(viii) Furnish, at the request of any Holder requesting
registration of Registrable Securities pursuant to this Agreement, on the date
that such Registrable Securities are delivered for sale in connection with a
registration pursuant to this Agreement, (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, 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.
12. Information Furnished by Holder.
-------------------------------
It shall be a condition precedent of the Company's obligations under
this Agreement, with respect to each Holder, that such Holder of Registrable
Securities included in any Registration furnish to the Company such information
regarding such Holder and the distribution proposed by such Holder or Holders as
the Company may reasonably request.
13. Indemnification.
---------------
13.1 Company's Indemnification of Holders.
------------------------------------
To the extent permitted by law, the Company will indemnify each
Holder, each of its officers, directors, and constituent partners, legal counsel
for the Holders, and each person controlling such Holder (within the meaning of
the Securities Act), with respect to which Registration, qualification, or
compliance of Registrable Securities has been effected pursuant to
<PAGE>
this Agreement, and each underwriter, if any, and each person who controls any
underwriter against all claims, losses, damages, or liabilities (or actions in
respect thereof) to the extent such claims, losses, damages, or liabilities
arise out of or are based upon any untrue statement (or alleged untrue
statement) of a material fact contained in any prospectus or other document
(including any related Registration Statement) incident to any such
Registration, qualification, or compliance, or are 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 not misleading, or any violation by
the Company of any rule or regulation promulgated under the Securities Act or
the Exchange Act applicable to the Company and relating to action or inaction
required of the Company in connection with any such Registration, qualification,
or compliance; and the Company will reimburse each such Holder, each such
underwriter, and each person who controls any such Holder or underwriter, for
any legal and any other expenses reasonably incurred, as such expenses are
incurred, in connection with investigating or defending any such claim, loss,
damage, liability, or action; provided, however, that the indemnity contained in
this Section 13.1 shall not apply to amounts paid in settlement of any such
claim, loss, damage, liability, or action if settlement is effected without the
consent of the Company (which consent shall not unreasonably be withheld); and
provided, further, 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 upon any untrue statement or omission based upon written information
furnished to the Company by such Holder, underwriter, or controlling person and
stated to be for use in connection with the offering of securities of the
Company.
13.2 Holder's Indemnification of Company.
-----------------------------------
To the extent permitted by law, each Holder will, if Registrable
Securities held by such Holder are included in the securities as to which such
Registration, qualification or, compliance is being effected pursuant to this
Agreement, indemnify the Company, each of its directors and officers, each legal
counsel and independent accountant of the Company, 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 the
Securities Act, and each other such Holder, each of its officers, directors, and
constituent partners, and each person controlling such other Holder (within the
meaning of the Securities Act), against all claims, losses, damages, and
liabilities (or actions in respect thereof) arising out of or based upon any
untrue statement (or alleged untrue statement) of a material fact contained in
any such Registration Statement, prospectus, offering circular, or other
document, or any omission (or alleged omission) to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, or any violation by such Holder of any rule or regulation
promulgated under the Securities Act or the Exchange Act applicable to such
Holder and relating to action or inaction required of such Holder in connection
with any such Registration, qualification, or compliance, and will reimburse the
Company, such Holders, such directors, officers, partners, persons, law and
accounting firms, underwriters or control persons for any legal and any other
expenses reasonably incurred in connection with investigating or defending any
such claim, loss, damage, liability, or action, in each case to the extent, but
in each case 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
<PAGE>
document in reliance upon and in conformity with written information furnished
to the Company by such Holder ant states to be specifically for use in
connection with the offering of securities of the Company, provided, however,
that the indemnity contained in this Section 13.2 shall not apply to amounts
paid in settlement of any such claim loss, damage, liability or action if
settlement is effected without the consent of such Holder (which consent shall
not be unreasonably withheld) and provided, further, that each Holder's
liability under this Section 13.2 shall not exceed such Holder's proceeds from
the offering of securities made in connection with such Registration.
13.3 Indemnification Procedure
-------------------------
Promptly after receipt by an indemnified party under this
Section 13 of notice of the commencement of any action, such indemnified party
will, if a claim in respect thereof is to be made against an indemnifying party
under this Section 13, notify the indemnifying party in writing of the
commencement thereof and genially summarize such action. The indemnifying party
shall have the right to participate in and to assume the defense of such claim;
provided, however, that the indemnifying party shall be entitled to select
counsel for the defense of such claim with the approval of any parties entitled
to indemnification, which approval shall not be unreasonably withheld; provided
further, however, that if either party reasonably determines that there may be a
conflict between the position of the Company and the Holders in conducting the
defense of such action, suit, or proceeding (such conflict being related to
claims for indemnity under this Section 13), then counsel for such party shall
be entitled to conduct the defense to the extent reasonably determined by such
counsel to be necessary to protect the interest of such party. The failure to
notify an indemnifying party promptly of the commencement of any such action, if
prejudicial to the ability of the indemnifying party to defend such action,
shall relieve such indemnifying party, to the extent so prejudiced, of any
liability to the indemnified party under this Section 13, but the omission so to
notify the indemnifying party will not relieve such party of any liability that
such party may have to any indemnified party otherwise other than under this
Section 13.
13.4 Contribution.
------------
If the indemnification provided for in this Section 13 is held
by a court of competent jurisdiction to be unavailable to an indemnified party
with respect to any loss, liability, claim, damage, or expense referred to
therein, then the indemnifying party, in lieu of indemnifying such indemnified
party hereunder, shall contribute to the amount paid or payable by such
indemnified party as a result of such loss, liability, claim, damage, or expense
in such proportion as is appropriate to reflect the relative fault of the
indemnifying party on the one hand and of the indemnified party on the other in
connection with the statements or omissions that resulted in such loss,
liability, claim, damage, or expense as well as any other relevant equitable
considerations, provided that each Holder's contribution under this Section 13.4
shall not exceed such Holder's proceeds from the offering of securities made in
connection with such Registration. 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
<PAGE>
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.
14. Limitations on Registration Rights Granted to Other Securities.
--------------------------------------------------------------
From and after the date of this Agreement, the Company shall not enter
into any agreement with any holder or prospective holder of any securities of
the Company providing for the granting to such holder of any Registration
rights, except that, with the consent of the Holders of a majority of the
Registrable Securities then outstanding, additional holders may be added as
parties to this Agreement with regard to any or all securities of the Company
held by them. Any such additional parties shall execute a counterpart of this
Agreement, and upon execution by such additional parties and by the Company,
shall be considered an Investor for all purposes of this Agreement. The
additional parties and the additional Registrable Securities shall be identified
in an amendment to Schedule A hereto.
15. Transfer of Rights.
------------------
15.1 The right to cause the Company to Register Securities granted by
the Company to the Investors under this Agreement may be assigned by any Holder
to (i) any partner or retired partner of any Holder which is a partnership, (ii)
any family member or trust for the benefit of any individual Holder, or (iii)
any transferee or assignee of any Convertible Securities or Registrable
Securities not sold to the public acquiring at least 250,000 shares of such
Holder's Registrable Securities (equitably adjusted for any stock splits,
subdivisions, stock dividends, changes, combinations or the like); provided,
however, that the Company must receive written notice prior to the time of said
transfer, stating the name and address of said transferee or assignee and
identifying the securities with respect to which such information and
Registration rights are being assigned, and the transferee or assignee of such
rights must not be a person deemed by the Board of Directors of the Company, in
its best judgment, to be a competitor or potential competitor of the Company.
15.2 Notwithstanding the limitation set forth in the foregoing
subsection (a), any Holder which is a partnership or a limited liability company
("L.L.C.") may transfer such Holder's Registration rights to such Holder's
constituent partners or the L.L.C. members without restriction as to the number
or percentage of shares acquired by any such constituent partner or member and
any Holder who is an individual may transfer such rights to a member of Holder's
immediate family or to a trust for the benefit of Holder or of a member of
Holder's immediate family without restriction as to the number or percentage of
shares acquired by any such person or trust.
16. Market Stand-Off.
----------------
Each Holder hereby agrees that, if so requested by the Company and the
Underwriter's Representative (if any) in connection with the Company's first
public offering, such Holder shall not sell, make any short sale of, loan, grant
any option for the purchase of, or otherwise transfer or dispose of any
Registrable Securities or other securities of the Company without the prior
written consent of the Company and the Underwriter's Representative for such
<PAGE>
offerings for such period of time (not to exceed 180 days) following the
effective date of a Registration Statement of the Company filed under the
Securities Act as may be requested by such Underwriter's Representative. The
obligations of Holders under this Section 16 shall be conditioned upon similar
agreements being in effect with each other shareholder who is an employee, or 2%
shareholder of the Company.
17. No-Action Letter or Opinion of Counsel in Lieu of Registration:
---------------------------------------------------------------
Conversion of Preferred Stock.
- -----------------------------
Notwithstanding anything else in this Agreement, if the Company shall
have obtained from the Commission a "no-action" letter in which the Commission
has indicated that it will take no action if, without Registration under the
Securities Act, any Holder disposes of Registrable Securities covered by any
request for Registration made under this Section in the specific manner in which
such Holder proposes to dispose of the Registrable Securities included in such
request (such as including, without limitation, inclusion of such Registrable
Securities in an underwriting initiated by either the Company or the holders)
and that such Registrable Securities may be sold to the public without
Registration, or if in the opinion of counsel for the Company concurred in by
counsel for such Holder, which concurrence shall not be unreasonably withheld,
Registration under the Securities Act is required in connection with such
disposition and that such Registrable Securities may be sold to the public
without Registration, the Registrable Securities included in such request shall
not be eligible for Registration under this Agreement; provided, however, that
any Registrable Securities not so disposed of shall be eligible for Regulation
in accordance with the terms of this Agreement with respect to other proposed
dispositions to which this Section 17 does not apply. The Registration rights
of the Holders of the Registrable Securities set forth in this Agreement are
conditioned upon the conversion of the Registrable Securities with respect to
which Registration is sought into Common Stock prior to the effective date of
the Registration Statement.
18. Conversion of Preferred Stock.
-----------------------------
The Registration rights of the Holders of the Shares set forth in this
Agreement are conditioned upon the conversion of the Shares with respect to
which Registration is sought into Common Stock prior to the effective date of
the Registration Statement.
19. Reports Under Exchange Act.
--------------------------
With a view to making available to the Holders the benefits of Rule
144 promulgated under the Securities Act and any other rule or regulation of the
Commission 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:
(i) make and keep public information available, as those terms
are understood and defined in 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;
<PAGE>
(ii) take such action, including the voluntary registration of its
Common Stock under Section 12 of the Exchange Act, as is necessary to enable the
Holders to utilize Form S-3 for the sale of their Registrable Securities, such
action to be taken as soon as practicable after the first Registration Statement
filed by the Company for the offering of its securities to the general public is
declared effective;
(iii) file with the Commission in a timely manner all reports and
other documents required of the Company under the Securities Act and the
Exchange Act; and
(iv) 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 Rule 144, the
Securities 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 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 Commission which permits the selling of any such
securities without Registration or pursuant to such form.
20. Miscellaneous.
-------------
20.1 Entire Agreement: Successors and Assigns.
----------------------------------------
This Agreement constitutes the entire contract between the
Company and the Investors relative to the subject matter hereof. Any previous
agreement between the Company and any Investor concerning Registration rights
and rights to information is superseded by this Agreement. Subject to the
exceptions specifically set forth in this Agreement, the terms and conditions of
this Agreement shall inure to the benefit of and be binding upon the respective
executors, administrators, heirs, successor, and assigns of the parties.
20.2 Governing Law.
-------------
This Agreement shall be governed by, and construed in accordance
with, the laws of the State of California excluding those laws that direct the
application of the laws of another jurisdiction.
20.3 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.
20.4 Headings.
--------
The headings of the Sections of this Agreement are for
convenience and shall not by themselves determine the interpretation of this
Agreement.
<PAGE>
20.5 Notices.
-------
Any notice required or permitted hereunder shall be given in
writing and shall be conclusively deemed effectively given upon personal
delivery, or five days after deposit in the United States mail, by registered or
certified mail, postage prepaid, addressed (i) if to the Company, as set forth
below the Company's name on the signature page of this Agreement, and (ii) if to
an Investor, at such Investor's address as set forth on Schedule 1.1, or at such
other address as the Company or such Investor may designate by ten (10) days
advance written notice to the Investors or the Company, respectively.
20.6 Amendment of Agreement.
----------------------
Any provision of this Agreement may be amended (and the rights
of first refusal provided in Section 5 waived) only by a written instrument
signed by the Company and by persons holding a majority of the Registrable
Securities .
20.7 Severability.
------------
In case any provision of this Agreement shall be invalid,
illegal or unenforceable, the validity, legality and enforceability of the
rereading provisions shall not in any way be affected or impaired thereby.
20.8 Aggregation of Stock.
--------------------
All shares of Registrable Securities held or acquired by
affiliated entities or persons shall be aggregated together for the purpose of
determining the availability of any rights under this Agreement.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Investor Rights
Agreement as of the day and year first above written
Company: EBAY, INC.
a California corporation
By: /s/ PIERRE OMIDYAR
---------------------------------------
Pierre Omidyar, Chief Executive Officer
Address: 2005 Hamilton Avenue
Suite 270
San Jose, CA 95125
Investors: BENCHMARK CAPITAL PARTNERS, L.P.
By: BENCHMARK CAPITAL MANAGEMENT CO.,
L.L.C.
Its General Partner
By: /s/ ROBERT C. KAGLE
---------------------------------------
Robert Kagle, Member
Address: 2480 Sand Hill Road
Suite 200
Menlo Park, CA 94025
BENCHMARK FOUNDERS' FUND, L.P.
By: BENCHMARK CAPITAL MANAGEMENT CO.,
L.L.C.
Its General Partner
By: /s/ ROBERT C. KAGLE
---------------------------------------
Robert Kagle, Member
Address: 2480 Sand Hill Road
Suite 200
Menlo Park, CA 94025
SIGNATURE PAGE TO INVESTOR RIGHTS AGREEMENT
<PAGE>
SCHEDULE 1.1
------------
Name of Investor Number of Shares
---------------- ----------------
Benchmark Capital Partners, L.P. 877,374
Benchmark Founders Fund, L.P. 122,626
<PAGE>
EXHIBIT 10.01
eBAY INC.
INDEMNITY AGREEMENT
This Indemnity Agreement (this "Agreement"), dated as of _____________,
---------
199_, is made by and between eBay Inc., a Delaware corporation (the "Company"),
-------
and _________________, a director and/or officer of the Company (the
"Indemnitee").
----------
RECITALS
A. The Company is aware that competent and experienced persons are
increasingly reluctant to serve as directors or officers of corporations unless
they are protected by comprehensive liability insurance and/or indemnification,
due to increased exposure to litigation costs and risks resulting from their
service to such corporations, and due to the fact that the exposure frequently
bears no reasonable relationship to the compensation of such directors and
officers;
B. Based upon their experience as business managers, the Board of
Directors of the Company (the "Board") has concluded that, to retain and attract
-----
talented and experienced individuals to serve as officers and directors of the
Company, and to encourage such individuals to take the business risks necessary
for the success of the Company, it is necessary for the Company contractually to
indemnify officers and directors and to assume for itself maximum liability for
expenses and damages in connection with claims against such officers and
directors in connection with their service to the Company;
C. Section 145 of the General Corporation Law of Delaware, under which the
Company is organized ("Section 145"), empowers the Company to indemnify by
-----------
agreement its officers, directors, employees and agents, and persons who serve,
at the request of the Company, as directors, officers, employees or agents of
other corporations or enterprises, and expressly provides that the
indemnification provided by Section 145 is not exclusive; and
D. The Company desires and has requested the Indemnitee to serve or
continue to serve as a director or officer of the Company free from undue
concern for claims for damages arising out of or related to such services to the
Company.
NOW, THEREFORE, the parties hereto, intending to be legally bound, hereby
agree as follows:
1. DEFINITIONS.
-----------
1.1 Agent. For the purposes of this Agreement, "agent" of the Company
----- -----
means any person who is or was a director or officer of the Company or a
subsidiary of the Company; or is or was serving at the request of, for the
convenience of, or to represent the
<PAGE>
Indemnity Agreement
interest of the Company or a subsidiary of the Company as a director or officer
of another foreign or domestic corporation, partnership, joint venture, trust or
other enterprise or an affiliate of the Company; or was a director or officer of
a foreign or domestic corporation which was a predecessor corporation of the
Company, including, without limitation, eBay Inc., a California corporation, or
was a director or officer of another enterprise or affiliate of the Company at
the request of, for the convenience of, or to represent the interests of such
predecessor corporation. The term "enterprise" includes any employee benefit
----------
plan of the Company, its subsidiaries, affiliates and predecessor corporations.
1.2 Expenses. For purposes of this Agreement, "expenses" includes all
-------- --------
direct and indirect costs of any type or nature whatsoever (including, without
limitation, all attorneys' fees and related disbursements and other out-of-
pocket costs) actually and reasonably incurred by the Indemnitee in connection
with the investigation, defense or appeal of a proceeding or establishing or
enforcing a right to indemnification or advancement of expenses under this
Agreement, Section 145 or otherwise; provided, however, that expenses shall not
-------- -------
include any judgments, fines, ERISA excise taxes or penalties or amounts paid in
settlement of a proceeding.
1.3 Proceeding. For the purposes of this Agreement, "proceeding" means
---------- ----------
any threatened, pending or completed action, suit or other proceeding, whether
civil, criminal, administrative, investigative or any other type whatsoever.
1.4 Subsidiary. For purposes of this Agreement, "subsidiary" means any
---------- ----------
corporation of which more than 50% of the outstanding voting securities is owned
directly or indirectly by the Company, by the Company and one or more of its
subsidiaries or by one or more of the Company's subsidiaries.
2. AGREEMENT TO SERVE. The Indemnitee agrees to serve and/or continue to
------------------
serve as an agent of the Company, at the will of the Company (or under separate
agreement, if such agreement exists), in the capacity the Indemnitee currently
serves as an agent of the Company, faithfully and to the best of his ability, so
long as he is duly appointed or elected and qualified in accordance with the
applicable provisions of the charter documents of the Company or any subsidiary
of the Company; provided, however, that the Indemnitee may at any time and for
-------- -------
any reason resign from such position (subject to any contractual obligation that
the Indemnitee may have assumed apart from this Agreement), and the Company or
any subsidiary shall have no obligation under this Agreement to continue the
Indemnitee in any such position.
3. DIRECTORS' AND OFFICERS' INSURANCE. The Company shall, to the extent
----------------------------------
that the Board determines it to be economically reasonable, maintain a policy of
directors' and officers' liability insurance ("D&O Insurance"), on such terms
-------------
and conditions as may be approved by the Board.
4. MANDATORY INDEMNIFICATION. Subject to Section 9 below, the Company
-------------------------
shall indemnify the Indemnitee:
2
<PAGE>
Indemnity Agreement
4.1 Third Party Actions. If the Indemnitee is a person who was or is a
-------------------
party or is threatened to be made a party to any proceeding (other than an
action by or in the right of the Company) by reason of the fact that he is or
was an agent of the Company, or by reason of anything done or not done by him in
any such capacity, against any and all expenses and liabilities of any type
whatsoever (including, but not limited to, judgments, fines, ERISA excise taxes
or penalties and amounts paid in settlement) actually and reasonably incurred by
him in connection with the investigation, defense, settlement or appeal of such
proceeding if he acted in good faith and in a manner he reasonably believed to
be in, or not opposed to, the best interests of the Company and, with respect to
any criminal action or proceeding, had no reasonable cause to believe his
conduct was unlawful; and
4.2 Derivative Actions. If the Indemnitee is a person who was or is a
------------------
party or is threatened to be made a party to any proceeding by or in the right
of the Company to procure a judgment in its favor by reason of the fact that he
is or was an agent of the Company, or by reason of anything done or not done by
him in any such capacity, against any amounts paid in settlement of any such
proceeding and all expenses actually and reasonably incurred by him in
connection with the investigation, defense, settlement or appeal of such
proceeding if he acted in good faith and in a manner he reasonably believed to
be in, or not opposed to, the best interests of the Company; except that no
------
indemnification under this subsection shall be made in respect of any claim,
issue or matter as to which such person shall have been finally adjudged to be
liable to the Company by a court of competent jurisdiction due to willful
misconduct of a culpable nature in the performance of his duty to the Company,
unless and only to the extent that the Court of Chancery or the court in which
such proceeding was brought shall determine upon application that, despite the
adjudication of liability but in view of all the circumstances of the case, such
person is fairly and reasonably entitled to indemnity for such amounts which the
Court of Chancery or such other court shall deem proper; and
4.3 Exception for Amounts Covered by Insurance. Notwithstanding the
------------------------------------------
foregoing, the Company shall not be obligated to indemnify the Indemnitee for
expenses or liabilities of any type whatsoever (including, but not limited to,
judgments, fines, ERISA excise taxes or penalties and amounts paid in
settlement) to the extent such have been paid directly to the Indemnitee by D&O
Insurance.
5. PARTIAL INDEMNIFICATION AND CONTRIBUTION.
----------------------------------------
5.1 Partial Indemnification. If the Indemnitee is entitled under any
-----------------------
provision of this Agreement to indemnification by the Company for some or a
portion of any expenses or liabilities of any type whatsoever (including, but
not limited to, judgments, fines, ERISA excise taxes or penalties and amounts
paid in settlement) incurred by him in the investigation, defense, settlement or
appeal of a proceeding but is not entitled, however, to indemnification for all
of the total amount thereof, then the Company shall nevertheless indemnify the
Indemnitee for such total amount except as to the portion thereof to which the
Indemnitee is not entitled to indemnification.
3
<PAGE>
Indemnity Agreement
5.2 Contribution. If the Indemnitee is not entitled to the
------------
indemnification provided in Section 4 for any reason other than the statutory
limitations set forth in the Delaware General Corporation Law, then in respect
of any threatened, pending or completed proceeding in which the Company is
jointly liable with the Indemnitee (or would be if joined in such proceeding),
the Company shall contribute to the amount of expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred and paid or payable by the Indemnitee in such proportion as is
appropriate to reflect (i) the relative benefits received by the Company on the
one hand and the Indemnitee on the other hand from the transaction from which
such proceeding arose and (ii) the relative fault of the Company on the one hand
and of the Indemnitee on the other hand in connection with the events which
resulted in such expenses, judgments, fines or settlement amounts, as well as
any other relevant equitable considerations. The relative fault of the Company
on the one hand and of the Indemnitee on the other hand shall be determined by
reference to, among other things, the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent the circumstances
resulting in such expenses, judgments, fines or settlement amounts. The Company
agrees that it would not be just and equitable if contribution pursuant to this
Section 5 were determined by pro rata allocation or any other method of
allocation which does not take account of the foregoing equitable
considerations.
6. MANDATORY ADVANCEMENT OF EXPENSES.
---------------------------------
6.1 Advancement. Subject to Section 9 below, the Company shall advance
-----------
all expenses incurred by the Indemnitee in connection with the investigation,
defense, settlement or appeal of any proceeding to which the Indemnitee is a
party or is threatened to be made a party by reason of the fact that the
Indemnitee is or was an agent of the Company or by reason of anything done or
not done by him in any such capacity. The Indemnitee hereby undertakes to
promptly repay such amounts advanced only if, and to the extent that, it shall
ultimately be determined that the Indemnitee is not entitled to be indemnified
by the Company under the provisions of this Agreement, the Certificate of
Incorporation or Bylaws of the Company, the General Corporation Law of Delaware
or otherwise. The advances to be made hereunder shall be paid by the Company to
the Indemnitee within thirty (30) days following delivery of a written request
therefor by the Indemnitee to the Company.
6.2 Exception. Notwithstanding the foregoing provisions of this Section
---------
6, the Company shall not be obligated to advance any expenses to the Indemnitee
arising from a lawsuit filed directly by the Company against the Indemnitee if
an absolute majority of the members of the Board reasonably determines in good
faith, within thirty (30) days of the Indemnitee's request to be advanced
expenses, that the facts known to them at the time such determination is made
demonstrate clearly and convincingly that the Indemnitee acted in bad faith. If
such a determination is made, the Indemnitee may have such decision reviewed by
another forum, in the manner set forth in Sections 8.3, 8.4 and 8.5 hereof, with
all references therein to "indemnification" being deemed to refer to
"advancement of expenses," and the burden of proof shall be on the Company to
demonstrate clearly and convincingly that, based on the facts known at the time,
the Indemnitee acted in bad faith. The Company may not avail itself of this
Section 6.2 as to a given lawsuit if, at any time after the occurrence of the
activities or
4
<PAGE>
Indemnity Agreement
omissions that are the primary focus of the lawsuit, the Company has undergone a
change in control. For this purpose, a change in control shall mean a given
person or group of affiliated persons or groups increasing their beneficial
ownership interest in the Company by at least twenty (20) percentage points
without advance Board approval.
7. NOTICE AND OTHER INDEMNIFICATION PROCEDURES.
-------------------------------------------
7.1 Promptly after receipt by the Indemnitee of notice of the
commencement of or the threat of commencement of any proceeding, the Indemnitee
shall, if the Indemnitee believes that indemnification with respect thereto may
be sought from the Company under this Agreement, notify the Company of the
commencement or threat of commencement thereof.
7.2 If, at the time of the receipt of a notice of the commencement of
a proceeding pursuant to Section 7.1 hereof, the Company has D&O Insurance in
effect, the Company shall give prompt notice of the commencement of such
proceeding to the insurers in accordance with the procedures set forth in the
respective policies. The Company shall thereafter take all necessary or
desirable action to cause such insurers to pay, on behalf of the Indemnitee, all
amounts payable as a result of such proceeding in accordance with the terms of
such D&O Insurance policies.
7.3 In the event the Company shall be obligated to advance the
expenses for any proceeding against the Indemnitee, the Company, if appropriate,
shall be entitled to assume the defense of such proceeding, with counsel
approved by the Indemnitee (which approval shall not be unreasonably withheld),
upon the delivery to the Indemnitee of written notice of its election to do so.
After delivery of such notice, approval of such counsel by the Indemnitee and
the retention of such counsel by the Company, the Company will not be liable to
the Indemnitee under this Agreement for any fees of counsel subsequently
incurred by the Indemnitee with respect to the same proceeding, provided that:
--------
(a) the Indemnitee shall have the right to employ his own counsel in any such
proceeding at the Indemnitee's expense; (b) the Indemnitee shall have the right
to employ his own counsel in connection with any such proceeding, at the expense
of the Company, if such counsel serves in a review, observer, advice and
counseling capacity and does not otherwise materially control or participate in
the defense of such proceeding; and (c) if (i) the employment of counsel by the
Indemnitee has been previously authorized by the Company, (ii) the Indemnitee
shall have reasonably concluded that there may be a conflict of interest between
the Company and the Indemnitee in the conduct of any such defense or (iii) the
Company shall not, in fact, have employed counsel to assume the defense of such
proceeding, then the fees and expenses of the Indemnitee's counsel shall be at
the expense of the Company.
8. DETERMINATION OF RIGHT TO INDEMNIFICATION.
-----------------------------------------
8.1 To the extent the Indemnitee has been successful on the merits or
otherwise in defense of any proceeding referred to in Section 4.1 or 4.2 of this
Agreement or in the defense of any claim, issue or matter described therein, the
Company shall indemnify the Indemnitee against expenses actually and reasonably
incurred by him in connection with the
5
<PAGE>
Indemnity Agreement
investigation, defense or appeal of such proceeding, or such claim, issue or
matter, as the case may be.
8.2 In the event that Section 8.1 is inapplicable, or does not apply
to the entire proceeding, the Company shall nonetheless indemnify the Indemnitee
unless the Company shall prove by clear and convincing evidence to a forum
listed in Section 8.3 below that the Indemnitee has not met the applicable
standard of conduct required to entitle the Indemnitee to such indemnification.
8.3 The Indemnitee shall be entitled to select the forum in which the
validity of the Company's claim under Section 8.2 hereof that the Indemnitee is
not entitled to indemnification will be heard from among the following, except
------
that the Indemnitee can select a forum consisting of the stockholders of the
Company only with the approval of the Company:
(a) A quorum of the Board consisting of directors who are not
parties to the proceeding for which indemnification is being sought;
(b) The stockholders of the Company;
(c) Legal counsel mutually agreed upon by the Indemnitee and the
Board, which counsel shall make such determination in a written opinion;
(d) A panel of three arbitrators, one of whom is selected by the
Company, another of whom is selected by the Indemnitee and the last of whom is
selected by the first two arbitrators so selected; or
(e) The Court of Chancery of Delaware or other court having
jurisdiction of subject matter and the parties.
8.4 As soon as practicable, and in no event later than thirty (30)
days after the forum has been selected pursuant to Section 8.3 above, the
Company shall, at its own expense, submit to the selected forum its claim that
the Indemnitee is not entitled to indemnification, and the Company shall act in
the utmost good faith to assure the Indemnitee a complete opportunity to defend
against such claim.
8.5 If the forum selected in accordance with Section 8.3 hereof is
not a court, then after the final decision of such forum is rendered, the
Company or the Indemnitee shall have the right to apply to the Court of Chancery
of Delaware, the court in which the proceeding giving rise to the Indemnitee's
claim for indemnification is or was pending or any other court of competent
jurisdiction, for the purpose of appealing the decision of such forum, provided
--------
that such right is executed within sixty (60) days after the final decision of
such forum is rendered. If the forum selected in accordance with Section 8.3
hereof is a court, then the rights of the Company or the Indemnitee to appeal
any decision of such court shall be governed by the applicable laws and rules
governing appeals of the decision of such court.
6
<PAGE>
Indemnity Agreement
8.6 Notwithstanding any other provision in this Agreement to the
contrary, the Company shall indemnify the Indemnitee against all expenses
incurred by the Indemnitee in connection with any hearing or proceeding under
this Section 8 involving the Indemnitee and against all expenses incurred by the
Indemnitee in connection with any other proceeding between the Company and the
Indemnitee involving the interpretation or enforcement of the rights of the
Indemnitee under this Agreement unless a court of competent jurisdiction finds
that each of the material claims and/or defenses of the Indemnitee in any such
proceeding was frivolous or not made in good faith.
9. EXCEPTIONS. Any other provision herein to the contrary
----------
notwithstanding, the Company shall not be obligated pursuant to the terms of
this Agreement:
9.1 Claims Initiated by Indemnitee. To indemnify or advance expenses
------------------------------
to the Indemnitee with respect to proceedings or claims initiated or brought
voluntarily by the Indemnitee and not by way of defense, except with respect to
------
proceedings specifically authorized by the Board or brought to establish or
enforce a right to indemnification and/or advancement of expenses arising under
this Agreement, the charter documents of the Company or any subsidiary or any
statute or law or otherwise, but such indemnification or advancement of expenses
may be provided by the Company in specific cases if the Board finds it to be
appropriate; or
9.2 Unauthorized Settlements. To indemnify the Indemnitee hereunder
------------------------
for any amounts paid in settlement of a proceeding unless the Company consents
in advance in writing to such settlement, which consent shall not be
unreasonably withheld; or
9.3 Securities Law Actions. To indemnify the Indemnitee on account of
----------------------
any suit in which judgment is rendered against the Indemnitee for an accounting
of profits made from the purchase or sale by the Indemnitee of securities of the
Company pursuant to the provisions of Section l6(b) of the Securities Exchange
Act of 1934 and amendments thereto or similar provisions of any federal, state
or local statutory law; or
9.4 Unlawful Indemnification. To indemnify the Indemnitee if a final
------------------------
decision by a court having jurisdiction in the matter shall determine that such
indemnification is not lawful. In this respect, the Company and the Indemnitee
have been advised that the Securities and Exchange Commission takes the position
that indemnification for liabilities arising under the federal securities laws
is against public policy and is, therefore, unenforceable and that claims for
indemnification should be submitted to appropriate courts for adjudication.
10. NON-EXCLUSIVITY. The provisions for indemnification and advancement
---------------
of expenses set forth in this Agreement shall not be deemed exclusive of any
other rights which the Indemnitee may have under any provision of law, the
Company's Certificate of Incorporation or Bylaws, the vote of the Company's
stockholders or disinterested directors, other agreements or otherwise, both as
to action in the Indemnitee's official capacity and to action in another
capacity while occupying his position as an agent of the Company, and the
Indemnitee's rights hereunder shall continue after the Indemnitee has ceased
acting as an agent of the Company and shall inure to the benefit of the heirs,
executors and administrators of the Indemnitee.
7
<PAGE>
Indemnity Agreement
11. GENERAL PROVISIONS
------------------
11.1 Interpretation of Agreement. It is understood that the parties
---------------------------
hereto intend this Agreement to be interpreted and enforced so as to provide
indemnification and advancement of expenses to the Indemnitee to the fullest
extent now or hereafter permitted by law, except as expressly limited herein.
11.2 Severability. If any provision or provisions of this Agreement
------------
shall be held to be invalid, illegal or unenforceable for any reason whatsoever,
then: (a) the validity, legality and enforceability of the remaining provisions
of this Agreement (including, without limitation, all portions of any paragraphs
of this Agreement containing any such provision held to be invalid, illegal or
unenforceable that are not themselves invalid, illegal or unenforceable) shall
not in any way be affected or impaired thereby; and (b) to the fullest extent
possible, the provisions of this Agreement (including, without limitation, all
portions of any paragraphs of this Agreement containing any such provision held
to be invalid, illegal or unenforceable, that are not themselves invalid,
illegal or unenforceable) shall be construed so as to give effect to the intent
manifested by the provision held invalid, illegal or unenforceable and to give
effect to Section 11.1 hereof.
11.3 Modification and Waiver. No supplement, modification or amendment
-----------------------
of this Agreement shall be binding unless executed in writing by both of the
parties hereto. No waiver of any of the provisions of this Agreement shall be
deemed or shall constitute a waiver of any other provision hereof (whether or
not similar), nor shall such waiver constitute a continuing waiver.
11.4 Subrogation. In the event of full payment under this Agreement,
-----------
the Company shall be subrogated to the extent of such payment to all of the
rights of recovery of the Indemnitee, who shall execute all documents required
and shall do all acts that may be necessary or desirable to secure such rights
and to enable the Company effectively to bring suit to enforce such rights.
11.5 Counterparts. This Agreement may be executed in one or more
------------
counterparts, which shall together constitute one agreement.
11.6 Successors and Assigns. The terms of this Agreement shall bind,
----------------------
and shall inure to the benefit of, the successors and assigns of the parties
hereto.
11.7 Notice. All notices, requests, demands and other communications
------
under this Agreement shall be in writing and shall be deemed duly given: (a) if
delivered by hand and receipted for by the party addressee; or (b) if mailed by
certified or registered mail, with postage prepaid, on the third business day
after the mailing date. Addresses for notice to either party are as shown on
the signature page of this Agreement or as subsequently modified by written
notice.
8
<PAGE>
Indemnity Agreement
11.8 Governing Law. This Agreement shall be governed exclusively by
-------------
and construed according to the laws of the State of Delaware, as applied to
contracts between Delaware residents entered into and to be performed entirely
within Delaware.
11.9 Consent to Jurisdiction. The Company and the Indemnitee each
-----------------------
hereby irrevocably consent to the jurisdiction of the courts of the State of
Delaware for all purposes in connection with any action or proceeding which
arises out of or relates to this Agreement.
11.10 Attorneys' Fees. In the event Indemnitee is required to bring any
---------------
action to enforce rights under this Agreement (including, without limitation,
the expenses of any Proceeding described in Section 3), the Indemnitee shall be
entitled to all reasonable fees and expenses in bringing and pursuing such
action, unless a court of competent jurisdiction finds each of the material
claims of the Indemnitee in any such action was frivolous and not made in good
faith.
IN WITNESS WHEREOF, the parties hereto have entered into this Indemnity
Agreement effective as of the date first written above.
eBAY INC. INDEMNITEE:
By:____________________________ By:_______________________________
Title:_________________________
Address:_______________________ Address:__________________________
_______________________________ __________________________________
9
<PAGE>
EXHIBIT 10.02
1996 STOCK OPTION PLAN
OF
eBAY, INC.
(AS AMENDED DECEMBER 3, 1997)
1. PURPOSES OF THE PLAN
--------------------
The purposes of the 1996 Stock Option Plan (the "Plan") of eBay, Inc.,
a California corporation (the "Company"), are to:
(a) Encourage selected employees, directors and consultants to improve
operations and increase profits of the Company;
(b) Encourage selected employees, directors and consultants to accept
or continue employment or association with the Company or its Affiliates; and
(c) Increase the interest of selected employees, directors and
consultants in the Company's welfare through participation in the growth in
value of the common stock of the Company (the "Common Stock").
Options granted under this Plan ("Options") may be "incentive stock
options" ("ISOs") intended to satisfy the requirements of Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code"), or "nonqualified
options" ("NQOs").
2. ELIGIBLE PERSONS
----------------
Every person who at the date of grant of an Option is a full-time
employee of the Company or of any Affiliate (as defined below) of the Company is
eligible to receive NQOs or ISOs under this Plan. Every person who at the date
of grant is a consultant to, or non-employee director of, the Company or any
Affiliate (as defined below) of the Company is eligible to receive NQOs under
this Plan. The term "Affiliate" as used in the Plan means a parent or
subsidiary corporation as defined in the applicable provisions (currently
Sections 424(e) and (f), respectively) of the Code. The term "employee"
includes an officer or director who is an employee, of the Company. The term
"consultant" includes persons employed by, or otherwise affiliated with, a
consultant.
3. STOCK SUBJECT TO THIS PLAN
--------------------------
Subject to the provisions of Section 6.1.1 of the Plan, the total
number of shares of stock which may be issued under options granted pursuant to
this Plan shall not exceed 502,000 shares of Common Stock. The shares covered
by the portion of any grant under the Plan which expires unexercised shall
become available again for grants under the Plan.
<PAGE>
4. ADMINISTRATION
--------------
(a) This Plan shall be administered by the Board of Directors of the
Company (the "Board") or, either in its entirety or only insofar as required
pursuant to Section 4(b) hereof, by a committee (the "Committee") of at least
two Board members to which administration of the Plan, or of part of the Plan,
is delegated (in either case, the "Administrator").
(b) From and after such time as the Company registers a class of
equity securities under Section 12 of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), it is intended that this Plan shall be
administered in accordance with the disinterested administration requirements of
Rule 16b-3 promulgated by the Securities and Exchange Commission ("Rule 61b-3"),
or any successor rule thereto.
(c) Subject to the other provisions of this Plan, the Administrator
shall have the authority, in its discretion: (i) to grant Options; (ii) to
determine the fair market value of the Common Stock subject to Options; (iii) to
determine the exercise price of Options granted; (iv) to determine the persons
to whom, and the time or times at which, Options shall be granted, and the
number of shares subject to each Option; (v) to interpret this Plan; (vi) to
prescribe, amend, and rescind rules and regulations relating to this Plan; (vii)
to determine the terms and provisions of each Option granted (which need not be
identical), including but not limited to, the time or times at which Options
shall be exercisable; (viii) with the consent of the optionee, to modify or
amend any Option; (ix) to defer (with the consent of the optionee) the exercise
date of any Option; (x) to authorize any person to execute on behalf of the
Company any instrument evidencing the grant of an Option; and (xi) to make all
other determinations deemed necessary or advisable for the administration of
this Plan. The Administrator may delegate nondiscretionary administrative
duties to such employees of the Company as it deems proper.
(d) All questions of interpretation, implementation, and application
of this Plan shall be determined by the Administrator. Such determinations
shall be final and binding on all persons.
(e) With respect to persons subject to Section 16 of the Exchange Act,
if any, transactions under this Plan are intended to comply with the applicable
conditions of Rule 16b-3, or any successor rule thereto. To the extent any
provision of this Plan or action by the Administrator fails to so comply, it
shall be deemed null and void, to the extent permitted by law and deemed
advisable by the Administrator. Notwithstanding the above, it shall be the
responsibility of such persons, not of the Company or the Administrator, to
comply with the requirements of Section 16 of the Exchange Act; and neither the
Company nor the Administrator shall be liable if this Plan or any transaction
under this Plan fails to comply with the applicable conditions of Rule 16b-3 or
any successor rule thereto, or if any such person incurs any liability under
Section 16 of the Exchange Act.
5. GRANTING OF OPTIONS; OPTION AGREEMENT
-------------------------------------
(a) No Options shall be granted under this Plan after ten years from
the date of adoption of this Plan by the Board.
-2-
<PAGE>
(b) Each Option shall be evidenced by a written stock option
agreement, in form satisfactory to the Company, executed by the Company and the
person to whom such Option is granted; provided, however, that the failure by
the Company, the optionee, or both to execute such an agreement shall not
invalidate the granting of an Option, although the exercise of each option shall
be subject to Section 6.1.3.
(c) The stock option agreement shall specify whether each Option it
evidences is a NQO or an ISO.
(d) Subject to Section 6.3.3 with respect to ISOs, the Administrator
may approve the grant of Options under this Plan to persons who are expected to
become employees, directors or consultants of the Company, but are not
employees, directors or consultants at the date of approval.
6. TERMS AND CONDITIONS OF OPTIONS
-------------------------------
Each Option granted under this Plan shall be subject to the terms and
conditions set forth in Section 6.1. NQOs shall be also subject to the terms
and conditions set forth in Section 6.2, but not those set forth in Section 6.3.
ISOs shall also be subject to the terms and conditions set forth in Section 6.3,
but not those set forth in Section 6.2.
6.1 Terms and Conditions to Which All Options Are Subject. All
-----------------------------------------------------
Options granted under this Plan shall be subject to the following terms and
conditions:
6.1.1 Changes in Capital Structure. Subject to Section 6.1.2, if
----------------------------
the stock of the Company is changed by reason of a stock split, reverse stock
split, stock dividend, or recapitalization, combination or reclassification,
appropriate adjustments shall be made by the Board in (a) the number and class
of shares of stock subject to this Plan and each Option outstanding under this
Plan, and (b) the exercise price of each outstanding Option; provided, however,
that the Company shall not be required to issue fractional shares as a result of
any such adjustments. Each such adjustment shall be subject to approval by the
Board in its sole discretion.
6.1.2 Corporate Transactions.
----------------------
(a) Dissolution or Liquidation. In the event of the
--------------------------
proposed dissolution or liquidation of the Company, the Administrator shall
notify the Optionee at least thirty (30) days prior to such proposed action. To
the extent it has not been previously exercised, all Options will terminate
immediately prior to the consummation of such proposed action.
(b) Merger or Asset Sale. In the event of a merger of the
--------------------
Company with or into another corporation, or the sale of substantially all of
the assets of the Company:
(i) Options. Each Option shall be assumed or an
-------
equivalent option substituted by the successor corporation (including as a
"successor" any
-3-
<PAGE>
purchaser of substantially all of the assets of the Company) or a parent or
subsidiary of the successor corporation. In the event that the successor
corporation refuses to assume or substitute for the Option, the Optionee shall
have the right to exercise the Option as to all of the shares of Common Stock
covered by the Option, including Shares as to which it would not otherwise be
exercisable. It an Option is exercisable in lieu of assumption or substitution
in the event of a merger or sale of assets, the Administrator shall notify the
Optionee that the Option shall be fully exercisable for a period of fifteen (15)
days from the date of such notice, and the Option shall terminate upon the
expiration of such period. For the purposes of this paragraph, the Option shall
be considered assumed if, following the merger or sale of assets, the option
confers the right to purchase or receive, for each share of Common Stock subject
to the Option immediately prior to the merger or sale of assets, the
consideration (whether stock, cash, or other securities or property) received in
the merger or sale of assets by holders of Common Stock for each share held on
the effective date of the transaction (and if holders were offered a choice of
consideration, the type of consideration chosen by the holders of a majority of
the outstanding shares); provided, however, that if such consideration received
in the merger or sale of assets was not solely common stock of the successor
corporation or its parent entity, the Administrator may, with the consent of the
successor corporation, provide for the consideration to be received upon the
exercise of the Option, for each Share of Common Stock subject to the Option, to
be solely common stock of the successor corporation or its parent entity equal
in fair market value to the per share consideration received by holders of
Common Stock in the merger or sale of assets.
(ii) Shares Subject to Right of Repurchase. Any Shares
-------------------------------------
subject to a Right of Repurchase of the Company shall be exchanged for the
consideration (whether stock, cash, or other securities or property) received in
the merger or asset sale by the holders of Common Stock for each share held on
the effective date of the transaction, as described in the preceding paragraph.
If in such exchange the Optionee receives shares of stock of the successor
corporation or a parent or subsidiary of such successor corporation, and if the
successor corporation has agreed to assume or substitute for Options as provided
in the preceding paragraph, such exchanged shares shall continue to be subject
to a Right of Repurchase as provided in the Optionee's Stock Option Plan stock
purchase agreement. If, as provided in the preceding paragraph, the Optionee
shall have the right to exercise an Option as to all of the shares of Common
Stock covered thereby, all Shares that are subject to a Right of Repurchase of
the Company shall be released from such Right of Repurchase and shall be fully
vested.
6.1.3 Time of Option Exercise. Subject to Section 5 and Section
-----------------------
6.3.4, Options granted under this Plan shall be exercisable (a) immediately as
of the effective date of the stock option agreement granting the Option, or (b)
in accordance with a schedule related to the date of the grant of the Option,
the date of first employment, or such other date as may be set by the
Administrator (in any case, the "Vesting Base Date") and specified in the
written stock option agreement relating to such Option; provided, however, that
the right to exercise an Option must vest at the rate of at least 20% per year
over five years from the date the Option was granted. In any case, no Option
shall be exercisable until a written stock option agreement in form satisfactory
to the Company is executed by the Company and the optionee.
-4-
<PAGE>
6.1.4 Option Grant Date. Except in the case of advance approvals
-----------------
described in Section 5(d), the date of grant of an Option under this Plan shall
be the date as of which the Administrator approves the grant.
-5-
<PAGE>
6.1.5 Nonassignability of Option Rights. No Option granted under
---------------------------------
this Plan shall be assignable or otherwise transferable by the optionee except
by will or by the laws of descent and distribution. During the life of the
optionee, an Option shall be exercisable only by the optionee.
6.1.6 Payment. Except as provided below, payment in full, in
-------
cash, shall be made for all stock purchased at the time written notice of
exercise of an Option is given to the Company, and proceeds of any payment shall
constitute general funds of the Company. At the time an Option is granted or
exercised, the Administrator, in the exercise of its absolute discretion after
considering any tax or accounting consequences, may authorize any one or more of
the following additional methods of payment:
(a) Acceptance of the optionee's full recourse promissory
note for all or part of the Option price, payable on such terms and bearing such
interest rate as determined by the Administrator (but in no event less than the
minimum interest rate specified under the Code at which no additional interest
would be imputed), which promissory note may be either secured or unsecured in
such manner as the Administrator shall approve (including, without limitation,
by a security interest in the shares of the Company); and
(b) Delivery by the optionee of Common Stock already owned
by the optionee for all or part of the Option price, provided the value
(determined as set forth in Section 6.1.11) of such Common Stock is equal on the
date of exercise to the Option price, or such portion thereof as the optionee is
authorized to pay by delivery of such stock; provided, however, that if an
optionee has exercised any portion of any Option granted by the Company by
delivery of Common Stock, the optionee may not, within six months following such
exercise, exercise any Option granted under this Plan by delivery of Common
Stock without the consent of the Administrator.
6.1.7 Termination of Employment.
-------------------------
(a) If for any reason other than death or disability, an
optionee ceases to be employed by the Company or any of its Affiliates (such
event being called a "Termination"), Options held at the date of Termination (to
the extent then exercisable) may be exercised in whole or in part at any time
within three months of the date of such Termination, or such other period of not
less than thirty days after the date of such Termination as is specified in the
Option Agreement (but in no event after the Expiration Date); provided, that if
--------
such exercise of the Option would result in liability for the optionee under
Section 16(b) of the Exchange Act, then such three-month period automatically
shall be extended until the tenth day following the last date upon which
optionee has any liability under Section 16(b) (but in no event after the
Expiration Date).
(b) If an optionee dies while employed by the Company or
an Affiliate or within the period that the Option remains exercisable after
Termination, Options then held (to the extent then exercisable) may be
exercised, in whole or in part, by the optionee, by the optionee's personal
representative, or by the person to whom the Option is transferred by devise
-6-
<PAGE>
or the laws of descent and distribution, at any time within twelve months after
the death of the optionee, or such other period of not less than six months from
the date of Termination as is specified in the Option Agreement (but in no event
after the Expiration Date).
(c) If an optionee ceases to be employed by the Company as
a result of his or her disability, the optionee may, but only within six (6)
months from the date of Termination (and in no event after the Expiration Date),
exercise the Option to the extent otherwise entitled to exercise it at the date
of Termination; provided, however, that if such disability is not a "disability"
as such term is defined in Section 22(e)(3) of the Code, in the case of an ISO
such ISO shall automatically convert to an NQO on the day three months and one
day following such Termination. To the extent that the optionee was not entitled
to exercise the Option at the date of Termination or if the optionee does not
exercise such Option to the extent so entitled within the time specified herein,
the Option shall terminate, and the Shares covered by such Option shall revert
to the Plan.
(d) For purposes of this Section 6.1.7, "employment"
includes service as a director or as a consultant. For purposes of this Section
6.1.7, an optionee's employment shall not be deemed to terminate by reason of
sick leave, military leave, or other leave of absence approved by the
Administrator, if the period of any such leave does not exceed 90 days or, if
longer, if the optionee's right to reemployment by the Company or any Affiliate
is guaranteed either contractually or by statute.
6.1.8 Repurchase of Stock. At the option of the Administrator,
-------------------
the stock to be delivered pursuant to the exercise of any Option granted to an
employee, director or consultant under this Plan may be subject to a right of
repurchase in favor of the Company with respect to any employee, or director or
consultant whose employment, or director or consulting relationship with the
Company is terminated. Such right of repurchase either:
(a) shall be at the Option exercise price and (i) shall
lapse at the rate of at least 20% per year over five years from the date the
Option is granted (without regard to the date it becomes exercisable), and must
be exercised for cash or cancellation of purchase money indebtedness within 90
days of such termination and (ii) if the right is assignable by the Company, the
assignee must pay the Company upon assignment of the right (unless the assignee
is a 100% owned subsidiary of the Company or is an Affiliated) cash equal to the
difference between the Option exercise price and the value (determined as set
forth in Section 6.1.11) of the stock to be purchased if the Option exercise
price is less than such value; or
(b) shall be at the higher of the Option exercise price or
the value (determined as set forth in Section 6.1.11) of the stock being
purchased on the date of termination, and must be exercised for cash or
cancellation of purchase money indebtedness within 90 days of termination of
employment, and such right shall terminate when the Company's securities become
publicly traded.
Determination of the number of shares subject to any such right
of repurchase shall be made as of the date the employee's employment by,
director's director relationship with,
-7-
<PAGE>
or consultant's consulting relationship with, the Company terminates, not as of
the date that any Option granted to such employee, director or consultant is
thereafter exercised.
6.1.9 Withholding and Employment Taxes. At the time of exercise
--------------------------------
of an Option or at such other time as the amount of such obligations becomes
determinable (the "Tax Date"), the optionee shall remit to the Company in cash
all applicable federal and state withholding and employment taxes. If authorized
by the Administrator in its sole discretion after considering any tax or
accounting consequences, an optionee may elect to (i) deliver a promissory note
on such terms as the Administrator deems appropriate, (ii) tender to the Company
previously owned shares of Stock or other securities of the Company, or (iii)
have shares of Common Stock which are acquired upon exercise of the Option
withheld by the Company to pay some or all of the amount of tax that is required
by law to be withheld by the Company as a result of the exercise of such Option,
subject to the following limitations:
(a) Any election pursuant to clause (iii) above by an
optionee subject to Section 16 of the Exchange Act shall either (x) be made at
least six months before the Tax Date and shall be irrevocable; or (y) shall be
made in (or made earlier to take effect in) any ten-day period beginning on the
third business day following the date of release for publication of the
Company's quarterly or annual summary statements of earnings and shall be
subject to approval by the Administrator, which approval may be given at any
time after such election has been made. In addition, in the case of (y), the
Option shall be held at least six months prior to the Tax Date.
(b) Any election pursuant to clause (ii) above, where the
optionee is tendering Common Stock issued pursuant to the exercise of an Option,
shall require that such shares be held at least six months prior to the Tax
Date.
Any of the foregoing limitations may be waived (or additional
limitations may be imposed) by the Administrator, in its sole discretion, if the
Administrator determines that such foregoing limitations are not required (or
that such additional limitations are required) in order that the transaction
shall be exempt from Section 16(b) of the Exchange Act pursuant to Rule 61b-3,
or any successor rule thereto. In addition, any of the foregoing limitations
may be waived by the Administrator, in its sole discretion, if the Administrator
determines that Rule 16b-3, or any successor rule thereto, is not applicable to
the exercise of the Option by the optionee or for any other reason.
Any securities tendered or withheld in accordance with this Section
6.1.9 shall be valued by the Company as of the Tax Date.
6.1.10 Other Provisions. Each Option granted under this Plan may
----------------
contain such other terms, provisions, and conditions not inconsistent with this
Plan as may be determined by the Administrator, and each ISO granted under this
Plan shall include such provisions and conditions as are necessary to qualify
the Option as an "incentive stock option" within the meaning of Section 422 of
the Code. If Options provide for a right of first refusal in favor of the
Company with respect to stock acquired by employees, directors or consultants,
such Options shall provide that the right of first refusal shall terminate upon
the earlier of (i) the
-8-
<PAGE>
closing of the Company's initial registered public offering to the public
generally, or (ii) the date ten years after the grant date as set forth in
Section 6.1.4.
6.1.11 Determination of Value. For purposes of the Plan, the
----------------------
value of Common Stock or other securities of the Company shall be determined as
follows:
(a) If the stock of the Company is listed on any
established stock exchange or a national market system, including without
limitation the National Market System of the National Association of Securities
Dealers, Inc. Automated Quotation System, its fair market value shall be the
closing sales price for such stock or the closing bid if no sales were reported,
as quoted on such system or exchange (or the largest such exchange) for the date
the value is to be determined (or if there are no sales for such date, then for
the last preceding business day on which there were sales), as reported in the
Wall Street Journal or similar publication.
- -------------------
(b) If the stock of the Company is regularly quoted by a
recognized securities dealer but selling prices are not reported, its fair
market value shall be the means between the high bid and low asked prices for
the stock on the date the value is to be determined (or if there are no quoted
prices for the date of grant, then for the last preceding business day on which
there were quoted prices).
(c) In the absence of an established market for the
stock, the fair market value thereof shall be determined in good faith by the
Administrator, with reference to the Company's net worth, prospective earning
power, dividend-paying capacity, and other relevant factors, including the
goodwill of the Company, the economic outlook in the Company's industry, the
Company's position in the industry and its management, and the values of stock
of other corporations in the same or a similar line of business.
6.1.12 Option Term. Subject to Section 6.3.5, no Option shall be
-----------
exercisable more than ten years after the date of grant, or such lesser period
of time as is set forth in the stock option agreement (the end of the maximum
exercise period stated in the stock option agreement is referred to in this Plan
as the "Expiration Date").
6.1.13 Exercise Price. The exercise price of any Option granted
--------------
to any person who owns, directly or by attribution under the Code currently
Section 424(d), stock possessing more than ten percent of the total combined
voting power of all classes of stock of the Company or of any Affiliate (a "Ten
Percent Stockholder") shall in no event be less than 110% of the fair market
value (determined in accordance with Section 6.1.11) of the stock covered by the
Option at the time the Option is granted.
6.2 Terms and Conditions to Which Only NQOs Are Subject. Options
---------------------------------------------------
granted under this Plan which are designated as NQOs shall be subject to the
following terms and conditions:
-9-
<PAGE>
6.2.1 Exercise Price. Except as set forth in Section 6.1.13, the
--------------
exercise price of a NQO shall be not less than 85% of the fair market value
(determined in accordance with Section 6.1.11) of the stock subject to the
Option on the date of grant.
6.3 Terms and Conditions to Which Only ISOs Are Subject. Options
---------------------------------------------------
granted under this Plan which are designated as ISOs shall be subject to the
following terms and conditions:
6.3.1 Exercise Price. Except as set forth in Section 6.1.13, the
--------------
exercise price of an ISO shall be determined in accordance with the applicable
provisions of the Code and shall in no event be less than the fair market value
(determined in accordance with Section 6.1.11) of the stock covered by the
Option at the time the Option is granted.
6.3.2 Disqualifying Dispositions. If stock acquired by exercise
--------------------------
of an ISO granted pursuant to this Plan is disposed of in a "disqualifying
disposition" within the meaning of Section 422 of the Code, the holder of the
stock immediately before the disposition shall promptly notify the Company in
writing of the date and terms of the disposition and shall provide such other
information regarding the Option as the Company may reasonably require.
6.3.3 Grant Date. If an ISO is granted in anticipation of
----------
employment as provided in Section 59d), the Option shall be deemed granted,
without further approval, on the date the grantee assumes the employment
relationship forming the basis for such grant, and, in addition, satisfies all
requirements of this Plan for Options granted on that date.
6.3.4 Vesting. Notwithstanding any other provision of this Plan,
-------
ISOs granted under all incentive stock option plans of the Company and its
subsidiaries may not "vest" for more than $100,000 in fair market value of stock
(measured on the grant date(s)) in any calendar year. For purposes of the
preceding sentence, an option "vests" when it first becomes exercisable. If, by
their terms, such ISOs taken together would vest to a greater extent in a
calendar year, and unless otherwise provided by the Administrator, the vesting
limitation described above shall be applied by deferring the exercisability of
those ISOs or portions of ISOs which have the highest per share exercise prices;
but in no event shall more than $100,000 in fair market value of stock (measures
on the grant date(s)) vest in any calendar year. The ISOs or portions of ISOs
whose exercisability is so deferred shall become exercisable on the first day of
the first subsequent calendar year during which they may be exercised, as
determined by applying these same principles and all other provisions of this
Plan including those relating to the expiration and termination of ISOs. In no
event, however, will the operation of this Section 6.3.4 cause an ISO to vest
before its terms or, having vested, cease to be vested.
6.3.5 Term. Notwithstanding Section 6.1.12, no ISO granted to
----
any Ten Percent Stockholder shall be exercisable more than five years after the
date of grant.
7. MANNER OF EXERCISE
------------------
(a) An optionee wishing to exercise an Option shall give written
notice to the Company at its principal executive office, to the attention of the
officer of the Company
-10-
<PAGE>
designated by the Administrator, accompanied by payment of the exercise price as
provided in Section 6.1.6. The date the Company receives written notice of an
exercise hereunder accompanied by payment of the exercise price will be
considered as the date such Option was exercised.
(b) Promptly after receipt of written notice of exercise of an
Option, the Company shall, without stock issue or transfer taxes to the optionee
or other person entitled to exercise the Option deliver to the optionee or such
other person a certificate or certificates for the requisite number of shares of
stock. An optionee or permitted transferee of an optionee shall not have any
privileges as a shareholder with respect to any shares of stock covered by the
Option until the date of issuance (as evidenced by the appropriate entry on the
books of the Company or a duly authorized transfer agent) of such shares.
8. EMPLOYMENT OR CONSULTING RELATIONSHIP
-------------------------------------
Nothing in this Plan or any Option granted thereunder shall interfere
with or limit in any way the right of the Company or of any of its Affiliates to
terminate any optionee's employment or consulting at any time, nor confer upon
any optionee any right to continue in the employ of, or consult with, the
Company or any of its Affiliates.
9. FINANCIAL INFORMATION
---------------------
The Company shall provide to each optionee during the period such
optionee holds an outstanding Option, and to each holder of Common Stock
acquired upon exercise of Options granted under the Plan for so long as such
person is a holder of such Common Stock, annual financial statements of the
Company as prepared either by the Company or independent certified public
accountants of the Company. Such financial statements shall include, at a
minimum, a balance sheet and an income statement, and shall be delivered as soon
as practicable following the end of the Company's fiscal year.
10. CONDITIONS UPON ISSUANCE OF SHARES. Shares of Common Stock shall not
----------------------------------
be issued pursuant to the exercise of an Option unless the exercise of such
Option and the issuance and delivery of such shares pursuant thereto shall
comply with all relevant provisions of law, including, without limitation, the
Securities Act of 1933, as amended (the "Securities Act").
11. NONEXCLUSIVITY OF THE PLAN. The adoption of the Plan shall not be
--------------------------
construed as creating any limitations on the power of the Company to adopt such
other incentive arrangements as it may deem desirable, including, without
limitation, the granting of stock options other than under the Plan.
12. MARKET STANDOFF. Each Optionee, if so requested by the Company or
---------------
any representative of the underwriters in connection with any registration of
the offering of any securities of the company under the Securities Act shall not
sell or otherwise transfer any shares of Common Stock acquired upon exercise of
Options during the 180-day period following the effective date of a registration
statement of the company filed under the Securities Act; provided, however, that
such restriction shall apply only to the first two registration statements of
the
-11-
<PAGE>
Company to become effective under the Securities Act which includes securities
to be sold on behalf of the Company to the public in an underwritten public
offering under the Securities Act. The Company may impose stop-transfer
instructions with respect to securities subject to the foregoing restriction
until the end of such 180-day period.
13. AMENDMENTS TO PLAN.
------------------
The Board may at any time amend, alter, suspend or discontinue this
Plan. Without the consent of an optionee, no amendment, alteration, suspension
or discontinuance may adversely affect outstanding Options except to conform
this Plan and ISOs granted under this Plan to the requirements of federal or
other tax laws relating to incentive stock options. No amendment, alternation,
suspension or discontinuance shall require shareholder approval unless (a)
shareholder approval is required to preserve incentive stock option treatment
for federal income tax purposes, or (b) the Board otherwise concludes that
shareholder approval is advisable.
14. EFFECTIVE DATE OF PLAN
----------------------
This Plan shall become effective upon adoption by the Board provided,
however, that no Option shall be exercisable unless and until written consent of
the shareholders of the Company, or approval of shareholders of the Company
voting at a validly called shareholders' meeting, is obtained within 12 months
after adoption by the Board. If such shareholder approval is not obtained
within such time, Options granted hereunder shall terminate and be of no force
and effect from and after expiration of such 12-month period. Options may be
granted and exercised under this Plan only after there has been compliance with
all applicable federal and state securities laws.
Plan adopted by the Board of Directors on____________________________.
Plan approved by Shareholders on_____________________________________.
-12-
<PAGE>
EXHIBIT D-3
1996 Stock Option Plan Form of Stock Option Grant
<PAGE>
eBAY, INC.
STOCK OPTION PLAN
INCENTIVE STOCK OPTION AGREEMENT
(A) Name of Optionee:
(B) Grant Date:
(C) Number of Shares:
(D) Exercise Price:
(E) Vesting Base Date:
(F) Effective Date:
THIS INCENTIVE STOCK OPTION AGREEMENT (the "Agreement"), is made and
entered into as of the date set forth in Item F above (the "Effective Date")
between eBay, Inc., a California corporation (the "Company") and the person
named in Item A above ("Optionee").
THE PARTIES AGREE AS FOLLOWS:
1. Grant of Option: Vesting Base Date.
-----------------------------------
1.1 Grant. The Company hereby grants to Optionee pursuant to
-----
the Company's Stock Option Plan (the "Plan"), a copy of which is attached to
this Agreement as Exhibit 1, an incentive stock option (the "ISO") to purchase
all or any part of an aggregate of the number of shares (the "ISO Shares") of
the Company's Common Stock (as defined in the Plan) listed in Item C above on
the terms and conditions set forth herein and in the Plan, the terms and
conditions of the Plan being hereby incorporated into this Agreement by
reference.
1.2 Vesting Base Date. The parties hereby establish the date set forth
-----------------
in Item E above as the Vesting Base Date (as defined in Section 5.1 below).
2. Exercise Price. The exercise price for purchase of each share of
--------------
Common Stock covered by this ISO shall be the price set forth in Item D above.
3. Term. Unless otherwise specified on Exhibit 3 attached hereto, if any
----
(the absence of such exhibit indicating that no such exhibit was intended), this
ISO shall expire as provided in Section 6.1.12 of the Plan.
4. Adjustment of ISOs. The Company shall adjust the number and kind
------------------
of shares and the exercise price thereof in certain circumstances in accordance
with the provisions of Section 6.1.1 of the Plan.
5. Exercise of Options.
-------------------
5.1 Vesting; Tune of Exercise. This ISO shall be exercisable
-------------------------
according to the schedule set forth on Exhibit 5.1 attached hereto. Such
schedule shall commence as of the date set forth in Item (E) above (the "Vesting
Base Date").
-1-
<PAGE>
5.2 Exercise After Termination of Status as an Employee, Director or
----------------------------------------------------------------
Consultant. In the event of termination of Optionee's continuous status as an
- ----------
employee, director or consultant, this ISO may be exercised only in accordance
with the provisions of Section 6.1.7 of the Plan.
5.3 Manner of Exercise. Optionee may exercise this ISO, or any
------------------
portion of this ISO, by giving written notice to the Company at its principal
executive office, to the attention of the officer of the Company designated by
the Plan Administrator, accompanied by a copy of the Stock Option Plan Stock
Purchase Agreement in substantially the form attached hereto as Exhibit 5.3
executed by Optionee (or at the option of the Company such other form of stock
purchase agreement as shall then be acceptable to the Company), payment of the
exercise price and payment of any applicable withholding or employment taxes.
The date the Company receives written notice of an exercise hereunder
accompanied by payment will be considered as the date this ISO was exercised.
5.4 Payment. Except as provided in Exhibit 5.4 attached hereto, if
-------
any (the absence of such exhibit indicating that no exhibit was intended),
payment may be made for ISO Shares purchased at the time written notice of
exercise of the ISO is given to the Company, by delivery of cash, check,
previously owned shares of Common Stock (provided that delivery of previously
owned shares may not be made more than once in any six-month period), or a full
recourse promissory note equal to up to 90% of the exercise price and payable
over no more than five years. The proceeds of any payment shall constitute
general funds of the Company.
5.5 Delivery of Certificate. Promptly after receipt of written
-----------------------
notice of exercise of the ISO, the Company shall, without stock issue or
transfer taxes to the Optionee or other person entitled to exercise, deliver to
the Optionee or other person a certificate or certificates for the requisite
number of ISO Shares. An Optionee or Transferee of an Optionee shall not have
any privileges as a shareholder with respect to any ISO Shares covered by the
option until the date of issuance of a stock certificate.
6. Nonassignability ISO. This ISO is not assignable or transferable by
--------------------
Optionee concept by will or by the laws of descent and distribution. During the
life of Optionee, the ISO is exercisable only by the Optionee. Any attempt to
assign, pledge, transfer, hypothecate or otherwise dispose of this ISO in a
manner not herein permitted, and any levy of execution, attachment, similar
process on this ISO, shall be null and void.
7. Company's Repurchase Rights. The ISO Shares arising from exercise of
---------------------------
this ISO shall be subject to a right of repurchase in favor of the Company (the
"Right of Repurchase") to the extent set forth on Exhibit 7 attached hereto (the
absence of such exhibit indicating that no such exhibit was intended and that
the ISO shall be subject to the limitations set forth on Exhibit 5.1). If the
Optionee's employment with the Company terminates before the Right of Repurchase
lapses in accordance with Exhibit 7, the Company may purchase ISO Shares subject
to the Right of Repurchase (either by payment of cash or by cancellation of
purchase money indebtedness) for an amount equal to the price the Optionee paid
for such ISO Shares (exclusive of any taxes
-2-
<PAGE>
paid upon acquisition of the stock) by giving notice at any time within the
later of (a) 30 days after the acquisition of the ISO Shares upon option
exercise, or (b) 90 days after such termination of employment that the Company
is exercising its right of repurchase. The Company shall include with such
notice payment in full in cash or by evidence of cancellation of purchase money
indebtedness. The Optionee may not dispose of or transfer ISO Shares while such
shares are subject to the Right of Repurchase and any such attempted transfer
shall be null and void.
8. Company's Right of First Refusal.
--------------------------------
8.1 Right of First Refusal. In the event that the Optionee proposes
----------------------
to sell, pledge, or otherwise transfer any ISO Shares or any interest in such
shares to any person or entity, the Company shall have a right of first refusal
(the "Right of First Refusal") with respect to such ISO Shares. If Optionee
desires to transfer ISO Shares, Optionee shall give a written notice (the
"Transfer Notice") to the Company describing fully the proposed transfer,
including the number of ISO Shares proposed to be transferred, the proposed
transfer price, and the name and address of the proposed transferee. The
Transfer Notice shall be signed both by Optionee and by the proposed transferee
and must constitute a binding commitment of both such parties for the transfer
of such ISO Shares. The Company may elect to purchase all but not less than
all, of the ISO Shares subject to the Transfer Notice by delivery of a notice of
exercise of the Company's Right of first Refusal within 30 days after the date
the Transfer Notice is delivered to the Company. The purchase price paid by the
Company shall be the price per share equal to the proposed per share transfer
price, and shall be paid to the Optionee within 60 days after the date the
Transfer Notice is received by the Company, unless a longer period for payment
was offered by the proposed transferee, in which case the Company shall pay the
purchase price within such longer period. The Company's rights under this
Section 8.1 shall be freely assignable, in whole or in part. Notwithstanding
the foregoing, the Right of First Refusal does not apply to a transfer of shares
by gift or devise to the Optionee's immediate family (i.e., parents, spouse or
children or to a trust for the benefit of the Optionee or any of the Optionee s
immediate family members), but does apply to any subsequent transfer of such
shares by such immediate family members.
8.2 Transfer of ISO Shares. If the Company fails to exercise the
----------------------
Right of First Refusal within 30 days after the date the Transfer Notice is
delivered to the Company, the Optionee may, not later than 75 days following
delivery to the Company of the Transfer Notice, conclude a transfer of the ISO
Shares subject to the Transfer Notice on the terms and conditions described in
the Transfer Notice. Any proposed transfer on terms and conditions different
from those described in the Transfer Notice, as well as any subsequent proposed
transfer by the Optionee, shall again be subject to the Right of First Refusal
and shall require compliance by the Optionee with the procedure described in
Section 8.1 of this Agreement. If the Company exercises the Right of First
Refusal, the parties shall consummate the sale of ISO Shares on the terms, other
than price, as applicable under Section 8.1, set forth in the Transfer Notice;
provided, however, in the event the Transfer Notice provides for payment for the
ISO Shares other than in cash, the Company shall have the option of paying for
the ISO Shares by paying in cash the present value of the consideration
described in the Transfer Notice; and further provided that if the value of
noncash consideration is to be paid and the Optionee disagrees with the value
determined by the Company, the Optionee may request an independent appraisal by
an appraiser
-3-
<PAGE>
acceptable to the Optionee and the Company, the costs of such appraisal to be
borne equally by the Optionee and the Company.
8.3 Binding Effect. The Right of First Refusal shall inure to the
--------------
benefit of the successors and assigns of the Company and shall be binding upon
any transferee of ISO Shares other than a transferee acquiring ISO Shares in a
transaction where the Company failed to exercise the Right of First Refusal (a
"Free Transferee") or a transferee of a Free Transferee.
8.4 Termination of Company's Right of first Refusal. Notwithstanding
-----------------------------------------------
anything in this Section 8, the Company shall have no Right of First Refusal,
and Optionee shall have no obligation to comply with the procedures in Sections
8.1 through 8.3 after the earlier of (i) the closing of the Company's initial
public offering to the public generally, or (ii) the date ten (10) years after
the Effective Date.
9. Marker Standoff. Optionee hereby agrees that if so requested by the
---------------
Company or any representative of the underwriters in connection with any
registration of the offering of the securities of the Company under the
Securities Act of 1933, as amended (the "Securities Act"), Optionee shall not
sell or otherwise transfer the ISO Shares for a period of 180 days following the
effective date of a Registration Statement filed under the Securities Act;
provided that such restrictions shall only apply to the first two registration
statements of the Company to become effective under the Securities Act which
include securities to be sold on behalf of the Company in an underwritten public
offering under the Securities Act. The Company may impose stop-transfer
instructions with respect to the ISO Shares subject to the foregoing
restrictions until the end of each such 180-day period.
10. Restriction on Issuance of Shares.
---------------------------------
10.1 Legality of Issuance. The Company shall not be obligated to sell
--------------------
or issue any ISO Shares pursuant to this Agreement if such sale or issuance, in
the opinion of the Company and the Company's counsel, might constitute a
violation by the Company of any provision of law, including without limitation
the provisions of the Securities Act.
10.2 Registration or Qualification of Securities. The Company may,
-------------------------------------------
but shall not be required to, register or qualify the sale of this ISO or any
ISO Shares under the Securities Act or any other applicable law. The Company
shall not be obligated to take any affirmative action in order to cause the
grant or exercise of this option or the issuance or sale of any ISO Shares
pursuant thereto to comply with any law.
11. Restriction on Transfer. Regardless whether the sale of the ISO
-----------------------
Shares has been registered under the Securities Act or has been registered or
qualified under the securities laws of any state, the Company may impose
restrictions upon the sale, pledge, or other transfer of ISO Shares (including
the placement of appropriate legends on stock certificates) if, in the judgment
of the Company and the Company's counsel, such restrictions are necessary or
desirable in order to achieve compliance with the provisions of the Securities
Act, the securities laws of any state, or any other law, or if the Company does
not desire so have a trading market develop for its
-4-
<PAGE>
securities.
12. Stock Certificate. Stock certificates evidencing ISO Shares may bear
-----------------
such restrictive legends as the Company and the Company's counsel deem necessary
or advisable under applicable law or pursuant to this Agreement.
13. Disqualifying Dispositions. If Stock acquired by exercise of this ISO
--------------------------
is disposed of within two years after the Effective Date or within one year
after date of such exercise (as determined under Section 5.3 of this Agreement),
the Optionee immediately prior to the disposition shall promptly notify the
Company in writing of the date and terms of the disposition and shall provide
such other information regarding the disposition as the Company may reasonably
require.
14. Representations, Warranties, Covenants, and Acknowledgments of
--------------------------------------------------------------
Optionee Upon Exercise of ISO. Optionee hereby agrees that in the event that
- -----------------------------
the Company and the Company's counsel deem it necessary or advisable in the
exercise of their discretion, the issuance of ISO Shares may be conditioned upon
certain representations, warranties, and acknowledgments by the person
exercising the ISO (the "Purchaser"), including, without limitation, those set
forth in Sections 14.1 through 14.8 inclusive:
14.1 Investment. Purchaser is acquiring the ISO Shares for
----------
Purchaser's own account, and not for the account of any other person. Purchaser
is acquiring the ISO Shares for investment and not with a view to distribution
or resale thereof except in compliance with applicable laws regulating
securities.
14.2 Business Experience. Purchaser is capable of evaluating the
-------------------
merits and risks of Purchaser's investment in the Company evidenced by purchase
of the ISO Shares.
14.3 Relation to Company. Purchaser is presently an officer,
-------------------
director, or other employee of, or consultant to the Company, and in such
capacity has become personally familiar with the business, affairs, financial
condition, and results of operations of the Company.
14.4 Access to Information. Purchaser has had the opportunity to ask
---------------------
questions of, and to receive answers from, appropriate executive officers of the
Company with respect to the terms and conditions of the transaction contemplated
hereby and with respect to the business, affairs, financial condition, and
results of operations of the Company. Purchaser has had access to such
financial and other information as is necessary in order for Purchaser to make a
fully-informed decision as to investment in the Company by way of purchase of
the ISO Shares, and has had the opportunity to obtain any additional information
necessary to verify any of such information to which Purchaser has had access.
14.5 Speculative Investment. Purchaser's investment in the Company
----------------------
represented by the ISO Shares is highly speculative in nature and is subject to
a high degree of risk of loss in whole or in part. The amount of such
Investment is within Purchaser's risk capital means and is not so great in
relation to Purchaser's total financial resources as would jeopardize
-5-
<PAGE>
the personal financial needs of Purchaser or Purchaser's family in the event
such investment were lost in whole or in part.
14.6 Registration. Purchaser must bear the economic risk of
------------
investment for an indefinite period of time because the sale to Purchaser of the
ISO Shares has not been registered under the Securities Act and the ISO Shares
cannot be transferred by Purchaser unless such transfer is registered under the
Securities Act or an exemption from such registration available. The Company
has made no agreements, covenants, or undertakings whatsoever to register the
transfer of any of the ISO Shares under the Securities Act. The Company has
made no representations, warranties, or covenants whatsoever as to whether any
exemption from the Securities Act, including without limitation any exemption
for limited sales in routine brokers' transactions pursuant to Rule 144, will be
available; if the exemption under Rule 144 is available at all, it may not be
available until at least two years after payment of cash for the ISO Shares and
not then unless: (i) a public trading market then exists in the Company's common
stock: (ii) adequate information as to the Company's financial and other affairs
and operations is then available to the public; and (iii) all other terms and
conditions of Rule 144 have been satisfied. Purchaser understands that the
resale provisions of Rule 701 will not apply until 90 days after the Company
becomes subject to the reporting obligations of the Securities Exchange Act of
1934 (typically 90 days after the effective date of an initial public offering).
14.7 Public Trading. None of the Company's securities is presently
--------------
publicly traded, and the Company has made no representation, covenant, or
agreement as to whether there will be a public market for any of its securities.
14.8 Tax Advice. The Company has made no warranties or
----------
representations to Purchaser with respect to the income tax consequences of the
transactions contemplated by the agreement pursuant to which the ISO Shares will
be purchased and Purchaser is in no manner relying on the Company or its
representatives for an assessment of such tax consequences.
15. Assignment: Binding Effect. Subject to the limitations set forth in
---------------------------
this Agreement, this Agreement shall be binding upon and inure to the benefit of
the executors, administrators, heirs, legal representatives, and successors of
the parties hereto; provided, however, that Optionee may not assign any of
Optionee's rights under this Agreement.
16. Damages. Optionee shall be liable to the Company for all costs and
-------
damages, including incidental and consequential damages, resulting from a
disposition of ISO Shares which is not in conformity with the provisions of this
Agreement.
17. Governing Law. This Agreement shall be governed by, and construed in
-------------
accordance with, the laws of the State of California excluding those laws that
direct the application of the laws of another jurisdiction.
18. Notices. All notices and other communications under this Agreement
-------
shall be in writing. Unless and until the Optionee is notified in writing to
the contrary, all notices, communications, and documents directed to the Company
and related to the Agreement, if not
-6-
<PAGE>
delivered by hand, shall be mailed, addressed as follows:
eBay, Inc.
2005 Hamilton Ave., Suite 270
San Jose, CA 95125
Attention: President
Unless and until the Company is notified in writing to the contrary, all
notices, communications, and documents intended for the Optionee and related to
this Agreement, if not delivered by hand, shall be mailed to Optionee's last
known address as shown on the Company's books. Notices and communications shall
be mailed by first class mail, postage prepaid; documents shall be mailed by
registered mail, return receipt requested, postage prepaid. All mailings and
deliveries related to this Agreement shall be deemed received when actually
received, if by hand delivery, and two business days after mailing, if by mail.
19. Arbitration.
------------
Any and all disputes or controversies arising out of this Agreement
shall be finally settled by arbitration conducted in Santa Clara County in
accordance with the then existing rules of the American Arbitration Association,
and judgment upon the award rendered by the arbitrators may be entered in any
count having jurisdiction thereof; provided that nothing in this Section 19
shall prevent a party from applying to a court of competent jurisdiction to
obtain temporary relief pending resolution of the dispute through arbitration.
The parties hereby agree that service of any notices in the course of such
arbitration at their respective addresses as provided for in Section 18 shall be
valid and sufficient.
20. Entire Agreement.
----------------
Company and Optionee agree that this Agreement (including its attached
Exhibits) is the complete and exclusive statement between Company and Optionee
regarding its subject matter and supersedes all prior proposals, communications,
and agreements of the parties (including Company's letter to Optionee setting
forth the proposed terms of employment), whether oral or written, regarding the
grant of stock options or issuances of shares to Optionee.
IN WITNESS WHEREOF, the parties have executed this Incentive Stock
Option Agreement as of the Effective Date.
eBAY, INC.
By:
Title:
The Optionee hereby accepts and agrees to be bound by all of the terms and
conditions of this Agreement and the Plan.
-7-
<PAGE>
Optionee ___________________
Dated: _____________________
Optionee's spouse indicates by the execution of this Incentive Stock Option
Agreement his or her consent to be bound by the terms thereof as to his or her
interests, whether as community property or otherwise, if any, in the option
granted hereunder, and in any ISO Shares purchased pursuant to this Agreement.
____________________________
Optionee's Spouse
-8-
<PAGE>
EXHIBITS
- --------
Exhibit 1 Stock Option Plan
Exhibit 3 Expiration of Incentive Stock Option
(if applicable)
Exhibit 5.1
(Standard Vesting) Time of Exercise
Exhibit 5.3 Stock Option Plan Stock Purchase Agreement
<PAGE>
EXHIBIT 5.1 OF THE INCENTIVE STOCK
OPTION AGREEMENT
The ISO shall be exercisable with respect to all of the ISO Shares
from and after the Effective Date subject to the Right of Repurchase set forth
in Exhibit 7.
Initialed by: eBay, Inc.
By: ___________________________
Title: ________________________
Optionee: _____________________
<PAGE>
EXHIBIT 7 OF THE INCENTIVE STOCK
OPTION AGREEMENT
All of the ISO Shares are subject to the Right of Repurchase. The
Right of Repurchase shall expire with respect to twenty-five percent (25%) of
the total number of ISO Shares twelve months after the Vesting Base Date, and
thereafter, with respect to an additional 1/48 of the ISO Shares on the first
day of each month after the twelve month anniversary of the Vesting Base Date,
so that the Right of Repurchase shall have expired with respect to all of the
ISO Shares on and after January 2, 2001.
Executed by: eBay, Inc.
By: _________________________
Title: ______________________
Optionee: ___________________
<PAGE>
Exhibit D-4
1996 Stock Option Plan Form of Stock Option Exercise Agreement
<PAGE>
eBAY, INC.
STOCK OPTION PLAN
STOCK PURCHASE AGREEMENT
------------------------
(A) Name of Purchaser: _____________________
(B) Number of Plan Shares:__________________
(C) Exercise Price:_________________________
(D) Purchase Price:_________________________
(E) Date of Option Agreement:_______________
(F) Effective Date:_________________________
THIS STOCK PURCHASE AGREEMENT (the "Agreement") is made and entered
into as of the date set forth in Item F above (the "Effective Date") between
eBay, Inc., a California corporation (the "Company"), and the person named in
Item A above (the "Purchaser").
THE PARTIES AGREE AS FOLLOWS:
1. Purchase of Shares. Pursuant to the Company's Stock Option Plan (the
------------------
"Plan") and to a stock option agreement ("Option Agreement") between the parties
dated the date set forth in Item E above, the Company hereby sells to Purchaser,
and Purchaser hereby buys from the Company, that number of shares (the "Plan
Shares") of the Company's Common Stock (as defined in the Plan) set forth in
Item B above on the terms and conditions set forth herein and in the Plan and
the Option Agreement, the terms and conditions of the Plan and the Option
Agreement being hereby incorporated into this Agreement by reference.
2. Purchase Price. Purchaser shall purchase the Plan Shares from the
--------------
Company, and the Company shall sell the Plan Shares to Purchaser, at a price per
share as set forth in Item C above (the "Exercise Price"), for a total purchase
price as set forth in Item D above (the "Purchase Price").
3. Manner of Payment. Purchase shall pay the Purchase Price of the Plan
-----------------
Shares by delivery of cash, check, previously owned shares of Common Stock
(provided that delivery of previously owned shares may not be made more than
once in any six-month period), or a full recourse promissory note equal to up to
90% of the Purchase Price and payable over no more than five years (or in the
manner set forth in Exhibit 5.4 to the Option Agreement evidencing the option,
the absence of any Exhibit 5.4 indicating that no such exhibit was intended).
EXHIBIT 5.3 to
INCENTIVE STOCK OPTION AGREEMENT
4. Company's Right of Repurchase Upon Termination of Employment. The
------------------------------------------------------------
Plan Shares are subject to a right of repurchase in favor of the Company (the
"Right of Repurchase") to the extent set forth on Exhibit 7 of the Option
Agreement (the absence of Exhibit 7 in the
<PAGE>
Option Agreement indicating that no such exhibit was intended). If the
Purchaser's employment, consulting or service as a director with the Company
terminates before the Right of Repurchase lapses in accordance with Exhibit 7 of
the Option Agreement, the Company may purchase stock subject to the Right of
Repurchase (either by payment of cash or by cancellation of purchase money
indebtedness) for an amount equal to the price the Optionee paid for such Plan
Shares (exclusive of any taxes paid upon acquisition of the stock) by giving
notice at any time within the later of (a) 30 days after the acquisition of the
Plan Shares upon option exercise, or (b) 90 days after such termination of
employment that the Company is exercising its right of repurchase. The Company
shall include with such notice payment in full in cash or by evidence of
cancellation of purchase money indebtedness. The Purchaser may not dispose of or
transfer Plan Shares while such shares are subject to the Right of Repurchase
and any such attempted transfer shall be null and void.
5. Company's Right of First Refusal Respecting Plan Shares.
-------------------------------------------------------
5.1 Right of First Refusal. In the event that Purchaser proposes to
----------------------
sell, pledge, or otherwise transfer any Plan Shares or any interest in such
shares to a bona-fide third party offeror, the Company shall have a right of
first refusal (the "Right of First Refusal") with respect to such Plan Shares.
If Purchaser desires to transfer Plan Shares, Purchaser shall give a written
notice (the "Transfer Notices") to the Company describing fully the proposed
transfer, including the number of Plan Shares proposed to be transferred, the
proposed transfer price, and the name and address of the bona-fide third party
offeror. The Transfer Notice shall be signed both by Purchaser and by the bona-
fide third party offeror and must constitute a binding commitment of both such
parties for the transfer of such Plan Shares. The Company may elect to purchase
the Plan Shares subject to the Transfer Notice by delivery of a notice of
exercise of the Company's Right of First Refusal within 30 days after the date
the Transfer Notice is delivered to the Company. The purchase price paid by the
Company shall be the price per share equal to the proposed per share transfer
price, and shall be paid to the Purchaser within 60 days after the date the
Transfer Notice is received by the Company, unless a longer period for payment
was offered by the bona-fide third party offeror, in which case the Company
shall pay the purchase price within such longer period. The Company's rights
under this Section 5.1 shall be freely assignable, in whole or in part.
Notwithstanding the foregoing, the Right of First Refusal does not apply to a
transfer of Plan Shares by gift or devise to the Purchaser's immediate family
(i.e., parents, spouse or children or to a trust for the benefit of the
Purchaser or any of the Purchaser's immediate family members), but does apply to
any subsequent transfer of such Plan Shares by such immediate family members.
5.2 Transfer of Plan Shares. If the Company fails to exercise the
-----------------------
Right of First Refusal within 30 days after the date the Transfer Notice is
delivered to the Company, Purchaser may, not later than 75 days following
delivery to the Company of the Transfer Notice, conclude a transfer of the Plan
Shares subject to the Transfer Notice on the terms and conditions described in
the Transfer Notice. Any proposed transfer on terms and conditions different
from those described in the Transfer Notice, as well as any subsequent proposed
transfer by Purchaser, shall again be subject to the Company's Right of First
Refusal and shall require compliance by Purchaser with the procedure described
in Section 5.1 of this Agreement. If the Company
2
<PAGE>
exercises the Right of First Refusal, the parties shall consummate the sale of
Plan Shares on the terms, other than price, as applicable under Section 5.1, set
forth in the Transfer Notice, subject; provided, however, in the event the
Transfer Notice provides for payment for the Plan Shares other than in cash, the
Company shall have the option of paying for the Plan Shares by paying in cash
the present value of the consideration described in the Transfer Notice; and
further provided that if the value of noncash consideration is to be paid, and
the Optionee disagrees with the value determined by the Company, the Optionee
may request an independent appraisal by an appraiser acceptable to the Optionee
and the Company, the costs of such appraisal to be borne equally by the Optionee
and the Company. If, at the time of exercise of the right of first refusal, any
notes are outstanding which represent any portion of the Purchase Price of the
Plan Shares, the repurchase price shall be paid first by cancellation of any
obligation for accrued but unpaid interest under such notes, next by
cancellation of principal under such notes, and finally by payment of cash.
5.3 Binding Effect of Right of First Refusal. The Company's Right of
----------------------------------------
First Refusal shall inure to the benefit of the successors and assigns of the
Company and shall be binding upon any transferee of Plan Shares other than a
transferee acquiring Plan Shares in a transaction where the Company failed to
exercise the Right of First Refusal (a "Free Transferee") or a transferee of a
Free Transferee.
5.4 Termination of Company's Rift of First Refusal. Notwithstanding
----------------------------------------------
anything in this Section 5, the Company shall have no Right of First Refusal,
and Purchaser shall have no obligation to comply with the procedures in Sections
5.1 through 5.3, after the earlier of (a) the closing of the Company's initial
registered public offering to the public generally, or (b) the date ten (10)
years after the Effective Date of the Option Agreement.
6. Stock Certificate Restrictive Legends. Stock certificates evidencing
-------------------------------------
Plan Shares may bear such restrictive legends as the Company and the Company's
counsel deem necessary or advisable under applicable law or pursuant to this
Agreement.
7. Representations, Warranties, Covenants, and Acknowledgments of
--------------------------------------------------------------
Purchaser. Purchaser hereby represents, warrants, covenants, acknowledges, and
- ---------
agrees that:
7.1 Investment. Purchaser is acquiring the Plan Shares for
----------
Purchaser's own account, and not for the account of any other person. Purchaser
is acquiring the Plan Shares for investment and not with a view to distribution
or resale thereof except in compliance with applicable laws regulating
securities.
7.2 Business Experience. Purchaser is capable of evaluating the
-------------------
merits and risks of Purchaser's investment in the Company evidenced by the
purchase of the Plan Shares.
7.3 Relation of Company. Purchaser is presently an officer,
----------------------
director, or employee of, or consultant to, the Company and in such capacity has
become personally familiar with the business, affairs, financial condition, and
results of operations of the Company.
3
<PAGE>
7.4 Access to Information. Purchaser has had the opportunity to ask
---------------------
questions of, and to receive answers from, appropriate executive officers of the
Company with respect to the terms and conditions of the transactions
contemplated hereby and with respect to the business, affairs, financial
condition, and results of operations of the Company. Purchaser has had access to
such financial and other information as is necessary in order for Purchaser to
make a fully-informed decision as to investment in the Company by way of
purchase of the Plan Shares, and has had the opportunity to obtain any
additional information necessary to verify any of such information to which
Purchaser has had access. Purchaser acknowledges that all financial information
concerning the Company that has been or will be provided to Purchaser is
Confidential Information within the meaning of the Employee Confidential
Information and Inventions Agreement between Purchaser and the Company and is
subject to the obligation of confidentiality and other restrictions and
limitations set forth therein.
7.5 Speculative Investment. Purchaser's investment in the Company
----------------------
represented by the Plan Shares is highly speculative in nature and is subject to
a high degree of risk of loss in whole or in part. The amount of such
investment is within Purchaser's risk capital means and is not so great in
relation to Purchaser's total financial resources as would jeopardize the
personal financial needs of Purchaser or Purchaser's family in the event such
investment were lost in whole or in part.
7.6 Registration. Purchaser may bear the economic risk of investment
------------
for an indefinite period of time because the sale to Purchaser of the Plan
Shares has not been registered under the Securities Act of 1933, as amended (the
"Securities Act"), and the Plan Shares cannot be transferred by Purchaser unless
such transfer is registered under the Securities Act or an exemption from such
registration is available. The Company has made no agreements, covenants or
undertakings whatsoever to register the transfer of any of the Shares under the
Securities Act. The Company has made no representations, warranties, or
covenants whatsoever as to whether any exemption from the Securities Act,
including without limitation any exemption for limited sales in routine brokers'
transactions pursuant to Rule 144, will be available; if the exemption under
Rule 144 is available at all, it will not be available until at least two years
after payment of cash for the Plan Shares and not then unless: (a) a public
trading market then exists in the Company's common stock; (b) adequate
information as to the Company's financial and other affairs and operations is
then available to the public; and (c) all other terms and conditions of Rule 144
have been satisfied. Purchaser understands that the resale provisions of Rule
701 will not apply until 90 days after the Company becomes subject to the
reporting obligations of the Securities Exchange Act of 1934 (typically upon the
effective date of an initial public offering).
7.7 Public Trading. None of the Company's securities is presently
---------------
publicly traded, and the Company has made no representation, covenant, or
agreement as to whether there will be a public market for any of its securities.
7.8 Tax Advice. The Company has made no warranties or
----------
representations to Purchaser with respect to the income tax consequences of the
transactions contemplated by this Agreement and Purchaser is in no manner
relying on the Company or its representatives for an assessment of such tax
consequences. If the Plan Shares are subject to a Right of Repurchase
4
<PAGE>
favor of the Company or if Purchaser could be subject to suit under Section
16(b) of the Securities Exchange Act of 1934 with respect to the purchase and
sale of Plan Shares, Purchaser shall execute and deliver to the Company a copy
of the Acknowledgment and Statement of Decision Regarding Election Pursuant to
Section 83(b) of the Internal Revenue Code (the "Acknowledgment") attached
hereto as Exhibit 7A and a copy of the Election Pursuant to Section 83(b) of the
Code, attached hereto as Exhibit 7B, if Purchaser has indicated in the
Acknowledgment his or her decision to make such an election. Purchaser will
consult with his or her tax advisor to determine if there is a comparable
election to file in the state of his or her residence and whether such filing is
desirable under the circumstances.
8. Binding Effect. Subject to the limitations set forth in this
--------------
Agreement, this Agreement shall be binding upon, and inure to the benefit of,
the executors, administrators, heirs, legal representatives, successors, and
assigns of the parties hereto.
9. Damages. Purchaser shall be liable to the Company for all costs and
-------
damages, including incidental and consequential damages, resulting from a
disposition of Plan Shares which is not in conformity with the provisions of
this Agreement.
10. Disqualifying Dispositions of ISO Stock. If stock acquired by
---------------------------------------
exercise of an ISO (as defined in Section 1 of the Plan) is disposed of within
two years after the Effective Date (as defined in the Option Agreement) or
within one year after such exercise, Purchaser immediately prior to the
disposition shall promptly notify the Company in writing of the date and terms
of the disposition and shall provide such other information regarding the
disposition as the Company may reasonably require.
11. Governing Law. This Agreement shall be governed by, and construed in
-------------
accordance with, the laws of the State of California excluding those laws that
direct the application of the laws of another jurisdiction.
12. Notices. All notices and other communications under this Agreement
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shall be in writing. Unless and until Purchaser is notified in writing to the
contrary, all notices, communications, and documents directed to the Company and
related to the Agreement, if not delivered by hand, shall be mailed, addressed
as follows:
eBay, Inc.
2005 Hamilton Ave., Suite 270
San Jose, CA 95125
Attention: President
Unless and until the Company is notified in writing to the contrary, all
notices, communications, and documents intended for Purchaser and related to
this Agreement, if not delivered by hand, shall be mailed to Purchaser's last
known address as shown on the Company's books. Notices and communications shall
be mailed by first class mail, postage prepaid; documents shall be mailed by
registered mail, return receipt requested, postage prepaid. All mailings and
deliveries related to this Agreement shall be deemed received when actually
received, if by hand delivery,
5
<PAGE>
and two business days after mailing, if by mail.
13. Arbitration.
------------
Any and all disputes or controversies arising out of this Agreement shall
be finally settled by arbitration conducted in Santa Clara County in accordance
with the then existing rules of the American Arbitration Association, and
judgment upon the award rendered by the arbitrators may be entered in any court
having jurisdiction thereof; provided that nothing in this Section 13 shall
prevent a party from applying to a court of competent jurisdiction to obtain
temporary relief pending resolution of the dispute through arbitration. The
parties hereby agree that service of any notices in the course of such
arbitration at their respective addresses as provided for in Section 18 shall be
valid and sufficient.
IN WITNESS WHEREOF, the parties hereto have executed this Stock
Purchase Agreement as of the day and year first above written.
eBAY, INC.
By:________________________________
Title:_____________________________
Purchaser hereby accepts and agrees to be bound by all of the terms
and conditions of this Agreement and the Plan.
Purchaser:_________________________
Purchaser's spouse indicates by the execution of this Agreement his or
her consent to be bound by the terms herein as to his or her interests, whether
as community property or otherwise, if any, in the Plan Shares hereby purchased.
Purchaser's Spouse:________________
6
<PAGE>
Exhibits
- --------
Exhibit 7A Acknowledgment Regarding Election
Pursuant to Section 83(b)
Exhibit 7B Section 83(b) Election
7
<PAGE>
ACKNOWLEDGMENT AND STATEMENT
OF DECISION REGARDING ELECTION
PURSUANT TO Section 83(b) OF
THE INTERNAL REVENUE CODE
-------------------------
The undersigned (which term includes the undersigned's spouse), a purchaser
of ________ shares of Common Stock of eBay, Inc., a California corporation (the
"Company") and a party to a Stock Option Plan Stock Purchase Agreement with the
Company (the "Agreement"), hereby states as follows:
1. The undersigned acknowledges receipt of a copy of the Agreement. The
undersigned has carefully reviewed the Agreement.
2. The undersigned either [check as applicable]:
__ (a) has consulted, and has been fully advised by, the
undersigned's own tax advisor, ___________, whose business
address is _________________, regarding the federal, state,
and local tax consequences of purchasing shares under the
Agreement, and particularly regarding the advisability of
making elections pursuant to Section 83(b) of the Internal
Revenue Code of 1986, as amended, (the "Code"), and pursuant
to the corresponding provisions, if any, of applicable state
laws; or
__ (b) has knowingly chosen not to consult such a tax advisor.
3. The undersigned hereby states that the undersigned has decided [check
as applicable]:
__ (a) to make an election pursuant to Section 83(b) of the Code
(which in the case of shares acquired pursuant to the
exercise of an incentive stock option, is effective for the
purposes described therein) and is submitting to the
Company, together with the undersigned's executed Agreement,
an executed form which is attached as Exhibit_ to the
Agreement; or
__ (b) not to make an election pursuant to Section 83(b) of the
Code.
EXHIBIT 7A
4. Neither the Company nor any subsidiary or representative of the
Company has made any warranty or representation to the undersigned with respect
to the tax consequences of the undersigned's purchase of shares and execution of
the Agreement in connection therewith or of the making or failure to make an
election pursuant to Section 83(b) of the Code or the corresponding provisions,
if any, of applicable state law.
8
<PAGE>
5. The undersigned is also submitting to the Company, together with the
Agreement, an executed original of an election, if any is made, of the
undersigned pursuant to provisions of state law corresponding to Section 83(b)
of the Code, if any, which are applicable to the undersigned's purchase of
shares under the Agreement.
Date: ________________ _____________________
Date: ________________ _____________________
[Spouse]
9
<PAGE>
ELECTION PURSUANT TO SECTION 83(b) OF THE
INTERNAL REVENUE CODE OF 1986, AS AMENDED
-----------------------------------------
(for use in connection with ISO exercise)
The undersigned hereby elects pursuant to Section 83(b) of the
Internal Revenue Code of 1986, as amended (the "Code") to include in the
undersigned's gross income, with the effect and under the circumstances
described in paragraph 3 below, for the 199_ taxable year the excess (if any) of
(a) the fair market value of the property described below, over (b) the amount
the undersigned paid for such property. The undersigned supplies herewith the
following information in accordance with the Treasury regulations promulgated
under Section 83(b):
1. The undersigned's name, address, and taxpayer identification
(social security) number are:
Name: ____________________________________________________________
Address: _________________________________________________________
__________________________________________________________________
Social Security No.: _____________________________________________
2. The property with respect to which the election is made consists of
common shares of eBay, Inc., a California corporation (the "Company").
3. The property described above was acquired by the undersigned on
______,199_, pursuant to the undersigned's exercise of an incentive stock
option. This filing is therefore made for determing the amount of the
undersigned's adjustment under Section 56(b)(3) of the Code with respect to the
undersigned's purchase of the property. This filing will be effective for
regular income tax purposes in the event that the undersigned makes a
disposition (as defined in Section 424(c) of the Code) of the property within
either period described in Section 422(a)(1) of the Code. The taxable year to
which this election relates is 199_.
4. The above property is subject to a right of repurchase by the Company
at the initial purchase price if the undersigned ceases to be an employee of, or
a consultant to, the Company or an affiliate of the Company.
EXHIBIT 7B
5. The fair market value of the above property at the time of transfer
(determined without regard to any restrictions other than those which by their
terms will never lapse) is $_____ per share.
6. The amount paid for the above property by the undersigned was $______
per share.
10
<PAGE>
7. A copy of this election has been furnished to the Company, and a copy
will be filed with the income tax return to the undersigned to which this
election relates.
Dated:______________, 199_
__________________________
(Signature of Purchaser)
11
<PAGE>
ELECTION PURSUANT TO SECTION 83(b) OF THE
INTERNAL REVENUE CODE TO INCLUDE IN GROSS INCOME
THE EXCESS OVER THE PURCHASE PRICE, IF ANY,
OF THE VALUE OF PROPERTY TRANSFERRED
IN CONNECTION WITH SERVICES
---------------------------------
The undersigned hereby elects pursuant to Section 83(b) of the
Internal, Revenue Code of 1986, as amended, to include in the undersigned's
gross income for the 199_ taxable year the excess if any) of the fair market
value of the property described below, over the amount the undersigned paid for
such property, and supplies herewith the following information in accordance
with the Treasury regulations promulgated under Section 83(b):
1. The undersigned's name, address and taxpayer identification (social
security) number are:
Name: ____________________________________
Address: ____________________________________
_____________________________________________
Social Security #: __________________________
2. The property with respect to which the election is made consists of
_______ common shares of eBay, Inc., a California corporation (the "Company").
3. The date on which the above property was transferred to the
undersigned was _________, 199_, and the taxable year to which this election
relates is 199_.
4. The above property is subject to a right of repurchase by the Company
at the initial purchase price, if the undersigned ceases to be an employee of,
or a consultant to, the Company or an affiliate of the Company.
5. The fair market value of the above property at the time of transfer
(determined without regard to any restrictions other than those which by their
terms will never lapse) is $___ per share.
6. The amount paid for the above property by the undersigned was $___ per
share.
EXHIBIT 7B
12
<PAGE>
7. A copy of this election has been furnished to the Company, and a copy
will be filed with the income tax return of the undersigned to which this
election relates.
Dated:_______, 199_ _________________________
[NAME]
13
<PAGE>
EXHIBIT 10.03
eBAY, INC.
1997 STOCK OPTION PLAN
AS ADOPTED JUNE 20, 1997
(AS AMENDED DECEMBER 3, 1997)
1. PURPOSE. The purpose of this Plan is to provide incentives to
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attract, retain and motivate eligible persons whose present and potential
contributions are important to the success of the Company, its Parent and
Subsidiaries, by offering them an opportunity to participate in the Company's
future performance through awards of Options. Capitalized terms not defined in
the text are defined in Section 21 hereof. This Plan is intended to be a written
compensatory benefit plan within the meaning of Rule 701 promulgated under the
Securities Act.
2. SHARES SUBJECT TO THE PLAN.
--------------------------
2.1 Number of Shares Available. Subject to Sections 2.2 and 16
--------------------------
hereof, the total number of Shares reserved and available for grant and issuance
pursuant to this Plan will be Two Million One Hundred Ninety-Eight Shares or
such lesser number of Shares as permitted under Section 260.140.45 of Title 10
of the California Code of Regulations. Subject to Sections 2.2 and 16 hereof,
Shares that are subject to issuance upon exercise of an Option but cease to be
subject to such Option for any reason other than exercise of such Option will be
available for grant and issuance in connection with future Options under this
Plan. At all times the Company will reserve and keep available a sufficient
number of Shares as will be required to satisfy the requirements of all
outstanding Options granted under this Plan.
2.2 Adjustment of Shares. In the event that the number of
--------------------
outstanding shares of the Company's Common Stock is changed by a stock dividend,
recapitalization, stock split, reverse stock split, subdivision, combination,
reclassification or similar change in the capital structure of the Company
without consideration, then (a) the number of Shares reserved for issuance under
this Plan and (b) the Exercise Prices of and number of Shares subject to
outstanding Options, will be proportionately adjusted, subject to any required
action by the Board or the shareholders of the Company and compliance with
applicable securities laws; provided, however, that fractions of a Share will
not be issued but will either be paid in cash at the Fair Market Value of such
fraction of a Share or will be rounded down to the nearest whole Share, as
determined by the Committee in its discretion.
3. ELIGIBILITY. ISOs (as defined in Section 5 hereof) may be granted
-----------
only to employees (including officers and directors who are also
employees) of the Company or of a Parent or Subsidiary of the Company.
NQSOs (as defined in Section 5 hereof) may be granted to employees,
officers, directors and consultants of the Company or of any Parent or
Subsidiary of the Company; provided such consultants render bona fide
services not in connection with the offer and sale of securities in a
capital-raising transaction. A person may be granted more than one
Option under this Plan.
4. ADMINISTRATION.
--------------
4.1 Committee Authority. This Plan will be administered by the
-------------------
Committee or the Board acting as the Committee. Subject to the general
purposes, terms and conditions of this Plan, and to the direction of the Board,
the Committee has full power to implement and carry out this Plan. Without
limitation, the Committee has the authority to:
(a) construe and interpret this Plan, any Stock Option Agreement or
Exercise Agreement (each as defined in Section 5 hereof) and any
other agreement or document executed pursuant to this Plan;
(b) prescribe, amend and rescind rules and regulations relating to
this Plan;
<PAGE>
(c) select persons to receive Options;
(d) determine the form and terms of Options;
(e) determine the number of Shares or other consideration subject to
Options;
(f) determine whether Options will be granted singly, in combination
with, in tandem with, in replacement of, or as alternatives to,
any Options granted under this Plan or any awards under any other
incentive or compensation plan of the Company or any Parent or
Subsidiary of the Company;
(g) grant waivers of Plan or Option conditions;
(h) determine the vesting and exercisability of Options;
(i) correct any defect, supply any omission, or reconcile any
inconsistency in this Plan, any Option or any Stock Option
Agreement or Exercise Agreement (each as defined in Section 5
hereof);
(j) determine whether an Option has been earned; and
(k) make all other determinations necessary or advisable for the
administration of this Plan.
4.2 Committee Discretion. Any determination made by the Committee
--------------------
with respect to any Option will be made in its sole discretion at the time of
grant of the Option or, unless in contravention of any express term of this Plan
or Option, and subject to Section 5.9 hereof, at any later time, and such
determination will be final and binding on the Company and on all persons having
an interest in any Option under this Plan. The Committee may delegate to one or
more officers of the Company the authority to grant Options under this Plan.
5. OPTIONS. The Committee may grant Options to eligible persons and will
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determine whether such Options will be Incentive Stock Options within the
meaning of the Code ("ISOs") or Nonqualified Stock Options ("NQSOs"), the number
of Shares subject to the Option, the Exercise Price of the Option, the period
during which the Option may be exercised, and all other terms and conditions of
the Option, subject to the following:
5.1 Form of Option Grant. Each Option granted under this Plan will
--------------------
be evidenced by an Agreement which will expressly identify the Option as an ISO
or an NQSO ("STOCK OPTION AGREEMENT"), and will be in such form and contain such
provisions (which need not be the same for each Participant) as the Committee
may from time to time approve, and which will comply with and be subject to the
terms and conditions of this Plan.
5.2 Date of Grant. The date of grant of an Option will be the date
-------------
on which the Committee makes the determination to grant such Option, unless
otherwise specified by the Committee. The Stock Option Agreement and a copy of
this Plan will be delivered to the Participant within a reasonable time after
the granting of the Option.
5.3 Exercise Period. Options may be exercisable immediately (subject
---------------
to repurchase pursuant to Section 10 hereof) or may be exercisable within the
times or upon the events determined by the Committee as set forth in the Stock
Option Agreement governing such Option; provided, however, that no Option will
be exercisable after the expiration of ten (10) years from the date the Option
is granted; and provided further that no ISO granted to a person who directly or
by attribution owns more than ten percent (10%) of the total combined voting
power of all classes of stock of the Company or of any Parent or Subsidiary of
the Company ("TEN PERCENT SHAREHOLDER") will be exercisable after the expiration
of five (5) years from the date the ISO is granted. The Committee may provide
for Options to become exercisable at one time or from time to time, periodically
or otherwise, in such number of Shares or percentage of Shares as the Committee
determines. Subject to earlier termination of the Option as provided herein,
each Participant who is not an officer, director or consultant of the
2
<PAGE>
Company or of a Parent or Subsidiary of the Company shall have the right to
exercise an Option granted hereunder at the rate of at least twenty percent
(20%) per year over five (5) years from the date such Option is granted.
5.4 Exercise Price. The Exercise Price of an Option will be
--------------
determined by the Committee when the Option is granted and may not be less than
eighty five percent (85%) of the Fair Market Value of the Shares on the date of
grant; provided that (a) the Exercise Price of an ISO will not be less than one
hundred percent (100%) of the Fair Market Value of the Shares on the date of
grant and (b) the Exercise Price of any Option granted to a Ten Percent
Shareholder will not be less than one hundred ten percent (110%) of the Fair
Market Value of the Shares on the date of grant. Payment for the Shares
purchased must be made in accordance with Section 6 hereof.
5.5 Method of Exercise. Options may be exercised only by delivery to
------------------
the Company of a written stock option exercise agreement (the "EXERCISE
AGREEMENT") in a form approved by the Committee (which need not be the same for
each Participant), stating the number of Shares being purchased, the
restrictions imposed on the Shares purchased under such Exercise Agreement, if
any, and such representations and agreements regarding Participant's investment
intent and access to information and other matters, if any, as may be required
or desirable by the Company to comply with applicable securities laws, together
with payment in full of the Exercise Price, and any applicable taxes, for the
number of Shares being purchased.
5.6 Termination. Subject to earlier termination pursuant to Sections
-----------
16 or 17 hereof and notwithstanding the exercise periods set forth in the Stock
Option Agreement, exercise of an Option will always be subject to the following:
(a) If the Participant is Terminated for any reason except death,
Disability or Cause, then the Participant may exercise such
Participant's Options, only to the extent that such Options are
exercisable on the Termination Date and such Options must be
exercised by the Participant, if at all, as to all or some of the
Vested Shares calculated as of the Termination Date, within three
(3) months after the Termination Date (or within such shorter
time period, not less than thirty (30) days after the Termination
Date, or such longer time period not exceeding five (5) years
after the Termination Date as may be determined by the Committee,
with any exercise after three (3) months after the Termination
Date deemed to be an NQSO), but in any event, no later than the
expiration date of the Options.
(b) If the Participant is Terminated because of Participant's death
or Disability (or the Participant dies within three (3) months
after Participant's Termination other than for Cause), then
Participant's Options may be exercised, only to the extent that
such Options are exercisable by Participant on the Termination
Date and must be exercised by Participant (or Participant's legal
representative or authorized assignee), if at all, as to all or
some of the Vested Shares calculated as of the Termination Date,
within twelve (12) months after the Termination Date (or within
such shorter time period, not less than six (6) months after the
Termination Date, or such longer time period not exceeding five
(5) years after the Termination Date as may be determined by the
Committee, with any exercise after (i) three (3) months after the
Termination Date when the Termination is for any reason other
than the Participant's death or disability, within the meaning of
Code Section 22(e)(3), or (ii) twelve (12) months after the
Termination Date when the Termination is because of Participant's
disability, within the meaning of Code Section 22(e)(3), deemed
to be an NQSO), but in any event no later than the expiration
date of the Options.
(c) If the Participant is terminated for Cause, then Participant's
Options shall expire on such Participant's Termination Date, or
at such later time and on such conditions as are determined by
the Committee.
3
<PAGE>
5.7 Limitations on Exercise. The Committee may specify a reasonable
-----------------------
minimum number of Shares that may be purchased on exercise of an Option,
provided that such minimum number will not prevent Participant from exercising
the Option for the full number of Shares for which it is then exercisable.
5.8 Limitations on ISOs. The aggregate Fair Market Value
-------------------
(determined as of the date of grant) of Shares with respect to which ISOs are
exercisable for the first time by a Participant during any calendar year (under
this Plan or under any other incentive stock option plan of the Company or any
Parent or Subsidiary of the Company) will not exceed $100,000. If the Fair
Market Value of Shares on the date of grant with respect to which ISOs are
exercisable for the first time by a Participant during any calendar year exceeds
$100,000, then the Options for the first $100,000 worth of Shares to become
exercisable in such calendar year will be ISOs and the Options for the amount in
excess of $100,000 that become exercisable in that calendar year will be NQSOs.
In the event that the Code or the regulations promulgated thereunder are amended
after the Effective Date (as defined in Section 17 hereof) to provide for a
different limit on the Fair Market Value of Shares permitted to be subject to
ISOs, then such different limit will be automatically incorporated herein and
will apply to any Options granted after the effective date of such amendment.
5.9 Modification, Extension or Renewal. The Committee may modify,
----------------------------------
extend or renew outstanding Options and authorize the grant of new Options in
substitution therefor, provided that any such action may not, without the
written consent of a Participant, impair any of such Participant's rights under
any Option previously granted. Any outstanding ISO that is modified, extended,
renewed or otherwise altered will be treated in accordance with Section 424(h)
of the Code. Subject to Section 5.10 hereof, the Committee may reduce the
Exercise Price of outstanding Options without the consent of Participants
affected by a written notice to them; provided, however, that the Exercise Price
may not be reduced below the minimum Exercise Price that would be permitted
under Section 5.4 hereof for Options granted on the date the action is taken to
reduce the Exercise Price.
5.10 No Disqualification. Notwithstanding any other provision in
-------------------
this Plan, no term of this Plan relating to ISOs will be interpreted, amended or
altered, nor will any discretion or authority granted under this Plan be
exercised, so as to disqualify this Plan under Section 422 of the Code or,
without the consent of the Participant affected, to disqualify any ISO under
Section 422 of the Code.
6. PAYMENT FOR SHARE PURCHASES.
---------------------------
6.1 Payment. Payment for Shares purchased pursuant to this Plan may
-------
be made in cash (by check) or, where expressly approved for the Participant by
the Committee and where permitted by law:
(a) by cancellation of indebtedness of the Company to the
Participant;
(b) by surrender of shares that: (i) either (A) have been owned by
the Participant for more than six (6) months and have been paid
for within the meaning of SEC Rule 144 (and, if such shares were
purchased from the Company by use of a promissory note, such note
has been fully paid with respect to such shares) or (B) were
obtained by the Participant in the public market and (ii) are
clear of all liens, claims, encumbrances or security interests;
(c) by tender of a full recourse promissory note having such terms as
may be approved by the Committee and bearing interest at a rate
sufficient to avoid imputation of income under Sections 483 and
1274 of the Code; provided, however, that Participants who are
not employees or directors of the Company will not be entitled to
purchase Shares with a promissory note unless the note is
adequately secured by collateral other than the Shares.
(d) by waiver of compensation due or accrued to the Participant for
services rendered;
(e) provided that a public market for the Company's stock exists:
4
<PAGE>
(1) through a "same day sale" commitment from the Participant
and a broker-dealer that is a member of the National
Association of Securities Dealers (an "NASD DEALER") whereby
the Participant irrevocably elects to exercise the Option
and to sell a portion of the Shares so purchased to pay for
the Exercise Price, and whereby the NASD Dealer irrevocably
commits upon receipt of such Shares to forward the Exercise
Price directly to the Company; or
(2) through a "margin" commitment from the Participant and an
NASD Dealer whereby the Participant irrevocably elects to
exercise the Option and to pledge the Shares so purchased to
the NASD Dealer in a margin account as security for a loan
from the NASD Dealer in the amount of the Exercise Price,
and whereby the NASD Dealer irrevocably commits upon receipt
of such Shares to forward the Exercise Price directly to the
Company; or
(f) by any combination of the foregoing.
6.2 Loan Guarantees. The Committee may help the Participant pay for
---------------
Shares purchased under this Plan by authorizing a guarantee by the Company of a
third-party loan to the Participant.
7. WITHHOLDING TAXES.
-----------------
7.1 Withholding Generally. Whenever Shares are to be issued in
---------------------
satisfaction of Options granted under this Plan, the Company may require the
Participant to remit to the Company an amount sufficient to satisfy federal,
state and local withholding tax requirements prior to the delivery of any
certificate or certificates for such Shares. Whenever, under this Plan,
payments in satisfaction of Options are to be made in cash, such payment will be
net of an amount sufficient to satisfy federal, state, and local withholding tax
requirements.
7.2 Stock Withholding. When, under applicable tax laws, the
-----------------
Participant incurs tax liability in connection with the exercise or vesting of
any Option that is subject to tax withholding and the Participant is obligated
to pay the Company the amount required to be withheld, the Committee may in its
sole discretion allow the Participant to satisfy the minimum withholding tax
obligation by electing to have the Company withhold from the Shares to be issued
that number of Shares having a Fair Market Value equal to the minimum amount
required to be withheld, determined on the date that the amount of tax to be
withheld is to be determined. All elections by a Participant to have Shares
withheld for this purpose will be made in accordance with the requirements
established by the Committee and be in writing in a form acceptable to the
Committee.
8. PRIVILEGES OF STOCK OWNERSHIP.
-----------------------------
8.1 Voting and Dividends. No Participant will have any of the rights
--------------------
of a shareholder with respect to any Shares until the Shares are issued to the
Participant. After Shares are issued to the Participant, the Participant will
be a shareholder and have all the rights of a shareholder with respect to such
Shares, including the right to vote and receive all dividends or other
distributions made or paid with respect to such Shares; provided, that the
Participant will have no right to retain such stock dividends or stock
distributions with respect to Unvested Shares that are repurchased pursuant to
Section 10 hereof. The Company will comply with Section 260.140.1 of Title 10 of
the California Code of Regulations with respect to the voting rights of Common
Stock.
8.2 Financial Statements. The Company will provide financial
--------------------
statements to each Participant prior to such Participant's purchase of Shares
under this Plan, and to each Participant annually during the period such
Participant has Options outstanding, or as otherwise required under Section
260.140.46 of Title 10 of the California Code of Regulations. Notwithstanding
the foregoing, the Company will not be required to provide such financial
statements to Participants when issuance is limited to key employees whose
services in connection with the Company assure them access to equivalent
information.
5
<PAGE>
9. TRANSFERABILITY. Options granted under this Plan, and any interest
---------------
therein, will not be transferable or assignable by Participant, and may not be
made subject to execution, attachment or similar process, otherwise than by will
or by the laws of descent and distribution. During the lifetime of the
Participant an Option will be exercisable only by the Participant or
Participant's legal representative and any elections with respect to an Option
may be made only by the Participant or Participant's legal representative.
10. RESTRICTIONS ON SHARES.
----------------------
10.1 Right of First Refusal. At the discretion of the Committee, the
----------------------
Company may reserve to itself and/or its assignee(s) in the Stock Option
Agreement a right of first refusal to purchase all Shares that a Participant (or
a subsequent transferee) may propose to transfer to a third party, unless
otherwise not permitted by Section 25102(o) of the California Corporations Code,
provided, that such right of first refusal terminates upon the Company's initial
public offering of Common Stock pursuant to an effective registration statement
filed under the Securities Act.
10.2 Right of Repurchase. At the discretion of the Committee, the
-------------------
Company may reserve to itself and/or its assignee(s) in the Stock Option
Agreement a right to repurchase Unvested Shares held by a Participant following
such Participant's Termination at any time within ninety (90) days after
Participant's Termination Date (or in the case of securities issued upon
exercise of an Option after the Participant's Termination Date, within ninety
(90) days after the date of such exercise) for cash and/or cancellation of
purchase money indebtedness, at the Participant's Exercise Price, provided, that
to the extent the Participant is not an officer, director or consultant of the
Company or of a Parent or Subsidiary of the Company such right to repurchase
Unvested Shares lapses at the rate of at least twenty percent (20%) per year
over five (5) years from the date of grant of the Option.
10.2 Right of Repurchase. At the discretion of the Committee, the
-------------------
Company may reserve to itself and/or its assignee(s) in the Stock Option
Agreement a right to repurchase Shares held by a Participant following such
Participant's Termination at any time within ninety (90) days after
Participant's Termination Date (or in the case of securities issued upon
exercise of an Option after the Participant's Termination Date, within ninety
(90) days after the date of such exercise) for cash and/or cancellation of
purchase money indebtedness, at: (a) with respect to Vested Shares, the Fair
Market Value of such Shares on Participant's Termination Date, provided, that
such right to repurchase Vested Shares terminates when the Company's securities
become publicly traded; or (b) with respect to Unvested Shares, the
Participant's Exercise Price, provided, that to the extent the Participant is
not an officer, director or consultant of the Company or of a Parent or
Subsidiary of the Company such right to repurchase Unvested Shares at the
Exercise Price lapses at the rate of at least twenty percent (20%) per year over
five (5) years from the date of grant of the Option.
11. CERTIFICATES. All certificates for Shares or other securities
------------
delivered under this Plan will be subject to such stock transfer orders, legends
and other restrictions as the Committee may deem necessary or advisable,
including restrictions under any applicable federal, state or foreign securities
law, or any rules, regulations and other requirements of the SEC or any stock
exchange or automated quotation system upon which the Shares may be listed or
quoted.
12. ESCROW; PLEDGE OF SHARES. To enforce any restrictions on a
------------------------
Participant's Shares, the Committee may require the Participant to deposit all
certificates representing Shares, together with stock powers or other
instruments of transfer approved by the Committee, appropriately endorsed in
blank, with the Company or an agent designated by the Company to hold in escrow
until such restrictions have lapsed or terminated, and the Committee may cause a
legend or legends referencing such restrictions to be placed on the
certificates. Any Participant who is permitted to execute a promissory note as
partial or full consideration for the purchase of Shares under this Plan will be
required to pledge and deposit with the Company all or part of the Shares so
purchased as collateral to secure the payment of Participant's obligation to the
Company under the promissory note; provided, however, that the Committee may
require or accept other or additional forms of collateral to secure the payment
of such obligation and, in any event, the Company will have full recourse
against the Participant under the promissory note notwithstanding any pledge of
the Participant's Shares or other collateral. In connection with any pledge of
the Shares, Participant will be required to execute and deliver a written pledge
agreement in such form as the
6
<PAGE>
Committee will from time to time approve. The Shares purchased with the
promissory note may be released from the pledge on a pro rata basis as the
promissory note is paid.
13. EXCHANGE AND BUYOUT OF OPTIONS. The Committee may, at any time or
------------------------------
from time to time, authorize the Company, with the consent of the respective
Participants, to issue new Options in exchange for the surrender and
cancellation of any or all outstanding Options. The Committee may at any time
buy from a Participant an Option previously granted with payment in cash, shares
of Common Stock of the Company (including restricted stock) or other
consideration, based on such terms and conditions as the Committee and the
Participant may agree.
14. SECURITIES LAW AND OTHER REGULATORY COMPLIANCE. This Plan is intended
----------------------------------------------
to comply with Section 25102(o) of the California Corporations Code. Any
provision of this Plan which is inconsistent with Section 25102(o) shall,
without further act or amendment by the Company or the Board, be reformed to
comply with the requirements of Section 25102(o). An Option will not be
effective unless such Option is in compliance with all applicable federal and
state securities laws, rules and regulations of any governmental body, and the
requirements of any stock exchange or automated quotation system upon which the
Shares may then be listed or quoted, as they are in effect on the date of grant
of the Option and also on the date of exercise or other issuance.
Notwithstanding any other provision in this Plan, the Company will have no
obligation to issue or deliver certificates for Shares under this Plan prior to
(a) obtaining any approvals from governmental agencies that the Company
determines are necessary or advisable, and/or (b) compliance with any exemption,
completion of any registration or other qualification of such Shares under any
state or federal law or ruling of any governmental body that the Company
determines to be necessary or advisable. The Company will be under no
obligation to register the Shares with the SEC or to effect compliance with the
exemption, registration, qualification or listing requirements of any state
securities laws, stock exchange or automated quotation system, and the Company
will have no liability for any inability or failure to do so.
15. NO OBLIGATION TO EMPLOY. Nothing in this Plan or any Option granted
-----------------------
under this Plan will confer or be deemed to confer on any Participant any right
to continue in the employ of, or to continue any other relationship with, the
Company or any Parent or Subsidiary of the Company or limit in any way the right
of the Company or any Parent or Subsidiary of the Company to terminate
Participant's employment or other relationship at any time, with or without
cause.
16. CORPORATE TRANSACTIONS.
----------------------
16.1 Assumption or Replacement of Options by Successor or Acquiring
--------------------------------------------------------------
Company. In the event of (a) a dissolution or liquidation of the Company, (b) a
- -------
merger or consolidation in which the Company is not the surviving corporation
(other than a merger or consolidation with a wholly-owned subsidiary, a
----- ----
reincorporation of the Company in a different jurisdiction, or other transaction
in which there is no substantial change in the shareholders of the Company or
their relative stock holdings and the Options granted under this Plan are
assumed, converted or replaced by the successor or acquiring corporation, which
assumption, conversion or replacement will be binding on all Participants), (c)
a merger in which the Company is the surviving corporation but after which the
shareholders of the Company immediately prior to such merger (other than any
shareholder which merges with the Company in such merger, or which owns or
controls another corporation which merges, with the Company in such merger)
cease to own their shares or other equity interests in the Company, or (d) the
sale of all or substantially all of the assets of the Company, any or all
outstanding Options may be assumed, converted or replaced by the successor or
acquiring corporation (if any), which assumption, conversion or replacement will
be binding on all Participants. In the alternative, the successor or acquiring
corporation may substitute equivalent Options or provide substantially similar
consideration to Participants as was provided to shareholders (after taking into
account the existing provisions of the Options). The successor or acquiring
corporation may also issue, in place of outstanding Shares of the Company held
by the Participant, substantially similar shares or other property subject to
repurchase restrictions and other provisions no less favorable to the
Participant than those which applied to such outstanding Shares immediately
prior to such transaction described in this Section 16.1. In the event such
successor or acquiring corporation (if any) does not assume or substitute
Options, as provided above, pursuant to a transaction described in this Section
16.1, then notwithstanding any other provision in this Plan to the contrary, the
vesting of such Options
7
<PAGE>
will accelerate and the Options will become exercisable in full prior to the
consummation of such event at such times and on such conditions as the Committee
determines, and if such Options are not exercised prior to the consummation of
the corporate transaction, they shall terminate in accordance with the
provisions of this Plan.
16.2 Other Treatment of Options. Subject to any greater rights
--------------------------
granted to Participants under the foregoing provisions of this Section 16, in
the event of the occurrence of any transaction described in Section 16.1 hereof,
any outstanding Options will be treated as provided in the applicable agreement
or plan of merger, consolidation, dissolution, liquidation or sale of assets.
16.3 Assumption of Options by the Company. The Company, from time to
------------------------------------
time, also may substitute or assume outstanding options granted by another
company, whether in connection with an acquisition of such other company or
otherwise, by either (a) granting an Option under this Plan in substitution of
such other company's option, or (b) assuming such option as if it had been
granted under this Plan if the terms of such assumed option could be applied to
an Option granted under this Plan. Such substitution or assumption will be
permissible if the holder of the substituted or assumed option would have been
eligible to be granted an Option under this Plan if the other company had
applied the rules of this Plan to such grant. In the event the Company assumes
an option granted by another company, the terms and conditions of such option
will remain unchanged (except that the exercise price and the number and nature
------
of shares issuable upon exercise of any such option will be adjusted
appropriately pursuant to Section 424(a) of the Code). In the event the Company
elects to grant a new Option rather than assuming an existing option, such new
Option may be granted with a similarly adjusted Exercise Price.
17. ADOPTION AND SHAREHOLDER APPROVAL. This Plan will become effective on
---------------------------------
the date that it is adopted by the Board (the "EFFECTIVE DATE"). This Plan will
be approved by the shareholders of the Company (excluding Shares issued pursuant
to this Plan), consistent with applicable laws, within twelve (12) months before
or after the Effective Date. Upon the Effective Date, the Board may grant
Options pursuant to this Plan; provided, however, that: (a) no Option may be
exercised prior to initial shareholder approval of this Plan, and (b) no Option
granted pursuant to an increase in the number of Shares approved by the Board
shall be exercised prior to the time such increase has been approved by the
shareholders of the Company. In the event that initial shareholder approval is
not obtained within twelve (12) months before or after this Plan is adopted by
the Board, all Options granted hereunder will be canceled.
18. TERM OF PLAN/GOVERNING LAW. Unless earlier terminated as provided
--------------------------
herein, this Plan will terminate ten (10) years from the Effective Date or, if
earlier, the date of shareholder approval. This Plan and all agreements
hereunder shall be governed by and construed in accordance with the laws of the
State of California.
19. AMENDMENT OR TERMINATION OF PLAN. Subject to Section 5.9 hereof, the
--------------------------------
Board may at any time terminate or amend this Plan in any respect, including
without limitation amendment of any form of Stock Option Agreement or instrument
to be executed pursuant to this Plan; provided, however, that the Board will
not, without the approval of the shareholders of the Company, amend this Plan in
any manner that requires such shareholder approval pursuant to Section 25102(o)
of the California Corporations Code or the Code or the regulations promulgated
thereunder as such provisions apply to ISO plans.
20. NONEXCLUSIVITY OF THE PLAN. Neither the adoption of this Plan by the
--------------------------
Board, the submission of this Plan to the shareholders of the Company for
approval, nor any provision of this Plan will be construed as creating any
limitations on the power of the Board to adopt such additional compensation
arrangements as it may deem desirable, including, without limitation, the
granting of stock options or any other equity awards outside of this Plan, and
such arrangements may be either generally applicable or applicable only in
specific cases.
21. DEFINITIONS. As used in this Plan, the following terms will have the
-----------
following meanings:
"BOARD" means the Board of Directors of the Company.
"CAUSE" means Termination because of (i) any willful material
violation by the Participant of any law or regulation applicable to the business
of the Company or a Parent or Subsidiary of the Company, the
8
<PAGE>
Participant's conviction for or guilty plea to, a felony or a crime involving
moral turpitude or any willful perpetration by the Participant of a common law
fraud, (ii) the Participant's commission of an act of personal dishonesty which
involves a personal profit in connection with the Company or any other entity
having a business relationship with the Company, (iii) any material breach by
the Participant of any material provision of any agreement or understanding
between the Company or a Parent or Subsidiary of the Company and the Participant
regarding the terms of the Participant's service as an employee, director or
consultant to the Company or a Parent or Subsidiary of the Company, including
without limitation, the willful and continued failure or refusal of the
Participant to perform the material duties required of such Participant as an
employee, director or consultant of the Company or a Parent or Subsidiary of the
Company, other than as a result of having a Disability, or a breach of any
applicable invention assignment and confidentiality agreement or similar
agreement between the Company or a Parent or Subsidiary of the Company and the
Participant, (iv) Participant's intentional disregard of the policies of the
Company or a Parent or Subsidiary of the Company so as to cause loss, damage or
injury to the property, reputation or employees of the Company or a Parent or
Subsidiary of the Company, or (v) any other misconduct by the Participant which
is materially injurious to the financial condition or business reputation of, or
is otherwise materially injurious to, the Company or a Parent or Subsidiary of
the Company.
"CODE" means the Internal Revenue Code of 1986, as amended.
"COMMITTEE" means the committee appointed by the Board to administer
this Plan, or if no committee is appointed, the Board.
"COMPANY" means eBay, Inc. or any successor or acquiring corporation.
"DISABILITY" means a disability, whether temporary or permanent,
partial or total, as determined by the Committee.
"EXERCISE PRICE" means the price at which a holder of an Option may
purchase the Shares issuable upon exercise of the Option.
"FAIR MARKET VALUE" means, as of any date, the value of a share of the
Company's Common Stock determined as follows:
(a) if such Common Stock is then quoted on the Nasdaq National
Market, its closing price on the Nasdaq National Market on the
date of determination as reported in The Wall Street Journal;
-----------------------
(b) if such Common Stock is publicly traded and is then listed on a
national securities exchange, its closing price on the date of
determination on the principal national securities exchange on
which the Common Stock is listed or admitted to trading as
reported in The Wall Street Journal;
-----------------------
(c) if such Common Stock is publicly traded but is not quoted on the
Nasdaq National Market nor listed or admitted to trading on a
national securities exchange, the average of the closing bid and
asked prices on the date of determination as reported by The Wall
--------
Street Journal (or, if not so reported, as otherwise reported by
--------------
any newspaper or other source as the Board may determine); or
(d) if none of the foregoing is applicable, by the Committee in good
faith.
"OPTION" means an award of an option to purchase Shares pursuant to
Section 5 hereof.
"PARENT" means any corporation (other than the Company) in an unbroken
chain of corporations ending with the Company if each of such corporations other
than the Company owns stock possessing fifty percent
9
<PAGE>
(50%) or more of the total combined voting power of all classes of stock in one
of the other corporations in such chain.
"PARTICIPANT" means a person who receives an Option under this Plan.
"PLAN" means this eBay, Inc. 1997 Stock Option Plan, as amended from
time to time.
"SEC" means the Securities and Exchange Commission.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SHARES" means shares of the Company's Common Stock reserved for
issuance under this Plan, as adjusted pursuant to Sections 2 and 16 hereof, and
any successor security.
"SUBSIDIARY" or "SUBSIDIARIES" means any corporation or corporations
(other than the Company) in an unbroken chain of corporations beginning with the
Company if each of the corporations other than the last corporation in the
unbroken chain owns stock possessing fifty percent (50%) or more of the total
combined voting power of all classes of stock in one of the other corporations
in such chain.
"TERMINATION" or "TERMINATED" means, for purposes of this Plan with
respect to a Participant, that the Participant has for any reason ceased to
provide services as an employee, officer, director or consultant to the Company
or a Parent or Subsidiary of the Company. A Participant will not be deemed to
have ceased to provide services in the case of (i) sick leave, (ii) military
leave, or (iii) any other leave of absence approved by the Committee, provided
that such leave is for a period of not more than ninety (90) days, unless
reinstatement (or, in the case of an employee with an ISO, reemployment) upon
the expiration of such leave is guaranteed by contract or statute or unless
provided otherwise pursuant to formal policy adopted from time to time by the
Company and issued and promulgated in writing. In the case of any Participant
on (i) sick leave, (ii) military leave or (iii) an approved leave of absence,
the Committee may make such provisions respecting suspension of vesting of the
Option while the Participant is on leave from the Company or a Parent or
Subsidiary of the Company as the Committee may deem appropriate, except that in
no event may an Option be exercised after the expiration of the term set forth
in the Stock Option Agreement. The Committee will have sole discretion to
determine whether a Participant has ceased to provide services and the effective
date on which the Participant ceased to provide services (the "TERMINATION
DATE").
"UNVESTED SHARES" means "Unvested Shares" as defined in Section 2.2 of
the Stock Option Agreement.
"VESTED SHARES" means "Vested Shares" as defined in Section 2.2 of the
Stock Option Agreement.
10
<PAGE>
NO. ((OPTION NO))
-------------
eBAY, INC.
1997 STOCK OPTION PLAN
STOCK OPTION AGREEMENT
This Stock Option Agreement (this "AGREEMENT") is made and entered
into as of the Date of Grant set forth below (the "DATE OF GRANT") by and
between ebay, inc., a California Corporation (the "COMPANY"), and the
Participant named below ("PARTICIPANT"). Capitalized terms not defined herein
shall have the meanings ascribed to them in the Company's 1997 Stock Option Plan
(the "PLAN").
PARTICIPANT: ((NAME))
-------------------------------------
SOCIAL SECURITY NUMBER: _____________________________________
ADDRESS: _____________________________________
_____________________________________
TOTAL OPTION SHARES: ((No_of_Shares))
-------------------------------------
EXERCISE PRICE PER SHARE: ((Price_per_Share))
-------------------------------------
DATE OF GRANT: ((Date_of_Grant))
-------------------------------------
FIRST VESTING DATE: ((First_Vesting_Date))
-------------------------------------
DATE: ((Expiration_Date))
-------------------------------------
[UNLESS EARLIER TERMINATED UNDER
SECTION 3 BELOW]
TYPE OF STOCK OPTION
(CHECK ONE): [X] INCENTIVE STOCK OPTION
[_] NONQUALIFIED STOCK OPTION
1. GRANT OF OPTION. The Company hereby grants to Participant an
---------------
option (this "OPTION") to purchase the total number of shares of Common Stock of
the Company set forth above as TotaL Option Shares (the "SHARES") at the
Exercise Price Per Share set forth above (the "EXERCISE PRICE"), subject to all
of the terms and conditions of this Agreement and the Plan. If designated as an
Incentive Stock Option above, this Option is intended to qualify as an
"incentive stock option" ("ISO") within the meaning of Section 422 of the
internal Revenue Code of 1986, as amended (the "CODE").
2. EXERCISE PERIOD.
---------------
2.1 EXERCISE PERIOD OF OPTION. This Option is immediately
-------------------------
exercisable although the Shares issued upon exercise of this Option will be
subject to the restrictions on transfer and Repurchase Options set forth in
Section 7, 8 and 9 below. Provided Participant continues to provide services to
the Company or to any Parent Or subsidiary of the Company, the Shares issuable
upon exercise of this Option will become vested with respect to twenty-five
percent (25%) of the Shares on ((Spelled_Out_First_Vesting_Date)) (the "FIRST
VESTING DATE") and thereafter at the end of each full succeeding month after the
First Vesting Date an additional 2.08333% of the Shares will become vested until
the shares are vested with respect to 100% of the Shares, provided that if
application of the vesting percentage causes a fractional share, such share
shall be rounded down to the nearest whole share. Notwithstanding any provision
in the Plan or this Agreement to the contrary, Options for Unvested
11
<PAGE>
Shares (as defined in Section 2.2 of this Agreement) will not be exercisable on
or after Participant's Termination Date.
2.2 Vesting of Options. Shares that are vested pursuant to the
------------------
schedule set forth in Section 2.1 are "VESTED SHARES." Shares that are not
vested pursuant to the schedule set forth in Section 2.1 are "UNVESTED SHARES."
Unvested Shares may not be sold or otherwise transferred by Participant without
the Company's prior written consent.
2.3 Expiration. This Option shall expire on the Expiration Date
----------
set forth above and must be exercised, if at all, on or before the Expiration
Date, unless earlier terminated under Section 3 below.
3. TERMINATION.
-----------
3.1 Termination for Any Reason Except Death, Disability or
-----------------------------------------------------
Cause. If Participant is Terminated for any reason, except death, Disability or
- -----
Cause, this Option, to the extent (and only to the extent) that it is
exercisable by Participant on the Termination Date, may be exercised by
Participant, if at all, as to all or some of the Vested Shares calculated as of
the Termination Date, no later than three (3) months after the Termination Date,
but in any event no later than the Expiration Date.
3.2 Termination Because of Death or Disability. If Participant
------------------------------------------
is Terminated because of death or Disability of Participant (or the Participant
dies within three (3) months after Termination other than for Cause) this
Option, to the extent that it is exercisable by Participant on the Termination
Date, may be exercised by Participant (or Participant's legal representative),
if at all, as to all or some of the Vested Shares calculated as of the
Termination Date, no later than twelve (12) months after the Termination Date,
but in any event no later than the Expiration Date. Any exercise beyond three
(3) months after the Termination Date when the Termination is for any reason
other than the Participant's death or disability, within the meaning of Section
22(e)(3) of the Code, is deemed to be an NQSO.
3.3 Termination for Cause. If Participant is Terminated for
---------------------
Cause, then this Option will expire on Participant's Termination Date, or at
such later time and on such conditions as are determined by the Committee.
3.4 No Obligation to Employ. Nothing in the Plan or this
-----------------------
Agreement shall confer on Participant any right to continue in the employ of, or
other relationship with, the Company or any Parent or Subsidiary of the Company,
or limit in any way the right of the Company or any Parent or Subsidiary of the
Company to terminate Participant's employment or other relationship at any time,
with or without Cause.
4. MANNER OF EXERCISE.
------------------
4.1 Stock Option Exercise Agreement. To exercise this Option,
-------------------------------
Participant (or in the case of exercise after Participant's death or incapacity,
Participant's executor, administrator, heir or legatee, as the case may be) must
deliver to the Company an executed stock option exercise agreement in the form
attached hereto as Exhibit A, or in such other form as may be approved by the
---------
Company from time to time (the "EXERCISE AGREEMENT"), which shall set forth,
inter alia, Participant's election to exercise this Option, the number of Shares
- ----- ----
being purchased, any restrictions imposed on the Shares and any representations,
warranties and agreements regarding Participant's investment intent and access
to information as may be required by the Company to comply with applicable
securities laws. If someone other than Participant exercises this Option, then
such person must submit documentation reasonably acceptable to the Company that
such person has the right to exercise this Option.
4.2 Limitations on Exercise. This Option may not be exercised
-----------------------
unless such exercise is in compliance with all applicable federal and state
securities laws, as they are in effect on the date of exercise. This Option may
not be exercised as to fewer than one hundred (100) Shares, unless it is
exercised as to all Shares as to which this Option is then exercisable.
12
<PAGE>
4.3 Payment. The Exercise Agreement shall be accompanied by
-------
full payment of the Exercise Price for the Shares being purchased in cash (by
check), or where permitted by law:
(a) by surrender of shares of the Company's Common Stock that: (1)
either (A) have been owned by Participant for more than six (6)
months and have been paid for within the meaning of SEC Rule 144
(and, if such shares were purchased from the Company by use of a
promissory note, such note has been fully paid with respect to
such shares) or (B) were obtained by Participant in the open
public market and (2) are clear of all liens, claims,
encumbrances or security interests;
(b) by tender of a full recourse promissory note (for not more than
90% of the aggregate Exercise Price) having such terms as may be
approved by the Committee and bearing interest at a rate
sufficient to avoid imputation of income under Sections 483 and
1274 of the Code; provided, however, that Participants who are
not employees or directors of the Company shall not be entitled
to purchase Shares with a promissory note unless the note is
adequately secured by collateral other than the Shares;
(c) provided that a public market for the Company's stock exists, (1)
through a "same day sale" commitment from Participant and a
broker-dealer that is a member of the National Association of
Securities Dealers (an "NASD DEALER") whereby Participant
irrevocably elects to exercise this Option and to sell a portion
of the Shares so purchased to pay for the Exercise Price and
whereby the NASD Dealer irrevocably commits upon receipt of such
Shares to forward the Exercise Price directly to the Company, or
--
(2) through a "margin" commitment from Participant and an NASD
Dealer whereby Participant irrevocably elects to exercise this
Option and to pledge the Shares so purchased to the NASD Dealer
in a margin account as security for a loan from the NASD Dealer
in the amount of the Exercise Price, and whereby the NASD Dealer
irrevocably commits upon receipt of such Shares to forward the
Exercise Price directly to the Company; or
(d) by any combination of the foregoing.
4.4 Tax Withholding. Prior to the issuance of the Shares upon
---------------
exercise of this Option, Participant must pay or provide for any applicable
federal, state and local withholding obligations of the Company. If the
Committee permits, Participant may provide for payment of withholding taxes upon
exercise of this Option by requesting that the Company retain Shares with a Fair
Market Value equal to the minimum amount of taxes required to be withheld. In
such case, the Company shall issue the net number of Shares to the Participant
by deducting the Shares retained from the Shares issuable upon exercise.
4.5 Issuance of Shares. Provided that the Exercise Agreement
------------------
and payment are in form and substance satisfactory to counsel for the Company,
the Company shall issue the Shares registered in the name of Participant,
Participant's authorized assignee, or Participant's legal representative, and
shall deliver certificates representing the Shares with the appropriate legends
affixed thereto.
5. NOTICE OF DISQUALIFYING DISPOSITION OF ISO SHARES. If this Option
-------------------------------------------------
is an ISO, and if Participant sells or otherwise disposes of any of the Shares
acquired pursuant to the ISO on or before the later of (a) the date two (2)
years after the Date of Grant, and (b) the date one (1) year after transfer of
such Shares to Participant upon exercise of this Option, Participant shall
immediately notify the Company in writing of such disposition. Participant
agrees that Participant may be subject to income tax withholding by the Company
on the compensation income recognized by Participant from the early disposition
by payment in cash or out of the current wages or other compensation payable to
Participant.
6. COMPLIANCE WITH LAWS AND REGULATIONS. The Plan and this
------------------------------------
Agreement are intended to comply with Section 25102(o) of the California
Corporations Code. Any provision of this Agreement which is inconsistent with
Section 25102(o) shall, without further act or amendment by the Company or the
Board, be
13
<PAGE>
reformed to comply with the requirements of Section 25102(o). The exercise of
this Option and the issuance and transfer of Shares shall be subject to
compliance by the Company and Participant with all applicable requirements of
federal and state securities laws and with all applicable requirements of any
stock exchange on which the Company's Common Stock may be listed at the time of
such issuance or transfer. Participant understands that the Company is under no
obligation to register or qualify the Shares with the SEC, any state securities
commission or any stock exchange to effect such compliance.
7. NONTRANSFERABILITY OF OPTION. This Option may not be transferred
----------------------------
in any manner other than by will or by the laws of descent and distribution and
may be exercised during the lifetime of Participant only by Participant or in
the event of Participant's incapacity, by Participant's legal representative.
The terms of this Option shall be binding upon the executors, administrators,
successors and assigns of Participant.
8. COMPANY'S REPURCHASE OPTION FOR UNVESTED SHARES. The Company, or
-----------------------------------------------
its assignee, shall have the option to repurchase Participant's Unvested Shares
(as defined in Section 2.2 of this Agreement) on the terms and conditions set
forth in the Exercise Agreement (the "REPURCHASE OPTION FOR UNVESTED SHARES") if
Participant is Terminated (as defined in the Plan) for any reason, or no reason,
including without limitation Participant's death, Disability (as defined in the
Plan), voluntary resignation or termination by the Company with or without
Cause. Notwithstanding the foregoing, the Company shall retain the Repurchase
Option for Unvested Shares only as to that number of Unvested Shares (whether or
not exercised) that exceeds the number of shares which remain exercisable.
9. COMPANY'S RIGHT OF FIRST REFUSAL. Unvested Shares may not be
--------------------------------
sold or otherwise transferred by Participant without the Company's prior written
consent. Before any Vested Shares held by Participant or any transferee of such
Vested Shares may be sold or otherwise transferred (including without limitation
a transfer by gift or operation of law), the Company and/or its assignee(s)
shall have an assignable right of first refusal to purchase the Vested Shares to
be sold or transferred on the terms and conditions set forth in the Exercise
Agreement (the "RIGHT OF FIRST REFUSAL"). The Company's Right of First Refusal
will terminate when the Company's securities become publicly traded.
10. TAX CONSEQUENCES. Set forth below is a brief summary as of the
----------------
Effective Date of the Plan of some of the federal and California tax
consequences of exercise of this Option and disposition of the Shares. THIS
SUMMARY IS NECESSARILY INCOMPLETE, AND THE TAX LAWS AND REGULATIONS ARE SUBJECT
TO CHANGE. PARTICIPANT SHOULD CONSULT A TAX ADVISER BEFORE EXERCISING THE
OPTION OR DISPOSING OF THE SHARES.
10.1 Exercise of ISO. If this Option qualifies as an ISO, there
---------------
will be no regular federal or California income tax liability upon the exercise
of this Option, although the excess, if any, of the Fair Market Value of the
Shares on the date of exercise over the Exercise Price will be treated as a tax
preference item for federal alternative minimum tax purposes and may subject the
Participant to the alternative minimum tax in the year of exercise.
10.2 Exercise of Nonqualified Stock Option. If this Option does
-------------------------------------
not qualify as an ISO, there may be a regular federal and California income tax
liability upon the exercise of this Option. Participant will be treated as
having received compensation income (taxable at ordinary income tax rates) equal
to the excess, if any, of the Fair Market Value of the Shares on the date of
exercise over the Exercise Price. If Participant is a current or former
employee of the Company, the Company may be required to withhold from
Participant's compensation or collect from Participant and pay to the applicable
taxing authorities an amount equal to a percentage of this compensation income
at the time of exercise.
10.3 Disposition of Shares. The following tax consequences may
---------------------
apply upon disposition of the Shares.
a. Incentive Stock Options. If the Shares are held for
-----------------------
more than twelve (12) months after the date of the transfer of the Shares
pursuant to the exercise of an ISO and are disposed of more than
14
<PAGE>
two (2) years after the Date of Grant, any gain realized on disposition of the
Shares will be treated as capital gain for federal and California income tax
purposes. The maximum federal capital gain tax rates are twenty eight percent
(28%) for Shares held more than twelve (12) months, but not more than eighteen
(18) months ("MID-TERM CAPITAL GAIN"), and twenty percent (20%) for Shares held
for more than eighteen (18) months ("LONG-TERM CAPITAL GAIN"). If Shares
purchased under an ISO are disposed of within the applicable one (1) year or two
(2) year period, any gain realized on such disposition will be treated as
compensation income (taxable at ordinary income rates) to the extent of the
excess, if any, of the Fair Market Value of the Shares on the date of exercise
over the Exercise Price.
b. Nonqualified Stock Options. If the Shares are held
--------------------------
for more than twelve (12) months after the date of the transfer of the Shares
pursuant to the exercise of an NQSO, any gain realized on disposition of the
Shares will be treated as Mid-Term Capital Gain or Long-Term Capital Gain, as
the case may be.
c. Withholding. The Company may be required to
-----------
withhold from Participant's compensation or collect from the Participant and pay
to the applicable taxing authorities an amount equal to a percentage of this
compensation income.
10.4. Section 83(b) Election for Unvested Shares. With
------------------------------------------
respect to Unvested Shares, which are subject to the Repurchase Option for
Unvested Shares, unless an election is filed by the Participant with the
Internal Revenue Service (and, if necessary, the proper state taxing
authorities), within 30 days of the purchase of the Unvested Shares, electing
--------------
pursuant to Code Section 83(b) (and similar state tax provisions, if applicable)
to be taxed currently on any difference between the Exercise Price of the
Unvested Shares and their Fair Market Value on the date of exercise, there may
be a recognition of taxable income (including, where applicable, alternative
minimum taxable income) to the Participant, measured by the excess, if any, of
the Fair Market Value of the Unvested Shares at the time they cease to be
Unvested Shares, over the Exercise Price of the Unvested Shares.
11. PRIVILEGES OF STOCK OWNERSHIP. Participant shall not have any of
-----------------------------
the rights of a shareholder with respect to any Shares until the Shares are
issued to Participant.
12. INTERPRETATION. Any dispute regarding the interpretation of this
--------------
Agreement shall be submitted by Participant or the Company to the Committee for
review. The resolution of such a dispute by the Committee shall be final and
binding on the Company and Participant.
13. ENTIRE AGREEMENT. The Plan is incorporated herein by reference.
----------------
This Agreement and the Plan constitute the complete and exclusive statement of
the parties regarding its subject matter and supersedes all prior proposals,
representations, communications, and agreements of the parties, whether oral or
written regarding the grant of stock options or issuances of shares to
Participant.
14. NOTICES. Any notice required to be given or delivered to the
-------
Company under the terms of this Agreement shall be in writing and addressed to
the Corporate Secretary of the Company at its principal corporate offices. Any
notice required to be given or delivered to Participant shall be in writing and
addressed to Participant at the address indicated above or to such other address
as such party may designate in writing from time to time to the Company. All
notices shall be deemed to have been given or delivered upon: personal
delivery; three (3) days after deposit in the United States mail by certified or
registered mail (return receipt requested); one (1) business day after deposit
with any return receipt express courier (prepaid); or one (1) business day after
transmission by facsimile, rapifax or telecopier.
15. SUCCESSORS AND ASSIGNS. The Company may assign any of its rights
----------------------
under this Agreement, including its rights to repurchase Shares under the
Repurchase Option and the Right of First Refusal. This Agreement shall be
binding upon and inure to the benefit of the successors and assigns of the
Company. Subject to the restrictions on transfer set forth herein, this
Agreement shall be binding upon Participant and Participant's heirs, executors,
administrators, legal representatives, successors and assigns.
15
<PAGE>
16. GOVERNING LAW. This Agreement shall be governed by and construed
-------------
in accordance with the laws of the State of California as such laws are applied
to agreements between California residents entered into and to be performed
entirely within California. If any provision of this Agreement is determined by
a court of law to be illegal or unenforceable, then such provision will be
enforced to the maximum extent possible and the other provisions will remain
fully effective and enforceable.
17. ACCEPTANCE. Participant hereby acknowledges receipt of a copy of
----------
the Plan and this Agreement. Participant has read and understands the terms and
provisions thereof, and accepts this Option subject to all the terms and
conditions of the Plan and this Agreement. Participant acknowledges that there
may be adverse tax consequences upon exercise of this Option or disposition of
the Shares and that Participant should consult a tax adviser prior to such
exercise or disposition.
IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed in duplicate by its duly authorized representative and Participant has
executed this Agreement in duplicate as of the Date of Grant.
EBAY, INC. PARTICIPANT
By:___________________________ ________________________________
(Signature)
((Name))
______________________________ -------------------------------
(Please print name) (Please print name)
______________________________
(Please print title)
16
<PAGE>
EXHIBIT A
---------
STOCK OPTION EXERCISE AGREEMENT
<PAGE>
No.___________
eBAY, INC.
1997 STOCK OPTION PLAN
STOCK OPTION EXERCISE AGREEMENT
This Exercise Agreement (this "EXERCISE AGREEMENT") is made and entered
into as of ______________, 19___ (the "EFFECTIVE DATE") by and between eBay,
Inc., a California corporation (the "COMPANY"), and the Purchaser named below
(the "PURCHASER"). Capitalized terms not defined herein shall have the meanings
ascribed to them in the Company's 1997 Stock Option Plan (the "PLAN").
<TABLE>
<S> <C>
PURCHASER: ((Name))
-----------------------------------------------------
SOCIAL SECURITY NUMBER:
_____________________________________________________
ADDRESS:
_____________________________________________________
_____________________________________________________
TOTAL NUMBER OF SHARES: ((No_of_Shares))
-----------------------------------------------------
EXERCISE PRICE PER SHARE: ((Price_per_Share))
-----------------------------------------------------
TOTAL EXERCISE PRICE: ((Total_Price))
-----------------------------------------------------
OPTION NO. ((OPTION_NO)) AND DATE OF GRANT: ((Date_of_Grant))
-----------------------------------------------------
TYPE OF OPTION: [X] INCENTIVE STOCK OPTION
[_] NONQUALIFIED STOCK OPTION
</TABLE>
1. EXERCISE OF OPTION.
------------------
1.1 Exercise. Pursuant to exercise of that certain option
--------
("OPTION") granted to Purchaser under the Plan and subject to the terms and
conditions of this Exercise Agreement, Purchaser hereby purchases from the
Company, and the Company hereby sells to Purchaser, the Total Number of Shares
set forth above ("SHARES") of the Company's Common Stock at the Exercise Price
Per Share set forth above ("EXERCISE PRICE"). As used in this Exercise
Agreement, the term "SHARES" refers to the Shares purchased under this Exercise
Agreement and includes all securities received (a) in replacement of the Shares,
(b) as a result of stock dividends or stock splits with respect to the Shares,
and (c) all securities received on account of the Shares in a merger,
recapitalization, reorganization or similar corporate transaction.
<PAGE>
1.2 Title to Shares. The exact spelling of the name(s) under
---------------
which Purchaser will take title to the Shares is:
_______________________________________________________
_______________________________________________________
Purchaser desires to take title to the Shares as follows:
[_] Individual, as separate property
[_] Husband and wife, as community property
[_] Joint Tenants
[_] Alone or with spouse as trustee(s) of the
following trust (including date):
______________________________________________
______________________________________________
[_] Other; please specify:______________________________
______________________________________________
1.3 Payment. Purchaser hereby delivers payment of the Exercise
-------
Price in the manner permitted in the Stock Option Agreement as follows (check
and complete as appropriate):
[_] in cash (by check) in the amount of $((Cash_Amount)), receipt of
which is acknowledged by the Company;
[_] by tender of a Full Recourse Promissory Note in the principal
amount of $((Note_Amount)), having such terms as may be approved
by the Committee and bearing interest at a rate sufficient to
avoid imputation of income under Sections 483 and 1274 of the
Code and secured by a Pledge Agreement herewith; provided,
however, that Participants who are not employees or directors of
the Company shall not be entitled to purchase Shares with a
promissory note unless the note is adequately secured by
collateral other than the Shares.
2. DELIVERY.
--------
2.1 Deliveries by Purchaser. Purchaser hereby delivers to the
-----------------------
Company (i) this Exercise Agreement, (ii) three (3) copies of a blank Stock
Power and Assignment Separate from Stock Certificate in the form of Exhibit 1
---------
attached hereto (the "STOCK POWERS"), both executed by Purchaser (and
Purchaser's spouse, if any), (iii) if Purchaser is married, a Consent of Spouse
in the form of Exhibit 2 attached hereto (the "SPOUSE CONSENT") executed by
---------
Purchaser's spouse, and (iv) the Exercise Price and payment or other provision
for any applicable tax obligations by delivery of a Secured Full Recourse
Promissory Note in the form of Exhibit 3 and (v) a Stock Pledge Agreement in the
---------
form of Exhibit 5 executed by Purchaser (the "PLEDGE AGREEMENT").
---------
2.2 Deliveries by the Company. Upon its receipt of the Exercise
-------------------------
Price, payment or other provision for any applicable tax obligations and all the
documents to be executed and delivered by Purchaser to the Company under Section
2.1, the Company will issue a duly executed stock certificate evidencing the
Shares in the name of Purchaser, to be placed in escrow as provided in Section
11 to secure payment of Participant's obligation to the Company under the
promissory note and until expiration or termination of the Company's Repurchase
Option and Right of First Refusal described in Sections 8 and 9.
3. REPRESENTATIONS AND WARRANTIES OF PURCHASER. Purchaser represents
-------------------------------------------
and warrants to the Company that:
3.1 Agrees to Terms of the Plan. Purchaser has received a copy
---------------------------
of the Plan and the Stock Option Agreement, has read and understands the terms
of the Plan, the Stock Option Agreement and this
3
<PAGE>
Exercise Agreement, and agrees to be bound by their terms and conditions.
Purchaser acknowledges that there may be adverse tax consequences upon exercise
of the Option or disposition of the Shares, and that Purchaser should consult a
tax adviser prior to such exercise or disposition.
3.2 Purchase for Own Account for Investment. Purchaser is
---------------------------------------
purchasing the Shares for Purchaser's own account for investment purposes only
and not with a view to, or for sale in connection with, a distribution of the
Shares within the meaning of the Securities Act. Purchaser has no present
intention of selling or otherwise disposing of all or any portion of the Shares
and no one other than Purchaser has any beneficial ownership of any of the
Shares.
3.3 Access to Information. Purchaser has had access to all
---------------------
information regarding the Company and its present and prospective business,
assets, liabilities and financial condition that Purchaser reasonably considers
important in making the decision to purchase the Shares, and Purchaser has had
ample opportunity to ask questions of the Company's representatives concerning
such matters and this investment.
3.4 Understanding of Risks. Purchaser is fully aware of: (i)
----------------------
the highly speculative nature of the investment in the Shares; (ii) the
financial hazards involved; (iii) the lack of liquidity of the Shares and the
restrictions on transferability of the Shares (e.g., that Purchaser may not be
---
able to sell or dispose of the Shares or use them as collateral for loans); (iv)
the qualifications and backgrounds of the management of the Company; and (v) the
tax consequences of investment in the Shares. Purchaser is capable of evaluating
the merits and risks of this investment, has the ability to protect Purchaser's
own interests in this transaction and is financially capable of bearing a total
loss of this investment.
3.5 No General Solicitation. At no time was Purchaser presented
-----------------------
with or solicited by any publicly issued or circulated newspaper, mail, radio,
television or other form of general advertising or solicitation in connection
with the offer, sale and purchase of the Shares.
4. COMPLIANCE WITH SECURITIES LAWS.
-------------------------------
4.1 Compliance with U.S. Federal Securities Laws. Purchaser
--------------------------------------------
understands and acknowledges that the Shares have not been registered with the
SEC under the Securities Act and that, notwithstanding any other provision of
the Stock Option Agreement to the contrary, the exercise of any rights to
purchase any Shares is expressly conditioned upon compliance with the Securities
Act and all applicable state securities laws. Purchaser agrees to cooperate
with the Company to ensure compliance with such laws. The Shares are being
issued under the Securities Act pursuant to the exemption provided by SEC Rule
701.
4.2 Compliance with California Securities Laws. THE PLAN,
------------------------------------------
THE STOCK OPTION AGREEMENT, AND THIS EXERCISE AGREEMENT ARE INTENDED TO COMPLY
WITH SECTION 25102(o) OF THE CALIFORNIA CORPORATIONS CODE. ANY PROVISION OF THIS
EXERCISE AGREEMENT WHICH IS INCONSISTENT WITH SECTION 25102(o) SHALL, WITHOUT
FURTHER ACT OR AMENDMENT BY THE COMPANY OR THE BOARD, BE REFORMED TO COMPLY WITH
THE REQUIREMENTS OF SECTION 25102(o). THE SALE OF THE SECURITIES THAT ARE THE
SUBJECT OF THIS EXERCISE AGREEMENT, IF NOT YET QUALIFIED WITH THE CALIFORNIA
COMMISSIONER OF CORPORATIONS AND NOT EXEMPT FROM SUCH QUALIFICATION, IS SUBJECT
TO SUCH QUALIFICATION, AND THE ISSUANCE OF SUCH SECURITIES, AND THE RECEIPT OF
ANY PART OF THE CONSIDERATION THEREFOR PRIOR TO SUCH QUALIFICATION IS UNLAWFUL
UNLESS THE SALE IS EXEMPT. THE RIGHTS OF THE PARTIES TO THIS EXERCISE AGREEMENT
ARE EXPRESSLY CONDITIONED UPON SUCH QUALIFICATION BEING OBTAINED OR AN EXEMPTION
BEING AVAILABLE.
5. RESTRICTED SECURITIES.
---------------------
5.1 No Transfer Unless Registered or Exempt. Purchaser
---------------------------------------
understands that Purchaser may not transfer any Shares unless such Shares are
registered under the Securities Act or qualified under applicable
4
<PAGE>
state securities laws or unless, in the opinion of counsel to the Company,
exemptions from such registration and qualification requirements are available.
Purchaser understands that only the Company may file a registration statement
with the SEC and that the Company is under no obligation to do so with respect
to the Shares. Purchaser has also been advised that exemptions from registration
and qualification may not be available or may not permit Purchaser to transfer
all or any of the Shares in the amounts or at the times proposed by Purchaser.
5.2 SEC Rule 144. In addition, Purchaser has been advised that
------------
SEC Rule 144 promulgated under the Securities Act, which permits certain limited
sales of unregistered securities, is not presently available with respect to the
Shares and, in any event, requires that the Shares be held for a minimum of one
(1) year, and in certain cases two (2) years, after they have been purchased and
---
paid for (within the meaning of Rule 144). Purchaser understands that Shares
- --------
paid for with a Note may not be deemed to be fully "paid for" within the meaning
of Rule 144 unless certain conditions are met and that, accordingly, the Rule
144 holding period of such Shares may not begin to run until such Shares are
fully paid for within the meaning of Rule 144. Purchaser understands that Rule
144 may indefinitely restrict transfer of the Shares so long as Purchaser
remains an "affiliate" of the Company or if "current public information" about
the Company (as defined in Rule 144) is not publicly available.
5.3 SEC Rule 701. The Shares are issued pursuant to SEC Rule 701
------------
promulgated under the Securities Act and may become freely tradable by non-
affiliates (under limited conditions regarding the method of sale) ninety (90)
days after the first sale of Common Stock of the Company to the general public
pursuant to a registration statement filed with and declared effective by the
SEC, subject to the lengthier market standoff agreement contained in Section 7
of this Exercise Agreement or any other agreement entered into by Purchaser.
Affiliates must comply with the provisions (in addition to the holding period
requirements) of Rule 144.
6. RESTRICTIONS ON TRANSFERS.
-------------------------
6.1 Disposition of Shares. Purchaser hereby agrees that
---------------------
Purchaser shall make no disposition of the Shares (other than as permitted by
this Exercise Agreement) unless and until:
(a) Purchaser shall have notified the Company of the
proposed disposition and provided a written summary of the terms and conditions
of the proposed disposition;
(b) Purchaser shall have complied with all requirements of
this Exercise Agreement applicable to the disposition of the Shares;
(c) Purchaser shall have provided the Company with written
assurances, in form and substance satisfactory to counsel for the Company, that
(i) the proposed disposition does not require registration of the Shares under
the Securities Act or (ii) all appropriate action necessary for compliance with
the registration requirements of the Securities Act or of any exemption from
registration available under the Securities Act (including Rule 144) has been
taken; and
(d) Purchaser shall have provided the Company with written
assurances, in form and substance satisfactory to the Company, that the proposed
disposition will not result in the contravention of any transfer restrictions
applicable to the Shares pursuant to the provisions of the Commissioner Rules
identified in Section 4.2.
6.2 Restriction on Transfer. Purchaser shall not transfer,
-----------------------
assign, grant a lien or security interest in, pledge, hypothecate, encumber or
otherwise dispose of any of the Shares which are subject to the Company's
Repurchase Option or the Company's Right of First Refusal, except as permitted
by this Exercise Agreement.
6.3 Transferee Obligations. Each person (other than the Company)
----------------------
to whom the Shares are transferred by means of one of the permitted transfers
specified in this Exercise Agreement must, as a condition precedent to the
validity of such transfer, acknowledge in writing to the Company that such
person is
5
<PAGE>
bound by the provisions of this Exercise Agreement and that the transferred
Shares are subject to (i) both the Company's Repurchase Option and the Company's
Right of First Refusal granted hereunder and (ii) the market stand-off
provisions of Section 7, to the same extent such Shares would be so subject if
retained by the Purchaser.
7. MARKET STANDOFF AGREEMENT. Purchaser agrees in connection with
-------------------------
any registration of the Company's securities that, upon the request of the
Company or the underwriters managing any public offering of the Company's
securities, Purchaser will not sell or otherwise dispose of any Shares 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) after the effective date of
such registration requested by such managing underwriters and subject to all
restrictions as the Company or the underwriters may specify. Purchaser further
agrees to enter into any agreement reasonably required by the underwriters to
implement the foregoing.
8. COMPANY'S REPURCHASE OPTION FOR UNVESTED SHARES. The Company, or
-----------------------------------------------
its assignee, shall have the option to repurchase Purchaser's Unvested Shares
(as defined in Section 2.2 of the Stock Option Agreement) on the terms and
conditions set forth in this Section (the "Repurchase Option for Unvested
------------------------------
Shares") if Purchaser is Terminated (as defined in the Plan) for any reason, or
- ------
no reason, including without limitation Purchaser's death, Disability (as
defined in the Plan), voluntary resignation or termination by the Company with
or without Cause. Notwithstanding the foregoing, the Company shall retain the
Repurchase Option for Unvested Shares only as to that number of Unvested Shares
(whether or not exercised) that exceeds the number of shares which remain
exercisable.
8.1 Termination and Termination Date. In case of any dispute as
--------------------------------
to whether Purchaser is Terminated, the Committee shall have discretion to
determine whether Purchaser has been Terminated and the effective date of such
Termination (the "TERMINATION DATE").
8.2 Exercise of Repurchase Option for Unvested Shares. At any
-------------------------------------------------
time within ninety (90) days after the Purchaser's Termination Date, the
Company, or its assignee, may elect to repurchase the Purchaser's Unvested
Shares by giving Purchaser written notice of exercise of the Repurchase Option
for Unvested Shares.
8.3 Calculation of Repurchase Price for Unvested Shares. The
---------------------------------------------------
Company or its assignee shall have the option to repurchase from Purchaser (or
from Purchaser's personal representative as the case may be) the Unvested Shares
at the Purchaser's Exercise Price, proportionately adjusted for any stock split
or similar change in the capital structure of the Company as set forth in
Section 2.2 of the Plan.
8.4 Payment of Repurchase Price. The repurchase price shall be
---------------------------
payable, at the option of the Company or its assignee, by check or by
cancellation of all or a portion of any outstanding indebtedness of Purchaser to
the Company or such assignee, or by any combination thereof. The repurchase
price shall be paid without interest within sixty (60) days after exercise of
the Repurchase Option for Unvested Shares.
8.5 Right of Termination Unaffected. Nothing in this Exercise
-------------------------------
Agreement shall be construed to limit or otherwise affect in any manner
whatsoever the right or power of the Company (or any Parent or Subsidiary of the
Company) to terminate Purchaser's employment or other relationship with Company
(or the Parent or Subsidiary of the Company) at any time, for any reason or no
reason, with or without Cause.
9. COMPANY'S RIGHT OF FIRST REFUSAL. Unvested Shares may not be sold
--------------------------------
or otherwise transferred by Purchaser without the Company's prior written
consent. Before any Vested Shares held by Purchaser or any transferee of such
Vested Shares (either being sometimes referred to herein as the "HOLDER") may be
sold or otherwise transferred (including without limitation a transfer by gift
or operation of law), the Company and/or its assignee(s) shall have an
assignable right of first refusal to purchase the Vested Shares to be sold or
transferred (the "OFFERED SHARES") on the terms and conditions set forth in this
Section (the "RIGHT OF FIRST REFUSAL").
9.1 Notice of Proposed Transfer. The Holder of the Offered
---------------------------
Shares shall deliver to the Company a written notice (the "NOTICE") stating:
(i) the Holder's bona fide intention to sell or otherwise transfer
6
<PAGE>
the Offered Shares; (ii) the name of each proposed bona fide purchaser or other
transferee ("PROPOSED TRANSFEREE"); (iii) the number of Offered Shares to be
transferred to each Proposed Transferee; (iv) the bona fide cash price or other
consideration for which the Holder proposes to transfer the Offered Shares (the
"OFFERED PRICE"); and (v) that the Holder will offer to sell the Offered Shares
to the Company and/or its assignee(s) at the Offered Price as provided in this
Section.
9.2 Exercise of Right of First Refusal. At any time within
----------------------------------
thirty (30) days after the date of the Notice, the Company and/or its
assignee(s) may, by giving written notice to the Holder, elect to purchase all
(or, with the consent of the Holder, less than all) the Offered Shares proposed
to be transferred to any one or more of the Proposed Transferees named in the
Notice, at the purchase price determined as specified below.
9.3 Purchase Price. The purchase price for the Offered Shares
--------------
purchased under this Section will be the Offered Price. If the Offered Price
includes consideration other than cash, then the cash equivalent value of the
non-cash consideration shall conclusively be deemed to be the value of such non-
cash consideration as determined in good faith by the Board.
9.4 Payment. Payment of the Offered Price will be payable, at
-------
the option of the Company and/or its assignee(s) (as applicable), by check or by
cancellation of all or a portion of any outstanding indebtedness of the Holder
to the Company (or to such assignee, in the case of a purchase of Offered Shares
by such assignee) or by any combination thereof. The Offered Price will be paid
without interest within sixty (60) days after the Company's receipt of the
Notice, or, at the option of the Company and/or its assignee(s), in the manner
and at the time(s) set forth in the Notice.
9.5 Holder's Right to Transfer. If all of the Offered Shares
--------------------------
proposed in the Notice to be transferred to a given Proposed Transferee are not
purchased by the Company and/or its assignee(s) as provided in this Section,
then the Holder may sell or otherwise transfer such Offered Shares to that
Proposed Transferee at the Offered Price or at a higher price, provided that
--------
such sale or other transfer is consummated within 120 days after the date of the
Notice, and provided further, that (i) any such sale or other transfer is
-------- -------
effected in compliance with all applicable securities laws and (ii) the Proposed
Transferee agrees in writing that the provisions of this Section will continue
to apply to the Offered Shares in the hands of such Proposed Transferee. If the
Offered Shares described in the Notice are not transferred to the Proposed
Transferee within such 120 day period, then a new Notice must be given to the
Company, and the Company will again be offered the Right of First Refusal before
any Shares held by the Holder may be sold or otherwise transferred.
9.6 Exempt Transfers. Notwithstanding anything to the contrary
----------------
in this Section, the following transfers of Vested Shares will be exempt from
the Right of First Refusal: (i) the transfer of any or all of the Vested Shares
during Purchaser's lifetime by gift or on Purchaser's death by will or intestacy
to Purchaser's "immediate family" (as defined below) or to a trust for the
benefit of Purchaser or Purchaser's immediate family, provided that each
transferee or other recipient agrees in a writing satisfactory to the Company
that the provisions of this Section will continue to apply to the transferred
Vested Shares in the hands of such transferee or other recipient; (ii) any
transfer of Vested Shares made pursuant to a statutory merger or statutory
consolidation of the Company with or into another corporation or corporations
(except that the Right of First Refusal and Repurchase Option will continue to
apply thereafter to such Vested Shares, in which case the surviving corporation
of such merger or consolidation shall succeed to the rights of the Company under
this Section unless the agreement of merger or consolidation expressly otherwise
provides); or (iii) any transfer of Vested Shares pursuant to the winding up and
dissolution of the Company. As used herein, the term "IMMEDIATE FAMILY" will
mean Purchaser's spouse, the lineal descendant or antecedent, father, mother,
brother or sister, child, adopted child, grandchild or adopted grandchild of the
Purchaser or the Purchaser's spouse, or the spouse of any child, adopted child,
grandchild or adopted grandchild of Purchaser or the Purchaser's spouse.
9.7 Termination of Right of First Refusal. The Company's Right
-------------------------------------
of First Refusal will terminate when the Company's securities become publicly
traded.
7
<PAGE>
10. RIGHTS AS SHAREHOLDER. Subject to the terms and conditions of
---------------------
this Exercise Agreement, Purchaser will have all of the rights of a shareholder
of the Company with respect to the Shares from and after the date that Shares
are issued to Purchaser until such time as Purchaser disposes of the Shares or
the Company and/or its assignee(s) exercise(s) the Repurchase Option or Right of
First Refusal. Upon an exercise of the Repurchase Option or the Right of First
Refusal, Purchaser will have no further rights as a holder of the Shares so
purchased upon such exercise, except the right to receive payment for the Shares
so purchased in accordance with the provisions of this Exercise Agreement, and
Purchaser will promptly surrender the stock certificate(s) evidencing the Shares
so purchased to the Company for transfer or cancellation.
11. ESCROW. As security for Purchaser's faithful performance of this
------
Exercise Agreement, Purchaser agrees, immediately upon receipt of the stock
certificate(s) evidencing the Shares, to deliver such certificate(s), together
with the Stock Powers executed by Purchaser and by Purchaser's spouse, if any
(with the date and number of Shares left blank), to the Secretary of the Company
or other designee of the Company ("ESCROW HOLDER"), who is hereby appointed to
hold such certificate(s) and Stock Powers in escrow and to take all such actions
and to effectuate all such transfers and/or releases of such Shares as are in
accordance with the terms of this Exercise Agreement. Purchaser and the Company
agree that Escrow Holder will not be liable to any party to this Exercise
Agreement (or to any other party) for any actions or omissions unless Escrow
Holder is grossly negligent or intentionally fraudulent in carrying out the
duties of Escrow Holder under this Exercise Agreement. Escrow Holder may rely
upon any letter, notice or other document executed by any signature purported to
be genuine and may rely on the advice of counsel and obey any order of any court
with respect to the transactions contemplated by this Exercise Agreement. The
Shares will be released from escrow upon termination of both the Repurchase
Option and the Right of First Refusal provided, however, that the Shares will be
-------- -------
retained in escrow so long as they are subject to the Pledge Agreement.
12. RESTRICTIVE LEGENDS AND STOP-TRANSFER ORDERS.
--------------------------------------------
12.1 Legends. Purchaser understands and agrees that the Company
-------
will place the legends set forth below or similar legends on any stock
certificate(s) evidencing the Shares, together with any other legends that may
be required by state or U.S. Federal securities laws, the Company's Articles of
Incorporation or Bylaws, any other agreement between Purchaser and the Company
or any agreement between Purchaser and any third party:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR UNDER THE
SECURITIES LAWS OF CERTAIN STATES. THESE SECURITIES ARE SUBJECT TO
RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED
OR RESOLD EXCEPT AS PERMITTED UNDER THE SECURITIES ACT AND APPLICABLE
STATE SECURITIES LAWS, PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM.
INVESTORS SHOULD BE AWARE THAT THEY MAY BE REQUIRED TO BEAR THE
FINANCIAL RISKS OF THIS INVESTMENT FOR AN INDEFINITE PERIOD OF TIME.
THE ISSUER OF THESE SECURITIES MAY REQUIRE AN OPINION OF COUNSEL IN
FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER TO THE EFFECT THAT ANY
PROPOSED TRANSFER OR RESALE IS IN COMPLIANCE WITH THE SECURITIES ACT
AND ANY APPLICABLE STATE SECURITIES LAWS.
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN
RESTRICTIONS ON PUBLIC RESALE AND TRANSFER, AND RIGHT OF REPURCHASE AND
RIGHT OF FIRST REFUSAL OPTIONS HELD BY THE ISSUER AND/OR ITS
ASSIGNEE(S) AS SET FORTH IN A STOCK OPTION EXERCISE AGREEMENT BETWEEN
THE ISSUER AND THE ORIGINAL HOLDER OF THESE SHARES, A COPY OF WHICH MAY
BE OBTAINED AT THE PRINCIPAL OFFICE OF THE ISSUER. SUCH PUBLIC SALE
AND TRANSFER RESTRICTIONS AND THE RIGHT OF REPURCHASE AND RIGHT OF
FIRST REFUSAL ARE BINDING ON TRANSFEREES OF THESE SHARES.
8
<PAGE>
12.2 Stop-Transfer Instructions. Purchaser agrees that, to
--------------------------
ensure compliance with the restrictions imposed by this Exercise Agreement, the
Company may issue appropriate "stop-transfer" instructions to its transfer
agent, if any, and if the Company transfers its own securities, it may make
appropriate notations to the same effect in its own records.
12.3 Refusal to Transfer. The Company will not be required (i)
-------------------
to transfer on its books any Shares that have been sold or otherwise transferred
in violation of any of the provisions of this Exercise Agreement or (ii) to
treat as owner of such Shares, or to accord the right to vote or pay dividends
to any purchaser or other transferee to whom such Shares have been so
transferred.
13. TAX CONSEQUENCES. PURCHASER UNDERSTANDS THAT PURCHASER MAY SUFFER
----------------
ADVERSE TAX CONSEQUENCES AS A RESULT OF PURCHASER'S PURCHASE OR DISPOSITION OF
THE SHARES. PURCHASER REPRESENTS THAT PURCHASER HAS CONSULTED WITH ANY TAX
ADVISER PURCHASER DEEMS ADVISABLE IN CONNECTION WITH THE PURCHASE OR DISPOSITION
OF THE SHARES AND THAT PURCHASER IS NOT RELYING ON THE COMPANY FOR ANY TAX
ADVICE. IN PARTICULAR, IF THE UNVESTED SHARES ARE SUBJECT TO REPURCHASE BY THE
COMPANY, PURCHASER REPRESENTS THAT PURCHASER HAS CONSULTED WITH PURCHASER'S TAX
ADVISER CONCERNING THE ADVISABILITY OF FILING AN 83(b) ELECTION WITH THE
INTERNAL REVENUE SERVICE. Set forth below is a brief summary as of the date the
Plan was adopted by the Board of some of the U.S. Federal and California tax
consequences of exercise of the Option and disposition of the Shares. THIS
SUMMARY IS NECESSARILY INCOMPLETE, AND THE TAX LAWS AND REGULATIONS ARE SUBJECT
TO CHANGE. PURCHASER SHOULD CONSULT A TAX ADVISER BEFORE EXECUTING THIS OPTION
OR DISPOSING OF THE SHARES.
13.1 Exercise of Incentive Stock Option. If the Option
----------------------------------
qualifies as an ISO, there will be no regular U.S. Federal income tax liability
or California income tax liability upon the exercise of the Option, although the
excess, if any, of the Fair Market Value of the Shares on the date of exercise
over the Exercise Price will be treated as a tax preference item for U.S.
Federal alternative minimum tax purposes and may subject Purchaser to the
alternative minimum tax in the year of exercise.
13.2 Exercise of Nonqualified Stock Option. If the Option
-------------------------------------
does not qualify as an ISO, there may be a regular U.S. Federal income tax
liability and a California income tax liability upon the exercise of the Option.
Purchaser will be treated as having received compensation income (taxable at
ordinary income tax rates) equal to the excess, if any, of the Fair Market Value
of the Shares on the date of exercise over the Exercise Price. If Purchaser is a
current or former employee of the Company, the Company may be required to
withhold from Purchaser's compensation or collect from Purchaser and pay to the
applicable taxing authorities an amount equal to a percentage of this
compensation income at the time of exercise.
13.3 Disposition of Shares. The following tax consequences may
---------------------
apply upon disposition of the Shares.
a. Incentive Stock Options. If the Shares are held for
-----------------------
more than twelve (12) months after the date of the transfer of the Shares
pursuant to the exercise of an ISO and are disposed of more than two (2) years
after the Date of Grant, any gain realized on disposition of the Shares will be
treated as capital gain for federal and California income tax purposes. The
maximum federal capital gain tax rates are twenty eight percent (28%) for Shares
held more than twelve (12) months, but not more than eighteen (18) months ("MID-
TERM CAPITAL GAIN"), and twenty percent (20%) for Shares held for more than
eighteen (18) months ("LONG-TERM CAPITAL GAIN"). If Shares purchased under an
ISO are disposed of within the applicable one (1) year or two (2) year period,
any gain realized on such disposition will be treated as compensation income
(taxable at ordinary income rates) to the extent of the excess, if any, of the
Fair Market Value of the Shares on the date of exercise over the Exercise Price.
9
<PAGE>
b. Nonqualified Stock Options. If the Shares are held for
--------------------------
more than twelve (12) months after the date of the transfer of the Shares
pursuant to the exercise of an NQSO, any gain realized on disposition of the
Shares will be treated as Mid-Term Capital Gain or Long-Term Capital Gain, as
the case may be.
c. Withholding. The Company may be required to withhold
-----------
from the Participant and pay to the applicable taxing authorities an amount
equal to a percentage of this compensation income.
13.4. Section 83(b) Election for Unvested Shares. With respect to
------------------------------------------
Unvested Shares, which are subject to the Repurchase Option, unless an election
is filed by the Purchaser with the Internal Revenue Service (and, if necessary,
the proper state taxing authorities), within 30 days of the purchase of the
--------------
Unvested Shares, electing pursuant to Code Section 83(b) (and similar state tax
provisions, if applicable) to be taxed currently on any difference between the
Exercise Price of the Unvested Shares and their Fair Market Value on the date
of purchase, there may be a recognition of taxable income (including, where
applicable, alternative minimum taxable income) to the Purchaser, measured by
the excess, if any, of the Fair Market Value of the Unvested Shares at the time
they cease to be Unvested Shares, over the Exercise Price of the Unvested
Shares.
14. COMPLIANCE WITH LAWS AND REGULATIONS. The issuance and transfer
------------------------------------
of the Shares will be subject to and conditioned upon compliance by the Company
and Purchaser with all applicable state and U.S. Federal laws and regulations
and with all applicable requirements of any stock exchange or automated
quotation system on which the Company's Common Stock may be listed or quoted at
the time of such issuance or transfer.
15. SUCCESSORS AND ASSIGNS. The Company may assign any of its rights
----------------------
under this Exercise Agreement, including its rights to repurchase Shares under
the Repurchase Option and the Right of First Refusal. This Exercise Agreement
shall be binding upon and inure to the benefit of the successors and assigns of
the Company. Subject to the restrictions on transfer herein set forth, this
Exercise Agreement will be binding upon Purchaser and Purchaser's heirs,
executors, administrators, legal representatives, successors and assigns.
16. GOVERNING LAW; SEVERABILITY. This Exercise Agreement shall be
---------------------------
governed by and construed in accordance with the internal laws of the State of
California as such laws are applied to agreements between California residents
entered into and to be performed entirely within California. If any provision
of this Exercise Agreement is determined by a court of law to be illegal or
unenforceable, then such provision will be enforced to the maximum extent
possible and the other provisions will remain fully effective and enforceable.
17. NOTICES. Any notice required to be given or delivered to the
-------
Company shall be in writing and addressed to the Corporate Secretary of the
Company at its principal corporate offices. Any notice required to be given or
delivered to Purchaser shall be in writing and addressed to Purchaser at the
address indicated above or to such other address as Purchaser may designate in
writing from time to time to the Company. All notices shall be deemed
effectively given upon personal delivery, three (3) days after deposit in the
United States mail by certified or registered mail (return receipt requested),
one (1) business day after its deposit with any return receipt express courier
(prepaid), or one (1) business day after transmission by rapifax or telecopier.
18. FURTHER INSTRUMENTS. The parties agree to execute such further
-------------------
instruments and to take such further action as may be reasonably necessary to
carry out the purposes and intent of this Exercise Agreement.
19. HEADINGS. The captions and headings of this Exercise Agreement
--------
are included for ease of reference only and will be disregarded in interpreting
or construing this Exercise Agreement. All references herein to Sections will
refer to Sections of this Exercise Agreement.
20. ENTIRE AGREEMENT. The Plan, the Stock Option Agreement and this
----------------
Exercise Agreement, together with all of its Exhibits, constitute the entire
agreement and understanding of the parties with respect to the subject matter of
this Exercise Agreement, and supersede all prior understandings and agreements,
whether oral or written, between the parties hereto with respect to the specific
subject matter hereof.
10
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Exercise Agreement to
be executed in duplicate by its duly authorized representative and Purchaser has
executed this Exercise Agreement in duplicate as of the Effective Date.
EBAY, INC. PURCHASER
By:____________________________ ______________________________
(Signature)
[[Signature Name]]
- -------------------------------
(Please print Name) [[Name]]
------------------------------
(Please print name)
[[Title]]
- -------------------------------
(Please print title)
SIGNATURE PAGE TO eBAY, INC. STOCK OPTION EXERCISE AGREEMENT
11
<PAGE>
LIST OF EXHIBITS
----------------
Exhibit 1: Stock Power and Assignment Separate From Stock Certificate
Exhibit 2: Spouse Consent
Exhibit 3: Copy of Purchaser's Check And/or Secured Full Recourse Promissory
Note
Exhibit 4: Section 83(b) Election
Exhibit 5: Stock Pledge Agreement
12
<PAGE>
EXHIBIT 1
---------
STOCK POWER AND ASSIGNMENT
--------------------------
SEPARATE FROM STOCK CERTIFICATE
-------------------------------
<PAGE>
STOCK POWER AND ASSIGNMENT
--------------------------
SEPARATE FROM STOCK CERTIFICATE
-------------------------------
FOR VALUE RECEIVED and pursuant to that certain Stock Option Exercise
Agreement No. ___ dated as of _______________, 19___, (the "EXERCISE
AGREEMENT"), the undersigned hereby sells, assigns and transfers unto
_______________________________, shares of the Common Stock of eBay, Inc., a
California corporation (the "COMPANY"), standing in the undersigned's name on
the books of the Company represented by Certificate No(s). ______ delivered
herewith, and does hereby irrevocably constitute and appoint the Secretary of
the Company as the undersigned's attorney-in-fact, with full power of
substitution, to transfer said stock on the books of the Company. THIS
ASSIGNMENT MAY ONLY BE USED AS AUTHORIZED BY THE EXERCISE AGREEMENT AND ANY
EXHIBITS THERETO.
Dated: _______________, 19____
PURCHASER
_________________________________
(Signature)
(Name)
_________________________________
(Please Print Name)
_________________________________
(Spouse's Signature, if any)
_________________________________
(Please Print Spouse's Name)
INSTRUCTIONS: Please do not fill in any blanks other than the signature line.
- ------------
The purpose of this Stock Power and Assignment is to enable the Company to
acquire the shares upon a default under Purchaser's Note and to exercise its
"Repurchase Option" and/or "Right of First Refusal" set forth in the Exercise
Agreement without requiring additional signatures on the part of the Purchaser
or Purchaser's Spouse.
<PAGE>
EXHIBIT 2
---------
SPOUSE CONSENT
--------------
<PAGE>
SPOUSE CONSENT
--------------
The undersigned spouse of Purchaser has read, understands, and hereby
approves the Stock Option Exercise Agreement between Purchaser and the Company
(the "EXERCISE AGREEMENT"). In consideration of the Company's granting my
spouse the right to purchase the Shares as set forth in the Exercise Agreement,
the undersigned hereby agrees to be irrevocably bound by the Exercise Agreement
and further agrees that any community property interest I may have in the Shares
and any other property pursuant to the Exercise Agreement shall similarly be
bound by the Exercise Agreement. The undersigned hereby appoints Purchaser as
my attorney-in-fact with respect to any amendment or exercise of any rights
under the Exercise Agreement.
Date:____________________ (Name)
-------------------------------------
Name of Purchaser - Print
-------------------------------------
Signature of Purchaser's Spouse
Address: ------------------------------------
------------------------------------
<PAGE>
EXHIBIT 3
---------
COPY OF PURCHASER'S CHECK AND/OR
--------------------------------
SECURED FULL RECOURSE PROMISSORY NOTE
-------------------------------------
2
<PAGE>
EXHIBIT 3
FORM OF
-------
SECURED FULL RECOURSE PROMISSORY NOTE
-------------------------------------
San Jose, California
$__________________ [Date]
1. OBLIGATION. In exchange for the issuance to the undersigned
----------
("PURCHASER") of Eight Hundred Thousand shares (the "SHARES") of the Common
Stock of eBay, Inc., a California corporation (the "COMPANY"), receipt of which
is hereby acknowledged, Purchaser hereby promises to pay to the order of the
Company on or before _____________________, at the Company's principal place of
business at 2005 Hamilton Avenue, Suite 350, San Jose, California 95125, or at
such other place as the Company may direct, the principal sum of
____________________ Dollars ($_______________) together with interest
compounded semi-annually on the unpaid principal at the rate of _________
percent (__%), which rate is not less than the minimum rate established pursuant
to Section 1274(d) of the Internal Revenue Code of 1986, as amended, on the
earliest date on which there was a binding contract in writing for the purchase
of the Shares; provided, however, that the rate at which interest will accrue on
-------- -------
unpaid principal under this Note will not exceed the highest rate permitted by
applicable law; and provided further that interest on the unpaid principal shall
be due and payable on December 1 of each year.
2. SECURITY. Payment of this Note is secured by a security interest
--------
in the Shares granted to the Company by Purchaser under a Stock Pledge Agreement
dated of even date herewith between the Company and Purchaser (the "PLEDGE
AGREEMENT"). This Note is being tendered by Purchaser to the Company as part of
the Exercise Price of the Shares pursuant to that certain Stock Option Exercise
Agreement between Purchaser and the Company dated of even date with this Note
(the "PURCHASE AGREEMENT").
3. DEFAULT; ACCELERATION OF OBLIGATION. Purchaser will be deemed to
-----------------------------------
be in default under this Note and the principal sum of this Note, together with
all interest accrued thereon, will immediately become due and payable in full:
(a) upon Purchaser's failure to make any payment when due under this Note; (b)
in the event Purchaser is Terminated (as defined in the Company's 1997 Stock
Option Plan) for any reason; (c) upon any transfer of any of the Shares (except
a transfer to the Company); (d) upon the filing by or against Purchaser of any
voluntary or involuntary petition in bankruptcy or any petition for relief under
the U.S. Federal bankruptcy code or any other state or U.S. Federal law for the
relief of debtors; or (e) upon the execution by Purchaser of an assignment for
the benefit of creditors or the appointment of a receiver, custodian, trustee or
similar party to take possession of Purchaser's assets or property.
4. REMEDIES ON DEFAULT. Upon any default of Purchaser under this
-------------------
Note, the Company will have, in addition to its rights and remedies under this
Note and the Pledge Agreement, full recourse against any real, personal,
tangible or intangible assets of Purchaser, and may pursue any legal or
equitable remedies that are available to it.
5. PREPAYMENT. Prepayment of principal and/or interest due under
----------
this Note may be made at any time without penalty. Unless otherwise agreed in
writing by the Company, all payments will be made in lawful tender of the United
States and will be applied first to the payment of accrued interest, and the
remaining balance of such payment, if any, will then be applied to the payment
of principal. If Purchaser prepays all or a portion of the principal amount of
this Note, the Shares paid for by the portion of principal so paid will continue
to be held in pledge under the Pledge Agreement to serve as independent
collateral for the outstanding portion of this Note and for that Secured Non-
Recourse Promissory Note of even date.
<PAGE>
6. GOVERNING LAW; WAIVER. The validity, construction and performance
---------------------
of this Note will be governed by the internal laws of the State of California,
excluding that body of law pertaining to conflicts of law. Purchaser hereby
waives presentment, notice of non-payment, notice of dishonor, protest, demand
and diligence.
7. ATTORNEYS' FEES. If suit is brought for collection of this Note,
---------------
Purchaser agrees to pay all reasonable expenses, including attorneys' fees,
incurred by the holder in connection therewith whether or not such suit is
prosecuted to judgment.
8. RULE 144 HOLDING PERIOD. PURCHASER UNDERSTANDS THAT THE HOLDING
-----------------------
PERIOD SPECIFIED UNDER RULE 144(d) OF THE SECURITIES AND EXCHANGE COMMISSION
WILL NOT BEGIN TO RUN WITH RESPECT TO SHARES PURCHASED WITH THIS NOTE UNTIL
EITHER (A) THE EXERCISE PRICE OF SUCH SHARES IS PAID IN FULL IN CASH OR BY OTHER
PROPERTY ACCEPTED BY THE COMPANY, OR (B) THIS NOTE IS SECURED BY COLLATERAL,
OTHER THAN THE SHARES THAT HAVE NOT BEEN FULLY PAID FOR, HAVING A FAIR MARKET
VALUE AT LEAST EQUAL TO THE AMOUNT OF PURCHASER'S THEN OUTSTANDING OBLIGATION
UNDER THIS NOTE (INCLUDING ACCRUED INTEREST).
IN WITNESS WHEREOF, Purchaser has executed this Note as of the date and
year first above written.
__________________________ __________________________
Purchaser's Name Purchaser's Signature
SIGNATURE PAGE TO eBAY, INC. SECURED FULL
RECOURSE PROMISSORY NOTE
-2-
<PAGE>
EXHIBIT 4
---------
SECTION 83(B) ELECTION
----------------------
<PAGE>
[FOR REGULAR INCOME TAX - NONQUALIFIED OPTIONS]
[FOR AMT AND DISQUALIFYING DISPOSITION PURPOSES - INCENTIVE STOCK OPTION]
ELECTION UNDER SECTION 83(B) OF THE
INTERNAL REVENUE CODE
The undersigned Taxpayer hereby elects, pursuant to Section 83(b) of the
Internal Revenue Code of 1986, as amended, to include the excess, if any, of the
fair market value of the property described below at the time of transfer over
the amount paid for such property, as compensation for services in the
calculation of: (1) regular gross income; (2) alternative minimum taxable income
or (3) disqualifying disposition gross income, as the case may be.
1. TAXPAYER'S NAME: (Name)
-----------------------------------------
TAXPAYER'S ADDRESS: _________________________________________
_________________________________________
SOCIAL SECURITY NUMBER: _________________________________________
2. The property with respect to which the election is made is described as
follows: (No-of-Shares) shares of Common Stock of eBay, Inc., a California
corporation which were transferred upon exercise of an option (the
"COMPANY"), which is Taxpayer's employer or the corporation for whom the
Taxpayer performs services.
3. The date on which the shares were transferred pursuant to the exercise of the
option was ________, _______ and this election is made for calendar year
________.
4. The shares received upon exercise of the option are subject to the following
restrictions: The Company may repurchase all or a portion of the shares at
the Taxpayer's original purchase price under certain conditions at the time
of Taxpayer's termination of employment or services.
5. The fair market value of the shares (without regard to restrictions other
than restrictions which by their terms will never lapse) was $________ per
share at the time of exercise of the option.
6. The amount paid for such shares upon exercise of the option was
(Price-per-Share) per share.
7. The Taxpayer has submitted a copy of this statement to the Company.
THIS ELECTION MUST BE FILED WITH THE INTERNAL REVENUE SERVICE ("IRS"), AT THE
OFFICE WHERE THE TAXPAYER FILES ANNUAL INCOME TAX RETURNS, WITHIN 30 DAYS AFTER
--------------
THE DATE OF TRANSFER OF THE SHARES, AND MUST ALSO BE FILED WITH THE TAXPAYER'S
INCOME TAX RETURNS FOR THE CALENDAR YEAR. THE ELECTION CANNOT BE REVOKED
WITHOUT THE CONSENT OF THE IRS.
Dated: ________________ ____________________________________
Taxpayer's Signature
<PAGE>
EXHIBIT 5
---------
STOCK PLEDGE AGREEMENT
----------------------
<PAGE>
EXHIBIT 5
---------
FORM OF
-------
STOCK PLEDGE AGREEMENT
----------------------
This Exercise Agreement is made and entered into as of _________________
between eBay, Inc., a California corporation (the "COMPANY"), and
___________________ ("PLEDGOR").
R E C I T A L S
- - - - - - - -
A. In exchange for Pledgor's Secured Full Recourse Promissory Note
and Secured Non-Recourse Promissory Note to the Company of even date herewith
(the "NOTE"), the Company has issued and sold to Pledgor ____________________
shares of its Common Stock (the "SHARES") pursuant to the terms and conditions
of that Stock Option Exercise Agreement between the Company and Pledgor of even
date herewith (the "PURCHASE AGREEMENT").
B. Pledgor has agreed that repayment of the Note will be secured by
the pledge of the Shares pursuant to this Exercise Agreement.
NOW, THEREFORE, the parties agree as follows:
1. CREATION OF SECURITY INTEREST. Pursuant to the provisions of the
-----------------------------
California Commercial Code, Pledgor hereby grants to the Company, and the
Company hereby accepts, a first and present security interest in the Shares as
collateral to secure the payment of Pledgor's obligation to the Company under
the Note. Pledgor herewith delivers to the Company Common Stock certificate(s)
No(s). _________, representing all the Shares, together with one stock power for
each certificate in the form attached as an Exhibit to the Purchase Agreement,
duly executed (with the date and number of shares left blank) by Pledgor and
Pledgor's spouse, if any. For purposes of this Exercise Agreement, the Shares
pledged to the Company hereby, together with any additional collateral pledged
pursuant to Sections 5 and 6 hereof, will hereinafter be collectively referred
to as the "COLLATERAL." Pledgor agrees that the Collateral pledged to the
Company will be deposited with and held by the Escrow Holder (as defined in the
Purchase Agreement) and that, notwithstanding anything to the contrary in the
Purchase Agreement, for purposes of carrying out the provisions of this Exercise
Agreement, Escrow Holder will act solely for the Company as its agent.
2. REPRESENTATIONS AND WARRANTIES. Pledgor hereby represents and
------------------------------
warrants to the Company that Pledgor has good title (both record and beneficial)
to the Collateral, free and clear of all claims, pledges, security interests,
liens or encumbrances of every nature whatsoever, and that Pledgor has the right
to pledge and grant the Company the security interest in the Collateral granted
under this Exercise Agreement. Pledgor further agrees that, until the entire
principal sum and all accrued interest due under the Note has been paid in full,
Purchaser will not, without the Company's prior written consent, (i) sell,
assign or transfer, or attempt to sell, assign or transfer, any of the
Collateral, or (ii) grant or create, or attempt to grant or create, any security
interest, lien, pledge, claim or other encumbrance with respect to any of the
Collateral.
3. RIGHTS ON DEFAULT. In the event of default (as defined in the
-----------------
Note) by Pledgor under the Note, the Company will have full power to sell,
assign and deliver the whole or any part of the Collateral at any broker's
exchange or elsewhere, at public or private sale, at the option of the Company,
in order to satisfy any part of the obligations of Pledgor now existing or
hereinafter arising under the Note. On any such sale, the Company or its
assigns may purchase all or any part of the Collateral. In addition, at its
sole option, the Company may elect to retain all the Collateral in full
satisfaction of Pledgor's obligation under the Note, in accordance with the
provisions and procedures set forth in the California Commercial Code.
4. ADDITIONAL REMEDIES. The rights and remedies granted to the
-------------------
Company herein upon default under the Note will be in addition to all the
rights, powers and remedies of the Company under the
<PAGE>
California Commercial Code and applicable law and such rights, powers and
remedies will be exercisable by the Company with respect to all of the
Collateral. Pledgor agrees that the Company's reasonable expenses of holding the
Collateral, preparing it for resale or other disposition, and selling or
otherwise disposing of the Collateral, including attorneys' fees and other legal
expenses, will be deducted from the proceeds of any sale or other disposition
and will be included in the amounts Pledgor must tender to redeem the
Collateral. All rights, powers and remedies of the Company will be cumulative
and not alternative. Any forbearance or failure or delay by the Company in
exercising any right, power or remedy hereunder will not be deemed to be a
waiver of any such right, power or remedy and any single or partial exercise of
any such right, power or remedy hereunder will not preclude the further exercise
thereof.
5. DIVIDENDS; VOTING. All dividends hereinafter declared on or
-----------------
payable with respect to the Collateral during the term of this pledge (excluding
only ordinary cash dividends, which will be payable to Pledgor so long as
Pledgor is not in default under the Note) will be immediately delivered to the
Company to be held in pledge under this Exercise Agreement. Notwithstanding
this Exercise Agreement, so long as Pledgor owns the Shares and is not in
default under the Note, Pledgor will be entitled to vote any shares comprising
the Collateral, subject to any proxies granted by Pledgor.
6. ADJUSTMENTS. In the event that during the term of this pledge,
-----------
any stock dividend, reclassification, readjustment, stock split or other change
is declared or made with respect to the Collateral, or if warrants or any other
rights, options or securities are issued in respect of the Collateral, then all
new, substituted and/or additional shares or other securities issued by reason
of such change or by reason of the exercise of such warrants, rights, options or
securities, will be immediately pledged to the Company to be held under the
terms of this Exercise Agreement in the same manner as the Collateral is held
hereunder.
7. RIGHTS UNDER PURCHASE AGREEMENT. Pledgor understands and agrees
-------------------------------
that the Company's rights to repurchase the Collateral under the Purchase
Agreement, if any, will continue for the periods and on the terms and conditions
specified in the Purchase Agreement, whether or not the Note has been paid
during such period of time, and that to the extent that the Note is not paid
during such period of time, the repurchase by the Company of the Collateral may
be made by way of cancellation of all or any part of Pledgor's indebtedness
under the Note.
8. REDELIVERY OF COLLATERAL. Upon payment in full of the entire
------------------------
principal sum and all accrued interest due under the Note, and subject to the
terms and conditions of the Purchase Agreement, the Company will immediately
redeliver the Collateral to Pledgor and this Exercise Agreement will terminate;
provided, however, that all rights of the Company to retain possession of the
- -------- -------
Shares pursuant to the Purchase Agreement will survive termination of this
Exercise Agreement.
9. SUCCESSORS AND ASSIGNS. This Exercise Agreement will inure to the
----------------------
benefit of the respective heirs, personal representatives, successors and
assigns of the parties hereto.
10. GOVERNING LAW; SEVERABILITY. This Exercise Agreement will be
---------------------------
governed by and construed in accordance with the internal laws of the State of
California, excluding that body of law relating to conflicts of law. Should one
or more of the provisions of this Exercise Agreement be determined by a court of
law to be illegal or unenforceable, the other provisions nevertheless will
remain effective and will be enforceable.
11. MODIFICATION; ENTIRE AGREEMENT. This Exercise Agreement will not
------------------------------
be amended without the written consent of both parties hereto. This Exercise
Agreement constitutes the entire agreement of the parties hereto with respect to
the subject matter hereof and supersedes all prior agreements and understandings
related to such subject matter.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Stock Pledge
Agreement as of the date and year first above written.
eBAY, INC. PLEDGOR
By:_______________________ __________________________
(Signature)
(Signature Name) ((Name))
__________________________ --------------------------
(Please print name) (Please print name)
(Title)
__________________________
(Please print title)
SIGNATURE PAGE TO eBAY, INC. STOCK PLEDGE AGREEMENT
<PAGE>
EXHIBIT 10.04
eBAY, INC.
1998 EQUITY INCENTIVE PLAN
As Adopted _____________, 1998
1. PURPOSE. The purpose of this Plan is to provide incentives to
-------
attract, retain and motivate eligible persons whose present and potential
contributions are important to the success of the Company, its Parent and
Subsidiaries, by offering them an opportunity to participate in the Company's
future performance through awards of Options, Restricted Stock and Stock
Bonuses. Capitalized terms not defined in the text are defined in Section 23.
2. SHARES SUBJECT TO THE PLAN.
--------------------------
2.1 Number of Shares Available. Subject to Sections 2.2 and 18,
--------------------------
the total number of Shares reserved and available for grant and issuance
pursuant to this Plan will be 4,500,000 Shares plus Shares that are subject
to: (a) issuance upon exercise of an Option but cease to be subject to such
Option for any reason other than exercise of such Option; (b) an Award granted
hereunder but are forfeited or are repurchased by the Company at the original
issue price; and (c) an Award that otherwise terminates without Shares being
issued. In addition, any authorized shares not issued or subject to outstanding
grants under the Company's 1996 Stock Option Plan or 1997 Stock Option Plan (the
"PRIOR PLANS") on the Effective Date (as defined below) and any shares issued
under the Prior Plans that are forfeited or repurchased by the Company or that
are issuable upon exercise of options granted pursuant to the Prior Plans that
expire or become unexercisable for any reason without having been exercised in
full, will no longer be available for grant and issuance under the Prior Plans,
but will be available for grant and issuance under this Plan. At all times the
Company shall reserve and keep available a sufficient number of Shares as shall
be required to satisfy the requirements of all outstanding Options granted under
this Plan and all other outstanding but unvested Awards granted under this Plan.
2.2 Adjustment of Shares. In the event that the number of
--------------------
outstanding shares is changed by a stock dividend, recapitalization, stock
split, reverse stock split, subdivision, combination, reclassification or
similar change in the capital structure of the Company without consideration,
then (a) the number of Shares reserved for issuance under this Plan, (b) the
Exercise Prices of and number of Shares subject to outstanding Options, and (c)
the number of Shares subject to other outstanding Awards will be proportionately
adjusted, subject to any required action by the Board or the stockholders of the
Company and compliance with applicable securities laws; provided, however, that
-------- -------
fractions of a Share will not be issued but will either be replaced by a cash
payment equal to the Fair Market Value of such fraction of a Share or will be
rounded up to the nearest whole Share, as determined by the Committee.
3. ELIGIBILITY. ISOs (as defined in Section 5 below) may be granted
-----------
only to employees (including officers and directors who are also employees) of
the Company or of a Parent or Subsidiary of the Company. All other Awards may
be granted to employees, officers, directors, consultants, independent
contractors and advisors of the Company or any Parent or Subsidiary of the
Company; provided such consultants, contractors and advisors render bona fide
--------
services not in connection with the offer and sale of securities in a capital-
raising transaction. No person will be eligible to receive more than 1,000,000*
Shares in any calendar year under this Plan pursuant to the grant of Awards
hereunder, other than new employees of the Company or of a Parent or Subsidiary
of the Company (including new employees who are also officers and directors of
the Company or any Parent or Subsidiary of the Company), who are eligible to
receive up to a maximum of 2,000,000* Shares in the calendar year in which they
commence their employment. A person may be granted more than one Award under
this Plan.
<PAGE>
eBay, Inc.
1998 Equity Incentive Plan
4. ADMINISTRATION.
--------------
4.1 Committee Authority. This Plan will be administered by the
-------------------
Committee or by the Board acting as the Committee. Subject to the general
purposes, terms and conditions of this Plan, and to the direction of the Board,
the Committee will have full power to implement and carry out this Plan.
Without limitation, the Committee will have the authority to:
(a) construe and interpret this Plan, any Award Agreement and any
other agreement or document executed pursuant to this Plan;
(b) prescribe, amend and rescind rules and regulations relating to
this Plan or any Award;
(c) select persons to receive Awards;
(d) determine the form and terms of Awards;
(e) determine the number of Shares or other consideration subject to
Awards;
(f) determine whether Awards will be granted singly, in combination
with, in tandem with, in replacement of, or as alternatives to,
other Awards under this Plan or any other incentive or
compensation plan of the Company or any Parent or Subsidiary of
the Company;
(g) grant waivers of Plan or Award conditions;
(h) determine the vesting, exercisability and payment of Awards;
(i) correct any defect, supply any omission or reconcile any
inconsistency in this Plan, any Award or any Award Agreement;
(j) determine whether an Award has been earned; and
(k) make all other determinations necessary or advisable for the
administration of this Plan.
4.2 Committee Discretion. Any determination made by the
--------------------
Committee with respect to any Award will be made in its sole discretion at the
time of grant of the Award or, unless in contravention of any express term of
this Plan or Award, at any later time, and such determination will be final and
binding on the Company and on all persons having an interest in any Award under
this Plan. The Committee may delegate to one or more officers of the Company
the authority to grant an Award under this Plan to Participants who are not
Insiders of the Company.
5. OPTIONS. The Committee may grant Options to eligible persons and
-------
will determine whether such Options will be Incentive Stock Options within the
meaning of the Code ("ISO") or Nonqualified Stock Options ("NQSOS"), the number
of Shares subject to the Option, the Exercise Price of the Option, the period
during which the Option may be exercised, and all other terms and conditions of
the Option, subject to the following:
5.1 Form of Option Grant. Each Option granted under this Plan
--------------------
will be evidenced by an Award Agreement which will expressly identify the Option
as an ISO or an NQSO ("STOCK OPTION AGREEMENT"), and will be in such form and
contain such provisions (which need not be the same for each Participant) as the
Committee may from time to time approve, and which will comply with and be
subject to the terms and conditions of this Plan.
-2-
<PAGE>
eBay, Inc.
1998 Equity Incentive Plan
5.2 Date of Grant. The date of grant of an Option will be the
-------------
date on which the Committee makes the determination to grant such Option, unless
otherwise specified by the Committee. The Stock Option Agreement and a copy of
this Plan will be delivered to the Participant within a reasonable time after
the granting of the Option.
5.3 Exercise Period. Options may be exercisable within the times
---------------
or upon the events determined by the Committee as set forth in the Stock Option
Agreement governing such Option; provided, however, that no Option will be
-------- -------
exercisable after the expiration of ten (10) years from the date the Option is
granted; and provided further that no ISO granted to a person who directly or by
-------- -------
attribution owns more than ten percent (10%) of the total combined voting power
of all classes of stock of the Company or of any Parent or Subsidiary of the
Company ("TEN PERCENT STOCKHOLDER") will be exercisable after the expiration of
five (5) years from the date the ISO is granted. The Committee also may provide
for Options to become exercisable at one time or from time to time, periodically
or otherwise, in such number of Shares or percentage of Shares as the Committee
determines.
5.4 Exercise Price. The Exercise Price of an Option will be
--------------
determined by the Committee when the Option is granted and may be not less than
85% of the Fair Market Value of the Shares on the date of grant; provided that:
(i) the Exercise Price of an ISO will be not less than 100% of the Fair Market
Value of the Shares on the date of grant; and (ii) the Exercise Price of any ISO
granted to a Ten Percent Stockholder will not be less than 110% of the Fair
Market Value of the Shares on the date of grant. Payment for the Shares
purchased may be made in accordance with Section 8 of this Plan.
5.5 Method of Exercise. Options may be exercised only by
------------------
delivery to the Company of a written stock option exercise agreement (the
"EXERCISE AGREEMENT") in a form approved by the Committee (which need not be the
same for each Participant), stating the number of Shares being purchased, the
restrictions imposed on the Shares purchased under such Exercise Agreement, if
any, and such representations and agreements regarding Participant's investment
intent and access to information and other matters, if any, as may be required
or desirable by the Company to comply with applicable securities laws, together
with payment in full of the Exercise Price for the number of Shares being
purchased.
5.6 Termination. Notwithstanding the exercise periods set forth
-----------
in the Stock Option Agreement, exercise of an Option will always be subject to
the following:
(a) If the Participant is Terminated for any reason except death or
Disability, then the Participant may exercise such Participant's
Options only to the extent that such Options would have been
exercisable upon the Termination Date no later than three (3)
months after the Termination Date (or such shorter or longer time
period not exceeding five (5) years as may be determined by the
Committee, with any exercise beyond three (3) months after the
Termination Date deemed to be an NQSO), but in any event, no
later than the expiration date of the Options.
(b) If the Participant is Terminated because of Participant's death
or Disability (or the Participant dies within three (3) months
after a Termination other than for Cause or because of
Participant's Disability), then Participant's Options may be
exercised only to the extent that such Options would have been
exercisable by Participant on the Termination Date and must be
exercised by Participant (or Participant's legal representative
or authorized assignee) no later than twelve (12) months after
the Termination Date (or such shorter or longer time period not
exceeding five (5) years as may be determined by the Committee,
with any such exercise beyond (a) three (3) months after the
Termination Date when the Termination is for any reason other
than the Participant's death or Disability, or (b) twelve (12)
months after the Termination Date when the Termination is for
Participant's death or Disability, deemed to be an NQSO), but in
any event no later than the expiration date of the Options.
-3-
<PAGE>
eBay, Inc.
1998 Equity Incentive Plan
(c) Notwithstanding the provisions in paragraph 5.6(a) above, if a
Participant is terminated for Cause, neither the Participant, the
Participant's estate nor such other person who may then hold the
Option shall be entitled to exercise any Option with respect to
any Shares whatsoever, after termination of service, whether or
not after termination of service the Participant may receive
payment from the Company or Subsidiary for vacation pay, for
services rendered prior to termination, for services rendered for
the day on which termination occurs, for salary in lieu of
notice, or for any other benefits. In making such determination,
the Board shall give the Participant an opportunity to present to
the Board evidence on his behalf. For the purpose of this
paragraph, termination of service shall be deemed to occur on the
date when the Company dispatches notice or advice to the
Participant that his service is terminated.
5.7 Limitations on Exercise. The Committee may specify a
-----------------------
reasonable minimum number of Shares that may be purchased on any exercise of an
Option, provided that such minimum number will not prevent Participant from
exercising the Option for the full number of Shares for which it is then
exercisable.
5.8 Limitations on ISO. The aggregate Fair Market Value
------------------
(determined as of the date of grant) of Shares with respect to which ISO are
exercisable for the first time by a Participant during any calendar year (under
this Plan or under any other incentive stock option plan of the Company, Parent
or Subsidiary of the Company) will not exceed $100,000. If the Fair Market
Value of Shares on the date of grant with respect to which ISO are exercisable
for the first time by a Participant during any calendar year exceeds $100,000,
then the Options for the first $100,000 worth of Shares to become exercisable in
such calendar year will be ISO and the Options for the amount in excess of
$100,000 that become exercisable in that calendar year will be NQSOs. In the
event that the Code or the regulations promulgated thereunder are amended after
the Effective Date of this Plan to provide for a different limit on the Fair
Market Value of Shares permitted to be subject to ISO, such different limit will
be automatically incorporated herein and will apply to any Options granted after
the effective date of such amendment.
5.9 Modification, Extension or Renewal. The Committee may
----------------------------------
modify, extend or renew outstanding Options and authorize the grant of new
Options in substitution therefor, provided that any such action may not, without
the written consent of a Participant, impair any of such Participant's rights
under any Option previously granted. Any outstanding ISO that is modified,
extended, renewed or otherwise altered will be treated in accordance with
Section 424(h) of the Code. The Committee may reduce the Exercise Price of
outstanding Options without the consent of Participants affected by a written
notice to them; provided, however, that the Exercise Price may not be reduced
-------- -------
below the minimum Exercise Price that would be permitted under Section 5.4 of
this Plan for Options granted on the date the action is taken to reduce the
Exercise Price.
5.10 No Disqualification. Notwithstanding any other provision in
-------------------
this Plan, no term of this Plan relating to ISO will be interpreted, amended or
altered, nor will any discretion or authority granted under this Plan be
exercised, so as to disqualify this Plan under Section 422 of the Code or,
without the consent of the Participant affected, to disqualify any ISO under
Section 422 of the Code.
6. RESTRICTED STOCK. A Restricted Stock Award is an offer by the
----------------
Company to sell to an eligible person Shares that are subject to restrictions.
The Committee will determine to whom an offer will be made, the number of Shares
the person may purchase, the price to be paid (the "PURCHASE PRICE"), the
restrictions to which the Shares will be subject, and all other terms and
conditions of the Restricted Stock Award, subject to the following:
6.1 Form of Restricted Stock Award. All purchases under a
------------------------------
Restricted Stock Award made pursuant to this Plan will be evidenced by an Award
Agreement ("RESTRICTED STOCK PURCHASE AGREEMENT") that will be in such form
(which need not be the same for each Participant) as the Committee will from
time to time approve, and will comply with and be subject to the terms and
conditions of this Plan. The offer of Restricted Stock will be accepted by the
Participant's execution and delivery of the Restricted Stock Purchase Agree-
-4-
<PAGE>
eBay, Inc.
1998 Equity Incentive Plan
ment and full payment for the Shares to the Company within thirty (30) days from
the date the Restricted Stock Purchase Agreement is delivered to the person. If
such person does not execute and deliver the Restricted Stock Purchase Agreement
along with full payment for the Shares to the Company within thirty (30) days,
then the offer will terminate, unless otherwise determined by the Committee.
6.2 Purchase Price. The Purchase Price of Shares sold pursuant
--------------
to a Restricted Stock Award will be determined by the Committee on the date the
Restricted Stock Award is granted, except in the case of a sale to a Ten Percent
Stockholder, in which case the Purchase Price will be 100% of the Fair Market
Value. Payment of the Purchase Price may be made in accordance with Section 8
of this Plan.
6.3 Terms of Restricted Stock Awards. Restricted Stock Awards
--------------------------------
shall be subject to such restrictions as the Committee may impose. These
restrictions may be based upon completion of a specified number of years of
service with the Company or upon completion of the performance goals as set out
in advance in the Participant's individual Restricted Stock Purchase Agreement.
Restricted Stock Awards may vary from Participant to Participant and between
groups of Participants. Prior to the grant of a Restricted Stock Award, the
Committee shall: (a) determine the nature, length and starting date of any
Performance Period for the Restricted Stock Award; (b) select from among the
Performance Factors to be used to measure performance goals, if any; and (c)
determine the number of Shares that may be awarded to the Participant. Prior to
the payment of any Restricted Stock Award, the Committee shall determine the
extent to which such Restricted Stock Award has been earned. Performance
Periods may overlap and Participants may participate simultaneously with respect
to Restricted Stock Awards that are subject to different Performance Periods and
having different performance goals and other criteria.
6.4 Termination During Performance Period. If a Participant is
-------------------------------------
Terminated during a Performance Period for any reason, then such Participant
will be entitled to payment (whether in Shares, cash or otherwise) with respect
to the Restricted Stock Award only to the extent earned as of the date of
Termination in accordance with the Restricted Stock Purchase Agreement, unless
the Committee will determine otherwise.
7. STOCK BONUSES.
-------------
7.1 Awards of Stock Bonuses. A Stock Bonus is an award of Shares
-----------------------
(which may consist of Restricted Stock) for services rendered to the Company or
any Parent or Subsidiary of the Company. A Stock Bonus may be awarded for past
services already rendered to the Company, or any Parent or Subsidiary of the
Company pursuant to an Award Agreement (the "STOCK BONUS AGREEMENT") that will
be in such form (which need not be the same for each Participant) as the
Committee will from time to time approve, and will comply with and be subject to
the terms and conditions of this Plan. A Stock Bonus may be awarded upon
satisfaction of such performance goals as are set out in advance in the
Participant's individual Award Agreement (the "PERFORMANCE STOCK BONUS
AGREEMENT") that will be in such form (which need not be the same for each
Participant) as the Committee will from time to time approve, and will comply
with and be subject to the terms and conditions of this Plan. Stock Bonuses may
vary from Participant to Participant and between groups of Participants, and may
be based upon the achievement of the Company, Parent or Subsidiary and/or
individual performance factors or upon such other criteria as the Committee may
determine.
7.2 Terms of Stock Bonuses. The Committee will determine the
----------------------
number of Shares to be awarded to the Participant. If the Stock Bonus is being
earned upon the satisfaction of performance goals pursuant to a Performance
Stock Bonus Agreement, then the Committee will: (a) determine the nature,
length and starting date of any Performance Period for each Stock Bonus; (b)
select from among the Performance Factors to be used to measure the performance,
if any; and (c) determine the number of Shares that may be awarded to the
Participant. Prior to the payment of any Stock Bonus, the Committee shall
determine the extent to which such Stock Bonuses have been earned. Performance
Periods may overlap and Participants may participate simultaneously with respect
to Stock Bonuses that are subject to different Performance Periods and different
performance goals and other criteria. The number of Shares may be fixed or may
vary in accordance with such performance goals and criteria as may be determined
by the Committee. The Committee may adjust the performance goals applicable to
the Stock Bonuses to take into account changes in law and accounting or tax
rules and to make such adjustments as
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1998 Equity Incentive Plan
the Committee deems necessary or appropriate to reflect the impact of
extraordinary or unusual items, events or circumstances to avoid windfalls or
hardships.
7.3 Form of Payment. The earned portion of a Stock Bonus may be
---------------
paid currently or on a deferred basis with such interest or dividend equivalent,
if any, as the Committee may determine. Payment may be made in the form of cash
or whole Shares or a combination thereof, either in a lump sum payment or in
installments, all as the Committee will determine.
8. PAYMENT FOR SHARE PURCHASES.
---------------------------
8.1 Payment. Payment for Shares purchased pursuant to this Plan
-------
may be made in cash (by check) or, where expressly approved for the Participant
by the Committee and where permitted by law:
(a) by cancellation of indebtedness of the Company to the
Participant;
(b) by surrender of shares that either: (1) have been owned by
Participant for more than six (6) months and have been paid for
within the meaning of SEC Rule 144 (and, if such shares were
purchased from the Company by use of a promissory note, such note
has been fully paid with respect to such shares); or (2) were
obtained by Participant in the public market;
(c) by tender of a full recourse promissory note having such terms
as may be approved by the Committee and bearing interest at a
rate sufficient to avoid imputation of income under Sections 483
and 1274 of the Code; provided, however, that Participants who
-------- -------
are not employees or directors of the Company will not be
entitled to purchase Shares with a promissory note unless the
note is adequately secured by collateral other than the Shares;
(d) by waiver of compensation due or accrued to the Participant for
services rendered;
(e) with respect only to purchases upon exercise of an Option, and
provided that a public market for the Company's stock exists:
(1) through a "same day sale" commitment from the Participant
and a broker-dealer that is a member of the National
Association of Securities Dealers (an "NASD DEALER")
whereby the Participant irrevocably elects to exercise the
Option and to sell a portion of the Shares so purchased to
pay for the Exercise Price, and whereby the NASD Dealer
irrevocably commits upon receipt of such Shares to forward
the Exercise Price directly to the Company; or
(2) through a "margin" commitment from the Participant and a
NASD Dealer whereby the Participant irrevocably elects to
exercise the Option and to pledge the Shares so purchased
to the NASD Dealer in a margin account as security for a
loan from the NASD Dealer in the amount of the Exercise
Price, and whereby the NASD Dealer irrevocably commits upon
receipt of such Shares to forward the Exercise Price
directly to the Company; or
(f) by any combination of the foregoing.
8.2 Loan Guarantees. The Committee may help the Participant pay
---------------
for Shares purchased under this Plan by authorizing a guarantee by the Company
of a third-party loan to the Participant.
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9. WITHHOLDING TAXES.
-----------------
9.1 Withholding Generally. Whenever Shares are to be issued in
---------------------
satisfaction of Awards granted under this Plan, the Company may require the
Participant to remit to the Company an amount sufficient to satisfy federal,
state and local withholding tax requirements prior to the delivery of any
certificate or certificates for such Shares. Whenever, under this Plan,
payments in satisfaction of Awards are to be made in cash, such payment will be
net of an amount sufficient to satisfy federal, state, and local withholding tax
requirements.
9.2 Stock Withholding. When, under applicable tax laws, a
-----------------
Participant incurs tax liability in connection with the exercise or vesting of
any Award that is subject to tax withholding and the Participant is obligated to
pay the Company the amount required to be withheld, the Committee may in its
sole discretion allow the Participant to satisfy the minimum withholding tax
obligation by electing to have the Company withhold from the Shares to be issued
that number of Shares having a Fair Market Value equal to the minimum amount
required to be withheld, determined on the date that the amount of tax to be
withheld is to be determined. All elections by a Participant to have Shares
withheld for this purpose will be made in accordance with the requirements
established by the Committee and be in writing in a form acceptable to the
Committee
10. PRIVILEGES OF STOCK OWNERSHIP.
-----------------------------
10.1 Voting and Dividends. No Participant will have any of the
--------------------
rights of a stockholder with respect to any Shares until the Shares are issued
to the Participant. After Shares are issued to the Participant, the Participant
will be a stockholder and have all the rights of a stockholder with respect to
such Shares, including the right to vote and receive all dividends or other
distributions made or paid with respect to such Shares; provided, that if such
--------
Shares are Restricted Stock, then any new, additional or different securities
the Participant may become entitled to receive with respect to such Shares by
virtue of a stock dividend, stock split or any other change in the corporate or
capital structure of the Company will be subject to the same restrictions as the
Restricted Stock; provided, further, that the Participant will have no right to
-------- -------
retain such stock dividends or stock distributions with respect to Shares that
are repurchased at the Participant's Purchase Price or Exercise Price pursuant
to Section 12.
10.2 Financial Statements. The Company will provide financial
--------------------
statements to each Participant prior to such Participant's purchase of Shares
under this Plan, and to each Participant annually during the period such
Participant has Awards outstanding; provided, however, the Company will not be
-------- -------
required to provide such financial statements to Participants whose services in
connection with the Company assure them access to equivalent information.
11. TRANSFERABILITY. Awards granted under this Plan, and any interest
---------------
therein, will not be transferable or assignable by Participant, and may not be
made subject to execution, attachment or similar process, otherwise than by will
or by the laws of descent and distribution or as determined by the Committee and
set forth in the Award Agreement with respect to Awards that are not ISOs.
During the lifetime of the Participant an Award will be exercisable only by the
Participant, and any elections with respect to an Award may be made only by the
Participant unless otherwise determined by the Committee and set forth in the
Award Agreement with respect to Awards that are not ISOs.
12. RESTRICTIONS ON SHARES. At the discretion of the Committee, the
----------------------
Company may reserve to itself and/or its assignee(s) in the Award Agreement a
right to repurchase a portion of or all Unvested Shares held by a Participant
following such Participant's Termination at any time within ninety (90) days
after the later of Participant's Termination Date and the date Participant
purchases Shares under this Plan, for cash and/or cancellation of purchase money
indebtedness, at the Participant's Exercise Price or Purchase Price, as the case
may be.
13. CERTIFICATES. All certificates for Shares or other securities
------------
delivered under this Plan will be subject to such stock transfer orders, legends
and other restrictions as the Committee may deem necessary or
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1998 Equity Incentive Plan
advisable, including restrictions under any applicable federal, state or foreign
securities law, or any rules, regulations and other requirements of the SEC or
any stock exchange or automated quotation system upon which the Shares may be
listed or quoted.
14. ESCROW; PLEDGE OF SHARES. To enforce any restrictions on a
------------------------
Participant's Shares, the Committee may require the Participant to deposit all
certificates representing Shares, together with stock powers or other
instruments of transfer approved by the Committee, appropriately endorsed in
blank, with the Company or an agent designated by the Company to hold in escrow
until such restrictions have lapsed or terminated, and the Committee may cause a
legend or legends referencing such restrictions to be placed on the
certificates. Any Participant who is permitted to execute a promissory note as
partial or full consideration for the purchase of Shares under this Plan will be
required to pledge and deposit with the Company all or part of the Shares so
purchased as collateral to secure the payment of Participant's obligation to the
Company under the promissory note; provided, however, that the Committee may
-------- -------
require or accept other or additional forms of collateral to secure the payment
of such obligation and, in any event, the Company will have full recourse
against the Participant under the promissory note notwithstanding any pledge of
the Participant's Shares or other collateral. In connection with any pledge of
the Shares, Participant will be required to execute and deliver a written pledge
agreement in such form as the Committee will from time to time approve. The
Shares purchased with the promissory note may be released from the pledge on a
pro rata basis as the promissory note is paid.
15. EXCHANGE AND BUYOUT OF AWARDS. The Committee may, at any time or
-----------------------------
from time to time, authorize the Company, with the consent of the respective
Participants, to issue new Awards in exchange for the surrender and cancellation
of any or all outstanding Awards. The Committee may at any time buy from a
Participant an Award previously granted with payment in cash, Shares (including
Restricted Stock) or other consideration, based on such terms and conditions as
the Committee and the Participant may agree.
16. SECURITIES LAW AND OTHER REGULATORY COMPLIANCE. An Award will not
----------------------------------------------
be effective unless such Award is in compliance with all applicable federal and
state securities laws, rules and regulations of any governmental body, and the
requirements of any stock exchange or automated quotation system upon which the
Shares may then be listed or quoted, as they are in effect on the date of grant
of the Award and also on the date of exercise or other issuance. Notwithstanding
any other provision in this Plan, the Company will have no obligation to issue
or deliver certificates for Shares under this Plan prior to: (a) obtaining any
approvals from governmental agencies that the Company determines are necessary
or advisable; and/or (b) completion of any registration or other qualification
of such Shares under any state or federal law or ruling of any governmental body
that the Company determines to be necessary or advisable. The Company will be
under no obligation to register the Shares with the SEC or to effect compliance
with the registration, qualification or listing requirements of any state
securities laws, stock exchange or automated quotation system, and the Company
will have no liability for any inability or failure to do so.
17. NO OBLIGATION TO EMPLOY. Nothing in this Plan or any Award
-----------------------
granted under this Plan will confer or be deemed to confer on any Participant
any right to continue in the employ of, or to continue any other relationship
with, the Company or any Parent or Subsidiary of the Company or limit in any way
the right of the Company or any Parent or Subsidiary of the Company to terminate
Participant's employment or other relationship at any time, with or without
cause.
18. CORPORATE TRANSACTIONS.
----------------------
18.1 Assumption or Replacement of Awards by Successor. In the
------------------------------------------------
event of (a) a dissolution or liquidation of the Company, (b) a merger or
consolidation in which the Company is not the surviving corporation (other than
a merger or consolidation with a wholly-owned subsidiary, a reincorporation of
the Company in a different jurisdiction, or other transaction in which there is
no substantial change in the stockholders of the Company or their relative stock
holdings and the Awards granted under this Plan are assumed, converted or
replaced by the successor corporation, which assumption will be binding on all
Participants), (c) a merger in which the Company is the surviving corporation
but after which the stockholders of the Company immediately prior to
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1998 Equity Incentive Plan
such merger (other than any stockholder that merges, or which owns or controls
another corporation that merges, with the Company in such merger) cease to own
their shares or other equity interest in the Company, (d) the sale of
substantially all of the assets of the Company, or (e) the acquisition, sale, or
transfer of more than 50% of the outstanding shares of the Company by tender
offer or similar transaction, any or all outstanding Awards may be assumed,
converted or replaced by the successor corporation (if any), which assumption,
conversion or replacement will be binding on all Participants. In the
alternative, the successor corporation may substitute equivalent Awards or
provide substantially similar consideration to Participants as was provided to
stockholders (after taking into account the existing provisions of the Awards).
The successor corporation may also issue, in place of outstanding Shares of the
Company held by the Participant, substantially similar shares or other property
subject to repurchase restrictions no less favorable to the Participant. In the
event such successor corporation (if any) refuses to assume or substitute
Awards, as provided above, pursuant to a transaction described in this
Subsection 18.1, such Awards will expire on such transaction at such time and on
such conditions as the Committee will determine. Notwithstanding anything in
this Plan to the contrary, the Committee may, in its sole discretion, provide
that the vesting of any or all Awards granted pursuant to this Plan will
accelerate upon a transaction described in this Section 18. If the Committee
exercises such discretion with respect to Options, such Options will become
exercisable in full prior to the consummation of such event at such time and on
such conditions as the Committee determines, and if such Options are not
exercised prior to the consummation of the corporate transaction, they shall
terminate at such time as determined by the Committee.
18.2 Other Treatment of Awards. Subject to any greater rights
-------------------------
granted to Participants under the foregoing provisions of this Section 18, in
the event of the occurrence of any transaction described in Section 18.1, any
outstanding Awards will be treated as provided in the applicable agreement or
plan of merger, consolidation, dissolution, liquidation, or sale of assets.
18.3 Assumption of Awards by the Company. The Company, from time
-----------------------------------
to time, also may substitute or assume outstanding awards granted by another
company, whether in connection with an acquisition of such other company or
otherwise, by either; (a) granting an Award under this Plan in substitution of
such other company's award; or (b) assuming such award as if it had been granted
under this Plan if the terms of such assumed award could be applied to an Award
granted under this Plan. Such substitution or assumption will be permissible if
the holder of the substituted or assumed award would have been eligible to be
granted an Award under this Plan if the other company had applied the rules of
this Plan to such grant. In the event the Company assumes an award granted by
another company, the terms and conditions of such award will remain unchanged
(except that the exercise price and the number and nature of Shares issuable
------
upon exercise of any such option will be adjusted appropriately pursuant to
Section 424(a) of the Code). In the event the Company elects to grant a new
Option rather than assuming an existing option, such new Option may be granted
with a similarly adjusted Exercise Price.
19. ADOPTION AND STOCKHOLDER APPROVAL. This Plan will become
---------------------------------
effective on the date on which the registration statement filed by the Company
with the SEC under the Securities Act registering the initial public offering of
the Company's Common Stock is declared effective by the SEC (the "EFFECTIVE
DATE"). This Plan shall be approved by the stockholders of the Company
(excluding Shares issued pursuant to this Plan), consistent with applicable
laws, within twelve (12) months before or after the date this Plan is adopted by
the Board. Upon the Effective Date, the Committee may grant Awards pursuant to
this Plan; provided, however, that: (a) no Option may be exercised prior to
-------- -------
initial stockholder approval of this Plan; (b) no Option granted pursuant to an
increase in the number of Shares subject to this Plan approved by the Board will
be exercised prior to the time such increase has been approved by the
stockholders of the Company; (c) in the event that initial stockholder approval
is not obtained within the time period provided herein, all Awards granted
hereunder shall be cancelled, any Shares issued pursuant to any Awards shall be
cancelled and any purchase of Shares issued hereunder shall be rescinded; and
(d) in the event that stockholder approval of such increase is not obtained
within the time period provided herein, all Awards granted pursuant to such
increase will be cancelled, any Shares issued pursuant to any Award granted
pursuant to such increase will be cancelled, and any purchase of Shares pursuant
to such increase will be rescinded.
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1998 Equity Incentive Plan
20. TERM OF PLAN/GOVERNING LAW. Unless earlier terminated as provided
--------------------------
herein, this Plan will terminate ten (10) years from the date this Plan is
adopted by the Board or, if earlier, the date of stockholder approval. This Plan
and all agreements thereunder shall be governed by and construed in accordance
with the laws of the State of California.
21. AMENDMENT OR TERMINATION OF PLAN. The Board may at any time
--------------------------------
terminate or amend this Plan in any respect, including without limitation
amendment of any form of Award Agreement or instrument to be executed pursuant
to this Plan; provided, however, that the Board will not, without the approval
-------- -------
of the stockholders of the Company, amend this Plan in any manner that requires
such stockholder approval.
22. NONEXCLUSIVITY OF THE PLAN. Neither the adoption of this Plan by
--------------------------
the Board, the submission of this Plan to the stockholders of the Company for
approval, nor any provision of this Plan will be construed as creating any
limitations on the power of the Board to adopt such additional compensation
arrangements as it may deem desirable, including, without limitation, the
granting of stock options and bonuses otherwise than under this Plan, and such
arrangements may be either generally applicable or applicable only in specific
cases.
23. DEFINITIONS. As used in this Plan, the following terms will have
-----------
the following meanings:
"AWARD" means any award under this Plan, including any Option,
Restricted Stock or Stock Bonus.
"AWARD AGREEMENT" means, with respect to each Award, the signed
written agreement between the Company and the Participant setting forth the
terms and conditions of the Award.
"BOARD" means the Board of Directors of the Company.
"CAUSE" means the commission of an act of theft, embezzlement,
fraud, dishonesty or a breach of fiduciary duty to the Company or a Parent or
Subsidiary of the Company.
"CODE" means the Internal Revenue Code of 1986, as amended.
"COMMITTEE" means the Compensation Committee of the Board.
"COMPANY" means eBay, Inc. or any successor corporation.
"DISABILITY" means a disability, whether temporary or permanent,
partial or total, as determined by the Committee.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
"EXERCISE PRICE" means the price at which a holder of an Option
may purchase the Shares issuable upon exercise of the Option.
"FAIR MARKET VALUE" means, as of any date, the value of a share
of the Company's Common Stock determined as follows:
(a) if such Common Stock is then quoted on the Nasdaq National
Market, its closing price on the Nasdaq National Market on the
date of determination as reported in The Wall Street Journal;
-----------------------
(b) if such Common Stock is publicly traded and is then listed on a
national securities exchange, its closing price on the date of
determination on the principal national securities
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eBay, Inc.
1998 Equity Incentive Plan
exchange on which the Common Stock is listed or admitted to
trading as reported in The Wall Street Journal;
-----------------------
(c) if such Common Stock is publicly traded but is not quoted on the
Nasdaq National Market nor listed or admitted to trading on a
national securities exchange, the average of the closing bid and
asked prices on the date of determination as reported in The Wall
--------
Street Journal;
--------------
(d) in the case of an Award made on the Effective Date, the price per
share at which shares of the Company's Common Stock are initially
offered for sale to the public by the Company's underwriters in
the initial public offering of the Company's Common Stock
pursuant to a registration statement filed with the SEC under the
Securities Act; or
(d) if none of the foregoing is applicable, by the Committee in good
faith.
"INSIDER" means an officer or director of the Company or any
other person whose transactions in the Company's Common Stock are subject to
Section 16 of the Exchange Act.
"OPTION" means an award of an option to purchase Shares pursuant
to Section 5.
"PARENT" means any corporation (other than the Company) in an
unbroken chain of corporations ending with the Company if each of such
corporations other than the Company owns stock possessing 50% or more of the
total combined voting power of all classes of stock in one of the other
corporations in such chain.
"PARTICIPANT" means a person who receives an Award under this
Plan.
"PERFORMANCE FACTORS" means the factors selected by the Committee
from among the following measures to determine whether the performance goals
established by the Committee and applicable to Awards have been satisfied:
(a) Net revenue and/or net revenue growth;
(b) Earnings before income taxes and amortization and/or
earnings before income taxes and amortization growth;
(c) Operating income and/or operating income growth;
(d) Net income and/or net income growth;
(e) Earnings per share and/or earnings per share growth;
(f) Total stockholder return and/or total stockholder return
growth;
(g) Return on equity;
(h) Operating cash flow return on income;
(i) Adjusted operating cash flow return on income;
(j) Economic value added; and
(k) Individual confidential business objectives.
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1998 Equity Incentive Plan
"PERFORMANCE PERIOD" means the period of service determined by
the Committee, not to exceed five years, during which years of service or
performance is to be measured for Restricted Stock Awards or Stock Bonuses.
"PLAN" means this eBay, Inc. 1998 Equity Incentive Plan, as
amended from time to time.
"RESTRICTED STOCK AWARD" means an award of Shares pursuant to
Section 6.
"SEC" means the Securities and Exchange Commission.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SHARES" means shares of the Company's Common Stock reserved for
issuance under this Plan, as adjusted pursuant to Sections 2 and 18, and any
successor security.
"STOCK BONUS" means an award of Shares, or cash in lieu of
Shares, pursuant to Section 7.
"SUBSIDIARY" means any corporation (other than the Company) in an
unbroken chain of corporations beginning with the Company if each of the
corporations other than the last corporation in the unbroken chain owns stock
possessing 50% or more of the total combined voting power of all classes of
stock in one of the other corporations in such chain.
"TERMINATION" or "TERMINATED" means, for purposes of this Plan
with respect to a Participant, that the Participant has for any reason ceased to
provide services as an employee, officer, director, consultant, independent
contractor, or advisor to the Company or a Parent or Subsidiary of the Company.
An employee will not be deemed to have ceased to provide services in the case of
(i) sick leave, (ii) military leave, or (iii) any other leave of absence
approved by the Committee, provided, that such leave is for a period of not more
than 90 days, unless reemployment upon the expiration of such leave is
guaranteed by contract or statute or unless provided otherwise pursuant to
formal policy adopted from time to time by the Company and issued and
promulgated to employees in writing. In the case of any employee on an approved
leave of absence, the Committee may make such provisions respecting suspension
of vesting of the Award while on leave from the employ of the Company or a
Subsidiary as it may deem appropriate, except that in no event may an Option be
exercised after the expiration of the term set forth in the Option agreement.
The Committee will have sole discretion to determine whether a Participant has
ceased to provide services and the effective date on which the Participant
ceased to provide services (the "TERMINATION DATE").
"UNVESTED SHARES" means "Unvested Shares" as defined in the Award
Agreement.
"VESTED SHARES" means "Vested Shares" as defined in the Award
Agreement.
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<PAGE>
EXHIBIT 10.05
eBAY, INC.
1998 DIRECTORS STOCK OPTION PLAN
As Adopted __________, 1998
1. PURPOSE. This 1998 Directors Stock Option Plan (this "PLAN") is
established to provide equity incentives for certain nonemployee members of the
Board of Directors of eBay, Inc. (the "COMPANY"), who are described in Section
6.1 below, by granting such persons options to purchase shares of stock of the
Company.
2. ADOPTION AND STOCKHOLDER APPROVAL. After this Plan is adopted by the
Board of Directors of the Company (the "BOARD"), this Plan will become effective
on the time and date (the "EFFECTIVE DATE") on which the registration statement
filed by the Company with the Securities and Exchange Commission ("SEC") under
the Securities Act of 1933, as amended (the "SECURITIES ACT"), to register the
initial public offering of the Company's Common Stock is declared effective by
the SEC. This Plan shall be approved by the stockholders of the Company,
consistent with applicable laws, within twelve (12) months after the date this
Plan is adopted by the Board.
3. TYPES OF OPTIONS AND SHARES. Options granted under this Plan shall be
non-qualified stock options ("NQSOS"). The shares of stock that may be
purchased upon exercise of Options granted under this Plan (the "SHARES") are
shares of the Common Stock of the Company.
4. NUMBER OF SHARES. The maximum number of Shares that may be issued
pursuant to Options granted under this Plan (the "MAXIMUM NUMBER") is 200,000
Shares, subject to adjustment as provided in this Plan. If any Option is
terminated for any reason without being exercised in whole or in part, the
Shares thereby released from such Option shall be available for purchase under
other Options subsequently granted under this Plan. At all times during the
term of this Plan, the Company shall reserve and keep available such number of
Shares as shall be required to satisfy the requirements of outstanding Options
granted under this Plan; provided, however that if the aggregate number of
Shares subject to outstanding Options granted under this Plan plus the aggregate
number of Shares previously issued by the Company pursuant to the exercise of
Options granted under this Plan equals or exceeds the Maximum Number, then
notwithstanding anything herein to the contrary, no further Options may be
granted under this Plan until the Maximum Number is increased or the aggregate
number of Shares subject to outstanding Options granted under this Plan plus the
aggregate number of Shares previously issued by the Company pursuant to the
exercise of Options granted under this Plan is less than the Maximum Number.
5. ADMINISTRATION. This Plan shall be administered by the Board or
by a committee of not less than two members of the Board appointed to administer
this Plan (the "COMMITTEE"). As used in this Plan, references to the Committee
shall mean either such Committee or the Board if no Committee has been
established. The interpretation by the Committee of any of the provisions of
this Plan or any Option granted under this Plan shall be final and binding upon
the Company and all persons having an interest in any Option or any Shares
purchased pursuant to an Option.
6. ELIGIBILITY AND AWARD FORMULA.
6.1 Eligibility. Options shall be granted only to directors of the
-----------
Company who are not employees of the Company or any Parent, Subsidiary or
Affiliate of the Company, as those terms are defined in Section 17 below (each
such person referred to as an "OPTIONEE").
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1998 Directors Stock Option Plan
6.2 Initial Grant. Each Optionee who first becomes a member of the
-------------
Board on or after the Effective Date will automatically be granted an Option for
30,000* Shares (an "INITIAL GRANT") on the later of the Effective Date or on the
date such Optionee first becomes a member of the Board.
6.3 Succeeding Grants. At each Annual Meeting of the Company, each
-----------------
Optionee will automatically be granted an Option for 5,000 Shares (a
"SUCCEEDING GRANT"), provided the Optionee is a member of the Board on such date
and has served continuously as a member of the Board since the date of such
Optionee's Initial Grant or, if such Optionee was ineligible to receive an
Initial Grant, since the Effective Date.
7. TERMS AND CONDITIONS OF OPTIONS. Subject to the following and to
Section 6 above:
7.1 Form of Option Grant. Each Option granted under this Plan shall
--------------------
be evidenced by a written Stock Option Grant ("GRANT") in such form (which need
not be the same for each Optionee) as the Committee shall from time to time
approve, which Grant shall comply with and be subject to the terms and
conditions of this Plan.
7.2 Vesting. The date an Optionee receives an Initial Grant or a
-------
Succeeding Grant is referred to in this Plan as the "START DATE" for such
Option.
(a) Initial Grants. Each Initial Grant will vest as to twenty-
--------------
five percent (25%) of the Shares on the first anniversary of the Start Date for
such Initial Grant, and as to 2.08333% of the Shares on each subsequent monthly
anniversary of the Start Date, so long as the Optionee continuously remains a
director or a consultant of the Company.
(b) Succeeding Grants. Each Succeeding Grant will vest as to
-----------------
twenty-five percent (25%) of the Shares on the first anniversary of the Start
Date for such Succeeding Grant, and as to 2.08333% of the Shares on each
subsequent monthly anniversary of the Start Date, so long as the Optionee
continuously remains a director or a consultant of the Company.
7.3 Exercise Price. The exercise price of an Option shall be the
--------------
Fair Market Value (as defined in Section 17.4) of the Shares, at the time that
the Option is granted.
7.4 Termination of Option. Except as provided below in this Section,
---------------------
each Option shall expire ten (10) years after its Start Date (the "EXPIRATION
DATE"). The Option shall cease to vest when the Optionee ceases to be a member
of the Board or a consultant of the Company. The date on which the Optionee
ceases to be a member of the Board or a consultant of the Company shall be
referred to as the "TERMINATION DATE". An Option may be exercised after the
Termination Date only as set forth below:
(a) Termination Generally. If the Optionee ceases to be a member
---------------------
of the Board or a consultant of the Company for any reason except death of the
Optionee or disability of the Optionee (whether temporary or permanent, partial
or total, as determined by the Committee), then each Option then held by such
Optionee, to the extent (and only to the extent) that it would have been
exercisable by the Optionee on the Termination Date, may be exercised by the
Optionee no later than seven (7) months after the Termination Date, but in no
event later than the Expiration Date.
(b) Death or Disability. If the Optionee ceases to be a member
-------------------
of the Board or a consultant of the Company because of the death of the Optionee
or the disability of the Optionee (whether temporary or permanent, partial or
total, as determined by the Committee), then each Option then held by such
Optionee to the extent (and only to the extent) that it would have been
exercisable by the Optionee on the Termination Date, may be exercised by the
Optionee (or the Optionee's legal representative) no later than twelve (12)
months after the Termination Date, but in no event later than the Expiration
Date.
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8. EXERCISE OF OPTIONS.
8.1 Exercise Period. Subject to the provisions of Section 8.5 below,
---------------
Options shall be exercisable as they vest; provided that the Committee may
provide that such Options shall be immediately exercisable subject to repurchase
in accordance with the vesting schedule set forth in Section 7.
8.2 Notice. Options may be exercised only by delivery to the Company
------
of an exercise agreement in a form approved by the Committee stating the number
of Shares being purchased, the restrictions imposed on the Shares and such
representations and agreements regarding the Optionee's investment intent and
access to information as may be required by the Company to comply with
applicable securities laws, together with payment in full of the exercise price
for the number of Shares being purchased.
8.3 Payment. Payment for the Shares purchased upon exercise of an
-------
Option may be made (a) in cash or by check; (b) by surrender of shares of Common
Stock of the Company that have been owned by the Optionee for more than six (6)
months (and which have been paid for within the meaning of SEC Rule 144 and, if
such shares were purchased from the Company by use of a promissory note, such
note has been fully paid with respect to such shares) or were obtained by the
Optionee in the open public market, having a Fair Market Value equal to the
exercise price of the Option; (c) by waiver of compensation due or accrued to
the Optionee for services rendered; (d) provided that a public market for the
Company's stock exists, through a "same day sale" commitment from the Optionee
and a broker-dealer that is a member of the National Association of Securities
Dealers (an "NASD DEALER") whereby the Optionee irrevocably elects to exercise
the Option and to sell a portion of the Shares so purchased to pay for the
exercise price and whereby the NASD Dealer irrevocably commits upon receipt of
such Shares to forward the exercise price directly to the Company; (e) provided
that a public market for the Company's stock exists, through a "margin"
commitment from the Optionee and an NASD Dealer whereby the Optionee irrevocably
elects to exercise the Option and to pledge the Shares so purchased to the NASD
Dealer in a margin account as security for a loan from the NASD Dealer in the
amount of the exercise price, and whereby the NASD Dealer irrevocably commits
upon receipt of such Shares to forward the exercise price directly to the
Company; or (f) by any combination of the foregoing.
8.4 Withholding Taxes. Prior to issuance of the Shares upon exercise
-----------------
of an Option, the Optionee shall pay or make adequate provision for any federal
or state withholding obligations of the Company, if applicable.
8.5 Limitations on Exercise. Notwithstanding the exercise periods
-----------------------
set forth in the Grant, exercise of an Option shall always be subject to the
following limitations:
(a) An Option shall not be exercisable unless such exercise is
in compliance with the Securities Act and all applicable state securities laws,
as they are in effect on the date of exercise.
(b) The Committee may specify a reasonable minimum number of
Shares that may be purchased upon any exercise of an Option, provided that such
minimum number will not prevent the Optionee from exercising the full number of
Shares as to which the Option is then exercisable.
9. NONTRANSFERABILITY OF OPTIONS. During the lifetime of the
Optionee, an Option shall be exercisable only by the Optionee or by the
Optionee's guardian or legal representative, unless otherwise determined by the
Committee. No Option may be sold, pledged, assigned, hypothecated, transferred
or disposed of in any manner other than by will or by the laws of descent and
distribution, unless otherwise determined by the Committee.
10. PRIVILEGES OF STOCK OWNERSHIP. No Optionee shall have any of the
rights of a stockholder with respect to any Shares subject to an Option until
the Option has been validly exercised. No adjustment shall be made for
dividends or distributions or other rights for which the record date is prior to
the date of exercise, except as provided in this Plan. The Company shall
provide to each Optionee a copy of the annual financial statements of the
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1998 Directors Stock Option Plan
Company at such time after the close of each fiscal year of the Company as
they are released by the Company to its stockholders.
11. ADJUSTMENT OF OPTION SHARES. In the event that the number of
outstanding shares of Common Stock of the Company is changed by a stock
dividend, stock split, reverse stock split, combination, reclassification or
similar change in the capital structure of the Company without consideration,
the number of Shares available under this Plan and the number of Shares subject
to outstanding Options and the exercise price per share of such outstanding
Options shall be proportionately adjusted, subject to any required action by the
Board or stockholders of the Company and compliance with applicable securities
laws; provided, however, that no fractional shares shall be issued upon exercise
of any Option and any resulting fractions of a Share shall be rounded up to the
nearest whole Share.
12. NO OBLIGATION TO CONTINUE AS DIRECTOR. Nothing in this Plan or any
Option granted under this Plan shall confer on any Optionee any right to
continue as a director of the Company.
13. COMPLIANCE WITH LAWS. The grant of Options and the issuance of
Shares upon exercise of any Options shall be subject to and conditioned upon
compliance with all applicable requirements of law, including without limitation
compliance with the Securities Act, compliance with all other applicable state
securities laws and compliance with the requirements of any stock exchange or
national market system on which the Shares may be listed. The Company shall be
under no obligation to register the Shares with the SEC or to effect compliance
with the registration or qualification requirement of any state securities laws,
stock exchange or national market system.
14. ACCELERATION OF OPTIONS ON CERTAIN CORPORATE TRANSACTIONS. In the
event of (a) a dissolution or liquidation of the Company, (b) a merger or
consolidation in which the Company is not the surviving corporation (other than
a merger or consolidation with a wholly-owned subsidiary, a reincorporation of
the Company in a different jurisdiction, or other transaction in which there is
no substantial change in the stockholders of the Company or their relative stock
holdings and the Options granted under this Plan are assumed, converted or
replaced by the successor corporation, which assumption, conversion or
replacement will be binding on all Optionees), (c) a merger in which the Company
is the surviving corporation but after which the stockholders of the Company
(other than any stockholder which merges (or which owns or controls another
corporation which merges) with the Company in such merger) cease to own their
shares or other equity interests in the Company, (d) the sale of substantially
all of the assets of the Company, or (e) the acquisition, sale or transfer of
more than 50% of the outstanding shares of the Company by tender offer or
similar transaction, the vesting of all options granted pursuant to this Plan
will accelerate and the options will become exercisable in full prior to the
consummation of such event at such times and on such conditions as the Committee
determines, and must be exercised, if at all, within seven months of the
consummation of said event. Any options not exercised within such seven-month
period shall expire.
15. AMENDMENT OR TERMINATION OF PLAN. The Board may at any time terminate
or amend this Plan or any outstanding option, provided that the Board may not
terminate or amend the terms of any outstanding option without the consent of
the Optionee. In any case, no amendment of this Plan may adversely affect any
then outstanding Options or any unexercised portions thereof without the written
consent of the Optionee.
16. TERM OF PLAN. Options may be granted pursuant to this Plan from time
to time within a period of ten (10) years from the Effective Date.
17. CERTAIN DEFINITIONS. As used in this Plan, the following terms shall
have the following meanings:
17.1 "PARENT" means any corporation (other than the Company) in an
unbroken chain of corporations ending with the Company if each of such
corporations other than the Company owns stock possessing 50% or more of the
total combined voting power of all classes of stock in one of the other
corporations in such chain.
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1998 Directors Stock Option Plan
17.2 "SUBSIDIARY" means any corporation (other than the Company) in
an unbroken chain of corporations beginning with the Company if each of the
corporations other than the last corporation in the unbroken chain owns stock
possessing 50% or more of the total combined voting power of all classes of
stock in one of the other corporations in such chain.
17.3 "AFFILIATE" means any corporation that directly, or indirectly
through one or more intermediaries, controls or is controlled by, or is under
common control with, another corporation, where "control" (including the terms
"controlled by" and "under common control with") means the possession, direct or
indirect, of the power to cause the direction of the management and policies of
the corporation, whether through the ownership of voting securities, by contract
or otherwise.
17.4 "FAIR MARKET VALUE" means, as of any date, the value of a share
of the Company's Common Stock determined as follows:
(a) if such Common Stock is then quoted on the Nasdaq National
Market, its closing price on the Nasdaq National Market on the
date of determination as reported in The Wall Street Journal;
-----------------------
(b) if such Common Stock is publicly traded and is then listed on a
national securities exchange, its closing price on the date of
determination on the principal national securities exchange on
which the Common Stock is listed or admitted to trading as
reported in The Wall Street Journal;
-----------------------
(c) if such Common Stock is publicly traded but is not quoted on the
Nasdaq National Market nor listed or admitted to trading on a
national securities exchange, the average of the closing bid and
asked prices on the date of determination as reported in The
---
Wall Street Journal;
-------------------
(d) in the case of an Option granted on the Effective Date, the price
per share at which shares of the Company's Common Stock are
initially offered for sale to the public by the Company's
underwriters in the initial public offering of the Company's
Common Stock pursuant to a registration statement filed with the
SEC under the Securities Act; or
(e) if none of the foregoing is applicable, by the Committee in good
faith.
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<PAGE>
EXHIBIT 10.06
eBAY, INC.
1998 EMPLOYEE STOCK PURCHASE PLAN
As Adopted __________, 1998
1. ESTABLISHMENT OF PLAN. eBay, Inc. (the "COMPANY") proposes to grant
options for purchase of the Company's Common Stock to eligible employees of the
Company and its Participating Subsidiaries (as hereinafter defined) pursuant to
this Employee Stock Purchase Plan (this "PLAN"). For purposes of this Plan,
"PARENT CORPORATION" and "SUBSIDIARY" shall have the same meanings as "parent
corporation" and "subsidiary corporation" in Sections 424(e) and 424(f),
respectively, of the Internal Revenue Code of 1986, as amended (the "CODE").
"PARTICIPATING SUBSIDIARIES" are Parent Corporations or Subsidiaries that the
Board of Directors of the Company (the "BOARD") designates from time to time as
corporations that shall participate in this Plan. The Company intends this Plan
to qualify as an "employee stock purchase plan" under Section 423 of the Code
(including any amendments to or replacements of such Section), and this Plan
shall be so construed. Any term not expressly defined in this Plan but defined
for purposes of Section 423 of the Code shall have the same definition herein.
A total of 300,000 shares of the Company's Common Stock is reserved for
issuance under this Plan. In addition, on each January 1, the aggregate number
of shares of the Company's Common Stock reserved for issuance under the Plan
shall be increased automatically by the number of shares purchased under this
Plan in the preceding calendar year; provided that the aggregate shares reserved
--------
under this Plan shall not exceed 1,500,000 shares. Such number shall be subject
to adjustments effected in accordance with Section 14 of this Plan.
2. PURPOSE. The purpose of this Plan is to provide eligible employees of
the Company and Participating Subsidiaries with a convenient means of acquiring
an equity interest in the Company through payroll deductions, to enhance such
employees' sense of participation in the affairs of the Company and
Participating Subsidiaries, and to provide an incentive for continued
employment.
3. ADMINISTRATION. This Plan shall be administered by the Compensation
Committee of the Board (the "COMMITTEE"). Subject to the provisions of this
Plan and the limitations of Section 423 of the Code or any successor provision
in the Code, all questions of interpretation or application of this Plan shall
be determined by the Committee and its decisions shall be final and binding upon
all participants. Members of the Committee shall receive no compensation for
their services in connection with the administration of this Plan, other than
standard fees as established from time to time by the Board for services
rendered by Board members serving on Board committees. All expenses incurred in
connection with the administration of this Plan shall be paid by the Company.
4. Eligibility. Any employee of the Company or the Participating
Subsidiaries is eligible to participate in an Offering Period (as hereinafter
defined) under this Plan except the following:
(a) employees who are not employed by the Company or a Participating
Subsidiary (10) days before the beginning of such Offering Period, except that
employees who are employed on the Effective Date of the Registration Statement
filed by the Company with the Securities and Exchange Commission ("SEC") under
the Securities Act of 1933, as amended (the "SECURITIES ACT") registering the
initial public offering of the Company's Common Stock shall be eligible to
participate in the first Offering Period under the Plan;
(b) employees who are customarily employed for twenty (20) hours or
less per week;
(c) employees who are customarily employed for five (5) months or less
in a calendar year;
(d) employees who, together with any other person whose stock would be
attributed to such employee pursuant to Section 424(d) of the Code, own stock or
hold options to purchase stock possessing five percent (5%) or more of the total
combined voting power or value of all classes of stock of the Company or any of
its Participating
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eBay, Inc.
1998 Employee Stock Purchase Plan
Subsidiaries or who, as a result of being granted an option under this Plan with
respect to such Offering Period, would own stock or hold options to purchase
stock possessing five percent (5%) or more of the total combined voting power or
value of all classes of stock of the Company or any of its Participating
Subsidiaries; and
(e) individuals who provide services to the Company or any of its
Participating Subsidiaries as independent contractors who are reclassified as
common law employees for any reason except for federal income and employment tax
------ ---
purposes.
5. OFFERING DATES. The offering periods of this Plan (each, an "OFFERING
PERIOD") shall be of twenty-four (24) months duration commencing on May 1 and
November 1 of each year and ending on April 30 and October 31 of each year;
provided, however, that notwithstanding the foregoing, the first such Offering
- -------- -------
Period shall commence on the first business day on which price quotations for
the Company's Common Stock are available on the Nasdaq National Market (the
"FIRST OFFERING DATE") and shall end on October 31, 2000. Except for the first
Offering Period, each Offering Period shall consist of four (4) six month
purchase periods (individually, a "PURCHASE PERIOD") during which payroll
deductions of the participants are accumulated under this Plan. The first
Offering Period shall consist of no more than five and no fewer than three
Purchase Periods, any of which may be greater or less than six months as
determined by the Committee. The first business day of each Offering Period is
referred to as the "OFFERING DATE". The last business day of each Purchase
Period is referred to as the "PURCHASE DATE". The Committee shall have the
power to change the duration of Offering Periods with respect to offerings
without stockholder approval if such change is announced at least fifteen (15)
days prior to the scheduled beginning of the first Offering Period to be
affected.
6. PARTICIPATION IN THIS PLAN. Eligible employees may become participants
in an Offering Period under this Plan on the first Offering Date after
satisfying the eligibility requirements by delivering a subscription agreement
to the Company's treasury department (the "TREASURY DEPARTMENT") not later than
five (5) days before such Offering Date. Notwithstanding the foregoing, the
Committee may set a later time for filing the subscription agreement authorizing
payroll deductions for all eligible employees with respect to a given Offering
Period. An eligible employee who does not deliver a subscription agreement to
the Treasury Department by such date after becoming eligible to participate in
such Offering Period shall not participate in that Offering Period or any
subsequent Offering Period unless such employee enrolls in this Plan by filing a
subscription agreement with the Treasury Department not later than five (5) days
preceding a subsequent Offering Date. Once an employee becomes a participant in
an Offering Period, such employee will automatically participate in the Offering
Period commencing immediately following the last day of the prior Offering
Period unless the employee withdraws or is deemed to withdraw from this Plan or
terminates further participation in the Offering Period as set forth in Section
11 below. Such participant is not required to file any additional subscription
agreement in order to continue participation in this Plan.
7. GRANT OF OPTION ON ENROLLMENT. Enrollment by an eligible employee in
this Plan with respect to an Offering Period will constitute the grant (as of
the Offering Date) by the Company to such employee of an option to purchase on
the Purchase Date up to that number of shares of Common Stock of the Company
determined by dividing (a) the amount accumulated in such employee's payroll
deduction account during such Purchase Period by (b) the lower of (i) eighty-
five percent (85%) of the fair market value of a share of the Company's Common
Stock on the Offering Date (but in no event less than the par value of a share
of the Company's Common Stock), or (ii) eighty-five percent (85%) of the fair
market value of a share of the Company's Common Stock on the Purchase Date (but
in no event less than the par value of a share of the Company's Common Stock),
provided, however, that the number of shares of the Company's Common Stock
- -------- -------
subject to any option granted pursuant to this Plan shall not exceed the lesser
of (x) the maximum number of shares set by the Committee pursuant to Section
10(c) below with respect to the applicable Purchase Date, or (y) the maximum
number of shares which may be purchased pursuant to Section 10(b) below with
respect to the applicable Purchase Date. The fair market value of a share of
the Company's Common Stock shall be determined as provided in Section 8 below.
8. PURCHASE PRICE. The purchase price per share at which a share of
Common Stock will be sold in any Offering Period shall be eighty-five percent
(85%) of the lesser of:
(a) The fair market value on the Offering Date; or
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1998 Employee Stock Purchase Plan
(b) The fair market value on the Purchase Date.
For purposes of this Plan, the term "FAIR MARKET VALUE" means, as of
any date, the value of a share of the Company's Common Stock determined as
follows:
(a) if such Common Stock is then quoted on the Nasdaq National Market,
its closing price on the Nasdaq National Market on the date of
determination as reported in The Wall Street Journal;
-----------------------
(b) if such Common Stock is publicly traded and is then listed on a
national securities exchange, its closing price on the date of
determination on the principal national securities exchange on
which the Common Stock is listed or admitted to trading as
reported in The Wall Street Journal;
-----------------------
(c) if such Common Stock is publicly traded but is not quoted on the
Nasdaq National Market nor listed or admitted to trading on a
national securities exchange, the average of the closing bid and
asked prices on the date of determination as reported in The Wall
--------
Street Journal; or
--------------
(d) if none of the foregoing is applicable, by the Board in good
faith, which in the case of the First Offering Date will be the
price per share at which shares of the Company's Common Stock are
initially offered for sale to the public by the Company's
underwriters in the initial public offering of the Company's
Common Stock pursuant to a registration statement filed with the
SEC under the Securities Act.
9. PAYMENT OF PURCHASE PRICE; CHANGES IN PAYROLL DEDUCTIONS; ISSUANCE OF
SHARES.
(a) The purchase price of the shares is accumulated by regular payroll
deductions made during each Offering Period. The deductions are made as a
percentage of the participant's compensation in one percent (1%) increments not
less than two percent (2%), nor greater than ten percent (10%) or such lower
limit set by the Committee. Compensation shall mean all W-2 cash compensation,
including, but not limited to, base salary, wages, commissions, overtime, shift
premiums and bonuses, plus draws against commissions, provided, however, that
-------- -------
for purposes of determining a participant's compensation, any election by such
participant to reduce his or her regular cash remuneration under Sections 125 or
401(k) of the Code shall be treated as if the participant did not make such
election. Payroll deductions shall commence on the first payday of the Offering
Period and shall continue to the end of the Offering Period unless sooner
altered or terminated as provided in this Plan.
(b) A participant may increase or decrease the rate of payroll
deductions during an Offering Period by filing with the Treasury Department a
new authorization for payroll deductions, in which case the new rate shall
become effective for the next payroll period commencing more than fifteen (15)
days after the Treasury Department's receipt of the authorization and shall
continue for the remainder of the Offering Period unless changed as described
below. Such change in the rate of payroll deductions may be made at any time
during an Offering Period, but not more than one (1) change may be made
effective during any Purchase Period. A participant may increase or decrease
the rate of payroll deductions for any subsequent Offering Period by filing with
the Treasury Department a new authorization for payroll deductions not later
than fifteen (15) days before the beginning of such Offering Period.
(c) A participant may reduce his or her payroll deduction percentage
to zero during an Offering Period by filing with the Treasury Department a
request for cessation of payroll deductions. Such reduction shall be effective
beginning with the next payroll period commencing more than fifteen (15) days
after the Treasury Department's receipt of the request and no further payroll
deductions will be made for the duration of the Offering Period. Payroll
deductions credited to the participant's account prior to the effective date of
the request shall be used to purchase shares of Common Stock of the Company in
accordance with Section (e) below. A participant
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eBay, Inc.
1998 Employee Stock Purchase Plan
may not resume making payroll deductions during the Offering Period in which he
or she reduced his or her payroll deductions to zero.
(d) All payroll deductions made for a participant are credited to his
or her account under this Plan and are deposited with the general funds of the
Company. No interest accrues on the payroll deductions. All payroll deductions
received or held by the Company may be used by the Company for any corporate
purpose, and the Company shall not be obligated to segregate such payroll
deductions.
(e) On each Purchase Date, so long as this Plan remains in effect and
provided that the participant has not submitted a signed and completed
withdrawal form before that date which notifies the Company that the participant
wishes to withdraw from that Offering Period under this Plan and have all
payroll deductions accumulated in the account maintained on behalf of the
participant as of that date returned to the participant, the Company shall apply
the funds then in the participant's account to the purchase of whole shares of
Common Stock reserved under the option granted to such participant with respect
to the Offering Period to the extent that such option is exercisable on the
Purchase Date. The purchase price per share shall be as specified in Section 8
of this Plan. Any cash remaining in a participant's account after such purchase
of shares shall be refunded to such participant in cash, without interest;
provided, however that any amount remaining in such participant's account on a
Purchase Date which is less than the amount necessary to purchase a full share
of Common Stock of the Company shall be carried forward, without interest, into
the next Purchase Period or Offering Period, as the case may be. In the event
that this Plan has been oversubscribed, all funds not used to purchase shares on
the Purchase Date shall be returned to the participant, without interest. No
Common Stock shall be purchased on a Purchase Date on behalf of any employee
whose participation in this Plan has terminated prior to such Purchase Date.
(f) As promptly as practicable after the Purchase Date, the Company
shall issue shares for the participant's benefit representing the shares
purchased upon exercise of his or her option.
(g) During a participant's lifetime, his or her option to purchase
shares hereunder is exercisable only by him or her. The participant will have
no interest or voting right in shares covered by his or her option until such
option has been exercised.
10. LIMITATIONS ON SHARES TO BE PURCHASED.
(a) No participant shall be entitled to purchase stock under this Plan
at a rate which, when aggregated with his or her rights to purchase stock under
all other employee stock purchase plans of the Company or any Subsidiary,
exceeds $25,000 in fair market value, determined as of the Offering Date (or
such other limit as may be imposed by the Code) for each calendar year in which
the employee participates in this Plan. The Company shall automatically suspend
the payroll deductions of any participant as necessary to enforce such limit
provided that when the Company automatically resumes such payroll deductions,
the Company must apply the rate in effect immediately prior to such suspension.
(b) No more than two hundred percent (200%) of the number of shares
determined by using eighty-five percent (85%) of the fair market value of a
share of the Company's Common Stock on the Offering Date as the denominator may
be purchased by a participant on any single Purchase Date.
(c) No participant shall be entitled to purchase more than the Maximum
Share Amount (as defined below) on any single Purchase Date. Not less than
thirty (30) days prior to the commencement of any Offering Period, the Committee
may, in its sole discretion, set a maximum number of shares which may be
purchased by any employee at any single Purchase Date (hereinafter the "MAXIMUM
SHARE AMOUNT"). Until otherwise determined by the Committee, there shall be no
Maximum Share Amount. In no event shall the Maximum Share Amount exceed the
amounts permitted under Section 10(b) above. If a new Maximum Share Amount is
set, then all participants must be notified of such Maximum Share Amount prior
to the commencement of the next Offering Period. The Maximum Share Amount shall
continue to apply with respect to all succeeding Purchase Dates and Offering
Periods unless revised by the Committee as set forth above.
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1998 Employee Stock Purchase Plan
(d) If the number of shares to be purchased on a Purchase Date by all
employees participating in this Plan exceeds the number of shares then available
for issuance under this Plan, then the Company will make a pro rata allocation
of the remaining shares in as uniform a manner as shall be reasonably
practicable and as the Committee shall determine to be equitable. In such
event, the Company shall give written notice of such reduction of the number of
shares to be purchased under a participant's option to each participant
affected.
(e) Any payroll deductions accumulated in a participant's account
which are not used to purchase stock due to the limitations in this Section 10
shall be returned to the participant as soon as practicable after the end of the
applicable Purchase Period, without interest.
11. WITHDRAWAL.
(a) Each participant may withdraw from an Offering Period under this
Plan by signing and delivering to the Treasury Department a written notice to
that effect on a form provided for such purpose. Such withdrawal may be elected
at any time at least fifteen (15) days prior to the end of an Offering Period.
(b) Upon withdrawal from this Plan, the accumulated payroll
deductions shall be returned to the withdrawn participant, without interest, and
his or her interest in this Plan shall terminate. In the event a participant
voluntarily elects to withdraw from this Plan, he or she may not resume his or
her participation in this Plan during the same Offering Period, but he or she
may participate in any Offering Period under this Plan which commences on a date
subsequent to such withdrawal by filing a new authorization for payroll
deductions in the same manner as set forth in Section 6 above for initial
participation in this Plan.
(c) If the Fair Market Value on the first day of the current Offering
Period in which a participant is enrolled is higher than the Fair Market Value
on the first day of any subsequent Offering Period, the Company will
automatically enroll such participant in the subsequent Offering Period. Any
funds accumulated in a participant's account prior to the first day of such
subsequent Offering Period will be applied to the purchase of shares on the
Purchase Date immediately prior to the first day of such subsequent Offering
Period. Notwithstanding the foregoing, if the first Offering Date occurs prior
to November 1, 1998 and the Fair Market Value on the First Offering Date is
higher than the Fair Market Value on the first day of the second Offering
Period, any funds accumulated in a participant's account prior to the first day
of the second Offering Period will be applied to the purchase of shares on the
Purchase Date next following the first day of such second Offering Period. A
participant does not need to file any forms with the Company to automatically be
enrolled in the subsequent Offering Period
12. TERMINATION OF EMPLOYMENT. Termination of a participant's employment
for any reason, including retirement, death or the failure of a participant to
remain an eligible employee of the Company or of a Participating Subsidiary,
immediately terminates his or her participation in this Plan. In such event,
the payroll deductions credited to the participant's account will be returned to
him or her or, in the case of his or her death, to his or her legal
representative, without interest. For purposes of this Section 12, an employee
will not be deemed to have terminated employment or failed to remain in the
continuous employ of the Company or of a Participating Subsidiary in the case of
sick leave, military leave, or any other leave of absence approved by the Board;
provided that such leave is for a period of not more than ninety (90) days or
- --------
reemployment upon the expiration of such leave is guaranteed by contract or
statute.
13. RETURN OF PAYROLL DEDUCTIONS. In the event a participant's interest
in this Plan is terminated by withdrawal, termination of employment or
otherwise, or in the event this Plan is terminated by the Board, the Company
shall deliver to the participant all payroll deductions credited to such
participant's account. No interest shall accrue on the payroll deductions of a
participant in this Plan.
14. CAPITAL CHANGES. Subject to any required action by the stockholders
of the Company, the number of shares of Common Stock covered by each option
under this Plan which has not yet been exercised and the number of shares of
Common Stock which have been authorized for issuance under this Plan but have
not yet been placed under option (collectively, the "RESERVES"), as well as the
price per share of Common Stock covered by each option under this Plan which has
not yet been exercised, shall be proportionately adjusted for any increase or
decrease in the number of issued and outstanding shares of Common Stock of the
Company resulting from a stock split or the
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<PAGE>
eBay, Inc.
1998 Employee Stock Purchase Plan
payment of a stock dividend (but only on the Common Stock) or any other increase
or decrease in the number of issued and outstanding shares of Common Stock
effected without receipt of any consideration by the Company; provided, however,
-------- -------
that conversion of any convertible securities of the Company shall not be deemed
to have been "effected without receipt of consideration". Such adjustment shall
be made by the Committee, whose determination shall be final, binding and
conclusive. Except as expressly provided herein, no issue by the Company of
shares of stock of any class, or securities convertible into shares of stock of
any class, shall affect, and no adjustment by reason thereof shall be made with
respect to, the number or price of shares of Common Stock subject to an option.
In the event of the proposed dissolution or liquidation of the Company, the
Offering Period will terminate immediately prior to the consummation of such
proposed action, unless otherwise provided by the Committee. The Committee may,
in the exercise of its sole discretion in such instances, declare that this Plan
shall terminate as of a date fixed by the Committee and give each participant
the right to purchase shares under this Plan prior to such termination. In the
event of (i) a merger or consolidation in which the Company is not the surviving
corporation (other than a merger or consolidation with a wholly-owned
subsidiary, a reincorporation of the Company in a different jurisdiction, or
other transaction in which there is no substantial change in the stockholders of
the Company or their relative stock holdings and the options under this Plan are
assumed, converted or replaced by the successor corporation, which assumption
will be binding on all participants), (ii) a merger in which the Company is the
surviving corporation but after which the stockholders of the Company
immediately prior to such merger (other than any stockholder that merges, or
which owns or controls another corporation that merges, with the Company in such
merger) cease to own their shares or other equity interest in the Company, (iii)
the sale of all or substantially all of the assets of the Company or (iv) the
acquisition, sale, or transfer of more than 50% of the outstanding shares of the
Company by tender offer or similar transaction, the Plan will continue with
regard to Offering Periods that commenced prior to the closing of the proposed
transaction and shares will be purchased based on the Fair Market Value of the
surviving corporation's stock on each Purchase Date, unless otherwise provided
by the Committee consistent with pooling of interests accounting treatment.
The Committee may, if it so determines in the exercise of its sole
discretion, also make provision for adjusting the Reserves, as well as the price
per share of Common Stock covered by each outstanding option, in the event that
the Company effects one or more reorganizations, recapitalizations, rights
offerings or other increases or reductions of shares of its outstanding Common
Stock, or in the event of the Company being consolidated with or merged into any
other corporation.
15. NONASSIGNABILITY. Neither payroll deductions credited to a
participant's account nor any rights with regard to the exercise of an option or
to receive shares under this Plan may be assigned, transferred, pledged or
otherwise disposed of in any way (other than by will, the laws of descent and
distribution or as provided in Section 22 below) by the participant. Any such
attempt at assignment, transfer, pledge or other disposition shall be void and
without effect.
16. REPORTS. Individual accounts will be maintained for each participant
in this Plan. Each participant shall receive promptly after the end of each
Purchase Period a report of his or her account setting forth the total payroll
deductions accumulated, the number of shares purchased, the per share price
thereof and the remaining cash balance, if any, carried forward to the next
Purchase Period or Offering Period, as the case may be.
17. NOTICE OF DISPOSITION. Each participant shall notify the Company in
writing if the participant disposes of any of the shares purchased in any
Offering Period pursuant to this Plan if such disposition occurs within two (2)
years from the Offering Date or within one (1) year from the Purchase Date on
which such shares were purchased (the "NOTICE PERIOD"). The Company may, at any
time during the Notice Period, place a legend or legends on any certificate
representing shares acquired pursuant to this Plan requesting the Company's
transfer agent to notify the Company of any transfer of the shares. The
obligation of the participant to provide such notice shall continue
notwithstanding the placement of any such legend on the certificates.
18. NO RIGHTS TO CONTINUED EMPLOYMENT. Neither this Plan nor the grant of
any option hereunder shall confer any right on any employee to remain in the
employ of the Company or any Participating Subsidiary, or restrict the right of
the Company or any Participating Subsidiary to terminate such employee's
employment.
-6-
<PAGE>
eBay, Inc.
1998 Employee Stock Purchase Plan
19. EQUAL RIGHTS AND PRIVILEGES. All eligible employees shall have equal
rights and privileges with respect to this Plan so that this Plan qualifies as
an "employee stock purchase plan" within the meaning of Section 423 or any
successor provision of the Code and the related regulations. Any provision of
this Plan which is inconsistent with Section 423 or any successor provision of
the Code shall, without further act or amendment by the Company, the Committee
or the Board, be reformed to comply with the requirements of Section 423. This
Section 19 shall take precedence over all other provisions in this Plan.
20. NOTICES. All notices or other communications by a participant to the
Company under or in connection with this Plan shall be deemed to have been duly
given when received in the form specified by the Company at the location, or by
the person, designated by the Company for the receipt thereof.
21. TERM; STOCKHOLDER APPROVAL. After this Plan is adopted by the Board,
this Plan will become effective on the First Offering Date (as defined above).
This Plan shall be approved by the stockholders of the Company, in any manner
permitted by applicable corporate law, within twelve (12) months before or after
the date this Plan is adopted by the Board. No purchase of shares pursuant to
this Plan shall occur prior to such stockholder approval. This Plan shall
continue until the earlier to occur of (a) termination of this Plan by the Board
(which termination may be effected by the Board at any time), (b) issuance of
all of the shares of Common Stock reserved for issuance under this Plan, or (c)
ten (10) years from the adoption of this Plan by the Board.
22. DESIGNATION OF BENEFICIARY.
(a) A participant may file a written designation of a beneficiary
who is to receive any shares and cash, if any, from the participant's account
under this Plan in the event of such participant's death subsequent to the end
of an Purchase Period but prior to delivery to him of such shares and cash. In
addition, a participant may file a written designation of a beneficiary who is
to receive any cash from the participant's account under this Plan in the event
of such participant's death prior to a Purchase Date.
(b) Such designation of beneficiary may be changed by the
participant at any time by written notice. In the event of the death of a
participant and in the absence of a beneficiary validly designated under this
Plan who is living at the time of such participant's death, the Company shall
deliver such shares or cash to the executor or administrator of the estate of
the participant, or if no such executor or administrator has been appointed (to
the knowledge of the Company), the Company, in its discretion, may deliver such
shares or cash to the spouse or to any one or more dependents or relatives of
the participant, or if no spouse, dependent or relative is known to the Company,
then to such other person as the Company may designate.
23. CONDITIONS UPON ISSUANCE OF SHARES; LIMITATION ON SALE OF SHARES.
Shares shall not be issued with respect to an option unless the exercise of such
option and the issuance and delivery of such shares pursuant thereto shall
comply with all applicable provisions of law, domestic or foreign, including,
without limitation, the Securities Act, the Securities Exchange Act of 1934, as
amended, the rules and regulations promulgated thereunder, and the requirements
of any stock exchange or automated quotation system upon which the shares may
then be listed, and shall be further subject to the approval of counsel for the
Company with respect to such compliance.
24. APPLICABLE LAW. The Plan shall be governed by the substantive laws
(excluding the conflict of laws rules) of the State of California.
25. AMENDMENT OR TERMINATION OF THIS PLAN. The Board may at any time
amend, terminate or extend the term of this Plan, except that any such
termination cannot affect options previously granted under this Plan, nor may
any amendment make any change in an option previously granted which would
adversely affect the right of any participant, nor may any amendment be made
without approval of the stockholders of the Company obtained in accordance with
Section 21 above within twelve (12) months of the adoption of such amendment (or
earlier if required by Section 21) if such amendment would:
(a) increase the number of shares that may be issued under this Plan; or
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<PAGE>
eBay, Inc.
1998 Employee Stock Purchase Plan
(b) change the designation of the employees (or class of employees)
eligible for participation in this Plan.
Notwithstanding the foregoing, the Board may make such amendments to the
Plan as the Board determines to be advisable, if the continuation of the Plan or
any Offering Period would result in financial accounting treatment for the Plan
that is different from the financial accounting treatment in effect on the date
this Plan is adopted by the Board.
-8-
<PAGE>
EXHIBIT 10.07
CONNECTICUT GENERAL LIFE INSURANCE COMPANY
AND
eBAY, INC.
LEASE
<PAGE>
SUMMARY OF LEASE
<TABLE>
<S> <C>
1. Date of Lease:
2. Landlord: Connecticut General Life Insurance Company, on
behalf of its Separate Account R
3. Tenant: eBay, Inc., a California corporation
4. Premises: 2005 Hamilton Avenue, Suite 270
San Jose, California
5. Square Feet: 1,270 sq. ft.
6. Permitted Use: General Office
7. Term: Three (3) years
(a) Scheduled Commencement Date: October 4, 1996
(b) Scheduled Expiration Date: October 3, 1999
8. Rent:
(a) Basic Rent: $2,171.70 per month (Lease months 1-36)
(b) Tenant's Estimated Share of Common Area
Charges: $685.80 per month
9. Security Deposit: $5,715.00
10. Parking Spaces Provided: Four (4)
11. Other Important Provisions
</TABLE>
THIS SUMMARY OF LEASE IS INTENDED TO SUMMARIZE CERTAIN KEY PROVISIONS IN THE
ATTACHED LEASE. IN THE EVENT OF ANY CONFLICT OR INCONSISTENCY BETWEEN THE
PROVISIONS OF THIS SUMMARY AND THE LEASE, THE PROVISIONS OF THE LEASE SHALL
GOVERN.
<PAGE>
Paragraph Page
- --------- ----
1. USE
2. TERM
3. POSSESSION
4. MONTHLY RENT
5. ADJUSTMENT OF BASIC RENT AND DIRECT EXPENSES
6. RESTRICTION ON USE
7. COMPLIANCE WITH LAWS
8. ALTERATIONS
9. REPAIR AND MAINTENANCE
10. LIENS
11. INSURANCE
12. UTILITIES AND SERVICE
13. TAXES AND OTHER CHARGES
14. ENTRY BY LANDLORD
15. COMMON AREA; PARKING
16. DAMAGE BY FIRE; CASUALTY
17. INDEMNIFICATION
18. ASSIGNMENT AND SUBLETTING
19. DEFAULT
20. LANDLORD'S RIGHT TO CURE TENANT'S DEFAULT
21. EMINENT DOMAIN
22. NOTICE TO SURRENDER
23. TENANT'S QUITCLAIM
24. HOLDING OVER
25. SUBORDINATION
26. CERTIFICATE OF ESTOPPEL
27. SALE BY LANDLORD
28. ATTORNMENT TO LENDER OR THIRD PARTY
29. DEFAULT BY LANDLORD
30. CONSTRUCTION CHANGES
31. MEASUREMENT OF PREMISES
32. ATTORNEY FEES
33. SURRENDER
34. WAIVER
35. EASEMENTS; AIRSPACE RIGHTS
36. RULES AND REGULATIONS
37. NOTICES
38. NAME
39. GOVERNING LAW; SEVERABILITY
40. DEFINITIONS
41. TIME
42. INTEREST ON PAST DUE OBLIGATIONS; LATE CHARGE
43. ENTIRE AGREEMENT
<PAGE>
44. CORPORATE AUTHORITY
45. RECORDING
46. REAL ESTATE BROKERS
47. EXHIBITS AND ATTACHMENTS
48. ERISA REQUIREMENTS
49. ENVIRONMENTAL MATTERS
50. SIGNAGE
51. SUBMISSION OF LEASE
52. PREMISES LEASED "AS IS"
53. ADDITIONAL RENT
54. LANDLORD'S OPTION TO RELOCATE PREMISES
OFFICE LEASE
THIS LEASE is made this 30/th/ day of September, 1996, by and between
CONNECTICUT GENERAL LIFE INSURANCE COMPANY, a Connecticut corporation, on behalf
of its Separate Account R ("Landlord"), and EBAY, INC., a California corporation
("Tenant").
WITNESSETH
Landlord leases to Tenant and Tenant leases from Landlord those certain
premises outlined in red on Exhibit A (the "Premises") which Premises are
commonly known as 2005 Hamilton Avenue, Suite 270, San Jose, California, which
Landlord and Tenant hereby agree consists of approximately one thousand two
hundred seventy (1,270) square feet. As used herein the term "Project" shall
mean and include all of the land described in Exhibit B and all the buildings,
improvements, fixtures and equipment now or hereafter situated on said land.
Tenant covenants, as a material part of the consideration of this lease, to
perform and observe each and all of the terms, covenants and conditions set
forth below, and this lease is made upon the condition of such performance and
observance.
1. USE. Subject to the restrictions contained in paragraph 6, Tenant
---
shall use the Premises for general office use and shall not use or permit the
Premises to be used for any other purpose.
2. TERM. The term shall be for three (3) years (unless sooner terminated
----
as hereinafter provided) and, subject to paragraph 3, shall commence on October
4, 1996 and end on October 3, 1999.
3. POSSESSION.
(a) If Landlord for any reason cannot deliver possession of the
Premises to Tenant by the scheduled commencement date set forth in paragraph 2,
this lease shall not be void or voidable, Landlord shall not be liable to Tenant
for any loss or damage on account thereof and Tenant shall not be liable for
rent until Landlord delivers possession of the Premises to Tenant. If the term
commences on a date other than the date specified in paragraph 2 above, then the
<PAGE>
parties shall immediately execute an amendment to this lease stating the actual
date of commencement. The expiration date of the term shall be extended by the
same number of days that Tenant's possession of the Premises was delayed from
that set forth in paragraph 2.
(b) Tenant's inability or failure to take possession of the Premises
when delivery is tendered by Landlord shall not delay the commencement of the
term of this lease or Tenant's obligation to pay rent. Tenant acknowledges that
Landlord shall incur significant expenses upon the execution of this lease, even
if Tenant never takes possession of the Premises, including without limitation
brokerage commissions and fees, legal fees and other professional fees. Tenant
acknowledges that all of said expenses shall be included in measuring Landlord's
damages should Tenant breach the terms of this lease.
4. MONTHLY RENT
------------
(a) Basic Rent. Tenant shall pay to Landlord as basic rent for the
----------
Premises, in advance and subject to adjustment as provided in paragraph 5, the
sum of Two Thousand One Hundred Seventy-One and 70/100 Dollars ($2,171.70) on or
before the first day of the first full calendar month of the term and on or
before the first day of each and every successive calendar month. Basic rent
for any partial month shall be payable in advance and shall be prorated based on
the actual number of days during the lease term occurring in such month divided
by the total number of days in such month.
(b) Direct Expenses. In addition to the above basic rent and as
---------------
additional rent, Tenant shall pay to Landlord, subject to adjustment and
reconciliation as provided in paragraph 5(b) of this lease, the sum of Six
Hundred Eighty-Five and 80/100 Dollars ($685.80) on or before the first day of
the first full calendar month of the term and on the first day of each and every
successive calendar month, said sum representing Tenant's estimated payment of
its proportionate share of direct expenses as provided for in paragraph 5(b) to
this lease. Payment for direct expenses for any partial month shall be payable
in advance and shall be prorated based on the actual number of days during the
lease term occurring in such month divided by the total number of days in such
month.
(c) Manner and Place of Payment. All payments of basic rent and
---------------------------
direct expenses shall be paid to Landlord, without deduction or offset, in
lawful money of the United States of America, c/o McCandless Management
Corporation at 3945 Freedom Circle, Suite 640, Santa Clara, California, 95054,
or to such other person or place as Landlord may from time to time designate in
writing.
(d) Advance Rent. Concurrently with Tenant's execution of this lease,
------------
Tenant shall deposit with Landlord the sum of Fourteen Thousand Two Hundred
Eighty-Seven and 50/100 Dollars ($14,287.50) to be applied against the basic
rent and direct expenses for the first five months of the term.
(e) Security Deposit. Concurrently with Tenant's execution of this
----------------
lease, Tenant shall deposit with Landlord the sum of Five Thousand Seven Hundred
Fifteen Dollars ($5,715,000), which sum shall be held by Landlord as a security
deposit for the faithful
5
<PAGE>
performance by Tenant of all of the terms, covenants and conditions of this
lease to be kept and performed by Tenant. If Tenant defaults with respect to
any provision of this lease, including but not limited to the provisions
relating to the payment of basic rent and direct expenses, Landlord may (but
shall not be required to) use, apply or retain all or any part of this security
deposit for the payment of any amount which Landlord may spend by reason of
Tenant's default. If any portion of said deposit is so used, Tenant shall,
within ten (10) days after written demand therefor, deposit cash with Landlord
in the amount sufficient to restore the security deposit to its original amount;
Tenant's failure to do so shall be a material breach of this lease. Landlord
shall not be required to keep this security deposit separate from its general
funds and Tenant shall not be entitled to interest on such deposit. If Tenant
is not in default on the first day of the last lease month of the term of this
lease, the sum of Two Thousand Eight Hundred Fifty-Seven and 50/100 Dollars
($2,857.50), if not previously applied by Landlord in accordance with the
provisions of this paragraph 4(e), shall be applied to the basic rent and direct
expenses for the last lease month of the term of this lease. If Tenant is not
in default at the expiration or termination of this lease, the security deposit
or any balance thereof shall be returned to Tenant after Tenant has vacated the
Premises. In the event of termination of Landlord's interest in this lease,
Landlord shall transfer said deposit to Landlord's successor in interest, and
Tenant agrees that Landlord shall thereupon be released from liability for the
return of such deposit or any accounting therefor.
5. ADJUSTMENT OF BASIC RENT AND DIRECT EXPENSES.
--------------------------------------------
(a) Adjustments in Basic Rent. The basic rent provided for in
-------------------------
paragraph 4(a) shall not be adjusted during the initial three year term of this
lease.
(b) Adjustments to Direct Expenses. Tenant's proportionate share of
------------------------------
direct expenses of the Project shall be fifty-five one-hundredths percent (.55%)
and Tenant's proportionate share of direct expenses of the building in which the
Premises are located shall be one and ninety-eight one-hundredths percent
(1.98%).
Tenant shall be required to pay to Landlord, as additional rent in
accordance with paragraph 4(b) of this lease, Tenant's proportionate share of
direct expenses for each calendar year (or portion thereof) during the term of
this lease. Tenant's estimated share of the monthly direct expenses payable by
Tenant during the calendar year in which the term commences is set forth in
paragraph 4(b) of this lease. A written estimate of Tenant's monthly share of
direct expenses for each succeeding calendar year shall be delivered to Tenant
prior to the commencement of each such succeeding calendar year (or as soon as
practicable thereafter). Tenant shall pay to Landlord in accordance with
paragraph 4(b) of this lease its monthly share of direct expenses as estimated
by Landlord. Landlord reserves the right to revise such written estimate during
a calendar year if Landlord's actual or projected direct expenses shows an
increase or decrease in excess of ten percent (10%) from that of an earlier
written estimate delivered to Tenant, and if Landlord elects to revise the
earlier estimate, Landlord shall deliver the revised estimate to Tenant,
together with an explanation of the reasons therefor, and Tenant shall revise
its payments accordingly. Statements of the actual direct expenses for the
calendar year in which the term commences and for each succeeding calendar year
(herein called
6
<PAGE>
"statement of actual direct expenses") shall be delivered to Tenant within one
hundred twenty (120) days following the expiration of each such calendar year
(or as soon as practicable thereafter). If the statement of actual direct
expenses for any such calendar year shows that Tenant's proportionate share of
actual direct expenses for the year is in excess of the aggregate amount Tenant
has paid as direct expenses for that calendar year, Tenant shall pay such excess
to Landlord within ten (10) days after receipt of the statement of actual direct
expenses. If Tenant fails to pay such excess amount due within said ten (10) day
period, Tenant shall pay an additional ten percent (10%) of the amount due as a
penalty. In the event that any statement of actual direct expenses shall show
that Tenant has paid Landlord an aggregate amount in excess of the actual direct
expenses for the preceding calendar year and Tenant is not in default in the
performance or observance of any of the terms, covenants or conditions of this
lease at the time such statement of actual direct expenses is delivered,
Landlord shall, at its option, promptly either refund such excess to Tenant or
credit the amount thereof to the monthly direct expenses next becoming due from
Tenant. The respective obligations of Landlord and Tenant under this paragraph
shall survive the expiration or other termination of this lease.
As used in this lease, "direct expenses" shall include, but not be limited
to, (i) real property taxes, assessments, and other costs identified as direct
expenses in paragraph 13; (ii) insurance premiums and other costs identified as
direct expenses in paragraph 11; (iii) the cost of all utilities and services
including water, gas, and sewer charges, electricity, heat, air conditioning,
refuse collection, and janitorial services identified as direct expenses in
paragraph 12; (iv) the costs of operating and maintaining the Common Area
identified as direct expenses in paragraph 15, including, but not limited to,
the landscaping, elevators, parking lots, paving, sidewalks, showers, the
Greylands Mansion, and security and exterminator services; (v) the costs and
expenses of maintaining and repairing the Project identified as direct expenses
in paragraph 9, including but not limited to, mechanical, electrical, plumbing
and sewage systems, windows, glazing, gutters, down-spouts, heating and
ventilating and air conditioning systems, walls, floor coverings, roofs,
structural elements, exterior walls, and the cost of maintenance contracts and
supplies, materials, equipment and tools used in connection therewith; (vi) the
cost of certain alterations identified as direct expenses in paragraph 8; (vii)
amortization of such capital improvements having a useful life greater than one
year as Landlord may have installed for the purpose of reducing operating costs
and/or to comply with all laws, rules and regulations of federal, state, county,
municipal and other governmental authorities now or hereafter in effect
(Tenant's share of such capital improvement shall equal Tenant's proportionate
share of the fraction of the cost of such capital improvement equal to the
remaining term of the lease over the useful life of such capital improvement);
(viii) wages, salaries, employee benefits (including union benefits) and related
expenses of all on-site and off-site personnel engaged in the operation,
management and maintenance of the Project (or the building in which the Premises
are located) and payroll taxes applicable thereto and all costs incurred to
maintain a management office in or near the Project (including, without
limitation, rental payments therefor or the reasonable rental value of the space
so occupied); (ix) supplies, materials, equipment and tools used or required in
connection with the operation and maintenance of the Project; (x) licenses,
permits and inspection fees; (xi) a reasonable reserve for repairs and
replacement of equipment used in the maintenance and operation of the Project;
and (xii) all other operating costs incurred by Landlord in maintaining and
operating the Project.
7
<PAGE>
6. RESTRICTION ON USE. Tenant shall not do or permit to be done in or
------------------
about the Premises or the Project, nor bring or keep or permit to be brought or
kept in or about the Premises or Project, anything which is prohibited by or
will in any way increase the existing rate of (or otherwise affect) fire or any
other insurance covering the Project or any part thereof, or any of its
contents, or will cause a cancellation of any insurance covering the Project or
any part thereof, or any of its contents. Tenant shall not do or permit to be
done anything in or about the Premises or the Project which will constitute
waste or which will in any way obstruct or interfere with the rights of other
tenants or occupants of the Project or injure or annoy them, or use or allow the
Premises to be used for any unlawful purpose, nor shall Tenant cause, maintain
or permit any nuisance in or about the Premises or the Project. No loudspeaker
or other device, system or apparatus which can be heard outside the Premises
shall be used in or at the Premises without the prior written consent of
Landlord. Tenant shall not use the Premises for sleeping, washing clothes,
cooking or in any manner that will cause or emit any objectionable odor, noise
or light into the adjoining premises or Common Area. Tenant shall not do
anything on the Premises that will cause damage to the Project or the building
in which the Premises are located and Tenant shall not overload the floor
capacity of the Project. No machinery, apparatus or other appliance shall be
used or operated in or on the Premises that will in any manner injure, vibrate
or shake the Premises. Landlord shall be the sole judge of whether such odor
noise, light or vibration is such as to violate the provisions of this
paragraph. No waste materials or refuse shall be dumped upon or permitted to
remain upon any part of the Premises or outside of the building proper except in
trash containers placed inside exterior enclosures designated for that purpose
by Landlord, or inside of the building proper where designated; and no toxic or
hazardous material shall be disposed of through the plumbing or sewage system.
No materials, supplies, equipment, finished products or semi-finished products,
raw materials or articles of any nature shall be stored or permitted to remain
outside of the building proper. No retail sales shall be made on the Premises.
7. COMPLIANCE WITH LAWS. Tenant shall, in connection with its use and
--------------------
occupation of the Premises, at its sole cost and expense, promptly observe and
comply with (i) all laws, statutes, ordinances and governmental rules,
regulations and requirements of federal, state, county, municipal and other
governmental authorities, now or hereafter in effect, which shall impose any
duty upon Landlord or Tenant with respect to the use, occupancy or alteration of
the Premises, (ii) with the requirements of any board of fire underwriters or
other similar body now or hereafter constituted and (iii) with any direction or
occupancy certificate issued pursuant to law by any public authority; provided,
however, that no such failure shall be deemed a breach of these provisions if
Tenant, immediately upon notification, commences to remedy or rectify said
failure. The judgment of any court of competent jurisdiction or the admission
of Tenant in any action against Tenant (whether or not Landlord is a party
thereto) that Tenant has violated any such law, statute, ordinance or
governmental rule, regulation, requirement, direction or provision, shall be
conclusive of that fact as between Landlord and Tenant. This lease shall remain
in full force and effect notwithstanding any loss of use of other effect on
Tenant's enjoyment of the Premises by reason of any governmental laws, statutes,
ordinances, rules, regulations and requirements now or hereafter in effect.
8
<PAGE>
8. ALTERATIONS. Tenant shall not make or suffer to be made any
-----------
alteration, addition or improvement to or of the Premises or any part thereof
(collectively referred to herein as "alterations") without (i) the prior written
consent of Landlord, (ii) a valid building permit issued by the appropriate
governmental authority and (iii) otherwise complying with all applicable laws,
regulations and requirements of governmental agencies having jurisdiction and
with the rules, regulations and requirements of any board of fire underwriters
or similar body. Landlord's consent to any requested alteration shall not create
on the part of Landlord or cause Landlord to incur any responsibility or
liability for such alteration's compliance with all laws, rules and regulations
of federal, state, municipal, county and other governmental authorities. Any
alteration made by Tenant (excluding moveable furniture and trade fixtures not
attached to the Premises) shall at once become a part of the Premises and belong
to Landlord. Without limiting the foregoing, all heating, lighting, electrical
(including all wiring, conduit, outlets, drops, buss ducts, main and subpanels),
air conditioning, partitioning, drapery, window covering and carpet
installations made by Tenant, regardless of how attached to the Premises,
together with all other alterations that have become an integral part of the
building in which the Premises are a part, shall be and become part of the
Premises and belong to Landlord upon installation and shall not be deemed trade
fixtures and, subject to Landlord's right to require removal and restoration as
specified herein, shall remain upon and be surrendered with the Premises at the
termination of the lease.
If Landlord consents to the making of any alteration by Tenant, the
same shall be made by Tenant at its sole risk, cost and expense and only after
Landlord's written approval of any contractor or person selected by Tenant for
that purpose, and the same shall be made at such time and in such manner as
Landlord may from time to time designate. Tenant shall, if required by
Landlord, secure at Tenant's cost a completion and lien indemnity bond for such
work. Upon the expiration or sooner termination of the term, Landlord may, at
its sole option, require Tenant, at Tenant's sole cost and expense, to promptly
remove any such alteration made by Tenant and designated by Landlord to be
removed, repair any damage to the Premises caused by such removal and restore
the Premises to their condition prior to Tenant's alteration. Any moveable
furniture and equipment or trade fixtures remaining on the Premises at the
expiration or other termination of the term shall become the property of the
Landlord; provided, however, in addition to all other remedies available to
Landlord at law or in equity, Landlord may (i) require Tenant to remove same or
(ii) remove same at Tenant's cost, and Tenant shall be liable to Landlord for
all damages incurred by Landlord related thereto.
If during the term any alteration, addition or change of the Premises
is required by law, regulation, ordinance or order of any public authority,
Tenant, at its sole cost and expense, shall promptly make the same. If during
the term any alterations, additions or changes to the Common Area or to the
Project or building in which the Premises is located is required by law,
regulation, ordinance or order of any public or quasi-public authority, and it
is impractical, in Landlord's judgment, for the affected tenants to individually
make such alterations, additions or changes, Landlord shall make such
alterations, additions or changes and the cost thereof shall be a direct expense
and Tenant shall pay its percentage share of said cost to Landlord as provided
in paragraphs 4 and 5.
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9. REPAIR AND MAINTENANCE. Subject to paragraph 16, Landlord shall
----------------------
maintain and keep in good repair the Common Area (including, without limitation,
the Greylands Mansion) and the mechanical, electrical, plumbing and sewage
systems, windows, window frames, plate glass, glazing, elevators, gutters and
down-spouts, the roof, exterior walls, structural elements and the heating,
ventilating and air conditioning systems (except special air conditioning of
Tenant's computer room(s) as set forth below) of the Premises and the Project;
provided, however, that Landlord shall not be required to perform repairs made
necessary by the negligence or abuse of such improvements or property by Tenant
or its employees agents, subtenants or permitees. The cost of all maintenance
and repairs made by Landlord pursuant to this paragraph 9, including without
limitation maintenance contracts and supplies, materials, equipment and tools
used in such repairs and maintenance, shall be direct expenses and Tenant shall
pay its percentage share of such costs to Landlord as provided in paragraphs 4
and 5.
By entry hereunder Tenant accepts the Premises as being in good and
sanitary order, condition and repair. Subject to paragraphs 16 and 21, and
excepting repairs and maintenance required by this paragraph 9 to be made by
Landlord, Tenant at its cost shall keep the Premises and every part thereof in
good and sanitary order, condition and repair and Tenant shall be solely
responsible for the cost and maintenance of, and electricity supplied to, any
special air conditioning for Tenant's computer facilities. Further, Tenant
shall repair (or, at the option of Landlord, reimburse Landlord if Landlord
elects to repair) damage to improvements or other property located on or about
the Project where such repairs are made necessary by the negligence of or abuse
of such improvements or other property by Tenant or its employees, agents,
subtenants or permitees. Tenant waives all rights under and benefit of
California Civil Code Sections 1932(1), 1941, and 1942 and under any similar
law, statute or ordinance now or hereafter in effect.
10. LIENS. Tenant shall keep the Premises and the Project free from any
-----
liens arising out of any work performed, materials furnished or obligations
incurred by Tenant, its agents, employees or contractors. Upon Tenant's receipt
of a preliminary twenty (20) day notice filed by a claimant pursuant to
California Civil Code Section 3097, Tenant shall immediately provide Landlord
with a copy of such notice. Should any lien be recorded against the Project,
Tenant shall give immediate notice of such lien to Landlord. In the event that
Tenant shall not, within ten (10) days following the imposition of such lien,
cause the same to be released of record, Landlord shall have, in addition to all
other remedies provided herein and by law, the right, but no obligation, to
cause the same to be released by such means as it shall deem proper, including
payment of the claim giving rise to such lien. All sums paid by Landlord for
such purpose, and all expenses (including attorneys' fees) incurred by it in
connection therewith, shall be payable to Landlord by Tenant on demand with
interest at the rate of twelve percent (12%) per annum or the maximum rate
permitted by law, whichever is less. Landlord shall have the right at all times
to post and keep posted on the Premises any notices permitted or required by
law, or which Landlord shall deem proper for the protection of Landlord, the
Premises and the Project and any other party having an interest therein, from
mechanics' and materialmen's liens and like liens. Tenant shall give Landlord
at least fifteen (15) days' prior notice of the date of commencement of any
construction on the Premises in order to permit the posting of such notices. In
the event Tenant is required to post an improvement bond with a public agency in
connection with any
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work performed by Tenant on or to the Premises, Tenant shall include Landlord as
an additional obligee.
11. INSURANCE. Tenant, at its sole cost and expense, shall keep in force
---------
during the term (i) commercial general liability and property damage insurance
with a combined single limit of at least $2,000,000 per occurrence insuring
against personal or bodily injury to or death of persons occurring in, on or
about the Premises or Project and any and all liability of the insureds with
respect to the Premises or arising out of Tenant's maintenance, use or occupancy
of the Premises and all areas appurtenant thereto, (ii) direct physical loss-
special insurance covering the leasehold improvements in the Premises and all of
Tenant's equipment, trade fixtures, appliances, furniture, furnishings, and
personal property from time to time located in, on or about the Premises, with
coverage in the amount of the full replacement cost thereof, and (iii) Workers'
Compensation Insurance as required by law, together with employer's liability
coverage with a limit of not less than $1,000,000 for bodily injury for each
accident and for bodily injury by disease for each employee. Tenant's commercial
general liability and property damage insurance and Tenant's Workers'
Compensation Insurance shall be endorsed to provide that said insurance shall
not be cancelled or reduced except upon at least thirty (30) days prior written
notice to Landlord. Further, Tenant's commercial general liability and property
damage insurance shall be primary and shall be endorsed to provide that Landlord
and McCandless Management Corporation, and their respective partners, officers,
directors and employees and such other persons or entities as directed from time
to time by Landlord shall be named as additional insureds for all liability
using ISO Bureau Form CG20111185 (or a successor form) or such other endorsement
form reasonably acceptable to Landlord; shall contain a severability of interest
clause and a cross-liability endorsement; shall be endorsed to provide that the
limits and aggregates apply per location using ISO Bureau Form CG25041185 (or a
successor form) or such other endorsement form reasonably acceptable to
Landlord; and shall be issued by an insurance company admitted to transact
business in the State of California and rated A+VIII or better in Best's
Insurance Reports (or successor report). The deductibles for all insurance
required to be maintained by Tenant hereunder shall be satisfactory to Landlord.
The commercial general liability insurance carried by Tenant shall specifically
insure the performance by Tenant of the indemnification provisions set forth in
paragraph 17 of this lease provided, however, nothing contained in this
paragraph 11 shall be construed to limit the liability of Tenant under the
indemnification provisions set forth in said paragraph 17. If Landlord or any of
the additional insureds named on any of Tenant's insurance, have other insurance
which is applicable to the covered loss on a contributing, excess or contingent
basis, the amount of the Tenant's insurance company's liability under the policy
of insurance maintained by Tenant shall not be reduced by the existence of such
other insurance. Any insurance carried by Landlord or any of the additional
insureds named on Tenant's insurance policies shall be excess and non-
contributing with the insurance so provided by Tenant.
Tenant shall, prior to the commencement of the term and at least
thirty (30) days prior to any renewal date on any insurance policy required to
be maintained by Tenant pursuant to this paragraph, provide Landlord with a
completed Certificate of Insurance, using a form acceptable in Landlord's
reasonable judgment, attaching thereto copies of all endorsements required to be
provided by Tenant under this lease. Tenant agrees to increase the coverage or
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otherwise comply with changes in connection with said commercial general
liability, property damage, direct physical loss and Workers' Compensation
Insurance as Landlord or Landlord's lender may from time to time require.
Landlord shall obtain and keep in force a policy or policies of
insurance covering loss or damage to the Premises and Project, in the amount of
the full replacement value thereof, providing protection against those perils
included within the classification of "all risk" insurance, with increased cost
of reconstruction and contingent liability (including demolition), plus a policy
of rental income insurance in the amount of one hundred percent (100%) of twelve
(12) months' rent (including sums paid as additional rent) and such other
insurance as Landlord or Landlord's lender may from time to time require.
Landlord may but shall not be obligated to obtain flood and/or earthquake
insurance. Landlord shall have no liability to Tenant if Landlord elects not to
obtain flood and/or earthquake insurance. The cost of all such insurance
purchased by Landlord, plus any charges for deferred payment of premiums and the
amount of any deductible incurred upon any covered loss within the Project,
shall be direct expenses and Tenant shall pay to Landlord its percentage share
of such costs as provided in paragraphs 4(b) and 5(b). If the cost of insurance
is increased due to Tenant's use of the Premises, then Tenant shall pay to
Landlord upon demand the full cost of such increase.
Landlord and Tenant hereby mutually waive any and all rights of
recovery against one another for real or personal property loss or damage
occurring to the Premises or the Project, or any part thereof, or to any
personal property therein, from perils insured against under fire and extended
insurance and any other property insurance policies existing for the benefit of
the respective parties so long as such insurance permits waiver of liability and
contains a waiver of subrogation without additional premiums.
If Tenant does not take out and maintain insurance as required
pursuant to this paragraph 11, Landlord may, but shall not be obligated to, take
out the necessary insurance and pay the premium therefor, and Tenant shall repay
to Landlord promptly on demand, as additional rent, the amount so paid. In
addition, Landlord may recover from Tenant and Tenant agrees to pay, as
additional rent, any and all reasonable expenses (including attorneys' fees) and
damages which Landlord may sustain by reason of the failure of Tenant to obtain
and maintain such insurance, it being expressly declared that the expenses and
damages of Landlord shall not be limited to the amount of the premiums thereon.
12. UTILITIES AND SERVICE. Landlord shall furnish to the Premises and to
---------------------
the building in which the Premises are located, during reasonable hours of
generally recognized business days, to be determined by Landlord, and subject to
the rules and regulations of the Project, reasonable quantities of water and
electricity suitable for the intended use of the Premises and the building in
which the Premises are located, heat and air conditioning required in Landlord's
judgment for the comfortable use and occupation of the Premises, refuse
collection and janitorial services. Tenant agrees that at all times it will
cooperate fully with Landlord and abide by all regulations and requirements that
Landlord may prescribe for the proper functioning and protection of the heating,
ventilating and air conditioning systems. The cost of all utilities and
services furnished by Landlord to the Premises and to the building in which the
Premises are
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located pursuant to this paragraph 12 shall be direct expenses and Tenant shall
pay its percentage share of such costs to Landlord as provided in paragraphs 4
and 5.
Landlord shall not be liable for, and Tenant shall not be entitled to
any abatement or reduction of rent by reason of, Landlord's failure to furnish
any of the foregoing services when such failure is caused by accident, breakage,
repairs, strikes, lockouts or other labor disturbances or labor disputes of any
character, governmental moratoriums, regulations, or other governmental actions
or by any other cause, similar or dissimilar, beyond the reasonable control of
Landlord. In addition, Tenant shall not be relieved from the performance of any
covenant or agreement in this lease because or any such failure, and no eviction
of Tenant shall result from such failure.
Tenant will not, without the written consent of Landlord, use any
apparatus or device in the Premises (including, without limitation, electronic
data processing machines, punch card machines or machines using current in
excess of 110 volts) which will in any way increase the amount of electricity,
water or air conditioning usually furnished or supplied to premises in the
Project being used as general office space or connect with electric current
(except through existing electrical outlets in the Premises) or with water pipes
any apparatus or device for the purpose of using electric current or water. If
Tenant shall require water or electric current in excess of that usually
furnished or supplied to premises in the Project being used as general office
space then Tenant shall first obtain the written consent of Landlord, which
consent shall not be unreasonably withheld, and Tenant shall pay to Landlord
promptly on demand, as additional rent, the full cost of such excess use.
Landlord may cause an electric current or water meter to be installed in the
Premises in order to measure the amount of electric current or water consumed
for any such excess use. The cost of any such meter and of the installation,
maintenance and repair thereof, and all charges for such excess water and
electric current consumed (as shown by meters and at the rates then charged by
the furnishing public utility) plus any additional expense incurred by Landlord
in keeping account of electric current or water so consumed, shall be paid by
Tenant, and Tenant agrees to pay Landlord therefor promptly upon demand by
Landlord. Whenever heat generating machines or equipment are used in the
Premises by Tenant which affect the temperature otherwise maintained by the air
conditioning system, Landlord shall have the right to install supplementary air
conditioning units in the Premises and the cost thereof, including the cost of
installation and the cost of operation and maintenance thereof, shall be paid by
Tenant to Landlord upon demand by Landlord.
13. TAXES AND OTHER CHARGES. All real estate taxes and assessments and
-----------------------
other taxes, fees and charges of every kind or nature, foreseen or unforeseen,
which are levied, assessed or imposed upon Landlord and/or against the Premises,
building, Common Area or Project or any part thereof by any federal, state,
county, regional, municipal or other governmental or quasi-governmental
authority or special district authority, together with any increases therein
whether resulting from increased rate and/or valuation shall be a direct expense
and Tenant shall pay its percentage share of such costs to Landlord as provided
in paragraphs 4 and 5. By way of illustration and not limitation, "other taxes,
fees and charges" as used herein include any and all taxes payable by Landlord
(other than state and federal personal or corporate income taxes measured by the
net income of Landlord from all sources, and premium taxes), whether or not now
customary or within the contemplation of the parties hereto, (i) upon,
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allocable to, or measured by the rent payable hereunder, including, without
limitation, any gross income or excise tax levied by the local, state or federal
government with respect to the receipt of such rent, (ii) upon or with respect
to the possession, leasing, operation, management, maintenance, alteration,
repair, use or occupancy by Tenant of the Premises or any part thereof, (iii)
upon or measured by the value of Tenant's personal property or leasehold
improvements located in the Premises, (iv) upon this transaction or any document
to which Tenant is a party creating or transferring an interest or estate in the
Premises, (v) upon or with respect to vehicles, parking or the number of persons
employed on or about the Project, and (vi) any tax, license, franchise fee or
other imposition upon Landlord which is otherwise measured by or based in whole
or in part upon the Project or any portion thereof. If Landlord contests any
such tax, fee or charge, the cost and expense incurred by Landlord (including,
but not limited to, costs of attorneys and experts) thereby shall also be direct
expenses and Tenant shall pay its percentage share of such costs to Landlord as
provided in paragraphs 4 and 5. In the event the Premises and any improvements
installed therein by Tenant or Landlord are valued by the assessor
disproportionately higher than those of other tenants in the building or Project
or in the event alterations or improvements are made to the Premises, Tenant's
percentage share of such taxes, assessments, fees and/or charges shall be
readjusted upward accordingly and Tenant agrees to pay such readjusted share.
Such determination shall be made by Landlord from the respective valuations
assigned in the assessor's work sheet or such other information as may be
reasonably available and Landlord's determination thereof shall be conclusive.
Tenant agrees to pay, before delinquency, any and all taxes levied or
assessed during the term hereof upon Tenant's equipment, furniture, fixtures and
other personal property located in the Premises, including carpeting and other
property installed by Tenant notwithstanding that such carpeting or other
property has become a part of the Premises. If any of Tenant's personal
property shall be assessed with the Project, Tenant shall pay to Landlord, as
additional rent, the amounts attributable to Tenant's personal property within
ten (10) days after receipt of a written statement from Landlord setting forth
the amount of such taxes, assessments and public charges attributable to
Tenant's personal property.
14. ENTRY BY LANDLORD. Landlord reserves, and shall at all reasonable
-----------------
times have, the right to enter the Premises (i) to inspect the Premises, (ii) to
supply services to be provided by Landlord hereunder, (iii) to show the Premises
to prospective purchasers, lenders or tenants and to put, `for sale' or `for
lease' signs thereon, (iv) to post notices required or allowed by this lease or
by law, (v) to alter, improve or repair the Premises and any portion of the
Project, and (vi) to erect scaffolding and other necessary structures in or
through the Premises or the Project where reasonably required by the character
of the work to be performed. Landlord shall not be liable in any manner for any
inconvenience, disturbance, loss of business, nuisance or other damage arising
from Landlord's entry and acts pursuant to this paragraph and Tenant shall not
be entitled to an abatement or reduction of rent if Landlord exercises any
rights reserved in this paragraph. For each of the foregoing purposes, Landlord
shall at all times have and retain a key with which to unlock all of the doors
in, on, and about the Premises (excluding Tenant's 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 said doors
in an emergency in order to obtain entry to the Premises. Any entry by Landlord
to the Premises
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pursuant to this paragraph shall not under any circumstances 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.
15. COMMON AREA; PARKING. Subject to the terms and conditions of this
--------------------
lease and such rules and regulations as Landlord may from time to time
prescribe, Tenant and Tenant's employees and invitees shall, in common with
other occupants of the Project, and their respective employees, invitees and
customers and others entitled to the use thereof, have the nonexclusive right to
use the access roads, parking areas and facilities within the Project provided
and designated by Landlord for the general use and convenience of the occupants
of the Project (which areas and facilities shall include, but not be limited to,
common lobbies, corridors, restrooms and showers, part or all of the Greylands
Mansion and the .37 acre parcel upon which it is located, telephone, electrical,
janitorial and mechanical rooms, elevators, stairwells, vertical duct shafts,
sidewalks, parking, refuse, landscape and plaza areas, roofs, building
exteriors, electrical, mechanical, plumbing and HVAC systems and storage areas)
which areas and facilities are referred to herein as "Common Area". This right
shall terminate upon the termination of this lease.
Landlord reserves the right from time to time to make changes in the
shape, size, location, amount and extent of the Common Area. Landlord shall
also have the right at any time to change the name, number or designation by
which the Project is commonly known. Landlord further reserves the right to
promulgate such rules and regulations relating to the use of the Common Area,
and any part thereof, as Landlord may deem appropriate for the best interests of
the occupants of the Project. The rules and regulations shall be binding upon
Tenant upon delivery of a copy of them to Tenant and Tenant shall abide by them
and cooperate in their observance. Such rules and regulations may be amended by
Landlord from time to time, with or without advance notice.
Tenant acknowledges that Landlord (as tenant) has leased the Greylands
Mansion on a month-to-month basis and that such Lease can be terminated on
thirty (30) days notice. Upon termination of the lease for the Greylands
Mansion the Common Area shall thereafter include no part of the Greylands
Mansion and the .37 acre parcel upon which it is located.
Tenant shall have the nonexclusive use of four (4) parking spaces in
the Common Area as designated from time to time by Landlord. Landlord reserves
the right at its sole option to assign and label parking spaces, but it is
specifically agreed that Landlord is not responsible for policing any such
parking spaces. Tenant shall not at any time park or permit the parking of
Tenant's trucks or other vehicles, or the trucks or other vehicles of others,
adjacent to loading areas so as to interfere in any way with the use of such
areas; nor shall Tenant at any time park or permit the parking of Tenant's
vehicles or trucks, or the vehicles or trucks of Tenant's suppliers or others,
in any portion of the Common Area not designated by Landlord for such use by
Tenant. Tenant shall not park or permit any inoperative vehicle or equipment to
be parked on any portion of the Common Area.
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Landlord shall operate, manage and maintain the Common Area. The
manner in which the Common Area shall be operated, managed and maintained and
the expenditures for such operation, management and maintenance shall be at the
sole discretion of Landlord. The cost of such maintenance, operation and
management, including but not limited to landscaping, repair of paving, parking
lots and sidewalks, the Greylands Mansion (including interior repair and
maintenance; janitorial services; furniture rental or depreciation charges; and
lease payments charged to the Project by the owner of the Greylands Mansion),
security and exterminator services and salaries and employee benefits (including
union benefits) of on-site and accounting personnel engaged in such maintenance
and operations management, shall be a direct expense and Tenant shall pay to
Landlord its percentage share of such cost as provided in paragraphs 4 and 5.
16. DAMAGE BY FIRE; CASUALTY. In the event the Premises are damaged by
------------------------
any casualty which is covered under an insurance policy required to be
maintained by Landlord pursuant to paragraph 11, Landlord shall be entitled to
the use of all insurance proceeds and shall repair such damage as soon as
reasonably possible and this lease shall continue in full force and effect.
In the event the Premises are damaged by any casualty not covered
under an insurance policy required to be maintained pursuant to paragraph 11,
Landlord may, at Landlord's option, either (i) repair such damage, at Landlord's
expense, as soon as reasonably possible, in which event this lease shall
continue in full force and effect, or (ii) give written notice to Tenant within
thirty (30) days after the date of the occurrence of such damage of Landlord's
intention to cancel and terminate this lease as of the date of the occurrence of
the damage; provided, however, that if such damage is caused by an act or
omission of Tenant or its agent, servants or employees, then Tenant shall repair
such damage promptly at its sole cost and expense. In the event Landlord elects
to terminate this lease pursuant hereto, Tenant shall have the right within ten
(10) days after receipt of the required notice to notify Landlord in writing of
Tenant's intention to repair such damage at Tenant's expense, without
reimbursement from Landlord, in which event this lease shall continue in full
force and effect and Tenant shall proceed to make such repairs as soon as
reasonably possible. If Tenant does not give such notice within the ten (10)
day period, this lease shall be cancelled and terminated as of the date of the
occurrence of such damage. Under no circumstances shall Landlord be required to
repair any injury or damage to (by fire or other cause), or to make any
restoration or replacement of, any of Tenant's personal property, trade fixtures
or property leased from third parties, whether or not the same is attached to
the Premises.
If the Premises are totally destroyed during the term from any cause
(including any destruction required by any authorized public authority), whether
or not covered by the insurance required under paragraph 11, this lease shall
automatically terminate as of the date of such total destruction; provided,
however, that if the Premises can reasonably and lawfully be repaired or
restored within twelve (12) months of the date of destruction to substantially
the condition existing prior to such destruction and if the proceeds of the
insurance payable to the Landlord by reason of such destruction are sufficient
to pay the cost of such repair or restoration, then said insurance proceeds
shall be so applied, Landlord shall promptly repair and restore the
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Premises and this lease shall continue, without interruption, in full force and
effect. If the Premises are totally destroyed during the last twelve (12) months
of the term, Landlord may at Landlord's option cancel and terminate this lease
as of the date of occurrence of such damage by giving written notice to Tenant
of Landlord's election to do so within thirty (30) days after the occurrence of
such damage.
If the Premises are partially or totally destroyed or damaged and
Landlord or Tenant repair them pursuant to this lease, the rent payable
hereunder for the period during which such damage and repair continues shall be
abated only in proportion to the square footage of the Premises rendered
untenantable to Tenant by such damage or destruction. Tenant shall have no
claim against Landlord for any damage, loss or expense suffered by reason of any
such damage, destruction, repair or restoration. The parties waive the
provisions of California Civil Code Sections 1932(2) and 1933(4) (which
provisions permit the termination of a lease upon destruction of the leased
premises), and hereby agree that the provisions of this paragraph 16 shall
govern in the event of the destruction of the Premises.
17. INDEMNIFICATION. Landlord shall not be liable to Tenant and Tenant
---------------
hereby waives all claims against Landlord for any injury to or death of any
person or damage to or destruction of property in or about the Premises or the
Project by or from any cause whatsoever except the failure of Landlord to
perform its obligations under this lease where such failure has persisted for an
unreasonable period of time after notice of such failure. Without limiting the
foregoing, Landlord shall not be liable to Tenant for any injury to or death of
any person or damages to or destruction of property by reason of, or arising
from, any latent defect in the Premises or Project or the act or negligence of
any other tenant of the Project. Tenant shall immediately notify Landlord of
any defect in the Premises or Project.
Except as to injury to persons or damage to property the principal
cause of which is the failure by Landlord to observe any of the terms and
conditions of this lease, Tenant shall hold Landlord harmless from and indemnify
and defend Landlord against any claim, liability, loss, damage or expense
(including attorneys' fees) arising out of any injury to or death of any person
or damage to or destruction of property occurring in, on or about the Premises
from any cause whatsoever or on account of the use, condition, occupational
safety or occupancy of the Premises. Tenant shall further hold Landlord
harmless from and indemnify and defend Landlord against any claim, liability,
loss, damage or expense (including attorneys' fees) arising (i) from Tenant's
use of the Premises or from the conduct of its business or from any activity or
work done, permitted or suffered by Tenant or its agents or employee, in or
about the Premises or Project, (ii) out of the failure of Tenant to observe or
comply with Tenant's obligation to observe and comply with laws or other
requirements as set forth in paragraph 7, (iii) by reason of Tenant's use,
handling, storage, or disposal of toxic or hazardous materials or waste, (iv) by
reason of any labor or service performed for, or materials used by or furnished
to, Tenant or any contractor engaged by Tenant with respect to the Premises, or
(v) from any other act, neglect, fault or omission of Tenant or its agents or
employees.
The provisions of this paragraph 17 shall survive the expiration or
earlier termination of this lease.
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18. ASSIGNMENT AND SUBLETTING. Tenant shall not voluntarily assign,
-------------------------
encumber or otherwise transfer its interest in this lease or in the Premises, or
sublease all or any part of the Premises, or allow any other person or entity to
occupy or use all or any part of the Premises, without first obtaining
Landlord's written consent, which consent shall not be unreasonably withheld,
and otherwise complying with the requirements of this paragraph 18. Any
assignment, encumbrance or sublease without Landlord's consent, shall constitute
a default.
If Tenant desires to sublet or assign all or any portion of the
Premises, Tenant shall give Landlord written notice thereof, specifying the
projected commencement date of the proposed sublet or assignment (which date
shall be not less than thirty (30) days or more than ninety (90) days after the
date of Landlord's receipt of such notice), the portions of the Premises
proposed to be sublet or assigned, the terms and conditions of the proposed
assignment or sublease (including the rent to be paid by the proposed assignee
or subtenant) and the name, address and telephone number of the proposed
assignee or subtenant. Tenant shall further provide Landlord with such other
information concerning the proposed assignee or subtenant as requested by
Landlord. For a period of thirty (30) days after Landlord's receipt of Tenant's
written notice, Landlord shall have the option, exercisable by delivering
written notice to Tenant, to terminate this lease as of the date specified in
Landlord's written notice to Tenant, which date shall not be less than thirty
(30) days nor more than ninety (90) days after the date of Landlord's written
notice to Tenant. If Landlord exercises its option to terminate this lease as
provided in the foregoing sentence, Landlord may, if it so elects, enter into a
new lease for the Premises or any portion thereof with the proposed assignee or
subtenant or any other third party on such terms as Landlord and such proposed
assignee or subtenant or other third party may agree; in such event, Tenant
shall not be entitled to any portion of the profit, if any, which Landlord may
realize on account of such termination and reletting.
If Landlord does not elect to terminate this lease as provided
hereinabove in this paragraph 18 and if Landlord consents in writing to the
proposed assignment or sublet, Tenant shall be free to assign or sublet all or a
portion of the Premises subject to the following conditions: (i) any sublease
shall be on the same terms set forth in the notice given to Landlord; (ii) no
sublease shall be valid and no subtenant shall take possession of the sublet
premises until an executed counterpart of such sublease has been delivered to
Landlord; (iii) no subtenant shall have a further right to sublet; (iv) any sums
or other economic consideration received by Tenant as a result of such
assignment or sublet (except rental or other payments received which are
attributable to the amortization over the term of this lease of the cost of
leasehold improvements constructed for such assignees or subtenant, and
brokerage fees) whether denominated rentals or otherwise, which exceed, in the
aggregate, the total sums which Tenant is obligated to pay Landlord under this
lease (prorated to reflect obligations allocable to that portion of the Premises
subject to such sublease), shall be payable to Landlord as additional rent under
this lease without affecting or reducing any other obligation of Tenant
hereunder; (v) no sublet or assignment shall release Tenant of Tenant's
obligation or alter the primary liability of Tenant to pay the rent and to
perform all other obligations to be performed by Tenant hereunder; and (vi) any
assignee or subtenant must expressly agree to assume and perform all of the
covenants and conditions of Tenant under this lease. Tenant shall pay to
Landlord promptly upon demand as additional rent, Landlord's actual attorneys'
fees and other costs incurred for reviewing, processing or
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documenting any requested assignment or sublease, whether or not Landlord's
consent is granted. Tenant shall not be entitled to assign this lease or
sublease all or any part of the Premises (and any attempt to do so shall be
voidable by Landlord) during any period in which Tenant is in default under this
lease.
If Tenant is a partnership, a withdrawal or change, voluntary or
involuntary or by operation of law, of any general partner or the dissolution of
the partnership shall be deemed an assignment of this lease subject to all the
conditions of this paragraph 18. If Tenant is a corporation any dissolution,
merger, consolidation or other reorganization of Tenant or the sale or other
transfer of a controlling percentage of the capital stock of Tenant or the sale
of more than fifty percent (50%) of the value of Tenant's assets shall be an
assignment of this lease subject to all the conditions of this paragraph 18.
The term "controlling percentage" means the ownership of, and the right to vote,
stock possessing more than 50% of the total combined voting power of all classes
of Tenant's capital stock issued, outstanding and entitled to vote. This
paragraph shall not apply if Tenant is a corporation the stock of which is
traded through an exchange.
The acceptance of rent 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 sublet shall not be deemed consent to any subsequent assignment or
sublet. 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
sublets 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.
No interest of Tenant in this lease shall be assignable by operation
of law (including, without limitation, the transfer of this lease by testacy or
intestacy). Each of the following acts shall be considered an involuntary
assignment: (i) if Tenant is or becomes bankrupt or insolvent, makes an
assignment for the benefit of creditors or institutes a proceeding under the
Bankruptcy Act in which Tenant is the bankrupt; or, if Tenant is a partnership
or consists of more than one person or entity, if any partner of the partnership
or other person or entity is or becomes bankrupt or insolvent, or makes an
assignment for the benefit of creditors; (ii) if a writ of attachment or
execution is levied on this lease; or (iii) if, in any proceeding or action to
which Tenant is a party, a receiver is appointed with authority to take
possession of the Premises. An involuntary assignment shall constitute a
default by Tenant and Landlord shall have the right to elect to terminate this
lease, in which case this lease shall not be treated as an asset of Tenant.
Tenant immediately and irrevocably assigns to Landlord, as security
for Tenant's obligations under this lease, all rent from any subletting of all
or a part of the Premises as permitted by this lease, and Landlord, as assignee
and as attorney-in-fact for Tenant, or a receiver of Tenant appointed on
Landlord's application, may collect such rent and apply it toward Tenant's
obligations under this lease; except that, until the occurrence of an act or
default by
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Tenant, Tenant shall have the right to collect such rent, subject to promptly
forwarding to Landlord any portion thereof to which Landlord is entitled
pursuant to this paragraph 18.
19. DEFAULT. The occurrence of any of the following shall constitute a
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default by Tenant: (i) failure of Tenant to pay any rent or other sum payable
hereunder within three (3) days after the date that such payment becomes due;
(ii) abandonment of the Premises (Tenant's failure to occupy and conduct
business in the Premises for fourteen (14) consecutive days shall be deemed an
abandonment); (iii) failure of Tenant to deliver to Landlord any instrument,
assurance, financial statement, subordination agreement or certificate of
estoppel required under this Lease within the time period specified for such
performance if the failure continues for five (5) days after written notice of
the failure from Landlord to Tenant; or (iv) failure of Tenant to perform any
other obligation under this lease if the failure to perform is not cured within
thirty (30) days after written notice thereof has been given to Tenant (provided
that if such default cannot reasonably be cured within thirty (30) days, Tenant
shall not be in default if Tenant commences to cure such failure to perform
within the thirty (30) day period and diligently and in good faith continues to
cure the failure to perform), except in the case of an emergency or dangerous
condition, in which case Tenant's time to perform shall be that time period
which is reasonable under the circumstances. The notice referred to in clauses
(iii) and (iv) above shall specify the failure to perform and the applicable
lease provision and shall demand that Tenant perform the provisions of this
lease within the applicable period of time. No notice shall be deemed a
forfeiture or termination of this lease unless Landlord so elects in the notice.
No notice shall be required in the event of abandonment or vacation of the
Premises.
In addition to the above, the occurrence of any of the following
events shall also constitute a default by Tenant: (i) Tenant fails to pay its
debts as they become due or admits in writing its inability to pay its debts, or
makes a general assignment for the benefit of creditors (for purposes of
determining whether Tenant is not paying its debts as they become due, a debt
shall be deemed overdue upon the earliest to occur of the following: thirty
(30) days from the date a statement therefor has been rendered; the date on
which any action or proceeding therefor is commenced; or the date on which a
formal notice of default or demand has been sent); (ii) Tenant fails to furnish
to Landlord a schedule of Tenant's aged accounts payable within ten (10) days
after Landlord's written request; (iii) any financial statements given to
Landlord by Tenant, any assignee of Tenant, subtenant of Tenant, any guarantor
of Tenant, or successor in interest of Tenant (including, without limitation,
any schedule of Tenant's aged accounts payable) are materially false; or (iv)
any financial statement or other financial information furnished by Tenant
pursuant to the provisions of this lease or at the request of Landlord evidences
that either Tenant's net worth or its net assets are at least twenty-five
percent (25%) less than the net worth or net assets shown in either the
immediately prior financial statement or the financial statement of Tenant
furnished at the time of execution of this lease, and Tenant fails to furnish
promptly to Landlord, after notice from Landlord to Tenant, an additional
security deposit in cash equivalent to the aggregate of the basic rent and
common area charges (without regard to any rent abatement) payable hereunder for
the twelve (12) full calendar months immediately preceding such notice. At any
time during the term of this lease Landlord, at Landlord's option, shall have
the right to receive from Tenant, upon Landlord's request, a current
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annual balance sheet for Landlord's review. If the balance sheet shows a
negative net worth, Landlord may terminate this lease by giving Tenant sixty
(60) days prior written notice.
In the event of a default by Tenant, then Landlord, in addition to any
other rights and remedies of Landlord at law or in equity, shall have the right
either to terminate Tenant's right to possession of the Premises (and thereby
terminate this lease) or, from time to time and without termination of this
lease, to relet the Premises or any part thereof for the account and in the name
of Tenant for such term and on such terms and conditions as Landlord in its sole
discretion may deem advisable, with the right to make alterations and repairs to
the Premises.
Should Landlord elect to keep this lease in full force and effect,
Landlord shall have the right to enforce all of Landlord's rights and remedies
under this lease, including but not limited to the right to recover and to relet
the Premises and such other rights and remedies as Landlord may have under
California Civil Code Section 1951.4 (or successor Code section) or any other
California statute. If Landlord relets the Premises, then Tenant shall pay to
Landlord, as soon as ascertained, the costs and expenses incurred by Landlord in
such reletting and in making alterations and repairs. Rentals received by
Landlord from such reletting shall be applied (i) to the payment of any
indebtedness due hereunder, other than basic rent and direct expenses, from
Tenant to Landlord; (ii) to the payment of the cost of any repairs necessary to
return the Premises to good condition normal wear and tear excepted, including
the cost of alterations and the cost of storing any of Tenant's property left on
the Premises at the time of reletting; and (iii) to the payment of basic rent or
direct expenses due and unpaid hereunder. The residue, if any, shall be held by
Landlord and applied in payment of future rent or damages in the event of
termination as the same may become due and payable hereunder and the balance, if
any at the end of the term of this lease shall be paid to Tenant. Should the
basic rent and direct expenses received from time to time from such reletting
during any month be less than that agreed to be paid during that month by Tenant
hereunder, Tenant shall pay such deficiency to Landlord. Such deficiency shall
be calculated and paid monthly. No such reletting of the Premises by Landlord
shall be construed as an election on its part to terminate this lease unless a
notice of such intention is given to Tenant or unless the termination hereof is
decreed by a court of competent jurisdiction. Notwithstanding any such reletting
without termination, Landlord may at any time thereafter elect to terminate this
lease for such previous breach, provided it has not been cured.
Should Landlord at any time terminate this lease for any breach, in
addition to any other remedy it may have, it shall have the immediate right of
entry and may remove all persons and property from the Premises and shall have
all the rights and remedies of a landlord provided by California Civil Code
Section 1951.2 or any successor code section. Upon such termination, in
addition to all its other rights and remedies, Landlord shall be entitled to
recover from Tenant all damages it may incur by reason of such breach, including
the cost of recovering the Premises and including (i) the worth at the time of
award of the unpaid rent which had been earned at the time of termination; (ii)
the worth at the time of award of the amount by which the unpaid rent which
would have been earned after termination until the time of award exceeds the
amount of such rental loss that Tenant proves could have been reasonably
avoided; (iii) the worth at the time of the award of the amount by which the
unpaid rent for the balance of the term after the time of award exceeds the
amount of such rental loss that Tenant proves could be reasonably
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avoided; (iv) any other amount necessary to compensate Landlord for all the
detriment proximately caused by Tenant's failure to perform its obligations
under this lease or which in the ordinary course of events would be likely to
result therefrom. The "worth at the time of award" of the amounts referred to in
(i) and (ii) above is computed by allowing interest at the rate of twelve
percent (12%) per annum. The "worth at the time of award" of the amount referred
to in (iii) above shall be computed by discounting such amount at the discount
rate of the federal reserve bank of San Francisco at the time of award plus one
percent (1%). Tenant waives the provisions of Section 1179 of the California
Code of Civil Procedure (which Section allows Tenant to petition a court of
competent jurisdiction for relief against forfeiture of this lease). Property
removed from the Premises may be stored 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
that Landlord, in its sole discretion, may deem proper, without notice to or
demand upon Tenant.
20. LANDLORD'S RIGHT TO CURE TENANT'S DEFAULT. Landlord, at any time
-----------------------------------------
after Tenant commits a default, may, but shall not be obligated to, cure the
default at Tenant's cost. If Landlord at any time, by reason of Tenant's
default, pays any sum or does any act that requires the payment of any sum, the
sum paid by Landlord shall be due immediately from Tenant to Landlord and shall
bear interest at the rate of twelve percent (12%) per annum or the maximum rate
permitted by law, whichever is less, from the date the sum is paid by Landlord
until Landlord is reimbursed by Tenant. Amounts due Landlord hereunder shall be
additional rent.
21. EMINENT DOMAIN. If all or any part of the Premises shall be taken by
--------------
any public or quasi-public authority under the power of eminent domain or
conveyance in lieu thereof, this lease shall terminate as to any portion of the
Premises so taken or conveyed on the date when title vests in the condemnor, and
Landlord shall be entitled to any payments, income, rent, award or any interest
therein whatsoever which may be paid or made in connection with such taking or
conveyance. Tenant shall have no claim against Landlord or otherwise for the
value of any unexpired term of this lease. Notwithstanding the foregoing,
Tenant shall be entitled to any compensation for depreciation to and cost of
removal of Tenant's equipment and fixtures and any compensation for its
relocation expenses necessitated by such taking, but in each case only to the
extent the condemning authority makes a separate award therefor or specifically
identifies a portion of the award as being therefor. Each party waives the
provisions of Section 1265.130 of the California Code of Civil Procedure (which
section allows either party to petition the Superior Court to terminate this
lease in the event of a partial taking of the Premises).
If any action or proceeding is commenced for such taking of the
Premises or any portion thereof or of any other space in the Project, or if
Landlord is advised in writing by any entity or body having the right of power
of condemnation of its intention to condemn the Premises or any portion thereof
or of any other space in the Project, and Landlord shall decide to discontinue
the use and operation of the Project or decide to demolish, alter or rebuild the
Project, then Landlord shall have the right to terminate this lease by giving
Tenant written notice
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thereof within sixty (60) days of the earlier of the date of Landlord's receipt
of such notice of intention to condemn or the commencement of said action or
proceeding. Such termination shall be effective as of the last day of the
calendar month next following the month in which such notice is given or the
date on which title shall vest in the condemnor, whichever occurs first.
In the event of a partial taking, or conveyance in lieu thereof, of
the Premises and fifty percent (50%) or more of the number of square feet in the
Premises are taken then Tenant may terminate this lease. Any election by Tenant
to so terminate shall be by written notice given to Landlord within sixty (60)
days from the date of such taking or conveyance and shall be effective on the
last day of the calendar month next following the month in which such notice is
given or the date on which title shall vest in the condemnor, whichever occurs
first.
If a portion of the Premises is taken by power of eminent domain or
conveyance in lieu thereof and neither Landlord nor Tenant terminates this lease
as provided above, then this lease shall continue in full force and effect as to
the part of the Premises not so taken or conveyed and all payments of rent shall
be apportioned as of the date of such taking or conveyance so that thereafter
the amounts to be paid by Tenant shall be in the ratio that the area of the
portion of the Premises not so taken bears to the total area of the Premises
prior to such taking.
22. NOTICE AND COVENANT TO SURRENDER. On the last day of the term or on
--------------------------------
the effective date of any earlier termination, Tenant shall surrender to
Landlord the Premises in its condition existing as of the commencement of the
term and, except as otherwise provided by Landlord pursuant to the terms of
paragraph 8 of this lease, all of the improvements and alterations made to the
Premises in their condition existing as of the date of completion of
construction and/or installation (normal wear and tear excepted), with all
originally painted interior walls washed or repainted if marked or damaged,
interior vinyl covered walls cleaned and repaired or replaced if marked or
damaged, all carpets shampooed and cleaned, and all floors cleaned and waxed;
all to the reasonable satisfaction of Landlord. On or prior to the last day of
the term or the effective date of any earlier termination, Tenant shall remove
all of Tenant's personal property and trade fixtures, together with improvements
or alterations that Tenant is obligated to remove pursuant to the provisions of
paragraph 8 of this lease, from the Premises, and all such property not removed
shall be deemed abandoned. In addition, on or prior to the expiration or earlier
termination of this lease, Tenant shall remove, at Tenant's sole cost and
expense, all telephone, other communication, computer and any other cabling and
wiring of any sort installed in the space above the suspended ceiling of the
Premises or anywhere else in the Premises and shall promptly repair any damage
to the suspended ceiling, lights, light fixtures, walls and any other part of
the Premises resulting from such removal.
If the Premises are not surrendered as required in this paragraph,
Tenant shall indemnify Landlord against all loss, liability and expense
(including, but not limited to, attorneys' fees) resulting from the failure by
Tenant in so surrendering the Premises, including, without limitation, any
claims made by any succeeding tenants. It is agreed between Landlord and Tenant
that the provisions of this paragraph 22 shall survive the termination of this
lease.
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23. TENANT'S QUITCLAIM. At the expiration or earlier termination of this
------------------
lease, Tenant shall execute, acknowledge and deliver to Landlord, within ten
(10) days after written demand from Landlord to Tenant, any quitclaim deed or
other document required to remove the cloud or encumbrance created by this lease
from the real property or which the Premises are a part. This obligation shall
survive said expiration or termination.
24. HOLDING OVER. Any holding over after the expiration or termination of
------------
this lease (with the written consent of Landlord delivered to Tenant) shall be
construed to be a tenancy from month to month at the monthly rent, as adjusted,
in effect on the date of such expiration or termination. All provisions of this
lease, except those pertaining to the term and any option to extend, shall apply
to the month to month tenancy. The provisions of this paragraph are in addition
to, and do not affect, Landlord's right of re-entry or other rights hereunder or
provided by law.
If Tenant shall retain possession of the Premises or any part thereof
without Landlord's consent following the expiration or sooner termination of
this lease for any reason, then Tenant shall pay to Landlord for each day of
such retention double the amount of the daily rental in effect during the last
month prior to the date or such expiration or termination. Tenant shall also
indemnify and hold Landlord harmless from any loss or liability resulting from
delay by Tenant in surrendering the Premises including without limitation, any
claims made by any succeeding tenant founded on such delay. Acceptance of rent
by Landlord following expiration or termination shall not constitute a renewal
of this lease, and nothing contained in this paragraph shall waive Landlord's
right of re-entry or any other right. Tenant shall be only a Tenant at
sufferance, whether or not Landlord accepts any rent from Tenant, while Tenant
is holding over without Landlord's written consent.
25. SUBORDINATION. In the event Landlord's title or leasehold interest is
-------------
now or hereafter encumbered in order to secure a loan to Landlord, Tenant shall,
at the request of Landlord or the lender, execute in writing an agreement
subordinating its rights under this lease to the lien of such encumbrance, or,
if so requested, agreeing that the lien of lender's encumbrance shall be or
remain subject and subordinate to the rights of Tenant under this lease. Tenant
hereby irrevocably appoints Landlord the attorney-in-fact of Tenant to execute,
deliver and record any such instrument or instruments for and in the name and on
behalf of Tenant. Notwithstanding any such subordination, Tenant's possession
under this lease shall not be disturbed if Tenant is not in default and so long
as Tenant shall pay all amounts due hereunder and otherwise observe and perform
all provisions of this lease. In addition, if in connection with any such loan
the lender shall request reasonable modifications in this lease as a condition
to such financing, Tenant will not unreasonably withhold, delay or defer its
consent thereof, provided that such modifications do not increase the
obligations of Tenant hereunder or materially adversely affect the leasehold
interest hereby created or Tenant's rights hereunder.
26. CERTIFICATE OF ESTOPPEL. Each party shall, within five (5) calendar
-----------------------
days after request therefor, execute and deliver to the other party, in
recordable form, a certificate stating that the lease is unmodified and in full
force and effect, or in full force and effect as modified and stating the
modifications. The certificate shall also state the amount of the monthly
24
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rent, the date to which monthly rent has been paid in advance, the amount of the
security deposit and/or prepaid monthly rent, and, if the request is made by
Landlord shall include such other items as Landlord or Landlord's lender may
reasonably request. Failure to deliver such certificate within such time shall
constitute a conclusive acknowledgment by the party failing to deliver the
certificate that the lease is in full force and effect and has not been modified
except as may be represented by the party requesting the certificate. Any such
certificate requested by Landlord may be conclusively relied upon by any
prospective purchaser or encumbrancer of the Premises or Project. Further,
within five (5) calendar days following written request made from time to time
by Landlord, Tenant shall furnish to Landlord current financial statements of
Tenant.
27. SALE BY LANDLORD. In the event the original Landlord hereunder, or
----------------
any successor owner of the Project or Premises, shall sell or convey the Project
or Premises, 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 and to look
solely to such new owner for performance of any and all such liabilities and
obligations.
28. ATTORNMENT TO LENDER OR THIRD PARTY. In the event the interest of
-----------------------------------
Landlord in the land and buildings in which the Premises are located (whether
such interest of Landlord is a fee title interest or a leasehold interest) is
encumbered by deed of trust, and such interest is acquired by a lender or any
other third party through judicial foreclosure or by exercise of a power of sale
at a private trustee's foreclosure sale, Tenant hereby agrees to release
Landlord of any obligation arising on or after any such foreclosure sale and to
attorn to the purchaser at any such foreclosure sale and to recognize such
purchaser as the Landlord under this lease.
29. DEFAULT BY LANDLORD. Landlord shall not be in default unless Landlord
-------------------
fails to perform obligations required of Landlord within a reasonable time, but
in no event earlier than thirty (30) days after written notice by Tenant to
Landlord and to the holder of any first mortgage or deed of trust covering the
Premises specifying wherein Landlord has failed to perform such obligations;
provided, however, that if the nature of Landlord's obligations is such that
more than thirty (30) days are required for performance, then Landlord shall not
be in default if Landlord commences performance within such thirty (30) day
period and thereafter diligently prosecutes the same to completion.
If Landlord is in default of this lease, Tenant's sole remedy shall be
to institute suit against Landlord in a court of competent jurisdiction, and
Tenant shall have no right to offset any sums expended by Tenant as a result of
Landlord's default against future rent and other sums due and payable pursuant
to this lease. If Landlord is in default of this lease, and as a consequence
Tenant recovers a money judgment against Landlord, the judgment shall be
satisfied only out of the proceeds of sale received on execution of the judgment
and levy against the right, title and interest of Landlord in the Project of
which the Premises are a part, and out of rent or other income from such real
property receivable by Landlord or out of the consideration received by Landlord
from the sale or other disposition of all or any part of Landlord's right, title
and interest in the Project of which the Premises are a part. Neither Landlord
nor any of the
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partners comprising the partnership designated as Landlord shall be personally
liable for any deficiency.
30. CONSTRUCTION CHANGES. It is understood that the description of the
--------------------
Premises and the location of ductwork, plumbing and other facilities therein are
subject to such changes as Landlord or Landlord's architect determines to be
desirable in the course of construction of the Premises and/or the improvements
constructed or being constructed therein, and no such changes or any changes in
plans for any other portions of the Project, shall affect this lease or entitle
Tenant to any reduction of rent hereunder or result in any liability of Landlord
to Tenant.
31. MEASUREMENT OF PREMISES. Tenant understands and agrees that any
-----------------------
reference to square footage of the Premises is approximate only and includes all
interior partitions and columns, one-half of exterior walls, and one-half of the
partitions separating the Premises from the rest of the Project, and any outside
entry overhang, if applicable. Tenant waives any claim against Landlord
regarding the accuracy of any such measurement and agrees that there shall not
be any adjustment in basic rent or direct expenses or other amounts payable
hereunder by reason of inaccuracies in such measurement.
32. ATTORNEY FEES. If either party commences an action against the other
-------------
party arising out of or in connection with this lease, the prevailing party
shall be entitled to have and recover from the losing party all expenses of
litigation, including, without limitation, travel expenses, attorneys' fees,
expert witness fees, trial and appellate court costs, and deposition and
transcript expenses. If either party becomes a party to any litigation
concerning this lease or concerning the Premises or the Project, by reason of
any act or omission of the other party or its authorized representatives, the
party that causes the other party to become involved in the litigation shall be
liable to the other party for all expenses of litigation, including, without
limitation, travel expenses, attorneys' fees, expert witness fees, trial and
appellate court costs, and deposition and transcript expenses.
33. SURRENDER. The voluntary or other surrender of this lease or the
---------
Premises by Tenant, or a mutual cancellation of this lease, shall not work a
merger, and at the option of Landlord shall either terminate all or any existing
subleases or subtenancies or operate as an assignment to Landlord or all or any
such subleases or subtenancies.
34. WAIVER. No delay or omission in the exercise of any right or remedy
------
of Landlord on any default by Tenant shall impair such right or remedy or be
construed as a waiver. The receipt and acceptance by Landlord of delinquent
rent or other payments shall not constitute a waiver of any other default and
acceptance of partial payments shall not be construed as a waiver of the balance
of such payment due. No act or conduct of Landlord, including, without
limitation, the acceptance of keys to the Premises, shall constitute an
acceptance of the surrender of the Premises by Tenant before the expiration of
the term. Only a written notice from Landlord to Tenant shall constitute
acceptance of the surrender of the Premises and accomplish a termination of this
lease. Landlord's consent to or approval of any act by Tenant requiring
Landlord's consent or approval shall not be deemed to waive or render
unnecessary Landlord's
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consent to or approval of any subsequent act by Tenant. Any waiver by Landlord
of any default must be in writing and shall not be a waiver of any other default
concerning the same or any other provision of this lease.
35. EASEMENTS; AIRSPACE RIGHTS. Landlord reserves the right to alter the
--------------------------
boundaries of the Project and grant easements and dedicate for public use
portions of the Project without Tenant's consent, provided that no such grant or
dedication shall interfere with Tenant's use of the Premises or otherwise cause
Tenant to incur cost or expense. From time to time, and upon Landlord's demand,
Tenant shall execute, acknowledge and deliver to Landlord, and in accordance
with Landlord's instructions, any and all documents, instruments, maps or plats
necessary to effectuate Tenant's covenants hereunder.
This lease confers no rights either with regard to the subsurface of
the land on which the Premises are located or with regard to airspace above the
ceiling of the Premises. Tenant agrees that no diminution or shutting off of
light or view by a structure which is or may be erected (whether or not by
Landlord) on property adjacent to the building of which the Premises are a part
or to property adjacent thereto, shall in any way affect this lease, or entitle
Tenant to any reduction of rent, or result in any liability of Landlord to
Tenant.
36. RULES AND REGULATIONS. Landlord shall have the right from time to
---------------------
time to promulgate rules and regulations for the safety, care and cleanliness of
the Premises, the Project and the Common Area, or for the preservation of good
order. On delivery of a copy of such rules and regulations to Tenant, Tenant
shall comply with the rules and regulations, and a violation of any of them
shall constitute a default by Tenant under this lease. If there is a conflict
between the rules and regulations and any of the provisions of this lease, the
provisions of this lease shall prevail. Such rules and regulations may be
amended by Landlord from time to time with or without advance notice.
37. NOTICES. Except for legal process which may also be served as
-------
provided by law or as provided herein, all notices, demands, requests, consents
and other communications ("Notices") which may be given or are required to be
given by either party to the other shall be in writing and shall be deemed given
to and received by the party intended to receive such Notice (i) when hand
delivered, (ii) three (3) days after such Notice shall have been deposited,
postage prepaid, to the United States Mail, certified return receipt requested,
properly addressed to the address specified herein, or (iii) date or delivery if
sent to the address specified herein by reputable overnight courier (e.g.
Federal Express or other comparable service), as evidenced by such courier's
records.
Prior to the commencement date, all such Notices from Landlord to Tenant
shall be served or addressed to Tenant at 1608 W. Campbell Avenue, Suite 300,
Campbell, California 95008. On or after the commencement date all such Notices
from Landlord to Tenant shall be addressed to Tenant at the Premises.
All such Notices by Tenant to Landlord shall be sent to Landlord, c/o CIGNA
Investments, Inc., Real Estate Asset Management, Routing Code S-311, 900 Cottage
Grove
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<PAGE>
Road, Hartford, CT 06152-2311, with a copy to McCandless Management Corporation,
3945 Freedom Circle, Suite 640, Santa Clara, California 95054.
Either party may change its address to notifying the other of such change.
38. NAME. Tenant shall not use the name of the Project for any purpose
----
other than as the address of the business conducted by Tenant in the Premises
without the prior written consent of Landlord.
39. GOVERNING LAW; SEVERABILITY. This lease shall in all respects be
---------------------------
governed by and construed in accordance with the laws of the State of
California. If any provision of this lease shall be held or rendered invalid,
unenforceable or ineffective for any reason whatsoever, all other provisions
hereof shall be and remain in full force and effect.
40. DEFINITIONS. As used in this lease, the following words and phrases
-----------
shall have the following meanings:
Authorized representative: any officer, agent, employee or
-------------------------
independent contractor retained or employed by either party, acting within
authority given him by that party.
Encumbrance: any deed of trust, mortgage or other written security
-----------
device or agreement affecting the Premises or the Project that constitutes
security for the payment of a debt or performance of an obligation, and the note
or obligation secured by such deed of trust, mortgage or other written security
device or agreement.
Lease Month: the period of time determined by reference to the day of
-----------
the month in which the term commences and continuing to one day short of the
same numbered day in the next succeeding month; e.g., the tenth day of one month
to and including the ninth day in the next succeeding month.
Lender: the beneficiary, mortgagee or other holder of an encumbrance,
------
as defined above.
Lien: a charge imposed on the Premises by someone other than
----
Landlord, by which the Premises are made security for the performance of an act.
Most of the liens referred to in this lease are mechanic's liens.
Maintenance: repairs, replacement, repainting and cleaning.
-----------
Monthly Rent: the sum of the monthly payments of basic rent and
------------
direct expenses.
Person: one or more human beings, or legal entities or other
------
artificial persons, including, without limitation, partnerships, corporations,
trusts, estates, associations and any combination of human being and legal
entities.
28
<PAGE>
Provisions: any term, agreement, covenant, condition, clause,
----------
qualification, restriction, reservation or other stipulation in the lease that
defines or otherwise controls, establishes or limits the performance required or
permitted by either party.
Rent: basic rent, direct expenses, additional rent, and all other
----
amounts payable by Tenant to Landlord required by this lease or arising by
subsequent actions of the parties made pursuant to this lease.
Words used in any gender include other genders. If there be more than
one Tenant, the obligation of Tenant hereunder are joint and several. All
provisions whether covenants or conditions, on the part of Tenant shall be
deemed to be both covenants and conditions. The paragraph headings are for
convenience of reference only and shall have no effect upon the construction or
interpretation of any provision hereof.
41. TIME. Time is of the essence of this lease and of each and all of its
----
provisions.
42. INTEREST OF PAST DUE OBLIGATIONS; LATE CHARGE. Any amount due from
---------------------------------------------
Tenant to Landlord hereunder which is not paid when due shall bear interest at
the rate of ten percent (10%) per annum from when due until paid, unless
otherwise specifically provided herein, but the payment of such interest shall
not excuse or cure any default by Tenant under this lease. In addition, Tenant
acknowledges that late payment by Tenant to Landlord of basic rent, or of
Tenant's monthly direct expenses, or of any other amount due Landlord from
Tenant, will cause Landlord to incur costs not contemplated by this lease, the
exact amount of such costs being extremely difficult and impractical to fix.
Such costs include, without limitation, processing and accounting charges, and
late charges that may be imposed on Landlord, e.g., by the terms of any
encumbrance and note secured by any encumbrance covering the Premises.
Therefore, if any such payment due from Tenant is not received by Landlord when
due, Tenant shall pay to Landlord an additional sum of five percent (5%) of the
overdue payment as a late charge. The parties agree that this late charge
represents a fair and reasonable estimate of the costs and Landlord will incur
by reason of late payment by Tenant. Acceptance of any late charge shall not
constitute a waiver of Tenant's default with respect to the overdue amount, nor
prevent Landlord from exercising any of the other rights and remedies available
to Landlord. No notice to Tenant of failure to pay shall be required prior to
the imposition of such interest and/or late charge, and any notice period
provided for in paragraph 19 shall not affect the imposition of such interest
and/or late charge. Any interest and late charge imposed pursuant to this
paragraph shall be and constitute additional rent payable Tenant to Landlord.
43. ENTIRE AGREEMENT. This lease, including any exhibits and attachments,
----------------
constitutes the entire agreement between Landlord and Tenant relative to the
Premises and this lease and the exhibits and attachments may be altered, amended
or revoked only by an instrument in writing signed by both Landlord and Tenant.
Landlord and Tenant agree hereby that all prior or contemporaneous oral
agreements between and among themselves or their agents or representatives
relative to the leasing of the Premises are merged in or revoked by this lease.
44. CORPORATE AUTHORITY. If Tenant is a corporation, each individual
-------------------
executing this lease on behalf of the corporation represents and warrants that
he is duly
29
<PAGE>
authorized to execute and deliver this lease on behalf of the corporation in
accordance with a duly adopted resolution of the Board of Directors of said
corporation and that this lease is binding upon said corporation in accordance
with its terms. If Tenant is a corporation, Tenant shall deliver to Landlord,
within ten (10) days of the execution of this lease, a copy of the resolution of
the Board of Directors of Tenant authorizing the execution of this lease and
naming the officers that are authorized to execute this lease on behalf of
Tenant, which copy shall be certified by Tenant's secretary as correct and in
full force and effect.
45. RECORDING. Neither Landlord nor Tenant shall record this lease or a
---------
short form memorandum hereof without the consent of the other.
46. REAL ESTATE BROKERS. Each party represents and warrants to the other
-------------------
party that it has not had dealings in any manner with any real estate broker,
finder or other person with respect to the Premises and the negotiation and
execution of this lease except McCandless Management and Contempo Realty.
Except for the commissions and fees to be paid to McCandless Management
Corporation and Contempo Realty as provided in this paragraph, each party shall
indemnify and hold harmless the other party from all damage, loss, liability and
expense (including attorneys' fees and related costs) arising out of or
resulting from any claims for commissions or fees that have been or may be
asserted against the other party by any broker, finder or other person with
whom Tenant or Landlord, respectively, has dealt, or purportedly has dealt, in
connection with the Premises and the negotiation and execution of this lease.
Landlord shall pay broker leasing commission to McCandless Management
Corporation and Contempo Realty in connection with the Premises and the
negotiation and execution of this lease, to the extent agreed to between
Landlord and McCandless Management Corporation and Contempo Realty. Landlord
and Tenant agree that Landlord shall not be obligated to pay any broker leasing
commissions, consulting fees, finder fees or any other fees or commissions
arising out of or relating to any extended term of this lease or to any
expansion or relocation of the Premises at any time.
47. EXHIBITS AND ATTACHMENTS. All exhibits and attachments to this lease
------------------------
are a part hereof.
48. ERISA REQUIREMENTS. It is understood that Landlord is subject to the
------------------
Employee Retirement Income Security Act ("ERISA") and has furnished to Tenant a
list of individuals and entities, transactions with which might result in a
prohibited transaction under ERISA or would otherwise cause a breach of an ERISA
related requirement. Tenant hereby warrants and represents that Tenant is not
related to or affiliated with any person or entity shown on the list attached
hereto as Exhibit D such that Tenant is a "party in interest" to such person or
entity as that term is defined in ERISA Section 3 (14), a copy of which Section
is attached hereto as Exhibit E, as that Section may be interpreted or amended.
Tenant agrees that each time that Landlord makes additions to such list that
Tenant will either make the warranty requested above or shall disclose to
Landlord the relationship with such party on the list that would cause Tenant to
be unable to make such warranty and representation. Tenant agrees to indemnify
and hold Landlord harmless from any cost, expense or damages which may result
from a breach of the warranty and representations made by Tenant.
30
<PAGE>
49. ENVIRONMENTAL MATTERS.
---------------------
A. Tenant's Covenants Regarding Hazardous Materials.
------------------------------------------------
(1) Hazardous Materials Handling. Tenant, its agents, invitees,
----------------------------
employees, contractors, sublessees, assigns and/or successors shall not use,
store, dispose, release or otherwise cause to be present or permit the use,
storage, disposal, release or presence of Hazardous Materials (as defined below)
on or about the Premises or Project. As used herein "Hazardous Materials" shall
mean any petroleum or petroleum by-products, flammable explosives, asbestos,
urea formaldehyde, radioactive materials or waste and any "hazardous substance",
"hazardous waste", "hazardous materials", "toxic substance" or "toxic waste" as
those terms are defined under the provisions of the California Health and Safety
Code and/or the provisions of the Comprehensive Environmental Response,
Compensation and Liability Act (42 U.S.C. Section 9601 et seq.), as amended by
the Superfund Amendments and Reauthorization Act of 1986 (42 U.S.C. Section 9601
et seq.), or any other hazardous or toxic substance, material or waste which is
or becomes regulated by any local governmental authority, the State of
California or any agency thereof, or the United States Government or any agency
thereof.
(2) Notices. Tenant shall immediately notify Landlord in
-------
writing of: (i) any enforcement, cleanup, removal or other governmental or
regulatory action instituted, completed or threatened pursuant to any law,
regulation or ordinance relating to the industrial hygiene, environmental
protection or the use, analysis, generation, manufacture, storage, presence,
disposal or transportation of any Hazardous Materials (collectively "Hazardous
Materials Laws"); (ii) any claim made or threatened by any person against
Tenant, the Premises, Project or buildings within the Project 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, on or removed from the Premises, Project or buildings within the
Project, including any complaints, notices, warnings, reports or asserted
violations in connection therewith. Tenant shall also supply to Landlord as
promptly as possible, and in any event within five (5) business days after
Tenant 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, Project or buildings within the Project or Tenant's use thereof.
Tenant shall promptly deliver to Landlord copies of hazardous waste manifests
reflecting the legal and proper disposal of all Hazardous Materials removed from
the Premises.
B. Indemnification of Landlord. Tenant shall indemnify, defend (by
---------------------------
counsel acceptable to Landlord), protect, and hold Landlord, and each of
Landlord's partners, employees, agents, attorneys, successors and assigns, free
and harmless from and against any and all claims, liabilities, penalties,
forfeitures, losses or expenses (including attorneys' fees) for death of or
injury to any person or damage to any property whatsoever (including water
tables and atmosphere), arising from or caused in whole or in part, directly or
indirectly, by (i) the presence in, on, under or about the Premises, Project or
buildings within the Project or discharge in or from the Premises, Project or
buildings within the Project of any Hazardous Materials or Tenant's use,
analysis, storage, transportation, disposal, release, threatened release,
discharge or
31
<PAGE>
generation of Hazardous Materials to, in, on, under, about or from the Premises,
Project or buildings within the Project, or (ii) Tenant's failure to comply with
any Hazardous Materials Laws whether knowingly, unknowingly, intentionally or
unintentionally. Tenant's obligations hereunder shall include, without
limitation, and whether foreseeable or unforeseeable, all costs of any required
or necessary repair, cleanup or detoxification or decontamination of the
Premises, Project or buildings within the Project, and the preparation and
implementation of any closure, remedial action or other required plans in
connection therewith. In addition, Tenant shall reimburse Landlord for (i)
losses in or reductions to rental income resulting from Tenant's use, storage or
disposal of Hazardous Materials, (ii) all costs of refitting or other
alterations to the Premises, Project or buildings within the Project required as
a result of Tenant's use, storage, or disposal of Hazardous Materials including,
without limitation, alterations required to accommodate an alternate use of the
Premises, Project or buildings within the Project, and (iii) any diminution in
the fair market value of the Premises, Project or buildings within the Project
caused by Tenant's use, storage, or disposal of Hazardous Materials. For
purposes of this paragraph 49, any acts or omissions of Tenant, or by employees,
agents, assignees, contractors or subcontractors of Tenant or others acting for
or on behalf of Tenant (whether or not they are negligent, intentional, willful
or unlawful) shall be strictly attributable to Tenant.
C. Survival. The provisions of this paragraph 49 shall survive the
--------
expiration or earlier termination of the term of this lease.
50. SIGNAGE. Tenant shall not, without obtaining the prior written
-------
consent of Landlord, install or attach any sign or advertising material on any
part of the outside of the Premises, or on any part of the inside of the
Premises which is visible from the outside of the Premises, or in the halls,
lobbies, windows or elevators of the building in which the Premises are located
or on or about any other portion of the Common Area or Project. If Landlord
consents to the installation of any sign or other advertising material, the
location, size, design, color and other physical aspects thereof shall be
subject to Landlord's prior written approval and shall be in accordance with any
sign program applicable to the Project. In addition to any other requirements of
this paragraph 50, the installation of any sign or other advertising material by
or for Tenant must comply with all applicable laws, statutes, requirements,
rules, ordinances and any C.C. & R.'s or other similar requirements. With
respect to any permitted sign installed by or for Tenant, Tenant shall maintain
such sign or other advertising material in good condition and repair and shall
remove such sign or other advertising material on the expiration or earlier
termination of the term of this lease. The cost of any permitted sign or
advertising material and all costs associated with the installation, maintenance
and removal thereof shall be paid for solely by Tenant. If Tenant fails to
properly maintain or remove any permitted sign or other advertising material,
Landlord may do so at Tenant's expense. Any cost incurred by Landlord in
connection with such maintenance or removal shall be deemed additional rent and
shall be paid by Tenant to Landlord within ten (10) days following notice from
Landlord. Landlord may remove any unpermitted sign or advertising material
without notice to Tenant and the cost of such removal shall be additional rent
and shall be paid by Tenant within ten (10) days following notice from Landlord.
Landlord shall not be liable to Tenant for any damage, loss or expense resulting
from Landlord's removal of any sign or advertising material in accordance with
this paragraph 50.
32
<PAGE>
The provisions of this paragraph 50 shall survive the expiration or earlier
termination of this lease.
51. SUBMISSION OF LEASE. The submission of this lease to Tenant for
-------------------
examination or signature by Tenant is not an offer to lease the Premises to
Tenant, nor an agreement by Landlord to reserve the Premises for Tenant.
Landlord will not be bound to Tenant until this lease has been duly executed and
delivered by both Landlord and Tenant.
52. PREMISES TAKEN "AS IS". Tenant is leasing the Premises from Landlord
----------------------
"As Is" in their condition existing as of the date hereof. Landlord shall have
no obligation to alter or improve the Premises except Landlord shall, at
Landlord's expense, clean the carpets, touch-up paint where needed using
building standard finishes, replace two door handles and add one sidelight (four
[4] feet wide) on one office pursuant to the plans attached hereto as Exhibit C.
53. ADDITIONAL RENT. All costs, charges, fees, penalties, interest, and
---------------
any other payments (including Tenant's reimbursement to Landlord of costs
incurred by Landlord) which Tenant is required to make to Landlord pursuant to
the terms and conditions of this lease and any amendments to this lease shall be
and constitute additional rent payable by Tenant to Landlord when due as
specified in this lease and any amendments to this lease.
54. LANDLORD'S OPTION TO RELOCATE PREMISES. At any time during the
--------------------------------------
initial term and any extended term of this lease, Landlord shall have the option
to relocate Tenant to alternate space within the Project which is reasonably
comparable to the Premises in size and type of space ("Relocation Space").
Landlord shall exercise this option to relocate by giving Tenant written notice
of Landlord's election to relocate at least ninety (90) calendar days prior to
the date of relocation and said written notice shall specify the date of
relocation ("Relocation Date"). Upon Tenant's receipt of Landlord's written
notice of election to exercise this option, Landlord and Tenant shall cooperate
with each other to identify acceptable space within the Project which shall be
the Relocation Space. If Landlord and Tenant are unable to agree on acceptable
space within sixty (60) days after Tenant's receipt of Landlord's written
notice, Landlord shall have the right to unilaterally designate as the
Relocation Space any space within the Project which is reasonably comparable to
the Premises in size and type of space. If Landlord and Tenant are unable to
agree on acceptable space within sixty (60) days after Tenant's receipt of
Landlord's written notice and Landlord unilaterally designates the Relocation
Space as provided for in the foregoing sentence, Tenant shall have the option to
terminate this lease effective as of the Relocation Date by delivering to
Landlord, within five (5) business days after receipt of Landlord's notice
designating the Relocation Space, Tenant's irrevocable written notice of its
election to terminate this lease. In the event Tenant relocates into the
Relocation Space as provided in this paragraph 54, commencing on the Relocation
Date this lease shall be deemed amended by deleting the description of the
Premises as presently constituted and adding the description of the Relocation
Space and Tenant's lease of the Relocation Space from Landlord shall be subject
to all of the terms and conditions of this lease (as amended, if applicable)
including the payment of basic rent and direct expenses, which shall be adjusted
to reflect any increase or decrease in the square footage between the Premises
as presently
33
<PAGE>
constituted and the Relocation Space. Landlord shall pay all reasonable costs
incurred in connection with moving Tenant's business from the Premises into the
Relocation Space.
IN WITNESS WHEREOF, Landlord and Tenant have executed and delivered this
lease on the date first above written.
LANDLORD: TENANT:
- -------- ------
CONNECTICUT GENERAL LIFE EBAY, INC.,
INSURANCE COMPANY, on behalf of a California corporation
its Separate Account R
By: CIGNA Investments, Inc.
By: /s/ JAMES H. ROGERS By: /s/ J. SKOLL
------------------------ ------------------------
Name: JAMES H. ROGERS Name: JEFF SKOLL
----------------------- ----------------------
Its: MANAGING DIRECTOR Its: President
----------------------- -----------------------
Date: 10/15/96 By: /s/ PIERRE OMIDYAR
---------------------- ------------------------
Name: PIERRE OMIDYAR
-----------------------
Its: : Secretary
---------------------
Date: SEPT 30/96
----------------------
34
<PAGE>
FIRST AMENDMENT TO LEASE
------------------------
THIS FIRST AMENDMENT TO LEASE (this "Amendment") is made this 13th day of
February, 1997, by and between CONNECTICUT GENERAL LIFE INSURANCE COMPANY, a
Connecticut corporation, on behalf of its Separate Account R ("Landlord") and
EBAY, INC., a California corporation ("Tenant").
R E C I T A L S
A. Tenant currently leases from Landlord approximately one thousand two
hundred seventy (1,270) square feet of space located at 2005 Hamilton Avenue,
Suite 270, San Jose, California (the "Current Premises"), pursuant to that
certain Lease dated September 30, 1996 (the "Lease"). The Current Premises are
shown on Exhibit A attached hereto.
B. Tenant desires to lease additional space from Landlord located at 2005
Hamilton Avenue, Suite 255, San Jose, California, (the "Expansion Space"),
consisting of approximately one thousand four hundred seventy-one (1,471) square
feet of space. The Expansion Space is shown on Exhibit A attached hereto.
C. Landlord is willing to lease the Expansion Space to Tenant in
consideration of Tenant's agreement to the terms and conditions set forth below.
NOW, THEREFORE, in consideration of the above recitals and the mutual
covenants and agreements contained herein, Landlord and Tenant hereby amend the
Lease as follows:
1. PREMISES. The definition of "Premises" is Modified as follows:
--------
From and after the Effective Date, as defined in paragraph 2 below,
the Expansion Space shall be added to the Current Premises and, thereafter, the
total area leased shall be increased to two thousand seven hundred forty-one
(2,741) square feet and the term "Premises" as used in this Lease shall refer to
the Current Premises and the Expansion Space collectively.
2. EFFECTIVE DATE. As used herein, the "Effective Date" shall be the
--------------
date upon which Landlord tenders possession of the Expansion Space to Tenant,
provided that Landlord shall use reasonable efforts to deliver the Expansion
Space to Tenant on March 4, 1997. Notwithstanding the above, Tenant acknowledges
that the Expansion Space is currently occupied by a third party and if Landlord
cannot deliver possession of the Expansion Space to Tenant by March 4, 1997,
this Amendment shall not be void or voidable, Landlord shall not be liable to
Tenant for any loss or damage sustained by Tenant on account thereof and the
Effective Date shall not be deemed to occur until Landlord is able to deliver
possession of the Expansion Space to Tenant.
<PAGE>
3. BASIC RENT. Paragraphs 4(a) and 5(a) of the Lease are modified as
----------
follows:
Commencing on the Effective Date, the basic rent payable by Tenant
shall be Four Thousand Seven Hundred Seventy-Five and 37/100 Dollars
($4,775.37).
4. DIRECT EXPENSES. Paragraphs 4(b) and 5(b) of the Lease are modified
---------------
as follows:
Commencing on the Effective Date, Tenant's proportionate share of
direct expenses of the Project as set forth in paragraph 5(b) of the Lease shall
be increased to one and eighteen one-hundredths percent (1.18%) and Tenant's
proportionate share of direct expenses of the building in which the Premises are
located shall be increased to four and twenty-eight one-hundredths percent
(4.28%). Commencing on the Effective Date, Tenant's payment of its estimated
share of direct expenses shall be increased to One Thousand Six Hundred Sixty
and 76/100 ($1,660.76) per month and shall be reconciled and adjusted thereafter
in accordance with paragraph 5(b) of the Lease.
5. SECURITY DEPOSIT. Paragraph 4(e) of the Lease is modified as follows:
----------------
Upon execution of this Amendment, Tenant shall deposit with Landlord
the additional sum of Three Thousand Five Hundred and 98/100 Dollars ($3,500.98)
which shall be held by Landlord as a portion of Tenant's security deposit
pursuant to paragraph 4(e) of the Lease. The total amount of the security
deposit held by Landlord shall be increased thereby to a total of Nine Thousand
Two Hundred Fifteen and 98/l00 Dollars ($9,215.98).
6. PARKING. Paragraph 15 of the Lease is modified as follows:
-------
Commencing on the Effective Date, the number of nonexclusive parking
spaces which Tenant shall be entitled to use shall be increased to ten (10)
spaces.
7. EXPANSION SPACE LEASED "AS IS." Tenant is leasing the Expansion Space
------------------------------
"as is" in its current condition and Landlord shall have no obligation to alter,
modify or improve the Expansion Space in any way, except Landlord shall, at
Landlord's cost, prior to the Effective Date clean the carpet and touch-up paint
the interior walls in the Expansion Space as reasonably necessary using building
standard materials.
8. CORPORATE AUTHORITY. Each individual executing this Amendment on
-------------------
behalf of a corporation represents and warrants that he/she is duly authorized
to execute and deliver this Amendment on behalf of the corporation in accordance
with a duly adopted resolution of the Board of Directors of said corporation and
that this Amendment is binding upon said corporation in accordance with its
terms. Tenant shall deliver to Landlord, within ten (10) days of the execution
and delivery of this Amendment, a copy of the resolution of the Board of
Directors of Tenant authorizing the execution of this Amendment and naming the
officers that are authorized to execute this Amendment on behalf of Tenant,
which copy shall be certified by Tenant's President or Secretary as correct and
in full force and effect.
2
<PAGE>
9. RESTATEMENT OF OTHER LEASE TERMS. Except as specifically modified
--------------------------------
herein, all other terms, covenants and conditions of the Lease shall remain in
full force and effect.
IN WITNESS WHEREOF, the parties hereto execute this Amendment as of the
date first set forth above.
Landlord: Tenant:
- -------- ------
CONNECTICUT GENERAL LIFE EBAY, INC.,
INSURANCE COMPANY, a California corporation
a Connecticut corporation, on behalf of
its Separate Account R
By: CIGNA Investments, Inc.
Its Authorized Agent
By: /s/ James H. Rogers By: /s/ J Skoll
--------------------------- --------------------------
Name: James H. Rogers Name: Jeffrey Skoll
--------------------------- --------------------------
Managing Director President
Title: --------------------------- Title: --------------------------
Date: 3/24/97 Date: Feb. 13/97
--------------------------- --------------------------
3
<PAGE>
EXHIBIT A
Floor Plan
<PAGE>
SECOND AMENDMENT TO LEASE
-------------------------
THIS SECOND AMENDMENT TO LEASE (this "Amendment") is made this _____ day of
_________________, 1998, by and between CONNECTICUT GENERAL LIFE INSURANCE
COMPANY, a Connecticut corporation, on behalf of its Separate Account R
("Landlord") and eBAY, INC., a California corporation ("Tenant").
R E C I T A L S
A. Tenant currently leases from Landlord approximately two thousand seven
hundred forty-one (2,741) square feet of space located at 2005 Hamilton Avenue,
Suites 255 and 270, San Jose, California (the "Current Premises"), pursuant to
that certain Lease dated September 30, 1996 as amended by that certain First
Amendment to Lease dated February 13, 1997 (together, the "Lease"). The Current
Premises are shown on Exhibit A attached hereto.
B. Tenant desires to lease additional space from Landlord located at 2005
Hamilton Avenue, Suite 250, San Jose, California, (the "Expansion Space"),
consisting of approximately one thousand five hundred seven (1,507) square feet
of space. The Expansion Space is shown on Exhibit A attached hereto.
C. Tenant also desires to reduce the size of the Premises, for purposes
of the Lease, by subtracting that certain space located at 2005 Hamilton Avenue,
Suite 270, consisting of approximately one thousand two hundred seventy (1,270)
square feet (the "Reduction Space") as shown on Exhibit A attached hereto.
D. Landlord is willing to add the Expansion Space to the Lease and
subtract the Reduction Space from the Lease on the terms and conditions set
forth below.
NOW, THEREFORE, in consideration of the above recitals and the mutual
covenants and agreements contained herein, Landlord and Tenant hereby amend the
Lease as follows:
1. PREMISES. The definition of "Premises" is modified as follows:
--------
From and after the Effective Date, as defined in
<PAGE>
paragraph 2 below, the Expansion Space shall be added to the Current Premises
and the Reduction Space shall be subtracted from the Current Premises and,
thereafter, the total area leased shall be two thousand nine hundred seventy-
eight (2,978) square feet and the term "Premises" as used in this Amendment
shall refer to the Current Premises minus the Reduction Space plus the Expansion
Space.
2. EFFECTIVE DATE. As used herein, the "Effective Date" shall be the
-------------
date upon which Landlord tenders possession of the Expansion Space to Tenant,
provided that Landlord shall use reasonable efforts to deliver the Expansion
Space to Tenant on April 1, 1998. Notwithstanding the above, Tenant acknowledges
that the Expansion Space is currently occupied by a third party and if Landlord
cannot deliver possession of the Expansion Space to Tenant by April 1, 1998,
this Amendment shall not be void or voidable by Tenant, Landlord shall not be
liable to Tenant for any loss or damage sustained by Tenant on account thereof
and the Effective Date shall not be deemed to occur until Landlord is able to
deliver possession of the Expansion Space to Tenant.
3. BASIC RENT. Paragraphs 4(a) and 5(a) of the Lease are modified as
----------
follows:
Commencing on the Effective Date, the basic rent payable by Tenant
shall be Seven Thousand Three Hundred Eight-Five and 44/100 Dollars ($7,385.44)
per month for the first twelve (12) lease months thereafter.
Commencing on the first day of the thirteenth (13th) lease month (the
"Adjustment Date"), the monthly basic rent shall be adjusted as follows:
The Consumer Price Index for All Urban Consumers (base year 1984 = 100) for
San Francisco-Oakland, Metropolitan Area published by the United States
Department of Labor, Bureau of Labor Statistics ("Index"), which is published
for the date immediately preceding the applicable Adjustment Date (the
"Extension Index"), shall be compared with the Index published for the date
immediately preceding the lease commencement date (the "Beginning Index"). The
monthly basic rent payable during the period following the Adjustment Date shall
be equal to the greater of (i) $7,680.86 per month or (ii) the amount obtained
by multiplying $7,385.44 by a fraction, the numerator of which is the Extension
Index and the denominator of which is the Beginning Index.
As soon as the monthly basic rent for each such period is set, Landlord
shall give Tenant notice of the amount and the parties shall immediately execute
an amendment to the lease stating the new basic rent or otherwise acknowledge in
writing such adjustment in form reasonably acceptable to Landlord. If the Index
is changed so that the base year differs from that used for the Beginning Index,
the Index shall be converted in
2
<PAGE>
accordance with the conversion factor published by the United States Department
of Labor, Bureau of Labor Statistics. If the Index is discontinued or revised
during the term, such other government index or computation with which it is
replaced shall be used in order to obtain substantially the same result as would
be obtained if the Index had not been discontinued or revised.
4. DIRECT EXPENSES. Paragraphs 4(b) and 5(b) of the Lease are modified
---------------
as follows:
Commencing on the Effective Date, Tenant's proportionate share of
direct expenses of the Project as set forth in paragraph 5(b) of the Lease shall
be increased to one and twenty-nine one-hundredths percent (1.29%) and Tenant's
proportionate share of direct expenses of the building in which the Premises are
located shall be increased to four and sixty-five one-hundredths percent
(4.65%). Commencing on the Effective Date, Tenant's payment of its estimated
share of direct expenses shall be increased to One Thousand Eight Hundred Forty-
Six and 36/100 Dollars ($1,846.36) per month and shall be reconciled and
adjusted thereafter in accordance with paragraph 5(b) of the Lease.
5. PARKING. Paragraph 15 of the Lease is modified as follows:
-------
Commencing on the Effective Date, the number of non-exclusive parking
spaces which Tenant shall be entitled to use shall be increased to eleven (11)
spaces.
6. EXPANSION SPACE LEASED "AS IS". Tenant is leasing the Expansion Space
------------------------------
"as is" in its current condition and Landlord shall have no obligation to alter,
modify or improve the Expansion Space in any way.
7. TENANT IMPROVEMENTS. Tenant shall construct certain tenant
-------------------
improvements (the "Tenant Improvements") in the Premises as shown and described
in Exhibit B attached hereto, subject to the following terms and conditions:
(a) The Tenant Improvements shall be deemed alterations to the
Premises subject to Landlord's prior written consent and shall be subject to all
the terms and conditions of paragraph 8 of the Lease, except that Tenant shall
not be obligated to remove the Tenant Improvements shown in Exhibit B nor
restore the Premises to its condition prior to construction of the Tenant
Improvement to the extent specified in Exhibit B. Tenant shall submit
preliminary space plans and final space plans to Landlord for Landlord's prior
written consent. Upon Landlord's approval of the final space plan, Tenant shall
thereafter cause to be prepared by licensed architects and engineers a fully
coordinated set of architectural, structural, mechanical, electrical and
plumbing working drawings (the "Final Construction Drawings") for the Tenant
Improvements, if
3
<PAGE>
applicable, and shall submit copies of the Final Construction Drawings to
Landlord for Landlord's approval. After Landlord's approval of the Final
Construction Drawings, Tenant shall submit the Final Construction Drawings as
approved by Landlord to the City to obtain all requisite building permits. No
changes, modifications or alterations to the Final Construction Drawings shall
be made without Landlord's prior written consent.
(b) A general contractor shall be retained by Tenant to construct the
Tenant Improvements. The general contractor shall be subject to Landlord's
approval. Tenant shall only use contractors and subcontractors reasonably
approved by Landlord. All of Tenant's contractors and subcontractors shall
carry workers compensation insurance covering all of their respective employees
and shall also carry commercial general liability and property damage insurance,
all with limits, in form and with companies as are required to be carried by
Tenant in paragraph 11 of the Lease. Tenant shall also carry "Builder's All
Risk" insurance in an amount approved by Landlord covering construction of the
Tenant Improvements and such other insurance as Landlord may reasonably require.
Certificates for all insurances required hereunder shall be provided to Landlord
prior to commencement of construction of the Tenant Improvements.
(c) Landlord will be notified at least ten (10) days prior to the
commencement of any construction in order to post a Notice of Non-
Responsibility. Tenant agrees to conform with Landlord's rules and regulations
associated with construction to minimize the disruption to the other tenants in
the building. Any construction which causes significant noise or other
disturbance to the tenants shall be done during non-business hours (evenings
after 6:30 p.m. or weekends). Tenant will require its general contractor to
clean the exterior of the Premises daily and shall keep the common areas clean
and debris-free at all times and shall park construction vehicles and store
materials in areas designated by Landlord. Mechanical systems shall be designed
so as to not affect the systems of the adjoining suites or otherwise alter the
airflow to the other tenants in the building.
(d) The Tenant Improvements shall be constructed in accordance with
all applicable local, state and federal laws, statutes, codes, ordinances, rules
and regulations.
(e) Landlord shall have the right to enter the Premises at all times
during construction of the Tenant Improvements to inspect and monitor such
construction, but shall have no obligation to do so and assumes no liability or
responsibility for such construction and/or compliance with laws applicable
thereto, which is and shall be Tenant's sole responsibility.
8. EARLY ACCESS. Landlord shall provide Tenant with limited access to the
------------
Premises (including the Expansion Space) when such space becomes available, but
only for purposes of commencing construction of the Tenant Improvements in
accordance
4
<PAGE>
with paragraph 7 above. Tenant's access shall be coordinated with Landlord.
Except as specifically provided below, Tenant's access to the Premises pursuant
to this paragraph shall be subject to all the terms and conditions of the Lease,
including the insurance obligations specified in paragraph 11 of the Lease and
paragraph 7 of this Amendment. As a condition precedent to Tenant's right to
such access to the Premises, Tenant shall provide Landlord with proof that
Tenant has satisfied said insurance requirements. Such limited access to the
Premises shall not accelerate the Effective Date of this Amendment and Tenant
shall not be obligated to pay basic rent or direct expenses until the Effective
Date.
9. CORPORATE AUTHORITY. Each individual executing this Amendment on
-------------------
behalf of a corporation represents and warrants that he/she is duly authorized
to execute and deliver this Amendment on behalf of the corporation in accordance
with a duly adopted resolution of the Board of Directors of said corporation and
that this Amendment is binding upon said corporation in accordance with its
terms. Tenant shall deliver to Landlord, within ten (10) days of the execution
and delivery of this Amendment, a copy of the resolution of the Board of
Directors of Tenant authorizing the execution of this Amendment and naming the
officers that are authorized to execute this Amendment on behalf of Tenant,
which copy shall be certified by Tenant's President or Secretary as correct and
in full force and effect.
10. BROKERS. Each party represents that it has not had dealings with any
-------
real estate broker, finder or other person with respect to this Amendment or
expanding the Premises. There are no leasing commissions to be paid by Landlord
or Tenant in connection with this transaction. Each party hereto shall hold
harmless the other party from all damages, loss or liability resulting from any
claims that may be asserted against the other party by any broker, finder or
other person with whom such party has dealt, or purportedly has dealt, in
connection with this transaction.
11. RESTATEMENT OF OTHER LEASE TERMS. Except as specifically modified
--------------------------------
herein, all other terms, covenants and conditions of the Lease shall remain in
full force and effect.
[SIGNATURES ON NEXT PAGE]
5
<PAGE>
IN WITNESS WHEREOF, the parties hereto execute this Amendment as of the
date first set forth above.
Landlord: Tenant:
- --------- -------
CONNECTICUT GENERAL LIFE
INSURANCE COMPANY, eBAY, INC.,
a Connecticut corporation, a California corporation
on behalf of its Separate
Account R
By: CIGNA Investments, Inc., By:/s/ Margaret C. Whitman
a Delaware corporation -----------------------
Its Authorized Agent Name: Margaret C. Whitman
--------------------
By:______________________ Title: President
---------------------
Date:______________________
Name:____________________
By: /s/ Matthew P. Quilter
Title:___________________ ------------------------
Name: Matthew P. Quilter
Date:____________________ ----------------------
Title: Secretary
---------------------
Date:_______________________
6
<PAGE>
EXHIBIT 10.08
SUBLEASE
--------
This Sublease ("Sublease") is made this 4th day of August, 1997 by and
between Information Storage Devices, Inc., a California corporation
("Sublandlord") and eBay, Inc., a California corporation (''Subtenant").
RECITALS
A. Sublandlord, as Tenant, is leasing from Connecticut General Life
Insurance Company, a Connecticut corporation ("Landlord") those certain premises
located at 2005 Hamilton Avenue, Suite 350, San Jose, California ("Premises")
pursuant to a lease dated August 24, 1994 ("Original Lease"), as amended by the
documents entitled "First Amendment to Lease" dated November 15, 1994, the
"Second Amendment to Lease" dated July 25, 1995 ("Second Amendment") and the
letter dated December 4, 1995 referencing the Second Amendment (all of the
foregoing documents are collectively referred to as the "Master Lease").
Subtenant acknowledges having received and reviewed a copy of the Master Lease.
B. Sublandlord desires to lease to Subtenant and Subtenant desires to
lease from Sublandlord a portion of the Premises consisting of approximately
twelve thousand seven hundred thirty three (12,733) square feet (the "Sublease
Premises") as shown on Exhibit A attached hereto, on the terms and conditions
set forth in this Sublease.
NOW, THEREFORE, the parties hereto agree as follows:
1. PREMISES
Sublandlord leases to Subtenant and Subtenant hires from Sublandlord
the Sublease Premises, together with the appurtenances thereto.
2. INCORPORATION OF MASTER LEASE
This Sublease is subject to all of the terms and conditions of the
Master Lease and Subtenant hereby accepts, assumes and agrees to perform all the
obligations of Sublandlord as Tenant under the Master Lease which are applicable
to the Sublease Premises (except those provisions of the Master Lease which are
inconsistent with or are modified by this Sublease), and all of the terms and
conditions of this. Sublease (with each reference therein to Landlord and Tenant
to be deemed to refer to Sublandlord and Subtenant, respectively), excepting
only the following paragraphs of the Original Lease: 1-5 and 13 (only to the
extent those paragraphs are specifically modified by this Sublease) and items
(ii) and (iii) of the second subparagraph of paragraph 19, and excepting only
the following paragraphs of the Second Amendment: 6, 8 11 and 12. Subtenant
shall not commit or permit to be committed on the Sublease Premises any act or
omission which shall violate any term or condition of the Master Lease. In the
event of the termination for any reason of Sublandlord's interest as Tenant
under the Master Lease, then this Sublease shall terminate therewith without any
liability of Sublandlord to Subtenant; except that if this Sublease terminates
as a result of a default of one of the parties hereto, whether under this
<PAGE>
Sublease, the Master Lease, or both, the defaulting party shall be liable to the
non-defaulting party for all damages suffered by the non-defaulting party
resulting from such termination. Sublandlord represents and warrants to
Subtenant that: (i) Sublandlord has delivered to Subtenant a true, correct and
complete copy of the Master Lease, and all exhibits, amendments and addenda
thereto; (ii) neither Landlord or Sublandlord is, to the best of Sublandlord's
knowledge and belief, in default under the Master Lease; (iii) Sublessor shall
promptly provide Subtenant with a copy of any notice of default under the Master
Lease, or any other notices or other communications received by Sublandlord
from, or given by Sublandlord to, Landlord pursuant to the Master Lease with
respect to the Sublease Premises; and (iv) Sublandlord shall not modify, amend
or terminate the Master Lease with respect to the Sublease Premises without the
prior written consent of Subtenant, which consent shall not be unreasonably
withheld by Subtenant, and Sublandlord shall comply with and perform its
obligations under the Master Lease.
3. TERM
The term of this Sublease shall commence on the date first set forth
above, and end on December 1, 1999, without renewal rights by Subtenant. In the
event Sublandlord is unable to deliver possession of the Sublease Premises at
the anticipated commencement of the term, Sublandlord shall not be liable for
any damage caused thereby, nor shall this Sublease be void or voidable nor shall
the term hereof be extended by such delay; provided, however, that Subtenant
shall not be liable for rent until such time as Sublandlord offers to deliver
possession of the Sublease Premises to Subtenant: and provided further that if
Sublandlord fails to deliver possession of the Sublease Premises to Subtenant
within sixty (60) days following the date first set forth above, Subtenant may
terminate this Sublease at any time thereafter by written notice to Sublandlord.
4. USE
Subtenant shall use the Sublease Premises for general office use,
research and development and light manufacturing (including testing and
assembly) and for no other purpose.
5. RENTAL
(a) Subtenant shall pay to Sublandlord as full service rent for the
Sublease Premises, in advance, on the first day of each calendar month of the
term of this Sublease ("Rent Due Date''), without deduction, offset, prior
written notice or demand; in lawful money of the United States, the sum of
Thirty Three Thousand Seven Hundred Forty Two Dollars and Forty Five Cents
($33,742.45). If the commencement and/or termination date is not the first day
of the month, a prorated monthly installment shall be paid at the then current
rate for the fractional month during which the Sublease commences and/or
terminates. Notwithstanding the foregoing, Subtenant shall pay, as additional
rent, any increase in Sublandlord's amount of "direct expenses" assessed by
Landlord against Sublandlord for calendar years 1998 and 1999 applicable to the
Sublease Premises, to the extent Sublandlord's direct expenses for 1998 or 1999
exceed the amount paid by Sublandlord for direct expenses for calendar year
1997. Subtenant shall pay these sums to Sublandlord within thirty (30) days
after receiving an invoice for them.
2
<PAGE>
(b) Sublandlord acknowledges receipt from Subtenant, on the execution
hereof, of the sum of Thirty Three Thousand Seven Hundred Forty Two Dollars and
Forty Five Cents ($33,742.45) to be applied against rent for the first full
month of the term.
(c) Concurrently with Subtenant's execution of this Sublease,
Subtenant shall deposit with Sublandlord an irrevocable standby letter of credit
as a security deposit for the faithful performance of Subtenant's obligations
under this Sublease, according to the provisions of the Addendum attached hereto
and made a part hereof.
6. SURRENDER AT END OF TERM
Subtenant agrees to surrender the Sublease Premises on expiration or
earlier termination of the term hereof, in good condition and repair, reasonable
wear and tear excepted.
7. LANDLORD'S WRITTEN CONSENT
This Sublease is conditioned upon and effective only upon obtaining
the written consent of Landlord. If Landlord fails to consent to this Sublease
in writing within sixty (60) days after the date Subtenant executes this
Sublease, Subtenant may terminate this Sublease at any time thereafter by
written notice to Sublandlord.
8. NOTICES
All notices and demands of any kind required to be given by
Sublandlord or Subtenant hereunder shall be in writing and effective twenty-four
(24) hours after depositing same in the United States mail, postage prepaid, and
addressed to Sublandlord or Subtenant, as the case may be, at the address set
forth below their respective signature or at such other address as they may
designate from time to time.
3
<PAGE>
9. INSURANCE
Insurance requirements pertaining to Sublandlord as Tenant under
paragraph 11 of the Original Lease shall also apply to Subtenant.
SUBLANDLORD: SUBTENANT:
By: /s/ FELIX J. ROSENGARTEN By: /s/ J. SKOLL
---------------------------------- ---------------------------------
By: FELIX J. ROSENGARTEN Name: JEFFREY SKOLL
--------------------------------- -------------------------------
Title: VP AND CFO Title: PRESIDENT
------------------------------- ------------------------------
Date: 8/4/97 Date: Aug 4/97
-------------------------------- -------------------------------
Address: 2045 HAMILTON AVE. Address: 2005 HAMILTON AVE, Ste. 270
San Jose, CA 95125 San Jose, CA 95125
- ------------------------------------- ------------------------------------
SEE ATTACHED ADDENDUM TO SUBLEASE
4
<PAGE>
ADDENDUM TO SUBLEASE
THIS ADDENDUM is made to, and shall become part of, the preceding Sublease dated
August 4, 1997 between Information Storage Devices, Inc. ("Sublandlord") and e
Bay, Inc. ("Subtenant") with respect to a sublease of 2005 Hamilton Avenue,
Suite 350, San Jose, California by Sublandlord to Subtenant.
1. Defined Terms: Terms used in this Addendum which are not specifically
-------------
defined herein shall have the same meaning as they have in the Master Lease and
the Sublease.
2. Security Deposit: (A) Upon execution of the Sublease, Subtenant shall
----------------
provide Sublandlord with a irrevocable standby letter of credit, issued by a
bank and in a form acceptable to Sublandlord in its sole reasonable discretion,
which letter of credit shall be held by Sublandlord as a security deposit for
the faithful performance by Subtenant of all the terms, covenants and conditions
of this Sublease applicable to Subtenant. Sublandlord may immediately, and
without notice to Subtenant, draw against the letter of credit in the event
Subtenant defaults in the performance of any provision of the Sublease,
including, without limitation, payment of rent within five (5) business days
after the Rent Due Date. The amount of each draw by Sublandlord shall be limited
to the amount needed to cure Subtenant's applicable default, as determined by
Sublandlord in good faith, but in its sole reasonable discretion. Resort by
Sublandlord to the letter of credit (and/or use of the funds drawn) shall not
constitute a waiver of Subtenant's default or of any other claims or remedies
Sublandlord may have against Subtenant arising from the Sublease.
(B) The parties' rights and responsibilities with respect to the letter of
credit as security deposit shall be the same as, and shall be governed by, the
provisions of Paragraph 4(e) of the Original Lease. Any conflicts or
inconsistencies between the provisions of this Addendum and Paragraph 4(e) of
the Original Lease shall be governed by this Addendum.
(C) The letter of credit shall at all times be in the amount of Two
Hundred Two Thousand Four Hundred Fifty Four Dollars and Seventy Cents
($202,454.70), which represents a security deposit of six (6) months rent. In
the event of a draw by Sublandlord against the letter of credit, Subtenant, at
Sublandlord's option, shall incur additional undertakings to restore the letter
of credit at the full amount within ten (10) days after notice from Sublandlord.
Failure to timely restore the letter of credit to its full amount upon notice
from Sublandlord shall constitute a default under the Sublease.
(D) The letter of credit shall be available by draft at sight, subject
only to receipt by the issuing bank of a notarized statement from a duly
authorized officer of Sublandlord stating that Subtenant is in default under the
Sublease, and stating the amount due and owing to Sublandlord under the
Sublease. The letter of credit shall, by its terms, expire not less than one (1)
year from the date issued, provided that unless Subtenant deposits with
Sublandlord a cash security deposit of the same amount, the letter of credit
shall be renewed for successive periods of not less than one (1) year each, to
and including the date which is thirty (30) days after the expiration of the
term of the Sublease. The issuing bank's written notice of renewal shall be
5
<PAGE>
delivered to Sublandlord at least sixty (60) days prior to the expiration of the
letter of credit. Non-renewal by the issuing bank for any reason or failure by
Sublandlord to receive timely notice of renewal shall entitle Sublandlord to
make demand for the full amount of the letter of credit, and to hold such funds
as a cash deposit according to the terms of Paragraph 4(e) of the Original
Lease. Subtenant's failure to renew the letter of credit, or obtain a suitable
replacement letter of credit (in Sublandlord's sole reasonable discretion) or
provide timely written notice of renewal to Sublandlord shall be a default under
the Sublease.
3. Condition of the Sublease Premises: Subtenant represents and warrants that
----------------------------------
it has reviewed the condition of the Sublease Premises, and has independently
determined that the Sublease Premises are suitable for its intended uses.
SUBTENANT ACCEPTS THE SUBLEASE PREMISES "AS IS, WHERE IS", WITHOUT
REPRESENTATION OR WARRANTY BY SUBLANDLORD EXCEPT AS SPECIFICALLY SET FORTH IN
THIS SECTION 3. ALL OTHER REPRESENTATIONS AND WARRANTIES OF SUBLANDLORD, EXPRESS
OR IMPLIED, ARE EXCLUDED. Sublandlord represents and warrants, to the best of
its knowledge and belief, without independent investigation, that the Sublease
Premises, including the roof, parking areas, and all electrical, mechanical,
plumbing and HVAC systems, will be in good condition and repair when the
Sublease term commences. Sublandlord also represents and warrants that the
Sublease Premises will be delivered to Subtenant clean and in broom swept
condition. Sublandlord further represents and warrants, without independent
investigation, that it has no knowledge of the presence or existence or
hazardous or toxic materials or hazardous or toxic waste in or about the
building or Sublease Premises. Sublandlord represents and warrants, to the best
of its knowledge and belief, without independent investigation, that the
Sublease Premises and those portions of the building necessary to use and enjoy
the Sublease Premises comply with the Americans with Disabilities Act (ADA).
Subtenant assumes all responsibility for ADA compliance with respect to any
authorized tenant improvements it may make to the Sublease Premises.
4. Conditions Precedent: The Sublease, and the parties' rights and obligations
--------------------
under the Sublease, are subject to the following conditions precedent, or the
written waiver thereof by the beneficiary of such conditions: (i) delivery to
Sublandlord, on or before the date the term of the Sublease commences, of a
irrevocable standby letter of credit, as provided for in Section 2 of this
Addendum, and (ii) Subtenants review and approval of the terms and conditions of
the Master Lease, the Sublease and this Addendum, which shall be evidenced by
Subtenants execution of the Sublease and this Addendum.
6
<PAGE>
5. Real Estate Brokers: Sublandlord is represented in this transaction by
-------------------
Cooper/Brady Corporate Real Estate Services and Subtenant is represented in this
transaction by Professional Real Estate Services Company. Sublandlord shall pay
the brokers' fees in connection with the Sublease, and Subtenant shall have no
obligation to pay the brokers' fees.
SUBLANDLORD: SUBTENANT:
By: /s/ FELIX J. ROSENGARTEN By: /s/ J. SKOLL
---------------------------------- ----------------------------
By: FELIX J. ROSENGARTEN Name: JEFFREY SKOLL
-------------------------------- --------------------------
Title: VP AND CFO Title: PRESIDENT
------------------------------- -------------------------
Date: 8/4/97 Date: Aug 4/97
-------------------------------- --------------------------
7
<PAGE>
LANDLORD'S CONSENT TO SUBLEASE
------------------------------
THIS CONSENT ("Consent'') is given by CONNECTICUT GENERAL LIFE INSURANCE
----------------------------------
COMPANY, a Connecticut corporation ("Landlord") to that certain Sublease dated
- -------
August 4, 1997 (the "Sublease") by and between INFORMATION STORAGE DEVICES.
----------------------------
INC., a California corporation ("Sublandlord") and eBAY, INC., a California
---------
corporation ("Subtenant"), subject to the following terms and conditions:
1. All capitalized terms not otherwise defined herein shall have the
meaning ascribed to them in the Sublease.
2. Landlord is not a party to the Sublease and has no obligations or
duties to Subtenant or Sublandlord under the Sublease and any provisions therein
purporting to obligate and/or bind Landlord or limit Landlord's rights under the
Master Lease in any way are deemed null and void. Notwithstanding any provision
to the contrary in the Sublease, Subtenant shall have no greater rights than
Sublandlord has as Tenant under the Master Lease.
3. This Consent shall only apply to this Sublease and shall not be deemed
to be a consent to any other or further sublease or a waiver of any of the
provisions of the Master Lease.
4. By consenting to the Sublease, Landlord waives none of its rights
against the Sublandlord as Tenant under the Master Lease. The Sublease is and
shall remain at all times subject to and subordinate in all respects to the
Lease.
5. This Consent shall not modify or amend or be deemed to modify or amend
the Lease in any way, or to impose on Landlord any obligation to provide notice
to, or obtain consent from, Subtenant with respect to amendments, defaults,
waivers or any other matters pertaining to the Master Lease or to the Premises
covered by the Master Lease. Any waiver by Landlord of its rights shall be made
only in writing and signed by Landlord.
6. Upon the expiration or earlier termination of the Master Lease, the
Sublease shall automatically and without notice or demand, terminate and
Subtenant agrees promptly to surrender the Sublease Premises to Landlord upon
such termination without compensation from Landlord
7. This Consent shall not be effective until receipt by Landlord of a
counterpart or counterparts of this Consent duly executed by Sublandlord and
Subtenant, each acknowledging its agreement to the terms and conditions
specified in this Consent.
<PAGE>
Landlord:
--------
CONNECTICUT GENERAL LIFE
INSURANCE COMPANY
a Connecticut corporation ,on behalf of its
Separate Account R
By: CIGNA Investments, Inc.
--------------------------------------------
By: /s/ John G. Eisele
--------------------------------------------
By: John G. Eisele
--------------------------------------------
Title: Managing Director
-----------------------------------------
Date: 8/12/97
------------------------------------------
EACH OF THE UNDERSIGNED HEREBY ACKNOWLEDGE THAT IT HAS READ AND UNDERSTANDS THE
TERMS AND CONDITIONS SPECIFIED IN THE FOREGOING CONSENT AND AGREES TO ALL SUCH
TERMS AND CONDITIONS.
SUBLANDLORD: SUBTENANT:
- ----------- ---------
INFORMATION STORAGE DEVICES, INC. EBAY, INC.
a California corporation a California corporation
By: /s/ Al Woodhull By: /s/ J. Skoll
------------------------------ ------------------------------
By: Al Woodhull Name: Jeff Skoll
----------------------------- ----------------------------
Title: VP Mfg Title: President
--------------------------- ----------------------------
Date: 8/15/97 Date: Aug 15/97
---------------------------- -----------------------------
<PAGE>
EXHIBIT A
---------
SUITE 350 FLOOR PLAN
<PAGE>
GREYLANDS BUSINESS PARK, PHASE I
AND
INFORMATION STORAGE DEVICES, INC.
LEASE
THIS SUMMARY OF LEASE IS INTENDED TO SUMMARIZE CERTAIN KEY PROVISIONS IN THE
ATTACHED LEASE. IN THE EVENT OF ANY CONFLICT OR INCONSISTENCY BETWEEN THE
PROVISIONS OF THIS SUMMARY AND THE LEASE, THE PROVISIONS OF THE LEASE SHALL
GOVERN.
<PAGE>
SUMMARY OF LEASE
GREYLANDS BUSINESS PARK, PHASE I
1. DATE OF LEASE:
2. LANDLORD: Greylands Business Park, Phase I
3945 Freedom Circle, Suite 640
Santa Clara, California 95054
3. TENANT: Information Storage Devices, Inc.
4. PREMISES: 2045 Hamilton Avenue, Suite 100
San Jose, California
5. SQUARE FEET 28,037 square feet
6. PERMITTED USE: General office and light manufacturing (including
testing & assembly) & research & development
7. TERM: Five (5) years
(a) SCHEDULED
COMMENCEMENT DATE: November 20, 1994
(b) SCHEDULED
EXPIRATION DATE: November 19, 1999
8. RENT:
(a) BASIC RENT: Lease months 1-9: $7,009.25 per month
Lease months 10-12: $29,438.85 per month
Lease months 13-21: $30,840.70 per month
Lease months 22-36: $32,242.55 per month
Lease months 37-60: $33,364.03 per month
(a) TENANT'S ESTIMATED SHARE
OF DIRECT EXPENSES: $ 12,499.07
9. SECURITY DEPOSIT: $200,689.00
10. PARKING SPACES PROVIDED: One hundred six (106)
11. OTHER IMPORTANT PROVISIONS: Option to Extend Term Right of First Refusal
12
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PARAGRAPH PAGE
- ------------------------------------------------------------------------------
<S> <C>
1. USE
2. TERM
3. POSSESSION
4. MONTHLY RENT
5. ADJUSTMENT OF BASIC RENT AND DIRECT EXPENSES
6. RESTRICTION ON USE
7. COMPLIANCE WITH LAWS
8. ALTERATIONS
9. REPAIR AND MAINTENANCE
10. LIENS
11. INSURANCE
12. UTILITIES AND SERVICE
13. TAXES AND OTHER CHARGES
14. ENTRY BY LANDLORD
15. COMMON AREA; PARKING
16. DAMAGE BY FIRE; CASUALTY
17. INDEMNIFICATION
18. ASSIGNMENT AND SUBLETTING
19. DEFAULT
20. LANDLORD'S RIGHT TO CURE TENANT'S DEFAULT
21. EMINENT DOMAIN
22. NOTICE TO SURRENDER
23. TENANT'S QUITCLAIM
24. HOLDING OVER
25. SUBORDINATION
26. CERTIFICATE OF ESTOPPEL
27. SALE BY LANDLORD
28. ATTORNMENT TO LENDER OR THIRD PARTY
29. DEFAULT BY LANDLORD
30. CONSTRUCTION CHANGES
31. MEASUREMENT OF PREMISES
32. ATTORNEY FEES
33. SURRENDER
34. WAIVER
35. EASEMENTS; AIRSPACE RIGHTS
36. RULES AND REGULATIONS
37. NOTICES
38. NAME
39. GOVERNING LAW; SEVERABILITY
40. DEFINITIONS
41. TIME
42. INTEREST ON PAST DUE OBLIGATIONS; LATE CHARGE
</TABLE>
<PAGE>
<TABLE>
<S> <C>
43. ENTIRE AGREEMENT
44. CORPORATE AUTHORITY
45. RECORDING
46. REAL ESTATE BROKERS
47. EXHIBITS AND ATTACHMENTS
48. ERISA REQUIREMENTS
49. ENVIRONMENTAL MATTERS
50. SIGNAGE
51. SUBMISSION OF LEASE
52. TENANT IMPROVEMENTS
53. ADDITIONAL RENT
54. (INTENTIONALLY OMITTED)
55. OPTION TO EXTEND TERM
56. RIGHT OF FIRST REFUSAL
</TABLE>
14
<PAGE>
GREYLANDS BUSINESS PARK, PHASE I
OFFICE LEASE
------------
THIS LEASE is made this 24th day of August, 1994, by and between GREYLANDS
BUSINESS PARK, PHASE I, a California general partnership ("Landlord"), and
--------
INFORMATION STORAGE DEVICES, INC., a California corporation ("Tenant").
------
W I T N E S S E T H
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Landlord leases to Tenant and Tenant leases from Landlord those
certain premises outlined in red on Exhibit A (the "Premises") which Premises
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are commonly known as 2045 Hamilton Avenue, Suite 100, San Jose, California,
which Landlord and Tenant hereby agree consists of approximately twenty-eight
thousand thirty-seven (28,037) square feet in Greylands Business Park, Phase I
(the "Project"). As used herein the term project shall mean and include all of
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the land described in Exhibit B and all the buildings, improvements, fixtures
and equipment now or hereafter situated on said land.
Tenant covenants, as a material part of the consideration of this
lease, to perform and observe each and all of the terms, covenants and
conditions set forth below, and this lease is made upon the condition of such
performance and observance.
1. USE. Subject to the restrictions contained in paragraph 6,
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Tenant shall use the Premises for general office use, research and development
and light manufacturing (including testing and assembly) and shall not use or
permit the Premises to be used for any other purpose.
2. TERM.
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(a) The term shall be for five (5) years (unless sooner
terminated as hereinafter provided) and, subject to paragraphs 2(b) and 3, shall
commence on November 20, 1994 and end on November 19, 1999.
(b) Possession of the Premises shall not be deemed tendered and
the term shall not commence until Landlord notifies Tenant of substantial
completion of all work to be done by Landlord pursuant to Exhibit C to this
lease (exclusive of telephone or other communication systems and punch list
items) and Landlord has obtained the final building permit for such work, except
that (i) if Landlord is prevented from or delayed in completing its work under
Exhibit C to this lease due to the acts or omissions of Tenant, then the
Premises shall be deemed tendered and the term shall commence upon the date by
which such work would have been completed but for such acts or omissions by
Tenant and (ii) if Tenant occupies or otherwise enters into possession of all or
any part of the Premises prior to the scheduled commencement date, unless
otherwise agreed in writing by Landlord, the term shall commence upon the date
of such entry and Tenant shall thereupon be obligated to perform all its
obligations under this lease, including the obligation to pay basic rent and
direct expenses.
3. POSSESSION.
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(a) If Landlord for any reason cannot deliver possession of the
Premises to Tenant by the scheduled commencement date set forth in paragraph
2(a), this lease shall not be void or voidable, Landlord shall not be liable to
Tenant for any loss or damage on account thereof and, unless Landlord's failure
to deliver
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possession of the Premises to Tenant by the scheduled commencement date set
forth in paragraph 2(a) is caused by Tenant caused delays as defined in Exhibit
C to this lease, Tenant shall not be liable for rent until the commencement of
the term is determined in accordance with paragraph 2(b). If the term commences
on a date other than the date specified in paragraph 2(a) above, then the
parties shall immediately execute an amendment to this lease stating the actual
date of commencement. The expiration date of the term shall be extended by the
same number of days that Tenant's possession of the Premises was delayed from
that set forth in paragraph 2(a).
(b) Tenant's inability or failure to take possession of the
Premises when delivery is tendered by Landlord (with the improvements to be done
pursuant to Exhibit C to this lease substantially completed) shall not deal the
commencement of the term of this lease or Tenant's obligation to pay rent.
Tenant acknowledges that Landlord shall incur significant expenses upon the
execution of this lease, even if Tenant never takes possession of the Premises,
including without limitation brokerage commission and fees, legal and other
professional fees, the costs of space planning and the costs of construction of
improvements in the Premises. Tenant acknowledges that all of said expenses
shall be included in measuring Landlord's damages should Tenant breach the terms
of this lease.
4. MONTHLY RENT.
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(a) Basic Rent. Tenant shall pay to Landlord as basic rent for
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the Premises, in advance, on or before the first day of the first full calendar
month of the term and on or before the first day of each and every successive
calendar month the monthly amounts set forth below:
Lease Months 1 - 9 $7,009.25 per month
Lease Months 10 - 12 $29,438.85 per month
Lease Months 13 - 21 $30,840.70 per month
Lease Months 22 - 36 $32,242.55 per month
Lease Months 37 - 60 $33,364.03 per month
Basic rent for any partial month shall be payable in advance and shall be
prorated at the rate of 1/30th of the monthly basic rent per day.
(b) Direct Expenses. In addition to the above basic rent and as
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additional rent, Tenant shall pay to Landlord, subject to adjustment and
reconciliation as provided in paragraph 5(b) of this lease, the sum of Twelve
Thousand Four Hundred Ninety-Nine and 07/100 Dollars ($12,499.07) on or before
the first day of the first full calendar month of the term and on the first day
of each and every successive calendar month, said sum representing Tenant's
estimated payment of its proportionate share of direct expenses as provided for
in paragraph 5(b) to this lease. Payment for direct expenses for any -partial
month shall be payable in advance and shall be prorated at the rate of 1/30th of
the monthly payment for direct expenses per day.
(c) Manner and Place of Payment. All payments of basic rent and
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direct expenses shall be paid to Landlord, without deduction or offset, in
lawful money of the United States of America, as the office of Landlord at 3945
Freedom Circle, Suite 640, Santa Clara, California, 95054, or to such other
person or place as Landlord may from time to time designate in writing.
(d) First Month's Rent. Concurrently with Tenant's execution
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of this lease, Tenant shall deposit with Landlord the sum of Nineteen Thousand
Five Hundred Eight and 32/100 Dollars ($19,508.32) to be applied against the
basic rent and direct expenses for the first month of the term.
(e) Security Deposit. Tenant shall provide Landlord with a
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letter of credit as specified below, which letter of credit shall be held by
Landlord as a security deposit for the faithful performance by Tenant of all of
the terms, covenants and conditions of this lease to be kept and performed by
Tenant. If Tenant defaults with respect to any provision of this lease,
including but not limited to the provisions relating to the
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payment of basic rent and direct expenses, Landlord may (but shall not be
required to) use, apply or retain all or pay part of this security deposit for
the payment of any amount which Landlord may spend by reason of Tenant's default
or to compensate Landlord for any other loss or damage which Landlord may suffer
by reason of Tenant's default. If any portion of said deposit is so used, Tenant
shall, within ten (10) days after written demand therefor, deposit cash with
Landlord in the amount sufficient to restore the security deposit to its
original amount; Tenant's failure to do so shall be a material breach of this
lease. Landlord shall not be required to keep this security deposit separate
from its general funds and Tenant shall not be entitled to interest on such
deposit. If Tenant is not in default as the expiration or termination of this
lease, the security deposit or any balance thereof shall be returned to Tenant
after Tenant has vacated the Premises. In the event of termination of Landlord's
interest in this lease, Landlord shall transfer said deposit to Landlord's
successor in interest, and Tenant agrees that Landlord shall thereupon be
released from liability for the return of such deposit or any accounting
therefor.
Tenant shall deliver to Landlord concurrent with Tenant's execution of
this lease an unconditional irrevocable letter of credit in the amount of Two
Hundred Thousand Six Hundred Eighty-Nine and 00/100 Dollars ($200,689.00) in
favor of Landlord to secure the faithful performance by Tenant of al of the
terms, covenants and conditions of this lease to be kept and performed by
Tenant. Provided Tenant is not then in default and the Lease is then in full
force and effect, the amount of the letter of credit shall be reduced in
accordance with the following schedule:
<TABLE>
<CAPTION>
Reduction Date Letter of Credit Amount Reduced To:
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<S> <C>
On the first day of
the 13th lease month $160,551.20 of the Base Security Deposit Amount
On the first day of
the 25th lease month $120,413.40 of the Base Security Deposit Amount
On the first day of
the 37th lease month $80,275.60 of the Base Security Deposit Amount
On the first day of
the 49th lease month $40,137.80 of the Base Security Deposit Amount
</TABLE>
Said letter of credit shall be available by draft at sight, subject only to
receipt by the bank of a notarized statement from Birk S. McCandless or Steven
E. Sund stating the amount demanded as due and owing to Landlord, and shall
otherwise be in a form reasonably satisfactory to Landlord and Landlord's
attorney and drawn upon such bank as Landlord may approve. Said letter of
credit shall by its terms expire not less than one (1) year from the date
issued, provided that unless Tenant deposits with Landlord a cash security
deposit of like amount, the letter of credit shall be renewed for successive
periods of not less than one (1) year each to and including the date which is 10
days after the expiration of the term of this lease. The bank's written renewal
of the letter of credit shall be delivered to Landlord not less than sixty (60)
days prior to the expiration of such letter of credit. If Landlord does not
receive such written renewal at least sixty (60) days prior to the expiration
date of the letter of credit, then Landlord shall be entitled to make demand for
the principal amount of said letter of credit and, thereafter, hold or apply
such funds in accordance with the first paragraph of this paragraph 4(e).
Tenant's failure to so deliver, renew (including specifically but not limited to
the delivery to Landlord of such renewal not less than sixty (60) days prior to
expiration of the letter of credit) and maintain such letter of credit shall be
a material breach of this lease.
If Tenant defaults in the performance of any provision of this lease
to be performed by Tenant, including without limitation the timely payment of
basic rent and direct expenses and other amounts due Landlord, Landlord may
immediately and without further notice resort to said letter of credit (or the
funds received therefrom) and use or apply all or any part of same to compensate
Landlord for any loss or expense occasioned thereby and for the payment of any
amount due Landlord under the terms o this lease. If any portion of said letter
of credit (or the funds received therefrom) is so used as specified above,
Tenant shall, within ten (10) days after written demand
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therefor, restore the letter of credit (or the funds received therefrom) to its
original amount, and Tenant's failure to do so shall be a material breach of
this lease.
Landlord's resort to said letter of credit (or use of the funds
received therefrom) shall in no way or manner constitute an acceptance of or
waiver of such default by Tenant; nor shall such resort or use terminate, or
permit Tenant to terminate, or constitute a forfeiture of, or be construed as an
election by Landlord to terminate, this lease; nor shall such resort or use
affect Landlord's remedies otherwise available under this lease or at law.
If there is a substantial change in Tenant's financial condition,
after the first lease year Tenant may request that Landlord review Tenant's
financial condition (but not more than two requests per year) and upon such
request Landlord will review the requirement of a letter of credit and Landlord
may, at Landlord's sole discretion and without any obligation to do so, agree to
reduce or eliminate the requirement of a letter of credit.
5. ADJUSTMENT OF BASIC RENT AND DIRECT EXPENSES.
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(a) Adjustments in Basic Rent. Except as set forth in paragraph
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4(a) there shall be no adjustments to the monthly basic rent.
(b) Adjustments to Direct Expenses. Tenant's proportionate share
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of direct expenses of the Project shall be twelve and eight one hundredths
percent (12.08%) (28,037 + 232,089) and Tenant's proportionate share of direct
expenses (excluding electricity) of the building in which the Premises are
located shall be fifty-four and thirty one hundredths percent (54.30%) (28,037 +
51,630). Since a portion of the Premises consisting of approximately thirteen
thousand eight hundred thirteen (13,813) square feet is to be separately metered
for electricity (as provided in paragraph 12 below), Tenant's proportionate
share of direct expenses for building related electricity bills shall be thirty-
seven and sixty-one one-hundredths percent (37.61%) (14,224 + 37,817), which
excludes the separately metered space. Subject to reconciliation as provided
below, the initial estimated amount of Tenant's proportionate share of direct
expenses of the Project and of the building in which the Premises are located is
Twelve Thousand Four Hundred Ninety-Nine and 07/100 Dollars ($12,499.07).
Tenant shall be required to pay to Landlord, as additional rent
in accordance with paragraph 4(b) of this lease, Tenant's proportionate share of
direct expenses for each calendar year (or portion thereof) during the term of
this lease. Tenant's estimated share of the monthly direct expenses payable by
Tenant during the calendar year in which the term commences is set forth in
paragraph 4(b) of this lease. A written estimate of Tenant's monthly share of
direct expenses for each succeeding calendar year shall be delivered to Tenant
prior to be commencement of each such succeeding calendar year (or a s soon as
practicable thereafter). Tenant shall pay to Landlord in accordance with
paragraph 4(b) of this lease its monthly share of direct expenses as estimated
by Landlord. Landlord reserves the right to revise such written estimate during
a calendar year if Landlord's actual or projected direct expenses shows an
increase or decrease in excess of ten percent (10%) from that of an earlier
written estimate delivered to Tenant, and if Landlord elects to revise the
earlier estimate, Landlord shall deliver the revised estimate to Tenant,
together with an explanation of the reasons therefor, and Tenant shall revise
its payments accordingly. Statements of the actual direct expenses for the
calendar year in which the term commences and for each succeeding calendar year
(herein called "statement of actual direct expenses") shall be delivered to
Tenant within one hundred twenty (120) days following the expiration of each
such calendar year (or as soon as practicable thereafter). If the statement of
actual direct expenses for any such calendar year shows that Tenant's
proportionate share of actual direct expenses for the year is in excess of the
aggregate amount Tenant has paid as direct expenses for that calendar year,
Tenant shall pay such excess to Landlord within ten 910) days after receipt of
the statement of actual direct expenses. If Tenant fails to pay such excess
amount due within said ten (10) day period, Tenant shall pay an additional ten
percent (10%) of the amount due as a penalty. In the event that any statement of
actual direct expense shall show that Tenant has paid Landlord an aggregate
amount in excess of the actual direct expenses for the preceding calendar year
and Tenant is not in default in the performance or observance of any of the
terms, covenants or conditions of this lease at the time such statement of
actual direct expenses is delivered, Landlord shall, at its option, promptly
either refund such excess to Tenant or credit the amount thereof to
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<PAGE>
the monthly direct expenses next becoming due from Tenant. The respective
obligations of Landlord and Tenant under this paragraph still survive the
expiration or other termination of this lease.
As used in this lease, "direct expenses" shall include, but not be
limited to, (i) real property taxes, assessments, and other costs identified as
direct expenses in paragraph 13; (ii) insurance premiums and other costs
identified as direct expenses in paragraph 11; (iii) the cost of all utilities
and services including water, gas, and sewer charges, electricity, heat, air
conditioning, refuse collection, and janitorial services identified as direct
expenses in paragraph 12; (iv) the costs of operating and maintaining the Common
Area identified as direct expenses in paragraph 15, including but not limited
to, the landscaping, elevator, parking lots, paving, sidewalks, showers, the
Greylands Mansion, and security and exterminator services; (v) the costs and
expenses of maintaining and repairing the Project identified as direct expenses
in paragraph 9, including but not limited to, mechanical, electrical, plumbing
and sewage systems, windows, glazing, gutters, down-spouts, heating and
ventilating and air conditioning systems, walls, floor coverings, roofs,
structural elements, exterior walls, and the cost of maintenance contracts and
supplies, materials, equipment and tools used in connection therewith; (vi) the
cost of certain alterations identified as direct expenses in paragraph 8; (vii)
amortization of such capital improvements having a useful life greater than one
year as Landlord may have installed for the purpose of reducing operating costs
and/or to comply with all laws, rules and regulations of federal, state, county,
municipal and other governmental authorities now or hereinafter in effect
(Tenant's share of such capital improvement shall equal Tenant's proportionate
share of the fraction of the cost of such capital improvement equal to the
remaining term of the lease over the useful life of such capital improvement);
(viii) wages, salaries, employee benefits (including union benefits) and related
expenses of all on-site and off-site personnel engaged in the operation,
management and maintenance of the Project (or the building in which the Premises
are located) and payroll taxes applicable thereto and all costs incurred to
maintain a management office in or near the Project (including, without
limitation, rental payments therefor or the reasonable rental value of the space
so occupied); (ix) supplies, materials, equipment and tools used or required in
connection with the operation and maintenance of the Project; (x) licenses,
permits and inspection fees; (xi) a reasonable reserve for repairs and
replacement of equipment used in the maintenance and operation of the Project;
(xii) all other operating costs incurred by Landlord in maintaining and
operating the Project; and (xiii) an amount equal to five percent (5%) of the
actual expenditures for the aggregate of all other direct expenses as
compensation for Landlord's accounting and processing services.
6. RESTRICTION ON USE. Tenant shall not do or permit to be done in
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or about the Premises or the Project, nor bring or keep or permit to be brought
or kept in or about the Premises or Project, anything which is prohibited by or
will in any way increase the existing rate of (or otherwise affect) fire or any
other insurance covering the Project or any part thereof, or any of its
contents, or will cause a cancellation of any insurance covering the Project or
any part thereof, or any of its contents. Tenant shall not do or permit to be
done anything in or about the Premises or the Project which will constitute
waste or which will in any way obstruct or interfere with the rights of other
tenants or occupants of the Project or injure or annoy them, or use or allow the
Premises to be used for any unlawful purpose, nor shall Tenant cause, maintain
or permit any nuisance in or about the Premises or the Project. No loudspeaker
or other device, system or apparatus which can be heard outside the Premises
shall be sued or at the Premises without the prior written consent of Landlord.
Tenant shall not use the Premises for sleeping, washing clothes, cooking, except
for customary lunch break/kitchenette functions involving a microwave oven, or
in any manner that will cause or emit any objectionable odor, noise or light
into the adjoining premises or Common Area. Tenant shall not do anything on the
Premises that will cause damage to the Project or the building in which the
Premises are located and Tenant shall not overload the floor capacity of the
Project. No machinery, apparatus or other appliance shall be used or operated
in or on the Premises that will in any manner injure, vibrate or shake the
Premises. Landlord shall be the sole judge of whether such odor, noise, light
or vibration is such as to violate the provisions of this paragraph. No waste
materials or refuse shall be dumped upon or permitted to remain upon any part of
the Premises or outside of the building proper except in trash containers placed
inside exterior enclosures designated for that purpose by Landlord, or inside of
the building proper where designated; and no toxic or hazardous material shall
be disposed of through the plumbing or sewage system. No materials, supplies,
equipment, finished products or semi-finished products, raw materials or
articles of any nature shall be stored or permitted to remain outside of the
building proper. No retail sales shall be made on the Premises.
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7. COMPLIANCE WITH LAWS. Tenant shall, in connection with its use
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and occupation of the Premises, at its sole cost and expense, promptly observe
and comply with (i) all laws, statutes, ordinances and governmental rules,
regulations and requirements of federal, state, county, municipal and other
governmental authorities, now or hereafter in effect, which shall impose any
duty upon Landlord or Tenant with respect to the use, occupancy or alteration of
the Premises, (ii) with the requirements of any board of fire underwriters or
other similar body now or hereafter constituted and (iii) with any direction or
occupancy certificate issued pursuant to law by any public authority; provided,
however, that so such failure shall be deemed a breach of these provisions if
Tenant, immediately upon notification, commences to remedy or rectify said
failure. The judgment of any court of competent jurisdiction or the admission
of Tenant in any action against Tenant (whether or not Landlord is a party
thereto) that Tenant has violated any such law, statute, ordinance or
governmental rule, regulation, requirement, direction or provision, shall be
conclusive of that fact as between Landlord and Tenant. This lease shall remain
in full force and effect notwithstanding any loss of use of other effect on
Tenant's enjoyment of the Premises by reason of any governmental laws, statutes,
ordinances, rules, regulations and requirements now or hereafter in effect.
8. ALTERATIONS. Tenant shall not make or suffer to be made any
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alteration, addition or improvement to or of the Premises or any part thereof
(collectively referred to herein as "alterations") without (i) the prior written
consent of Landlord, which consent shall not be unreasonably withheld, (ii) a
valid building permit issued by the appropriate governmental authority and (iii)
otherwise complying with all applicable laws, regulations and requirements of
governmental agencies having jurisdiction and with the rules, regulations and
requirements of any board of fire underwriters or similar body. Landlord's
consent to any requested alteration shall not create on the part of Landlord or
cause Landlord to incur any responsibility or liability for such alteration's
compliance with all laws, rules and regulations of federal, .state, municipal,
county and other governmental authorities. Any alteration made by Tenant
(excluding moveable furniture and trade fixtures not attached to the Premises)
shall at once become a part of the Premises and belong to Landlord. Without
limiting the foregoing, all heating, lighting, electrical (including all wiring,
conduit, outlets, drops, buss ducts, main and subpanels), air conditioning,
partitioning, drapery, window covering and carpet installations made by Tenant,
regardless of how attached to the Premises, together with all other alterations
that have become an integral part of the building in which the Premises are a
part, shall upon installation be and become part of the Premises and belong to
Landlord and shall not be deemed trade fixtures. All such alterations shall
remain upon and be surrendered with the Premises at the termination of the
lease.
If Landlord consents to the making of any alteration by Tenant,
the same shall be made by Tenant at its sole risk, cost and expense and only
after Landlord's written approval of any contractor or person selected by Tenant
for that purpose. Tenant shall, if required by Landlord, secure at Tenant's cost
a completion and lien indemnity bond for such work. Upon the expiration or
sooner termination of the term, Landlord may, at its sole option, require
Tenant, at Tenant's sole cost and expense, to promptly remove any such
alteration made by Tenant and designated by Landlord to be removed, repair any
damage to the Premises caused by such removal and restore the Premises to its
condition existing prior to such alteration. Any moveable furniture and
equipment or trade fixtures remaining on the Premises at the expiration or other
termination of the term shall become the property of Landlord unless promptly
removed by Tenant.
If during the term any alteration, addition or change of the
Premises is required by law, regulation, ordinance or order of any public
authority, Tenant, at its sole cost and expense, shall promptly make the same.
If during the term any alterations, additions or changes to the Common Area or
to the Project or building in which the Premises is located is required by law,
regulation, ordinance or order of any public or quasi-public authority, and it
is impractical, in Landlord's judgment, for the affected tenants to individually
make such alterations, additions or changes, Landlord shall make such
alterations, additions or changes and the cost thereof shall be a direct expense
and Tenant shall pay its percentage share of said cost to Landlord as provided
in paragraphs 4 and 5.
9. REPAIR AND MAINTENANCE. Subject to paragraph 16, Landlord shall
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maintain and keep in good repair the Common Area (including, without limitation,
the Greylands Mansion) and the mechanical, electrical,, plumbing and sewage
systems, windows, window frames, plate glass, glazing, elevators, gutters and
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down-spouts, the roof, exterior walls, structural elements and the heating,
ventilating and air conditioning systems (except special air conditioning of
Tenant's computer room(s) as set forth below) of the Premises and the Project;
provided, however, that Landlord shall not be required to perform repairs made
necessary by the negligence or abuse of such improvements or property by Tenant
or its employees, agents, subtenants or permitees. The cost of all maintenance
and repairs made by Landlord pursuant to this paragraph 9, including without
maintenance contracts and supplies, materials, equipment and tools used in such
repairs and maintenance, shall be direct expenses and Tenant shall pay its
percentage share of such costs to Landlord as provided in paragraphs 4 and 5.
By entry hereunder Tenant accepts the Premises as being in good
land sanitary order, condition and repair (excepting only "punch list items").
Subject to paragraphs 16 and 21, and excepting repairs and maintenance required
by this paragraph 9 to be made by Landlord, Tenant at its cost shall keep the
Premises and every part thereof in good and sanitary order, condition and repair
and Tenant shall be solely responsible for the cost and maintenance of, and
electricity supplied to, any special air conditioning for Tenant's computer
facilities. Further, Tenant shall repair (or, at the option of Landlord,
reimburse Landlord if Landlord elects to repair) damage to improvements or other
property located on or about the Project where such repairs are made necessary
by the negligence of or abuse of such improvements or other property by Tenant
or its employees, agents, subtenants or permitees. Tenant waives all rights
under and benefit of California Civil Code Sections 1932(1), 1941, and 1942 and
under any similar law, statute or ordinance now or hereafter in effect.
10. LIENS. Tenant shall keep the Premises and the Project free from
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any liens arising out of any work performed, materials furnished or obligations
incurred by Tenant, its agents, employees or contractors. Upon Tenant's receipt
of a preliminary twenty (20) day notice filed by a claimant pursuant to
California Civil Code Section 3097, Tenant shall immediately provide Landlord
with a copy of such notice. Should any lien be recorded against the Project,
Tenant shall give immediate notice of such lien to Landlord. In the event that
Tenant shall not, within ten (10) days following the imposition of such lien,
cause the same to be released of record, Landlord shall have, in addition to all
other remedies provided herein and by law, the right, but no obligation, to
cause the same to be released by such means as it shall deem proper, including
payment of the claim giving rise to such lien. All sums paid by Landlord for
such purpose, and all expenses (including attorneys' fees) incurred by it in
connection therewith, shall be payable to Landlord by Tenant on demand with
interest at the rate of twelve percent (12%) per annum or the maximum rate
permitted by law, whichever is less. Landlord shall have the right at all times
to post and keep posted on the Premises any notices permitted or required by
law, or which Landlord shall deem proper for the protection of Landlord, the
Premises and the Project and any other party having an interest therein, from
mechanics' and materialmen's liens and like liens. Tenant shall give Landlord
at lease fifteen (15) days' prior notice of the date of commencement of any
construction on the Premises in order to permit the posting of such notices. In
the event Tenant is required to post an improvement bond with a public agency in
connection with any work performed by Tenant on or to the Premises, Tenant shall
include Landlord as an additional obligee.
11. INSURANCE. Tenant, at its sole cost and expense, shall keep in
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force during the term (i) commercial general liability and property damage
insurance with a combined single limit of at least $2,000,000 per occurrence
insuring against personal or bodily injury to or death of persons occurring in,
on or about the Premises or Project and any and all liability of the insureds
with respect to the Premises or arising out of Tenant's maintenance, use or
occupancy of the Premises and all areas appurtenant thereto, (ii) direct
physical loss-special insurance covering the leasehold improvements in the
Premises and all of Tenant's equipment, trade fixtures, appliances, furniture,
furnishings, and personal property from time to time located in, on or about the
Premises, with coverage in the amount of the full replacement cost thereof, and
(iii) Workers' Compensation Insurance as required by law, together with
employers' liability coverage with a limit of not less than $1,000,000 for
bodily injury for each accident and for bodily injury by disease for each
employee. Tenant's commercial general liability and property damage insurance
and Tenant's Workers' Compensation Insurance shall be endorsed to provide that
said insurance shall not be canceled or reduced except upon at least thirty (30)
days prior written notice to Landlord. Further, Tenant's commercial general
liability and property damage insurance shall be primary and shall be endorsed
to provide that Landlord and McCandless Management Corporation, and their
respective partners, officers, directors and employees and such other persons or
entities as directed from time to time by Landlord shall be named as additional
insureds for all liability using ISO Bureau Form CG20111185 (or a successor
form) or such other endorsement form reasonably acceptable to Landlord; shall
contain a severability of interest clause and a cross-
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liability endorsement; shall be endorsed to provide that the limits and
aggregates apply per location using ISO Bureau Form CG25041185 (or a successor
form) or such other endorsement form reasonably acceptable to Landlord; and
shall be issued by an insurance company admitted to transact business in the
State of California and rated A+VIII or better in Best's Insurance Reports (or
successor report). The deductibles for all insurance required to be maintained
by Tenant hereunder shall be satisfactory to Landlord. The commercial general
liability insurance carried by Tenant shall specifically insure the performance
by Tenant of the indemnification provisions set forth in paragraph 17 of this
lease provided, however, nothing contained in this paragraph 11 shall be
construed to limit the liability of Tenant under the indemnification provisions
set forth in said paragraph 17. If Landlord or any of the additional insureds
named on any of Tenant's insurance, have other insurance which is applicable to
the covered loss on a contributing, excess or contingent basis, the amount of
the Tenant's insurance company's liability under the policy of insurance
maintained by Tenant shall not be reduced by the existence of such other
insurance. Any insurance carried by Landlord or any of the additional insureds
named on Tenant's insurance policies shall be excess and non-contributing with
the insurance so provided by Tenant.
Tenant shall, prior to the commencement of the term and at least
thirty (30) days prior to any renewal date on any insurance policy required to
be maintained by Tenant pursuant to this paragraph, provide Landlord with a
completed Certificate of Insurance, using a form acceptable in Landlord's
reasonable judgment, attaching thereto copies of all endorsements required to be
provided by Tenant under this lease. Tenant agrees to increase the coverage or
otherwise comply with changes in connection with said commercial general
liability, property damage, direct physical loss and Workers' Compensation
Insurance as Landlord or Landlord's lender may from time to time require.
Landlord shall obtain and keep in force a policy or policies of
insurance covering loss or damage to the Premises and Project, in the amount of
the full replacement value thereof, providing protection against those perils
included within the classification of "all risk" insurance, with increased cost
of reconstruction and contingent liability (including demolition), plus a policy
of rental income insurance in the amount of one hundred percent (100%) of twelve
(12) months' rent (including sums paid as additional rent) and such other
insurance as Landlord or Landlord's lender may from time to time require.
Landlord may but shall not be obligated to obtain flood and/or earthquake
insurance. Landlord shall have no liability to Tenant if Landlord elects not to
obtain flood and/or earthquake insurance. The cost of all such insurance
purchased by Landlord, plus any charges for deferred payment of premiums and the
amount of any deductible incurred upon any covered loss within the Project,
shall be direct expenses and Tenant shall pay to Landlord its percentage share
of such costs as provided paragraphs 4(b) and 5(b). Landlord, upon Tenant's
request from time to time, shall provide Tenant with a statement of the
deductible amounts. If the cost of insurance is increased due to Tenant's use
of the Premises, then Tenant shall pay to Landlord upon demand the full cost of
such increase.
Landlord and Tenant hereby mutually waive any and all rights of
recovery against one another for real or personal property loss or damage
occurring to the Premises or the Project, or any part thereof, or to any
personal property therein, from perils insured against under fire and extended
insurance and any other property insurance policies existing for the benefit of
the respective parties so long a such insurance permits waiver of liability and
contains a waiver of subrogation without additional premiums.
If Tenant does not take out and maintain insurance as required
pursuant to this paragraph 11, Landlord may, but shall not be obligated to, take
out the necessary insurance and pay the premium therefor, and Tenant shall repay
to Landlord promptly on demand, as additional rent, the amount so paid. In
addition, Landlord may recover from Tenant and Tenant agrees to pay, as
additional rent, any and all reasonable expenses (including attorney fees) and
damages which Landlord may sustain by reason of the failure of Tenant to obtain
and maintain such insurance, it being expressly declared that the expenses and
damages of Landlord shall not be limited to the amount of the premiums thereon.
12. UTILITIES AND SERVICE. Landlord shall furnish to the Premises
---------------------
and to the building in which the Premises are located, during reasonable hours
of generally recognized business days, to be determined by Landlord, and subject
to the rules and regulations of the Project, reasonable quantities of water and
electricity suitable for the intended use of the Premises and the building in
which the Premises are located, heat and air
8
<PAGE>
conditioning required in Landlord's judgment for the comfortable use and
occupation of the Premises, refuse collection and janitorial services. Tenant
agrees that at all time it will cooperate fully with Landlord and abide by all
regulations and requirements that Landlord may prescribe for the proper
functioning and protection of the heating, ventilating and air conditioning
systems. The cost of all utilities and services furnished by Landlord to the
Premises and to the building in which the Premise are located pursuant to this
paragraph 12 shall be direct expenses and Tenant shall pay its percentage share
of such costs to Landlord as provided in paragraphs 4 and 5. Notwithstanding any
provision to the contrary, a portion of the Premises consisting of approximately
thirteen thousand eight hundred thirteen (13,813) square feet, as specified in
Exhibit C hereto, shall be separately metered for electricity and Tenant shall
contract directly with the utility provider for electricity and directly pay all
electric bills to the provider for electricity provided to the separately
metered space.
Landlord shall not be liable for, and Tenant shall not be
entitled to any abatement or reduction of rent by reason of, Landlord's failure
to furnish any of the foregoing services when such failure is caused by
accident, breakage or repairs (provided Landlord acts in a commercially
reasonably manner to correct or repair the same, and provided such repair is
Landlord's responsibility and within Landlord's control), strikes, lockouts or
other labor disturbances or labor disputes of any character, governmental
moratoriums, regulations, or other governmental actions or by any other cause,
similar or dissimilar, beyond the reasonable control of Landlord. In addition,
Tenant shall not be relieved from the performance of any covenant or agreement
in this lease because of any such failure, and no eviction of Tenant shall
result from such failure.
Tenant will not, without the written consent of Landlord, which
consent shall not be unreasonably withheld, use any apparatus or device in the
Premises (including, without limitation, electronic data processing machines,
punch card machines or machines using current in excess of 200 volts) which will
in any way increase the amount of electricity (excluding those areas of the
Premises that are separately metered for electricity and paid by Tenant
directly), water or air conditioning usually furnished or supplied to Premises
in the Project being used as general office space and other permitted uses as
specified in paragraph 1 of this lease or connect with electric current (except
through existing electrical outlets in the Premises) or with water pipes any
apparatus or device for the purpose of using electric current or water. If
Tenant shall require water or electric current in excess of that usually
furnished or supplied to premises in the Project being used as general office
space then Tenant shall first obtain the written consent of Landlord, which
consent shall not be unreasonably withheld, and Tenant shall pay to Landlord
promptly on demand, as additional rent, the full cost of such excess use.
Landlord may cause an electric current or water meter to be installed in the
Premises in order to measure the amount of electric current or water meter to be
installed in the Premises in order to measure the amount of electric current or
water consumed for any such excess use. The cost of any such meter and of the
installation, maintenance and repair thereof, and all charges for such excess
water and electric current consumed (as shown by meters and at the rates then
charged by the furnishing public utility) plus any additional expense incurred
by Landlord in keeping account of electric current or water so consumed, shall
be paid by Tenant, and Tenant agrees to pay Landlord therefor promptly upon
demand by Landlord. Whenever heat generating machines or equipment are used in
the Premises by Tenant which affect the temperature otherwise maintained by the
air conditioning system, Landlord shall have the right to install supplementary
air conditioning units in the Premises and the cost thereof, including the cost
of installation and the cost of operation and maintenance thereof, shall be paid
by Tenant to Landlord upon demand by Landlord.
13. TAXES AND OTHER CHARGES. All real estate taxes and assessments
-----------------------
and other taxes, fees and charges of every kind or nature, foreseen or
unforeseen, which are levied, assessed or imposed upon Landlord and/or against
the Premises, building, Common Area or Project or any part thereof by any
federal, state, county, regional, municipal or other governmental or quasi-
governmental authority or special district authority, together with any
increases therein whether resulting from increased rate and/or valuation shall
be a direct expense and Tenant shall pay its percentage share of such costs to
Landlord as provided in paragraphs 4 and 5. By way of illustration and not
limitation, "other taxes, fees and charges" as used herein include any and all
taxes payable by Landlord (other than state and federal personal or corporate
income taxes measured b the net income of Landlord from all sources, and premium
taxes), whether or not now customary or within the contemplation of the parties
hereto, (i) upon, allocable to, or measured by the rent payable
hereunder,including, without limitation, any gross income or excise tax levied
by the local, state or federal government with respect to the receipt of such
rent, (ii) upon or with respect to the possession, leasing, operation,
management, maintenance, alteration, repair, use or
<PAGE>
occupancy by Tenant of the Premises or any part thereof, (iii) upon or measured
by the value of Tenant's personal property or leasehold improvements located in
the Premises, (iv) upon this transaction or any document to which Tenant is a
party creating or transferring an interest or estate in the Premises, (v) upon
or with respect to vehicles, parking or the number of persons employed on or
about the Project, and (vi) any tax, license, franchise fee or other imposition
upon Landlord which is otherwise measured by or based in whole or in part upon
the Project or any portion thereof. If Landlord contests any such tax, fee or
charge, the cost and expense incurred by Landlord (including, but not limited
to, costs of attorneys and experts) thereby shall also be direct expenses and
Tenant shall pay its percentage share of such costs to Landlord as provided in
paragraphs 4 and 5. In the event the Premises and any improvements installed
therein by Tenant or Landlord are valued by the assessor disproportionately
higher than those of other tenants in the building or Project or in the event
alterations or improvements are made to the Premises, Tenant's percentage share
of such taxes, assessments, fees and/or charges shall be readjusted upward
accordingly and Tenant agrees to pay such readjusted share. Such determination
shall be made by Landlord from the respective valuations assigned in the
assessor's work sheet or such other information as may be reasonably available
and Landlord's determination thereof shall be conclusive.
Tenant agrees to pay, before delinquency, any and all taxes
levied or assessed during the term hereof upon Tenant's equipment, furniture,
fixtures and other personal property located in the Premises, including
carpeting and other property installed by Tenant notwithstanding that such
carpeting or other property has become a part of the Premises. If any of
Tenant's personal property shall be assessed with the Project, Tenant shall pay
to Landlord, as additional rent, the amounts attributable to Tenant's personal
property within ten (10) days after receipt of a written statement from Landlord
setting forth the amount of such taxes, assessments and public charges
attributable to Tenant's personal property.
14. ENTRY BY LANDLORD. Landlord reserves, and shall at all
-----------------
reasonable times have, the right to enter the Premises (i) to inspect the
Premises, (ii) to supply services to be provided by Landlord hereunder, (iii) to
show the Premises to prospective purchasers, lenders or tenants and to put, `for
sale' or `for lease' signs thereon, (iv) to post notices required or allowed by
this lease or by law, (v) to alter, improve or repair the Premise and any
portion of the Project, and (vi) to erect scaffolding and other necessary
structures in or through the Premises or the Project where reasonably required
by the character of the work to be performed. Landlord shall not be liable in
any manner for any inconvenience, disturbance, loss of business, nuisance or
other damage arising from Landlord's entry and acts pursuant to this paragraph
and Tenant shall not be entitled to an abatement or reduction of rent if
Landlord exercises any rights reserved in this paragraph. For each of the
foregoing purposes, Landlord shall at all times have and retain a key with which
to unlock all of the doors in, on, and about the Premises (excluding Tenant's
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 said doors in an emergency in order to obtain entry to the
Premises. Any entry by Landlord to the Premises pursuant to this paragraph
shall not under any circumstances 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.
Notwithstanding the foregoing, and except in the case of
emergency, Landlord shall give Tenant at least twenty-four (24) hours prior
notice of its intent to enter the Premises, and such entry shall be subject to
the reasonable security requirements of Tenant, including the reasonable
designation of certain areas of the Premises as security areas which are
required to maintain confidentiality of Tenant's business matters and reasonable
limitations on Landlord's access thereto as mutually agreed. Tenant shall not
unreasonably deny Landlord access to any area of the Premises. In the course of
such entry, Landlord shall not unreasonably interfere with Tenant's use of the
Premises unless reasonably required in order for Landlord to fulfill its
obligations under the lease.
15. COMMON AREA; PARKING. Subject to the terms and conditions of
--------------------
this lease and such rules and regulations as Landlord may from time to time
prescribe, Tenant and Tenant's employees and invitees shall, in common with
other occupants of the Project, and their respective employees, invitees and
customers and others entitled to the use thereof, have the nonexclusive right to
use the access roads, parking areas and facilities within the Project provided
and designated by Landlord for the general use and convenience of the occupants
of the Project (which areas and facilities shall include, but not be limited to,
common lobbies, corridors,
10
<PAGE>
restrooms and showers, part or all of the Greylands Mansion and the .37 acre
parcel upon which it is located, telephone, electrical, janitorial and
mechanical rooms, elevators, stairwells, vertical duct shafts, sidewalks,
parking, refuse, landscape and plaza areas, roofs, building exteriors,
electrical, mechanical, plumbing and HVAC systems and storage areas) which areas
and facilities are referred to herein as "Common Area." This right shall
terminate upon the termination of this lease.
Landlord reserves the right from time to time to make changes in
the shape, size, location, amount and extent of the Common Area. Landlord shall
also have the right at any time to change the name, number or designation by
which the Project is commonly known. Landlord further reserves the right to
promulgate such non-discriminatory rules and regulations relating to the use of
the Common Area, and any part thereof, as Landlord may deem appropriate for the
best interests of the occupants of the Project. The rules and regulations shall
be binding upon Tenant upon delivery of a copy of them to Tenant and Tenant
shall abide by them and cooperate in their observance. Such rules and
regulations may be amended by Landlord from time to time, with or without
advance notice.
Tenant acknowledges that Landlord (as tenant) has leased the
Greylands Mansion for a term which will expire on February 1, 1995 and that
Landlord has no right to extend the term of such lease. Unless Landlord and the
owner of the Greylands Mansion enter into an agreement to extend the term of
such lease for the Greylands Mansion, Tenant acknowledges that, subsequent to
February 1, 1995, the Common Area shall include no part of the Greylands Mansion
and the .37 acre parcel upon which it is located.
Tenant shall have the nonexclusive use of one hundred six (106)
parking spaces in the Common Area as designated from time to time by Landlord.
Landlord reserves the right at its sole option to assign and label parking
spaces, but it is specifically agreed that Landlord is not responsible for
policing any such parking spaces. Tenant shall not at any time park or permit
the parking of Tenant's trucks or other vehicles, or the trucks or other
vehicles of others, adjacent to loading areas so as to interfere in any way with
the use of such areas; nor shall Tenant at any time park or permit the parking
of Tenant's vehicles or trucks, or the vehicles or trucks of Tenant's suppliers
or others, in any portion of the Common Area not designated by Landlord for such
use by Tenant. Tenant shall not park or permit any inoperative vehicle or
equipment to be parked on any portion of the Common Area.
Landlord shall operate, manage and maintain the Common Area. The
manner in which the Common Area shall be operated, managed and maintained and
the expenditures for such operation, management and maintenance shall be at the
sole discretion of Landlord. The cost of such maintenance, operation and
management, including but not limited to landscaping, repair of paving, parking
lots and sidewalks, the Greylands Mansion (including interior repair and
maintenance; janitorial services; furniture rental or depreciation charges; and
lease payments charged to the Project by the owner of the Greylands Mansion),
security and exterminator services and salaries and employee benefits (including
union benefits) of on-site and accounting personnel engaged in such maintenance
and operations management, shall be a direct expense and Tenant shall pay to
Landlord its percentage share of such cost as provided in paragraphs 4 and 5.
16. DAMAGE BY FIRE; CASUALTY. In the event the Premises are damaged
------------------------
by any casualty which is covered under an insurance policy required to be
maintained by Landlord pursuant to paragraph 11, Landlord shall be entitled to
the use of all insurance proceeds and shall repair such damage as soon as
reasonably possible and this lease shall continue in full force and effect.
In the event the Premises are damaged by any casualty not covered
under an insurance policy required to be maintained pursuant to paragraph 11,
Landlord may, at Landlord's option, either (i) repair such damage, at Landlord's
expense, as soon as reasonably possible, in which event this lease shall
continue in full force and effect, or (ii) give written notice to Tenant within
thirty (30) days after the date of the occurrence of such damage of Landlord's
intention to cancel and terminate this lease as of the date of the occurrence of
the damage; provided, however, that if such damage is caused by an act or
omission of Tenant or its agent, servants or employees, then Tenant shall repair
such damage promptly at its sole cost and expense. In the event Landlord elects
to terminate this lease pursuant hereto, Tenant shall have the right within ten
(10) days after receipt of the required notice to notify Landlord in writing of
Tenant's intention to repair such damage at Tenant's expense, without
<PAGE>
reimbursement from Landlord, in which event this lease shall continue in full
force and effect and Tenant shall proceed to make such repairs as soon as
reasonably possible. If Tenant does not give such notice within the ten (10) day
period, this lease shall be canceled and terminated as of the date of the
occurrence of such damage. Under no circumstances shall Landlord be required to
repair any injury or damage to (by fire or other cause), or to make any
restoration or replacement of, any of Tenant's personal property, trade fixtures
or property leased from third parties, whether or not the same is attached to
the Premises.
If the Premises are totally destroyed during the term from any
cause (including any destruction required by any authorized public authority),
whether or not covered by the insurance required under paragraph 11, this lease
shall automatically terminate as of the date of such total destruction;
provided, however, that if the Premises can reasonably and lawfully be repaired
or restored within twelve (12) months of the date of destruction to
substantially the condition existing prior to such destruction and if the
proceeds of the insurance payable to the Landlord by reason of such destruction
are sufficient to pay the cost of such repair or restoration, then said
insurance proceeds shall be so applied, Landlord shall promptly repair and
restore the Premises and this lease shall continue, without interruption, in
full force and effect. If the Premises are totally destroyed during the last
twelve (12) months of the term, Landlord may at Landlord's option cancel and
terminate this lease as of the date of occurrence of such damage by giving
written notice to Tenant of Landlord's election to do so within thirty (30) days
after the occurrence of such damage.
If the Premises are partially or totally destroyed or damaged and
Landlord or Tenant repair the pursuant to this lease, the rent payable hereunder
for the period during which such damage and repair continues shall be abated
only in proportion to the square footage of the Premises rendered untenantable
to Tenant by such damage or destruction. Tenant shall have no claim against
Landlord for any damage, loss or expense suffered by reason of any such damage,
destruction, repair or restoration. The parties waive the provisions of
California Civil Code Sections 1932(2) AND 1933(4) (which provisions permit the
termination of a lease upon destruction of the leased premises), and hereby
agree that the provisions of this paragraph 16 shall govern in the event of the
destruction of the Premises.
17. INDEMNIFICATION. Landlord shall not be liable to Tenant and
---------------
Tenant hereby waives all claims against Landlord for any injury to or death of
any person or damage to or destruction of property in or about the Premises or
the Project by or from any cause whatsoever except the failure of Landlord to
perform its obligations under this lease where such failure has persisted for an
unreasonable period of time after notice of such failure. Without limiting the
foregoing, Landlord shall not be liable to Tenant for any injury to or death of
any person or damages to or destruction of property by reason of, or arising
from, any latent defect in the Premises or Project or the act or negligence of
any other tenant of the Project. Tenant shall immediately notify Landlord of
any defect in the Premises or Project.
Except as to injury to persons or damage to property the
principal cause of which is the failure by Landlord to observe any of the terms
and conditions of this lease, Tenant shall hold Landlord harmless from and
indemnify and defend Landlord against any claim, liability, loss, damage or
expense (including attorney fees) arising out of any injury to or death of any
person or damage to or destruction of property occurring in, on or about the
Premises from any cause whatsoever or on account of the use, condition,
occupational safety or occupancy of the Premises. Tenant shall further hold
Landlord harmless from and indemnify and defend Landlord against any claim,
liability, loss, damage or expense (including attorney fees) arising (i) from
Tenant's use of the Premises or from the conduct of its business or from any
activity or work done, permitted or suffered by Tenant or its agents or
employee, in or about the Premises or Project, (ii) out of the failure of Tenant
to observe or comply with Tenant's obligation to observe and comply with laws or
other requirements as set forth in paragraph 7, (iii) by reason of Tenant's use,
handling, storage, or disposal of toxic or hazardous materials or waste, (iv) by
reason of any labor or service performed for, or materials used by or furnished
to, Tenant or any contractor engaged by Tenant with respect to the Premises, or
(v) from any other act, neglect, fault or omission of Tenant or its agents or
employee.
The provisions of this paragraph 17 shall survive the expiration
or earlier termination of this lease.
12
<PAGE>
18. ASSIGNMENT AND SUBLETTING. Tenant shall not voluntarily assign,
-------------------------
encumber or otherwise transfer its interest in this lease or in the Premises, or
sublease all or any part of the Premises, or allow any other person or entity to
occupy or use all or any part of the Premises, without first obtaining
Landlord's written consent and otherwise complying with the requirements of this
paragraph 18. Any assignment, encumbrance or sublease without Landlord's
consent, shall constitute a default.
If Tenant desires to sublet or assign all or any portion of the
Premises, Tenant shall give Landlord written notice thereof, specifying the
projected commencement date of the proposed sublet or assignment (which date
shall be not less than thirty (30) days or more than ninety (90) days after the
date of Landlord's receipt of such notice), the portions of the Premises
proposed to be sublet or assigned, the terms and conditions of the proposed
assignment or sublease (including the rent to be paid by the proposed assignee
or subtenant) and the name, address and telephone number of the proposed
assignee or subtenant. Tenant shall further provide Landlord with such other
information concerning the proposed assignee or subtenant as requested by
Landlord. For a period of thirty (30) days after Landlord's receipt of Tenant's
written notice, Landlord shall have the option, exercisable by delivering
written notice to Tenant to terminate this lease as of the date specified in
Landlord's written notice to Tenant, which shall not be less than thirty (30)
days nor more than ninety (90) days after the date of Landlord's written notice
to Tenant. If Landlord exercises its option to terminate this lease as provided
in the foregoing sentence, Landlord may, if it so elects, enter into al new
lease for the Premises or any portion thereof with the proposed assignee or
subtenant or any other third party on such terms as Landlord and such proposed
assignee or subtenant or other third arty may agree; in such event, Tenant shall
not be entitled to any portion of the profit, if any, which Landlord may realize
on account of such termination and reletting.
If Landlord does not elect to terminate this lease as provided
hereinabove in this paragraph 18 and if Landlord consents in writing to the
proposed assignment or sublet, Tenant shall be free to assign or sublet all or a
portion of the Premises subject to the following conditions: (i) any sublease
shall be on the same terms set forth in the notice given to Landlord; (ii) no
sublease shall be valid and no subtenant shall take possession of the sublet
Premises until an executed counterpart of such sublease has been delivered to
Landlord; (iii) no subtenant shall have a further right to sublet without
Landlord's prior written consent (which consent shall not be unreasonably
withheld) and on the terms and conditions specified herein for subleases and, in
any event such sub-sublease shall not extend beyond the initial term of this
lease; (iv) fifty percent (50%) of any sums or other economic consideration
received by Tenant as a result of such assignment or sublet (except rental or
other payments received which are attributable to the amortization over the term
of this lease of the coat of leasehold improvements constructed for such
assignees or subtenant, and brokerage fees) whether denominated rentals or
otherwise, which exceed, in the aggregate, the total sums which Tenant is
obligated to pay Landlord under this lease (prorated to reflect obligations
additional rent under this lease without affecting or reducing any other
obligation of Tenant hereunder; (v) no sublet or assignment shall release Tenant
or Tenant's obligation or alter the primary liability or Tenant to pay the rent
and to perform all other obligations to be performed by Tenant hereunder; and
(vi) any assignee subtenant must expressly agree to assume and perform all of
the covenants and conditions of Tenant under this lease. Tenant shall pay to
Landlord promptly upon demand, as additional rent, Landlord's actual attorneys'
fees and other coats incurred for reviewing, processing or documenting any
requested assignment or sublease, whether or not Landlord's consent is granted.
Tenant shall not be entitled to assign this lease or sublease all or any part of
the Premises ( and any attempt to do so shall be voidable by Landlord) during
any period in which Tenant is in default under this lease.
If Tenant is a partnership, a withdrawal or change, voluntary or
involuntary or by operation of law, of any general partner or the dissolution of
the partnership shall be deemed an assignment of this merger, consolidation or
other reorganization of Tenant, or the sale or other transfer of a controlling
percentage of the capital stock of Tenant, or the sale of more than fifty
percent (50%) of the value of Tenant's assets, shall be an assignment of this
lease subject to all the conditions of this paragraph 18. The term "controlling
percentage" means the ownership of, and the right to vote, stock possessing more
than 50% of the total combined voting power of all classes of Tenant's capital
stock issued, outstanding and entitled to vote. This paragraph shall not apply
if Tenant is a corporation the stock of which is traded through an exchange.
<PAGE>
The acceptance of rent 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 sublet shall not be deemed consent to any subsequent assignment or
sublet. 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
sublets 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.
No interest of Tenant in this lease shall be assignable by
operation of law (including, without limitation, the transfer of this lease by
testacy or intestacy). Each of the following acts shall be considered an
involuntary assignment: (i) if Tenant is or becomes bankrupt or insolvent, makes
an assignment for the benefit of creditors or institutes a proceeding under the
Bankruptcy Act in which Tenant is the bankrupt; or, if Tenant is a partnership
or consists of more than one person or entity, if any partner of the partnership
or other person or entity is or becomes bankrupt or insolvent, or makes an
assignment for the benefit of creditors; (ii) if a writ of attachment of
execution is levied on this lease; or (iii) if, in any proceeding or action to
which Tenant is a party, a receiver is appointed with authority to take
possession of the Premises. An involuntary assignment shall constitute a default
by Tenant and Landlord shall have the right to elect to terminate this lease, in
which case this lease shall not be treated as an asset of Tenant.
Tenant immediately and irrevocably assigns to Landlord, as
security for Tenant's obligations under this lease, all rent from any subletting
of all or part of the Premises as permitted by this lease, and Landlord, as
assigns and as attorney-in-fact for Tenant, or a receiver of Tenant appointed on
Landlord's application, may collect such rent and apply it toward Tenant's
obligations under this lease; except that, until the occurrence of an act of
default by Tenant, Tenant shall have the right to collect such rent subject to
promptly forwarding to Landlord any portion thereof to which Landlord is
entitled pursuant to this paragraph 18.
19. DEFAULT. The occurrence of any of the following shall constitute
-------
a default by Tenant: (i) failure of Tenant to pay any rent or other sum payable
hereunder within five (5) days after such sum(s) becomes due; (ii) abandonment
of the Premises (Tenant's failure to occupy and conduct business in the Premises
for fourteen (14) consecutive days shall constitute an abandonment of the
Premises); or (iii) failure of Tenant to perform any other term, covenant or
condition of this lease if the failure to perform is not cured within thirty
(30) days after notice thereof has been given to Tenant (provided that if such
default cannot reasonably be cured within thirty (30) days, Tenant shall not be
in default if Tenant commences to cure such failure to perform within the thirty
(30) day period and diligently and in good faith continues to cure the failure
to perform). The notice referred to in clause (iii) above shall specify the
failure to perform and the applicable lease provision and shall demand that
Tenant perform the provisions of this lease within the applicable period of time
and no such notice shall be deemed a forfeiture or termination of this lease
unless Landlord so elects in the notice. No notice shall be required in the
event of abandonment or vacation of the Premises.
In addition to the above, the occurrence of any of the following
events shall also constitute a default by Tenant: (i) Tenant fails to pay its
debts as they become due or admits in writing its inability to pay its debts, or
makes a general assignment for the benefit of creditors (for purposes of
determining whether Tenant is not paying its debts as they become due, a debt
shall be deemed overdue upon the earliest to occur of the following: the earlier
of the date on which any action or proceeding therefor is commenced; or the date
on which a formal notice of default or demand has been sent); (ii) Tenant fails
to furnish to Landlord a schedule of Tenant's aged accounts payable within ten
(10) days after Landlord's written request; (iii) any financial statements given
to Landlord by Tenant, any assignee of Tenant, subtenant of Tenant, any
guarantor of Tenant, or successor in interest of Tenant (including, without
limitation, any schedule of Tenant's aged accounts payable) are materially
false; or (iv) any financial statement or other financial information furnished
by Tenant pursuant to the provisions of this lease or at the request of Landlord
evidences that either Tenant's net worth or its net assets are at least twenty-
five percent (25%) less than the net worth or net assets shown in either the
immediately prior financial statement or the financial statement of Tenant
furnished at the time of execution of this lease, and Tenant fails to furnish
promptly to Landlord, after notice from Landlord to Tenant, an additional
security deposit in cash equivalent to the aggregate of
14
<PAGE>
the basic rent and common area charges (without regard to any rent abatement)
payable hereunder for the twelve (12) full calendar months immediately preceding
such notice. At any time during the term of this lease Landlord, at Landlord's
option, shall have the right to receive from Tenant, upon Landlord's request, a
current annual balance sheet for Landlord's review. If the balance sheet shows a
negative net worth, Landlord may terminate this lease by giving Tenant sixty
(60) days prior written notice.
In the event of a default by Tenant, then Landlord, in addition
to any other rights and remedies of Landlord at law or in equity, shall have the
right either to terminate Tenant's right to possession of the Premises (and
thereby terminate this lease) or, from time to time and without termination this
lease, to relet the Premises or any party thereof for the account and in the
name of Tenant for such term an on such terms and conditions as Landlord in its
sole discretion may deem advisable, with the right to make alterations and
repairs to the Premises.
Should Landlord elect to keep this lease in full force and
effect, Landlord shall have the right to enforce all of Landlord's rights and
remedies under this lease, including but not limited to the right to recover and
to relet the Premises and such other rights and remedies as Landlord may have
under California Civil Code Section 1951.4 (or successor Code section) or any
other California statute. If Landlord relets the Premises, then Tenant shall pay
to Landlord, as soon as ascertained, the costs and expenses incurred by Landlord
in such reletting and in making alterations and repairs. Rentals received by
Landlord from such reletting shall be applied (i) to the payment of any
indebtedness due hereunder, other than basic rent and direct expenses, from
Tenant to Landlord; (ii) the payment of the cost of any repairs necessary to
return the Premises to good condition normal wear and tear excepted, including
the cost of alterations and the cost of storing any of Tenant's property left on
the Premises at the time of reletting; and (iii) to the payment of basic rent or
direct expenses due and unpaid hereunder. The residue, if any shall be held by
Landlord and applied in payment of future rent or damages in the event of
termination as the same may become due and payable hereunder and the balance, if
any at the end of the term of this lease shall be paid to Tenant. Should the
basic rent and direct expenses received from time to time from such reletting
during any month be less than that agreed to be paid during that month by Tenant
hereunder, Tenant shall pay such deficiency to Landlord. Such deficiency shall
be calculated and paid monthly. No such reletting of the Premises by Landlord
shall be construed as an election on its part to terminate this lease unless a
notice of such intention is given to Tenant or unless the termination hereof is
decreed by a court of competent jurisdiction. Notwithstanding any such reletting
without termination, Landlord may at any time thereafter elect to terminate this
lease for such previous breach, provided it has not been cured.
Should Landlord at any time terminate this lease for any breach,
in addition to any other remedy it may have, it shall have the immediate right
of entry and may remove all persons and property from the Premises and shall
have all the rights and remedies of a Landlord provided by California Civil Code
Section 1951.2 or any successor code section. Upon such termination, in addition
to all its other rights and remedies, Landlord shall be entitled to recover from
Tenant all damages it may incur by reason of such breach, including the cost of
recovering the Premises and including (i) the worth at the time of award of the
unpaid rent which had been earned at the time of termination; (ii) the worth at
the time of award of the amount by which the unpaid rent which would have been
earned after termination until the time of award exceeds the amount of such
rental loss that Tenant proves could have been reasonably avoided; (iii) the
worth at the time of the award of the amount by which the unpaid rent for the
balance of the term after the time of award exceeds the amount of such rental
loss that Tenant proves could be reasonably avoided; (iv) any other amount
necessary to compensate Landlord for all the detriment proximately caused by
Tenant's failure to perform its obligations under this lease or which in the
ordinary course of events would be likely to result therefrom. The "worth at the
time of award" of the amounts referred to in (i) and (ii) above is computed by
allowing interest at the rate of twelve percent (12%) per annum. The "worth at
the time of award" of the amount referred to in (iii) above shall be computed by
discounting such amount at the discount rate of the federal reserve bank of San
Francisco at the time of award plus one percent (1%). Tenant waives the
provisions of Section 1179 of the California Code of Civil Procedure (which
Section allows Tenant to petition a court of competent jurisdiction for relief
against forfeiture of this lease). Property removed from the Premises may be
stored 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 by a period of thirty
(30)
<PAGE>
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 that Landlord, in its sole
discretion, may deem proper, without notice to or demand upon Tenant.
20. LANDLORD'S RIGHT TO CURE TENANT'S DEFAULT. Landlord, at any time
-----------------------------------------
after Tenant commits a default, may, but shall not be obligated to, cure the
default at Tenant's cost. If Landlord at any time, by reason of Tenant's
default, pays any sum or does any act that requires the payment of any sum, the
sum paid by Landlord shall be due immediately from Tenant to Landlord and shall
bear interest at the rate of twelve percent (12%) per annum or the maximum rate
permitted by law, whichever is less, from the date the sum is paid by Landlord
until Landlord is reimbursed by Tenant. Amounts due Landlord hereunder shall be
additional rent.
21. EMINENT DOMAIN. If all or any part of the Premises shall be
--------------
taken by any public or quasi-public authority under the power of eminent domain
or conveyance in lieu thereof, this lease shall terminate as to any portion of
the Premises so taken or conveyed on the date when title vests in the condemnor,
and Landlord shall be entitled to any payments, income, rent, award or any
interest therein whatsoever which may be paid or made in connection with such
taking or conveyance. Tenant shall have no claim against Landlord or otherwise
for the value of any unexpired term of this lease. Notwithstanding the
foregoing, Tenant shall be entitled to any compensation for depreciation to and
cost of removal of Tenant's equipment and fixtures and any compensation for its
relocation expenses necessitated by such taking, but in each case only to the
extent the condemning authority makes a separate award therefor or specifically
identifies a portion of the award as being therefor. Each party waives the
provisions of Section 1265.130 of the California Code of Civil procedure (which
section allows either party to petition the Superior Court to terminate this
lease in the event of a partial taking of the Premises).
If any action or proceeding is commenced for such taking of the
Premises or any portion thereof or of any other space in the Project, or if
Landlord is advised in writing by any entity or body having the right of power
of condemnation of its intention to condemn the Premises or any portion thereof
or of any other space in the Project, and Landlord shall decide to discontinue
the use and operation of the Project or decide to demolish, alter or rebuild the
Project, then Landlord shall have the right to terminate this lease by giving
Tenant written notice thereof within sixty (60) days of the earlier of the date
of Landlord's receipt of such notice of intention to condemn or the commencement
of said action or proceeding. Such termination shall be effective as of the
last day of the calendar month next following the month in which such notice is
given or the date on which title shall vest in the condemnor, whichever occurs
first.
In the event of a partial taking, or conveyance in lieu thereof,
of the Premises and fifty percent (50%) or more of the number of square feet in
the Premises are taken then Tenant may terminate this lease. Any election by
Tenant to so terminate shall be by written notice given to Landlord within sixty
(60) days from the date of such taking or conveyance and shall be effective on
the last day of the calendar month next following the month in which such notice
is given or the date on which title shall vest in the condemnor, whichever
occurs first.
If a portion of the Premises is taken by power of eminent domain
or conveyance in lieu thereof and neither Landlord nor Tenant terminates this
lease as provided above, then this lease shall continue in full force and effect
as to the part of the Premises not so taken or conveyed and all payments of rent
shall be apportioned as of the date of such taking or conveyance so that
thereafter the amounts to be paid by Tenant shall be in the ratio that the area
of the portion of the Premises not so taken bears to the total area of the
Premises prior to such taking.
22. NOTICE AND COVENANT TO SURRENDER. On the last day of the term or
--------------------------------
on the effective date of any earlier termination, Tenant shall surrender to
Landlord the Premises in its condition existing as of the commencement of the
term and, except as otherwise provided by Landlord pursuant to the terms of
paragraph 8 of this lease, all of the improvements and alterations made to the
Premises in their condition existing as of the date of completion of
construction and/or installation (normal wear and tear excepted), with all
originally painted interior walls washed or repainted if marked or damaged,
interior vinyl covered walls cleaned and repaired or replaced if marked or
damaged, all carpets shampooed and cleaned, and all floors cleaned and waxed),
all to the reasonable satisfaction of Landlord. On or prior to the last day of
the term or the effective date of any earlier termination, Tenant shall
surrender to Landlord the Premises in its condition existing as of the
commencement of the term and, except as otherwise provided by Landlord pursuant
to the terms of paragraph 8 of this lease, all of the improvements
16
<PAGE>
and alternations made to the Premises in their condition existing as of the date
of completion of construction and/or installation (normal wear and tear
excepted), with all originally painted interior walls washed or repainted if
marked or damaged, interior vinyl covered walls cleaned and repaired or replaced
if marked or damaged, all carpets shampooed and cleaned, and all floors cleaned
and waxed; all to the reasonable satisfaction of Landlord. On or prior to the
last day of the term or the effective date of any earlier termination, Tenant
shall remove all of Tenant's personal property and trade fixtures, together with
improvements or alternations that Tenant is obligated to remove pursuant to the
provisions of paragraph 8 of this lease, from the Premises, and all such
property not removed shall be deemed abandoned. In addition, on or prior top the
expiration or earlier termination of this lease, Tenant shall remove, at
Tenant's sole cost and expense, all telephone, other communication, computer and
any other cabling and wiring of any sort installed in the space above the
suspend ceiling of the Premises or anywhere else in the Premises and shall
promptly repair any damage to the suspend ceiling, lights, light fixtures, walls
and any other part of the Premises resulting form such removal.
If the Premises are not surrendered as required in this
paragraph, Tenant shall indemnify Landlord against all loss, liability and
expense (including, but not limited to, attorney fees) resulting from the
failure by Tenant in so surrendering the Premises, including, without
limitation, any claims made by any succeeding tenants. It is agreed between
Landlord and Tenant that the provisions of this paragraph 22 shall survive the
termination of this lease.
23. TENANT'S QUITCLAIM. At the expiration or earlier termination of
-------------------
this lease, Tenant shall execute, acknowledge and deliver to Landlord, within
ten (10) days after written demand from Landlord to Tenant, any quitclaim deed
or other document required to remove the cloud or encumbrance created by this
lease from the real property or which the Premises are a part. This obligation
shall survive said expiration to termination.
24. HOLDING OVER. Any holding over after the expiration or
------------
termination of this lease (with the written consent of Landlord delivered to
Tenant) shall be construed to be a tenancy from month to month at the monthly
rent, as adjusted, in effect on the date of such expiration or termination. All
provisions of this lease, except those pertaining to the term and any option to
extend, shall apply to the month to month tenancy. The provisions of this
paragraph are in addition to, and do not affect, Landlord's right of re-entry or
other rights hereunder or provided by law.
If Tenant shall retain possession of the Premises or any part
thereof without Landlord's consent following the expiration or sooner
termination of this lease for any reason, then Tenant shall pay to Landlord for
each day of such retention one hundred fifty percent (150%) of the amount of the
daily rental in effect during the last month prior to the date or such
expiration or termination. Tenant shall also indemnify and hold Landlord
harmless from any loss or liability resulting from delay by Tenant in
surrendering the Premises including without limitation, any claims made by any
succeeding tenant founded on such delay. Acceptance of rent by Landlord
following expiration or termination shall not constitute a renewal of this
lease, and nothing contained in this paragraph shall waive Landlord's right of
re-entry or any other right. Tenant shall be only a Tenant at sufferance,
whether or not Landlord accepts any rent from Tenant, while Tenant is holding
over without Landlord's written consent.
25. SUBORDINATION. Concurrently herewith Tenant shall execute a
-------------
Subordination, Non-Disturbance and Attornment Agreement, in the form attached
hereto as Exhibit F. In the event Landlord's title or leasehold interest is now
or hereafter encumbered in order to secure a loan to Landlord, Tenant shall, at
the request of Landlord or the lender, execute in writing an agreement
subordinating its rights under this lease to the lien of such encumbrance, or,
if so requested, agreeing that the lien of lender's encumbrance shall be or
remain subject and subordinate to the rights of Tenant under this lease. Tenant
hereby irrevocably appoints Landlord the attorney-in-fact of Tenant to execute,
deliver and record any such instrument or instruments for and in the name and on
behalf of Tenant. Notwithstanding any such subordination, Tenant's possession
under this lease shall not be disturbed if Tenant is not in default and so long
as Tenant shall pay all amounts due hereunder and otherwise observe and perform
all provisions of this lease. In addition, if in connection with any such loan
the lender shall request reasonable modifications in this lease as a condition
to such financing, Tenant will not unreasonably withhold, delay
<PAGE>
or defer its consent thereof, provided that such modifications do not increase
the obligations of Tenant hereunder or materially adversely affect the leasehold
interest hereby created or Tenant's rights hereunder.
26. CERTIFICATE OF ESTOPPEL. Each party shall, within five (5)
-----------------------
calendar days after request therefor, execute and deliver to the other party, in
recordable form, a certificate stating that the lease is unmodified and in full
force and effect, or in full force and effect as modified and stating the
modifications. The certificate shall also state the amount of the monthly rent,
the date to which monthly rent has been paid in advance, the amount of the
security deposit and/or prepaid monthly rent, and, if the request is made by
Landlord shall include such other items as Landlord or Landlord's lender may
reasonably request. Failure to deliver such certificate within such time shall
constitute a conclusive acknowledgement by the party failing to deliver the
certificate that the lease is in full force and effect and has not been modified
except as may be represented by the party requesting the certificate. Any such
certificate requested by Landlord may be conclusively relied upon by any
prospective purchaser or encumbrancer of the Premises or Project. Further,
within five (5) calendar days following written request made from time to time
by Landlord, Tenant shall furnish to Landlord current financial statement of
Tenant.
27. SALE BY LANDLORD. In the event the original Landlord hereunder,
----------------
or any successor owner of the Project or Premises, shall sell or convey the
Project or Premises, 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 and to look
solely to such new owner for performance of any and all such liabilities and
obligations.
28. ATTORNMENT TO LENDER OR THIRD PARTY. In the event the interest
-----------------------------------
of Landlord in the land and buildings in which the Premises are located (whether
such interest of Landlord is a fee title interest or a leasehold interest) is
encumbered by deed of trust, and such interest is acquired by a lender or any
other third party through judicial foreclosure or by exercise of a power of sale
at a private trustee's foreclosure sale, Tenant hereby agrees to release
Landlord of any obligation arising on or after any such foreclosure sale and to
attorn to the purchaser at any such foreclosure sale and to recognize such
purchaser as the Landlord under this lease.
29. DEFAULT BY LANDLORD. Landlord shall not be in default unless
-------------------
Landlord fails to perform obligations required of Landlord within a reasonable
time, but in no event earlier than thirty (30) days after written notice by
Tenant to Landlord and to the holder of any first mortgage or deed of trust
covering the Premises specifying wherein Landlord has failed to perform such
obligations; provided, however, that if the nature of Landlord's obligations is
such that more than thirty (30) days are required for performance, then Landlord
shall not be in default if Landlord commences performance within such thirty
(30) day period and thereafter diligently prosecutes the same to completion.
If Landlord is in default of this lease, Tenant's sole remedy
shall be to institute suit against Landlord in a court of competent
jurisdiction, and Tenant shall have no right to offset any sums expended by
Tenant as a result of Landlord's default against future rent and other sums due
and payable pursuant to this lease. If Landlord is in default of this lease, and
as a consequence Tenant recovers a money judgment against Landlord, the judgment
shall be satisfied only out of the proceeds of sale received on execution of the
judgment and levy against the right, title and interest of Landlord in the
Project of which the Premises are a part, and out of rent or other income from
such real property receivable by Landlord or out of the consideration received
by Landlord from the sale or other disposition of all or any part of Landlord's
right, title and interest in the Project of which the Premises are a part.
Neither Landlord nor any of the partners comprising the partnership designated
as Landlord shall be personally liable for any deficiency.
30. CONSTRUCTION CHANGES. It is understood that the description of
--------------------
the Premises and the location of ductwork, plumbing and other facilities therein
are subject to such changes as Landlord or Landlord's architect determines to be
desirable in the course of construction of the Premises and/or the improvements
constructed or being constructed therein, and no such changes or any changes in
plans for any other portions of the Project, shall affect this lease or entitle
Tenant to any reduction of rent hereunder or result in any liability of Landlord
to Tenant.
18
<PAGE>
31. MEASUREMENT OF PREMISES. Tenant understands and agrees that any
-----------------------
reference to square footage of the Premises is approximate only and includes all
interior partitions and columns, one-half of exterior walls, and one-half of the
partitions separating the Premises from the rest of the Project, and any outside
entry overhand, if applicable. Tenant waives any claim against Landlord
regarding the accuracy of any such measurement and agrees that there shall not
be any adjustment in basic rent or direct expenses or other amounts payable
hereunder by reason of inaccuracies in such measurement.
32. ATTORNEY FEES. If either party commences an action against the
-------------
other party arising out of or in connection with this lease, the prevailing
party shall be entitled to have and recover from the losing party all expenses
of litigation, including, without limitation, travel expenses, attorney fees,
expert witness fees, trial and appellate court costs, and deposition and
transcript expenses. If either party becomes a party to any litigation
concerning this lease or concerning the Premises or the Project, by reason of
any act or omission of the other party or its authorized representatives, the
party that causes the other party to become involved in the litigation shall be
liable to the other party for all expenses of litigation, including, without
limitation, travel expenses, attorney fees, expert witness fees, trial and
appellate court costs, and deposition and transcript expenses.
33. SURRENDER. The voluntary or other surrender of this lease or the
---------
Premises by Tenant, or a mutual cancellation of this lease, shall not work a
merger, and at the option of Landlord shall either terminate all or any existing
subleases or subtenancies or operate as an assignment to Landlord or all or any
such subleases or subtenancies.
34. WAIVER. No delay or omission in the exercise of any right or
------
remedy of Landlord on any default by Tenant shall impair such right or remedy or
be construed as a waiver. The receipt and acceptance by Landlord of delinquent
rent or other payments shall not constitute a waiver of any other default and
acceptance of partial payments shall not be construed as a waiver of the balance
of such payment due. No act or conduct of Landlord, including, without
limitation, the acceptance of keys to the Premises, shall constitute an
acceptance of the surrender of the Premises by Tenant before the expiration of
the term. Only a written notice from Landlord to Tenant shall constitute
acceptance of the surrender of the Premises and accomplish a termination of this
lease. Landlord's consent to or approval of any act by Tenant requiring
Landlord's consent or approval shall not be deemed to waive or render
unnecessary Landlord's consent to or approval of any subsequent act by Tenant.
Any waiver by Landlord of any default must be in writing and shall not be a
waiver of any other default concerning the same or any other provision of this
lease.
35. EASEMENTS; AIRSPACE RIGHTS. Landlord reserves the right to alter
--------------------------
the boundaries of the Project and grant easements and dedicate for public use
portions of the Project without Tenant's consent, provided that no such grant or
dedication shall interfere with Tenant's use of the Premises or otherwise cause
Tenant to incur cost or expense. From time to time, and upon Landlord's demand,
Tenant shall execute, acknowledge and deliver to Landlord, and in accordance
with Landlord's instructions, any and all documents, instruments, maps or plate
necessary to effectuate Tenant's covenants hereunder.
This lease confers no rights either with regard to the subsurface
of the land on which the Premises are located or with regard to airspace above
the ceiling of the Premises. Tenant agrees that no diminution or shutting off of
light or view by a structure which is or may be erected (whether or not by
Landlord) on property adjacent to the building of which the Premises are a part
or to property adjacent thereto, shall in any way affect this lease, or entitle
Tenant to any reduction of rent, or result in any liability of Landlord to
Tenant.
36. RULES AND REGULATIONS. Landlord shall have the right from time
---------------------
to time to promulgate rules and regulations for the safety, care and cleanliness
of the Premises, the Project and the Common Area, or for the preservation of
good order. On delivery of a copy of such rules and regulations to Tenant,
Tenant shall comply with the rules and regulations, and a violation of any of
them shall constitute a default by Tenant under this lease. If there is a
conflict between the rules and regulations and any of the provisions of this
lease, the provisions of this lease shall prevail. Such rules and regulations
may be amended by Landlord from time to time with or without advance notice.
<PAGE>
37. NOTICES. All notices, demands, requests, consents and other
-------
communications which may be given or are required to be given by either party to
the other shall be in writing and shall be sufficiently made and delivered if
personally served or if sent by United States first class mail, postage prepaid.
Prior to the commencement date, all such notices from Landlord to Tenant shall
be served or sent to Tenant at 2841 Junction Avenue, Suite 204, San Jose,
California 95134; on or after the commencement date, all such communications
from Landlord to Tenant shall be addressed to Tenant at the Premises. All such
communications by Tenant to Landlord shall be sent to Landlord at its offices at
3945 Freedom Circle, Suite 640, Santa Clara, California, 95054, with a copy to
CIGNA Investment Management, Attn: Asset Management, Dept. S-311, 900 Cottage
Grove Road, Bloomfield, Connecticut, 06002. Either party may change its
address by notifying the other of such change. Each such communication shall be
deemed received on the date of the personal service or mailing thereof in the
manner herein provided, as the case may be.
38. NAME. Tenant shall not use the name of the Project for any
----
purpose other than as the address of the business conducted by Tenant in the
Premises without the prior written consent of Landlord.
39. GOVERNING LAW; SEVERABILITY. This lease shall in all respects be
---------------------------
governed by and construed in accordance with the laws of the State of
California. If any provision of this lease shall be held or rendered invalid,
unenforceable or ineffective for any reason whatsoever, all other provisions
hereof shall be and remain in full force and effect.
40. DEFINITIONS. As used in this lease, the following words and
-----------
phrases shall have the following meanings:
Authorized Representative: any officer, agent, employee or
-------------------------
independent contractor retained or employed by either party, acting within
authority given him by that party.
Encumbrance: any deed of trust, mortgage or other written
-----------
security device or agreement affecting the Premises or the Project that
constitutes security for the payment of a debt or performance of an obligation,
and the note or obligation secured by such deed of trust, mortgage or other
written security device or agreement.
Lease Month: the period of time determined by reference to the
-----------
day of the month in which the term commences and continuing to one day short of
the same numbered day in the next succeeding month; e.g., the tenth day of one
month to and including the ninth day in the next succeeding month.
Lender: the beneficiary, mortgagee or other holder of an
------
encumbrance, as defined above.
Lien: a charge imposed on the Premises by someone other than
----
Landlord, by which the Premises are made security for the performance of an act.
Most of the liens referred to in this lease are mechanic's liens.
Maintenance: repairs, replacement, repainting and cleaning.
-----------
Monthly Rent: the sum of the monthly payments of basic rent and
------------
direct expenses.
Person: one or more human beings, or legal entities or other
------
artificial persons, including, without limitation, partnerships, corporations,
trusts, states, associations and any combination of human being and legal
entities.
Provision: any term, agreement, covenant, condition, clause,
---------
qualification, restriction, reservation or other stipulation in the lease that
defines or otherwise controls, establishes or limits the performance required or
permitted by either party.
20
<PAGE>
Rent: basic rent, direct expenses, additional rent, and all
----
other amounts payable by Tenant to Landlord required by this lease or arising by
subsequent actions of the parties made pursuant to this lease.
Words used in any gender include other genders. If there be more
than one Tenant, the obligations of Tenant hereunder are joint and several. All
provisions whether covenants or conditions, on the part of Tenant shall be
deemed to be both covenants and conditions. The paragraph headings are for
convenience of reference only and shall have not effect upon the construction or
interpretation of an provision hereof.
41. TIME. Time is of the essence of this lease and of each and all
----
of its provisions.
42. INTEREST ON PAST DUE OBLIGATIONS; LATE CHARGE. Any amount due
---------------------------------------------
from Tenant to Landlord hereunder which is not paid when due shall bear interest
at the rate of ten percent (10%) per annum from when due until paid until paid,
unless otherwise specifically provided herein, but the payment of such interest
shall not excuse or cure any default by Tenant under this lease. In addition,
Tenant acknowledges that late payment by Tenant to Landlord or basic rent, or of
Tenant's monthly direct expenses, or of any other amount due Landlord from
Tenant, will cause Landlord to incur costs not contemplated by this lease, the
exact amount of such costs being extremely difficult and impractical to fix.
Such costs include, without limitation, processing and accounting charges, and
late charges that may be imposed on Landlord, e.g., by the terms of any
encumbrance and note secured by any encumbrance covering the Premises.
Therefore, if any such payment due from Tenant is not received by Landlord when
due, Tenant shall pay to Landlord an additional sum of five percent (5%) of the
overdue payment as a late charge. The parties agree that this late charge
represents a fair and reasonable estimate of the costs that Landlord will incur
by reason of late payment by Tenant. Acceptance of any late charge shall not
constitute a waiver of Tenant's default with respect to the overdue amount, nor
prevent Landlord from exercising any of the other rights and remedies available
to Landlord. No notice to Tenant failure to pay shall be required prior to the
imposition of such interest and/or late charge, and any notice period provided
for in paragraph 19 shall not affect the imposition of such interest and/or late
charge. Any interest and late charge imposed pursuant to this paragraph shall
be and constitute additional rent payable by Tenant to Landlord.
43. ENTIRE AGREEMENT. This lease, including any exhibits and
----------------
attachments, constitutes the entire agreement between Landlord and Tenant
relative to the Premises and this lease and the exhibits and attachments may be
altered, amended or revoked only by an instrument in writing signed by both
Landlord and Tenant. Landlord and Tenant agree hereby that all prior or
contemporaneous oral agreements between and among themselves or their agents or
representatives relative to the leasing of the Premises are merged in or revoked
by this lease.
44. CORPORATE AUTHORITY. If Tenant is a corporation, each individual
-------------------
executing this lease on behalf of the corporation represents and warrants that
he is duly authorized to execute and deliver this lease on behalf of the
corporation in accordance with a duly adopted resolution of the Board of
Directors of said corporation and that this lease is binding upon said
corporation in accordance with its terms. If Tenant is a corporation, Tenant
shall deliver to Landlord, within ten (10) days of the execution of this lease,
a copy of the resolution of the Board of Directors of Tenant authorizing the
execution of this lease and naming of the officers that are authorized to
execute this lease on behalf of Tenant, which copy shall be certified by
Tenant's president or secretary as correct and in full force and effect.
45. RECORDING. Neither Landlord nor Tenant shall record this lease
---------
or a short form memorandum hereof without the consent of the other.
46. REAL ESTATE BROKERS. Each party represents and warrants to the
-------------------
other party that it has not had dealings in any manner with any real estate
broker, finder or other person with respect to the Premises and the negotiation
and execution of this lease except Cooper Brady and CPS. Except as to
commissions and fees to be paid as provided in this paragraph, each party shall
indemnify and hold harmless the other party from all damage, loss, liability and
expense (including attorneys' fees and related costs) arising out of or
resulting from any claims for commissions or fees that may or have been asserted
against the other party by any broker, finder or other person with whom Tenant
or Landlord has or purportedly has dealt with in connection with the Premises
and the
<PAGE>
negotiation and execution of this lease. To the extent agreed to between
Landlord and Cooper Brady and CPS, Landlord shall pay all broker leasing
commissions to Cooper Brady and CPS incurred in connection with the Premises and
the negotiation and execution to this lease; Landlord and Tenant agree that
Landlord shall not be obligated to pay any broker leasing commissions,
consulting fees, finder fees or any other fees or commissions arising out of or
relating to any extended term of this lease or to any expansion or relocation of
the Premises at any time.
47. EXHIBITS AND ATTACHMENTS. All exhibits and attachments to this
------------------------
lease are a part hereof.
48. ERISA REQUIREMENTS. It is understood that Landlord is subject to
------------------
the Employee Retirement Income Security Act ("ERISA") and has furnished to
Tenant a list of individuals and entities, transactions with which might result
in a prohibited transaction under ERISA or would otherwise cause a breach of an
ERISA related requirement. Tenant hereby warrants and represents that Tenant is
not related to or affiliated with any person or entity shown on the list
attached hereto as Exhibit D such that Tenant is a "party in interest" to such
person or entity as that term is defined in ERISA Section 3 (14), a copy of
which Section is attached hereto as Exhibit E, as that Section may be
interpreted or amended. Tenant agrees that each time that Landlord makes
additions to such list that Tenant will either make the warranty requested above
or shall disclose to Landlord the relationship with such party on the list that
would cause Tenant to be unable to make such warranty and representation.
Tenant agrees to indemnify and hold Landlord harmless from any cost, expense or
damages which may result from a breach of the warranty and representation made
by Tenant.
49. ENVIRONMENTAL MATTERS.
---------------------
A. Tenant's Covenants Regarding Hazardous Materials.
------------------------------------------------
(1) Hazardous Materials Handling. Tenant, its agents,
----------------------------
invitees, employees, contractors, sublessees, assigns and/or successors shall
not use, store, dispose, release or otherwise cause to be present or permit the
use, storage, disposal, release or presence of Hazardous Materials (as defined
below) on or about the Premises or Project. As used herein "Hazardous Materials"
shall mean any petroleum or petroleum by-products, flammable explosives,
asbestos, urea formaldehyde, radioactive materials or waste and any "hazardous
substance", "hazardous waste", "hazardous materials", "toxic substance" or
"toxic waste" as those terms are defined under the provisions of the California
Health and Safety Code and/or the provisions of the Comprehensive Environmental
Response, Compensation and Liability Act (42 U.S.C. Section 9601 et seq.), as
amended by the Superfund Amendments and Reauthorization Act of 1986 (42 U.S.C.
Section 9601 et seq.), or any other hazardous or toxic substance, material or
waste which is or becomes regulated by any local governmental authority, the
State of California or any agency thereof, or the United States Government or
any agency thereof.
(2) Notices. Tenant shall immediately notify Landlord in
-------
writing of: (i) any enforcement, cleanup, removal or other governmental or
regulatory action instituted, completed or threatened pursuant to any law,
regulation or ordinance relating to the industrial hygiene, environmental
protection or the use, analysis, generation, manufacture, storage, presence,
disposal or transportation of any Hazardous Materials (collectively "Hazardous
Materials Laws"); (ii) any claim made or threatened by any person against
Tenant, the Premises, Project or buildings within the Project 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, on or removed from the Premises, Project or building within the
Project, including any complaints, notices, warnings, reports or asserted
violations in connection therewith. Tenant shall also supply to Landlord as
promptly as possible, and in any event within five (5) business days after
Tenant 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, Project or buildings within the Project or Tenant's use thereof.
Tenant shall promptly deliver to Landlord copies of hazardous waste manifests
reflecting the legal and proper disposal of all Hazardous Materials removed from
the Premises.
22
<PAGE>
B. Indemnification of Landlord. Tenant shall indemnify, defend
---------------------------
(by counsel acceptable to Landlord), protect, and hold Landlord, and each of
Landlord's partners, employees, agents, attorneys, successors and assigns, free
and harmless from and against any and all claims, liabilities, penalties,
forfeitures, losses or expenses (including attorneys' fees) for death of or
injury to any person or damage to any property whatsoever (including water
tables and atmosphere), arising from or caused in whole or in part, directly or
indirectly, by (i) the presence in, on, under or about the Premises, Project or
buildings within the Project or discharge in or from the Premises, Project or
buildings within the Project of any Hazardous Materials or Tenant's use,
analysis, storage, transportation, disposal, release, threatened release,
discharge or generation of Hazardous Materials to, in, on, under, about or from
the Premises, Project or buildings within the Project, or (ii) Tenant's failure
to comply with any Hazardous Materials Laws whether knowingly, unknowingly,
intentionally or unintentionally. Tenant's obligations hereunder shall include,
without limitation, and whether foreseeable or unforseeable, all costs of any
required or necessary repair, cleanup or detoxification or decontamination of
the Premises, Project or buildings within the Project, and the preparation and
implementation of any closure, remedial action or other required plans in
connection therewith. In addition, Tenant shall reimburse Landlord for (i)
losses in or reductions to rental income resulting from tenant's use, storage or
disposal of Hazardous Materials, (ii) all costs of refitting or other
alterations to the Premises, Project or buildings within the Project required as
a result of Tenant's use, storage, or disposal of Hazardous Materials including,
without limitation, alterations required to accommodate an alternate use of the
Premises, Project or buildings within the Project, and (iii) any diminution in
the fair market value of the Premises, Project or buildings within the Project
caused by Tenant's use, storage, or disposal of Hazardous Materials. For
purposes of this paragraph 49, any acts or omissions of Tenant, or by employee,
agents, assignees, contractors or subcontractors of Tenant or others acting for
or on behalf of Tenant (whether or not they are negligent, intentional, willful
or unlawful) shall be strictly attributable to Tenant.
C. Landlord's Representation. Landlord represents to Tenant
-------------------------
that (i) Landlord has no actual knowledge of the existence of any Hazardous
Materials, in, on or under the Project in violation of any Hazardous Materials
laws and (ii) Landlord has no actual knowledge of any governmental actions
against or notices of violation of any Hazardous Materials laws to any previous
tenant of the Premises.
D. Survival. The provisions of this paragraph 49 shall survive
--------
the expiration or earlier termination of the term of this lease.
50. SIGNAGE. Tenant shall not, without obtaining the prior written
-------
consent of Landlord, install or attach any sign or advertising material on any
part of the outside of the Premises, or on any part of the inside of the
Premises which is visible from the outside of the Premises, or in the halls,
lobbies, windows or elevators of the building in which the Premises are located
or on or about any other portion of the Common Area or Project. If Landlord
consents to the installation of any sign or other advertising material, the
location, size, design, color and other physical aspects thereof shall be
subject to Landlord's prior written approval and shall be in accordance with any
sign program applicable to the Project. In addition to any other requirements
of this paragraph 50, the installation of any sign or other advertising material
by or for Tenant must comply with all applicable laws, statutes, requirements,
rules, ordinances and any C.C. & R.'s or other similar requirements. With
respect to any permitted sign installed by or for Tenant, Tenant shall maintain
such sign or other advertising material in good condition and repair and shall
remove such sign or other advertising material on the expiration or earlier
termination of the term of this lease. The cost of any permitted sign or
advertising material and all costs associated with the installation, maintenance
and removal thereof shall be paid for solely by Tenant. If Tenant fails to
properly maintain or remove any permitted sign or other advertising material,
Landlord may do so at Tenant's expense. Any cost incurred by Landlord in
connection with such maintenance or removal shall be deemed additional rent and
shall be paid by Tenant to Landlord within ten (10) days following notice from
Landlord. Landlord may remove any unpermitted sign or advertising material
without notice to Tenant and the cost of such removal shall be additional rent
and shall be paid by Tenant within ten (10) days following notice from Landlord.
Landlord shall not be liable to Tenant for any damage, loss or expense resulting
from Landlord's removal of any sign or advertising material in accordance with
this paragraph 50. The provisions of this paragraph 50 shall survive the
expiration or earlier termination of this lease.
<PAGE>
51. SUBMISSION OF LEASE. The submission of this lease to Tenant for
-------------------
examination or signature by Tenant is not an offer to lease the Premises to
Tenant, nor an agreement by Landlord to reserve the Premises for Tenant.
Landlord will not be bound to Tenant until this lease has been duly executed and
delivered by both Landlord and Tenant.
52. TENANT IMPROVEMENTS. Improvements to the Premises shall be
-------------------
constructed and installed in accordance with the plans and specifications, and
other terms and conditions, set forth in Exhibit C to this lease, the contents
of which is incorporated herein and made a part hereof by this reference. The
improvements shall be constructed and installed at the expense of Landlord
and/or Tenant as set forth in Exhibit C to this lease and in each case shall be
performed in a diligent and workmanlike manner.
53. ADDITIONAL RENT. All costs, charges, fees, penalties, interest,
---------------
and any other payments (including Tenant's reimbursement to Landlord of costs
incurred by Landlord) which Tenant is required to make to Landlord pursuant to
the terms and conditions of this lease and any amendments to this lease shall be
and constitute additional rent payable by Tenant to Landlord when due as
specified in this lease and any amendments to this lease.
54. INTENTIONALLY OMITTED.
---------------------
55. OPTION TO EXTEND TERM. Landlord grants to Tenant the option to
---------------------
extend the term for one period of five (5) years (the "Extended Term") following
the expiration of the initial term set forth in paragraph 2 ("Initial Term")
under all the provisions of this lease except for the amount of the basic rent.
The basic rent for the Extended Term shall be adjusted to ninety-five percent
(95%) of the market rate (as defined in paragraph (c) below); provided that in
no event shall the basic rent for the Extended Term be less than One and 02/100
Dollars ($1.02) per square foot per month. This option is further subject to
the following terms and conditions:
(a) Tenant must deliver its irrevocable written notice of
Tenant's exercise of this option to Landlord not less than six (6) lease months,
nor more than twelve (12) lease months, prior to the expiration of the Initial
Term. Time is of the essence with respect to the time period during which Tenant
must deliver to Landlord its written notice of exercise and, therefore, if
Tenant fails to give Landlord its irrevocable written notice of its exercise of
this option within the time period provided above then this option shall expire
and be of no further force or effect.
(b) The parties shall have thirty (30) days from the date
Landlord receive Tenant's notice of exercise in which to agree on the amount
constituting the market rate. If Landlord and Tenant agree on the amount of the
market rate, they shall immediately execute an amendment to this lease setting
forth the expiration date of the Extended Term and the amount of the basic rent
to be paid by Tenant during the Extended Term. If Landlord and Tenant are unable
to agree on the amount of the market rate within such time period, then this
option shall be of no further effect and this lease shall expire at the end of
the Initial Term.
(c) As used herein, the "market rate" shall be the monthly rent
then obtained for five (5) year fixed rate leases of comparable terms for
Premises in the Project and in building and/or Projects within the same
geographical area of similar types and identity, quality and location as the
Project.
(d) Direct expenses shall continue to be determined and payable
as provided in paragraphs 4 and 5 of this lease.
(e) Neither party shall have the right to have any court or
other third party determine the market rate or the basic rent. Tenant shall not
assign or otherwise transfer this option or any interest therein and any attempt
to do so shall render this option null and void. Tenant shall have no right to
extend the term beyond the Extended Term. If Tenant is in default under this
lease at the date of delivery of Tenant's notice of exercise to Landlord, then
such notice shall be of no effect and this lease shall expire at the end of the
Initial Term; if Tenant is in default under this lease on the last day of the
Initial Term, then Landlord may in its sole discretion
24
<PAGE>
elect to have Tenant's exercise of this option be of no effect, in which case
this lease shall expire at the end of the Initial Term.
56. RIGHT OF FIRST REFUSAL. Landlord hereby grants to Tenant a right
----------------------
of first refusal to lease the remaining space in the building located at 2045
Hamilton Avenue, San Jose, California consisting of approximately twenty three
thousand five hundred ninety-three (23,593) square feet, as shown on Exhibit G
(the "Expansion Space"), subject to the following terms and conditions:
(a) This right of first refusal shall only be effective from and
after the date of execution of this lease during the initial term and the
extended term per paragraph 55 of this lease to Tenant. Upon Landlord's receipt
of any lease proposal/offer to lease the Expansion Space from any third party,
excluding any such offers which Landlord has received or negotiations entered
into prior to the date of execution of this lease and any subsequent
negotiations related thereto, ("Third Party Offer") which is acceptable to
Landlord, Landlord, prior to entering into a lease with such third party, shall
provide Tenant with written notice ("Landlord's Notice") of the terms and
conditions of the Third Party Offer (the "Offer"). Landlord's written notice
("Landlord's Notice") pursuant to this paragraph to be sent to Tenant as
follows:
Copy to: Facilities Manager
Information Storage Devices
2045 Hamilton Avenue, Suite 100
San Jose, CA 95125
Copy to: Chief Financial Officer
Information Storage Devices
2045 Hamilton Avenue, Suite 100
San Jose, CA 95125
Copy to: Fletcher Baker
Cooper Brady
550 S. Winchester Boulevard
Suite 600
San Jose, CA 95128
(b) Tenant shall have five (5) business days from receipt of
Landlord's Notice to deliver to Landlord its written unconditional and
irrevocable acceptance of the Offer. if Tenant accepts the Offer, an amendment
to this lease or a new lease covering the Expansion Space and incorporating said
terms and conditions shall promptly be executed. If a new lease is executed
with Tenant covering the Expansion Space such new lease shall provide that any
default under this lease will also constitute a default under such new lease and
Tenant agrees that any default by it under such new lease will also constitute a
default under this lease. In the event Tenant rejects the Offer, or does not
answer within the specified time, or fails for any reason (unless such failure
is due to the fault or delay of Landlord) to execute such amendment or new lease
within thirty (30) days of Tenant's acceptance of the Offer, Landlord shall
thereafter be released from any further obligation with respect to the Offer and
be free to lease the Expansion Space to any third party on any terms (whether
more or less favorable).
(c) This right of first refusal shall be subordinate to any
existing rights of refusal, rights of expansion, options to extend or renew, and
other rights contained in leases (or amendments to leases) executed prior to the
date of this lease. In addition, this right of first refusal shall not apply and
Tenant shall have no rights hereunder in the event any tenant (or its successors
or assigns) that now or hereafter occupies all or any portion of the Expansion
Space desires to extend, renew or otherwise modify its lease or desires to
expand its Premises to include any portion of the Expansion Space, and Landlord
shall be free to extend, renew or modify such lease or amend such lease to add
any portion of the Expansion Space without notice to Tenant.
(d) This right of first refusal shall be void and of no force
and effect and shall confer no rights on Tenant during any period in which
Tenant is in default under this lease.
<PAGE>
(e) Notwithstanding anything in this paragraph to the contrary,
Tenant's exercise of this right of first refusal shall be subject to Landlord's
review and approval of Tenant's financial condition (including, without
limitation, Tenant's net worth, current ratio and working capital reserves) at
the time Tenant exercises this right of first refusal and notwithstanding
Tenant's rights hereunder Landlord shall have no obligation to lease the
Expansion Space to Tenant unless Tenant's financial condition at the time of
acceptance of the Offer is acceptable to Landlord, in Landlord's sole
discretion.
(f) All rights granted to Tenant pursuant to this paragraph are
personal to Tenant and may not be transferred or assigned.
26
<PAGE>
IN WITNESS WHEREOF, Landlord and Tenant have executed and delivered
this lease on the date first above written.
Landlord: Tenant:
- -------- ------
GREYLANDS BUSINESS PARK, PHASE 1, INFORMATION STORAGE DEVICES, INC.,
a California general partnership a California corporation
By: McCANDLESS GROUP (GR-1), a
California general partnership,
a General Partner
By: /s/ BIRK S. MCCANDLESS By: /s/ FELIX J. ROSENGARTEN
------------------------------------ --------------------------------
Birk S. McCandless, as Trustee (Signature)
under the Birk S. McCandless and
Mary McCandless Inter Vivos Trust FELIX J. ROSENGARTEN
-----------------------------------
Agreement dated February 17, 1982, (Printed Name)
a General partner
VP and CFO
-----------------------------------
(Title)
8/26/94 8/24/94
------------------------------------ -----------------------------------
(Date) (Date)
<PAGE>
LEGAL DESCRIPTION EXHIBIT A
- --------------------------------------------------------------------------------
All that certain real property situated in the City of San Jose,
County of Santa Clara, State of California, described as follows:
PARCEL I:
- --------
ALL OF PARCEL I, as shown on that certain Parcel Map filed for record
in the office of the Recorder of the County of Santa Clara, State of California
on October 1, 1984 in Book 534 of Maps, at page 44.
PARCEL II:
- ---------
A Parking Easement being 16.50 feet in width, being more particularly
described as follows:
BEGINNING at the Southwesterly corner of Parcel 2, as shown on that
certain Parcel Map filed for record in the office of the Recorder of the County
of Santa Clara, State of California on October 1, 1984 in Book 534 of Maps, at
page 44; then N. 0(degrees) 20(feet) 00(inches) W., 34.00 feet along the
Westerly line of said Parcel 2 to the TRUE POINT OF BEGINNING; thence continuing
along said line, N. 0(degrees) 20(feet) 00(inches) W. 81.00 feet; thence leaving
said line N. 89(degrees) 40(feet) 00(inches) E. 16.50 feet; thence S. 0(degrees)
20(feet) 00(inches) E. 81.00 feet; thence S. 89(degrees) 40(feet) 00(inches) W.,
15.60 feet to the TRUE POINT OF BEGINNING.
<PAGE>
EXHIBIT A
2045 HAMILTON AVENUE
FIRST FLOOR FLOOR PLAN
2
<PAGE>
EXHIBIT A
2045 HAMILTON AVENUE
SECOND FLOOR FLOOR PLAN
<PAGE>
EXHIBIT B
GREYLANDS BUSINESS PARK
DEVELOPMENT PLAN
2085 Three Story
2065 Two Story
2045 Two Story
2005 Three Story
4
<PAGE>
WORK LETTER AGREEMENT
EXISTING SPACE - MAXIMUM ALLOWANCE
CONSTRUCTION EXHIBIT C
- --------------------------------------------------------------------------------
THIS WORK LETTER AGREEMENT (hereinafter "Exhibit C") is attached to
and forms a part of that certain lease ("Lease") by and between GREYLANDS
BUSINESS PARK, PHASE I, a California general partnership ("Landlord"), and
INFORMATION STORAGE DEVICES, INC., a California corporation ("Tenant"), pursuant
to which Landlord leases to Tenant those certain premises located at 2045
Hamilton Avenue, Suite 100, San Jose, California and consisting of approximately
twenty eight thousand thirty-seven (28,037) square feet ("Premises"). All
capitalized terms used herein shall have the meaning ascribed to them in the
Lease unless otherwise defined below. The Premises shall be improved in
accordance with the following:
1. Existing Improvements:
---------------------
Tenant accepts the Premises in their existing condition and the
improvements constructed therewith, and Tenant hereby approves the same as
installed, subject only to such changes as may subsequently be agreed upon by
Landlord and Tenant. Such improvements are hereafter called "Existing
Improvements".
2. Tenant Improvements:
-------------------
As used herein, "Tenant Improvements" shall include those items
and specifications shown on the Final Construction Drawings prepared in
accordance with paragraph 3 below, including those specifications (as
appropriate) set forth and described in Exhibit C-1, attached hereto, exclusive
of Existing Improvements. Landlord shall construct Tenant Improvements in
accordance with the Final Construction Drawings, Exhibit C-1 and the provisions
of this Exhibit C. Unless otherwise specifically agreed to by Landlord in
writing, the installation, wiring, maintenance and removal of furniture
partition systems, telephone and other communication systems, data cabling,
alarm and/or security systems and any other systems not specifically set forth
in the Final Construction Drawings or Exhibit C-1, and all cost and expense
associated therewith, shall be the sole responsibility of Tenant. In connection
with the construction and installation of the Tenant Improvements, Landlord or
Landlord's general contractor shall have no obligation to move any of Tenant's
property located in or about the Premises including, but not limited to,
furniture, inventory and trade fixtures, at the time of such construction and
installation. If at the time of construction and installation of the Tenant
Improvements Tenant has property located in or about the Premises that inhibits
or prevents in any way the construction and installation of the Tenant
Improvements, Tenant shall immediately, upon receipt of notification therefore
from Landlord or Landlord's general contractor, at Tenant's sole cost and
expense, move such property to another location within the Premises or, upon
receipt of Landlord's prior approval, to another location within the Project
designated by Landlord in Landlord's sole discretion; Tenant's failure to
immediately move such property upon receipt of notification therefore from
Landlord or Landlord's general contractor shall be deemed a Tenant caused delay
subject to the provisions of paragraph 8 of this Exhibit C. If at the time of
construction and installation of the Tenant Improvements Tenant has property
located in or about the Premises, Landlord and Landlord's general contractor
shall incur no liability to Tenant or any other party in the event such property
is damaged, destroyed or stolen during the construction and installation of the
Tenant Improvements.
3. Tenant Improvement Design Schedule:
----------------------------------
The plans and specifications for the Tenant Improvements shall be
completed in accordance with the following:
(a) Tenant shall approve preliminary floor plan layouts
("Preliminary Floor Plans") prepared by Landlord by August 26, 1994. The
Preliminary Floor Plans shall show all walls, doors, and other Tenant
Improvements desired by Tenant in sufficient detail for Landlord's architect to
prepare architectural construction drawings and related documents
("Architectural Construction Documents").
<PAGE>
(b) Between August 11 and August 26, 1994, Landlord's architect
and Tenant's representative shall meet as needed to review and complete the
final details related to the Preliminary Floor Plans, so that on August 26, 1994
the Architectural Construction Documents are subject only to minor changes.
(c) No later than August 26, 1994, Tenant shall have made the
decisions required and supplied to Landlord the information necessary for
Landlord's architect to complete the Architectural Construction Documents in
enough detail for Landlord's general contractor to bid the work, select
subcontractors and to proceed toward the design of electrical, mechanical and
any other requirements not included on the Architectural Construction Documents.
Upon Landlord's general contractor's selection of subcontractors, Landlord's
general contractor and subcontractors shall prepare design specifications
outlining in reasonable detail electrical, mechanical and any other requirements
not included on the Architectural Construction Documents ("Electrical and
Mechanical Drawings").
(d) Upon completion of the Architectural Construction Documents,
Tenant shall approve the same subject to changes, deletions or additions as
provided for in paragraphs 6 and 7 of this Exhibit C.
(e) Upon completion of the Electrical and Mechanical Drawings,
Landlord or Landlord's general contractor shall submit the Architectural
Construction Documents and Electrical and Mechanical Drawings (collectively the
"City Ready Plans") to the City to obtain a building permit.
(f) Tenant shall have decided upon carpet selection and all other
color and material specifications by August 26, 1994.
(g) As used herein, "Final Construction Drawings" shall include
the City Ready Plans, as approved by the City, and any subsequent additions,
deletions or changes to the Tenant Improvements permitted or required pursuant
to paragraphs 6 and 7 of this Exhibit C.
4. Tenant Improvement Cost Estimates:
---------------------------------
Within fourteen (14) days of completion of the Electrical and
Mechanical Drawings, Landlord shall prepare and deliver to Tenant an improvement
cost budget ("Improvement Cost Budget") setting forth the Total Cost of Tenant's
Improvements (as defined in paragraph 5(b) below). Within three (3) days after
Tenant's receipt of the Improvement Cost Budget, Tenant shall, in writing,
approve or disapprove the Improvement Cost Budget. If Tenant does not deliver
to Landlord its written approval or disapproval within the three (3) day period,
Tenant will be deemed to have approved of the Improvement Cost Budget. If
Tenant disapproves the Improvement Cost Budget, Landlord and Tenant shall,
within three (3) days of Tenant's disapproval, attempt to agree on mutually
acceptable modifications to the Improvement Cost Budget. If Tenant disapproves
of the Improvement Cost Budget and Landlord and Tenant are unable, within the
three (3) day period, to agree on mutually acceptable changes to the Improvement
Cost Budget, or if Tenant approves of the Improvement Cost Budget but does not
deliver to Landlord, within three (3) days of its approval, signed copies of the
Improvement Cost Budget and Architectural Construction Documents, then Landlord
may terminate the Lease upon written notice to Tenant. Upon Tenant's written
approval of the Improvement Cost Budget (or in the event Tenant is deemed to
have approved the Improvement Cost Budget as provided hereinabove), the Total
Cost of Tenant's Improvements set forth therein shall be deemed a fixed price
for the Tenant Improvements (said fixed price shall be referred to herein as the
"Tenant Improvement Fixed Cost"). The Tenant Improvement Fixed Cost shall be
subject to adjustment for increases in costs resulting from changes to the
Tenant Improvements requested or required pursuant to paragraphs 6 and 7 below.
Landlord shall not be obligated to commence construction of the Tenant
Improvements until the following has occurred: the Architectural Construction
Documents and Tenant Improvement Fixed Cost have been agreed to by Landlord and
Tenant; Tenant has indicated its approval of the Architectural Construction
Documents and Improvement Cost Budget by signing copies thereof; and Landlord
has executed a written authorization to proceed with construction with
Landlord's general contractor based on the agreed Architectural Construction
Documents and Tenant Improvement Fixed Cost.
2
<PAGE>
5. Tenant Improvement Allowance:
----------------------------
(a) Landlord agrees to grant to Tenant a Tenant Improvement
Allowance ("Allowance") of $168,222 ($6.00/SF X 28,037 SF) to be applied toward
the "Total Cost of Tenant's Improvements" (as defined below) to be installed in
accordance with this Exhibit C.
(b) As used herein, "Total Cost of Tenant's Improvements" shall
include: (i) the cost of Tenant Improvements and increases therein pursuant to
paragraphs 6 and 7 below, if any, and all demolition costs incurred in
connection with preparing the Premises for the installation of the Tenant
Improvements; (ii) the cost of overtime or special expenditures required to
obtain and install the Tenant Improvements by the proposed commencement date;
(iii) all costs related to change orders; (iv) all costs related to changes
required or requested by governmental authority; (v) permit fees and other fees
not previously paid by Landlord as part of shell costs; (vi) the cost of
consultants and engineers; (vii) an amount equal to the actual cost of
supervision, administration and on-site facilities and equipment necessary to
perform the work; (viii) an amount equal to 9% of the sum of items (i) through
(vii) above as and for the general contractor's overhead and profit; and (ix)
the cost of architects hired by Landlord.
(c) In the event that the Tenant Improvement Fixed Cost exceeds
the Allowance of $168,222 then Landlord shall provide Tenant with an additional
allowance up to $140,185 ("Additional Allowance"). The Allowance ($168,222) plus
the maximum Additional Allowance ($140,185), totaling $308,407 is referred to
herein as the "Maximum Allowance." Over the initial five (5) year term of the
Lease Tenant shall pay to Landlord as additional rent an amount equal to two and
one tenth percent (2.1%) of the Additional Allowance per month (e.g., if the
total Additional Allowance is $100,000 then the additional rent payment shall be
$2,100 per month). In the event the Tenant Improvement Fixed Cost exceeds the
Maximum Allowance (the amount by which the Tenant Improvement Fixed Cost exceeds
the Maximum Allowance shall be referred to herein as the "Excess Cost"), Tenant
shall pay fifty percent (50%) of the Excess Cost to Landlord within five (5)
days of Tenant's approval of the Improvement Cost Budget and the remaining fifty
percent (50%) of the Excess Cost within five (5) days of when Landlord notifies
Tenant that the Tenant Improvements are fifty percent (50%) completed. Tenant's
failure to make any payment of the Excess Cost when due, or to make any payment
with respect to change orders as set forth in paragraphs 6 and 7 of this Exhibit
C, shall be deemed a default under the Lease and the amount so delinquent shall
be deemed additional rent and Landlord may exercise all rights and remedies set
forth in the Lease; and in addition, Landlord may delay construction until such
payment is made and such delay shall be deemed a Tenant caused delay subject to
the provisions of paragraph 8 of this Exhibit C.
(d) In the event Tenant causes delays, or requests changes which
cause delays in construction of more than ninety (90) calendar days, then
Landlord shall not be obligated to grant to Tenant the Allowance (or the Maximum
Allowance), or any balance remaining unused therein. In such case, Landlord
shall thereafter have no obligation to construct any Tenant Improvements for
Tenant. Furthermore, the cessation of Landlord's obligation to construct the
Tenant Improvements as permitted herein shall not affect Tenant's obligation to
commence payments of basic rent and direct expenses or any other payments due
Landlord under the Lease. Tenant shall be entitled to no rent reduction or
credit at any time in the event that the Allowance (or Maximum Allowance) or any
portion thereof remains unused for any reason whatsoever.
6. Changes by Tenant:
-----------------
Tenant may request changes, deletions or additions to the Tenant
Improvements; provided, however, that the effectiveness of any such requested
change, deletion or addition shall be subject to written approval by an
authorized representative of Landlord and to obtaining any required governmental
permits or other approvals. If any such change, deletion or addition increases
the Tenant Improvement Fixed Cost above the Allowance, Tenant shall immediately
pay to Landlord the full amount of such increase in excess of the Allowance. In
no event shall work on any change, deletion or addition requested pursuant to
this paragraph 6 commence prior to (i) Landlord and Tenant approving, in
writing, such change, deletion or addition, and (ii) Landlord's receipt from
Tenant of payment of the full amount of the increase of the Tenant Improvement
Fixed Cost in excess of the Allowance.
-3-
<PAGE>
7. Chances By Authority:
--------------------
Tenant agrees that if any change, deletion or addition to any of
the improvements proposed to be constructed or installed is required by any
governmental authority in connection with obtaining any governmental permit or
approval, or otherwise, then such change, deletion or addition shall promptly be
made and the Tenant Improvement Fixed Cost shall be adjusted to reflect any
increase in cost resulting from such required change. To the extent any change,
deletion or addition required by any governmental authority in connection with
obtaining any governmental permit or approval increases the Tenant Improvement
Fixed Cost above the Allowance, Tenant shall pay to Landlord such increase above
the Allowance in accordance with the provisions of paragraph 5(c) of this
Exhibit C. Failure to obtain any required governmental approval or permit for
the Tenant Improvements desired by Tenant shall in no way be cause for Tenant to
terminate the Lease or any amendment to the Lease.
8. Delays Caused by Tenant:
-----------------------
If the commencement of the term is delayed due in any respect to
Tenant's failure to meet the schedule set forth in paragraph 3 of this Exhibit
C, or due to construction delays related to any changes required by Tenant, or
due to any other failures by Tenant to perform its obligations under this
Exhibit C or otherwise under the Lease, then any such delays shall be deemed
Tenant caused delays for purposes of determining the commencement date of the
Lease pursuant to paragraph 2(b) of the Lease.
9. Punch List:
----------
Within ten (10) business days after commencement of the term,
Tenant shall deliver to Landlord a list of items ("Punch List") that Tenant
believes Landlord should complete or correct in order for the Premises to be
acceptable. Landlord shall commence to complete or correct the items as soon as
possible, except those items that Landlord contends are not justified. If Tenant
does not deliver the Punch List to Landlord within the ten (10) day period,
Tenant shall be deemed to have accepted the Premises and approved the
construction. Nothing in this paragraph 9 shall delay the commencement of the
term or Tenant's obligation to pay rent or to make other payments due Landlord
under the Lease.
10. Attachments: All references in the Lease to Exhibit C shall be
-----------
deemed to also include Exhibit C-1 and C-____.
4
<PAGE>
EXHIBIT D
---------
ERISA Parties in Interest List
------------------------------
Separate Account R
------------------
1. The United Nations Joint Staff Pension Fund or any affiliate or
related party of the United Nations Joint Staff Pension Fund.
2. The Ford Motor Company Pension Plan or any affiliate or related
party of the Ford Motor Company Pension Plan.
3. Maryland State Retirement and Pension System.
AS OF JUNE, 1993
-1-
<PAGE>
EXHIBIT E
---------
EMPLOYEE RETIREMENT INCOME SECURITY ACT
Section 3(14) and (15)
(14) The term "party in interest" means, as to an employee benefit plan -
(A) any fiduciary (including, but not limited to, any administrator,
officer, trustee, or custodian), counsel, or employee of such employee
benefit plan;
(B) a person providing services to such plan;
(C) an employer any of whose employees are covered by such plan;
(D) an employee organization any of whose members are covered by such
plan;
(E) an owner, direct or indirect, of 50 percent or more of
(i) the combined voting power of all classes of stock entitled to
vote or the total value of shares of all classes of stock of a
corporation,
(ii) the capital interest or the profits interest of a partnership,
or
(iii) the beneficial interest of a trust or unincorporated
enterprise, which is an employer or an employee organization
described in subparagraph (C) or (D);
(F) a relative (as defined in paragraph (15) of any individual described
in subparagraph (A), (B), (C), or (E);
(G) a corporation, partnership, or trust or estate of which (or in which)
50 percent or more of
(i) the combined voting power of all classes of stock entitled to
vote or the total value of shares of all classes of stock of
such corporation,
(ii) the capital interest or profits interest of such partnership,
or
(iii) the beneficial interest of such trust or estate, is owned
directly or indirectly, or held by persons described in
subparagraph (A), (B), (C), (D), or (E);
(H) an employee, officer, director (or an individual having powers or
responsibilities similar to those of officers or directors), or a 10
percent or more shareholder directly or indirectly, of a person
described in subparagraph (B), (C), (D), (E), or (G), or of the
employee benefit plan; or
(I) a 10 percent or more (directly or indirectly in capital or profits)
partner or joint venturer of a person described in subparagraph (B),
(C), (D), (E), or (G).
The Secretary, after consultation and coordination with the Secretary of
the Treasury, may by regulation prescribe a percentage lower than 50 percent for
the subparagraphs (E) and (G) and lower than 10 percent for subparagraphs (H) or
(I). The Secretary may prescribe regulations for determining the ownership
(direct or indirect) of profits and beneficial interests, and the manner in
which indirect stockholdings are taken into account.
(15) The term "relative" means a spouse, ancestor, lineal Descendant, or spouse
of a lineal descendant.
-1-
<PAGE>
EXHIBIT F
---------
Recording Requested By And When Recorded Mail to:
Morrison & Foerster
345 California Street, 31st Floor
San Francisco, California 94101-2675
Attn: Caryl B. Welborn, Esq.
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
(Space above this line for Recorder's Use)
SUBORDINATION, NON-DISTURBANCE AND ATTORNMENT AGREEMENT
-------------------------------------------------------
NOTICE: THIS SUBORDINATION, NON-DISTURBANCE AND ATTORNMENT AGREEMENT RESULTS IN
YOUR LEASEHOLD ESTATE IN THE PROPERTY BECOMING SUBJECT TO AND OF LOWER PRIORITY
THAN THE LIEN OF SOME OTHER OR LATER SECURITY INSTRUMENT.
THIS AGREEMENT, made as of the _____ day of _______________, 1994,
between INFORMATION STORAGE DEVICES, INC., a California corporation ("Tenant"),
CONNECTICUT GENERAL LIFE INSURANCE COMPANY, a Connecticut corporation, on behalf
of its Separate Account R, a separate account as defined in Section 3(17) of the
Employee Retirement Income Security Act of 1974 (commonly known as "ERISA"),
having its principal office and place of business at 900 Cottage Grove Road,
Bloomfield, Connecticut 06002 ("Lender"), and GREYLANDS BUSINESS PARK, PHASE I,
a California general partnership ("Landlord").
WITNESSETH
----------
WHEREAS, Tenant has entered into a certain lease with Landlord (said
lease, together with any extensions, renewals, replacements or modification
thereof, referred to hereinafter as the "Lease") dated ____________________,
1994, covering premises (the "Premises") located at 2045 Hamilton Avenue, Suite
100, San Jose, California and situated on land more particularly described in
Exhibit A attached hereto and incorporated herein (the "Property"); and
- ---------
WHEREAS, Lender has made a loan to Landlord secured by a certain
Construction and Permanent Deed of Trust, Assignment of Rents, Security
Agreement and Fixture Filing encumbering the Property dated September 27, 1983
and recorded on September 28, 1983 in Book H934, Page 487, Official Records of
the County of Santa Clara, California (the "First Deed of Trust") and has
further agreed to make a loan to Landlord secured by a certain Second Deed of
Trust, Assignment of Rents, Security Agreement and Fixture Filing also
encumbering the Property (collectively, such First Deed of Trust and Second Deed
of Trust are referred to as the "Deed of Trust" and the loans secured thereby
are collectively referred to as the "Loan"); and
WHEREAS, it is to the mutual benefit of the parties hereto that Lender
make the Loan to Landlord; and
WHEREAS, it is a condition to obtaining and keeping in full force and
effect the Loan that the parties enter into this Agreement;
-1-
<PAGE>
NOW THEREFORE, in consideration of the premises and mutual covenants
hereinafter contained, the parties hereto mutually covenant and agree as
follows:
1. The Lease and all of the right, title and interest of Tenant in
and to the Premises are and shall be subject and subordinate to the Deed of
Trust and to all of the terms and conditions contained therein, and to any
renewals, modifications, replacements, consolidations and extensions thereof.
Tenant agrees that, in making disbursements pursuant to the Loan, Lender is
under no obligation to see to the application of such proceeds.
2. Lender consents to the Lease and, in the event of foreclosure of
the Deed of Trust, or in the event Lender comes into possession or acquires
title to the Premises as a result of the enforcement or foreclosure of the Deed
of Trust or the note secured thereby, or as a result of any other means, Lender
agrees to recognize Tenant and further agrees that Tenant shall not be disturbed
in its possession of the Premises for any reason other than one which would
entitle Landlord to terminate the Lease under its terms or would cause, without
any further action by Landlord, the termination of the Lease or would entitle
Landlord to dispossess Tenant from the Premises.
3. Tenant agrees with Lender that if the interests of Landlord in the
Premises shall be transferred to and owned by Lender by reason of foreclosure or
otherwise, or shall be conveyed thereafter by Lender, Tenant shall be bound to
Lender under all of the terms, covenants and conditions of the Lease for the
balance of the term (and any extensions or renewals thereof which may be
effected in accordance with any option therefor in the Lease), with the same
force and effect as if Lender were the landlord under the Lease, and Tenant does
hereby attorn to Lender as its landlord, said attornment to be effective and
self-operative without the execution of any further instruments on the part of
any of the parties hereto immediately upon Lender succeeding to the interest of
the Landlord in the Premises. Tenant agrees, however, upon the election of and
written demand by Lender within twenty (20) days after Lender receives title to
the Premises, to execute an instrument in confirmation of the foregoing
provisions, satisfactory to Lender. Tenant further agrees with Lender that
Tenant will not voluntarily subordinate the Lease to any lien or encumbrance
without Lender's consent.
4. This Agreement shall bind and inure to the benefit of the parties
hereto and their successors and assigns. The terms "foreclosure" and
"foreclosure sale" shall be deemed to include the acquisition of Landlord's
estate in the Premises by voluntary deed (or assignment) in lieu of foreclosure,
and the word "Lender" shall include the Lender herein specifically named, any of
its successors and assigns, and any person or entity who shall have succeeded to
Landlord's interest in the Premises through foreclosure of the Deed of Trust.
5. This Agreement shall be the only agreement between the parties
with regard to the subordination of the Lease and leasehold interest of Tenant
to the lien or charge of the Deed of Trust, and, in the event of a conflict
between the provisions hereof and the provisions of any prior agreement
including the Lease, shall supersede any prior agreements, including, but not
limited to, any provisions contained in the Lease, and shall not be modified
except in writing signed by all parties hereto.
IN WITNESS WHEREOF the parties hereto have executed this Agreement as
of the day and year first above written.
NOTICE: THIS SUBORDINATION, NON-DISTURBANCE AND ATTORNMENT AGREEMENT CONTAINS A
PROVISION WHICH ALLOWS THE PERSON OBLIGATED ON THE LEASE TO OBTAIN A LOAN, A
PORTION OF WHICH MAY BE EXPENDED FOR OTHER PURPOSES THAN IMPROVEMENT OF THE
PROPERTY.
TENANT: INFORMATION STORAGE DEVICES, INC.,
------ a California corporation
By:________________________________________
Its:_______________________________________
2
<PAGE>
LANDLORD: GREYLANDS BUSINESS PARK, PHASE I,
-------- a California general partnership
By: McCandless Group (GR-1),
a California general partnership,
a general partner
By:_____________________________________
Birk S. McCandless, Trustee under
The Birk S. McCandles and Mary
McCandless Inter Vivos Trust
Agreement dated February 17, 1982,
a general partner
By: Connecticut General Life Insurance
Company, a Connecticut corporation, on
behalf of its Separate Account R a general
partner
By: CIGNA Investments, Inc.,
a Delaware corporation
By: ____________________________
Name:___________________________
Title:__________________________
LENDER: CONNECTICUT GENERAL LIFE
------
INSURANCE COMPANY, a Connecticut
corporation, on behalf of its Separate Account R
By: CIGNA Investments, Inc.,
a Delaware corporation
By:_____________________________
Its:____________________________
-3-
<PAGE>
McCandless Group, (GR-1),
a California general partnership
(a general partner of Greylands Business Park, Phase I)
STATE OF CALIFORNIA )
) ss.
COUNTY OF _____________________ )
On _______________, 1994 before me, ____________________,
personally appeared ____________________, personally known to be (or proved to
me on the basis of satisfactory evidence) to be the person(s) whose name(s)
is/are subscribed to the within instrument and acknowledged to me that
he/she/they executed the same in his/her/their authorized capacity(ies), and
that by his/her/their signature on the instrument the person(s), or the entity
upon behalf of which the person(s) acted, executed the instrument.
WITNESS by hand and official seal.
_____________________________
Notary Public (Official seal here)
<PAGE>
Connecticut General Life Insurance Company,
a Connecticut corporation,
on behalf of its Separate Account R
(a general partner of Greylands Business Park, Phase I)
STATE OF CALIFORNIA )
) ss.
COUNTY OF _____________________ )
On _______________, 1994 before me, ____________________,
personally appeared ____________________, personally known to be (or proved to
me on the basis of satisfactory evidence) to be the person(s) whose name(s)
is/are subscribed to the within instrument and acknowledged to me that
he/she/they executed the same in his/her/their authorized capacity(ies), and
that by his/her/their signature on the instrument the person(s), or the entity
upon behalf of which the person(s) acted, executed the instrument.
WITNESS by hand and official seal.
___________________________
Notary Public (Official seal here)
2
<PAGE>
Connecticut General Life Insurance Company,
a Connecticut corporation,
on behalf of its Separate Account R
(Lender)
STATE OF CALIFORNIA )
) ss.
COUNTY OF _____________________ )
On _______________, 1994 before me, ____________________,
personally appeared ____________________, personally known to be (or proved to
me on the basis of satisfactory evidence) to be the person(s) whose name(s)
is/are subscribed to the within instrument and acknowledged to me that
he/she/they executed the same in his/her/their authorized capacity(ies), and
that by his/her/their signature on the instrument the person(s), or the entity
upon behalf of which the person(s) acted, executed the instrument.
WITNESS by hand and official seal.
______________________________
Notary Public (Official seal here)
<PAGE>
Information Storage Devices, Inc.,
a California corporation
STATE OF CALIFORNIA )
) ss.
COUNTY OF _______________________ )
On _______________, 1994 before me, ____________________, personally
appeared ____________________, personally known to be (or proved to me on the
basis of satisfactory evidence) to be the person(s) whose name(s) is/are
subscribed to the within instrument and acknowledged to me that he/she/they
executed the same in his/her/their authorized capacity(ies), and that by
his/her/their signature on the instrument the person(s), or the entity upon
behalf of which the person(s) acted, executed the instrument.
WITNESS by hand and official seal.
______________________________________
Notary Public (Official seal here)
4
<PAGE>
EXHIBIT G
---------
2044 Hamilton Avenue
First Floor
Expansion Space
FLOOR PLAN
<PAGE>
EXHIBIT G
---------
2044 Hamilton Avenue
Second Floor
Expansion Space
FLOOR PLAN
6
<PAGE>
EXHIBIT H
---------
1. EXTERIOR DIRECTORY SIGNS
------------------------
Four (4) exterior directory signs are located [DRAWING OF SIGN]
throughout the project. Landlord will, at
Landlord's expense, provide one (1) listing
per tenant on each directory.
2. TENANT SUITE SIGN
-----------------
Tenant will, at Tenant's expense, be provided [DRAWING OF SIGN]
a tenant suite sign to be installed next to
their suite door. The sign will consist o the
suite number and company name/logo. The sign
will be fabricated and installed by Landlord's
sign company using the standard color and print
style for consistency. Cost is approximately
$3.00/each for Upper Case letters and $1.00/each
for Lower Case letters. Sign frame is $120.00
if needed.
3. INTERIOR ILLUMINATED DIRECTORY SIGN
-----------------------------------
The interior illuminated directory sign is [DRAWING OF SIGN]
located in the lobby of the first floor. An
illuminated directory strip will be fabricated
and installed by Landlord's sign company, at
Tenant's expense, in the appropriate location
within the directory. Cost is approximately
$23.00.
Landlord is responsible for ordering and arranging the installation of the
signs. Tenant acknowledges and agrees to pay the costs associated with the
fabrication and installation of their tenant sign and interior illuminated
directory sign.
Please contact the Greylands Business Park office at (408) 377-9068 to provide
specific sign verbage.
<PAGE>
FIRST AMENDMENT TO LEASE
------------------------
THIS FIRST AMENDMENT TO LEASE ("Amendment") is made this _____ day of
_________________, 1994, by and between GREYLANDS BUSINESS PARK, PHASE 1, a
California general partnership ("Landlord") and INFORMATION STORAGE DEVICES,
INC., a California corporation ("Tenant").
R E C I T A L S
A. Tenant currently leases from Landlord that certain Premises located at
2045 Hamilton Avenue, Suite 100, San Jose, California, pursuant to and as
defined in that certain Office Lease dated August 24, 1994 (the "Lease").
B. Pursuant to the Work Letter Agreement attached to the Lease as Exhibit
C, Tenant agreed to pay to Landlord as additional rent an amount equal to two
and one tenth percent (2.1%) of the Additional Allowance (as defined in the Work
Letter Agreement) per month over the initial five (5) year term of the Lease.
The amount of the Additional Allowance has been determined to be One Hundred
Forty Thousand One Hundred Eighty-Five and 00/100 Dollars ($140,185.00).
C. The purpose of this Amendment is to acknowledge and agree upon the
amount of the additional rent due pursuant to paragraph 5(c) of the Work Letter
Agreement.
NOW, THEREFORE, the parties hereby agree as follows:
1. ADDITIONAL RENT. Pursuant to paragraph 5(c) of the Lease, the amount
---------------
of additional rent which Tenant is obligated to pay to Landlord during the five
(5) year term of the Lease is Two Thousand Nine Hundred Forty-Three and 89/100
Dollars ($2,943.89) per month ($140,185.00 x .021 = $2,943.89). The foregoing
amount shall be due and payable in addition to the amount of basic rent set
forth in paragraph 4(a) of the Lease and the direct expenses as specified in
paragraph 4(b) of the Lease.
2. RESTATEMENT OF OTHER LEASE TERMS. All terms, covenants and conditions
--------------------------------
of the Lease remain in full force and effect. The provisions in paragraph 1 of
this Amendment only clarify the specific obligation of Tenant for payment of
additional rent pursuant to paragraph 5(c) of the Work Letter Agreement, which
is in addition to and not in lieu of the other lease obligations of Tenant under
the Lease.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of
the date first set forth above.
8
<PAGE>
Landlord: Tenant:
- -------- ------
GREYLANDS BUSINESS PARK, PHASE 1, INFORMATION STORAGE DEVICES,
a California general partnership INC., a California corporation
By: McCandless Group (GR-1), a By:__________________________
California general partner- (Signature)
ship, a General Partner
_____________________________
(Printed Name)
By:_____________________________
Birk S. McCandless, as _____________________________
Trustee under Trust (Title)
Agreement dated 2/17/82
a general partner _____________________________
(Date)
_____________________________
(Date)
9
<PAGE>
SECOND AMENDMENT TO LEASE
-------------------------
THIS SECOND AMENDMENT TO LEASE ("Amendment") is made this 25th day of July,
1995, by and between CONNECTICUT GENERAL LIFE INSURANCE COMPANY, a Connecticut
corporation, on behalf of its Separate Account R ("Landlord') and INFORMATION
STORAGE DEVICES, INC., a California corporation ("Tenant").
R E C I T A L S
A. Tenant currently leases from Landlord that contain premises located at
2045 Hamilton Avenue, Suite 100, San Jose, California (`the "Current Premises"),
pursuant to that curtain Office Lease dated August 24, 1994 (the "Original
Lease"), as amended by that certain First Amendment to lease dated November 15,
1994 (collectively, the "Lease "). Pursuant to that certain Assignment of
Leases by and between Greylands Business Park, Phase 1, a California general
partnership ("Greylands") and Connecticut General Life Insurance Company,
Greylands assigned its interest in the lease as landlord to Connecticut General
Life Insurance Company. The Current Premises are shown on Exhibit A attached
hereto.
B. Tenant desires to expand the Current Premises by adding that certain
space located at 20005 Hamilton Avenue, Suite 350, San Jose, California (the
"Expansion Space"), consisting of approximately twelve thousand seven hundred
thirty-three (12,733) square feet. The Expansion Space is shown on Exhibit B
attached hereto.
C. Landlord is willing to expand the Current Premises in consideration of
Tenant's agreement to the terms and conditions set forth in this Amendment.
NOW, THEREFORE, in consideration of the above recitals and the mutual
covenants and agreements contained herein, the parties hereto agree as follows:
1. PREMISES. Commencing on the Effective Date, as defined in paragraph 2
--------
below, the Expansion Space shall be added to the Current Premises and,
thereafter, the term "Premises" for purposes of the Lease shall be deemed to
include both the Current Premises and the Expansion Space, totaling
approximately forty thousand seven hundred seventy (40,770) square feet of
space.
2. EFFECTIVE DATE. As used herein, the "Effective Date" shall be the date
--------------
upon which the earliest of the following occurs:
(a) Substantial completion of all work to be done by Landlord to the
Expansion Space pursuant to Exhibit C attached hereto (exclusive of
communication systems and punchlist items);
(b) Occupancy of the Expansion Space by any of Tenant's operating
personnel; or
(c) If Landlord is prevented from or delayed in completing its work
under Exhibit C due to the acts or omissions of Tenant, it's agents, employees
or contractors, then upon the date that such work would have been substantially
completed but for such acts or omissions.
10
<PAGE>
3. BASIC RENT. Commencing on the Effective Date and continuing through
----------
the end of the term of the Lease, the basic rent as set forth in paragraphs 4(a)
and 5(a) of the Lease shall be modified as follows:
From the Effective Date through $47,280.35 per month
December 1, 1995
From December 2, 1995 through $48,682.20 per month
September 1, 1996
From September 2, 1996 through $50,084.05 per month
December 1, 1997
From December 2, 1997 through $51,205.53 per month
December 1, 1999
The above scheduled basic rent includes the amount of additional rent
payable pursuant to paragraph 1 of the First Amendment to Lease in the amount of
Two Thousand Nine Hundred Forty-Three and 89/100 Dollars ($2,943.89) per month.
4. DIRECT EXPENSES. Commencing on the Effective Date, paragraph 5(b) of
---------------
the Original Lease shall be amended and restated as follows:
"(b) Adjustments to Direct Expenses. Tenant's proportionate share of
------------------------------
Direct Expenses of the Project shall be seventeen and sixty-five one-hundredths
percent (17.65%) (40,770 divided by 230,977). Tenant's proportionate share of
direct expenses (excluding electricity) of the 2045 Building shall be fifty-four
and thirty one-hundredths percent (54.30%) (28,037 divided by 51,630). Tenant's
proportionate share of direct expenses for electricity bills related to the 2045
Building shall be thirty-seven and sixty-one one-hundredths percent (37.16%)
(14,224 divided by 37,187), which excludes the separately metered space in the
2045 Building for which Tenant is responsible (as provided in paragraph 12 of
the Original Lease). Tenant's proportionate share of direct expenses for the
2005 Building shall be nineteen and ninety-nine one-hundredths percent (19.99%)
(12,733 divided by 63,703). Subject to adjustment and reconciliation as provided
in paragraph 5(b) of the Original Lease, commencing on the Effective Date the
estimated Amount of Tenant's proportionate share of direct expenses of the
Project, Building 2005 and Building 2045, as of the Effective Date shall be
Nineteen Thousand Two Hundred Forty-Seven and 56/100 Dollars ($19,247.56) per
month.'
5. ADVANCE RENT DEPOSIT. Concurrent with Tenant's execution and delivery
--------------------
of this Amendment, Tenant shall deposit with Landlord the sum of Twenty-One
Thousand Six Hundred Forty-Six and 10/100 Dollars ($21,646.10) to be applied
against the basic rent and direct expenses for this first least month commencing
as of the Effective Date.
6. SECURITY DEPOSIT. Concurrently with Tenant's execution and delivery of
----------------
this Amendment, Tenant shall deposit with Landlord the sum of Twenty-One
Thousand Six Hundred Forty-Six and 10/100 Dollars ($21,646.10) which sum shall
be held by Landlord as an additional security deposit (along with the Letter of
Credit currently held by Landlord) on the terms specified in paragraph 4(e) of
the Original Lease.
11
<PAGE>
7. PARKING. Commencing on the Effective Date, the total parking spaces
-------
which Tenant will be entitled to sue pursuant to paragraph 15 of the Original
Lease shall be increased from one hundred six (106) parking spaces to one
hundred fifty-one (151) parking spaces.
8. TENANT IMPROVEMENTS. Tenant improvements for Tenant pertaining to the
-------------------
Expansion Space shall be constructed by Landlord in accordance with the terms
and provisions of the Work Letter Agreement attached hereto as Exhibit C. Said
work shall be at the expense of Landlord and/or Tenant as set forth therein.
9. BROKERS. Each party represents that it has not had dealings with any
-------
real estate broker, finder or other person with respect to this Amendment or
expanding the Premises, except for Cooper Brady. Except for the broker
commissions to be paid by the Landlord to Cooper Brady pursuant to a separate
written agreement between Landlord and Cooper Brady (based on the Expansion
space only), there are no leasing commissions to be paid by Landlord or Tenant
in connection with this transaction. Each party hereto shall hold harmless the
other party from all damages, loss or liability resulting from any claims that
may be asserted against the other party by any broker, finder or other person
with whom such party has dealt, or purportedly has dealt, in connection with
this transaction.
10. CORPORATE AUTHORITY. Each individual executing this Amendment on
-------------------
behalf of a corporation represents and warrants that he/she is duly authorized
to execute and deliver this Amendment on behalf of the corporation in accordance
with a duly adopted resolution of the Board of Directors of said corporation and
that this Amendment is binding upon said corporation in accordance with its
terms. Tenant shall deliver to Landlord, within ten (10) days of the execution
and delivery of this Amendment, a copy of the resolution of the Board of
Directors of Tenant authorizing the execution of this Amendment and naming the
officers that are authorized to execute this Amendment on behalf of Tenant,
which copy shall be certified by Tenant's President or Secretary as correct and
in full force and effect.
11. OPTION TO EXTENT TERM. The option to extend the term of the Lease
---------------------
granted to Tenant pursuant to paragraph 55 of the Original Lease shall be deemed
to apply to the Premises as modified by this Amendment and any exercise thereof
by Tenant shall apply to the entire Premises, including both the Current
Premises and the Expansion Space, consisting of approximately forth thousand
seven hundred seventy (40,770) square feet, on the same terms and conditions as
specified therein, except that the second sentence of the first subparagraph of
paragraph 55 regarding the calculation of basic rent shall be modified and
restated as follows:
"The basic rent for the Extended Term shall be adjusted to ninety-five
percent (95%) of the market rate (as defined in paragraph (c) below; provided
that in no event shall the basic rent for the Extended Term be less than Forty-
Three Thousand Four Hundred Ninety-Five and 35/100 Dollars ($43,495.35) per
month with respect to the Premises as defined in paragraph 1 above.
In the event that the Premises are further expanded to include any of
the RFR Space (pursuant to paragraph 12 below) or any other space that is not
part of the Premises as specified in paragraph 1 above, the basic rent amount
applicable to such additional space shall not be less than $1.17 per square foot
per month during the Extended Term."
12
<PAGE>
12. RIGHT OF FIRST REFUSAL. Landlord hereby grants to Tenant a right of
----------------------
first refusal to lease that space commonly known as 2005 Hamilton Avenue, Suites
100, 120, 200 and 220, San Jose, California, consisting of approximately fifteen
thousand ninety-three (15,093) square feet, as shown on Exhibit D (the "RFR
Space"), subject to the following terms and conditions:
(a) Prior to entering into a lease for all or a portion of the RFR
Space, Landlord shall notify Tenant in writing of Landlord's intention to lease
all or a portion of the RFR Space, which notice shall set forth the terms and
conditions, including, but not limited to, basic rent, under which Landlord
intends to lease the RFR Space. Such notice shall constitute an offer to lease
the RFR Space to Tenant on the same terms and conditions as set forth in the
notice.
(b) Tenant shall have five (5) business days from the date of the
notice to deliver to Landlord its written unconditional and irrevocable
acceptance of such offer. If Tenant accepts the offer, an amendment to this
lease or a new lease covering the RFR Space and incorporating said terms and
conditions shall promptly be executed. If a new lease is executed with Tenant
covering the RFR Space such new lease shall provide that any default under this
lease will also constitute a default under such new lease and Tenant agrees that
any default by it under such new lease will also constitute a default under this
lease. In the event Tenant rejects the offer, or does not answer within the
specified time, or fails for any reason (unless such failure is due to the fault
or delay of Landlord) to execute such amendment or new lease within fifteen (15)
days of Tenant's acceptance of such offer, Landlord shall thereafter be released
from any further obligation to Tenant hereunder with respect to the RFR Space
and be free to negotiate with any number of third parties and to lease (without
further obligation to Tenant) the RFR Space upon any terms and conditions
(whether more or less favorable) that Landlord and such third party may agree
and this right of first refusal shall be of no further force or effect.
(c) This right of first refusal shall be subordinate to any existing
rights of refusal, rights of expansion, options to extend or renew, and other
rights contained in leases (or amendments to leases) executed prior to the date
of this lease. In addition, this right of refusal shall not apply and Tenant
shall have no rights hereunder in the event any tenant (or its successors or
assigns) that now or hereafter occupies all or any portion of the RFR Space
desires to extend, renew or otherwise modify its lease or desires to expand its
premises to include any portion of the RFR Space, and Landlord shall be free to
extend, renew or modify such lease or amend such lease to add any portion of the
RFR Space without notice to Tenant.
(d) This right of first refusal shall be void and of no force and
effect and shall confer no rights on Tenant during any period in which Tenant is
in default under this lease.
(e) Notwithstanding anything in this paragraph to the contrary,
Tenant's exercise of this right of first refusal shall be subject to Landlord's
review and approval of Tenant's financial condition (including, without
limitation, Tenant's net worth, current ratio and working capital reserves) at
the time Tenant exercises this right of first refusal and notwithstanding
Tenant's right hereunder Landlord shall have no obligation to lease the RFR
Space, or any portion thereof, to Tenant unless Tenant's financial condition at
the time of exercise is acceptable to Landlord.
13
<PAGE>
(f) All rights granted to Tenant pursuant to this paragraph are
personal to Tenant and may not be transferred or assigned.
13. RESTATEMENT OF OTHER LEASE TERMS. Except as specifically modified,
--------------------------------
herein, all terms, covenants and conditions of the Lease shall remain in full
force and effect.
IN WITNESS WHEREOF, the parties hereto execute this Amendment as of the
date first set forth above.
Landlord: Tenant:
CONNECTICUT GENERAL LIFE INSURANCE INFORMATION STORAGE DEVICES,
COMPANY, a Connecticut corporation, INC., a California corporation
on behalf of its Separate Account R
By: CIGNA Investments, Inc.
Its Authorized Agent By: /s/ FELIX J. ROSENGARTEN
----------------------------------
(Signature)
By: /s/ MARK E. BENOIT FELIX J. ROSENGARTEN
------------------------------ --------------------------------------
(Signature) (Printed Name)
MARK E. BENOIT V.P. AND CFO
- ---------------------------------- --------------------------------------
(Printed Name) (Title)
VICE PRESIDENT 7/25/95
- ---------------------------------- --------------------------------------
(Title) (Date)
AUGUST 1, 1995
- ----------------------------------
(Date)
14
<PAGE>
EXHIBIT A
---------
PREMISES
FIRST FLOOR PLAN
<PAGE>
EXHIBIT B
---------
EXPANSION SPACE
THIRD FLOOR PLAN
<PAGE>
EXHIBIT C
---------
CONSTRUCTION
EXPANSION SPACE
WORK LETTER AGREEMENT
EXISTING SPACE - MAXIMUM ALLOWANCE
THIS WORK LETTER AGREEMENT (hereinafter "Exhibit C") is attached to and
forms a part of that certain Third Amendment to Lease ("Amendment") amending
that certain lease ("Lease") by and between CONNECTICUT GENERAL LIFE INSURANCE
COMPANY, a Connecticut corporation ("Landlord"), and INFORMATION STORAGE
DEVICES, INC., A California corporation ("Tenant"), pursuant to which Landlord
leases to Tenant those certain premises located at 2045 Hamilton Avenue, Suite
100, San Jose, California and consisting of approximately twenty-eight thousand
thirty-seven (28,037) square feet ("Current Premises"). The Amendment provides
for, among other things, the expansion of the Current Premises by adding thereto
approximately twelve thousand three hundred forty-one (12,341) square feet
("Expansion Space"). All capitalized terms used herein shall have the meaning
ascribed to them in the Amendment to which this Exhibit C is made a part unless
otherwise defined herein. The Expansion Space shall be improved in accordance
with the following:
1. EXISTING IMPROVEMENTS:
---------------------
Tenant accepts the Expansion Space in its existing condition and the
improvements constructed therein (the "Existing Improvements"), and Tenant
hereby approves the same as installed, subject only to construction of the
Tenant Improvements specified below and such changes as may subsequently be
agreed upon by Landlord and Tenant.
2. TENANT IMPROVEMENTS:
-------------------
As used herein, "Tenant Improvements" shall include those items and
specifications shown on the Final Construction Drawings prepared in accordance
with paragraph 3 below, including those specifications (as appropriate) set
forth and described in Exhibit C-1, attached hereto, exclusive of Existing
Improvements. Landlord shall construct Tenant Improvements in accordance with
the Final Construction Drawings, Exhibit C-1 and the provisions of this Exhibit
C. Unless otherwise specifically agreed to by Landlord in writing, the
installation, wiring, maintenance and removal of furniture partition systems,
telephone and other communication systems, data cabling, alarm and/or security
systems and any other systems not specifically set forth in the Final
Construction Documents or Exhibit C-1, and all cost and expense associated
therewith, shall be the sole responsibility of Tenant. In connection with the
construction and installation of the Tenant Improvements, Landlord or Landlord's
general
1
<PAGE>
contractor shall have no obligation to move any of Tenant's property located in
or about the Expansion Space including, but not limited to, furniture, inventory
and trade fixtures, at the time of such construction and installation. If at the
time of construction and installation of the Tenant Improvements Tenant has
property located in or about the Expansion Space that inhibits or prevents in
any way the construction and installation of the Tenant Improvements, Tenant
shall immediately, upon receipt of notification therefore from Landlord or
Landlord's general contractor, at Tenant's sole cost and expense, move such
property to another location within the Current Premises or Expansion Space or,
upon receipt of Landlord's Current prior approval, to another location within
the Project designated by Landlord in Landlord's sole discretion; Tenant's
failure to immediately move such property upon receipt of notification therefore
from Landlord or Landlord's general contractor shall be deemed a Tenant caused
delay subject to the provisions of paragraph 8 of this Exhibit C. If at the time
of construction and installation of the Tenant Improvements Tenant has property
located in or about the Expansion Space, Landlord and Landlord's general
contractor shall incur no liability to Tenant or any other party in the event
such property is damaged, destroyed or stolen during the construction and
installation of the Tenant Improvements.
3. TENANT IMPROVEMENT DESIGN SCHEDULE:
----------------------------------
The plans and specifications for the Tenant Improvements shall be
completed in accordance with the following:
(a) Tenant shall approve preliminary floor plan layouts ("Preliminary
Floor Plans") prepared by Landlord by July 28, 1995. The Preliminary Floor Plans
shall show all walls, doors, and other Tenant Improvements desired by Tenant in
sufficient detail for Landlord's architect to prepare architectural construction
drawings and related documents ("Architectural Construction Documents").
(b) Between July 28, 1995 and August 4, 1995, Landlord's architect and
Tenant's representative shall meet as needed to review and complete the final
details related to the Architectural Construction Documents, so that on August
4, 1995 the Architectural Construction Documents are subject only to minor
changes.
(c) No later than August 4, 1995, Tenant shall have made the decisions
required and supplied to Landlord the information necessary for Landlord's
architect to complete the Architectural Construction Documents in enough detail
for Landlord's general contractor to bid the work, select subcontractors and to
proceed toward the design of electrical, mechanical and any other requirements
not included on the Architectural Construction Documents. Upon Landlord's
general Contractor's selection of subcontractors, Landlord's general contractor
and subcontractors shall prepare design specifications outlining in reasonable
detail electrical, mechanical and any other requirements not included on the
Architectural Construction Documents ("Electrical and Mechanical Drawings").
(d) Upon completion of the Architectural Construction Documents,
Tenant shall approve the same subject to changes, deletions or additions as
provided in paragraphs 6 and 7 of this Exhibit C.
2
<PAGE>
(e) Upon completion of the Electrical and Mechanical Drawings,
Landlord or Landlord's general contractor shall submit the Architectural
Construction Documents and Electrical and Mechanical Drawings (collectively the
"City Ready Plans") to the City to obtain a building permit.
(f) Tenant shall have decided upon carpet selection and all other
color and material specifications by August 4, 1995.
(g) As used herein, "Final Construction Documents" shall include the
City Ready Plans, as approved by the City, and any subsequent additions,
deletions or changes to the Tenant Improvements permitted or required pursuant
to paragraphs 6 and 7 of this Exhibit C.
4. TENANT IMPROVEMENT COST ESTIMATES:
---------------------------------
Within fourteen (14) days of completion of the Electrical and
Mechanical Drawings, Landlord shall prepare and deliver to Tenant an improvement
cost budget ("Improvement Cost Budget") setting forth the Total Cost of Tenant's
Improvements (as defined in paragraph 5(b) below). Within three (3) days after
Tenant's receipt of the Improvement Cost Budget, Tenant shall, in writing,
approve or disapprove the Improvement Cost Budget. If Tenant does not deliver
to Landlord its written approval or disapproval within the three (3) day period,
Tenant will be deemed to have approved of the Improvement Cost Budget. If
Tenant disapproves the Improvement Cost Budget, Landlord and Tenant shall,
within three (3) days of Tenant's disapproval, attempt to agree on mutually
acceptable modifications to the Improvement Cost Budget. If Tenant disapproves
of the Improvement Cost Budget and Landlord and Tenant are unable, within the
three (3) day period, to agree on mutually acceptable changes to the Improvement
Cost Budget, or if Tenant approves of the Improvement Cost Budget but does not
deliver to Landlord, within three (3) days of its approval, signed copies of the
Improvement Cost Budget and Architectural Construction Documents, then Landlord
may terminate the Amendment upon written notice to Tenant. The Improvement Cost
Budget shall be subject to adjustment for increases in costs resulting from
changes to the Tenant Improvements requested or required pursuant to paragraphs
6 and 7 below. Landlord shall not be obligated to commence construction of the
Tenant Improvements until the following has occurred: (i) the Architectural
Construction Documents and Improvement Cost Budget have been agreed to by
Landlord and Tenant; (ii) Tenant has indicated its approval of the Architectural
Construction Documents and the Improvement Cost Budget by signing copies
thereof; and (iii) Landlord has given written authorization to proceed with
construction to Landlord's general contractor based on the agreed Architectural
Construction Documents and the Improvement Cost Budget.
5. TENANT IMPROVEMENT ALLOWANCE:
----------------------------
(a) Landlord agrees to grant to Tenant a Tenant Improvement Allowance
("Allowance") in an amount up to Eighty-Five Thousand Two Hundred Sixty-Seven
and 50/100 dollars ($85,267.50) to be applied toward the "Total Cost of Tenant's
Improvements" (as defined below) to be installed in accordance with this Exhibit
C.
3
<PAGE>
(b) As used herein, "Total Cost of Tenant Improvements" shall mean all
costs to construct and install the Tenant Improvements, including without
limitation, (i) all demolition costs incurred in connection with preparing the
Premises for the installation of the Tenant Improvements and the actual costs
incurred for labor, materials and contractors' fees; (ii) the cost of overtime
or special expenditures required to obtain and install the Tenant Improvements
by the proposed Effective Date; (iii) all costs related to change orders; (iv)
all costs related to changes required or requested by governmental authority;
(v) permit fees and other fees not previously paid by Landlord as part of shell
costs; (vi) the cost of consultants and engineers; (vii) an amount equal to the
actual cost of supervision, administration and on-site facilities and equipment
necessary to perform the work; (viii) an amount equal to 7% of the sum of items
(i) through (vii) above as and for the general contractor's overhead and profit'
and (ix) the cost of architects hired by Landlord.
(c) In the event that the Improvement Cost Budget exceeds the
Allowance of $85,267.50, then Landlord shall provide Tenant with an additional
allowance ("Additional Allowance") in an amount up to $28,422.50 and the amount
of the Additional Allowance shall be amortized in full (including interest at
10% per annum) ratably over the remaining term of the Lease (from the Effective
Date through December 1, 1999), with such amount to be added to and paid as
additional basic rent along with the basic rent provided for in paragraph 4(a)
and 5(a) of the Lease, as amended; provided, however, in the event of default by
Tenant under the Lease the entire unpaid balance of the Additional Allowance
shall be immediately due and payable and Landlord may exercise any or all of its
rights or remedies under the Lease. The sum of the Allowance and the Additional
Allowance is referred to herein as the "Maximum Allowance". In the event the
Improvement Cost Budget exceeds the Maximum Allowance (the amount by which the
Improvement Cost Budget exceeds the Maximum Allowance shall be referred to
herein as the "Excess Cost"), Tenant shall pay fifty percent (50%) of such
Excess Cost to Landlord within five (5) days of Tenant's approval of the
Improvement Cost Budget and the remaining fifty percent (50%) of the Excess Cost
within five (5) days of when Landlord notifies Tenant that the Tenant
Improvements are fifty percent (50%) completed. Tenant's failure to make any
payment of the Excess Cost when due, or to make any payment with respect to
change orders as set forth in paragraph 6 of this Exhibit C, shall be deemed a
default under the Lease and the amount so delinquent shall be deemed additional
rent and Landlord may exercise all rights and remedies set forth in the Lease;
and in addition, Landlord may delay construction until such payment is made and
such delay shall be deemed a Tenant caused delay subject to the provisions of
paragraph 8 of this Exhibit C.
(d) In the event Tenant causes delays, or requests changes which cause
delays in construction of more than ninety (90) calendar days, then Landlord
shall not be obligated to grant to Tenant the Allowance (or the Additional
Allowance), or any balance remaining unused therein. In such case, Landlord
shall thereafter have no obligation to construct any Tenant Improvements for
Tenant. Furthermore, the cessation of Landlord's obligation to construct the
Tenant Improvements as permitted herein shall not affect Tenant's obligation to
make payments of basic rent and direct expenses or any other payments due
landlord under the Lease or the Amendment. Tenant shall be entitled to no rent
reduction or credit at any time in the event that
4
<PAGE>
the Allowance (or Additional Allowance) or any portion thereof remains unused
for any reason whatsoever.
6. CHANGES BY TENANT:
-----------------
Tenant may request changes, deletions or additions to the Tenant
Improvements; provided, however, that the effectiveness of any such requested
change, deletion or addition shall be subject to written approval by an
authorized representative of Landlord and to obtaining any required governmental
permits or other approvals. If any such change, deletion or addition increases
the Improvement Cost Budget above the Allowance, Tenant shall immediately pay to
Landlord the full amount of such increase in excess of the Allowance. In no
event shall work on any change, deletion or addition requested pursuant to this
paragraph 6 commence prior to (i) Landlord and Tenant approving, in writing,
such change, deletion or addition, and (ii) Landlord's receipt from Tenant of
payment of the full amount of the increase of the Improvement Cost Budget in
excess of the Allowance.
7. CHANGES BY AUTHORITY:
--------------------
Tenant agrees that if any change, deletion or addition to any of the
improvements proposed to be constructed or installed is required by any
governmental authority in connection with obtaining any governmental permit or
approval, or otherwise, then such change, deletion or addition shall promptly be
made and the Improvement Cost Budget shall be adjusted to reflect any increase
in cost resulting from such required change. To the extent any change, deletion
or addition required by any governmental authority in connection with obtaining
any governmental permit or approval increases the Improvement Cost Budget above
the Allowance, Tenant shall pay to Landlord such increase above the Allowance in
accordance with the provisions of paragraph 5(c) of this Exhibit C. Failure to
obtain any required governmental approval or permit for the Tenant Improvement
desired by Tenant shall in no way be cause for Tenant to terminate the Lease or
any amendment to the Lease.
8. DELAYS CAUSED BY TENANT:
-----------------------
If the Effective Date is delayed due in any respect to Tenant's
failure to meet the schedule set forth in paragraph 3 of this Exhibit C, or due
to construction delays related to any changes required by Tenant, or due to any
other failures by Tenant to perform its obligations under this Exhibit C or
otherwise under the Lease or the Amendment, then any such delays shall be deemed
Tenant caused delays for purposes of determining the Effective Date pursuant to
paragraph 2 of the Amendment.
9. PUNCH LIST:
----------
Within ten (10) business days after the Effective Date, Tenant shall
deliver to Landlord a list of items ("Punch List") that Tenant believes Landlord
should complete or correct in order for the Expansion Space to be acceptable.
Landlord shall commence to complete or correct the items as soon as possible,
except those items that Landlord contends are not justified. If Tenant does not
deliver the Punch List to Landlord within the ten (10) day period, Tenant shall
5
<PAGE>
be deemed to have accepted the Expansion Space and approved the construction.
Nothing in this paragraph 9 shall delay the Effective Date or Tenant's
obligation to pay rent or to make other payments due Landlord under the Lease or
the Amendment.
10. ATTACHMENTS:
-----------
All references in the Amendment to Exhibit C shall be deemed to also
include Exhibit C-1 and C-___.
6
<PAGE>
EXHIBIT D
---------
RFR SPACE
FIRST FLOOR PLAN
<PAGE>
EXHIBIT D
---------
RFR SPACE
FIRST FLOOR PLAN
<PAGE>
EXHIBIT D
---------
RFR SPACE
SECOND FLOOR PLAN
<PAGE>
THIRD AMENDMENT TO LEASE
------------------------
THIS THIRD AMENDMENT TO LEASE ("Amendment") is made this _____ day of
_________________, 1997, by and between CONNECTICUT GENERAL LIFE INSURANCE
COMPANY, a Connecticut corporation, on behalf of its Separate Account R
("Landlord") and INFORMATION STORAGE DEVICES, INC., a California corporation
("Tenant").
R E C I T A L S
A. Tenant currently leases from Landlord those certain premises located at
2045 Hamilton Avenue, Suite 100, San Jose, California ("Building 2045") and 2005
Hamilton Avenue, Suite 350, San Jose, California ("Suite 350"), together
referred to herein as the "Premises", pursuant to that certain Office Lease
dated August 24, 1994 as amended by that certain First Amendment to Lease dated
November 15, 1994 and that certain Second Amendment to Lease dated July 25, 1995
(collectively, the "Lease").
B. Paragraph 12 of the Lease provides that Landlord shall provide
janitorial services to the Premises. Tenant has requested that paragraph 12 be
modified to allow Tenant to contract directly for janitorial services to
Building 2045.
C. Landlord is willing to modify paragraph 12 of the Lease in
consideration of Tenant's agreement to the terms and conditions set forth in
this Amendment.
NOW, THEREFORE, in consideration of the above recitals and the mutual
covenants and agreements contained herein, the parties hereto agree as follows:
1. JANITORIAL SERVICE. Paragraph 12 of the Lease is hereby modified and
------------------
amended with respect to the obligation to provide janitorial services as
follows:
"Commencing on March 1, 1997, Tenant shall be responsible for obtaining
janitorial service for Building 2045 and Tenant shall contract directly
with the provider of such services and pay for all costs and expenses
related thereto and Landlord shall be relieved of its obligation to
provide janitorial services to Building 2045 (but Landlord shall
continue to provide janitorial service to Suite 350 as provided in
paragraph 12 of the Lease). The provider of janitorial services and the
level of services shall be subject to Landlord's approval. Tenant shall
provide Landlord with a copy of any and all contracts or agreements of
any kind related to such services. All such contracts or agreements
must terminate on or before the end of the lease term and must be
cancelable by either Landlord or Tenant immediately upon notice to such
provider at any time. Notwithstanding the preceding sentence, if
Landlord determines in its sole and absolute discretion that the
janitorial services being provided to Building 2045 are not adequate,
then Landlord shall have the right, but not the obligation, to
terminate such contract and to terminate Tenant's rights under this
paragraph 1 and thereafter reassume the obligation to provide
janitorial services to Building 2045 as provided in the Lease and, in
that event, the costs for such services shall again be a direct expense
and Tenant shall pay its percentage share of such costs to Landlord as
provided in paragraphs 4 and 5 of the Lease."
2. RESTATEMENT OF OTHER LEASE TERMS. Except as specifically modified
--------------------------------
herein, all terms, covenants and conditions of the Lease shall continue in full
force and effect.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of
the date first set forth above.
<PAGE>
Landlord: Tenant:
- -------- ------
CONNECTICUT GENERAL LIFE INSURANCE INFORMATION STORAGE DEVICES,
COMPANY, a Connecticut corporation, INC., a California corporation
on behalf of its Separate Account R
By: CIGNA Investments, Inc.
Its Authorized Agent
By:__________________________ By:__________________________
Name:________________________ Name:________________________
Title:_______________________ Title:_______________________
Date:________________________ Date:________________________
<PAGE>
EXPANSION SPACE
WORK LETTER AGREEMENT
EXISTING SPACE - MAXIMUM ALLOWANCE
CONSTRUCTION EXHIBIT C
- --------------------------------------------------------------------------------
THIS WORK LETTER AGREEMENT (hereinafter "Exhibit C") is attached to and
forms a part of that certain Third Amendment to Lease ("Amendment") amending
that certain lease ("Lease") by and between CONNECTICUT GENERAL LIFE INSURANCE
COMPANY, a Connecticut corporation ("Landlord"), and INFORMATION STORAGE
DEVICES, INC., a California corporation ("Tenant"), pursuant to which Landlord
leases to Tenant those certain premises located at 2045 Hamilton Avenue, Suite
100, San Jose, California and consisting of approximately twenty-eight thousand
thirty-seven (28,037) square feet ("Current Premises"). The Amendment provides
for, among other things, the expansion of the Current Premises by adding thereto
approximately twelve thousand three hundred forty-one (12,341) square feet
("Expansion Space"). All capitalized terms used herein shall have the meaning
ascribed to them in the Amendment to which this Exhibit C is made a part unless
otherwise defined herein. The Expansion Space shall be improved in accordance
with the following:
1. EXISTING IMPROVEMENTS:
---------------------
Tenant accepts the Expansion Space in its existing condition and the
improvements constructed therein (the "Existing Improvements"), and Tenant
hereby approves the same as installed, subject only to construction of the
Tenant Improvements specified below and such changes as may subsequently be
agreed upon by Landlord and Tenant.
2. TENANT IMPROVEMENTS:
-------------------
As used herein, "Tenant Improvements" shall include those items and
specifications shown on the Final Construction Drawings prepared in accordance
with paragraph 3 below, including those specifications (as appropriate) set
forth and described in Exhibit C-1, attached hereto, exclusive of Existing
Improvements. Landlord shall construct Tenant Improvements in accordance with
the Final Construction Drawings, Exhibit C-1 and the provisions of this Exhibit
C. Unless otherwise specifically agreed to by Landlord in writing, the
installation, wiring, maintenance and removal of furniture partition systems,
telephone and other communication systems, data cabling, alarm and/or security
systems and any other systems not specifically set forth in the Final
Construction Documents or Exhibit C-1, and all cost and expense associated
therewith, shall be the sole responsibility of Tenant. In connection with the
construction and installation of the Tenant Improvements, Landlord or Landlord's
general contractor shall have no obligation to move any of Tenant's property
located in or about the Expansion Space including, but not limited to,
furniture, inventory and trade fixtures, at the time of such construction and
installation. If at the time of construction and installation of the Tenant
Improvements Tenant has property located in or about the Expansion Space that
inhibits or prevents in any way the construction and installation of the Tenant
Improvements, Tenant shall immediately, upon receipt of notification therefore
from Landlord or Landlord's general contractor, at Tenant's sole cost and
expense, move such property to another location within the Current Premises or
Expansion Space or, upon receipt of Landlord's prior approval, to another
location within the Project designated by Landlord in Landlord's sole
discretion; Tenant's failure to immediately move such property upon receipt of
notification therefore from Landlord or Landlord's general contractor shall be
deemed a Tenant caused delay subject to the provisions of paragraph 8 of this
Exhibit C. If at the time of construction and installation of the Tenant
Improvements Tenant has property located in or about the Expansion Space,
Landlord and Landlord's general contractor shall incur no liability to Tenant or
any other party in the event such property is damaged, destroyed or stolen
during the construction and installation of the Tenant Improvements.
<PAGE>
3. TENANT IMPROVEMENT DESIGN SCHEDULE:
----------------------------------
The plans and specifications for the Tenant Improvements shall be
completed in accordance with the following:
(a) Tenant shall approve preliminary floor plan layouts ("Preliminary
Floor Plans") prepared by Landlord by ______________________. The Preliminary
Floor Plans shall show all walls, doors, and other Tenant Improvements desired
by Tenant in sufficient detail for Landlord's architect to prepare architectural
construction drawings and related documents ("Architectural Construction
Documents").
(b) Between ________________ and _______________, Landlord's
architect and Tenant's representative shall meet as needed to review and
complete the final details related to the Architectural Construction Documents,
so that on __________________ the Architectural Construction Documents are
subject only to minor changes.
(c) No later than _____________________, Tenant shall have made the
decisions required and supplied to Landlord the information necessary for
Landlord's architect to complete the Architectural Construction Documents in
enough detail for Landlord's general contractor to bid the work, select
subcontractors and to proceed toward the design of electrical, mechanical and
any other requirements not included on the Architectural Construction Documents.
Upon Landlord's general contractor's selection of subcontractors, Landlord's
general contractor and subcontractors shall prepare design specifications
outlining in reasonable detail electrical, mechanical and any other requirements
not included on the Architectural Construction Documents ("Electrical and
Mechanical Drawings").
(d) Upon completion of the Architectural Construction Documents,
Tenant shall approve the same subject to changes, deletions or additions as
provided in paragraphs 6 and 7 of this Exhibit C.
(e) Upon completion of the Electrical and Mechanical Drawings,
Landlord or Landlord's general contractor shall submit the Architectural
Construction Documents and Electrical and Mechanical Drawings (collectively the
"City Ready Plans") to the City to obtain a building permit.
(f) Tenant shall have decided upon carpet selection and all other
color and material specifications by ___________________.
(g) As used herein, "Final Construction Documents" shall include the
City Ready Plans, as approved by the City, and any subsequent additions,
deletions or changes to the Tenant Improvements permitted or required pursuant
to paragraphs 6 and 7 of this Exhibit C.
4. TENANT IMPROVEMENT COST ESTIMATES:
---------------------------------
Within fourteen (14) days of completion of the Electrical and
Mechanical Drawings, Landlord shall prepare and deliver to Tenant an improvement
cost budget ("Improvement Cost Budget") setting forth the Total Cost of Tenant's
Improvements (as defined in paragraph 5(b) below). Within three (3) days after
Tenant's receipt of the Improvement Cost Budget, Tenant shall, in writing,
approve or disapprove the Improvement Cost Budget. If Tenant does not deliver to
Landlord its written approval or disapproval within the three (3) day period,
Tenant will be deemed to have approved of the Improvement Cost Budget. If Tenant
disapproves the Improvement Cost Budget, Landlord and Tenant shall, within three
(3) days of Tenant's disapproval, attempt to agree on mutually acceptable
modifications to the Improvement Cost Budget. If Tenant disapproves of the
Improvement Cost Budget and Landlord and Tenant are unable, within the three (3)
day period, to agree on mutually acceptable changes to the Improvement Cost
Budget, or if Tenant approves of the Improvement Cost Budget but does not
deliver to Landlord, within three (3) days of its approval, signed copies of the
Improvement Cost Budget and Architectural Construction Documents, then Landlord
may terminate the Amendment upon written notice to Tenant. The Improvement Cost
Budget shall be subject to adjustment for increases in costs resulting from
changes to the Tenant Improvements requested or required pursuant to paragraphs
6 and 7 below. Landlord shall not be obligated to commence construction of the
Tenant Improvements until the following has occurred: (i) the Architectural
Construction Documents and Improvement Cost Budget have been agreed to by
Landlord and Tenant; (ii) Tenant has indicated its approval of the Architectural
Construction Documents
<PAGE>
and the Improvement Cost Budget by signing copies thereof; and (iii) Landlord
has given written authorization to proceed with construction to Landlord's
general contractor based on the agreed Architectural Construction Documents and
the Improvement Cost Budget.
5. TENANT IMPROVEMENT ALLOWANCE:
----------------------------
(a) Landlord agrees to grant to Tenant a Tenant Improvement Allowance
("Allowance") in an amount up to Eighty-Two Thousand Six Hundred Forty-Two and
50/100 Dollars ($82,642.50) to be applied toward the "Total Cost of Tenant's
Improvements" (as defined below) to be installed in accordance with this Exhibit
C.
(b) As used herein, "Total Cost of Tenant's Improvements" shall mean
all costs to construct and install the Tenant Improvements, including without
limitation, (i) all demolition costs incurred in connection with preparing the
Premises for the installation of the Tenant Improvements and the actual costs
incurred for labor, materials and contractors' fees; (ii) the cost of overtime
or special expenditures required to obtain and install the Tenant Improvements
by the proposed Effective Date; (iii) all costs related to change orders; (iv)
all costs related to changes required or requested by governmental authority;
(v) permit fees and other fees not previously paid by Landlord as part of shell
costs; (vi) the cost of consultants and engineers; (vii) an amount equal to the
actual cost of supervision, administration and on-site facilities and equipment
necessary to perform the work; (viii) an amount equal to 7% of the sum of items
(i) through (vii) above as and for the general contractor's overhead and profit;
and (ix) the cost of architects hired by Landlord.
(c) In the event that the Improvement Cost Budget exceeds the
Allowance of $82,642.50, then Landlord shall provide Tenant with an additional
allowance ("Additional Allowance") in an amount up to $27,547.50 and the amount
of the Additional Allowance shall be amortized in full (including interest at
10% per annum) ratably over the remaining term of the Lease (from the Effective
Date through December 1, 1999), with such amount to be added to and paid as
additional basic rent along with the basic rent provided for in paragraphs 4(a)
and 5(a) of the Lease, as amended; provided, however, in the event of a default
by Tenant under the Lease the entire unpaid balance of the Additional Allowance
shall be immediately due and payable and Landlord may exercise any or all of its
rights or remedies under the Lease. The sum of the Allowance and the Additional
Allowance is referred to herein as the "Maximum Allowance". In the event the
Improvement Cost Budget exceeds the Maximum Allowance (the amount by which the
Improvement Cost Budget exceeds the Maximum Allowance shall be referred to
herein as the "Excess Cost"), Tenant shall pay fifty percent (50%) of such
Excess Cost to Landlord within five (5) days of Tenant's approval of the
Improvement Cost Budget and the remaining fifty percent (50%) of the Excess Cost
within five (5) days of when Landlord notifies Tenant that the Tenant
Improvements are fifty percent (50%) completed. Tenant's failure to make any
payment of the Excess Cost when due, or to make any payment with respect to
change orders as set forth in paragraph 6 of this Exhibit C, shall be deemed a
default under the Lease and the amount so delinquent shall be deemed additional
rent and Landlord may exercise all rights and remedies set forth in the Lease;
and in addition, Landlord may delay construction until such payment is made and
such delay shall be deemed a Tenant caused delay subject to the provisions of
paragraph 8 of this Exhibit C.
(d) In the event Tenant causes delays, or requests changes which cause
delays in construction of more than ninety (90) calendar days, then Landlord
shall not be obligated to grant to Tenant the Allowance (or the Additional
Allowance), or any balance remaining unused therein. In such case, Landlord
shall thereafter have no obligation to construct any Tenant Improvements for
Tenant. Furthermore, the cessation of Landlord's obligation to construct the
Tenant Improvements as permitted herein shall not affect Tenant's obligation to
make payments of basic rent and direct expenses or any other payments due
Landlord under the Lease or the Amendment. Tenant shall be entitled to no rent
reduction or credit at any time in the event that the Allowance (or Additional
Allowance) or any portion thereof remains unused for any reason whatsoever.
6. CHANGES BY TENANT:
-----------------
Tenant may request changes, deletions or additions to the Tenant
Improvements; provided, however, that the effectiveness of any such requested
change, deletion or addition shall be subject to written approval by an
authorized representative of Landlord and to obtaining any required governmental
permits or other approvals. If any
<PAGE>
such change, deletion or addition increases the Improvement Cost Budget above
the Allowance, Tenant shall immediately pay to Landlord the full amount of such
increase in excess of the Allowance. In no event shall work on any change,
deletion or addition requested pursuant to this paragraph 6 commence prior to
(i) Landlord and Tenant approving, in writing, such change, deletion or
addition, and (ii) Landlord's receipt from Tenant of payment of the full amount
of the increase of the Improvement Cost Budget in excess of the Allowance.
7. CHANGES BY AUTHORITY:
--------------------
Tenant agrees that if any change, deletion or addition to any of the
improvements proposed to be constructed or installed is required by any
governmental authority in connection with obtaining any governmental permit or
approval, or otherwise, then such change, deletion or addition shall promptly be
made and the Improvement Cost Budget shall be adjusted to reflect any increase
in cost resulting from such required change. To the extent any change, deletion
or addition required by any governmental authority in connection with obtaining
any governmental permit or approval increases the Improvement Cost Budget above
the Allowance, Tenant shall pay to Landlord such increase above the Allowance in
accordance with the provisions of paragraph 5(c) of this Exhibit C. Failure to
obtain any required governmental approval or permit for the Tenant Improvements
desired by Tenant shall in no way be cause for Tenant to terminate the Lease or
any amendment to the Lease.
8. DELAYS CAUSED BY TENANT:
-----------------------
If the Effective Date is delayed due in any respect to Tenant's failure
to meet the schedule set forth in paragraph 3 of this Exhibit C, or due to
construction delays related to any changes required by Tenant, or due to any
other failures by Tenant to perform its obligations under this Exhibit C or
otherwise under the Lease or the Amendment, then any such delays shall be deemed
Tenant caused delays for purposes of determining the Effective Date pursuant to
paragraph 2 of the Amendment.
9. PUNCH LIST:
----------
Within ten (10) business days after the Effective Date, Tenant shall
deliver to Landlord a list of items ("Punch List") that Tenant believes Landlord
should complete or correct in order for the Expansion Space to be acceptable.
Landlord shall commence to complete or correct the items as soon as possible,
except those items that Landlord contends are not justified. If Tenant does not
deliver the Punch List to Landlord within the ten (10) day period, Tenant shall
be deemed to have accepted the Expansion Space and approved the construction.
Nothing in this paragraph 9 shall delay the Effective Date or Tenant's
obligation to pay rent or to make other payments due Landlord under the Lease or
the Amendment.
10. ATTACHMENTS:
-----------
All references in the Amendment to Exhibit C shall be deemed to also
include Exhibit C-1 and C-_____.
<PAGE>
EXHIBIT 10.09
CONNECTICUT GENERAL LIFE INSURANCE COMPANY
AND
EBAY, INC.
LEASE
<PAGE>
SUMMARY OF LEASE
1. DATE OF LEASE:
2. LANDLORD: Connecticut General Life Insurance
Company, on behalf of its Separate
Account R
3. TENANT: eBay, Inc., a California corporation
4. PREMISES: 2005 Hamilton Avenue, Suites 235 and 240
San Jose, California
5. SQUARE FEET: 2,215 sq. ft.
6. PERMITTED USE: General office
7. TERM: Three (3) years
(a) SCHEDULED COMMENCEMENT DATE: April 1, 1998
(b) SCHEDULED EXPIRATION DATE: March 31, 2001
8. RENT:
(a) BASIC RENT: $ 5,493.20 per month (Lease months 1-36)
(b) TENANT'S ESTIMATED SHARE OF
DIRECT EXPENSES: $ 1,373.30 per month
9. SECURITY DEPOSIT: $7,000.00
10. PARKING SPACES PROVIDED: Eight (8)
11. OTHER IMPORTANT PROVISIONS:
THIS SUMMARY OF LEASE IS INTENDED TO SUMMARIZE CERTAIN KEY PROVISIONS IN THE
ATTACHED LEASE. IN THE EVENT OF ANY CONFLICT OR INCONSISTENCY BETWEEN THE
PROVISIONS OF THIS SUMMARY AND THE LEASE, THE PROVISIONS OF THE LEASE SHALL
GOVERN.
<PAGE>
TABLE OF CONTENTS
PARAGRAPH
- -----------------------------------------------------------------
PAGE
- ----
1. USE
2. TERM
3. POSSESSION
4. MONTHLY RENT
5. ADJUSTMENT OF BASIC RENT AND DIRECT EXPENSES
6. RESTRICTION ON USE
7. COMPLIANCE WITH LAWS
8. ALTERATIONS
9. REPAIR AND MAINTENANCE
10. LIENS
11. INSURANCE
12. UTILITIES AND SERVICE
13. TAXES AND OTHER CHARGES
14. ENTRY BY LANDLORD
15. COMMON AREA; PARKING
16. DAMAGE BY FIRE; CASUALTY
17. INDEMNIFICATION
18. ASSIGNMENT AND SUBLETTING
19. DEFAULT
20. LANDLORD'S RIGHT TO CURE TENANT'S DEFAULT
21. EMINENT DOMAIN
22. NOTICE TO SURRENDER
23. TENANT'S QUITCLAIM
24. HOLDING OVER
25. SUBORDINATION
26. CERTIFICATE OF ESTOPPEL
27. SALE BY LANDLORD
28. ATTORNMENT TO LENDER OR THIRD PARTY
29. DEFAULT BY LANDLORD
30. CONSTRUCTION CHANGES
31. MEASUREMENT OF PREMISES
32. ATTORNEY FEES
33. SURRENDER
34. WAIVER
35. EASEMENTS; AIRSPACE RIGHTS
36. RULES AND REGULATIONS
37. NOTICES
38. NAME
39. GOVERNING LAW; SEVERABILITY
40. DEFINITIONS
41. TIME
42. INTEREST ON PAST DUE OBLIGATIONS; LATE CHARGE
43. ENTIRE AGREEMENT
44. CORPORATE AUTHORITY
45. RECORDING
46. REAL ESTATE BROKERS
47. EXHIBITS AND ATTACHMENTS
48. ERISA REQUIREMENTS
49. ENVIRONMENTAL MATTERS
50. SIGNAGE
51. SUBMISSION OF LEASE
52. PREMISES LEASED "AS IS"
53. ADDITIONAL RENT
54. LANDLORD'S OPTION TO RELOCATE PREMISES
<PAGE>
OFFICE LEASE
------------
THIS LEASE is made this __________ day of _______________________, 1998, by
and between CONNECTICUT GENERAL LIFE INSURANCE COMPANY, a Connecticut
corporation, on behalf of its Separate Account R ("Landlord"), and EBAY, INC., a
California corporation ("Tenant).
W I T N E S S E T H:
Landlord leases to Tenant and Tenant leases from Landlord those certain
premises outlined in red on Exhibit A (the "Premises") which Premises are
commonly known as 2005 Hamilton Avenue, Suites 235 and 240, San Jose,
California, which Landlord and Tenant hereby agree consists of approximately two
thousand two hundred fifteen (2,215) square feet. As used herein the term
"Project" shall mean and include all of the land described in Exhibit B and all
the buildings, improvements, fixtures and equipment now or hereafter situated on
said land.
Tenant covenants, as a material part of the consideration of this lease, to
perform and observe each and all of the terms, covenants and conditions set
forth below, and this lease is made upon the condition of such performance and
observance.
1. USE. Subject to the restrictions contained in paragraph 6, Tenant shall
---
use the Premises for general office use and shall not use or permit the Premises
to be used for any other purpose.
2. TERM. The term shall be for three (3) years (unless sooner terminated
----
as hereinafter provided) and, subject to paragraph 3, shall commence on April 1,
1998 and end on March 31, 2001.
3. POSSESSION.
----------
(a) If Landlord for any reason cannot deliver possession of the Premises
to Tenant by the scheduled commencement date set forth in paragraph 2, this
lease shall not be void or voidable, Landlord shall not be liable to Tenant for
any loss or damage on account thereof and Tenant shall not be liable for rent
until Landlord delivers possession of the Premises to Tenant. If the term
commences on a date other than the date specified in paragraph 2 above, then the
parties shall immediately execute an amendment to this lease stating the actual
date of commencement. The expiration date of the term shall be extended by the
same number of days that Tenant's possession of the Premises was delayed from
that set forth in paragraph 2.
(b) Tenant's inability or failure to take possession of the Premises
when delivery is tendered by Landlord shall not delay the commencement of the
term of this lease or Tenant's obligation to pay rent. Tenant acknowledges that
Landlord shall incur significant expenses upon the execution of this lease, even
if Tenant never takes possession of the Premises, including without limitation
brokerage commissions and fees, legal fees and other professional fees. Tenant
acknowledges that all of said expenses shall be included in measuring Landlord's
damages should Tenant breach the terms of this lease.
4. MONTHLY RENT.
------------
(a) Basic Rent. Tenant shall pay to Landlord as basic rent for the
----------
Premises, in advance and subject to adjustment as provided in paragraph 5, the
sum of Five Thousand Four Hundred Ninety-Three and 20/100 Dollars ($5,493.20) on
or before the first day of the first full calendar month of the term and on or
before the first day of each and every successive calendar month. Basic rent
for any partial month shall be payable in advance and shall be prorated based on
the actual number of days during the lease term occurring in such month divided
by the total number of days in such month.
(b) Direct Expenses. In addition to the above basic rent and as
---------------
additional rent, Tenant shall pay to Landlord, subject to adjustment and
reconciliation as provided in paragraph 5(b) of this lease, the sum of One
Thousand Three Hundred Seventy-Three and 30/100 Dollars ($1,373.30) on or before
the first day of the first full calendar month of the term and on the first day
of each and every successive calendar month, said sum representing Tenant's
estimated payment of its proportionate share of direct expenses as provided for
in paragraph 5(b) to this lease. Payment for direct expenses for any partial
month shall be payable in advance and shall be prorated based on the actual
number of days during the lease term occurring in such month divided by the
total number of days in such month.
(c) Manner and Place of Payment. All payments of basic rent and direct
---------------------------
expenses shall be paid to Landlord, without deduction or offset, in lawful money
of the United States of America, c/o McCandless Management Corporation at 3945
Freedom Circle, Suite 640, Santa Clara, California, 95054, or to such other
person or place as Landlord may from time to time designate in writing.
(d) Advance Rent. Concurrently with Tenant's execution of this lease,
------------
Tenant shall deposit with Landlord the sum of Six Thousand Eight Hundred Sixty-
Six and 50/100 Dollars ($6,866.50) to be applied
1
<PAGE>
against the basic rent and direct expenses for the first month of the term.
(e) Security Deposit. Concurrently with Tenant's execution of this
----------------
lease, Tenant shall deposit with Landlord the sum of Seven Thousand Dollars
($7,000.00), which sum shall be held by Landlord as a security deposit for the
faithful performance by Tenant of all of the terms, covenants and conditions of
this lease to be kept and performed by Tenant. If Tenant defaults with respect
to any provision of this lease, including but not limited to the provisions
relating to the payment of basic rent and direct expenses, Landlord may (but
shall not be required to) use, apply or retain all or any part of this security
deposit for the payment of any amount which Landlord may spend by reason of
Tenant's default or to compensate Landlord for any other loss or damage which
Landlord may suffer by reason of Tenant's default. If any portion of said
deposit is so used, Tenant shall, within ten (10) days after written demand
therefor, deposit cash with Landlord in the amount sufficient to restore the
security deposit to its original amount; Tenant's failure to do so shall be a
material breach of this lease. Landlord shall not be required to keep this
security deposit separate from its general funds and Tenant shall not be
entitled to interest on such deposit. If Tenant is not in default at the
expiration or termination of this lease, the security deposit or any balance
thereof shall be returned to Tenant after Tenant has vacated the Premises. In
the event of termination of Landlord's interest in this lease, Landlord shall
transfer said deposit to Landlord's successor in interest, and Tenant agrees
that Landlord shall thereupon be released from liability for the return of such
deposit or any accounting therefor.
5. ADJUSTMENT OF BASIC RENT AND DIRECT EXPENSES.
--------------------------------------------
(a) Adjustments in Basic Rent. The basic rent provided for in paragraph
-------------------------
4(a) shall be adjusted annually on each anniversary of the commencement date as
follows:
Commencing on the first day of the thirteenth (13th) lease month and on
each anniversary date thereafter (the "Adjustment Date"), the basic rent shall
be adjusted as follows:
The Consumer Price Index for All Urban Consumers (base year 1984 = 100)
for San Francisco-Oakland, Metropolitan Area published by the United States
Department of Labor, Bureau of Labor Statistics ("Index"), which is published
for the date immediately preceding the applicable Adjustment Date (the
"Extension Index"), shall be compared with the Index published for the date
immediately preceding the lease commencement date (the "Beginning Index"). If
the Extension Index has increased over the Beginning Index, the basic monthly
rent payable during the following period shall be set by multiplying the basic
rent as of the lease commencement date by a fraction, the numerator of which is
the Extension Index and the denominator of which is the Beginning Index;
provided, however, that in no event shall the increase in monthly basic rent
payable during each adjusted one year period be less than four percent (4%) per
year over the monthly basic rent payable for the lease month prior to the
Adjustment Date.
As soon as the monthly basic rent for each such period is set, Landlord
shall give Tenant notice of the amount. On each Adjustment Date the parties
shall immediately execute an amendment to the lease stating the new monthly
basic rent or otherwise acknowledge in writing such adjustment in form
reasonably acceptable to Landlord. If the Index is changed so that the base
year differs from that used for the Beginning Index, the Index shall be
converted in accordance with the conversion factor published by the United
States Department of Labor, Bureau of Labor Statistics. If the Index is
discontinued or revised during the term, such other government index or
computation with which it is replaced shall be used in order to obtain
substantially the same result as would be obtained if the Index had not been
discontinued or revised.
(b) Adjustments to Direct Expenses. Tenant's proportionate share of
------------------------------
direct expenses of the Project shall be ninety-six one-hundredths percent (.96%)
and Tenant's proportionate share of direct expenses of the building in which the
Premises are located shall be three and forty-six one-hundredths percent
(3.46%).
Tenant shall be required to pay to Landlord, as additional rent in
accordance with paragraph 4(b) of this lease, Tenant's proportionate share of
direct expenses for each calendar year (or portion thereof) during the term of
this lease. Tenant's estimated share of the monthly direct expenses payable by
Tenant during the calendar year in which the term commences is set forth in
paragraph 4(b) of this lease. A written estimate of Tenant's monthly share of
direct expenses for each succeeding calendar year shall be delivered to Tenant
prior to the commencement of each such succeeding calendar year (or as soon as
practicable thereafter). Tenant shall pay to Landlord in accordance with
paragraph 4(b) of this lease its monthly share of direct expenses as estimated
by Landlord. Landlord reserves the right to revise such written estimate during
a calendar year if Landlord's actual or projected direct expenses shows an
increase or decrease in excess of ten percent (10%) from that of an earlier
written estimate delivered to Tenant, and if Landlord elects to revise the
earlier estimate, Landlord shall deliver the revised estimate to Tenant,
together with an explanation of the reasons therefor, and Tenant shall revise
its payments accordingly. Statements of the actual direct expenses for the
calendar year in which the term commences and for each succeeding calendar year
(herein called "statement of actual direct expenses") shall be delivered to
Tenant within one hundred twenty (120) days following the expiration of each
such calendar year (or as soon as practicable thereafter). If the statement of
actual direct expenses for any such calendar year shows that Tenant's
proportionate share of actual direct expenses for the year is in excess of the
aggregate amount Tenant has paid as direct expenses for that calendar year,
Tenant shall pay such excess to Landlord within ten (10) days after receipt of
the statement of actual direct expenses. If Tenant fails to pay such excess
amount due within said ten (10) day period, Tenant shall pay an additional ten
percent (10%) of the amount due as a penalty. In the event that any statement of
actual direct expenses shall show that Tenant has paid
2
<PAGE>
Landlord an aggregate amount in excess of the actual direct expenses for the
preceding calendar year and Tenant is not in default in the performance or
observance of any of the terms, covenants or conditions of this lease at the
time such statement of actual direct expenses is delivered, Landlord shall, at
its option, promptly either refund such excess to Tenant or credit the amount
thereof to the monthly direct expenses next becoming due from Tenant. The
respective obligations of Landlord and Tenant under this paragraph shall survive
the expiration or other termination of this lease.
As used in this lease, "direct expenses" shall include, but not be limited
to, (i) real property taxes, assessments, and other costs identified as direct
expenses in paragraph 13; (ii) insurance premiums and other costs identified as
direct expenses in paragraph 11; (iii) the cost of all utilities and services
including water, gas, and sewer charges, electricity, heat, air conditioning,
refuse collection, and janitorial services identified as direct expenses in
paragraph 12; (iv) the costs of operating and maintaining the Common Area
identified as direct expenses in paragraph 15, including, but not limited to,
the landscaping, elevators, parking lots, paving, sidewalks, showers, the
Greylands Mansion, and security and exterminator services; (v) the costs and
expenses of maintaining and repairing the Project identified as direct expenses
in paragraph 9, including but not limited to, mechanical, electrical, plumbing
and sewage systems, windows, glazing, gutters, down-spouts, heating and
ventilating and air conditioning systems, walls, floor coverings, roofs,
structural elements, exterior walls, and the cost of maintenance contracts and
supplies, materials, equipment and tools used in connection therewith; (vi) the
cost of certain alterations identified as direct expenses in paragraph 8; (vii)
amortization of such capital improvements having a useful life greater than one
year as Landlord may have installed for the purpose of reducing operating costs
and/or to comply with all laws, rules and regulations of federal, state, county,
municipal and other governmental authorities now or hereafter in effect
(Tenant's share of such capital improvement shall equal Tenant's proportionate
share of the fraction of the cost of such capital improvement equal to the
remaining term of the lease over the useful life of such capital improvement);
(viii) wages, salaries, employee benefits (including union benefits) and related
expenses of all on-site and off-site personnel engaged in the operation,
management and maintenance of the Project (or the building in which the Premises
are located) and payroll taxes applicable thereto and all costs incurred to
maintain a management office in or near the Project (including, without
limitation, rental payments therefor or the reasonable rental value of the space
so occupied); (ix) supplies, materials, equipment and tools used or required in
connection with the operation and maintenance of the Project; (x) licenses,
permits and inspection fees; (xi) a reasonable reserve for repairs and
replacement of equipment used in the maintenance and operation of the Project;
and (xii) all other operating costs incurred by Landlord in maintaining and
operating the Project.
6. RESTRICTION ON USE. Tenant shall not do or permit to be done in or
------------------
about the Premises or the Project, nor bring or keep or permit to be brought or
kept in or about the Premises or Project, anything which is prohibited by or
will in any way increase the existing rate of (or otherwise affect) fire or any
other insurance covering the Project or any part thereof, or any of its
contents, or will cause a cancellation of any insurance covering the Project or
any part thereof, or any of its contents. Tenant shall not do or permit to be
done anything in or about the Premises or the Project which will constitute
waste or which will in any way obstruct or interfere with the rights of other
tenants or occupants of the Project or injure or annoy them, or use or allow the
Premises to be used for any unlawful purpose, nor shall Tenant cause, maintain
or permit any nuisance in or about the Premises or the Project. No loudspeaker
or other device, system or apparatus which can be heard outside the Premises
shall be used in or at the Premises without the prior written consent of
Landlord. Tenant shall not use the Premises for sleeping, washing clothes,
cooking or in any manner that will cause or emit any objectionable odor, noise
or light into the adjoining premises or Common Area. Tenant shall not do
anything on the Premises that will cause damage to the Project or the building
in which the Premises are located and Tenant shall not overload the floor
capacity of the Project. No machinery, apparatus or other appliance shall be
used or operated in or on the Premises that will in any manner injure, vibrate
or shake the Premises. Landlord shall be the sole judge of whether such odor
noise, light or vibration is such as to violate the provisions of this
paragraph. No waste materials or refuse shall be dumped upon or permitted to
remain upon any part of the Premises or outside of the building proper except in
trash containers placed inside exterior enclosures designated for that purpose
by Landlord, or inside of the building proper where designated; and no toxic or
hazardous material shall be disposed of through the plumbing or sewage system.
No materials, supplies, equipment, finished products or semi-finished products,
raw materials or articles of any nature shall be stored or permitted to remain
outside of the building proper. No retail sales shall be made on the Premises.
7. COMPLIANCE WITH LAWS. Tenant shall, in connection with its use and
--------------------
occupation of the Premises, at its sole cost and expense, promptly observe and
comply with (i) all laws, statutes, ordinances and governmental rules,
regulations and requirements of federal, state, county, municipal and other
governmental authorities, now or hereafter in effect, which shall impose any
duty upon Landlord or Tenant with respect to the use, occupancy or alteration of
the Premises, (ii) with the requirements of any board of fire underwriters or
other similar body now or hereafter constituted and (iii) with any direction or
occupancy certificate issued pursuant to law by any public authority; provided,
however, that no such failure shall be deemed a breach of these provisions if
Tenant, immediately upon notification, commences to remedy or rectify said
failure. The judgment of any court of competent jurisdiction or the admission
of Tenant in any action against Tenant (whether or not Landlord is a party
thereto) that Tenant has violated any such law, statute, ordinance or
governmental rule, regulation, requirement, direction or provision, shall be
conclusive of that fact as between Landlord and Tenant. This lease shall remain
in full force and effect notwithstanding any loss of use of other effect on
Tenant's enjoyment of the Premises by reason of any governmental laws, statutes,
ordinances, rules, regulations and requirements now or hereafter in effect.
8. ALTERATIONS. Tenant shall not make or suffer to be made any alteration,
-----------
addition or
3
<PAGE>
improvement to or of the Premises or any part thereof (collectively referred to
herein as "alterations") without (i) the prior written consent of Landlord, (ii)
a valid building permit issued by the appropriate governmental authority and
(iii) otherwise complying with all applicable laws, regulations and requirements
of governmental agencies having jurisdiction and with the rules, regulations and
requirements of any board of fire underwriters or similar body. Landlord's
consent to any requested alteration shall not create on the part of Landlord or
cause Landlord to incur any responsibility or liability for such alteration's
compliance with all laws, rules and regulations of federal, state, municipal,
county and other governmental authorities. Any alteration made by Tenant
(excluding moveable furniture and trade fixtures not attached to the Premises)
shall at once become a part of the Premises and belong to Landlord. Without
limiting the foregoing, all heating, lighting, electrical (including all wiring,
conduit, outlets, drops, buss ducts, main and subpanels), air conditioning,
partitioning, drapery, window covering and carpet installations made by Tenant,
regardless of how attached to the Premises, together with all other alterations
that have become an integral part of the building in which the Premises are a
part, shall be and become part of the Premises and belong to Landlord upon
installation and shall not be deemed trade fixtures and, subject to Landlord's
right to require removal and restoration as specified herein, shall remain upon
and be surrendered with the Premises at the termination of the lease.
If Landlord consents to the making of any alteration by Tenant, the same
shall be made by Tenant at its sole risk, cost and expense and only after
Landlord's written approval of any contractor or person selected by Tenant for
that purpose, and the same shall be made at such time and in such manner as
Landlord may from time to time designate. Tenant shall, if required by
Landlord, secure at Tenant's cost a completion and lien indemnity bond for such
work. Upon the expiration or sooner termination of the term, Landlord may, at
its sole option, require Tenant, at Tenant's sole cost and expense, to promptly
remove any such alteration made by Tenant and designated by Landlord to be
removed, repair any damage to the Premises caused by such removal and restore
the Premises to their condition prior to Tenant's alteration. Any moveable
furniture and equipment or trade fixtures remaining on the Premises at the
expiration or other termination of the term shall become the property of the
Landlord; provided, however, in addition to all other remedies available to
Landlord at law or in equity, Landlord may (i) require Tenant to remove same or
(ii) remove same at Tenant's cost, and Tenant shall be liable to Landlord for
all damages incurred by Landlord related thereto.
If during the term any alteration, addition or change of the Premises is
required by law, regulation, ordinance or order of any public authority, Tenant,
at its sole cost and expense, shall promptly make the same. If during the term
any alterations, additions or changes to the Common Area or to the Project or
building in which the Premises is located is required by law, regulation,
ordinance or order of any public or quasi-public authority, and it is
impractical, in Landlord's judgment, for the affected tenants to individually
make such alterations, additions or changes, Landlord shall make such
alterations, additions or changes and the cost thereof shall be a direct expense
and Tenant shall pay its percentage share of said cost to Landlord as provided
in paragraphs 4 and 5.
9. REPAIR AND MAINTENANCE. Subject to paragraph 16, Landlord shall
----------------------
maintain and keep in good repair the Common Area (including, without limitation,
the Greylands Mansion) and the mechanical, electrical, plumbing and sewage
systems, windows, window frames, plate glass, glazing, elevators, gutters and
down-spouts, the roof, exterior walls, structural elements and the heating,
ventilating and air conditioning systems (except special air conditioning of
Tenant's computer room(s) as set forth below) of the Premises and the Project;
provided, however, that Landlord shall not be required to perform repairs made
necessary by the negligence or abuse of such improvements or property by Tenant
or its employees agents, subtenants or permitees. The cost of all maintenance
and repairs made by Landlord pursuant to this paragraph 9, including without
limitation maintenance contracts and supplies, materials, equipment and tools
used in such repairs and maintenance, shall be direct expenses and Tenant shall
pay its percentage share of such costs to Landlord as provided in paragraphs 4
and 5.
By entry hereunder Tenant accepts the Premises as being in good and
sanitary order, condition and repair. Subject to paragraphs 16 and 21, and
excepting repairs and maintenance required by this paragraph 9 to be made by
Landlord, Tenant at its cost shall keep the Premises and every part thereof in
good and sanitary order, condition and repair and Tenant shall be solely
responsible for the cost and maintenance of, and electricity supplied to, any
special air conditioning for Tenant's computer facilities. Further, Tenant
shall repair (or, at the option of Landlord, reimburse Landlord if Landlord
elects to repair) damage to improvements or other property located on or about
the Project where such repairs are made necessary by the negligence of or abuse
of such improvements or other property by Tenant or its employees, agents,
subtenants or permitees. Tenant waives all rights under and benefit of
California Civil Code Sections 1932(1), 1941, and 1942 and under any similar
law, statute or ordinance now or hereafter in effect.
10. LIENS. Tenant shall keep the Premises and the Project free from any
-----
liens arising out of any work performed, materials furnished or obligations
incurred by Tenant, its agents, employees or contractors. Upon Tenant's receipt
of a preliminary twenty (20) day notice filed by a claimant pursuant to
California Civil Code Section 3097, Tenant shall immediately provide Landlord
with a copy of such notice. Should any lien be recorded against the Project,
Tenant shall give immediate notice of such lien to Landlord. In the event that
Tenant shall not, within ten (10) days following the imposition of such lien,
cause the same to be released of record, Landlord shall have, in addition to all
other remedies provided herein and by law, the right, but no obligation, to
cause the same to be released by such means as it shall deem proper, including
payment of the claim giving rise to such lien. All sums paid by Landlord for
such purpose, and all expenses (including attorneys' fees) incurred by it in
connection therewith, shall be payable to Landlord by Tenant on demand with
interest at the rate of twelve percent (12%) per annum or the maximum rate
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permitted by law, whichever is less. Landlord shall have the right at all times
to post and keep posted on the Premises any notices permitted or required by
law, or which Landlord shall deem proper for the protection of Landlord, the
Premises and the Project and any other party having an interest therein, from
mechanics' and materialmen's liens and like liens. Tenant shall give Landlord at
least fifteen (15) days' prior notice of the date of commencement of any
construction on the Premises in order to permit the posting of such notices. In
the event Tenant is required to post an improvement bond with a public agency in
connection with any work performed by Tenant on or to the Premises, Tenant shall
include Landlord as an additional obligee.
11. INSURANCE. Tenant, at its sole cost and expense, shall keep in force
---------
during the term (i) commercial general liability and property damage insurance
with a combined single limit of at least $2,000,000 per occurrence insuring
against personal or bodily injury to or death of persons occurring in, on or
about the Premises or Project and any and all liability of the insureds with
respect to the Premises or arising out of Tenant's maintenance, use or occupancy
of the Premises and all areas appurtenant thereto, (ii) direct physical loss-
special insurance covering the leasehold improvements in the Premises and all of
Tenant's equipment, trade fixtures, appliances, furniture, furnishings, and
personal property from time to time located in, on or about the Premises, with
coverage in the amount of the full replacement cost thereof, and (iii) Worker's
Compensation Insurance as required by law, together with employer's liability
coverage with a limit of not less than $1,000,000 for bodily injury for each
accident and for bodily injury by disease for each employee. Tenant's
commercial general liability and property damage insurance and Tenant's Workers
Compensation Insurance shall be endorsed to provide that said insurance shall
not be cancelled or reduced except upon at least thirty (30) days prior written
notice to Landlord. Further, Tenant's commercial general liability and property
damage insurance shall be primary and shall be endorsed to provide that Landlord
and McCandless Management Corporation, and their respective partners, officers,
directors and employees and such other persons or entities as directed from time
to time by Landlord shall be named as additional insureds for all liability
using ISO Bureau Form CG20111185 (or a successor form) or such other endorsement
form reasonably acceptable to Landlord; shall contain a severability of interest
clause and a cross-liability endorsement; shall be endorsed to provide that the
limits and aggregates apply per location using ISO Bureau Form CG25041185 (or a
successor form) or such other endorsement form reasonably acceptable to
Landlord; and shall be issued by an insurance company admitted to transact
business in the State of California and rated A+VIII or better in Best's
Insurance Reports (or successor report). The deductibles for all insurance
required to be maintained by Tenant hereunder shall be satisfactory to Landlord.
The commercial general liability insurance carried by Tenant shall specifically
insure the performance by Tenant of the indemnification provisions set forth in
paragraph 17 of this lease provided, however, nothing contained in this
paragraph 11 shall be construed to limit the liability of Tenant under the
indemnification provisions set forth in said paragraph 17. If Landlord or any
of the additional insureds named on any of Tenant's insurance, have other
insurance which is applicable to the covered loss on a contributing, excess or
contingent basis, the amount of the Tenant's insurance company's liability under
the policy of insurance maintained by Tenant shall not be reduced by the
existence of such other insurance. Any insurance carried by Landlord or any of
the additional insureds named on Tenant's insurance policies shall be excess and
non-contributing with the insurance so provided by Tenant.
Tenant shall, prior to the commencement of the term and at least thirty
(30) days prior to any renewal date on any insurance policy required to be
maintained by Tenant pursuant to this paragraph, provide Landlord with a
completed Certificate of Insurance, using a form acceptable in Landlord's
reasonable judgement, attaching thereto copies of all endorsements required to
be provided by Tenant under this lease. Tenant agrees to increase the coverage
or otherwise comply with changes in connection with said commercial general
liability, property damage, direct physical loss and Worker's Compensation
Insurance as Landlord or Landlord's lender may from time to time require.
Landlord shall obtain and keep in force a policy or policies of
insurance covering loss or damage to the Premises and Project, in the amount of
the full replacement value thereof, providing protection against those perils
included within the classification of "all risk" insurance, with increased cost
of reconstruction and contingent liability (including demolition), plus a policy
of rental income insurance in the amount of one hundred percent (100%) of twelve
(12) months' rent (including sums paid as additional rent) and such other
insurance as Landlord or Landlord's lender may from time to time require.
Landlord may but shall not be obligated to obtain flood and/or earthquake
insurance. Landlord shall have no liability to Tenant if Landlord elects not to
obtain flood and/or earthquake insurance. The cost of all such insurance
purchased by Landlord, plus any charges for deferred payment of premiums and the
amount of any deductible incurred upon any covered loss within the Project,
shall be direct expenses and Tenant shall pay to Landlord its percentage share
of such costs as provided in paragraphs 4(b) and 5(b). If the cost of insurance
is increased due to Tenant's use of the Premises, then Tenant shall pay to
Landlord upon demand the full cost of such increase.
Landlord and Tenant hereby mutually waive any and all rights of recovery
against one another for real or personal property loss or damage occurring to
the Premises or the Project, or any part thereof, or to any personal property
therein, from perils insured against under fire and extended insurance and any
other property insurance policies existing for the benefit of the respective
parties so long as such insurance permits waiver of liability and contains a
waiver of subrogation without additional premiums.
If Tenant does not take out and maintain insurance as required pursuant
to this paragraph 11, Landlord may, but shall not be obligated to, take out the
necessary insurance and pay the premium therefor, and Tenant shall repay to
Landlord promptly on demand, as additional rent, the amount so paid. In
addition, Landlord may recover from Tenant and Tenant agrees to pay, as
additional rent, any and all reasonable expenses (including attorney fees) and
damages which Landlord may sustain by reason of the failure of Tenant
5
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to obtain and maintain such insurance, it being expressly declared that the
expenses and damages of Landlord shall not be limited to the amount of the
premiums thereon.
12. UTILITIES AND SERVICE. Landlord shall furnish to the Premises and to
---------------------
the building in which the Premises are located, during reasonable hours of
generally recognized business days, to be determined by Landlord, and subject to
the rules and regulations of the Project, reasonable quantities of water and
electricity suitable for the intended use of the Premises and the building in
which the Premises are located, heat and air conditioning required in Landlord's
judgment for the comfortable use and occupation of the Premises, refuse
collection and janitorial services. Tenant agrees that at all times it will
cooperate fully with Landlord and abide by all regulations and requirements that
Landlord may prescribe for the proper functioning and protection of the heating,
ventilating and air conditioning systems. The cost of all utilities and
services furnished by Landlord to the Premises and to the building in which the
Premises are located pursuant to this paragraph 12 shall be direct expenses and
Tenant shall pay its percentage share of such costs to Landlord as provided in
paragraphs 4 and 5.
Landlord shall not be liable for, and Tenant shall not be entitled to
any abatement or reduction of rent by reason of, Landlord's failure to furnish
any of the foregoing services when such failure is caused by accident, breakage,
repairs, strikes, lockouts or other labor disturbances or labor disputes of any
character, governmental moratoriums, regulations, or other governmental actions
or by any other cause, similar or dissimilar, beyond the reasonable control of
Landlord. In addition, Tenant shall not be relieved from the performance of any
covenant or agreement in this lease because or any such failure, and no eviction
of Tenant shall result from such failure.
Tenant will not, without the written consent of Landlord, use any
apparatus or device in the Premises (including, without limitation, electronic
data processing machines, punch card machines or machines using current in
excess of 110 volts) which will in any way increase the amount of electricity,
water or air conditioning usually furnished or supplied to premises in the
Project being used as general office space or connect with electric current
(except through existing electrical outlets in the Premises) or with water pipes
any apparatus or device for the purpose of using electric current or water. If
Tenant shall require water or electric current in excess of that usually
furnished or supplied to premises in the Project being used as general office
space then Tenant shall first obtain the written consent of Landlord, which
consent shall not be unreasonably withheld, and Tenant shall pay to Landlord
promptly on demand, as additional rent, the full cost of such excess use.
Landlord may cause an electric current or water meter to be installed in the
Premises in order to measure the amount of electric current or water consumed
for any such excess use. The cost of any such meter and of the installation,
maintenance and repair thereof, and all charges for such excess water and
electric current consumed (as shown by meters and at the rates then charged by
the furnishing public utility) plus any additional expense incurred by Landlord
in keeping account of electric current or water so consumed, shall be paid by
Tenant, and Tenant agrees to pay Landlord therefor promptly upon demand by
Landlord. Whenever heat generating machines or equipment are used in the
Premises by Tenant which affect the temperature otherwise maintained by the air
conditioning system, Landlord shall have the right to install supplementary air
conditioning units in the Premises and the cost thereof, including the cost of
installation and the cost of operation and maintenance thereof, shall be paid by
Tenant to Landlord upon demand by Landlord.
13. TAXES AND OTHER CHARGES. All real estate taxes and assessments and
-----------------------
other taxes, fees and charges of every kind or nature, foreseen or unforeseen,
which are levied, assessed or imposed upon Landlord and/or against the Premises,
building, Common Area or Project or any part thereof by any federal, state,
county, regional, municipal or other governmental or quasi-governmental
authority or special district authority, together with any increases therein
whether resulting from increased rate and/or valuation shall be a direct expense
and Tenant shall pay its percentage share of such costs to Landlord as provided
in paragraphs 4 and 5. By way of illustration and not limitation, "other taxes,
fees and charges" as used herein include any and all taxes payable by Landlord
(other than state and federal personal or corporate income taxes measured by the
net income of Landlord from all sources, and premium taxes), whether or not now
customary or within the contemplation of the parties hereto, (i) upon, allocable
to, or measured by the rent payable hereunder, including, without limitation,
any gross income or excise tax levied by the local, state or federal government
with respect to the receipt of such rent, (ii) upon or with respect to the
possession, leasing, operation, management, maintenance, alteration, repair, use
or occupancy by Tenant of the Premises or any part thereof, (iii) upon or
measured by the value of Tenant's personal property or leasehold improvements
located in the Premises, (iv) upon this transaction or any document to which
Tenant is a party creating or transferring an interest or estate in the
Premises, (v) upon or with respect to vehicles, parking or the number of persons
employed on or about the Project, and (vi) any tax, license, franchise fee or
other imposition upon Landlord which is otherwise measured by or based in whole
or in part upon the Project or any portion thereof. If Landlord contests any
such tax, fee or charge, the cost and expense incurred by Landlord (including,
but not limited to, costs of attorneys and experts) thereby shall also be direct
expenses and Tenant shall pay its percentage share of such costs to Landlord as
provided in paragraphs 4 and 5. In the event the Premises and any improvements
installed therein by Tenant or Landlord are valued by the assessor
disproportionately higher than those of other tenants in the building or Project
or in the event alterations or improvements are made to the Premises, Tenant's
percentage share of such taxes, assessments, fees and/or charges shall be
readjusted upward accordingly and Tenant agrees to pay such readjusted share.
Such determination shall be made by Landlord from the respective valuations
assigned in the assessor's work sheet or such other information as may be
reasonably available and Landlord's determination thereof shall be conclusive.
Tenant agrees to pay, before delinquency, any and all taxes levied or
assessed during the term
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<PAGE>
hereof upon Tenant's equipment, furniture, fixtures and other personal property
located in the Premises, including carpeting and other property installed by
Tenant notwithstanding that such carpeting or other property has become a part
of the Premises. If any of Tenant's personal property shall be assessed with the
Project, Tenant shall pay to Landlord, as additional rent, the amounts
attributable to Tenant's personal property within ten (10) days after receipt of
a written statement from Landlord setting forth the amount of such taxes,
assessments and public charges attributable to Tenant's personal property.
14. ENTRY BY LANDLORD. Landlord reserves, and shall at all reasonable
-----------------
times have, the right to enter the Premises (i) to inspect the Premises, (ii) to
supply services to be provided by Landlord hereunder, (iii) to show the Premises
to prospective purchasers, lenders or tenants and to put, 'for sale' or 'for
lease' signs thereon, (iv) to post notices required or allowed by this lease or
by law, (v) to alter, improve or repair the Premises and any portion of the
Project, and (vi) to erect scaffolding and other necessary structures in or
through the Premises or the Project where reasonably required by the character
of the work to be performed. Landlord shall not be liable in any manner for any
inconvenience, disturbance, loss of business, nuisance or other damage arising
from Landlord's entry and acts pursuant to this paragraph and Tenant shall not
be entitled to an abatement or reduction of rent if Landlord exercises any
rights reserved in this paragraph. For each of the foregoing purposes, Landlord
shall at all times have and retain a key with which to unlock all of the doors
in, on, and about the Premises (excluding Tenant's 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 said doors
in an emergency in order to obtain entry to the Premises. Any entry by Landlord
to the Premises pursuant to this paragraph shall not under any circumstances 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.
15. COMMON AREA; PARKING. Subject to the terms and conditions of this
--------------------
lease and such rules and regulations as Landlord may from time to time
prescribe, Tenant and Tenant's employees and invitees shall, in common with
other occupants of the Project, and their respective employees, invitees and
customers and others entitled to the use thereof, have the nonexclusive right to
use the access roads, parking areas and facilities within the Project provided
and designated by Landlord for the general use and convenience of the occupants
of the Project (which areas and facilities shall include, but not be limited to,
common lobbies, corridors, restrooms and showers, part or all of the Greylands
Mansion and the .37 acre parcel upon which it is located, telephone, electrical,
janitorial and mechanical rooms, elevators, stairwells, vertical duct shafts,
sidewalks, parking, refuse, landscape and plaza areas, roofs, building
exteriors, electrical, mechanical, plumbing and HVAC systems and storage areas)
which areas and facilities are referred to herein as "Common Area". This right
shall terminate upon the termination of this lease.
Landlord reserves the right from time to time to make changes in the
shape, size, location, amount and extent of the Common Area. Landlord shall
also have the right at any time to change the name, number or designation by
which the Project is commonly known. Landlord further reserves the right to
promulgate such rules and regulations relating to the use of the Common Area,
and any part thereof, as Landlord may deem appropriate for the best interests of
the occupants of the Project. The rules and regulations shall be binding upon
Tenant upon delivery of a copy of them to Tenant and Tenant shall abide by them
and cooperate in their observance. Such rules and regulations may be amended by
Landlord from time to time, with or without advance notice.
Tenant acknowledges that Landlord (as tenant) has leased the Greylands
Mansion on a month-to-month basis and that such Lease can be terminated on
thirty (30) days notice. Upon termination of the lease for the Greylands
Mansion the Common Area shall thereafter include no part of the Greylands
Mansion and the .37 acre parcel upon which it is located.
Tenant shall have the nonexclusive use of eight (8) parking spaces in
the Common Area as designated from time to time by Landlord. Landlord reserves
the right at its sole option to assign and label parking spaces, but it is
specifically agreed that Landlord is not responsible for policing any such
parking spaces. Tenant shall not at any time park or permit the parking of
Tenant's trucks or other vehicles, or the trucks or other vehicles of others,
adjacent to loading areas so as to interfere in any way with the use of such
areas; nor shall Tenant at any time park or permit the parking of Tenant's
vehicles or trucks, or the vehicles or trucks of Tenant's suppliers or others,
in any portion of the Common Area not designated by Landlord for such use by
Tenant. Tenant shall not park or permit any inoperative vehicle or equipment to
be parked on any portion of the Common Area.
Landlord shall operate, manage and maintain the Common Area. The manner
in which the Common Area shall be operated, managed and maintained and the
expenditures for such operation, management and maintenance shall be at the sole
discretion of Landlord. The cost of such maintenance, operation and management,
including but not limited to landscaping, repair of paving, parking lots and
sidewalks, the Greylands Mansion (including interior repair and maintenance;
janitorial services; furniture rental or depreciation charges; and lease
payments charged to the Project by the owner of the Greylands Mansion), security
and exterminator services and salaries and employee benefits (including union
benefits) of on-site and accounting personnel engaged in such maintenance and
operations management, shall be a direct expense and Tenant shall pay to
Landlord its percentage share of such cost as provided in paragraphs 4 and 5.
16. DAMAGE BY FIRE; CASUALTY. In the event the Premises are damaged by any
------------------------
casualty which is covered under an insurance policy required to be maintained by
Landlord pursuant to paragraph 11, Landlord shall be entitled to the use of all
insurance proceeds and shall repair such damage as soon as reasonably possible
and this lease shall continue in full force and effect.
7
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In the event the Premises are damaged by any casualty not covered under
an insurance policy required to be maintained pursuant to paragraph 11, Landlord
may, at Landlord's option, either (i) repair such damage, at Landlord's expense,
as soon as reasonably possible, in which event this lease shall continue in full
force and effect, or (ii) give written notice to Tenant within thirty (30) days
after the date of the occurrence of such damage of Landlord's intention to
cancel and terminate this lease as of the date of the occurrence of the damage;
provided, however, that if such damage is caused by an act or omission of Tenant
or its agent, servants or employees, then Tenant shall repair such damage
promptly at its sole cost and expense. In the event Landlord elects to
terminate this lease pursuant hereto, Tenant shall have the right within ten
(10) days after receipt of the required notice to notify Landlord in writing of
Tenant's intention to repair such damage at Tenant's expense, without
reimbursement from Landlord, in which event this lease shall continue in full
force and effect and Tenant shall proceed to make such repairs as soon as
reasonably possible. If Tenant does not give such notice within the ten (10)
day period, this lease shall be cancelled and terminated as of the date of the
occurrence of such damage. Under no circumstances shall Landlord be required to
repair any injury or damage to (by fire or other cause), or to make any
restoration or replacement of, any of Tenant's personal property, trade fixtures
or property leased from third parties, whether or not the same is attached to
the Premises.
If the Premises are totally destroyed during the term from any cause
(including any destruction required by any authorized public authority), whether
or not covered by the insurance required under paragraph 11, this lease shall
automatically terminate as of the date of such total destruction; provided,
however, that if the Premises can reasonably and lawfully be repaired or
restored within twelve (12) months of the date of destruction to substantially
the condition existing prior to such destruction and if the proceeds of the
insurance payable to the Landlord by reason of such destruction are sufficient
to pay the cost of such repair or restoration, then said insurance proceeds
shall be so applied, Landlord shall promptly repair and restore the Premises and
this lease shall continue, without interruption, in full force and effect. If
the Premises are totally destroyed during the last twelve (12) months of the
term, Landlord may at Landlord's option cancel and terminate this lease as of
the date of occurrence of such damage by giving written notice to Tenant of
Landlord's election to do so within thirty (30) days after the occurrence of
such damage.
If the Premises are partially or totally destroyed or damaged and
Landlord or Tenant repair them pursuant to this lease, the rent payable
hereunder for the period during which such damage and repair continues shall be
abated only in proportion to the square footage of the Premises rendered
untenantable to Tenant by such damage or destruction. Tenant shall have no
claim against Landlord for any damage, loss or expense suffered by reason of
any such damage, destruction, repair or restoration. The parties waive the
provisions of California Civil Code Sections 1932(2) and 1933(4) (which
provisions permit the termination of a lease upon destruction of the leased
premises), and hereby agree that the provisions of this paragraph 16 shall
govern in the event of the destruction of the Premises.
17. INDEMNIFICATION. Landlord shall not be liable to Tenant and Tenant
---------------
hereby waives all claims against Landlord for any injury to or death of any
person or damage to or destruction of property in or about the Premises or the
Project by or from any cause whatsoever except the failure of Landlord to
perform its obligations under this lease where such failure has persisted for
an unreasonable period of time after notice of such failure. Without limiting
the foregoing, Landlord shall not be liable to Tenant for any injury to or
death of any person or damages to or destruction of property by reason of, or
arising from, any latent defect in the Premises or Project or the act or
negligence of any other tenant of the Project. Tenant shall immediately notify
Landlord of any defect in the Premises or Project.
Except as to injury to persons or damage to property the principal
cause of which is the failure by Landlord to observe any of the terms and
conditions of this lease, Tenant shall hold Landlord harmless from and
indemnify and defend Landlord against any claim, liability, loss damage or
expense (including attorney fees) arising out of any injury to or death of any
person or damage to or destruction of property occurring in, on or about the
Premises from any cause whatsoever or on account of the use, condition,
occupational safety or occupancy of the Premises. Tenant shall further hold
Landlord harmless from and indemnify and defend Landlord against any claim,
liability, loss, damage or expense (including attorney fees) arising (i) from
Tenant's use of the Premises or from the conduct of its business or from any
activity or work done, permitted or suffered by Tenant or its agents or
employee, in or about the Premises or Project, (ii) out of the failure of Tenant
to observe or comply with Tenant's obligation to observe and comply with laws or
other requirements as set forth in paragraph 7, (iii) by reason of Tenant's use,
handling, storage, or disposal of toxic or hazardous materials or waste, (iv) by
reason of any labor or service performed for, or materials used by or furnished
to, Tenant or any contractor engaged by Tenant with respect to the Premises, or
(v) from any other act, neglect, fault or omission of Tenant or its agents or
employees.
The provisions of this paragraph 17 shall survive the expiration or
earlier termination of this lease.
18. ASSIGNMENT AND SUBLETTING. Tenant shall not voluntarily assign,
-------------------------
encumber or otherwise transfer its interest in this lease or in the Premises, or
sublease all or any part of the Premises, or allow any other person or entity to
occupy or use all or any part of the Premises, without first obtaining
Landlord's written consent, which consent shall not be unreasonably withheld,
and otherwise complying with the requirements of this paragraph 18. Any
assignment, encumbrance or sublease without Landlord's consent, shall constitute
a default.
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If Tenant desires to sublet or assign all or any portion of the
Premises, Tenant shall give Landlord written notice thereof, specifying the
projected commencement date of the proposed sublet or assignment (which date
shall be not less than thirty (30) days or more than ninety (90) days after the
date of Landlord's receipt of such notice), the portions of the Premises
proposed to be sublet or assigned, the terms and conditions of the proposed
assignment or sublease (including the rent to be paid by the proposed assignee
or subtenant) and the name, address and telephone number of the proposed
assignee or subtenant. Tenant shall further provide Landlord with such other
information concerning the proposed assignee or subtenant as requested by
Landlord. For a period of thirty (30) days after Landlord's receipt of Tenant's
written notice, Landlord shall have the option, exercisable by delivering
written notice to Tenant, to terminate this lease as of the date specified in
Landlord's written notice to Tenant, which date shall not be less than thirty
(30) days nor more than ninety (90) days after the date of Landlord's written
notice to Tenant; provided, however, if Tenant has entered into a new lease with
Landlord for other space in the Project (not presently leased by Tenant), which
space exceeds 20,000 square feet, then the termination date specified in
Landlord's notice shall not be less than fifteen (15) days nor more than thirty
(30) days after the date of Landlord's written notice to Tenant. If Landlord
exercises its option to terminate this lease as provided in the foregoing
sentence, Landlord may, if it so elects, enter into a new lease for the Premises
or any portion thereof with the proposed assignee or subtenant or any other
third party on such terms as Landlord and such proposed assignee or subtenant or
other third party may agree; in such event, Tenant shall not be entitled to any
portion of the profit, if any, which Landlord may realize on account of such
termination and reletting.
If Landlord does not elect to terminate this lease as provided
hereinabove in this paragraph 18 and if Landlord consents in writing to the
proposed assignment or sublet, Tenant shall be free to assign or sublet all or a
portion of the Premises subject to the following conditions: (i) any sublease
shall be on the same terms set forth in the notice given to Landlord; (ii) no
sublease shall be valid and no subtenant shall take possession of the sublet
premises until an executed counterpart of such sublease has been delivered to
Landlord; (iii) no subtenant shall have a further right to sublet; (iv) any sums
or other economic consideration received by Tenant as a result of such
assignment or sublet (except rental or other payments received which are
attributable to the amortization over the term of this lease of the cost of
leasehold improvements constructed for such assignees or subtenant, and
brokerage fees) whether denominated rentals or otherwise, which exceed, in the
aggregate, the total sums which Tenant is obligated to pay Landlord under this
lease (prorated to reflect obligations allocable to that portion of the Premises
subject to such sublease), shall be payable to Landlord as additional rent under
this lease without affecting or reducing any other obligation of Tenant
hereunder; (v) no sublet or assignment shall release Tenant of Tenant's
obligation or alter the primary liability of Tenant to pay the rent and to
perform all other obligations to be performed by Tenant hereunder; and (vi) any
assignee or subtenant must expressly agree to assume and perform all of the
covenants and conditions of Tenant under this lease. Tenant shall pay to
Landlord promptly upon demand as additional rent, Landlord's actual attorneys'
fees and other costs incurred for reviewing, processing or documenting any
requested assignment or sublease, whether or not Landlord's consent is granted.
Tenant shall not be entitled to assign this lease or sublease all or any part of
the Premises (and any attempt to do so shall be voidable by Landlord) during any
period in which Tenant is in default under this lease.
If Tenant is a partnership, a withdrawal or change, voluntary or
involuntary or by operation of law, of any general partner or the dissolution of
the partnership shall be deemed an assignment of this lease subject to all the
conditions of this paragraph 18. If Tenant is a corporation any dissolution,
merger, consolidation or other reorganization of Tenant or the sale or other
transfer of a controlling percentage of the capital stock of Tenant or the sale
of more than fifty percent (50%) of the value of Tenant's assets shall be an
assignment of this lease subject to all the conditions of this paragraph 18.
The term "controlling percentage" means the ownership of, and the right to vote,
stock possessing more than 50% of the total combined voting power of all classes
of Tenant's capital stock issued, outstanding and entitled to vote. This
paragraph shall not apply if Tenant is a corporation the stock of which is
traded through an exchange.
The acceptance of rent 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 sublet shall not be deemed consent to any subsequent assignment or
sublet. 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
sublets 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.
No interest of Tenant in this lease shall be assignable by operation of
law (including, without limitation, the transfer of this lease by testacy or
intestacy). Each of the following acts shall be considered an involuntary
assignment: (i) if Tenant is or becomes bankrupt or insolvent, makes an
assignment for the benefit of creditors or institutes a proceeding under the
Bankruptcy Act in which Tenant is the bankrupt; or, if Tenant is a partnership
or consists of more than one person or entity, if any partner of the partnership
or other person or entity is or becomes bankrupt or insolvent, or makes an
assignment for the benefit of creditors; (ii) if a writ of attachment or
execution is levied on this lease; or (iii) if, in any proceeding or action to
which Tenant is a party, a receiver is appointed with authority to take
possession of the Premises. An involuntary assignment shall constitute a default
by Tenant and Landlord shall have the right to elect to terminate this lease, in
which case this lease shall not be treated as an asset of Tenant.
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Tenant immediately and irrevocably assigns to Landlord, as security for
Tenant's obligations under this lease, all rent from any subletting of all or a
part of the Premises as permitted by this lease, and Landlord, as assignee and
as attorney-in-fact for Tenant, or a receiver of Tenant appointed on Landlord's
application, may collect such rent and apply it toward Tenant's obligations
under this lease; except that, until the occurrence of an act or default by
Tenant, Tenant shall have the right to collect such rent, subject to promptly
forwarding to Landlord any portion thereof to which Landlord is entitled
pursuant to this paragraph 18.
19. DEFAULT. The occurrence of any of the following shall constitute a
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default by Tenant: (i) failure of Tenant to pay any rent or other sum payable
hereunder within three (3) days after the date that such payment becomes due;
(ii) abandonment of the Premises (Tenant's failure to occupy and conduct
business in the Premises for fourteen (14) consecutive days shall be deemed an
abandonment); (iii) failure of Tenant to deliver to Landlord any instrument,
assurance, financial statement, subordination agreement or certificate of
estoppel required under this Lease within the time period specified for such
performance if the failure continues for five (5) days after written notice of
the failure from Landlord to Tenant; or (iv) failure of Tenant to perform any
other obligation under this lease if the failure to perform is not cured within
thirty (30) days after written notice thereof has been given to Tenant (provided
that if such default cannot reasonably be cured within thirty (30) days, Tenant
shall not be in default if Tenant commences to cure such failure to perform
within the thirty (30) day period and diligently and in good faith continues to
cure the failure to perform), except in the case of an emergency or dangerous
condition, in which case Tenant's time to perform shall be that time period
which is reasonable under the circumstances. The notice referred to in clauses
(iii) and (iv) above shall specify the failure to perform and the applicable
lease provision and shall demand that Tenant perform the provisions of this
lease within the applicable period of time. No notice shall be deemed a
forfeiture or termination of this lease unless Landlord so elects in the notice.
No notice shall be required in the event of abandonment or vacation of the
Premises.
In addition to the above, the occurrence of any of the following events
shall also constitute a default by Tenant: (i) Tenant fails to pay its debts as
they become due or admits in writing its inability to pay its debts, or makes a
general assignment for the benefit of creditors (for purposes of determining
whether Tenant is not paying its debts as they become due, a debt shall be
deemed overdue upon the earliest to occur of the following: thirty (30) days
from the date a statement therefor has been rendered; the date on which any
action or proceeding therefor is commenced; or the date on which a formal notice
of default or demand has been sent); (ii) Tenant fails to furnish to Landlord a
schedule of Tenant's aged accounts payable within ten (10) days after Landlord's
written request; (iii) any financial statements given to Landlord by Tenant, any
assignee of Tenant, subtenant of Tenant, any guarantor of Tenant, or successor
in interest of Tenant (including, without limitation, any schedule of Tenant's
aged accounts payable) are materially false; or (iv) any financial statement or
other financial information furnished by Tenant pursuant to the provisions of
this lease or at the request of Landlord evidences that either Tenant's net
worth or its net assets are at least twenty-five percent (25%) less than the net
worth or net assets shown in either the immediately prior financial statement or
the financial statement of Tenant furnished at the time of execution of this
lease, and Tenant fails to furnish promptly to Landlord, after notice from
Landlord to Tenant, an additional security deposit in cash equivalent to the
aggregate of the basic rent and common area charges (without regard to any rent
abatement) payable hereunder for the twelve (12) full calendar months
immediately preceding such notice. At any time during the term of this lease
Landlord, at Landlord's option, shall have the right to receive from Tenant,
upon Landlord's request, a current annual balance sheet for Landlord's review.
If the balance sheet shows a negative net worth, Landlord may terminate this
lease by giving Tenant sixty (60) days prior written notice.
In the event of a default by Tenant, then Landlord, in addition to any
other rights and remedies of Landlord at law or in equity, shall have the right
either to terminate Tenant's right to possession of the Premises (and thereby
terminate this lease) or, from time to time and without termination this lease,
to relet the Premises or any part thereof for the account and in the name of
Tenant for such term and on such terms and conditions as Landlord in its sole
discretion may deem advisable, with the right to make alterations and repairs to
the Premises.
Should Landlord elect to keep this lease in full force and effect,
Landlord shall have the right to enforce all of Landlord's rights and remedies
under this lease, including but not limited to the right to recover and to relet
the Premises and such other rights and remedies as Landlord may have under
California Civil Code Section 1951.4 (or successor Code section) or any other
California statute. If Landlord relets the Premises, then Tenant shall pay to
Landlord, as soon as ascertained, the costs and expenses incurred by Landlord in
such reletting and in making alterations and repairs. Rentals received by
Landlord from such reletting shall be applied (i) to the payment of any
indebtedness due hereunder, other than basic rent and direct expenses, from
Tenant to Landlord; (ii) to the payment of the cost of any repairs necessary to
return the Premises to good condition normal wear and tear excepted, including
the cost of alterations and the cost of storing any of Tenant's property left on
the Premises at the time of reletting; and (iii) to the payment of basic rent or
direct expenses due and unpaid hereunder. The residue, if any, shall be held by
Landlord and applied in payment of future rent or damages in the event of
termination as the same may become due and payable hereunder and the balance, if
any at the end of the term of this lease shall be paid to Tenant. Should the
basic rent and direct expenses received from time to time from such reletting
during any month be less than that agreed to be paid during that month by Tenant
hereunder, Tenant shall pay such deficiency to Landlord. Such deficiency shall
be calculated and paid monthly. No such reletting of the Premises by Landlord
shall be construed as an election on its part to terminate this lease unless a
notice of such intention is given to Tenant or unless the termination hereof is
decreed by a court of competent jurisdiction. Notwithstanding any such reletting
without termination, Landlord may at any time
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thereafter elect to terminate this lease for such previous breach, provided it
has not been cured.
Should Landlord at any time terminate this lease for any breach, in
addition to any other remedy it may have, it shall have the immediate right of
entry and may remove all persons and property from the Premises and shall have
all the rights and remedies of a landlord provided by California Civil Code
Section 1951.2 or any successor code section. Upon such termination, in
addition to all its other rights and remedies, Landlord shall be entitled to
recover from Tenant all damages it may incur by reason of such breach, including
the cost of recovering the Premises and including (i) the worth at the time of
award of the unpaid rent which had been earned at the time of termination; (ii)
the worth at the time of award of the amount by which the unpaid rent which
would have been earned after termination until the time of award exceeds the
amount of such rental loss that Tenant proves could have been reasonably
avoided; (iii) the worth at the time of the award of the amount by which the
unpaid rent for the balance of the term after the time of award exceeds the
amount of such rental loss that Tenant proves could be reasonably avoided; (iv)
any other amount necessary to compensate Landlord for all the detriment
proximately caused by Tenant's failure to perform its obligations under this
lease or which in the ordinary course of events would be likely to result
therefrom. The "worth at the time of award" of the amounts referred to in (i)
and (ii) above is computed by allowing interest at the rate of twelve percent
(12%) per annum. The "worth at the time of award" of the amount referred to in
(iii) above shall be computed by discounting such amount at the discount rate of
the federal reserve bank of San Francisco at the time of award plus one percent
(1%). Tenant waives the provisions of Section 1179 of the California Code of
Civil Procedure (which Section allows Tenant to petition a court of competent
jurisdiction for relief against forfeiture of this lease). Property removed
from the Premises may be stored 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
that Landlord, in its sole discretion, may deem proper, without notice to or
demand upon Tenant.
20. LANDLORD'S RIGHT TO CURE TENANT'S DEFAULT. Landlord, at any time after
-----------------------------------------
Tenant commits a default, may, but shall not be obligated to, cure the default
at Tenant's cost. If Landlord at any time, by reason of Tenant's default, pays
any sum or does any act that requires the payment of any sum, the sum paid by
Landlord shall be due immediately from Tenant to Landlord and shall bear
interest at the rate of twelve percent (12%) per annum or the maximum rate
permitted by law, whichever is less, from the date the sum is paid by Landlord
until Landlord is reimbursed by Tenant. Amounts due Landlord hereunder shall be
additional rent.
21. EMINENT DOMAIN. If all or any part of the Premises shall be taken by
--------------
any public or quasi-public authority under the power of eminent domain or
conveyance in lieu thereof, this lease shall terminate as to any portion of the
Premises so taken or conveyed on the date when title vests in the condemnor, and
Landlord shall be entitled to any payments, income, rent, award or any interest
therein whatsoever which may be paid or made in connection with such taking or
conveyance. Tenant shall have no claim against Landlord or otherwise for the
value of any unexpired term of this lease. Notwithstanding the foregoing,
Tenant shall be entitled to any compensation for depreciation to and cost of
removal of Tenant's equipment and fixtures and any compensation for its
relocation expenses necessitated by such taking, but in each case only to the
extent the condemning authority makes a separate award therefor or specifically
identifies a portion of the award as being therefor. Each party waives the
provisions of Section 1265.130 of the California Code of Civil Procedure (which
section allows either party to petition the Superior Court to terminate this
lease in the event of a partial taking of the Premises).
If any action or proceeding is commenced for such taking of the Premises
or any portion thereof or of any other space in the Project, or if Landlord is
advised in writing by any entity or body having the right of power of
condemnation of its intention to condemn the Premises or any portion thereof or
of any other space in the Project, and Landlord shall decide to discontinue the
use and operation of the Project or decide to demolish, alter or rebuild the
Project, then Landlord shall have the right to terminate this lease by giving
Tenant written notice thereof within sixty (60) days of the earlier of the date
of Landlord's receipt of such notice of intention to condemn or the commencement
of said action or proceeding. Such termination shall be effective as of the
last day of the calendar month next following the month in which such notice is
given or the date on which title shall vest in the condemnor, whichever occurs
first.
In the event of a partial taking, or conveyance in lieu thereof, of the
Premises and fifty percent (50%) or more of the number of square feet in the
Premises are taken then Tenant may terminate this lease. Any election by Tenant
to so terminate shall be by written notice given to Landlord within sixty (60)
days from the date of such taking or conveyance and shall be effective on the
last day of the calendar month next following the month in which such notice is
given or the date on which title shall vest in the condemnor, whichever occurs
first.
If a portion of the Premises is taken by power of eminent domain or
conveyance in lieu thereof and neither Landlord nor Tenant terminates this lease
as provided above, then this lease shall continue in full force and effect as to
the part of the Premises not so taken or conveyed and all payments of rent shall
be apportioned as of the date of such taking or conveyance so that thereafter
the amounts to be paid by Tenant shall be in the ratio that the area of the
portion of the Premises not so taken bears to the total area of the Premises
prior to such taking.
22. NOTICE AND COVENANT TO SURRENDER. On the last day of the term or on
--------------------------------
the effective date of any earlier termination, Tenant shall surrender to
Landlord the Premises in its condition existing as of the
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commencement of the term and, except as otherwise provided by Landlord pursuant
to the terms of paragraph 8 of this lease, all of the improvements and
alterations made to the Premises in their condition existing as of the date of
completion of construction and/or installation (normal wear and tear excepted),
with all originally painted interior walls washed or repainted if marked or
damaged, interior vinyl covered walls cleaned and repaired or replaced if marked
or damaged, all carpets shampooed and cleaned, and all floors cleaned and waxed;
all to the reasonable satisfaction of Landlord. On or prior to the last day of
the term or the effective date of any earlier termination, Tenant shall remove
all of Tenant's personal property and trade fixtures, together with improvements
or alterations that Tenant is obligated to remove pursuant to the provisions of
paragraph 8 of this lease, from the Premises, and all such property not removed
shall be deemed abandoned. In addition, on or prior to the expiration or earlier
termination of this lease, Tenant shall remove, at Tenant's sole cost and
expense, all telephone, other communication, computer and any other cabling and
wiring of any sort installed in the space above the suspended ceiling of the
Premises or anywhere else in the Premises and shall promptly repair any damage
to the suspended ceiling, lights, light fixtures, walls and any other part of
the Premises resulting from such removal.
If the Premises are not surrendered as required in this paragraph,
Tenant shall indemnify Landlord against all loss, liability and expense
(including, but not limited to, attorney fees) resulting from the failure by
Tenant in so surrendering the Premises, including, without limitation, any
claims made by any succeeding tenants. It is agreed between Landlord and Tenant
that the provisions of this paragraph 22 shall survive the termination of this
lease.
23. TENANT'S QUITCLAIM. At the expiration or earlier termination of this
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lease, Tenant shall execute, acknowledge and deliver to Landlord, within ten
(10) days after written demand from Landlord to Tenant, any quitclaim deed or
other document required to remove the cloud or encumbrance created by this lease
from the real property or which the Premises are a part. This obligation shall
survive said expiration or termination.
24. HOLDING OVER. Any holding over after the expiration or termination of
------------
this lease (with the written consent of Landlord delivered to Tenant) shall be
construed to be a tenancy from month to month at the monthly rent, as adjusted,
in effect on the date of such expiration or termination. All provisions of this
lease, except those pertaining to the term and any option to extend, shall apply
to the month to month tenancy. The provisions of this paragraph are in addition
to, and do not affect, Landlord's right of re-entry or other rights hereunder or
provided by law.
If Tenant shall retain possession of the Premises or any part thereof
without Landlord's consent following the expiration or sooner termination of
this lease for any reason, then Tenant shall pay to Landlord for each day of
such retention double the amount of the daily rental in effect during the last
month prior to the date or such expiration or termination. Tenant shall also
indemnify and hold Landlord harmless from any loss or liability resulting from
delay by Tenant in surrendering the Premises including without limitation, any
claims made by any succeeding tenant founded on such delay. Acceptance of rent
by Landlord following expiration or termination shall not constitute a renewal
of this lease, and nothing contained in this paragraph shall waive Landlord's
right of re-entry or any other right. Tenant shall be only a Tenant at
sufferance, whether or not Landlord accepts any rent from Tenant, while Tenant
is holding over without Landlord's written consent.
25. SUBORDINATION. In the event Landlord's title or leasehold interest is
-------------
now or hereafter encumbered in order to secure a loan to Landlord, Tenant shall,
at the request of Landlord or the lender, execute in writing an agreement
subordinating its rights under this lease to the lien of such encumbrance, or,
if so requested, agreeing that the lien of lender's encumbrance shall be or
remain subject and subordinate to the rights of Tenant under this lease. Tenant
hereby irrevocably appoints Landlord the attorney-in-fact of Tenant to execute,
deliver and record any such instrument or instruments for and in the name and on
behalf of Tenant. Notwithstanding any such subordination, Tenant's possession
under this lease shall not be disturbed if Tenant is not in default and so long
as Tenant shall pay all amounts due hereunder and otherwise observe and perform
all provisions of this lease. In addition, if in connection with any such loan
the lender shall request reasonable modifications in this lease as a condition
to such financing, Tenant will not unreasonably withhold, delay or defer its
consent thereof, provided that such modifications do not increase the
obligations of Tenant hereunder or materially adversely affect the leasehold
interest hereby created or Tenant's rights hereunder.
26. CERTIFICATE OF ESTOPPEL. Each party shall, within five (5) calendar
-----------------------
days after request therefor, execute and deliver to the other party, in
recordable form, a certificate stating that the lease is unmodified and in full
force and effect, or in full force and effect as modified and stating the
modifications. The certificate shall also state the amount of the monthly rent,
the date to which monthly rent has been paid in advance, the amount of the
security deposit and/or prepaid monthly rent, and, if the request is made by
Landlord shall include such other items as Landlord or Landlord's lender may
reasonably request. Failure to deliver such certificate within such time shall
constitute a conclusive acknowledgement by the party failing to deliver the
certificate that the lease is in full force and effect and has not been modified
except as may be represented by the party requesting the certificate. Any such
certificate requested by Landlord may be conclusively relied upon by any
prospective purchaser or encumbrancer of the Premises or Project. Further,
within five (5) calendar days following written request made from time to time
by Landlord, Tenant shall furnish to Landlord current financial statements of
Tenant.
27. SALE BY LANDLORD. In the event the original Landlord hereunder, or
----------------
any successor owner of the Project or Premises, shall sell or convey the Project
or Premises, all liabilities and obligations on the
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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 and to look solely to such new owner for performance of any and all
such liabilities and obligations.
28. ATTORNMENT TO LENDER OR THIRD PARTY. In the event the interest of
-----------------------------------
Landlord in the land and buildings in which the Premises are located (whether
such interest of Landlord is a fee title interest or a leasehold interest) is
encumbered by deed of trust, and such interest is acquired by a lender or any
other third party through judicial foreclosure or by exercise of a power of sale
at a private trustee's foreclosure sale, Tenant hereby agrees to release
Landlord of any obligation arising on or after any such foreclosure sale and to
attorn to the purchaser at any such foreclosure sale and to recognize such
purchaser as the Landlord under this lease.
29. DEFAULT BY LANDLORD. Landlord shall not be in default unless Landlord
-------------------
fails to perform obligations required of Landlord within a reasonable time, but
in no event earlier than thirty (30) days after written notice by Tenant to
Landlord and to the holder of any first mortgage or deed of trust covering the
Premises specifying wherein Landlord has failed to perform such obligations;
provided, however, that if the nature of Landlord's obligations is such that
more than thirty (30) days are required for performance, then Landlord shall not
be in default if Landlord commences performance within such thirty (30) day
period and thereafter diligently prosecutes the same to completion.
If Landlord is in default of this lease, Tenant's sole remedy shall be
to institute suit against Landlord in a court of competent jurisdiction, and
Tenant shall have no right to offset any sums expended by Tenant as a result of
Landlord's default against future rent and other sums due and payable pursuant
to this lease. If Landlord is in default of this lease, and as a consequence
Tenant recovers a money judgment against Landlord, the judgment shall be
satisfied only out of the proceeds of sale received on execution of the judgment
and levy against the right, title and interest of Landlord in the Project of
which the Premises are a part, and out of rent or other income from such real
property receivable by Landlord or out of the consideration received by Landlord
from the sale or other disposition of all or any part of Landlord's right, title
and interest in the Project of which the Premises are a part. Neither Landlord
nor any of the partners comprising the partnership designated as Landlord shall
be personally liable for any deficiency.
30. CONSTRUCTION CHANGES. It is understood that the description of the
--------------------
Premises and the location of ductwork, plumbing and other facilities therein are
subject to such changes as Landlord or Landlord's architect determines to be
desirable in the course of construction of the Premises and/or the improvements
constructed or being constructed therein, and no such changes or any changes in
plans for any other portions of the Project, shall affect this lease or entitle
Tenant to any reduction of rent hereunder or result in any liability of Landlord
to Tenant.
31. MEASUREMENT OF PREMISES. Tenant understands and agrees that any
-----------------------
reference to square footage of the Premises is approximate only and includes all
interior partitions and columns, one-half of exterior walls, and one-half of the
partitions separating the Premises from the rest of the Project, and any outside
entry overhang, if applicable. Tenant waives any claim against Landlord
regarding the accuracy of any such measurement and agrees that there shall not
be any adjustment in basic rent or direct expenses or other amounts payable
hereunder by reason of inaccuracies in such measurement.
32. ATTORNEY FEES. If either party commences an action against the other
-------------
party arising out of or in connection with this lease, the prevailing party
shall be entitled to have and recover from the losing party all expenses of
litigation, including, without limitation, travel expenses, attorney fees,
expert witness fees, trial and appellate court costs, and deposition and
transcript expenses. If either party becomes a party to any litigation
concerning this lease or concerning the Premises or the Project, by reason of
any act or omission of the other party or its authorized representatives, the
party that causes the other party to become involved in the litigation shall be
liable to the other party for all expenses of litigation, including, without
limitation, travel expenses, attorney fees, expert witness fees, trial and
appellate court costs, and deposition and transcript expenses.
33. SURRENDER. The voluntary or other surrender of this lease or the
---------
Premises by Tenant, or a mutual cancellation of this lease, shall not work a
merger, and at the option of Landlord shall either terminate all or any existing
subleases or subtenancies or operate as an assignment to Landlord or all or any
such subleases or subtenancies.
34. WAIVER. No delay or omission in the exercise of any right or remedy
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of Landlord on any default by Tenant shall impair such right or remedy or be
construed as a waiver. The receipt and acceptance by Landlord of delinquent
rent or other payments shall not constitute a waiver of any other default and
acceptance of partial payments shall not be construed as a waiver of the balance
of such payment due. No act or conduct of Landlord, including, without
limitation, the acceptance of keys to the Premises, shall constitute an
acceptance of the surrender of the Premises by Tenant before the expiration of
the term. Only a written notice from Landlord to Tenant shall constitute
acceptance of the surrender of the Premises and accomplish a termination of this
lease. Landlord's consent to or approval of any act by Tenant requiring
Landlord's consent or approval shall not be deemed to waive or render
unnecessary Landlord's consent to or approval of any subsequent act by Tenant.
Any waiver by Landlord of any default must be in writing and shall not be a
waiver of any other default concerning the same or any other provision of this
lease.
35. EASEMENTS; AIRSPACE RIGHTS. Landlord reserves the right to alter the
--------------------------
boundaries of the
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Project and grant easements and dedicate for public use portions of the Project
without Tenant's consent, provided that no such grant or dedication shall
interfere with Tenant's use of the Premises or otherwise cause Tenant to incur
cost or expense. From time to time, and upon Landlord's demand, Tenant shall
execute, acknowledge and deliver to Landlord, and in accordance with Landlord's
instructions, any and all documents, instruments, maps or plats necessary to
effectuate Tenant's covenants hereunder.
This lease confers no rights either with regard to the subsurface of
the land on which the Premises are located or with regard to airspace above the
ceiling of the Premises. Tenant agrees that no diminution or shutting off of
light or view by a structure which is or may be erected (whether or not by
Landlord) on property adjacent to the building of which the Premises are a part
or to property adjacent thereto, shall in any way affect this lease, or entitle
Tenant to any reduction of rent, or result in any liability of Landlord to
Tenant.
36. RULES AND REGULATIONS. Landlord shall have the right from time to
---------------------
time to promulgate rules and regulations for the safety, care and cleanliness of
the Premises, the Project and the Common Area, or for the preservation of good
order. On delivery of a copy of such rules and regulations to Tenant, Tenant
shall comply with the rules and regulations, and a violation of any of them
shall constitute a default by Tenant under this lease. If there is a conflict
between the rules and regulations and any of the provisions of this lease, the
provisions of this lease shall prevail. Such rules and regulations may be
amended by Landlord from time to time with or without advance notice.
37. NOTICES. Except for legal process which may also be served as
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provided by law or as provided herein, all notices, demands, requests, consents
and other communications ("Notices") which may be given or are required to be
given by either party to the other shall be in writing and shall be deemed given
to and received by the party intended to receive such Notice (i) when hand
delivered, (ii) three (3) days after such Notice shall have been deposited,
postage prepaid, to the United States Mail, certified return receipt requested,
properly addressed to the address specified herein, or (iii) date of delivery if
sent to the address specified herein by reputable overnight courier (e.g.
Federal Express or other comparable service), as evidenced by such courier's
records.
Prior to the commencement date, all such Notices from Landlord to Tenant
shall be served or addressed to Tenant at 2005 Hamilton Avenue, Suite 255, San
Jose, California. On or after the commencement date all such Notices from
Landlord to Tenant shall be addressed to Tenant at the Premises.
All such Notices by Tenant to Landlord shall be sent to Landlord, c/o CIGNA
Investments, Inc., Real Estate Asset Management, Routing Code S-311, 900 Cottage
Grove Road, Hartford, CT 06152-2311, with a copy to McCandless Management
Corporation, 3945 Freedom Circle, Suite 640, Santa Clara, California 95054.
Either party may change its address by notifying the other of such change.
38. NAME. Tenant shall not use the name of the Project for any purpose
----
other than as the address of the business conducted by Tenant in the Premises
without the prior written consent of Landlord.
39. GOVERNING LAW; SEVERABILITY. This lease shall in all respects be
---------------------------
governed by and construed in accordance with the laws of the State of
California. If any provision of this lease shall be held or rendered invalid,
unenforceable or ineffective for any reason whatsoever, all other provisions
hereof shall be and remain in full force and effect.
40. DEFINITIONS. As used in this lease, the following words and phrases
-----------
shall have the following meanings:
AUTHORIZED REPRESENTATIVE: any officer, agent, employee or
-------------------------
independent contractor retained or employed by either party, acting within
authority given him by that party.
ENCUMBRANCE: any deed of trust, mortgage or other written security
-----------
device or agreement affecting the Premises or the Project that constitutes
security for the payment of a debt or performance of an obligation, and the note
or obligation secured by such deed of trust, mortgage or other written security
device or agreement.
LEASE MONTH: the period of time determined by reference to the day of
-----------
the month in which the term commences and continuing to one day short of the
same numbered day in the next succeeding month; e.g., the tenth day of one month
to and including the ninth day in the next succeeding month.
LENDER: the beneficiary, mortgagee or other holder of an encumbrance,
------
as defined above.
LIEN: a charge imposed on the Premises by someone other than
----
Landlord, by which the Premises are made security for the performance of an act.
Most of the liens referred to in this lease are mechanic's liens.
MAINTENANCE: repairs, replacement, repainting and cleaning.
-----------
MONTHLY RENT: the sum of the monthly payments of basic rent and
------------
direct expenses.
PERSON: one or more human beings, or legal entities or other
------
artificial persons, including,
14
<PAGE>
without limitation, partnerships, corporations, trusts, estates, associations
and any combination of human being and legal entities.
PROVISION: any term, agreement, covenant, condition, clause,
---------
qualification, restriction, reservation or other stipulation in the lease that
defines or otherwise controls, establishes or limits the performance required or
permitted by either party.
RENT: basic rent, direct expenses, additional rent, and all other
----
amounts payable by Tenant to Landlord required by this lease or arising by
subsequent actions of the parties made pursuant to this lease.
Words used in any gender include other genders. If there be more than
one Tenant, the obligations of Tenant hereunder are joint and several. All
provisions whether covenants or conditions, on the part of Tenant shall be
deemed to be both covenants and conditions. The paragraph headings are for
convenience of reference only and shall have no effect upon the construction or
interpretation of any provision hereof.
41. TIME. Time is of the essence of this lease and of each and all of its
----
provisions.
42. INTEREST ON PAST DUE OBLIGATIONS; LATE CHARGE. Any amount due from
---------------------------------------------
Tenant to Landlord hereunder which is not paid when due shall bear interest at
the rate of ten percent (10%) per annum from when due until paid, unless
otherwise specifically provided herein, but the payment of such interest shall
not excuse or cure any default by Tenant under this lease. In addition, Tenant
acknowledges that late payment by Tenant to Landlord of basic rent, or of
Tenant's monthly direct expenses, or of any other amount due Landlord from
Tenant, will cause Landlord to incur costs not contemplated by this lease, the
exact amount of such costs being extremely difficult and impractical to fix.
Such costs include, without limitation, processing and accounting charges, and
late charges that may be imposed on Landlord, e.g., by the terms of any
encumbrance and note secured by any encumbrance covering the Premises.
Therefore, if any such payment due from Tenant is not received by Landlord when
due, Tenant shall pay to Landlord an additional sum of five percent (5%) of the
overdue payment as a late charge. The parties agree that this late charge
represents a fair and reasonable estimate of the costs that Landlord will incur
by reason of late payment by Tenant. Acceptance of any late charge shall not
constitute a waiver of Tenant's default with respect to the overdue amount, nor
prevent Landlord from exercising any of the other rights and remedies available
to Landlord. No notice to Tenant of failure to pay shall be required prior to
the imposition of such interest and/or late charge, and any notice period
provided for in paragraph 19 shall not affect the imposition of such interest
and/or late charge. Any interest and late charge imposed pursuant to this
paragraph shall be and constitute additional rent payable by Tenant to Landlord.
43. ENTIRE AGREEMENT. This lease, including any exhibits and attachments,
----------------
constitutes the entire agreement between Landlord and Tenant relative to the
Premises and this lease and the exhibits and attachments may be altered, amended
or revoked only by an instrument in writing signed by both Landlord and Tenant.
Landlord and Tenant agree hereby that all prior or contemporaneous oral
agreements between and among themselves or their agents or representatives
relative to the leasing of the Premises are merged in or revoked by this lease.
44. CORPORATE AUTHORITY. If Tenant is a corporation, each individual
-------------------
executing this lease on behalf of the corporation represents and warrants that
he is duly authorized to execute and deliver this lease on behalf of the
corporation in accordance with a duly adopted resolution of the Board of
Directors of said corporation and that this lease is binding upon said
corporation in accordance with its terms. If Tenant is a corporation, Tenant
shall deliver to Landlord, within ten (10) days of the execution of this lease,
a copy of the resolution of the Board of Directors of Tenant authorizing the
execution of this lease and naming the officers that are authorized to execute
this lease on behalf of Tenant, which copy shall be certified by Tenant's
secretary as correct and in full force and effect.
45. RECORDING. Neither Landlord nor Tenant shall record this lease or a
---------
short form memorandum hereof without the consent of the other.
46. REAL ESTATE BROKERS. Each party represents and warrants to the other
-------------------
party that it has not had dealings in any manner with any real estate broker,
finder or other person with respect to the Premises and the negotiation and
execution of this lease. Each party shall indemnify and hold harmless the other
party from all damage, loss, liability and expense (including attorneys' fees
and related costs) arising out of or resulting from any claims for commissions
or fees that have been or may be asserted against the other party by any broker,
finder or other person with whom Tenant or Landlord, respectively, has dealt, or
purportedly has dealt, in connection with the Premises and the negotiation and
execution of this lease. Landlord and Tenant agree that Landlord shall not be
obligated to pay any broker leasing commissions, consulting fees, finder fees or
any other fees or commissions arising out of or relating to any extended term of
this lease or to any expansion or relocation of the Premises at any time.
47. EXHIBITS AND ATTACHMENTS. All exhibits and attachments to this lease
------------------------
are a part hereof.
48. ERISA REQUIREMENTS. It is understood that Landlord is subject to the
------------------
Employee Retirement Income Security Act ("ERISA") and has furnished to Tenant a
list of individuals and entities, transactions with which might result in a
prohibited transaction under ERISA or would otherwise cause a breach of an ERISA
related requirement. Tenant hereby warrants and represents that Tenant is not
related to or
15
<PAGE>
affiliated with any person or entity shown on the list attached hereto as
Exhibit D such that Tenant is a "party in interest" to such person or entity as
that term is defined in ERISA Section 3 (14), a copy of which Section is
attached hereto as Exhibit E, as that Section may be interpreted or amended.
Tenant agrees that each time that Landlord makes additions to such list that
Tenant will either make the warranty requested above or shall disclose to
Landlord the relationship with such party on the list that would cause Tenant to
be unable to make such warranty and representation. Tenant agrees to indemnify
and hold Landlord harmless from any cost, expense or damages which may result
from a breach of the warranty and representation made by Tenant.
49. ENVIRONMENTAL MATTERS.
---------------------
A. TENANT'S COVENANTS REGARDING HAZARDOUS MATERIALS.
------------------------------------------------
(1) HAZARDOUS MATERIALS HANDLING. Tenant, its agents, invitees,
----------------------------
employees, contractors, sublessees, assigns and/or successors shall not use,
store, dispose, release or otherwise cause to be present or permit the use,
storage, disposal, release or presence of Hazardous Materials (as defined below)
on or about the Premises or Project. As used herein "Hazardous Materials" shall
mean any petroleum or petroleum by-products, flammable explosives, asbestos,
urea formaldehyde, radioactive materials or waste and any "hazardous substance",
"hazardous waste", "hazardous materials", "toxic substance" or "toxic waste" as
those terms are defined under the provisions of the California Health and Safety
Code and/or the provisions of the Comprehensive Environmental Response,
Compensation and Liability Act (42 U.S.C. Section 9601 et seq.), as amended by
the Superfund Amendments and Reauthorization Act of 1986 (42 U.S.C. Section 9601
et seq.), or any other hazardous or toxic substance, material or waste which is
or becomes regulated by any local governmental authority, the State of
California or any agency thereof, or the United States Government or any agency
thereof.
(2) NOTICES. Tenant shall immediately notify Landlord in writing
-------
of: (i) any enforcement, cleanup, removal or other governmental or regulatory
action instituted, completed or threatened pursuant to any law, regulation or
ordinance relating to the industrial hygiene, environmental protection or the
use, analysis, generation, manufacture, storage, presence, disposal or
transportation of any Hazardous Materials (collectively "Hazardous Materials
Laws"); (ii) any claim made or threatened by any person against Tenant, the
Premises, Project or buildings within the Project 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, on or removed from the Premises, Project or buildings within the
Project, including any complaints, notices, warnings, reports or asserted
violations in connection therewith. Tenant shall also supply to Landlord as
promptly as possible, and in any event within five (5) business days after
Tenant 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, Project or buildings within the Project or Tenant's use thereof.
Tenant shall promptly deliver to Landlord copies of hazardous waste manifests
reflecting the legal and proper disposal of all Hazardous Materials removed from
the Premises.
B. INDEMNIFICATION OF LANDLORD. Tenant shall indemnify, defend (by
---------------------------
counsel acceptable to Landlord), protect, and hold Landlord, and each of
Landlord's partners, employees, agents, attorneys, successors and assigns, free
and harmless from and against any and all claims, liabilities, penalties,
forfeitures, losses or expenses (including attorneys' fees) for death of or
injury to any person or damage to any property whatsoever (including water
tables and atmosphere), arising from or caused in whole or in part, directly or
indirectly, by (i) the presence in, on, under or about the Premises, Project or
buildings within the Project or discharge in or from the Premises, Project or
buildings within the Project of any Hazardous Materials or Tenant's use,
analysis, storage, transportation, disposal, release, threatened release,
discharge or generation of Hazardous Materials to, in, on, under, about or from
the Premises, Project or buildings within the Project, or (ii) Tenant's failure
to comply with any Hazardous Materials Laws whether knowingly, unknowingly,
intentionally or unintentionally. Tenant's obligations hereunder shall include,
without limitation, and whether foreseeable or unforeseeable, all costs of any
required or necessary repair, cleanup or detoxification or decontamination of
the Premises, Project or buildings within the Project, and the preparation and
implementation of any closure, remedial action or other required plans in
connection therewith. In addition, Tenant shall reimburse Landlord for (i)
losses in or reductions to rental income resulting from Tenant's use, storage or
disposal of Hazardous Materials, (ii) all costs of refitting or other
alterations to the Premises, Project or buildings within the Project required as
a result of Tenant's use, storage, or disposal of Hazardous Materials including,
without limitation, alterations required to accommodate an alternate use of the
Premises, Project or buildings within the Project, and (iii) any diminution in
the fair market value of the Premises, Project or buildings within the Project
caused by Tenant's use, storage, or disposal of Hazardous Materials. For
purposes of this paragraph 49, any acts or omissions of Tenant, or by employees,
agents, assignees, contractors or subcontractors of Tenant or others acting for
or on behalf of Tenant (whether or not they are negligent, intentional, willful
or unlawful) shall be strictly attributable to Tenant.
C. SURVIVAL. The provisions of this paragraph 49 shall survive the
--------
expiration or earlier termination of the term of this lease.
50. SIGNAGE. Tenant shall not, without obtaining the prior written consent
-------
of Landlord, install or attach any sign or advertising material on any part of
the outside of the Premises, or on any part of the inside of the Premises which
is visible from the outside of the Premises, or in the halls, lobbies, windows
or elevators of the building in which the Premises are located or on or about
any other portion of the Common Area or Project. If Landlord consents to the
installation of any sign or other advertising material,
16
<PAGE>
the location, size, design, color and other physical aspects thereof shall be
subject to Landlord's prior written approval and shall be in accordance with any
sign program applicable to the Project. In addition to any other requirements of
this paragraph 50, the installation of any sign or other advertising material by
or for Tenant must comply with all applicable laws, statutes, requirements,
rules, ordinances and any C.C. & R.'s or other similar requirements. With
respect to any permitted sign installed by or for Tenant, Tenant shall maintain
such sign or other advertising material in good condition and repair and shall
remove such sign or other advertising material on the expiration or earlier
termination of the term of this lease. The cost of any permitted sign or
advertising material and all costs associated with the installation, maintenance
and removal thereof shall be paid for solely by Tenant. If Tenant fails to
properly maintain or remove any permitted sign or other advertising material,
Landlord may do so at Tenant's expense. Any cost incurred by Landlord in
connection with such maintenance or removal shall be deemed additional rent and
shall be paid by Tenant to Landlord within ten (10) days following notice from
Landlord. Landlord may remove any unpermitted sign or advertising material
without notice to Tenant and the cost of such removal shall be additional rent
and shall be paid by Tenant within ten (10) days following notice from Landlord.
Landlord shall not be liable to Tenant for any damage, loss or expense resulting
from Landlord's removal of any sign or advertising material in accordance with
this paragraph 50. The provisions of this paragraph 50 shall survive the
expiration or earlier termination of this lease.
51. SUBMISSION OF LEASE. The submission of this lease to Tenant for
-------------------
examination or signature by Tenant is not an offer to lease the Premises to
Tenant, nor an agreement by Landlord to reserve the Premises for Tenant.
Landlord will not be bound to Tenant until this lease has been duly executed and
delivered by both Landlord and Tenant.
52. PREMISES TAKEN "AS IS". Tenant is leasing the Premises from Landlord
----------------------
"As Is" in their condition existing as of the date hereof. Landlord shall have
no obligation to alter or improve the Premises.
53. ADDITIONAL RENT. All costs, charges, fees, penalties, interest, and
---------------
any other payments (including Tenant's reimbursement to Landlord of costs
incurred by Landlord) which Tenant is required to make to Landlord pursuant to
the terms and conditions of this lease and any amendments to this lease shall be
and constitute additional rent payable by Tenant to Landlord when due as
specified in this lease and any amendments to this lease.
54. LANDLORD'S OPTION TO RELOCATE PREMISES. At any time during the initial
--------------------------------------
term and any extended term of this lease, Landlord shall have the option to
relocate Tenant to alternate space within the Project which is reasonably
comparable to the Premises in size and type of space ("Relocation Space").
Landlord shall exercise this option to relocate by giving Tenant written notice
of Landlord's election to relocate at least ninety (90) calendar days prior to
the date of relocation and said written notice shall specify the date of
relocation ("Relocation Date"). Upon Tenant's receipt of Landlord's written
notice of election to exercise this option, Landlord and Tenant shall cooperate
with each other to identify acceptable space within the Project which shall be
the Relocation Space. If Landlord and Tenant are unable to agree on acceptable
space within sixty (60) days after Tenant's receipt of Landlord's written
notice, Landlord shall have the right to unilaterally designate as the
Relocation Space any space within the Project which is reasonably comparable to
the Premises in size and type of space. If Landlord and Tenant are unable to
agree on acceptable space within sixty (60) days after Tenant's receipt of
Landlord's written notice and Landlord unilaterally designates the Relocation
Space as provided for in the foregoing sentence, Tenant shall have the option to
terminate this lease effective as of the Relocation Date by delivering to
Landlord, within five (5) business days after receipt of Landlord's notice
designating the Relocation Space, Tenant's irrevocable written notice of its
election to terminate this lease. In the event Tenant relocates into the
Relocation Space as provided in this paragraph 54, commencing on the Relocation
Date this lease shall be deemed amended by deleting the description of the
Premises as presently constituted and adding the description of the Relocation
Space and Tenant's lease of the Relocation Space from Landlord shall be subject
to all of the terms and conditions of this lease (as amended, if applicable)
including the payment of basic rent and direct expenses, which shall be adjusted
to reflect any increase or decrease in the square footage between the Premises
as presently constituted and the Relocation Space. Landlord shall pay all
reasonable costs incurred in connection with moving Tenant's business from the
Premises into the Relocation Space.
55. TENANT IMPROVEMENTS. Tenant shall construct certain tenant
-------------------
improvements (the "Tenant Improvements") in the Premises as shown and described
in Exhibit C attached hereto, subject to the following terms and conditions:
(a) The Tenant Improvements shall be deemed alterations to the
Premises subject to Landlord's prior written consent and shall be subject to all
the terms and conditions of paragraph 8 of this lease, except that Tenant shall
not be obligated to remove the Tenant Improvements shown in Exhibit C nor
restore the Premises to its condition prior to construction of the Tenant
Improvement to the extent specified in Exhibit C. Tenant shall submit
preliminary space plans and final space plans to Landlord for Landlord's prior
written consent. Upon Landlord's approval of the final space plan, Tenant shall
thereafter cause to be prepared by licensed architects and engineers a fully
coordinated set of architectural, structural, mechanical, electrical and
plumbing working drawings (the "Final Construction Drawings") for the Tenant
Improvements, if applicable, and shall submit copies of the Final Construction
Drawings to Landlord for Landlord's approval. After Landlord's approval of the
Final Construction Drawings, Tenant shall submit the Final Construction Drawings
as approved by Landlord to the City to obtain all requisite building permits. No
changes, modifications or alterations to the Final Construction Drawings shall
be made without
17
<PAGE>
Landlord's prior written consent.
(b) A general contractor shall be retained by Tenant to construct the
Tenant Improvements. The general contractor shall be subject to Landlord's
approval. Tenant shall only use contractors and subcontractors reasonably
approved by Landlord. All of Tenant's contractors and subcontractors shall
carry workers compensation insurance covering all of their respective employees
and shall also carry commercial general liability and property damage insurance,
all with limits, in form and with companies as are required to be carried by
Tenant in paragraph 11 of this lease. Tenant shall also carry "Builder's All
Risk" insurance in an amount approved by Landlord covering construction of the
Tenant Improvements and such other insurance as Landlord may reasonably require.
Certificates for all insurances required hereunder shall be provided to Landlord
prior to commencement of construction of the Tenant Improvements.
(c) Landlord will be notified at least ten (10) days prior to the
commencement of any construction in order to post a Notice of Non-
Responsibility. Tenant agrees to conform with Landlord's rules and regulations
associated with construction to minimize the disruption to the other tenants in
the building. Any construction which causes significant noise or other
disturbance to the tenants shall be done during non-business hours (evenings
after 6:30 p.m. or weekends). Tenant will require its general contractor to
clean the exterior of the Premises daily and shall keep the common areas clean
and debris-free at all times and shall park construction vehicles and store
materials in areas designated by Landlord. Mechanical systems shall be designed
so as to not affect the systems of the adjoining suites or otherwise alter the
airflow to the other tenants in the building.
(d) The Tenant Improvements shall be constructed in accordance with
all applicable local, state and federal laws, statutes, codes, ordinances, rules
and regulations.
(e) Landlord shall have the right to enter the Premises at all times
during construction of the Tenant Improvements to inspect and monitor such
construction, but shall have no obligation to do so and assumes no liability or
responsibility for such construction and/or compliance with laws applicable
thereto, which is and shall be Tenant's sole responsibility.
56. EARLY ACCESS. Landlord shall provide Tenant with limited access to the
------------
Premises prior to the commencement of the term, but only for purposes of
construction of the Tenant Improvements. Tenant's access shall be coordinated
with Landlord. Except as specifically provided below, Tenant's access to the
Premises pursuant to this paragraph shall be subject to all the terms and
conditions of this lease, including the insurance obligations specified in
paragraph 11 and paragraph 55. As a condition precedent to Tenant's right to
such access to the Premises, Tenant shall provide Landlord with proof that
Tenant has satisfied said insurance requirements. Such limited access to the
Premises shall not accelerate the commencement or termination dates of this
lease specified in paragraph 2(a) hereof and Tenant shall not be obligated to
pay basic rent or direct expenses until the commencement of the term.
IN WITNESS WHEREOF, Landlord and Tenant have executed and delivered this
lease as of the date first above written.
Landlord: Tenant:
- -------- -------
CONNECTICUT GENERAL LIFE INSURANCE eBAY, INC.,
COMPANY, on behalf of its Separate a California corporation
Account R
By: CIGNA Investments, Inc.
By:____________________________ By: /s/ Margaret C. Whitman
---------------------------------
Name:__________________________ Name: Margaret C. Whitman
-------------------------------
Its:___________________________ Its: President
Date:______________________________ By: /s/ Matthew P. Quilter
---------------------------------
Name:________________________
Its: Secretary
Date:_______________________________
18
<PAGE>
FIRST AMENDMENT TO LEASE
------------------------
THIS FIRST AMENDMENT TO LEASE (this "Amendment") is made this 9th day of
June, 1998, by and between CONNECTICUT GENERAL LIFE INSURANCE COMPANY, a
Connecticut corporation, on behalf of its Separate Account R ("Landlord") and
EBAY, INC., a California corporation ("Tenant").
R E C I T A L S
A. Tenant currently leases from Landlord approximately two thousand two
hundred fifteen (2,215) square feet of space located at 2005 Hamilton Avenue,
Suites 235 and 240, San Jose, California (the "Current Premises"), pursuant to
that certain Lease dated April 10, 1998 (the "Lease"). The Current Premises are
shown on Exhibit A attached hereto.
B. Tenant desires to lease additional space from Landlord located at 2005
Hamilton Avenue, Suite 130, San Jose, California, (the "Expansion Space"),
consisting of approximately four thousand two hundred twenty-two (4,222) square
feet of space. The Expansion Space is shown on Exhibit B attached hereto.
C. Tenant also desires to extend the term of the Lease on the terms and
conditions set forth below.
D. Landlord is willing to lease the Expansion Space to Tenant and to
extend the term of the Lease in consideration of Tenant's agreement to the terms
and conditions set forth below.
NOW, THEREFORE, in consideration of the above recitals and the mutual
covenants and agreements contained herein, Landlord and Tenant agree as follows:
1. TERM. Paragraph 2 of the Lease is modified as follows:
----
The term of the Lease is hereby extended such that the termination
date shall be June 7, 2001.
2. PREMISES. The definition of "Premises" is modified as follows:
--------
From and after June 8, 1998, the Expansion Space shall be added to the
Current Premises and, thereafter, the total area leased shall be increased to
six thousand four hundred thirty-seven (6,437) square feet and the term
"Premises" as used in this Lease shall refer to the Current Premises and the
Expansion Space combined.
3. BASIC RENT. Paragraphs 4(a) and 5(a) of the Lease are modified as
----------
follows:
Commencing on the June 8, 1998, the basic rent payable by Tenant as
set forth in paragraphs 4(a) and 5(a) of the Lease shall be as follows:
From June 8, 1998 through June 7, 1999 $16,607.46 per month
19
<PAGE>
Commencing on June 8, 1999 and on each anniversary date thereafter
(each such date is referred to herein as the "Adjustment Date"), the basic rent
shall be adjusted as follows:
The Consumer Price Index for All Urban Consumers (base year 1984 =
100) for San Francisco-Oakland, Metropolitan Area published by the United States
Department of Labor, Bureau of Labor Statistics ("Index"), which is published
for the nearest date preceding the applicable Adjustment Date (the "Extension
Index"), shall be compared with the Index published for the nearest date
preceding June 8, 1998 (the "Beginning Index"). If the Extension Index has
increased over the Beginning Index, the monthly basic rent payable during the
following period shall be set by multiplying $16,607.46 by a fraction, the
numerator of which is the Extension Index and the denominator of which is the
Beginning Index; provided, however, that in no event shall the increase in
monthly basic rent on each Adjustment Date be less than four percent (4%) over
the monthly basic rent payable for the lease month prior to such Adjustment
Date.
As soon as the monthly basic rent for each such period is set,
Landlord shall give Tenant notice of the amount. On each Adjustment Date the
parties shall immediately execute an amendment to the lease stating the new
monthly basic rent or otherwise acknowledge in writing such adjustment in form
reasonably acceptable to Landlord. If the Index is changed so that the base
year differs from that used for the Beginning Index, the Index shall be
converted in accordance with the conversion factor published by the United
States Department of Labor, Bureau of Labor Statistics. If the Index is
discontinued or revised during the term, such other government index or
computation with which it is replaced shall be used in order to obtain
substantially the same result as would be obtained if the Index had not been
discontinued or revised.
4. DIRECT EXPENSES. Paragraphs 4(b) and 5(b) of the Lease are modified as
---------------
follows:
Commencing on the June 8, 1998, Tenant's proportionate share of direct
expenses of the Project as set forth in paragraph 5(b) of the Lease shall be
increased to two and seventy-eight one-hundredths percent (2.78%) and Tenant's
proportionate share of direct expenses of the building in which the Premises are
located shall be increased to ten and four one-hundredths percent (10.04%).
Commencing on the June 8, 1998, Tenant's payment of its estimated share of
direct expenses shall be Three Thousand Nine Hundred Ninety and 94/100 Dollars
($3,990.94) and shall be reconciled and adjusted thereafter in accordance with
paragraph 5(b) of the Lease.
5. ADVANCE RENT DEPOSIT. Concurrent with Tenant's execution of this
--------------------
Amendment Tenant shall deliver to Landlord the sum of Thirteen Thousand Five
Hundred Ten and 40/100 Dollars ($13,510.40) as advance payment of basic rent and
direct expenses applicable to the Expansion Space for the first lease month
commencing on June 8, 1998.
6. SECURITY DEPOSIT. Paragraph 4(e) of the Lease is modified as follows:
----------------
Upon execution of this Amendment, Tenant shall deposit with Landlord
the additional sum of Fifteen Thousand Dollars ($15,000) which shall be held by
Landlord as a portion of Tenant's security deposit pursuant to paragraph 4(e) of
the Lease. The total amount of the security deposit held by
20
<PAGE>
Landlord shall be increased thereby to a total of Twenty-Two Thousand Dollars
($22,000).
7. PARKING. Paragraph 15 of the Lease is modified as follows:
-------
Commencing on June 8, 1998, the number of non-exclusive parking spaces
which Tenant shall be entitled to use shall be increased to twenty-three (23)
spaces.
8. EXPANSION SPACE LEASED "AS IS". Tenant is leasing the Expansion Space
------------------------------
in its current condition and Landlord shall have no obligation to alter, modify
or improve the Expansion Space in any way.
9. CONDITION TO EFFECTIVENESS. The effectiveness of this Amendment is
--------------------------
conditioned and contingent upon Landlord receiving a duly executed Lease
Termination Agreement from Hall Kinion terminating its lease with respect to the
Expansion Space in form and substance acceptable to Landlord in Landlord's sole
and absolute discretion. If Landlord does not receive such agreement from Hall
Kinion on or before June 7, 1998, then Landlord, at its sole option, may cancel
this Amendment, but the Lease shall continue in full force and effect as to the
Current Space.
10. CORPORATE AUTHORITY. Each individual executing this Amendment on
-------------------
behalf of a corporation represents and warrants that he/she is duly authorized
to execute and deliver this Amendment on behalf of the corporation in accordance
with a duly adopted resolution of the Board of Directors of said corporation and
that this Amendment is binding upon said corporation in accordance with its
terms. Tenant shall deliver to Landlord, within ten (10) days of the execution
and delivery of this Amendment, a copy of the resolution of the Board of
Directors of Tenant authorizing the execution of this Amendment and naming the
officers that are authorized to execute this Amendment on behalf of Tenant,
which copy shall be certified by Tenant's President or Secretary as correct and
in full force and effect.
11. RESTATEMENT OF OTHER LEASE TERMS. Except as specifically modified
--------------------------------
herein, all other terms, covenants and conditions of the Lease shall remain in
full force and effect.
IN WITNESS WHEREOF, the parties hereto execute this Amendment as of the
date first set forth above.
21
<PAGE>
Landlord: Tenant:
- -------- ------
CONNECTICUT GENERAL LIFE eBAY, INC.,
INSURANCE COMPANY, a California corporation
a Connecticut corporation,
on behalf of its Separate
Account R
By: CIGNA Investments, Inc., By: /s/ Margaret C. Whitman
------------------------------------
a Delaware corporation
Its Authorized Agent Name: Margaret C. Whitman
----------------------------------
By:______________________ Title: President
---------------------------------
Name:____________________ Date: 7/8/98
----------------------------------
Title:___________________
Date:____________________ By: /s/ Matthew P. Quilter
------------------------------------
Name: Matthew P. Quilter
----------------------------------
Title: Secretary
---------------------------------
Date: 7/8/98
----------------------------------
22
<PAGE>
EXHIBIT 10.10
-------------
IMPERIAL BANK
-------------
INNOVATIVE BUSINESS BANKING
STARTER KIT LOAN AND SECURITY AGREEMENT
Borrower: eBay, Inc. Address: 2005 Hamilton Ave., Suite 270
----------- --------------------------------
Date: July 20, 1997 San Jose, CA 95125
----------------- ------------------
THIS LOAN AND SECURITY AGREEMENT ("Agreement") is made and entered into on the
above date between IMPERIAL BANK ("Bank"), whose address is 226 Airport Parkway,
--------------------
San Jose, CA 95110 and the party(ies) named above (jointly and severally,
- -------------------
"Borrower"), whose chief executive office is located at the above address
("Borrower's Address").
1. LOANS. Bank will make loans to Borrower (the "Loans") in amounts determined
by Bank in its reasonable business judgment up to the amount (the "Credit
Limit") shown on the Schedule to this Agreement (the "Schedule"), provided no
Event of Default and no event which, with notice or passage of time or both,
would constitute an Event of Default is occurring or has occurred. All Loans and
other monetary Obligations will bear interest at the rate shown on the Schedule.
Interest will be payable monthly, on the date shown on the monthly billing from
Bank. Bank may, in its discretion, charge Borrower's deposit accounts maintained
with Bank for any amounts coming due under this Agreement.
2. SECURITY INTEREST. As security for all present and future indebtedness,
guarantees, liabilities, and other obligations, of Borrower to Bank
(collectively, the "Obligations"), Borrower hereby grants Bank a continuing
security interest in all of Borrower's right title and interest in and to any
property now or hereafter described in a security agreement executed by Borrower
to Bank as well as the following types of property, whether now owned or
hereafter acquired, and wherever located (collectively, the "Collateral"): All
"accounts", "general intangibles," "chattel paper," "documents," "letters of
credit," "instruments," "deposit accounts," "inventory," "farm products,"
"fixtures" and "equipment," as such terms are defined in Division 9 of the
California Uniform Commercial Code in effect on the date hereof, and all
products, proceeds and insurance proceeds of the foregoing.
3. REPRESENTATIONS AND AGREEMENTS OF BORROWER. Borrower represents to Bank as
follows, and Borrower agrees that the following representations will continue to
be true, and that Borrower will comply with all of the following agreements
throughout the term of this Agreement.
3.1 CORPORATE EXISTENCE AND AUTHORITY. Borrower, if a corporation, is and will
continue to be, duly authorized, validly existing and in good standing under the
laws of the jurisdiction of its incorporation. The execution, delivery and
performance by Borrower of this Agreement, and all other documents contemplated
hereby have been
<PAGE>
duly and validly authorized, and do not violate any law or any provision of and
are not grounds for acceleration under, any agreement or instrument which is
binding upon Borrower.
3.2 NAME: PLACE OF BUSINESS. The name of Borrower set forth in this Agreement
is its correct name. Borrower shall give Bank 15 days prior written notice
before changing its name. The address set forth in the heading to this Agreement
is Borrower's chief executive office. In addition, Borrower has places of
business and Collateral is located only at the locations set forth on the
Schedule. Borrower will give Bank at least 15 days prior written notice before
changing its chief executive office or locating the Collateral at any other
location.
3.3 COLLATERAL. Bank has and will at all times continue to have a first-
priority perfected security interest in all of the Collateral (including
intellectual property) other than specific equipment identified in existing
filed or to be filed Financing Statements. Borrower will immediately advise Bank
in writing of any material loss or damage to the Collateral.
3.4 FINANCIAL CONDITION AND STATEMENTS. All financial statements now or in the
future delivered to Bank have been, and will be prepared in conformity with
generally accepted accounting principles. Since the last date covered by any
such statement, there has been no material adverse change in the financial
condition or business of Borrower. Borrower will provide Bank: (i) within 30
days after the end of each month, a monthly financial statement prepared by
Borrower, and such other information as Bank shall reasonably request: (ii)
within 90 days following the end of Borrower's fiscal year, complete annual
financial statements, certified by independent certified public accountants
acceptable to Bank and accompanied by the unqualified report thereon by said
independent certified public accountants; and (iii) other financial information
reasonably requested by Bank from time to time.
3.5 TAXES: COMPLIANCE WITH LAW. Borrower has filed, and will file, when due,
all tax returns and reports required by applicable law, and Borrower has paid,
and will pay, when due, all taxes, assessments, deposits and contributions now
or in the future owed by Borrower. Borrower has complied, and will comply, in
all material respects, with all applicable laws, rules and regulations.
3.6 INSURANCE. Borrower will at all times adequately insure all of the tangible
personal property Collateral and carry such other business insurance as is
customary in Borrower's industry, with Bank named as Loss Payee.
3.7 ACCESS TO COLLATERAL AND BOOKS AND RECORDS. At reasonable times, on one
business day's notice, Bank or its agents, shall have the right to inspect the
Collateral, and the right to audit and copy Borrower's books and records.
<PAGE>
3.8 BANKING RELATIONSHIP AND OPERATING ACCOUNTS. Borrower shall maintain its
primary operating deposit accounts with Bank. Borrower shall at all times
maintain its primary banking relationship with Bank.
3.9 ADDITIONAL AGREEMENTS. Borrower shall not, without Bank's prior written
consent, such consent not to be unreasonably withheld, do any of the following:
(i) enter into any transaction outside the ordinary course of business except
for the sale of capital stock to venture investors, provided that Borrower
promptly delivers written notification to Bank of any such stock sale; (ii) sell
or transfer any Collateral, except in the ordinary course of business; (iii) pay
or declare any dividends on Borrower's stock (except for dividends payable
solely in stock of Borrower); (iv) redeem, retire, purchase or otherwise
acquire, directly or indirectly, any of Borrower's stock other than the
repurchase of up to five percent (5%) of Borrower's then issued stock in any
fiscal year from Borrower's employees or directors pursuant to written
agreements with Borrower; (v) incur additional borrowed moneys other than
indebtedness fully subordinated to the debt due to Bank, and equipment leases;
(vi) merge, liquidate a substantial portion of its assets, or acquire other
assets other than in the normal course of business; or (vi) merge, liquidate a
substantial portion of its assets, or acquire other assets other than in the
normal course of business; or (vii) make loans, investments, or advances to
outside parties other than in the normal course of business except in connection
with Board-approved employee stock purchase plans.
3.10 NOTICE OF LEGAL PROCEEDINGS. Borrower will notify Bank in writing of any
legal action commenced against it which may result in damages over $50,000.
4. TERM. This Agreement shall continue in effect until the maturity date set
forth on the Schedule (the "Maturity Date"). This Agreement may be terminated,
without penalty, prior to the Maturity Date as follows: (i) by Borrower,
effective three business days after written notice of termination is given to
Bank; or (ii) by Bank at any time after the occurrence of an Event of Default,
without notice, effective immediately. On the Maturity Date or on any earlier
effective date of termination, Borrower shall pay all Obligations in full,
whether or not such Obligations are otherwise then due and payable. No
termination shall in any way affect or impair any security interest or other
right or remedy of Bank, nor shall any such termination relieve Borrower of any
Obligation to Bank, until all of the Obligations have been paid and performed in
full.
5. EVENTS OF DEFAULT AND REMEDIES. The occurrence of any of the following
events shall constitute an "Event of Default" under this Agreement: (a) Any
representation, statement, report or certificate given to Bank by Borrower or
any of its officers, employees or agents, now or in the future, is untrue or
misleading in a material respect; or (b) Borrower fails to pay when due any Loan
or any interest thereon or any other monetary Obligation; or (c) the total
Obligations outstanding at any time exceed the Credit Limit or (d) Borrower
fails to perform any other non-monetary Obligation, which failure is not cured
within 10 business days after the date due; or (e) Dissolution, termination of
existence, insolvency or business failure of Borrower or appointment of a
<PAGE>
receiver, trustee or custodian, for all or any part of the property of
assignment for the benefit of creditors by, or the commencement of any
proceeding by or against Borrower under any reorganization, bankruptcy,
insolvency, arrangement, readjustment of debt, dissolution or liquidation law or
statute of any jurisdiction, now or in the future in effect; or (f) a material
adverse change in the business, operations, or financial or other condition of
Borrower. If an Event of Default occurs, Bank, shall have the right to
accelerate and declare all of the Obligations to be immediately due and payable,
increase the interest rate by an additional five percent per annum, and exercise
all rights and remedies recorded by applicable law. If any interest payment,
principal payment or principal balance payment due from Borrower is delinquent
ten or more days, Borrower agrees to pay Bank a late charge in the amount of 5%
of the payment so due and unpaid, in addition to the payment, but nothing in
this provision is to be construed as any obligation on the part of Bank to
accept payment of any payment past due or less than the total unpaid principal
balance after maturity. All payments shall be applied first to any late charges
owing, then to interest and the remainder, if any, to principal.
6. GENERAL. If any provision of this Agreement is held to be unenforceable,
the remainder of this Agreement shall still continue in full force and effect.
This Agreement and any other written agreements, documents and instruments
executed in connection herewith are the complete agreement between Borrower and
Bank and supersede all prior and contemporaneous negotiations and oral
representations and agreements, all of which are merged and integrated in this
Agreement. There are no oral understandings, representations or agreements
between the parties which are not in this Agreement or in other written
agreements signed by the parties in connection this Agreement. The failure of
Bank at any time to require Borrower to comply strictly with any of the
provisions of this Agreement. The failure of Bank at any time to require
Borrower to comply strictly with any of the provisions of this Agreement shall
not waive Bank's right later to demand and receive strict compliance. Any waiver
of a default shall not waive any other default. None of the provisions of this
Agreement may be waived except by a specific written waiver signed by an officer
of Bank and delivered to Borrower. The provisions of this Agreement may not be
amended, except in a writing signed by Borrower and Bank. Borrower shall
reimburse Bank for all reasonable attorney's fees and all other reasonable costs
incurred by Bank, in connection with this Agreement (whether or not a lawsuit is
filed) including any post petition bankruptcy activities. If Bank or Borrower
files any lawsuit against the other predicated on a breach of this Agreement,
the prevailing party shall be entitled to recover its reasonable costs and
attorney's fees from the non-prevailing party. Borrower may not assign any
rights under this Agreement without Bank's prior written consent. This Agreement
shall be governed by the laws of the State of California to the jurisdiction of
whose courts Borrower hereby agrees to submit.
7. MUTUAL WAIVER OF JURY TRAIL. BORROWER AND BANK EACH HEREBY WAIVE THE RIGHT
TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED UPON, ARISING OUT OF, OR IN
ANY WAY RELATING TO, THIS AGREEMENT OR ANY CONDUCT, ACT OR OMISSION OF BANK OR
<PAGE>
BORROWER OR ANY OR THEIR DIRECTORS, OFFICERS, EMPLOYEES, AGENTS, ATTORNEYS OR
AFFILIATES.
8. REFERENCE PROCEEDINGS. a. Each controversy, dispute or claim ("Claim")
between the parties arising out of or relating to this Agreement, which is not
settled in writing within ten days after the "Claim Date" (defined as the date
on which a party gives written notice to all other parties that a controversy,
dispute or claim exists), will be settled by a reference proceeding in Los
Angeles, California in accordance with the provisions of Section 63B et seq. of
-- ---
the California Code of Civil Procedure, or their successor section ("CCP"),
which shall constitute the exclusive remedy for the settlement of any Claim,
including whether such Claim is subject to the reference proceeding and the
parties waive their rights to initiate any legal proceedings against each other
in any court or jurisdiction other than the Superior Court of Los Angeles (the
"Court"). The referee shall be a retired Judge selected by mutual agreement of
the parties, and if they cannot so agree within thirty days after the Claim
Date, the referee shall be selected by the Presiding Judge of the Court. The
referee shall be appointed to sit as a temporary judge, as authorized by law.
The referee shall (a) be requested to set the matter for hearing within sixty
(60) days after the Claim Date and (b) try any and all issues of law or fact and
report a statement of decision upon them, if possible, within ninety (90) days
of the Claim Date. Any decision rendered by the referee will be final, binding
and conclusive and judgment shall entered pursuant to CCP 644 in the Court. All
discovery permitted by this Agreement shall be completed no later than fifteen
(15) days before the first hearing date established by the referee. The referee
may extend such period in the event of a party's refusal to provide requested
discovery for any reason whatsoever, including, without limitation, legal
objections raised to such discovery or unavailability of a witness due to
absence or illness. No party shall be entitled to "priority" in conducting
discovery. Depositions may be taken by either party upon seven (7) days written
notice, and, request for production or inspection of documents shall be
responded to within ten (10) days after service. All disputes relating to
discovery which cannot be resolved by the parties shall be submitted to the
referee whose decision shall be final and binding upon the parties.
b. The referee shall be required to determine all issues in accordance with
existing case law and the statutory laws of the State of California. The rules
of evidence applicable to proceedings at law in the State of California will be
applicable to the reference proceeding. The referee shall be empowered to enter
equitable as well as legal relief, to provide all temporary and/or provisional
remedies and to enter equitable orders that will be binding upon the parties.
The referee shall issue a single judgment at the close of the reference
proceeding which shall dispose of all of the claims of the parties that are the
subject of the reference. The parties hereto expressly reserve the right to
contest or appeal from the final judgment or any appealable order or appealable
judgment entered by the referee. The parties expressly reserve the right to
findings of fact, conclusions of law, a written statement of decision, and the
right to move for a new trail or a different judgment, which new trial, if
granted, is also to be a reference proceeding under this provision.
<PAGE>
Borrower: Bank:
eBay, Inc. IMPERIAL BANK
- ------------------------------
By: /s/ PIERRE OMIDYAR By: /s/ D. SOUSA
------------------------- ---------------------------
CEO
By: /s/ J. SKOLL Title: AVP
------------------------- ------------------------
President
<PAGE>
IMPERIAL BANK
-------------
INNOVATIVE BUSINESS BANKING
Master Schedule to Starter Kit Loan and Security Agreement
BORROWER: eBay, Inc.
-----------------
DATE: July 20, 1997
---------------------
This Schedule is incorporated into and an integral part of the Starter Kit
Loan and Security Agreement between Imperial Bank ("Bank") and the above-named
Borrower of even date.
<TABLE>
<S> <C>
CREDIT LIMIT (AGGREGATE) $750,000 (includes, without limitation, Equipment Advances
(Section 1): and the Letter of Credit Reserve, if any).
INTEREST RATE (Section 1): The rate equal to Bank's Prime Rate in effect from time to
time, plus 1.25% per year. Interest shall be calculated
on the basis of a 360 day year for the actual number of
days elapsed. The Prime Rate shall be the rate announced
from time to time by Bank as its "Prime Rate;" as a base
rate upon which other rates charged by Bank are based, and
it is not necessarily the best rate available at Bank.
The interest rate applicable to the Obligations shall
change on each date there is a change in the Prime Rate.
MATURITY DATE (Section 4): January 5, 1999.
OTHER LOCATIONS AND ________________________________________________
ADDRESSES ________________________________________________
(Section 3.2): ________________________________________________
________________________________________________
OTHER AGREEMENTS: 1. LOAN FEE. Borrower shall concurrently pay Bank a
non-refundable Loan Fee in the amount of $3,000.
2. RECEIPT OF EQUITY. As a condition to any
advances and prior to funding, Borrower shall
provide Bank with evidence of receipt of not less
than $3,000,000 in new equity from investor(s)
acceptable to Bank.
</TABLE>
<PAGE>
Borrower: Bank:
eBay, Inc. IMPERIAL BANK
- -----------------------------
By: /s/ PIERRE OMIDYAR By: /s/ D. SOUSA
------------------ ------------------------
CEO
By: /s/ J. SKOLL Title: AVP
------------------ ---------------------
President
<PAGE>
IMPERIAL BANK
-------------
INNOVATIVE BUSINESS BANKING
SCHEDULE TO STARTER KIT LOAN AND SECURITY AGREEMENT (EQUIPMENT ADVANCES)
BORROWER: eBay, Inc.
-------------------------
DATE: July 20, 1997
-------------------------
This Schedule is an integral part of the Loan and Security Agreement
between Imperial Bank ("Bank") and the above-named Borrower of even date.
CREDIT LIMIT $750,000 (such amount to be funded under the aggregate
(EQUIPMENT) Credit Limit). Equipment Advances will be made only on or
(Section 1): prior to January 5, 1998 (the "Last Advance Date") and
only for the purpose of purchasing equipment reasonably
acceptable to Bank. Borrower must provide invoices for
the equipment to Bank on or before the Last Advance Date.
INTEREST RATE The rate equal to Bank's Prime Rate in effect from time
(Section 1): to time, plus 1.25% per annum. Interest shall be
calculated on the basis of a 360 day year for the actual
number of days elapsed. The Prime Rate shall be the rate
announced from time to time by Bank as its "Prime Rate;"
as a base rate upon which other rates charged by Bank are
based, and it is not necessarily the best rate available
at Bank. The interest rate applicable to the Obligations
shall change on each date there is a change in the Prime
Rate.
MATURITY DATE After the Last Advance Date, the unpaid principal balance
(Section 4): of the Equipment Advances shall be repaid in 24 equal
monthly installments of principal, plus interest,
commencing on February 5, 1998 and continuing on the same
day of each month thereafter until the entire unpaid
principal balance of the Equipment Advances and all
accrued unpaid interest have been paid (subject to Bank's
right to accelerate the Equipment Advances on an Event of
Default).
Borrower: Bank:
eBay, Inc. IMPERIAL BANK
- -------------------------
By: /s/ PIERRE OMIDYAR By: /s/ D. SOUSA
-------------------- ________________________
CEO
By: /s/ J. SKOLL Title: AVP
-------------------- ---------------------
President
<PAGE>
IMPERIAL BANK
-------------
INNOVATIVE BUSINESS BANKING
SCHEDULE TO STARTER KIT LOAN AND SECURITY AGREEMENT (LETTERS OF CREDIT SUBLIMIT)
BORROWER: eBay, Inc.
----------------
DATE: July 20, 1997
-------------------
This Schedule is an integral part of the Loan and Security Agreement
between Imperial Bank ("Bank") and the above-named Borrower of even date.
<TABLE>
<S> <C>
LETTERS OF CREDIT The aggregate Credit Limit Shall be reduced by an amount equal
Sublimit (Section to $205,000 (the "Letter of Credit Reserve"). Bank may, in its
1): sole discretion, advance as Loans, any amounts that may become
due or owing to Bank in connection with letter of credit
services furnished to Borrower by or through Bank (the "Letter
of Credit Services"). Borrower shall execute all standard form
applications and agreements of Bank in connection with the
Letter of Credit Services and, without limiting any of the
terms of such applications and agreements, Borrower will pay
all standard fees and charges of Bank in connection with the
Letter of Credit Services and, without limiting any of the
terms of such applications and agreements, Borrower will pay
all standard fees and charges of Bank in connection with the
Letter of Credit Services.
MATURITY DATE January 5, 1999.
(Section 4):
</TABLE>
Borrower: Bank:
eBay, Inc. IMPERIAL BANK
- ----------------------
By: /s/ PIERRE OMIDYAR By: /s/ D. SOUSA
------------------ --------------------
CEO
By: /s/ J. SKOLL Title: AVP
------------ --------------------
President
<PAGE>
EXHIBIT 10.11
-------------
INTELLECTUAL PROPERTY SECURITY AGREEMENT
----------------------------------------
This Intellectual Property Security Agreement (the "Agreement") is made as
of July 20, 1997, by and between EBAY, INC., a California corporation
("Grantor"), and IMPERIAL BANK, a California chartered bank ("Secured Party").
RECITALS
--------
A. Secured Party has agreed to lend to Grantor certain funds (the
"Loan"), and Grantor desires to borrow such funds from Secured Party pursuant to
the terms of a Commitment Letter dated July 16, 1997 and the Starter Kit Loan
and Security Agreement dated July 20, 1997 (the "Loan Agreement;", all
capitalized terms used herein without definition shall have the meanings
ascribed to them in the Loan Agreement).
B. In order to induce Secured Party to enter into the Loan Agreement,
Grantor has agreed to grant a security interest in certain intangible property
to Secured Party for purposes of securing the obligations of Grantor to Secured
Party.
NOW, THEREFORE, THE PARTIES HERETO AGREE AS FOLLOWS:
1. Grant of Security Interest. As collateral security for the prompt and
--------------------------
complete payment and performance of all of Grantor's present or future
indebtedness, obligations and liabilities to Secured Party, Grantor hereby
grants a security interest and mortgage to Secured Party, as security, in and to
Grantor's entire right, title and interest in, to and under the following (all
of which shall collectively be called the "Collateral"):
(a) Any and all copyright rights, copyright applications, copyright
registrations and like protections in each work or authorship and derivative
work thereof, whether published or unpublished and whether or not the same also
constitutes a trade secret, now or hereafter existing, created, acquired or
held, including without limitation those set forth on Exhibit A attached hereto
---------
(collectively, the "Copyrights");
(b) Any and all trade secrets, and any and all intellectual property
rights in computer software and computer software products now or hereafter
existing, created, acquired or held;
(c) Any and all design rights which may be available to Grantor now
or hereafter existing, created, acquired or held;
(d) All patents, patent applications and like protections including
without limitation improvements, divisions, continuations, renewals, reissues,
extensions and
<PAGE>
continuations-in-part of the same, including without limitation the patents and
patent applications set forth on Exhibit B attached hereto (collectively, the
---------
"Patents");
(e) Any trademark and servicemark rights, whether registered or not,
applications to register and registrations of the same and like protections, and
the entire goodwill of the business of Grantor connected with and symbolized by
such trademarks, including without limitation those set forth on Exhibit C
---------
attached hereto (collectively, the "Trademarks");
(f) Any and all claims for damages by way of past, present and future
infringement of any of the rights included above, with the right, but not the
obligation, to sue for and collect such damages for said use or infringement of
the intellectual property rights identified above;
(g) All licenses or other rights to use any of the Copyrights,
Patents or Trademarks, and all license fees and royalties arising from such use
to the extent permitted by such license or rights;
(h) All amendment, renewals and extensions of any of the Copyrights,
Trademarks or Patents; and
(i) All proceeds and products of the foregoing, including without
limitation all payments under insurance or any indemnity or warranty payable in
respect of any of the foregoing.
2. Authorization and Request. Grantor authorizes and requests that the
-------------------------
Register of Copyrights and the Commissioner of Patents and Trademarks record
this security agreement.
3. Covenants and Warranties. Grantor represents, warrants, covenants and
------------------------
agrees as follows:
(a) Grantor is now the sole owner of the Collateral, except for non-
exclusive licenses granted by Grantor to its customers in the ordinary course of
business;
(b) Performance of this Agreement does not conflict with or result in
a breach of any agreement to which Grantor is party or by which Grantor is
bound, except to the extent that certain intellectual property agreements
prohibit the assignment of the rights thereunder to a third party without the
licenser's or other party's consent and this Agreement constitutes an
assignment;
(c) During the term of this Agreement, Grantor will not transfer or
otherwise encumber any interest in the Collateral, except for non-exclusive
licenses granted by Grantor in the ordinary course of business or as set forth
in this Agreement;
(d) To its knowledge, each of the Patents is valid and enforceable,
and no part of the Collateral has been judged invalid or unenforceable, in whole
or in part, and no claim has been made that nay party of the Collateral violates
the rights of any third party;
2
<PAGE>
(e) Grantor shall promptly advise Secured Party of any material
change in the composition of the Collateral, including but not limited to any
subsequent ownership right of the Grantor in or to any Trademark, Patent or
Copyright not specified in this Agreement;
(f) Grantor shall (i) protect, defend and maintain the validity and
enforceability of the Trademarks, Patents and Copyrights (ii) use its best
efforts to detect infringements of the Trademarks, Patents and Copyrights and
promptly advise Secured Party in writing to material infringements detected and
(iii) not allow any Trademarks, Patents or Copyrights to be abandoned, forfeited
or dedicated to the public without the written consent of Secured Party, which
shall not be unreasonably withheld unless Grantor determines that reasonable
business practices suggest that abandonment is appropriate;
(g) Grantor shall register or cause to be registered (to the extent
not already registered) with the United States Patent and Trademark Office or
the United States Copyright Office, as applicable, those intellectual property
rights listed on Exhibit A, B and C hereto within thirty (30) days of the date
of this Agreement. Grantor shall register or cause to be registered with the
United States Patent and Trademark Office or the United States Copyright Office,
as applicable, those addiitonal intellectual property rights developed or
acquired by Grantor from time to time in connection with any product prior to
the sale or licensing of such product to any third party (including without
limitation revisions or additions to the intellectual property rights listed on
such Exhibits A, B and C). Grantor shall, from time to time, execute and file
such other instruments, and take such further actions as Secured Party may
reasonably request from time to time to perfect or continue the perfection of
Secured Party's interest in the Collateral;
(h) This Agreement creates, and in the case of after acquired
Collateral, this Agreement will create at the time Grantor first has rights in
such after acquired Collateral, in favor of Secured Party a valid and perfected
first priority security interest in the Collateral in the United States securing
the payment and performance of the obligations evidenced by the Loan Agreement
upon making the filings referred to in clause (i) below;
(i) To its knowledge, except for, and upon, the filing with the
United States Patent and Trademark office with respect to the Patents and
Trademarks and the Register of Copyrights with respect to the Copyrights
necessary to perfect the security interests created hereunder, and except as has
been already made or obtained, no authorization, approval or other action by,
and no notice to or filing with, any U.S. governmental authority or U.S.
regulatory body is required either (i) for the grant by Grantor of the security
interest granted hereby or for the execution, delivery or performance of this
Agreement by Grantor in the U.S. or (ii) for the perfection in the United States
or the exercise by Secured Party of its rights and remedies hereunder;
(j) All information heretofore, herein or hereafter supplied to
Secured Party by or on behalf of Grantor with respect to the Collateral is
accurate and complete in all material respects;
(k) Grantor shall not enter into any agreement that would materially
impair or conflict with Grantor's obligations hereunder without Secured Party's
prior written consent,
3
<PAGE>
which consent shall not be unreasonably withheld. Grantor shall not permit the
inclusion in any material contract to which it becomes a party of any provisions
that could or might in any way prevent the creation of a security interest in
Grantor's rights and interests in any property included within the definition of
the Collateral acquired under such contracts, except that certain contracts may
contain anti-assignment provisions that could in effect prohibit the creation of
a security interest in such contracts if Grantor is required, in its
commercially reasonable judgment, to accept such provisions; and
(l) Upon any executive officer of Grantor obtaining actual knowledge
thereof, Grantor will promptly notify Secured Party in writing of any event that
materially adversely affects the value of any Collateral, the ability of Grantor
to dispose of any Collateral or the rights and remedies of Secured party in
relation thereto, including the levy of any legal process against any of the
Collateral.
4. Secured Party's Rights. Secured Party shall have the right, but not
----------------------
the obligation, to take, at Grantors sole expense, any actions that Grantor is
required under this Agreement to take but which Grantor fails to take, after
fifteen (15) days' notice to Grantor. Grantor shall reimburse and indemnify
Secured Party for all reasonable costs and reasonable expenses incurred in the
reasonable exercise of its rights under this section 4.
5. Inspection rights. Grantor hereby grants to Secured Party and its
-----------------
employees, representatives and agents the right to visit, during reasonable
hours upon prior reasonable written notice to Grantor, any of Grantor's plants
and facilities that manufacture, install or store products (or that have done so
during the prior six-month period) that are sold utilizing any of the
Collateral, and to inspect the products and quality control records relating
thereto upon reasonable written notice to Grantor and as often as may be
reasonably requested.
6. Further Assurances; Attorney in Fact.
------------------------------------
(a) On a continuing basis, Grantor will make, execute, acknowledge and
deliver, and file and record in the proper filing and recording places in the
United States, all such instruments, including appropriate financing and
continuation statements and collateral agreements and filings with the United
States Patent and Trademark Office and the Register of Copyrights, and take all
such action as may reasonably be deemed necessary or advisable, or as requested
by Secured Party, to perfect Secured Party's security interest in all
Copyrights, Patents and Trademarks and otherwise to carry out the intent and
purposes of this Agreement, or for assuring and confirming to Secured Party the
grant or perfection of a security interest in all Collateral.
(b) Grantor hereby irrevocably appoints Secured Party as Grantor's
attorney-in-fact, with full authority in the place and stead of Grantor and in
the name of Grantor, from time to time in Secured Party's discretion, to take
any action and to execute any instrument which Secured Party may deem necessary
or advisable to accomplish the purposes of this Agreement, including (i) to
modify, in its sole discretion, this Agreement without first obtaining Grantor's
approval of or signature to such modification by amending Exhibit A, Exhibit B
and Exhibit C, thereof, as appropriate, to include reference to any right, title
or interest in any
4
<PAGE>
Copyrights, Patents or Trademarks acquired by Grantor after the execution hereof
or to delete any reference to any right, title or interest in any Copyrights,
Patents or Trademarks in which Grantor no longer has or claims any right, title
or interest, (ii) to file, in its sole discretion, one or more financing or
continuation statements and amendments thereto, relative to any of the
Collateral without the signature of Grantor where permitted by law and (iii)
after the occurrence of an Event of Default, to transfer the Collateral into the
name of Bank or a third party to the extent permitted under the California
Uniform Commercial Code.
7. Events of Default. The occurrence of any of the following shall
-----------------
constitute an Event of Default under the Agreement.
(a) An Event of Default occurs under the Loan Documents; or
(b) Grantor breaches any warranty or agreement made by Grantor in this
Agreement and, as to any breach that is capable of cure, Grantor fails to cure
such breach within ten (10) days of the occurrence of such breach.
8. Remedies. Upon the occurrence and continuance of an Event of Default,
--------
Secured Party shall have the right to exercise all the remedies of a secured
party under the California Uniform Commercial Code, including without limitation
the right to require Grantor to assemble the Collateral and any tangible
property in which Secured Party has a security interest and to make it available
to Secured Party at a place designated by Secured Party. Secured Party shall
have nonexclusive, royalty free license to use the Copyrights, Patents and
Trademarks to the extent reasonably necessary to permit Secured Party to
exercise its rights and remedies upon the occurrence of an Event of Default.
Grantor will pay any expenses (including reasonable attorneys' fees) incurred by
Secured Party in connection with the exercise of any of Secured Party's rights
hereunder, including without limitation any expense incurred in disposing of the
Collateral. All of Secured Party's rights and remedies with respect to the
Collateral shall be cumulative.
9. Indemnity. Grantor agrees to defend, indemnify and hold harmless
---------
Secured Party and its officers, employees, and agent against: (a) all
obligations, demands, claims, and liabilities claimed or asserted by any other
party in connection with the transactions contemplated by this Agreement, and
(b) all losses or expenses in any way suffered, incurred, or paid by Secured
Party as a result of or in any way arising out of, following or consequential to
transactions between Secured Party and Grantor, whether under this Agreement or
otherwise (including without limitation reasonable attorneys' fees and
reasonable expenses), except for losses arising from or out of Secured Party's
gross negligence or willful misconduct.
10. Course of Dealing. No course of dealing, nor any failure to exercise,
-----------------
nor any delay in exercising any right, power or privilege hereunder shall
operate as a waiver thereof.
11. Attorneys' Fees. If any action relating to this Agreement is brought
---------------
by either party hereto against the other party, the prevailing party shall be
entitled to recover reasonable attorneys' fees, costs and disbursements.
5
<PAGE>
12. Amendments. This Agreement may be amended only by a written
----------
instrument signed by both parties hereto.
13. 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 the same instrument.
14. California Law and Jurisdiction; Jury Waiver. This Agreement shall be
--------------------------------------------
governed by the laws of the State of California, without regard for choice of
law provisions. Grantor and Secured Party consent to the exclusive jurisdiction
of any state or federal court located in Santa Clara County, California.
GRANTOR AND SECURED PARTY EACH WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF
ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THE LOAN AGREEMENT
THIS ASSIGNMENT, OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREIN, INCLUDING
CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR
STATUTORY CLAIMS.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
6
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
day and year first above written.
Address of Grantor: GRANTOR
EBAY, INC.
2005 Hamilton Avenue, Suite 270 By: /s/ PIERRE OMIDYAR
--------------------------
San Jose, CA 95125 Title: CEO
-----------------------
Attn: Mr. Jeff Skoll
Address of Secured Party: SECURED PARTY:
IMPERIAL BANK
2460 Sand Hill Road, Suite 102 By: /s/ D. SOUSA
-------------------------
Menlo Park, CA 94025 Title: AVP
----------------------
Attn: Mr. David Sousa
S-1
<PAGE>
EXHIBIT A
---------
Copyrights
Registration/ Registration/
Description Application/ Application/
- ----------- Number Date
----------- ------------
<PAGE>
EXHIBIT B
---------
Patents
Registration/ Registration/
Description Application/ Application/
- ----------- Number Date
------------ ------------
<PAGE>
EXHIBIT C
---------
Trademarks
Registration/ Registration/
Description Application/ Application/
- ----------- Number Date
------------ ------------
<PAGE>
EXHIBIT 10.13
LICENSE AGREEMENT
THUNDERSTONE SOFTWARE
EXPANSION PROGRAMS INTERNATIONAL, INC. (EPI)
LICENSING AGREEMENT FOR
TEXIS, VORTEX WEBSCRIPT BRIDGE, METAMORPH, 3DB,
METAMORPH API, 3DB API, NETWORK API, BROWSER API,
ITS-WRITER, METABOOK, NETWORK CODE GENERATOR, AND
POSTSCRIPT VIEWER SOFTWARE UNDER ALL PLATFORMS
Carefully read all the terms and conditions of this agreement. If you do not
agree to these terms and conditions, return through registered mail or other
secured route the unused media and accompanying documentation to the place of
purchase.
The software and accompanying documentation is protected by United States
Copyright Law (Title 17 U.S. Code) and applicable International Codes and
Covenants.
Installation of this software constitutes acceptance of the Licensing Agreement
terms.
SECTION 1: DEFINITIONS
For the purpose of this Software Program License Agreement the following are
defined terms:
1. The term "Licensed Program" shall mean a licensed information
processing program or programs consisting of a series of instructions
or statements which is machine readable.
2. The term "Licensed Materials" shall mean any materials related to the
Licensed Program and provided for use in connection with the Licensed
Program.
3. The term "Licensed Program and Materials" shall mean both the Licensed
Program and Licensed Materials as defined above.
4. The term "enhancements" shall mean any program, any part thereof, or
any materials not included in the Licensed Program and Materials at
the time of execution of this agreement that is related to the
Licensed Program and Materials.
5. The term "use" shall include copying any portion of the Licensed
Program or Licensed Materials into a computer or transmitting them to
a computer for processing of the instructions or statements contained
in the Licensed Program or Materials.
6. The terms "you", "your", and "client" shall mean Buyer and/or
Licensee; "EPI" shall mean the Licensor; i.e., Expansion Programs
International, Inc., also known as Thunderstone, an Ohio software
company.
<PAGE>
7. The term "media" shall mean any tape, disk, diskette, CD-rom or
electronic delivery method used to install the Licensed Programs(s).
SECTION 2: LICENSE GRANT
Subject to the terms and conditions of this Agreement, EPI agrees to grant to
you a non-exclusive license to use the Licensed Program(s) at your location or
at any other location which may replace it.
You shall have the right to use the Licensed Program and materials solely for
your own internal operation in the location designated in this Agreement, or in
such other location as you may from time to time designate, provided that the
intent of this Agreement is not in violation. You do have the right to
individually access the Program from anywhere resident within the designated
location.
Your rights under this Agreement to the Licensed Program and Materials shall not
be assigned, licensed or otherwise transferred voluntarily, by operation of law,
or otherwise, except to a purchaser of substantially all of your outstanding
capital stock or assets, without the prior written approval of EPI.
Upon payment of the License Fee for the Licensed Program, EPI shall make
available to you one (or more if specified) copy(ies) of the Licensed Program
and Materials. Additional copies of Licensed Materials shall be made available
by EPI if specified separately, and as determined under EPI's standard business
policies covering defective media replacement and technology version updates.
In the case of licensing the Licensed programs for a Unix or Unix derivative
operating system or Windows-NT or other platform, the software is licensed by
number of simultaneous users per CPU over a 1-minute period. In the case of
licensing the Licensed Programs for a DOS or DOS derivative operating system,
the software is licensed by workstation. The following rights apply:
1. You do have the right to make a back-up copy of the executable
portions of the program as provided on the install media, for archive
purposes.
2. You do not have the right to make a copy of the executable portions of
the program as provided on the install media and move them to an
additional system (CPU) which increases the total number of
simultaneous users for Unix or other platforms, or increases the total
number of workstations for DOS or DOS derivatives, unless this right
was specifically contracted for by purchase order or other designated
written agreement.
3. You do have the right to put the program onto a multi-user local area
network if desired. However, the number of users who may access the
program at the same time is governed by the number of simultaneous
users for Unix or other platforms, or total number of workstations for
which the program was licensed for DOS or DOS derivatives. A 5-user
license allows 5 terminals or workstations to run the Licensed
2
<PAGE>
Programs at the same time, including the CPU in which the Licensed
Programs reside for networking purposes.
4. In the event that source code is included on your installation media
solely for the purpose of recompilation to your specific operating
system, such source code, unless otherwise specified, is on loan to
you for the period of recompilation (or "porting") only. In this case,
you do not have the right to make copies of the source code for back-
up or any other purpose, and when the recompilation work is complete,
this media, along with the newly created executable version of the
program, is to be returned to the company (EPI). You may make back-up
copies of the newly created executable portions of the program, as
covered in item #1 above. Only EPI personnel, unless otherwise
specified, have the right to view, copy, or modify source code.
5. You do not have any rights concerning source code unless specifically
stated in writing as part of a separate agreement.
SECTION 3: PROGRAM SUPPORT SERVICES
EPI, at its discretion, will provide to Client sufficient training and support
services to enable Client to commence use of the Licensed Program and Materials.
EPI will correct errors or malfunctions, of which Client notifies it in writing,
in the Licensed Program as supplied for a period of ninety days from the date of
the delivery of the Licensed Program.
Client will be advised of enhancements made to the Licensed Program by EPI
during the term of this license. Client may accept or reject such enhancements
to the Licensed Program on terms proposed by EPI at the time the enhancement is
offered to Client.
If such enhancement is accepted by Client the enhancement shall become part of
the Licensed Program and Materials.
Upon written request, EPI will provide consulting services or special
conversions to Client at its then prevailing rates.
SECTION 4: TERM
The term of this Agreement shall commence upon delivery of the Licensed Program
and shall remain in force in perpetuity unless terminated earlier as provided in
this Agreement.
This Agreement may be terminated by Client within 30 days after delivery of the
Licensed Program and Materials, provided that: (1) Client returns the Licensed
Program and Materials to EPI in the same condition as received, normal wear and
tear expected; and (2) Client provides written certification by a duly
authorized officer stating that all copies of the Licensed Program
3
<PAGE>
and Materials have been returned to EPI or destroyed; and (3) that no violation
of this Agreement has occurred.
It is understood that Client respects the integrity of the intellectual property
provided herein said Software Programs, and that Client acknowledges EPI as
source of the technology and the program. Any intellectual property theft would
not be lessened by compliance to the conditions set forth in (1), (2), and (3)
in the paragraph above.
In the event that Client exercises its right to terminate this Agreement, any
payment made by Client to EPI will be refunded less charges at EPI's current
rate for time expended by EPI after execution of this Agreement. Refund will be
made only after receipt by EPI of the Licensed Program and receipt of Client's
certification that the Licensed Program and Materials have been returned or
destroyed, and provided that EPI has been notified in writing of the intent to
return such Licensed Program and Materials within 30 days of its delivery.
SECTION 5: PAYMENT
In consideration of the License granted by EPI to Client hereunder, Client will
pay to EPI the amount agreed, as confirmed by invoice.
Payment will be due prior to delivery of the Licensed Program and Materials
unless otherwise stipulated.
The License Fee shall not be construed to include local, state, or federal
sales, use, excise, personal property or other similar taxes or duties or
shipping charges, and any such taxes or shipping charges shall be assumed and
paid for by Client.
The License Fee does not include in excess of 1 set of Licensed Program (media)
and Materials, unless otherwise specified.
EPI will license the Licensed Program and Materials for additional use by Client
or its Affiliate provided that prior to such use, EPI receives written
notification of the intended use, the name of the Affiliate, its location and
relationship to Client; and (2) the parties in good faith arrive at a mutually
agreed upon amount to be paid to EPI for the use of the Licensed Program and
Materials and (3) that the Affiliate agrees to be bound by the stipulations of
this Licensing Agreement.
SECTION 6: DELIVERY
Upon delivery of the Licensed Program and Materials to Client, Client shall
assume risk of loss and damage to the Licensed Program and Materials, and shall
replace any loss or damaged portion at Client's expense.
Installation of the Licensed Program shall be the responsibility of the Client.
4
<PAGE>
SECTION 7: WARRANTY OF PERFORMANCE
EPI represents and warrants that the Licensed program will perform substantially
in the manner specified in the Licensed Materials.
This performance warranty by EPI shall immediately cease if Client or any third
party enhances the Licensed Program.
DISCLAIMER: THE FOREGOING WARRANTIES ARE IN LIEU OF ALL OTHER WARRANTIES AND
CONDITIONS EXPRESSED OR IMPLIED, INCLUDING, BUT NOT LIMITED TO, THOSE CONCERNING
MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE.
EPI does not warrant that the functions contained in the Licensed Program will
meet Client's requirements or will operate in the combination which Client
select for use, or that the operation of the Licensed Program will be
uninterrupted or error free or that all Program defects will be corrected by
EPI.
No employee, agent or representative of EPI has the authority to bind EPI to any
oral representation or warranty concerning the Licensed Program and Materials.
Any written representation or warranty not expressly contained in this Agreement
shall not be enforceable by Client.
SECTION 8: PROPERTY RIGHTS
EPI warrants that it has the right to grant a license to the Licensed Programs
and Materials.
EPI warrants that the Licensed program and Materials to the best of its
knowledge do not infringe upon any copyright or patent, nor violate the
proprietary information rights of any third party.
In the event of a copyright or patent infringement claim, EPI may, at its own
expense, defend such claim or may procure the right to continue using all or
part of the Licensed Program or may discontinue the Licensed Program. This
shall constitute the entire liability of EPI with respect to a copyright or
patent infringement claim.
Client shall maintain EPI's copyright notice on the Licensed Program and
Materials and shall reproduce such notice on any copies in whole or in part of
the Licensed Program and Materials.
The Licensed Program and Materials are, and shall at all times remain, the
property of EPI, and Client shall have no right, title or interest therein,
except as expressly set forth in this Agreement.
Client may make no enhancements to the Licensed Program unless expressly
authorized in writing by EPI.
5
<PAGE>
SECTION 9: PROPRIETARY AND TRADE SECRET INFORMATION
Client will use all reasonable precautions and take all necessary steps to
prevent the Licensed Program and Materials in whole or in part from being
acquired by unauthorized persons.
Client will not create, or attempt to create, or permit or help others to
create, the source code from the Licensed Program and Materials furnished
pursuant to this Agreement. Client further agrees to not attempt alteration,
disassembly, reverse-assembly, or unassembly of the program.
Client will not lend, sell, lease or otherwise dispose of the Licensed Program
and Materials without the prior written approval of EPI.
Client warrants that it will not use Licensed Program and Materials for the
purpose of developing any similar or competitive product or aiding another Third
Party in developing any similar or competitive product.
SECTION 10: LIABILITY AND DEFAULT
EPI shall in no event be liable for loss of profit, goodwill, or other special
or consequential damages suffered by Client or others as a result of the use by
Client of the Licensed Program.
Client shall indemnify and hold EPI harmless from any demands, claims, or suits
by a third party, for loss, damages, or expenses including attorney's fees
arising out of use of the Licensed Program and Materials by Client or any other
person.
In the event any proceeding or lawsuit is brought by EPI, Client or third party
in connection with this Agreement, the prevailing party shall be entitled to
recover its costs and reasonable attorney's fees.
Failure by Client to comply with any term or condition under this Agreement
shall entitle the other party to give the party in default written notice
requiring it to make good such default.
Upon the termination of this Agreement, Client shall return the Licensed Program
and Materials and any copies thereof to EPI and shall certify by a duly
authorized officer of Client that it no longer has any rights to use the
Licensed Program and Materials and that the original and all copies of the
Licensed Program and Materials have been returned to EPI.
SECTION 11: GENERAL PROVISIONS
Neither party shall be responsible for delay or failure in performance resulting
from acts beyond the control of such party. Such acts shall include but not be
limited to: an act of God; an act of war; riot; an epidemic; fire; flood or
other disaster; an act of government; a strike or lockout; a communication line
failure; power failure; or failure of the computer equipment or non-EPI
developed software.
EPI is not responsible for failure to fulfill its obligations under this
Agreement due to causes beyond its control.
6
<PAGE>
THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF
THE STATE OF OHIO, U.S.A.
In the event of any dispute under this Agreement, a suit may be brought only in
a court of competent jurisdiction in the State of Ohio, U.S.A.
Any action against EPI under this Agreement must be commenced within one year
after such cause of action accrues.
Any dispute arising under this Agreement shall be submitted to binding
arbitration in the city of Cleveland under the rules then prevailing of the
American Arbitration Association and judgment upon the reward rendered may be
entered and enforced in any court of competent jurisdiction.
This Agreement contains the entire understanding of the parties with respect to
the matter contained herein. There are no promises, covenants or undertakings
other than those expressly set forth herein.
This Agreement may not be modified except by writing, signed by authorized
representatives of EPI and Client.
A term or condition of this Agreement can be waived only by written consent of
both parties. Forbearance or indulgence by either party in any regard shall not
constitute a waiver of the term or Condition to be performed and, until
performance of the term or condition is complete, the other party may invoke any
remedy available under this Agreement or by law, despite such forbearance or
indulgence.
This Agreement shall be binding upon and inure to the benefit of the parties to
this Agreement and their respective successors and assigns.
Any notice required or permitted to be sent under this Agreement shall be
delivered by hand or mailed by registered mail return receipt requested, to the
addresses of the parties first set forth in this Agreement. Notice so sent will
be deemed effective when delivered in the mail with postage prepaid.
7
<PAGE>
EXHIBIT 10.14
Mr. Jeffrey Skoll
11499 Summit Wood Rd.
Los Altos, CA 94022
Dear Jeff::
eBay, Inc. (the "Company" or "eBay") is pleased to confirm its offer to you
of a position as President at a salary, payable every other week, which is
equivalent to a monthly salary of $2,500.00. You win also be entitled to the
benefits that eBay customarily makes available to employees in positions
comparable to yours. In addition you will have the right for the next thirty
(30) days to purchase that number of shares (the "Shares') of the Company's
Common Stock that is equivalent to 425/1000 of the total number of shares (on an
as-converted-into Common Stock basis) that I own. These Shares will be subject
to a right of repurchase in favor of the Company through June 30, 2000. The
right of repurchase will expire in the event of continued employment, with
respect to 7/48 of the shares on February 1, 1997, and with respect to an
additional 1/48 of the Shares on the first day of each month, thereafter. In
the event of an acquisition of eBay, or similar transaction, on or before June
30, 1997, the right of repurchase will expire with respect to an additional 1/4
of the total number of Shares (i.e. the equivalent of an additional twelve
months "vesting"), if such transaction occurs on or after July 1, 1997, the
right of repurchase shall expire with respect to all of the Shares.
The Company asks that you complete the enclosed "Employee Information and
Inventions Agreement" prior to commencing employment. In part, this Agreement
requests that a departing employee refrain from using or disclosing eBay's
Confidential Information (as defined in the Agreement) in any manner which might
be detrimental to or conflict with the business interests of eBay or its
employees. This Agreement does not prevent a former employee from using his or
--------
her general knowledge and experience - no matter when or how gained -- in any
new field or position. If you should have any questions about the "Employee
Confidential Information and Inventions Agreement," please call me.
Under federal immigration laws, the Company is required to verify each new
employee's identity and legal authority to work in the United States.
Accordingly, please be prepared to furnish appropriate documents satisfying
those requirements; this offer of employment is conditioned on submission of
satisfactory documentation.
We hope that you and eBay will find mutual satisfaction with your
employment. All of us at eBay are very excited about your joining our team and
look forward to a beneficial and
<PAGE>
fruitful relationship. Nevertheless, employees have the right to terminate
their employment at any time with or without cause or notice, and the Company
reserves for itself an equal right. We both agree that any dispute arising with
respect to your employment, the termination of that employment, or a breach of
any covenant of good faith and fair dealing related to your employment, shall be
conclusively settled by final and binding arbitration in accordance with the
Voluntary Labor Arbitration Rules of the American Arbitration Association (AAA)
at the AAA office in San Jose.
This letter and the "Employee Confidential Information and Inventions
Agreement" contain the entire agreement with respect to your employment. The
terms of this offer may only be changed by written agreement, although the
Company may from time to time, in its sole discretion, adjust the salaries and
benefits paid to you and its other employees. Should you have any questions
with regard to any of the items indicated above, please call me. Kindly
indicate your consent to this employment agreement by signing and returning a
copy of this letter and a completed "Employee Confidential Information and
Inventions Agreement" to me by October 31, 1996.
Very truly yours,
/s/ PIERRE OMIDYAR
Pierre Omidyar
Chief Executive Officer
ACCEPTED:
/s/ J SKOLL OCT 24/96
- ----------- ---------
Jeffrey Skoll (Date)
2
<PAGE>
EXHIBIT 10.15
eBAY INC. 2005 HAMILTON AVENUE, SUITE 270
SAN JOSE, CA 95125
December 9, 1996
Mr. Michael Wilson
24325 Glenwood Dr.
Los Gatos, CA 95030
Dear Michael:
eBay, Inc. (the "Company" or "eBay") is pleased to offer you a position as
Vice President, Engineering, at a salary, payable every other week, which is
equivalent to a monthly salary of $6,500.00. You will also be entitled to the
benefits that eBay customarily makes available to employees in positions
comparable to yours and it will be recommended to the Board of Directors that
you be granted an option for the purchase of 200,000 shares of the Company's
Common Stock. The option will be granted under the Company's 1996 Stock Option
Plan and, assuming you remain an employee, will vest with respect to 25% of the
shares subject to the option one year after the commencement of your employment
and, at the end of each month thereafter, with respect to an additional 1/48 of
the shares subject to the option.
In addition, if certain mutually agreed upon objectives have been achieved
by you during your employ, it will be recommended to the Board of Directors that
you be granted an additional option for the purchase of 100,000 shares of the
Company's Common Stock, under the then-current Stock Option Plan. These
objectives will be mutually reviewed and agreed upon during your first month of
employ.
The Company asks that you complete the enclosed "Employee Information and
Inventions Agreement" prior to commencing employment. In part, this Agreement
requests that a departing employee refrain from using or disclosing eBay's
Confidential Information (as defined in the Agreement) in any manner which might
be detrimental to or conflict with the business interests of eBay or its
employees. This Agreement does not prevent a former employee from using his or
--------
her general knowledge and experience - no matter when or how gained - in any new
field or position. If you should have any questions about the "Employee
Confidential Information and Inventions Agreement," please call me.
Under federal immigration laws, the Company is required to verify each new
employee's identity and legal authority to work in the United States.
Accordingly, please be prepared to furnish appropriate documents satisfying
those requirements; this offer of employment is conditioned on submission of
satisfactory documentation.
We hope that you and eBay will find mutual satisfaction with your
employment. All of us at eBay are very excited about your joining our team and
look forward to a beneficial and fruitful relationship. Nevertheless, employees
have the right to terminate their employment at any time with or without cause
or notice, and the Company reserves for itself an equal right. We both agree
that any
<PAGE>
dispute arising with respect to your employment, the termination of that
employment, or a breach of any covenant of good faith and fair dealing related
to your employment, shall be conclusively settled by final and binding
arbitration in accordance with the Voluntary Labor Arbitration Rules of the
American Arbitration Association (AAA) at the AAA office in San Jose.
This letter and the "Employee Confidential Information and Inventions
Agreement" contain the entire agreement with respect to your employment. The
terms of this offer may only be changed by written agreement, although the
Company may from time to time, in its sole discretion, adjust the salaries and
benefits paid to you and its other employees. Should you have any questions
with regard to any of the items indicated above, please call me. Kindly
indicate your consent to this employment agreement by signing and returning a
copy of this letter and a completed "Employee Confidential Information and
Inventions Agreement" to me by December 12, 1996.
Very truly yours,
/s/ Pierre Omidyar
-----------------------
Pierre Omidyar
Chief Executive Officer
ACCEPTED:
/s/ Michael K. Wilson 12/8/96
- --------------------- -------
Michael Wilson Date
<PAGE>
EXHIBIT 10.16
EBAY INC.
2005 Hamilton Avenue, Suite 270
San Jose, CA 95125
August 8, 1997
Steve Westly
2120 Camino de los Robles
Menlo Park, CA
94025
Dear Steve:
eBay, Inc. (the "Company" or "eBay") is pleased to offer you the position
"Vice-President of Sales and Business Development", at a salary, payable every
other week, which is equivalent to a yearly salary of $120,000.00. In addition,
you will be paid a $25,000 one-time signing bonus upon the commencement of your
employment.
eBay, Inc. is also pleased to inform you that you will be entitled to the
benefits that eBay customarily makes available to employees in positions
comparable to yours and it will be recommended to the Board of Directors that
you will be granted an option for the purchase of 264,000 shares of the
Company's Common Stock. The option will be granted under the Company's Stock
Option Plan and, assuming you remain an employee, will vest with respect to 25%
of the shares subject to the option one year after the commencement of your
employment and, at the end of each month thereafter, with respect to an
additional 1/48 of the shares subject to the option; provided, however, that if
your employment is terminated by the company without "Cause" during your first
year of employment, shares will vest, at the end of each month, with respect to
1/48 of the shares subject to the option.
Furthermore, during your first year of employment, you will be eligible for
an additional $30,000.00 and an option for the purchase of 12,000 additional
shares based on your achievement of mutually agreed-upon objectives. These
objectives are outlined in Attachment A.
The Company asks that you complete the "Employee Information and Inventions
Agreement" prior to commencing employment. In part, this Agreement requests
that a departing employee refrain from using or disclosing eBay's Confidential
Information (as defined in the Agreement) in any manner which might be
detrimental to or conflict with the business interests of eBay or its employees.
This Agreement does not prevent a former employee from using his or her general
--------
knowledge and experience no matter when or how gained in any new field or
position. If you should have any questions about the "Employee Confidential
Information and Inventions Agreement," please call me.
- --------------------------------------
/1/ Definition included in this letter
<PAGE>
Under federal immigration laws, the Company is required to verify each new
employee's identity and legal authority to work in the United States.
Accordingly, please be prepared to furnish appropriate documents satisfying
those requirements; this offer of employment is conditioned on submission of
satisfactory documentation.
We hope that you and eBay will find mutual satisfaction with your
employment. All of us at eBay are very excited about your joining our team and
look forward to a beneficial and fruitful relationship. Nevertheless, employees
have the right to terminate their employment at any time with or without cause
or notice, and the Company reserves for itself an equal right. We both agree
that any dispute arising with respect to your employment, the termination of
that employment, or a breach of any covenant of good faith and fair dealing
related to your employment, shall be conclusively settled by final and binding
arbitration in accordance with the Voluntary Labor Arbitration Rules of the
American Arbitration Association (AAA) at the AAA office in San Jose.
This letter and the "Employee Confidential Information and Inventions
Agreement" contain the entire agreement with respect to your employment. The
terms of this offer may only be changed by written agreement, although the
Company may from time to time, in its sole discretion, adjust the salaries and
benefits paid to you and its other employees. Should you have any questions
with regard to any of the items indicated above, please call me. Kindly
indicate your consent to this employment agreement by signing and returning a
copy of this letter to me. This offer, if not endorsed will expire at 7:00 p.m.
on August 10, 1997.
Very truly yours, ACCEPTED:
/s/ Jeffrey Skoll /s/ Steve Westly 8/8/97
- ----------------- ---------------- ------
Jeffrey Skoll Steve Westly Date
President
<PAGE>
"CAUSE"
For the purposes of this offer, the term "Cause" means (i) the conviction of any
felony or any crime involving moral terpitude or dishonesty; (ii) participation
in a fraud or act of dishonesty against the Company which adversely affects the
Company in a material way; (iii) willful breach of the Company's policies which
adversely affects the Company in a material way; (iv) causing intentional damage
to the Company's property or business; (v) conduct which constitutes gross
insubordination or incompetence; (vi) habitual neglect of duties; or (vii)
conduct which demonstrates gross unfitness to serve; provided that the action or
conduct described in clauses (iii), (v) and (vii) above will constitute "Cause"
only if such action or conduct continues after the Company has provided Employee
with written notice thereof and a reasonable opportunity (to be not less than 30
days nor more than 90 days) to cure the same. For the above purposes, a
termination by the Company without Cause includes a termination of employment by
the Employee within 30 days following any of the following events: (x) the
assignment of any duties to Employee inconsistent with, or reflecting a
materially adverse change in, Employee's position, duties, responsibilities or
status with the Company, or the removal of Employee from, or failure to reelect
Employee to, any of such positions; or (y) the relocation of the Company's
principal executive offices, or relocating Employee's principal place of
business, in excess of fifty (50) miles from the Company's current executive
offices.
<PAGE>
EXHIBIT 10.17
eBAY INC.
2005 HAMILTON AVENUE, SUITE 270
SAN JOSE, CA 95125
September 15, 1997
Gary Bengier
1128 Wawona St.
San Francisco, CA 94116
Dear Gary:
eBay, Inc. (the "Company" or "eBay") is pleased to offer you the position
"CFO, Vice President of Finance, at a salary, payable every other week, which is
equivalent to a yearly salary of $125,000.00.
eBay, Inc. is also pleased to inform you that you will be entitled to the
benefits that eBay customarily makes available to employees in positions
comparable to yours and it will be recommended to the Board of Directors that
you will be granted an option for the purchase of 175,000 shares of the
Company's Common Stock. The option will be granted under the Company's Stock
Option Plan and, assuming you remain an employee, will vest with respect to 25%
of the shares subject to the option one year after the commencement of your
employment and, at the end of each month thereafter, with respect to an
additional 1/48 of the shares subject to the option; provided, however, that if
a "Liquidation Event" occurs during your first year of employment, options will
vest, at the end of each month, with respect to 1/48 of the shares subject to
the option.
For the purpose of this offer letter, a "Liquidation Event" is defined as a
sale of all or substantially all of the assets of the Corporation or any
transaction, or series of transactions, including without limitation a merger,
consolidation, or other corporate reorganization of the Corporation with or into
any other corporation or corporations in which more than fifty percent (50%) of
the outstanding voting power of this Corporation is disposed of or transferred,
irrespective of the form of payment made in such transaction or series of
transactions.
The Company asks that you complete the "Employee Information and Inventions
Agreement" prior to commencing employment. In part, this Agreement requests
that a departing employee refrain from using or disclosing eBay's Confidential
Information (as defined in the Agreement) in any manner which might be
detrimental to or conflict with the business interests of eBay or its employees.
This Agreement does not prevent a former employee from using his or her general
--------
knowledge and experience-no matter when or how gained-in any new field or
position. If you should have any questions about the "Employee Confidential
Information and Inventions Agreement," please call me.
Under federal immigration laws, the Company is required to verify each new
employee's identity and legal authority to work in the United States.
Accordingly, please be prepared to furnish
<PAGE>
appropriate documents satisfying those requirements; this offer of employment is
conditioned on submission of satisfactory documentation.
We hope that you and eBay will find mutual satisfaction with your
employment. All of us at eBay are very excited about your joining our team and
look forward to a beneficial and fruitful relationship. Nevertheless, employees
have the right to terminate their employment at any time with or without cause
or notice, and the Company reserves for itself an equal right. We both agree
that any dispute arising with respect to your employment, the termination of
that employment, or a breach of any covenant of good faith and fair dealing
related to your employment, shall be conclusively settled by final and binding
arbitration in accordance with the Voluntary Labor Arbitration Rules of the
American Arbitration Association (AAA) at the AAA office in San Jose.
This letter and the "Employee Confidential Information and Inventions
Agreement" contain the entire agreement with respect to your employment. The
terms of this offer may only be changed by written agreement, although the
Company may from time to time, in its sole discretion, adjust the salaries and
benefits paid to you and its other employees. Should you have any questions
with regard to any of the items indicated above, please call me. Kindly
indicate your consent to this employment agreement by signing and returning a
copy of this letter to me.
Your starting date for commencement of employment will be November 3, 1997,
unless otherwise mutually agreed in writing.
This officer, if not endorsed will expire at 7:00 p.m. on Sept. 15, 1997.
Very truly yours, ACCEPTED:
/s/ Jeffrey Skoll /s/ Gary Bengier September 15, 1997
- ----------------- ---------------- ------------------
Jeffrey Skoll Gary Bengier Date
President
/s/ Pierre Omidyar
- ------------------
Pierre Omidyar
CEO
<PAGE>
EXHIBIT 10.18
eBay 2005 HAMILTON AVENUE, SUITE 350
San Jose, CA 95125
PHONE 408 369-4830
FAX 408 369-4839
WWW.eBAY.COM
January 16, 1998
Ms. Margaret C. Whitman
204 Warren Street
Brookline, MA 02146
Dear Meg:
eBay, Inc. (the "Company" or "eBay") is pleased to offer you a position as
Chief Executive Officer, at a salary, payable twice per month, which is
equivalent to a monthly salary of $175,000.00. In addition, you will be
eligible for an annual bonus up to $100,000.00, solely at the discretion of the
Board of Directors. eBay will also compensate you for reasonable out-of-pocket
expenses incurred for the relocation of your family and your belongings.
You will also be entitled to the benefits that eBay customarily makes
available to employees in positions comparable to yours and it will be
recommended to the Board of Directors that you be granted an option for the
purchase of 800,000 shares of the Company's Common Stock. The option will be
granted under the Company's 1996 Stock Option Plan and, assuming you remain an
employee, will vest with respect to 25% of the shares subject to the option one
year after the commencement of your employment and, at the end of each month
thereafter, with respect to an additional 1/48 of the shares subject to the
option; provided, however, that if your employment is terminated by the Company
other than for "Cause"'. during your first year of employment, the option will
vest, at the end of each month, with respect to 1/48 of the shares subject to
the option. No other acceleration of vesting will occur in connection with any
termination of your employment or any acquisition of eBay. At least 100,000 of
the shares underlying the stock option must be purchased for cash at the option
exercise price, as soon as possible after the grant is approved; these shares
will be subject to a repurchase option in favor of the Company to the extent
they are "Unvested".
If your employment is terminated by the Company other than for "Cause" at
any time during your employment, you will continue to receive salary
compensation for an additional six months and, if at the end of such period you
remain unemployed, you will be eligible for additional salary compensation for
the lesser of (i) six months, or (ii) until you find other employment.
The Company asks that you complete the enclosed "Employee Information and
Inventions Agreement" prior to commencing employment. In part, this Agreement
requests that a departing
_______________
/1/ Definition included in this letter.
<PAGE>
eBay 2005 HAMILTON AVENUE, SUITE 350
San Jose, CA 95125
PHONE 408 369-4830
FAX 408 369-4839
WWW.eBAY.COM
employee refrain from using or disclosing eBay's Confidential Information (as
defined in the Agreement) in any manner which might be detrimental to or
conflict with the business interests of eBay or its employees. This Agreement
does not prevent a former employee from using his or her general knowledge and
- --------
experience no matter when or how gained in any new field or position. If you
should have any questions about the "Employee Confidential Information and
Inventions Agreement," please call me.
Under federal immigration laws, the Company is required to verify each new
employee's identity and legal authority to work in the United States.
Accordingly, please be prepared to furnish appropriate documents satisfying
those requirements; this offer of employment is conditioned on submission of
satisfactory documentation.
We hope that you and eBay will find mutual satisfaction with your
employment. All of us at eBay are very excited about your joining our team and
look forward to a beneficial and fruitful relationship. Nevertheless, employees
have the right to terminate their employment at any time with or without cause
or notice, and the Company reserves for itself an equal right. We both agree
that any dispute arising with respect to your employment, the termination of
that employment, or a breach of any covenant of good faith and fair dealing
related to your employment, shall be conclusively settled by final and binding
arbitration in accordance with the Voluntary Labor Arbitration Rules of the
American Arbitration Association (AAA) at the AAA office in San Jose.
This letter and the "Employee Confidential Information and Inventions
Agreement" contain the entire agreement with respect to your employment. The
terms of this offer may only be changed by written agreement, although the
Company may from time to time, in its sole discretion, adjust the salaries and
benefits paid to you and its other employees. Should you have any questions
with regard to any of the items indicated above, please call me. Kindly
indicate your consent to this employment agreement by signing and returning a
copy of this letter and a completed "Employee Confidential Information and
Inventions Agreement" to me by the close of business January 16, 1998. Upon
your signature below, this will become our binding agreement with respect to
your employment and its terms merging and superseding in their entirety all
other or prior agreements and communications by you and eBay as to the specific
subjects of this letter.
Very truly yours,
/s/ Pierre Omidyar
- -----------------------
Pierre Omidyar
Chief Executive Officer
ACCEPTED:
/s/ Margaret C. Whitman 1/16/98
- ----------------------- -------
Margaret Whitman Date
<PAGE>
eBay 2005 HAMILTON AVENUE, SUITE 350
San Jose, CA 95125
PHONE 408 369-4830
FAX 408 369-4839
WWW.eBAY.COM
"CAUSE"
For the purposes of this offer, the term "Cause" means (i) the conviction of any
felony or any crime involving moral terpitude or dishonesty; (ii) participation
in a fraud or act of dishonesty against the Company which adversely affects the
Company in a material way; (iii) willful breach of the Company's policies which
adversely affects the Company in a material way; (iv) causing intentional damage
to the Company's property or business; (v) conduct which constitutes gross
insubordination or incompetence; (vi) habitual neglect of duties; or (vii)
conduct which demonstrates gross unfitness to serve; provided that the action or
conduct described in clauses (iii), (v) and (vii) above will constitute "Cause"
only if such action or conduct continues after the Company has provided Employee
with written notice thereof and a reasonable opportunity (to be not less than 30
days nor more than 90 days) to cure the same. For the above purposes, a
termination by the Company without Cause includes a termination of employment by
the Employee within 30 days following any of the following events: (x) the
assignment of any duties to Employee inconsistent with, or reflecting a
materially adverse change in, Employee's position, duties, responsibilities or
status with the Company, or the removal of Employee from, or failure to reelect
Employee to, any of such positions; or (y) the relocation of the Company's
principal executive offices, or relocating Employee's principal place of
business, in excess of fifty (50) miles from the Company's current executive
offices.
<PAGE>
________________________________________________________________________________
eBAY INC. EXHIBIT 21.01
LIST OF SUBSIDIARIES
________________________________________________________________________________
NAME JURISDICTION OF INCORPORATION PERCENT OWNED
- ---- ----------------------------- -------------
Jump Incorporated Ohio, USA 100%
<PAGE>
EXHIBIT 23.02
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of our reports dated March 31, 1998,
relating to the financial statements of eBay Inc. and July 10, 1998, relating
to the financial statements of Jump Incorporated, which appear in such
Prospectus. We also consent to the references to us under the headings
"Experts" and "Selected Consolidated Financial Data" in such Prospectus.
However, it should be noted that PricewaterhouseCoopers LLP has not prepared
or certified such "Selected Consolidated Financial Data."
PricewaterhouseCoopers LLP
San Jose, California
July 14, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from eBay Inc.'s
consolidated financial statements for the years ended December 31, 1996 and
1997, and for the six months ended June 30, 1997 and 1998 included in its
Prospectus, and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> US DOLLARS
<S> <C> <C> <C> <C>
<PERIOD-TYPE> YEAR YEAR 6-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1997 DEC-31-1997 DEC-31-1998
<PERIOD-START> JAN-01-1996 JAN-01-1997 JAN-01-1997 JAN-01-1998
<PERIOD-END> DEC-31-1996 DEC-31-1997 JUN-30-1997 JUN-30-1998
<EXCHANGE-RATE> 1 1 1 1
<CASH> 103 3,723 3,724 10,716
<SECURITIES> 0 0 0 0
<RECEIVABLES> 184 1,385 539 4,482
<ALLOWANCES> (18) (361) (102) (1,636)
<INVENTORY> 0 0 0 0
<CURRENT-ASSETS> 285 4,967 4,186 14,015
<PP&E> 25 728 128 4,048
<DEPRECIATION> (2) (76) (13) (464)
<TOTAL-ASSETS> 308 5,619 4,301 19,815
<CURRENT-LIABILITIES> 91 1,124 571 5,212
<BONDS> 0 0 0 0
0 3,018 2,972 5,157
4 4 4 4
<COMMON> 20 20 20 27
<OTHER-SE> 138 991 624 9,091
<TOTAL-LIABILITY-AND-EQUITY> 308 5,619 4,301 19,815
<SALES> 0 0 0 0
<TOTAL-REVENUES> 372 5,744 1,658 14,922
<CGS> 0 0 0 0
<TOTAL-COSTS> 14 746 160 1,736
<OTHER-EXPENSES> 105 3,511 654 10,362
<LOSS-PROVISION> 0 0 0 0
<INTEREST-EXPENSE> 0 3 2 25
<INCOME-PRETAX> 254 1,543 848 2,900
<INCOME-TAX> 106 669 362 2,552
<INCOME-CONTINUING> 148 874 486 348
<DISCONTINUED> 0 0 0 0
<EXTRAORDINARY> 0 0 0 0
<CHANGES> 0 0 0 0
<NET-INCOME> 148 874 486 348
<EPS-PRIMARY> 0.07 0.11 0.08 0.03
<EPS-DILUTED> 0.01 0.03 0.02 0.01
</TABLE>
