<PAGE>
As filed with the Securities and Exchange Commission on January 26, 1999
Registration No. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
----------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
AUTOWEB.COM, INC.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C> <C>
Delaware 7549 77-0412737
(State or other jurisdiction of (Primary standard industrial (I.R.S. employer
incorporation or organization) classification code number) identification no.)
</TABLE>
----------------
3270 Jay Street, Building 6
Santa Clara, California 95054
(408) 554-9552
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
----------------
Samuel M. Hedgpeth III
Vice President, Finance and Administration
Autoweb.com, Inc.
3270 Jay Street, Building 6
Santa Clara, California 95054
(408) 554-9552
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
----------------
Copies to:
Laird H. Simons III, Esq. Mark A. Bertelsen, Esq.
William R. Schreiber, Esq. Jose F. Macias, Esq.
John F. Platz, Esq. S. Dawn Smith, Esq.
Dorothy L. Hines, Esq. Mark Hooshmand, Esq.
Thomas J. Hall, Esq. Wilson Sonsini Goodrich & Rosati
Fenwick & West LLP Professional Corporation
Two Palo Alto Square 650 Page Mill Road
Palo Alto, California 94306 Palo Alto, California 94304-1050
(650) 494-0600 (650) 493-9300
----------------
Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement becomes effective.
----------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, 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 of 1933, check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act of 1933, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act of 1933, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
----------------
CALCULATION OF REGISTRATION FEE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Title of Each Class Proposed Maximum Amount of
of Securities to be Registered Aggregate Offering Price(1) Registration Fee
- --------------------------------------------------------------------------------
<S> <C> <C>
Common Stock, $0.001 par value per
share............................ $57,500,000 $15,985
</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>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. We may +
+not sell these securities until the registration statement filed with the +
+Securities and Exchange Commission is effective. This prospectus is not an +
+offer to sell these securities and it is not soliciting an offer to buy these +
+securities in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED JANUARY 26, 1999
Shares
Common Stock
--------
We are selling shares of common stock and the selling stockholders
are selling 100,000 shares of common stock. We will not receive
any proceeds from shares of common stock sold by the
selling stockholders.
The underwriters have an option to purchase a maximum of
additional shares to cover over-allotments of shares.
Prior to this offering, there has been no public market for the common stock.
The initial public offering price of the common stock is expected to be
between $ and $ per share. Application has been made to list the common
stock on The Nasdaq Stock Market's National Market under the symbol "AWEB."
Investing in the common stock involves certain risks. See "Risk Factors" on
page 5.
<TABLE>
<CAPTION>
Underwriting Proceeds to
Price to Discounts and Proceeds to Selling
Public Commissions Autoweb.com Stockholders
------------ ------------- ------------ ------------
<S> <C> <C> <C> <C>
Per Share.................. $ $ $ $
Total...................... $ $ $ $
</TABLE>
Delivery of the shares of common stock will be made on or about , 1999,
against payment in immediately available funds.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus is truthful or complete. Any representation to the contrary is
a criminal offense.
Credit Suisse First Boston
Hambrecht & Quist
BancBoston Robertson Stephens
Piper Jaffray Inc.
Prospectus dated , 1999.
<PAGE>
------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary......................................................... 3
Risk Factors............................................................... 5
Use of Proceeds............................................................ 18
Dividend Policy............................................................ 18
Capitalization............................................................. 19
Dilution................................................................... 20
Selected Financial Data.................................................... 21
Management's Discussion and analysis of Financial Condition and Results
of Operations............................................................. 22
Business................................................................... 29
Management................................................................. 43
Certain Transactions....................................................... 52
Principal and Selling Stockholders......................................... 53
Description of Capital Stock............................................... 54
Shares Eligible for Future Sale............................................ 56
Underwriting............................................................... 58
Notice to Canadian Residents............................................... 60
Legal Matters.............................................................. 61
Experts.................................................................... 61
Additional Information..................................................... 61
Index to Financial Statements.............................................. F-1
</TABLE>
------------
You should rely only on the information contained in this document or to
which we have referred you. We have not authorized anyone to provide you with
information that is different. This document may only be used where it is legal
to sell these securities. The information in this document may only be accurate
on the date of this document.
------------
AutoTalkTM, Autoweb.comTM and Blow Your Horn!TM are trademarks of
Autoweb.com. This prospectus also includes trade names and trademarks of other
companies.
Dealer Prospectus Delivery Obligation
Until , 1999 (25 days after the commencement of this offering), all
dealers that effect transactions in these securities, whether or not
participating in this offering, may be required to deliver a prospectus. This
is in addition to the dealer's obligation to deliver a prospectus when acting
as an underwriter and with respect to unsold allotments or subscriptions.
2
<PAGE>
On the left side, a flow chart depicting the consumer process for purchasing
various products and services on Autoweb.com, and a flow chart depicting the
Dealer Certification process. On the right side various screen-shots of the Web
site and logos of marketing partners and advertising clients.
[Artwork]
<PAGE>
PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this prospectus.
This summary is not complete and does not contain all the information you
should consider before buying shares in this offering. You should read the
entire prospectus carefully.
Autoweb.com
Autoweb.com is a leading consumer automotive Internet service. Our Web site
and services centralizes an extensive collection of automotive-related
commerce, content and community offerings to assist consumers in researching,
evaluating and buying new and pre-owned vehicles. In addition, we offer
services that enable consumers to conveniently purchase automotive-related
products and services such as insurance, financing and extended warranty
protection. Our Web site and purchase process are designed to provide consumers
with dedicated customer care, choice and the means to execute their buying
decisions through a process that is faster, better and easier than traditional
alternatives. We currently have a network of approximately 3,900 member dealers
(where each franchise location for a particular vehicle manufacturer is defined
as a member dealer), including approximately 1,200 pre-owned vehicle locations.
In the fourth quarter of 1998, we delivered approximately 250,000 vehicle and
related purchase inquiries to member dealers and automotive-related vendors. We
have developed a scalable business model characterized by multiple revenue
sources and a leveragable online infrastructure.
The total United States market for vehicles and automotive-related products
and services exceeds $1 trillion. According to CNW Marketing/Advertising, this
amount includes approximately $670 billion of new and pre-owned vehicle sales.
Buying a vehicle traditionally has been difficult for consumers, who view
dealerships as pressure-filled environments where they must make significant
purchase decisions with incomplete information. In addition, consumers
historically have not had access to competitively-priced automotive-related
products and services in a single centralized location. For dealers, a highly-
fragmented, intensely-competitive distribution system has resulted in high
consumer acquisition costs and declining operating margins. We believe the
Internet offers an ideal medium for improving automotive commerce interactions
for both consumers and dealers. According to JD Power and Associates, 16% of
new vehicle purchasers used the Internet to assist with their purchases in 1997
and this number is expected to increase to approximately 50% by 2000.
Our Web site and purchase process provide an environment that can
significantly reduce the traditional friction between dealers and consumers.
Consumers benefit from choice, rapid member dealer response and a competitive,
firm, upfront price. In addition, we provide a single location for consumers to
obtain automotive-related products and services, such as insurance, financing
and extended warranty protection, The Autoweb.com Customer Care Center acts as
an independent intermediary that provides personal attention to consumers, as
they request it, throughout the vehicle purchasing experience. Member dealers
benefit from our cost-effective, performance-based pricing structure, which,
unlike subscription models in which dealers pay a fixed monthly fee, enables
dealers to pay only for qualified purchase inquiries that they actually
receive. Our Dealer Development and Support Group certifies, and strives to
maintain communication with, each member dealer in order to help ensure a
convenient and efficient purchase process. Further, we provide member dealers,
automotive-related vendors, manufacturers and advertisers with access to a
large number of purchase-minded consumers. According to our surveys in the
fourth quarter of 1998, approximately two-thirds of all consumers who submitted
a purchase inquiry through our Web site purchased a vehicle from one of our
member dealers or elsewhere within one month.
Autoweb.com was incorporated in California in October 1995 and intends to
reincorporate in Delaware in February 1999. Unless the context otherwise
requires, the terms "we," "our," "us" and "Autoweb.com" refer to Autoweb.com,
Inc., a Delaware corporation, and its California predecessor. Our principal
executive offices are located at 3270 Jay Street, Building 6, Santa Clara,
California 95054, and our telephone number is (408) 554-9552.
3
<PAGE>
The Offering
<TABLE>
<C> <S>
Common stock offered by Autoweb.com......... shares
Common stock offered by Selling
Stockholders............................... 100,000 shares
Common stock to be outstanding after this
offering................................... shares (1)
Use of proceeds............................. For general corporate purposes,
including advertising, capital
expenditures and working
capital. See "Use of Proceeds."
Proposed Nasdaq National Market symbol...... AWEB
</TABLE>
Summary Financial Information
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------
1995(2) 1996 1997 1998
------- ------ ------- --------
(in thousands, except per
share data)
<S> <C> <C> <C> <C>
Statement of Operations Data:
Net revenues............................... $ 26 $ 307 $ 3,492 $ 13,041
Gross profit............................... 14 283 3,248 12,199
Stock-based compensation................... -- -- -- 5,601
Loss from operations....................... (93) (835) (2,971) (11,425)
Net loss................................... (94) (845) (2,920) (11,484)
Net loss per share(3):
Basic and diluted......................... $(0.01) $(0.11) $ (0.41) $ (1.58)
Weighted average shares--basic and
diluted.................................. 7,200 7,497 7,794 7,850
Pro forma net loss per share(3):
Basic and diluted......................... $ (0.69)
Weighted average shares--basic and
diluted.................................. 16,669
</TABLE>
<TABLE>
<CAPTION>
December 31, 1998
-------------------------------------
Pro Forma
Actual Pro Forma(4) As Adjusted(5)
-------- ------------ --------------
(in thousands)
<S> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents............... $ 2,714 $2,714 $
Working capital......................... 800 800
Total assets............................ 7,185 7,185
Long-term obligations, net of current
portion................................ 654 654 654
Mandatorily redeemable convertible
preferred stock........................ 12,969 -- --
Total stockholders' equity (deficit).... (11,661) 1,308
</TABLE>
- --------------------
(1) Based on 18,558,464 shares of common stock outstanding as of December 31,
1998. Excludes (1) 2,363,589 shares issuable upon the exercise of stock
options and warrants outstanding as of December 31, 1998 and (2) 4,266,428
shares available for future grant or issuance under our employee benefit
plans. See "Capitalization," "Management--Director Compensation,"
"Management--Employee Benefit Plans," "Description of Capital Stock" and
Notes 8, 9 and 13 of Notes to Financial Statements.
(2) Represents the results of operations for Autoweb.com from incorporation
(October 3, 1995) through December 31, 1995.
(3) See Note 2 of Notes to Financial Statements for a description of the method
used to compute basic and diluted net loss per share.
(4) Gives effect to the conversion of all outstanding shares of 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 that
Autoweb.com is offering hereby at an assumed initial public offering price
of $ per share and after deducting the estimated underwriting discounts
and commissions and estimated offering expenses. See "Use of Proceeds" and
"Capitalization."
----------------
Except as otherwise indicated, all information in this prospectus assumes
the Underwriters' over-allotment option will not be exercised and reflects (1)
the conversion of all outstanding shares of preferred stock of Autoweb.com into
shares of common stock upon the consummation of this offering, (2) the
reincorporation of Autoweb.com in Delaware and a three-for-two stock split of
Autoweb.com's common stock and preferred stock to be effected prior to the
effectiveness of this offering and (3) the adoption of various new employee
benefit plans. See "Description of Capital Stock" and "Underwriting."
4
<PAGE>
RISK FACTORS
You should carefully consider the risks described below before buying shares
in this offering. The risks and uncertainties described below are not the only
risks we face. Additional risks and uncertainties not presently known to us or
that we currently deem immaterial may impair our business operations.
This prospectus also contains forward-looking statements that involve risks
and uncertainties. We use words such as "anticipates," "believes," "plans,"
"expects," "future" and "intends" and similar expressions to identify forward-
looking statements. This prospectus also contains forward-looking statements
attributed to certain third parties relating to their estimates regarding the
growth of certain e-commerce, automotive and automotive related service markets
and spending. You should not place undue reliance on these forward-looking
statements, which apply only as of the date of this prospectus. Our actual
results could differ materially from those anticipated in these forward-looking
statements for many reasons, including the risks faced by us described below
and elsewhere in this prospectus.
If any of the following risks actually occur, our business, results of
operations and financial condition could be materially adversely affected, the
trading price of our common stock could decline, and you might lose all or part
of your investment.
We are an early stage company.
We were incorporated in October 1995. Therefore, we have a limited operating
history upon which to base an evaluation of our current business and prospects.
Moreover, our business model is evolving and depends on our ability to generate
revenues from multiple sources through our Web site. Before investing, you
should evaluate the risks, expenses and problems frequently encountered by
companies such as ours that are in the early stages of development and that are
entering new and rapidly changing markets like the Internet. In particular, to
address these risks we face the following challenges:
. maintaining and increasing our consumer base;
. maintaining and increasing our network of member dealers;
. managing the quality of services delivered by member dealers and
automotive-related vendors;
. generating continuing revenues through our Web site from consumers,
member dealers and other commercial vendors;
. competing effectively with existing and potential competitors;
. developing further our unproven business model;
. developing further Autoweb.com awareness and brand loyalty;
. anticipating and adapting to the evolving e-commerce market;
. continuing to develop our technology infrastructure to handle greater
Internet traffic efficiently;
. managing expanding operations;
. broadening our service offerings and attracting and retaining additional
automotive-related vendors and content providers to enable us to expand
our service offerings; and
. attracting and retaining qualified personnel.
We may not successfully implement any of our strategies or successfully
address these risks and uncertainties. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
Our quarterly financial results are subject to significant fluctuations.
Our results of operations have varied widely in the past, and we expect that
they will continue to vary significantly from quarter to quarter due to a
number of factors, including:
. demand for the products and services from our member dealers and other
automotive-related vendors, and for our online services;
. announcement or introduction of new or enhanced services by us or by our
competitors;
. loss of relationships with any of our major member dealers or other major
automotive-related vendors;
5
<PAGE>
. loss of relationships with a significant number of our member dealers;
. level of traffic on our Web site and other Web sites that refer consumers
to our Web site;
. delays in providing additional online content and services;
. our ability to retain existing and attract new consumers, member dealers,
other automotive-related vendors and advertisers;
. changes in our pricing model and changes in our or our competitors'
pricing of services;
. acceptance by our member dealers of our policies regarding service
quality, response time to consumers and vehicle pricing;
. changes in the growth rate of Internet usage;
. acceptance by consumers and advertisers of using the Internet for
automotive and automotive-related products and services and advertising;
. technical difficulties, system failures or Internet downtime;
. changes in state and federal government regulations and their
interpretations, especially with respect to the automotive or Internet
industries;
. our ability to upgrade and develop our information technology systems and
infrastructure;
. costs related to acquisitions of technology or businesses; and
. general economic conditions, as well as those specific to the Internet
and the automotive and automotive- related industries.
Our revenue growth rates may not be sustainable. Any shortfall in our
revenues would immediately increase our operating losses and would adversely
affect the market price of our common stock. We expect that over time our
revenues will come from a mix of fees from member dealers, automotive-related
vendors and advertisers. However, we expect to be substantially dependent on
member dealer fees. Therefore, our quarterly revenues and operating results are
likely to be particularly affected by the level of member dealer fees in each
quarter. We plan to increase our operating expenses significantly in order to
expand our sales and marketing operations, broaden our consumer and member
dealer capabilities, and fund greater levels of online service development. Our
operating expenses, which include sales and marketing, product development and
general and administrative expenses, are based on our expectations of future
revenues and are relatively fixed in the short term. We generally operate with
minimal backlog, and consequently our revenues for each quarter depend on sales
completed in that quarter. If revenues fall below our expectations, we will not
be able to reduce our spending rapidly in response to such a shortfall. This
will adversely affect our operating results.
We believe that we may experience seasonality in our business. The seasonal
patterns of Internet usage and vehicle purchasing do not completely overlap.
Internet usage typically declines during the summer and certain holiday
periods, while vehicle purchasing in the United States is strongest in the late
spring and summer months. Because of our limited operating history, we do not
know which seasonal pattern, if any, will predominate. Additionally, the
automotive industry is cyclical, with sales of vehicles changing due to changes
in national and global economic forces. Since our incorporation, sales of
vehicles in the United States have been at historically high levels. There is
no guarantee that sales of vehicles will stay at their current levels.
Due to the foregoing factors, we believe that quarter-to-quarter comparisons
of our results of operations are not a good indication of our future
performance. It is likely that our results of operations in some future quarter
may be below the expectations of public market analysts and investors. In this
event, the price of our common stock is likely to decline. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
We have a history of net losses and expect net losses for the foreseeable
future.
We have incurred net losses in each fiscal year since our inception,
including a net loss of $11.5 million in 1998, and we had an accumulated
deficit of $17.6 million as of December 31, 1998. We expect to have increasing
net losses and negative cash flows for the next several quarters and net losses
and continued negative cash flows at least through the end of 2000. The size of
these net losses will depend, in part, on the rate of growth in our revenues
from member dealer fees, other commercial vendor fees, advertising sales and
other
6
<PAGE>
electronic-commerce ("e-commerce") activities. It is critical to our success
that we continue to expend financial and management resources to develop
Autoweb.com brand awareness and loyalty through marketing and promotion,
expansion of our member dealer network, development of our online content and
expansion of our other services. As a result, we expect that our operating
expenses will increase significantly during the next several years, especially
in sales and marketing. With increased expenses, we will need to generate
significant additional revenues to achieve profitability. As a result, we may
never achieve or sustain profitability, and, if we do achieve profitability in
any period, we may not be able to sustain or increase profitability on a
quarterly or annual basis. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
We have a new and unproven business model.
The manner in which we conduct our business and charge for our services is
new and unproven. The model depends upon our ability to generate revenue
streams from multiple sources through our Web site, including:
. fees paid by member dealers for consumer referrals;
. fees paid by companies in industries related to vehicles such as
insurance and financing industries;
. advertising fees paid by manufacturers and other companies that want
access to vehicle purchasers; and
. fees paid by individuals who want to advertise their vehicles for sale.
In order for us to be successful, we must have consumers visit our Web site
regularly to increase the likelihood that they will use our service when they
are interested in buying a vehicle or a related product or service. Therefore,
we must not only develop services that directly generate revenue, but also
provide information and community offerings that attract consumers to our Web
site frequently. We will need to develop new offerings in each of these areas
as consumer preferences change and new competitors emerge. We cannot assure you
that we will be able to provide consumers with an acceptable blend of services,
informational and community offerings. We provide information and community
offerings without charge, and we may not be able to generate sufficient
services revenue to pay for these offerings. Accordingly, we are not sure our
business model will be successful or that we can sustain revenue growth or be
profitable.
The online market for automotive services is new and rapidly developing. As
is typical for any new, rapidly evolving market, demand and market acceptance
for recently introduced products and services are subject to a high level of
uncertainty and risk. For example, in 1998 we changed our pricing model and our
pricing levels and these changes may not prove to be successful. It is also
difficult to predict the market's future growth rate, if any. Because of the
low barriers to entry, the market is characterized by an increasing number of
market entrants. If the market fails to develop, develops more slowly than
expected or becomes saturated with competitors, or our services do not achieve
or sustain market acceptance, our business, results of operations and financial
condition could be materially and adversely affected. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Business--Background."
We are in an intensely competitive market.
The market for the purchase of vehicles and vehicle-related products and
services is intensely competitive, and we expect competition to increase
significantly, particularly on the Internet. Barriers to entry on the Internet
are relatively low, and we may face competitive pressures from numerous
companies. Currently, we believe our most significant competitors are
Microsoft's CarPoint and Autobytel.com. There are also a number of Web sites
that offer vehicles, particularly vehicle manufacturers' own Web sites and
sites for electronic classifieds, and vehicle-related products and services. In
addition, there are numerous Web sites that offer vehicle information and other
content, as well as community offerings, directly to the vehicle buying
consumer generally or to targeted audiences such as car collectors. We could
face competition in the future from vehicle manufacturers, large dealer groups
or traditional media companies, such as newspaper, television and radio
companies, many of which currently operate a Web site. In addition to direct
competitors, we also compete indirectly with vehicle brokerage firms, discount
warehouse clubs and automobile clubs. Several auction Web sites have also
recently announced their intention to auction vehicles on the Internet.
7
<PAGE>
We believe that the principal competitive factors in attracting consumers to
our Web site are:
. a positive vehicle purchasing experience for the consumer;
. brand awareness and loyalty;
. breadth of selections;
. ease of use;
. having adequate geographic coverage of member dealers;
. Web site functionality, responsiveness and information; and
. quality of content, other service offerings and customer service.
We believe that the principal competitive factors in attracting member
dealers, other automotive-related vendors and advertisers include:
. the volume of our Web site traffic;
. our brand awareness and loyalty;
. the demographics of our consumers;
. the cost effectiveness of purchase inquiries we deliver; and
. the cost effectiveness of advertising on our Web site.
Many of our existing and potential competitors have longer operating
histories in the Internet market, greater name recognition, larger consumer
bases and significantly greater financial, technical and marketing resources
than we do. These competitors may be able to undertake more extensive marketing
campaigns for their brand, products and services, adopt more aggressive pricing
policies or make more attractive offers to potential employees. Furthermore,
our existing and potential competitors may develop offerings that equal or
exceed the quality of our offerings, or that achieve greater market acceptance,
than ours. We cannot assure you that we will be able to compete successfully
against our current or future competitors or that competition will not have a
material adverse effect on our business, results of operations and financial
condition.
Additionally, the e-commerce market is new and rapidly evolving, and we
expect competition among e-commerce companies to increase significantly. Our
ability to generate revenues from any of our present or future automotive-
related vendors may be adversely affected by competition among any such vendor
and other Internet retailers.
We cannot assure you that Web sites maintained by our existing and potential
competitors will not be perceived by consumers, vehicle dealers, other
potential automotive-related vendors or advertisers as being superior to ours.
We also cannot assure you that we will be able to increase our Web site traffic
levels, purchase inquiries and click-throughs or that competitors will not
experience greater growth in these areas than we do. See "Business--
Competition."
We rely heavily on member dealers.
We derive the majority of our revenues from member dealer fees (payments
from member dealers for each consumer inquiry that we provide to them), and we
expect to continue to do so for the foreseeable future. Member dealer fees
represented approximately 85% of our net revenues in 1997 and approximately 70%
of our net revenues in 1998. Republic Industries, our largest member dealer,
represented less than 6% of our net revenues in 1998. Consequently, our
business is highly dependent on consumers' use of Autoweb.com to purchase
vehicles so that member dealers will achieve a satisfactory return on their
investment in the Autoweb.com program.
The success of our business strategy depends on our member dealers'
adherence to our consumer-oriented sales practices. We devote significant
efforts and resources to certifying and supporting participating member dealers
in practices that are intended to increase consumer satisfaction. Our inability
to certify and support member dealers effectively, or member dealers' failure
to adopt such practices, respond rapidly and professionally to vehicle purchase
inquiries, or sell vehicles in accordance with our marketing strategies, could
8
<PAGE>
result in low consumer satisfaction and materially adversely affect our
business, results of operations and financial condition. See "Business--
Services."
We must reduce our high member dealer turnover.
To maintain and increase our network of member dealers, we must reduce the
rate of turnover of our member dealers. Commencing in February 1998, we
introduced a new "pay for performance" pricing model and began actively to
convert our existing member dealers to this model. Prior to that time, all of
our member dealers were on a subscription model under which they paid a fixed
amount per month regardless of the number of purchase inquiries that we
provided to them. During 1998, we lost more than 60% of the member dealers that
we had at the beginning of the year and converted less than 35% to the new
pricing model. There are approximately 105 member dealers (approximately 3% of
the total) that remain on the subscription model as of January 25, 1999, but we
anticipate that there will be almost no subscription-based member dealers by
the end of 1999. During 1998, we lost approximately 22% of the performance-
based member dealers that we converted or with which we first entered into a
contract in 1998. We believe there were two primary reasons for this attrition:
(1) a number of the subscription-based member dealers that we converted were
already intending to terminate our service and (2) we did not devote enough
resources to training our member dealers. We believe that we can reduce our
attrition rate over time as our member dealer network stabilizes, due to the
efforts of our Dealer Development and Support Group and due to reduced
conversion activity. Nevertheless, we cannot assure you that we will be able to
reduce the level of this attrition, and our failure to do so could materially
and adversely affect our business, results of operations and financial
condition.
We need to build strong brand loyalty.
We believe that establishing and maintaining our brand loyalty is critical
to attract consumers, member dealers, automotive-related vendors and
advertisers. Furthermore, we believe that the importance of brand loyalty will
increase as low barriers to entry encourage the proliferation of Web sites. In
order to attract and retain consumers, member dealers, advertisers and
partners, and in response to competitive pressures, we intend to increase
spending substantially to create and maintain brand loyalty among these groups.
We plan to accomplish this by expanding our current online advertising
campaigns and by conducting advertising campaigns in traditional forms of
media, such as newspaper, radio and television. We believe that advertising
rates, and the cost of our online advertising campaigns in particular, could
increase substantially in the future. If our branding efforts are not
successful, our business, results of operations and financial condition will be
materially and adversely affected.
Promotion and enhancement of the Autoweb.com brand will also depend, in
part, on our success in consistently providing a high-quality consumer
experience for purchasing vehicles and related products, relevant and useful
information and a quality "community experience." If consumers, other Internet
users, member dealers, automotive-related vendors and advertisers do not
perceive the Autoweb.com service offerings to be of high quality, or if we
introduce new services or enter into new business ventures that are not
favorably received by such groups, the value of our brand could be impaired or
diluted. Such brand impairment or dilution could decrease the attractiveness of
Autoweb.com to one or more of these groups, which could materially and
adversely affect our business, results of operations and financial condition.
See "Business--Marketing."
We depend on third-party relationships.
We have entered into agreements with various commercial vendors, some of
which require us to feature them exclusively in certain sections of our Web
site. For example, we have entered into agreements with State Farm Mutual
Automobile Insurance Company ("State Farm"), pursuant to which State Farm has
the exclusive right to offer insurance services on our Web site through June
1999 and vehicle financing on our Web site through January 2000. Existing and
future exclusive arrangements may prevent us from entering into other content
agreements, advertising or sponsorship arrangements or other commercial
relationships. Many
9
<PAGE>
companies that we may pursue for a commercial relationship may also offer
competing services. As a result, these competitors may be reluctant to enter
into commercial relationships with us. Our business could be adversely affected
if we do not maintain our existing commercial relationships on terms as
favorable as currently in effect, if we do not establish additional commercial
relationships on commercially reasonable terms or if our commercial
relationships do not result in the expected increased use of our Web site.
We also depend on establishing and maintaining a number of commercial
relationships with high-traffic Web sites to increase traffic on Autoweb.com.
We currently have agreements with America Online, Yahoo!, Netscape
Communications and CNET's Search.com. There is intense competition for
placements on these sites, and in the future we may not be able to enter into
distribution relationships on commercially reasonable terms or at all. Even if
we enter into distribution relationships with these Web sites, they themselves
may not attract significant numbers of consumers. Therefore, our Web site may
receive less than the number of additional consumers we expect from these
relationships. Moreover, we may have to pay significant fees to establish or
renew these relationships.
We also depend on establishing and maintaining a number of commercial
relationships with other companies. Our current relationships include: (1) New
Car Test Drive and the Pep Boys, under which we purchase content for use by our
consumers, (2) Ameritech, America Online's Digital City, Car and Driver and USA
Today, under which we share the revenue generated from automotive and related
purchase inquiries submitted by consumers and directed to our Web site through
links between our Web site and the other company's Web site and (3) members of
the Autoweb.com Affiliates Program, each of which receives a commission from us
for each new or pre-owned vehicle purchase inquiry or classified ad delivered
to us through a link to the affiliate's Web site. We cannot assure you that we
will be able to establish new agreements or maintain existing agreements or
that the above agreements can be renewed on commercially acceptable terms.
We also may not be able to maintain relationships with third parties that
supply us with the software or products that are crucial to our success, and
the vendors of these software or products may not be able to sustain any third-
party claims or rights against their use. Furthermore, we can not assure you
that the software, services or products of those companies that provide access
or links to our services or products will achieve market acceptance or
commercial success. In addition, we can not assure you that our existing
relationships will result in sustained business arrangements, successful
service or product offerings or the generation of significant revenues for us.
Failure of one or more of our relationships to achieve or maintain market
acceptance or commercial success or the termination of one or more relationship
could have a material adverse effect on our business, results of operations and
financial condition. See "Business--Marketing."
We need to continue to develop Autoweb.com content and service offerings.
To remain competitive we must continue to enhance and improve the ease of
use, responsiveness, functionality and features of the Autoweb.com site and
develop new services in addition to continuing to improve the consumer
purchasing experience. These efforts may require the development or licensing
of increasingly complex technologies. We may not be successful in developing or
introducing new features, functions and services, and these features, functions
and services may not achieve market acceptance or enhance our brand loyalty. If
we fail to develop and introduce new features, functions or services
effectively, it could have a material adverse effect on our business, results
of operations and financial condition. See "Business--Strategy. "
We need to manage our growth.
Our recent growth has placed, and is expected to continue to place, a
significant strain on our managerial, operational and financial resources. To
manage our potential growth, we must continue to implement and improve our
operational and financial systems, and must expand, train and manage our
employee base. Our Chief Executive Officer and our Vice President, Business
Development and Advertising Sales joined us during December 1998. In addition,
our Vice President, Sales and Dealer Operations has been with us since January
1998 and our Chief Financial Officer and our Vice President, Marketing have
been with us for less than two years.
10
<PAGE>
We can not assure you that we will be able to manage the expansion of our
operations effectively, that our systems, procedures or controls will be
adequate to support our operations or that our management will be able to fully
exploit the market opportunity for our services. Any inability to manage growth
effectively could have a material adverse effect on our business, results of
operations and financial condition. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and "Business."
We are dependent on certain key personnel.
Our future success is substantially dependent on our senior management and
key technical personnel. We do not have key person life insurance, other than
for Farhang Zamani and Payam Zamani as required by the terms of certain of our
prior private financings. We do not intend to renew these policies upon their
expiration. If one or more of our key employees decided to leave us, join a
competitor or otherwise compete directly or indirectly with us, this could have
a material adverse effect on our business, results of operations and financial
condition.
Our future success depends on our continuing ability to retain and attract
highly qualified technical and managerial personnel. As of December 31, 1998,
we had 81 full-time employees, and we anticipate that the number of employees
will increase significantly during the next 12 months. Wages for managerial and
technical employees are increasing and are expected to continue to increase in
the foreseeable future due to the competitive nature of the current employment
market, particularly in Northern California. We may be unable to retain key
technical and managerial personnel or to attract and retain additional highly
qualified technical and managerial personnel in the future. We have experienced
difficulty from time to time attracting the personnel necessary to support the
growth of our business, and we may experience similar difficulty in the future.
Inability to attract and retain the technical and managerial personnel
necessary to support the growth of our business could have material adverse
effect upon our business, results of operations and financial condition. See
"Business--Technology," "--Employees" and "Management."
We face risks associated with government regulation and legal uncertainties
associated with the Internet.
There are numerous state laws regarding the sale of vehicles. In addition,
government authorities may take the position that state or federal franchise
laws, vehicle brokerage laws, insurance licensing laws, motor vehicle dealer
laws or related consumer protection or product liability laws apply to aspects
of our business. As we introduce new services and expand our operations to
other countries, we will need to comply with additional licensing and
regulatory requirements.
We believe that neither our relationship with our member dealers nor our
member dealer subscription agreements constitute "franchises" under state or
federal franchise laws and that we are not subject to the coverage of state
motor vehicle dealer licensing laws. However, if our relationship or written
agreement with our member dealers were found to be a "franchise" under federal
or state franchise laws, we could be subjected to other regulations, such as
franchise disclosure, registration requirements and limitations on our ability
to effect changes in our relationships with our member dealers. We also believe
that our service does not qualify as an vehicle brokerage activity and
therefore state broker licensing requirements do not apply to us. In the event
that a state determines that we are acting as a broker, we may be required to
comply with burdensome licensing requirements or terminate our operations in
that state. In each case, our business, results of operations and financial
condition could be materially and adversely affected.
It is unclear how the various states will interpret the existing laws
regarding our existing business or any future changes to our business. In
December 1998, the Texas Department of Transportation notified us that, in
their opinion, our performance-based pricing model is illegal under Texas law.
We currently intend to challenge this decision. However, if we are not
successful in challenging this decision, we not only may have to pay
significant fines, but also will have either to cease doing business in Texas
or to change our pricing model for member dealers in Texas from performance-
based to subscription-based. State regulatory requirements may also include us
within an industry-specific regulatory scheme, such as the vehicle insurance
11
<PAGE>
or vehicle financing industries. In the event that individual states'
regulatory requirements change or additional requirements are imposed on us, we
may be required to modify aspects of our business in those states in a manner
that might undermine the attractiveness of the Autoweb.com purchase process to
consumers, member dealers, automotive-related vendors or advertisers or require
us to terminate operations in that state, either of which could have a material
adverse effect on our business, results of operations and financial condition.
A number of legislative and regulatory proposals under consideration by
federal, state, local and foreign governmental organizations may lead to laws
or regulations concerning various aspects of the Internet, including, but not
limited to, online content, user privacy, taxation, access charges, liability
for third-party activities and jurisdiction. Additionally, it is uncertain as
to how existing laws will be applied to the Internet. The adoption of new laws
or the application of existing laws may decrease the growth in the use of the
Internet, which could in turn decrease the demand for our services, increase
our cost of doing business or otherwise have a material adverse effect on our
business, results of operations and financial condition.
The tax treatment of the Internet and e-commerce is currently unsettled. A
number of proposals have been made at the federal, state and local level and by
certain foreign governments that could impose taxes on the sale of goods and
services and certain other Internet activities. Recently, the Internet Tax
Information Act was signed into law placing a three-year moratorium on new
state and local taxes on Internet commerce. However, we can not assure you that
future laws imposing taxes or other regulations on commerce over the Internet
would not substantially impair the growth of e-commerce and as a result have a
material adverse effect on our business, results of operations and financial
condition.
Certain local telephone carriers have asserted that the increasing
popularity and use of the Internet has burdened the existing telecommunications
infrastructure, and that many areas with high Internet use have begun to
experience interruptions in telephone service. These carriers have petitioned
the Federal Communications Commission to impose access fees on Internet service
providers and online service providers. If such access fees are imposed, the
costs of communicating on the Internet could increase substantially,
potentially slowing the increasing use of the Internet, which could in turn
decrease demand for our services or increase our cost of doing business, and
thus have a material adverse effect on our business, results of operations and
financial condition. See "Business--Government Regulation."
We depend on increased use of the Internet.
Consumers and businesses will likely widely accept and adopt the Internet
for conducting business and exchanging information only if the Internet
provides these consumers and businesses with greater efficiencies and
improvements in commerce and communication. Our future success and revenue
growth depends substantially upon continued growth in the use of the Internet.
In addition, e-commerce generally, and the purchase of automotive and
automotive related products and services on the Internet in particular, must
become widespread. The Internet may prove not to be a viable commercial
marketplace generally, or, in particular, for vehicles and related products and
services. If use of the Internet does not continue to increase, our business,
results of operations and financial condition would be materially and adversely
affected. See "Business--Background."
We depend on continued improvements in our systems and the Internet
infrastructure.
Our ability to retain and attract consumers, member dealers, automotive-
related vendors and advertisers, and to achieve market acceptance of our
services and our brand, depends significantly upon the performance of our
systems and network infrastructure. Any system or network failure that causes
interruption or slower response time of our services could result in less
traffic to our Web site and, if sustained or repeated, could reduce the
attractiveness of our services to consumers, member dealers, automotive-related
vendors and advertisers. An increase in the volume of our Web site traffic
could strain the capacity of our technical infrastructure, which could lead to
slower response times or system failures. This would cause the number of
purchase inquiries, advertising impressions, other revenue producing e-commerce
offerings and our information
12
<PAGE>
and community offerings to decline, any of which could hurt our revenue growth
and our brand loyalty. In addition, if traffic increases, we cannot assure you
that our technical infrastructure, such as a reliable network backbone with the
necessary speed and data capacity and the development of complementary products
such as high-speed modems, will be able to increase accordingly, and we face
risks related to our ability to scale up to expected consumer levels while
maintaining performance. Further, security and authentication concerns
regarding the transmission of confidential information over the Internet, such
as credit card numbers, may continue. Any failure of our server and networking
systems to handle current or higher volumes of traffic would have a material
adverse effect on our business, results of operations and financial condition.
The recent growth in Internet traffic has caused frequent periods of
decreased performance, requiring Internet service providers and users of the
Internet to upgrade their infrastructures. If Internet usage continues to
increase rapidly, the Internet infrastructure may not be able to support the
demands placed on it by this growth and its performance and reliability may
decline. If these outages or delays on the Internet occur frequently, overall
Internet usage or usage of our Web site could increase more slowly or decline.
Our ability to increase the speed with which we provide services to consumers
and to increase the scope of such services is limited by and dependent upon the
speed and reliability of the Internet. Consequently, the emergence and growth
of the market for our services is dependent on future improvements to the
entire Internet.
In addition, our operations depend upon our ability to maintain and protect
our computer systems, all of which are located at our corporate headquarters in
Santa Clara, California. We currently do not have a backup disaster recovery
program or fully redundant systems for our service at an alternate site. The
system therefore is vulnerable to damage from fire, floods, earthquakes, power
loss, telecommunications failures and similar events. Although we maintain
insurance against fires, floods, earthquakes and general business
interruptions, the amount of coverage may not be adequate in any particular
case. The occurrence of such an event could have a material adverse effect on
our business, results of operations and financial condition.
The Internet industry is characterized by rapid technological change.
Rapid technological developments, evolving industry standards and consumer
demands, and frequent new product introductions and enhancements characterize
the market for Internet products and services. These market characteristics are
exacerbated by the emerging nature of the market and the fact that many
companies are expected to introduce new Internet products and services in the
near future. Our future success will significantly depend on our ability to
continually improve the vehicle purchasing experience, the addition of new and
useful services and content to our Web site, and the performance, features and
reliability of our Web site. In addition, the widespread adoption of developing
multimedia-enabling technologies could require fundamental and costly changes
in our technology and could fundamentally affect the nature, viability and
measurability of Internet-based advertising, which could adversely affect our
business, results of operations and financial condition.
We could face liability for information retrieved from or transmitted over the
Internet and liability for products sold over the Internet.
We could be exposed to liability with respect to third-party information
that may be accessible through our Web site, or content and materials that may
be posted by consumers through our AutoTalk service. Such claims might assert,
among other things, that, by directly or indirectly providing links to Web
sites operated by third parties, we should be liable for copyright or trademark
infringement or other wrongful actions by such third parties through such Web
sites. It is also possible that, if any third-party content information
provided on our Web site contains errors, consumers could make claims against
us for losses incurred in reliance on such information.
We also enter into agreements with other companies under which any revenue
that results from the purchase of services through direct links to or from our
Web site is shared. Such arrangements may expose us to additional legal risks
and uncertainties, including local, state, federal and foreign government
regulation and
13
<PAGE>
potential liabilities to consumers of these services, even if we do not provide
the services ourselves. We cannot assure you that any indemnification provided
to us in our agreements with these parties, if available, will be adequate.
Even to the extent such claims do not result in liability to us, we could
incur significant costs in investigating and defending against such claims. The
imposition on us of potential liability for information carried on or
disseminated through our system could require us to implement measures to
reduce our exposure to such liability, which might require the expenditure of
substantial resources or limit the attractiveness of our services to consumers,
member dealers, automotive-related vendors and others.
Our general liability insurance and our communications liability insurance
may not cover all potential claims to which we are exposed and may not be
adequate to indemnify us for all liability that may be imposed. Any imposition
of liability that is not covered by insurance or is in excess of insurance
coverage could have a material adverse effect on our business, results of
operations and financial condition.
We may particularly be affected by general economic conditions.
Purchases of new vehicles are typically discretionary for consumers and may
be particularly affected by negative trends in the general economy. The success
of our operations depends to a significant extent upon a number of factors
relating to discretionary consumer spending, including economic conditions (and
perceptions of such conditions by consumers) affecting disposable consumer
income (such as employment, wages and salaries, business conditions, interest
rates, availability of credit and taxation) for the economy as a whole and in
regional and local markets where we operate. In addition, because the purchase
of a vehicle is a significant investment and is relatively discretionary, any
reduction in disposable income in general may affect us more significantly than
companies in other industries. In addition, our business strategy relies on
advertising by and agreements with other Internet companies. Any significant
deterioration in general economic conditions that adversely affects these
companies could also have a material adverse effect on our business, results of
operations and financial condition.
We have security risks.
On occasion, some experienced programmers have attempted to penetrate our
network security ("hackers"). We expect that these attempts, some of which have
succeeded, will continue to occur from time to time. Because a hacker who
penetrates our network security could misappropriate proprietary information or
cause interruptions in our services, we might be required to expend significant
capital and resources to protect against, or to alleviate, problems caused by
hackers. Additionally, we may not have a timely remedy against a hacker who is
able to penetrate our network security. In addition to purposeful security
breaches, the inadvertent transmission of computer viruses could expose us to
litigation or to a material risk of loss. Such security breaches and
inadvertent transmissions could have a material adverse effect on our business,
results of operations and financial condition.
In offering certain online payment services, we may increasingly rely on
technology licensed from third parties to provide the security and
authentication necessary to effect secure transmission of confidential
information, such as consumer credit card numbers. Advances in computer
capabilities, new discoveries in the field of cryptography, or other events or
developments may result in a compromise or breach of the algorithms that we use
to protect our consumers' transaction data or our software vendors' products.
Any well-publicized compromise of security could deter use of the Internet in
general or use of the Internet to conduct transactions that involve
transmitting confidential information or downloading sensitive materials.
We have risks associated with potential acquisitions.
We may make investments in complementary companies, services and
technologies although we have no present plans or commitments and are not
currently engaged in any negotiations with respect to such
14
<PAGE>
transactions. If we acquire a company, we could face difficulties in
assimilating that company's personnel and operations. In addition, key
personnel of the acquired company might decide not to work for us. Acquisitions
of additional services or technologies also involve risks of incompatibility
and the need for integration into our existing services and marketing, sales
and member dealer development and support efforts. This could disrupt our
ongoing business, distract our management and employees, and increase our
expenses. Further, financing acquisitions by incurring debt or issuing equity
securities may dilute our existing stockholders. Any amortization of goodwill
or other assets, or other charges resulting from the costs of such
acquisitions, could adversely affect our operating results.
We have risks associated with international operations and expansions.
A part of our long-term strategy is to establish Autoweb.com in
international markets. However, the Internet, or our commerce, content and
community services model, may not become widely accepted in any market. In
addition, we expect that the success of any additional foreign operations we
initiate will be substantially dependent upon our member dealers, automotive-
related vendors and content services. We may experience difficulty in managing
international operations as a result of failure to locate an effective foreign
partner, competition, technical problems, local laws and regulations, distance
and language and cultural differences. Our international partners may not be
able to successfully market and operate our community model in foreign markets.
There are also certain risks inherent in doing business internationally,
including (1) cultural and business practices differences, (2) fluctuations in
currency exchange rates, (3) political, (4) legal and economic instability, (5)
seasonal reductions in business activity in certain other parts of the world
and (6) potentially adverse tax consequences. One or more of such factors might
have a material adverse effect on our future international operations and,
consequently, on our business, results of operations and financial condition.
We rely on intellectual property and proprietary rights.
We regard substantial elements of our Web site and underlying technology as
proprietary and attempt to protect them by relying on trademark, service mark,
copyright and trade secret laws, restrictions on disclosure and transferring
title and other methods. We also generally enter into confidentiality
agreements with our employees and consultants and with third parties in
connection with our license agreements. Such confidentiality agreements
generally seek to control access to, and distribution of, our technology,
documentation and other proprietary information. Despite these precautions, it
may be possible for a third party to copy or otherwise obtain and use our
proprietary information without authorization or to develop similar technology
independently. Although we have not conducted any comprehensive searches, we
are aware that the name "Autoweb" is already in use in several regions in the
United States and in Australia. We have not researched the effect of the use of
the name "Autoweb" by other companies on our trademark or the impact of this
use on our ability to obtain the mark in other countries. Further, even if the
mark is available, effective trademark, service mark, copyright and trade
secret protection may not be available in every country in which our services
are distributed or made available through the Internet, and policing
unauthorized use of our proprietary information may be difficult or expensive.
Legal standards relating to the validity, enforceability and scope of
protection of certain proprietary rights in Internet-related businesses are
uncertain and still evolving, and we can give no assurance regarding the future
viability or value of any of our proprietary rights. We also cannot assure you
that the steps that we have taken will prevent misappropriation or infringement
of our proprietary information, which could have a material adverse effect on
our business, results of operations and financial condition.
Litigation may be necessary in the future to enforce our intellectual
property rights, to protect our trade secrets or trademarks or to determine the
validity and scope of the proprietary rights of others. Such litigation might
result in substantial costs and diversion of resources and management
attention. Furthermore, our business activities may infringe upon the
proprietary rights of others and other parties may assert infringement claims
against us, including claims that arise from directly or indirectly providing
hyperlink text links to Web sites
15
<PAGE>
operated by third parties. Moreover, from time to time, we may be subject to
claims of alleged infringement by us or our member dealers of the trademarks,
service marks and other intellectual property rights of third parties. Such
claims and any resultant litigation, should it occur, might subject us to
significant liability for damages, might result in invalidation of our
proprietary rights and, even if not meritorious, could result in substantial
costs and diversion of resources and management attention and have a material
adverse effect on our business, results of operations and financial condition.
We currently license from third parties certain technologies and information
incorporated into our Web site. As we continue to introduce new services that
incorporate new technologies and information, we may be required to license
additional technology and information from others. We cannot assure you that
these third-party technology and information licenses will continue to be
available to us on commercially reasonable terms, if at all. Additionally, we
cannot assure you that the third parties from which we currently license our
technology and information will be able to defend their proprietary rights
successfully against claims of infringement. Any failure to obtain any of these
technology and information licenses could result in delays or reductions in the
introduction of new features, functions or services. It could also adversely
affect the performance of our existing services until equivalent technology or
information can be identified, obtained and integrated. See "Business--
Intellectual Property, Proprietary Rights and Licenses."
Certain existing stockholders own a large percentage of our voting stock.
Following consummation of this offering, it is anticipated that our
officers, directors and 5% or greater stockholders will beneficially own or
control, directly or indirectly, 18,532,769 shares of common stock, which in
the aggregate will represent approximately % of the outstanding shares of
common stock. If the Underwriters' over-allotment option is exercised in full,
the number of shares and percentage will decrease to 18,432,769 and %,
respectively. As a result, if such persons act together, they will have the
ability to control all matters submitted to our stockholders for approval,
including (1) the election and removal of directors and (2) any merger,
consolidation or sale of all or substantially all of our assets. See "Principal
and Selling Stockholders."
We face Year 2000 risks.
The year 2000 issue is the potential for system and processing failures of
date-related data and is the result of the computer-controlled systems using
two digits rather than four to define the applicable year. For example,
computer programs that have time-sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000. This could result in system
failure or miscalculations causing disruptions of operations, including, among
other things, a temporary inability to process transactions, send invoices or
engage in similar normal business activities.
We may be affected by Year 2000 issues related to non-compliant information
technology ("IT") systems or non-IT systems operated by us or by third parties.
We have not completed our assessment of our internal and external (third-party)
IT systems and non-IT systems. At this point in our assessment, we believe we
will require upgrades, or patches, from certain vendors, including Microsoft,
that have provided certain software that we have included in our Web site. We
expect to receive these upgrades later in 1999. In addition, we believe that we
will be required to modify certain software on our Web site that we developed.
We intend to include these modifications in various upgrades to our Web site
throughout 1999. We do not have a contingency plan. The costs associated with
remediating our noncompliant IT systems and non-IT systems have not been
material to date and we do not anticipate such costs will be material in the
future, although we cannot assure you that such costs will not be material.
To the extent that our assessment is finalized without identifying any
material noncompliant IT systems operated by us or by third parties, the most
reasonably likely worst case Year 2000 scenario is a systematic failure beyond
our control, such as a prolonged telecommunications or electrical failure. Such
a failure could prevent us from operating our business, prevent users from
accessing our Web site, or change the behavior of advertising consumers or
persons accessing our Web site. We believe that the primary business risks, in
the
16
<PAGE>
event of such failure, would include:
. lost advertising revenues;
. increased operating costs;
. loss of consumers or persons accessing our Web site; and
. claims of mismanagement, misinterpretation or breach of contract.
Any of these risks could have a material adverse effect on our business,
results of operations and financial condition.
There was no prior public market for our common stock and any market may be
volatile.
Prior to this offering, there has been no public market for our common
stock. We have applied for quotation of our common stock on the Nasdaq National
Market, subject to official notice of issuance; however, we cannot assure you
as to the development of liquidity of any trading market for the common stock
or that investors in the common stock will be able to resell their shares at or
above the initial public offering price. The initial public offering price for
the shares of common stock will be determined through negotiations between
Autoweb.com, the Selling Stockholders and the representatives of the
Underwriters and may not be indicative of the market price of our common stock
after this offering. See "Underwriting." The trading price of our common stock
could be subject to wide fluctuations in response to quarterly variations in
results of operations, announcements of technological innovations or new
products and services by us or our competitors, changes in financial estimates
by securities analysts, the operating and stock price performance of other
companies that investors may deem comparable to us and other events or factors.
These broad market and industry fluctuations may cause the trading price of our
common stock to decline, regardless of our operating performance. 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, whether or not successful, could
result in substantial costs and diversion of management's attention and
resources, which would have a material adverse effect on our business, results
of operations and financial condition.
Future sales of our common stock may depress our stock price.
After this offering, we will have outstanding shares of common stock.
Sales of a substantial number of shares of common stock in the public market
following this offering could cause the market price of our common stock to
decline. All the shares sold in this offering will be freely tradable. The
remaining 18,458,464 shares of common stock outstanding after this offering are
subject to lockup agreements that prohibit the sale of the shares for 180 days
after the date of this prospectus. Beginning , 1999 (181 days after the date
of this prospectus), 17,548,857 shares will become available for sale. The
remaining 909,607 shares will become available at various times thereafter upon
the expiration of one-year holding periods. See "Shares Eligible for Future
Sale" and "Underwriting."
Our certificate of incorporation and bylaws and Delaware law contain provisions
that could discourage a takeover.
Certain provisions of Delaware law and our Certificate of Incorporation and
Bylaws could have the effect of delaying or preventing a change in control. See
"Description of Capital Stock."
17
<PAGE>
USE OF PROCEEDS
We estimate that the net proceeds to us from the sale of the shares of
common stock that we are offering hereby will be approximately $ million, at
an assumed initial public offering price of $ per share and after deducting
the estimated underwriting discounts and commissions and estimated offering
expenses. If the Underwriters' over-allotment option is exercised in full, we
estimate that such net proceeds will be approximately $ million. The primary
purposes of this offering are to obtain additional capital, create a public
market for our common stock and facilitate future access to public capital
markets. We will not receive any proceeds from the sale of the common stock by
the Selling Stockholders.
We intend to use a portion of the net proceeds of this offering to fund
increased advertising and capital expenditures for 1999 and to utilize the
remainder of the net proceeds of this offering primarily for general corporate
purposes, including working capital. We may also use a portion of the net
proceeds from this offering to acquire or invest in businesses, technologies or
products that are complementary to our business. However, we have no present
plans or commitments and are not currently engaged in any negotiations with
respect to such transactions. Pending such uses, we intend to invest the net
proceeds from this offering in short-term, interest-bearing, investment-grade
securities.
DIVIDEND POLICY
We have not declared or paid any cash dividends on our capital stock and do
not anticipate paying any cash dividends in the foreseeable future. In
addition, the terms of our Loan Agreement with CivicBank of Commerce dated
December 15, 1997 prohibit the payment of cash dividends on our capital stock.
18
<PAGE>
CAPITALIZATION
The following table sets forth the short-term debt and capitalization of
Autoweb.com as of December 31, 1998 (i) on an actual basis, (ii) on a pro forma
basis to reflect the conversion of all outstanding shares of preferred stock
into shares of common stock upon the closing of this offering and (iii) the pro
forma capitalization as adjusted to reflect the receipt of the net proceeds
from the sale of the shares of common stock that Autoweb.com is offering
hereby at an assumed initial public offering price of $ per share and after
deducting the estimated underwriting discounts and commissions and estimated
offering expenses.
<TABLE>
<CAPTION>
December 31, 1998
-------------------------------
Pro Pro Forma
Actual Forma As Adjusted
-------- -------- -----------
(in thousands)
<S> <C> <C> <C>
Short-term debt:
Capital lease obligations.................... $ 14 $ 14 $ 14
Notes payable................................ 289 289 289
-------- -------- --------
Total short-term debt...................... $ 303 $ 303 $ 303
======== ======== ========
Notes payable, net of current portion(1)....... $ 654 $ 654 $ 654
-------- -------- --------
Mandatorily redeemable convertible preferred
stock(2)...................................... 12,969 -- --
-------- -------- --------
Stockholders' equity (deficit)(3):
Preferred stock, $0.001 par value per share;
actual and pro forma--no shares authorized,
issued or outstanding; pro forma as
adjusted--5,000,000 shares authorized, no
shares issued or outstanding................ -- -- --
Common stock, $0.001 par value per share;
actual--60,000,000 shares authorized,
8,063,173 shares issued and outstanding; pro
forma--60,000,000 shares authorized,
18,558,464 shares issued and outstanding;
pro forma as adjusted-- shares
authorized, shares issued and
outstanding................................. 2 12
Additional paid-in capital................... 11,371 24,330
Unearned stock-based compensation............ (5,406) (5,406) (5,406)
Accumulated deficit.......................... (17,628) (17,628) (17,628)
-------- -------- --------
Total stockholders' (deficit) equity ...... (11,661) 1,308
-------- -------- --------
Total capitalization..................... $ 2,265 $ 2,265 $
======== ======== ========
</TABLE>
- ---------------------
(1) See Note 5 of Notes to Financial Statements.
(2) See Note 7 of Notes to Financial Statements.
(3) Excludes (i) 1,831,391 shares issuable upon the exercise of stock options
outstanding under our 1997 Stock Option Plan (the "1997 Plan") as of
December 31, 1998, at a weighted average per share exercise price of $0.49,
(ii) 916,428 shares available as of that date for future grant under the
1997 Plan, (iii) 2,950,000 shares available for future grant or issuance
under our 1999 Equity Incentive Plan (the "Equity Incentive Plan") and 1999
Directors Stock Option Plan (the "Directors Plan"), (iv) 400,000 shares
available for issuance under our 1999 Employee Stock Purchase Plan (the
"Purchase Plan"), which number is subject to automatic annual increases up
to a maximum of 3,000,000 shares, (v) 395,661 shares issuable upon the
exercise of a stock option outstanding outside of the 1997 Plan as of
December 31, 1998, at a per share exercise price of $2.37 and (vi) 136,537
shares issuable upon the exercise of warrants outstanding as of December
31, 1998, at a weighted average per share exercise price of $1.39, which we
expect will be exercised prior to the consummation of this offering. See
"Management--Director Compensation," "Management--Employee Benefit Plans,"
"Description of Capital Stock" and Notes 8, 9 and 13 of Notes to Financial
Statements.
19
<PAGE>
DILUTION
The pro forma net tangible book value of Autoweb.com as of December 31, 1998
was $1,308,000 or $0.07 per share of common stock, assuming the conversion of
all outstanding shares of preferred stock into shares 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 into the net tangible book
value of Autoweb.com (total tangible assets less total liabilities). After
giving effect to the receipt of the estimated net proceeds from the sale by
Autoweb.com of the shares of common stock that it is offering hereby (based
upon an assumed initial public offering price of $ per share and after
deducting the estimated underwriting discounts and commissions and estimated
offering expenses), the pro forma net tangible book value of Autoweb.com as of
December 31, 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 December 31,
1998............................................................. $0.07
Increase per share attributable to new investors..................
-----
Pro forma net tangible book value per share after offering..........
----
Dilution per share to new investors................................. $
====
</TABLE>
The following table summarizes as of December 31, 1998, on the pro forma
basis described above, the number of shares of common stock purchased from
Autoweb.com, the total consideration paid to Autoweb.com 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
discounts and commissions 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(1)...... 18,558,464 % $12,623,885 % $0.68
New investors(1)..............
---------- ----- ----------- -----
Total....................... 100.0% $ 100.0%
========== ===== =========== =====
</TABLE>
- ---------------------
(1) The sales by the Selling Stockholders in this offering will reduce the
number of shares of common stock held by existing stockholders to
18,458,464, or approximately % of the total shares of common stock
outstanding immediately after this offering, and will increase the number
of shares of common stock held by new investors to , or % of the total
number of shares of common stock outstanding immediately after this
offering. See "Principal and Selling Stockholders."
The foregoing discussion and tables assume no exercise of any stock options
or warrants outstanding as of December 31, 1998. As of December 31, 1998, there
were options and warrants outstanding to purchase a total of 2,363,589 shares
of common stock with a weighted average exercise price of $0.86 per share. To
the extent that any of these options or warrants are exercised, there will be
further dilution to new public investors. See "Capitalization," "Management--
Employee Benefit Plans," "Description of Capital Stock" and Notes 8, 9 and 13
of Notes to Financial Statements.
20
<PAGE>
SELECTED FINANCIAL DATA
The following selected financial data should be read in conjunction with,
and are qualified by reference to, the financial statements and notes thereto
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations" appearing elsewhere in this prospectus. The statement of operations
data for the years in the three-year period ended December 31, 1998, and the
balance sheet data as of December 31, 1997 and 1998, are derived from, and are
qualified by reference to, the audited financial statements of Autoweb.com
included elsewhere in the prospectus. The statement of operations data for the
year ended December 31, 1995 and for each of the four quarters of 1998 and the
balance sheet data as of December 31, 1995 and 1996 are derived from our
unaudited financial statements. The unaudited financial statements have been
prepared on substantially the same basis as the audited financial statements
and include all adjustments, consisting only of normal recurring adjustments,
that we consider necessary for a fair presentation of the financial position
and results of operations for the period.
<TABLE>
<CAPTION>
Year Ended December 31, Quarter Ended
---------------------------------- --------------------------------------
Mar. 31, Jun. 30, Sep. 30, Dec. 31,
1995(1) 1996 1997 1998 1998 1998 1998 1998
------- ------ ------- -------- -------- -------- -------- --------
(In thousands, except for per share data)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Net revenues............ $ 26 $ 307 $ 3,492 $ 13,041 $ 2,156 $ 2,811 $ 3,287 $ 4,787
Cost of net revenues.... 12 24 244 842 111 156 245 330
------ ------ ------- -------- ------- ------- ------- -------
Gross profit........... 14 283 3,248 12,199 2,045 2,655 3,042 4,457
------ ------ ------- -------- ------- ------- ------- -------
Operating expenses:
Sales and marketing.... 54 866 5,216 13,619 2,654 3,686 3,546 3,733
Product development.... 29 57 325 586 130 136 124 196
General and
administrative........ 24 195 678 3,818 955 958 990 915
Stock-based
compensation.......... -- -- -- 5,601 4 11 11 5,575
------ ------ ------- -------- ------- ------- ------- -------
Total operating
expenses.............. 107 1,118 6,219 23,624 3,743 4,791 4,671 10,419
------ ------ ------- -------- ------- ------- ------- -------
Loss from operations.... (93) (835) (2,971) (11,425) (1,698) (2,136) (1,629) (5,962)
Interest and other
income (expense), net.. (1) (10) 51 (59) (2) 2 (33) (26)
------ ------ ------- -------- ------- ------- ------- -------
Net loss................ $ (94) $ (845) $(2,920) $(11,484) $(1,700) $(2,134) $(1,662) $(5,988)
====== ====== ======= ======== ======= ======= ======= =======
Net loss per share(2):
Basic and diluted...... $(0.01) $(0.11) $ (0.41) $ (1.58)
====== ====== ======= ========
Weighted average
shares--basic and
diluted............... 7,200 7,497 7,794 7,850
====== ====== ======= ========
Pro forma net loss per
share(2):
Basic and diluted...... $ (0.69)
========
Weighted average
shares--basic and
diluted............... 16,669
========
</TABLE>
<TABLE>
<CAPTION>
December 31,
-------------------------------
1995 1996 1997 1998
----- ----- ------- --------
(In thousands)
<S> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents.................... $ -- $ 11 $ 1,819 $ 2,714
Working capital (deficiency)................. (118) (761) 773 800
Total assets................................. 57 261 3,294 7,185
Long-term obligations, less current portion.. 9 81 17 654
Mandatorily redeemable convertible preferred
stock....................................... -- 157 5,201 12,969
Total stockholders' deficit.................. (93) (884) (4,030) (11,661)
</TABLE>
- ---------------------
(1)Represents the results of operations for Autoweb.com from incorporation
(October 3, 1995) through December 31, 1995.
(2)See Note 2 of Notes to Financial Statements for a description of the method
used to compute basic and diluted net loss per share.
21
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This prospectus contains forward-looking statements the accuracy of which
involves risks and uncertainties. We use words such as "anticipates,"
"believes," "plans," "expects," "future" and "intends," and similar expressions
to identify forward-looking statements. This prospectus also contains forward-
looking statements attributed to certain third parties relating to their
estimates regarding the growth of certain automotive and automotive-related
product and service markets and spending, as well as Internet usage and
electronic commerce markets and spending. You should not place undue reliance
on these forward-looking statements, which apply only as of the date of this
prospectus. Our actual results could differ materially from those anticipated
in these forward-looking statements for many reasons, including the risks
described in "Risk Factors" and elsewhere in this prospectus.
Overview
Autoweb.com is a leading consumer automotive Internet service. Our Web site
and services centralize an extensive collection of automotive-related commerce,
content and community offerings to assist consumers in researching, evaluating
and buying new and pre-owned vehicles. In addition, we offer services that
enable consumers to conveniently purchase automotive-related products and
services such as insurance, financing and extended warranty protection. We
began selling our services to automobile dealers and launched the Autoweb.com
Web site for consumer use in October 1995. Since that time, we have increased
our network to approximately 3,900 member dealers (where each franchise
location for a particular vehicle manufacturer is defined as a member dealer),
including approximately 1,200 pre-owned vehicle locations.
We previously charged our member dealers based on a subscription model,
where each member dealer paid a flat monthly fee in exchange for our directing
purchase inquiries to them. Because the number of purchase inquiries directed
to member dealers varied widely, due to factors such as location and franchise
type, the cost per purchase inquiry under this model differed substantially
from member dealer to member dealer. In February 1998, we changed our model and
began selling our services to dealers using a "pay for performance" model.
Under this arrangement, a member dealer pays us a fee only for each qualified
purchase inquiry actually received by the member dealer. We believe the pay for
"performance model" enables our member dealers to maximize their return from,
and enhances their satisfaction with, our services. In February 1998, we also
began converting our existing member dealer contracts to agreements utilizing
the pay for performance model. As of January 25, 1999, approximately 97% of our
member dealer contracts were on the pay for performance model. We expect that
there will be almost no subscription paying member dealers by the end of 1999.
We derive the majority of our revenues from fees charged to our member
dealers in exchange for qualified purchase inquiries and expect to continue to
do so for the foreseeable future. The revenue related to each fee is recognized
at the time the qualified purchase inquiry is provided to the member dealer. We
maintain a returns reserve against purchase inquiries that are later deemed not
to have been "qualified." See "Risk Factors--We Rely Heavily on Member
Dealers." In December 1996, we began providing online advertising space on the
Autoweb.com site and recognizing revenues from fees paid by these advertisers.
Revenues from advertising contracts, which typically have terms of less than
three months, are recognized as the contracts are fulfilled. We expect that
this component of our revenues will continue to increase in absolute dollar
terms. In February 1997, we began offering automotive-related services on the
Autoweb.com Web site through agreements with third-party vendors. We also
derive revenues from certain of these agreements where a third party pays us
for the right to provide its consumer services, such as automobile financing
and insurance, on our Web site. Revenues from these agreements are generally
recognized ratably over the term of the agreements. We expect that this
component of our revenues will continue to increase both in absolute dollar
terms and as a percentage of net revenues.
We incurred net losses of $845,000, $2.9 million and $11.5 million
(including $5.6 million of stock-based compensation) in 1996, 1997 and 1998,
respectively. We intend to increase our focus and spending on brand
development, marketing and promotion, site content development, strategic
relationships and technology and
22
<PAGE>
operating infrastructure development. As a result, we expect to have increasing
net losses and negative cash flows from operations for the next several
quarters, and net losses and negative cash flows at least through the end of
2000. Our limited operating history makes it difficult to forecast future
operating results. Although our net revenues have grown in recent quarters, we
cannot be certain that net revenues will increase at a rate sufficient to
achieve and maintain profitability. Even if we are to achieve profitability in
any period, we may fail to sustain or increase profitability on a quarterly or
annual basis. See "Risk Factors--We Have a History of Losses and Expect Net
Losses for the Foreseeable Future" and "--Our Quarterly Financial Results are
Subject to Significant Fluctuations."
Quarterly Results of Operations
The following table sets forth our unaudited statements of operations for
each quarter in 1998. These financial statements have been prepared on
substantially the same basis as the audited financial statements and include
all adjustments, consisting only of normal recurring adjustments, that we
consider necessary for a fair presentation of the results of operations for
each quarter. The results for any quarter are not necessarily indicative of the
results to be expected in any future period.
<TABLE>
<CAPTION>
Quarter Ended
--------------------------------------
Mar. 31, Jun. 30, Sep. 30, Dec. 31,
1998 1998 1998 1998
-------- -------- -------- --------
(In thousands)
<S> <C> <C> <C> <C>
Statement of Operations Data:
Net revenues............................... $ 2,156 $ 2,811 $ 3,287 $ 4,787
Cost of net revenues....................... 111 156 245 330
------- ------- ------- -------
Gross profit.............................. 2,045 2,655 3,042 4,457
------- ------- ------- -------
Operating expenses:
Sales and marketing....................... 2,654 3,686 3,546 3,733
Product development....................... 130 136 124 196
General and administrative................ 955 958 990 915
Stock-based compensation.................. 4 11 11 5,575
------- ------- ------- -------
Total operating expenses.................. 3,743 4,791 4,671 10,419
------- ------- ------- -------
Loss from operations....................... (1,698) (2,136) (1,629) (5,962)
Interest and other income (expense), net... (2) 2 (33) (26)
------- ------- ------- -------
Net loss................................... $(1,700) $(2,134) $(1,662) $(5,988)
======= ======= ======= =======
</TABLE>
Net Revenues
Net revenues increased sequentially in each of the last three quarters.
Member dealer fee revenues represented at least 60% of net revenues in each
quarter. Substantially all of our member dealer fee revenues in the first
quarter of 1998 were derived from fixed subscription fees. In February 1998, we
began to convert our member dealers to a "pay for performance" model where they
pay a fee only for qualified purchase inquiries that we provide to them. As of
January 25, 1999, approximately 3% of our member dealers were on the
subscription model. We plan to convert substantially all of these remaining
member dealers to the new model during 1999.
Member dealer fee revenues remained relatively constant in absolute dollars
and declined as a percentage of net revenues in the third quarter of 1998 and
then increased in absolute dollars and as a percentage of net revenues in the
fourth quarter of 1998 as alterations to our Web site caused variations in the
ratio of purchase inquiries to number of Web site visitors. Revenue from State
Farm for vehicle insurance referrals that we made to them increased
sequentially, and represented at least 10% of total net revenues, in each of
the last three quarters. We expect that revenue from State Farm for vehicle
insurance referrals in the first two quarters of 1999 will be the same as
revenue from State Farm in the fourth quarter of 1998. None of our other
sources of revenue has exceeded 10% of net revenues in any quarter except that
corporate advertising revenues exceeded 10% of total net revenues in the third
quarter of 1998. Our goal over time is to increase aggregate revenues from
sources other than dealer fees as a percentage of total net revenues.
23
<PAGE>
Cost of Net Revenues
Cost of net revenues primarily represents costs for Web site operations,
revenue sharing expenses related to the operation of co-branded Web pages, and
royalties paid to third parties whose information is provided on our Web site.
Our cost of net revenues increased sequentially in the last three quarters of
1998. These increases resulted from increases in the number of Web site
operations personnel and higher depreciation charges as we increased our
investment in Web site equipment. In addition, there were increases in revenue
sharing expenses as the co-branded sites began to contribute an increasing
number of consumer inquiries. We anticipate continuing increases in cost of net
revenues as our dealer fee revenues increase and as we continue to make
investments to increase the size and speed of our Web site.
Sales and Marketing
Our sales and marketing expenses are comprised primarily of compensation for
sales and marketing personnel, expenses for online advertising, trade shows and
other advertising and promotion and an allocation of our occupancy costs and
other overhead. Sales and marketing expenses increased significantly from the
first quarter of 1998 to the second quarter of 1998 primarily as a result of
increased sales commissions paid for enrolling new member dealers, increased
online advertising and growth in the number of sales personnel. Sales and
marketing expenses decreased from the second quarter of 1998 to the third
quarter of 1998 primarily as a result of reduced aggregate sales commissions.
Sales and marketing expenses increased again in the fourth quarter of 1998,
primarily as a result of increases in online advertising, partly offset by
reduced personnel expenses. We expect that sales and marketing expenses will
increase significantly in the next several quarters as a result of increased
online advertising and, to a lesser extent, increased personnel and advertising
in traditional media.
Product Development
Our product development expenses consist primarily of compensation for
product development personnel and an allocation of our occupancy costs and
other overhead. We expense product development costs as they are incurred.
Product development expenses were relatively constant in the first three
quarters of 1998 and then increased significantly in the fourth quarter as a
result of increased product development headcount and associated recruiting
costs. We expect that product development expenses will continue to increase
over the next several quarters as we continue to hire additional personnel in
this area.
General and Administrative
Our general and administrative expenses consist primarily of compensation
for administrative personnel, fees for outside professional advisors and an
allocation of our occupancy costs and other overhead. General and
administrative expenses remained relative constant in the comparison periods.
We expect that general and administrative expenses will increase over the next
several quarters as we continue to hire additional personnel but will decrease
as a percentage of our total operating expenses.
Stock-Based Compensation
Under Accounting Principles Board ("APB") Opinion No. 25, "Accounting for
Stock-based Compensation," compensation expense is recognized based on the
difference, if any, between the fair value of our stock on the date of each
option grant and the exercise price of the option. In the fourth quarter, we
recognized unearned stock-based compensation of approximately $10.8 million. Of
this amount, $5.6 million was amortized in the fourth quarter of 1998 when a
significant portion of the options became vested. The remaining unearned stock-
based compensation of $5.4 million will be amortized at approximately $50,000
per quarter through 1999. We anticipate recognizing substantial additional
stock-based compensation in the first quarter of 1999.
24
<PAGE>
Interest and Other Income (Expense), Net
Interest and other income (expense), net, in each quarter resulted primarily
from interest expense on borrowings under our credit facilities, offset partly
by interest income earned on our cash and cash equivalent balances. The
decrease in interest and other income (expense), net, between the third and
fourth quarters of 1998 was a result of interest expense paid on higher levels
of borrowing, offset partly by interest income earned in the fourth quarter on
the net proceeds from our sale of Series D preferred stock in October 1998.
Annual Results of Operations
Net Revenues
Our net revenues increased from $307,000 in 1996 to $3.5 million in 1997 and
to $13.0 million in 1998, primarily as a result of increased dealer fee
revenues and, to a lesser extent, as a result of increased revenues from State
Farm for insurance referrals and increased revenues from advertisers. Dealer
fee revenues increased as a result of increases in the size of our member
dealer network and the number of purchase inquiries that we provided to our
member dealers. As described above, we began to change our pricing model in
February 1998 from a subscription-based model to a "pay for performance" model.
Cost of Net Revenues
Cost of net revenues increased from $24,000 in 1996 to $244,000 in 1997 to
$842,000 in 1998. These increases were due primarily to increases in Web site
operations personnel, higher depreciation charges as we purchased more servers
and other Web site equipment and higher occupancy costs. In addition, there
were increases in revenue-sharing expenses related to the operation of our co-
branded sites as these sites began contributing an increasing number of
consumer inquiries.
Sales and Marketing
Our sales and marketing expenses increased from $866,000 in 1996 to $5.2
million in 1997 to $13.6 million in 1998. We increased our sales and marketing
headcount significantly during 1997, primarily by hiring salespersons focused
on enrolling member dealers, and again in 1998. We also substantially increased
our online advertising and, to a lesser extent, our spending on public
relations, advertising in traditional media, trade shows and other promotions.
Product Development
Our product development expenses increased from $57,000 in 1996 to $325,000
in 1997 to $586,000 in 1998. These expenses increased primarily as a result of
increased hiring of product development personnel and, to a lesser extent, as a
result of increased occupancy costs.
General and Administrative
Our general and administrative expenses increased from $195,000 in 1996 to
$678,000 in 1997 to $3.8 million in 1998. These expenses increased primarily as
a result of increased hiring of administrative personnel, including most of our
current executive officers.
Stock-Based Compensation
We incurred no stock-based compensation expense in 1996 or 1997. We recorded
a total of $11.0 million of unearned stock-based compensation in 1998, of which
$5.6 million was amortized in 1998, primarily in the fourth quarter.
25
<PAGE>
Interest and Other Income (Expense), Net
Interest and other income (expense), net, in 1996 and 1998 represents
interest expense on borrowings under capital leases and our credit facilities,
partially offset by interest income earned on our cash and cash equivalent
balances. In 1997, interest income earned on our cash and cash equivalent
balances from the net proceeds from our sale of Series B preferred stock in
June 1997 exceeded interest expense on borrowings.
Income Taxes
We recorded net losses of $845,000, $2.9 million and $11.5 million in 1996,
1997 and 1998, respectively. Accordingly, no provision for income taxes was
recorded in any of these years. The resulting deferred tax asset, representing
such net operating loss carryforwards, has been reduced in full by a valuation
allowance as it is more likely than not that the deferred tax asset will not be
realized.
Recent Accounting Pronouncements
In March 1998, the Accounting Standards Executive Committee ("AcSEC") 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. We do not expect that the
adoption of SOP No. 98-1 will have a material impact on its financial
statements.
In April 1998, AcSEC issued SOP 98-5, "Reporting on the Costs of Start-Up
Activities." This SOP provides guidance on the financial reporting of start-up
costs and organization costs. It requires the costs of start-up activities and
organization costs to be expensed as incurred. The SOP is effective for
financial statements for fiscal years beginning after December 15, 1998. We do
not expect that the adoption of SOP No. 98-5 will have a material impact on its
financial statements.
Fluctuations in Quarterly Results
Our results of operations have varied widely in the past, and we expect that
they will continue to vary significantly from quarter to quarter due to a
number of factors, including:
. demand for the products and services from our member dealers and other
automotive-related vendors, and for our online services;
. announcement or introduction of new or enhanced services by us or by our
competitors;
. loss of relationships with any of our major member dealers or other major
automotive-related vendors;
. loss of relationships with a significant number of our member dealers;
. level of traffic on our Web site and other Web sites that refer consumers
to our Web site;
. delays in providing additional online content and services;
. our ability to retain existing and attract new consumers, member dealers,
other automotive-related vendors and advertisers;
. changes in our pricing model and changes in our or our competitor's
pricing of services;
. acceptance by our member dealers of our policies regarding service
quality, response time to consumers and vehicle pricing;
. changes in the growth rate of Internet usage;
. acceptance by consumers and advertisers of using the Internet for
automotive and automotive-related products and services;
. technical difficulties, system failures or Internet downtime;
. changes in state and federal government regulations and their
interpretations, especially with respect to the automotive or Internet
industries;
. our ability to upgrade and develop our information technology systems and
infrastructure;
. costs related to acquisitions of technology or businesses; and
. general economic conditions, as well as those specific to the Internet
and the automotive and automotive-related industries.
26
<PAGE>
Our revenue growth rates may not be sustainable. Any shortfall in our
revenues would immediately increase our operating losses and would adversely
affect the market price of our common stock. We expect that over time our
revenues will come from a mix of fees from member dealers, automotive-related
vendors and advertisers. However, we expect to be substantially dependent on
member dealer fees. Therefore, our quarterly revenues and operating results are
likely to be particularly affected by the level of member dealer fees in each
quarter. We plan to increase our operating expenses significantly in order to
expand our sales and marketing operations, broaden our consumer and member
dealer capabilities, and fund greater levels of online service development. Our
operating expenses, which include sales and marketing, product development and
general and administrative expenses, are based on our expectations of future
revenues and are relatively fixed in the short term. We generally operate with
minimal backlog, and consequently our revenues for each quarter depend on sales
completed in that quarter. If revenues fall below our expectations, we will not
be able to reduce our spending rapidly in response to such a shortfall. This
will adversely affect our operating results.
We believe that we may experience seasonality in our business. The seasonal
patterns of Internet usage and vehicle purchasing do not completely overlap.
Internet usage typically declines during the summer and certain holiday
periods, while vehicle purchasing in the United States is strongest in the late
spring and summer months. Because of our limited operating history, we do not
know which seasonal pattern, if any, will predominate. Additionally, the
automotive industry is cyclical, with sales of vehicles changing due to changes
in national and global economic forces. Since our incorporation, sales of
vehicles in the United States have been at historically high levels. There is
no guarantee that sales of vehicles will stay at their current levels.
Due to the foregoing factors, we believe that quarter-to-quarter comparisons
of our results of operations are not a good indication of our future
performance. It is likely that our results of operations in some future quarter
may be below the expectations of public market analysts and investors. In this
event, the price of our common stock is likely to decline. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
Liquidity and Capital Resources
Since incorporation, we have financed our operations primarily from sales of
preferred stock and, in 1998 to a significantly lesser extent, borrowings under
a long-term debt facility and sales of common stock.
Net cash used in operating activities was $35,000 in 1996, $2.4 million in
1997 and $4.6 million in 1998, in each case primarily as a result of our net
loss before noncash expenses. In 1996, our $815,000 net loss before noncash
expenses was largely offset by an increase in deferred revenue of $486,000 and
an increase in accounts payable and other accrued expenses of $181,000. In
1997, our $2.7 million net loss before noncash expenses was partially offset by
a $634,000 increase in accounts payable and other accrued expenses. In 1998,
our $5.3 million net loss before noncash expenses was partially offset by an
increase of $1.7 million in accounts payable and other accrued expenses.
Net cash used in investing activities was $82,000 in 1996, $556,000 in 1997
and $1.3 million in 1998, substantially all of which was used to acquire
property and equipment, primarily computer equipment and software.
Net cash provided by financing activities was $129,000 in 1996, $4.8 million
in 1997 and $6.7 million in 1998. In 1996 and 1997, net cash provided by
financing activities was almost entirely the result of proceeds from the
issuance of preferred stock. In 1998, net cash provided by financing activities
was primarily the result of proceeds from the issuance of preferred stock (net
of repurchases) and, to a lesser extent, the result of proceeds from borrowings
under a long-term credit facility and the issuance of common stock.
At December 31, 1998, we had cash and cash equivalents of $2.7 million. We
also had a revolving bank line of credit under which we may borrow up to the
lesser of 70% of eligible accounts receivable or $1.3 million. There were no
borrowings under this line of credit at December 31, 1998. Any borrowings under
27
<PAGE>
this line of credit would bear interest at prime plus 1.0% (8.75% at December
31, 1998) and would be collateralized by accounts receivable. The line of
credit requires us to comply with certain financial covenants.
We had no material commitments for capital expenditures at December 31,
1998. As of that date, we had total minimum lease obligations of $2.1 million
under certain noncancellable operating leases. Also, as a result of a December
1998 agreement with Yahoo!, we are obligated to made aggregate payments of $2.2
million to Yahoo! over the 13-month term of the agreement. We believe that the
net proceeds from this offering, together with the availability of additional
funds under our line of credit will be sufficient to meet our cash requirements
for the next 12 months. Depending on our rate of growth and cash requirements,
we may require additional equity or debt financing to meet future working
capital or capital expenditure needs. There can be no assurance that such
additional financing will be available or, if available, that such financing
can be obtained on terms satisfactory to us.
Impact of Year 2000
The year 2000 issue is the potential for system and processing failures of
date-related data and is the result of the computer-controlled systems using
two digits rather than four to define the applicable year. For example,
computer programs that have time-sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000. This could result in system
failure or miscalculations causing disruptions of operations, including, among
other things, a temporary inability to process transactions, send invoices or
engage in similar normal business activities.
We may be affected by Year 2000 issues related to non-compliant information
technology ("IT") systems or non-IT systems operated by us or by third parties.
We have not completed our assessment of our internal and external (third-party)
IT systems and non-IT systems. At this point in our assessment, we believe we
will require upgrades, or patches, from certain vendors, including Microsoft,
that have provided certain software that we have included in our Web site. We
expect to receive their upgrades later in 1999. In addition, we believe that we
will be required to modify certain software on our Web site that we developed.
We intend to include these modifications in various upgrades to our Web site
throughout 1999. We do not have a contingency plan. The costs associated with
remediating our noncompliant IT systems and non-IT systems have not been
material to date and we do not anticipate that such costs will be material in
the future, although we cannot assure you that such costs will not be material.
To the extent that our assessment is finalized without identifying any
material noncompliant IT systems operated by us or by third parties, the most
reasonably likely worst case Year 2000 scenario is a systematic failure beyond
our control, such as a prolonged telecommunications or electrical failure. Such
a failure could prevent us from operating our business, prevent users from
accessing our Web site, or change the behavior of advertising consumers or
persons accessing our Web site. We believe that the primary business risks, in
the event of such failure, would include:
. lost advertising revenues;
. increased operating costs;
. loss of consumers or persons accessing our Web site; and
. claims of mismanagement, misinterpretation or breach of contract.
Any of these risks could have a material adverse effect on our business,
results of operations and financial condition.
28
<PAGE>
BUSINESS
This prospectus contains forward-looking statements that involve risks and
uncertainties. Our 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."
Autoweb.com is a leading consumer automotive Internet service. Our Web site
and services centralize an extensive collection of automotive-related commerce,
content and community offerings to assist consumers in researching, evaluating
and buying new and pre-owned vehicles. In addition, we offer services that
enable consumers to conveniently purchase automotive-related products and
services such as insurance, financing and extended warranty protection. Our Web
site and purchase process are designed to provide consumers with dedicated
customer care, choice and the means to execute their buying decisions through a
process that is faster, better and easier than traditional alternatives. We
currently have a network of approximately 3,900 member dealers (where each
franchise location for a particular vehicle manufacturer is defined as a member
dealer) including approximately 1,200 pre-owned vehicle locations. In the
fourth quarter of 1998, we delivered approximately 250,000 vehicle and related
purchase inquiries to member dealers and automotive-related vendors. We have
developed a scalable business model characterized by multiple revenue sources
and a leveragable online infrastructure.
Background
The Market for Vehicles and Related Products and Services
The global proliferation of cars and light trucks ("vehicles") and related
products and services has served to make the automotive industry one of the
largest in the world. The Polk Company, an automotive research firm, estimates
that there were over 192 million registered vehicles in the United States as of
December 31, 1997. CNW Marketing/Research, a market research firm, estimates
that approximately 15 million new and 41 million pre-owned vehicles were sold
in the United States in 1997, translating into a market that exceeded $670
billion. A large market also exists for automotive-related products and
services, such as insurance, financing, parts, repairs and accessories.
According to A.M. Best, an insurance research firm, total automobile insurance
premiums were expected to exceed $136 billion in 1998. In addition, the U.S.
Federal Reserve Board estimates that the automotive consumer credit market
totaled approximately $440 billion as of November 1998. Total sales for
automotive parts, repairs, and accessories, as forecasted by the Automotive
Parts and Accessories Association, are expected to exceed $156 billion in 1998.
Combining these market size estimates, the total United States market for
vehicles and automotive-related products and services exceeds $1 trillion.
Despite its size and impact, the new and pre-owned vehicle market suffers
from an aging distribution infrastructure that is fragmented and inefficient
for both consumers and dealers. Automotive News estimates that there are
approximately 22,000 franchised dealerships (excluding independent dealerships)
in the United States, representing about 49,000 franchises (a dealership
selling Ford, Lincoln and Mercury vehicles would have three franchises). The
unit sales of the top ten dealership groups, as reported by Automotive News,
accounted for only about 4% of the approximately 31 million new and pre-owned
vehicles that CNW Marketing/Research reports as having been sold by franchised
dealerships in 1997. The recent consolidation of some major dealership groups
has done little to reduce the considerable fragmentation in the industry, and
no national dealer brand has emerged. We believe that a combination of the
highly competitive dealership landscape and a salesperson compensation system
based on sales dollar volume rather than sales unit volume has contributed to
an unpleasant buying experience for consumers and a decline in profit margins
for dealers. As a result, consumers often view dealerships as pressure-filled
environments where they must make significant purchase decisions with
incomplete information. Further, when purchasing pre-owned vehicles as compared
to new vehicles, consumers are confronted with a vehicle that has a unique
price, set of accessories, mileage, history of use and maintenance record. The
higher profit contribution to the dealer from the sale of a pre-owned vehicle,
as compared to that of a new vehicle, further increases the pressure for the
dealer to complete a sale and often
29
<PAGE>
makes the process more difficult for the consumer. In addition, consumers
historically have not had access to competitively-priced automotive-related
products and services in a single centralized location.
Growth of the Internet and E-Commerce
The Internet has emerged as a global medium for communication, content
delivery and e-commerce and Internet use continues to increase rapidly.
International Data Corporation ("IDC") estimates that the number of users
worldwide with access to the Internet will increase from 40 million in 1998 to
over 319 million by 2002, a compound annual growth rate of approximately 68%.
As consumers have become increasingly adept at utilizing the Internet for
evaluating and purchasing a wide variety of goods, the dollar volume of online
commerce transactions has risen dramatically. IDC estimates that the volume of
goods and services purchased over the Internet will increase from $32 billion
in 1998 to $425 billion in 2002, representing a compound annual growth rate in
excess of 90%.
In addition to providing the basic medium for e-commerce, the Internet
offers online retailers the opportunity to market and respond to consumer
preferences and behavior directly. Jupiter Communications, Inc. estimates that
the dollar volume of online advertising will increase from $1.9 billion in 1998
to $7.7 billion in 2002. Because the Internet offers "point-to-point"
communications, online advertisers are able to present messages to specific,
predetermined audiences and interact immediately with these targeted
individuals. In this way, online retailers can target, measure and manage a
broad consumer base rapidly and economically, while establishing and
maintaining direct consumer relationships more easily. Consumers benefit from
improved overall convenience, better information regarding available products
and services, enhanced sales interactions and, often, more competitive pricing.
The Online Automotive Opportunity
We believe that, like other industries, vehicle manufacturers, dealers and
vendors of related products and services increasingly desire to use the
Internet to improve consumer interaction, information management and sales.
According to JD Power and Associates, 16% of new vehicle purchasers used the
Internet to assist with their purchases in 1997 and this figure is expected to
increase to approximately 50% by 2000. However, to avail themselves of the
Internet opportunity, dealers, vehicle manufacturers and related vendors must
address the need for sophisticated Web site development and maintenance,
increased demand for electronic consumer interaction and support, and
integration of their Web sites with existing internal systems. For consumers,
while the Internet substantially increases the amount of information available
for researching and evaluating automotive purchase decisions, this information
is often not aggregated at a central, organized source. In addition, a large
portion of this information is located on automotive manufacturers' own Web
sites, which we believe frequently do not provide complete or unbiased content.
The Autoweb.com Solution
Our Web site and services centralize an extensive collection of automotive-
related commerce, content and community offerings to assist consumers in
researching, evaluating and buying new and pre-owned vehicles. In addition, we
offer services that enable consumers to conveniently purchase automotive-
related products and services such as insurance, financing and extended
warranty protection. Our Customer Care Center acts as an independent
intermediary that provides personal attention to consumers, as they request it,
throughout the vehicle purchasing experience. Our Web site and purchase process
are designed to provide consumers with centralized information, choice and the
means to execute their buying decisions through a process that is faster,
better and easier than traditional alternatives. We currently have a network of
approximately 3,900 member dealers (where each franchise location for a
particular vehicle manufacturer is defined as a member dealer) including
approximately 1,200 pre-owned vehicle locations. In the fourth quarter of 1998,
we delivered approximately 250,000 vehicle and related purchase inquiries to
member dealers and automotive-related vendors. According to our surveys in the
fourth quarter of 1998, approximately two-thirds of all consumers who submitted
a purchase inquiry through our Web site purchased a vehicle from one of our
member dealers or elsewhere within one month.
30
<PAGE>
Benefits to Consumers
Convenient Purchase Process. Our Web site and purchase process provide an
environment that can significantly reduce the traditional friction between
dealers and consumers. Consumers can conveniently select new or pre-owned
vehicles in the privacy of their home or office. Our service allows consumers
to submit each purchase inquiry to up to two member dealers in a geographic
area. Member dealers have agreed to respond to consumers within 24 hours of
receiving purchase inquiries. We have designed our process to insulate
consumers from unpleasant price negotiations by requiring our member dealers to
provide a competitive, firm, upfront price to consumers. We certify and support
member dealers in order to provide a better experience to consumers.
Informed Purchase Decision. Consumers obtain online access to a wide range
of comprehensive, up-to-date information about vehicle models, options and
dealer costs at no charge. Information such as vehicle specifications, Kelley
Blue Book pre-owned vehicle values and reviews from New Car Test Drive are
aggregated in a central location, providing consumers with an objective,
convenient means to make an informed purchase decision.
Availability of Automotive-Related Products and Services. Traditionally,
consumers have been dependent on dealers and third-party vendors for
automotive-related products and services, such as financing, insurance,
extended warranties and repair services. Our Web site offers consumers
convenient access to a wide range of these services before and after the
purchase of a vehicle. We believe that providing a variety of service offerings
in a single location improves a consumer's ability to make an automotive
purchase decision and enhances consumers' satisfaction with our service.
Dedicated Customer Care Center. The Autoweb.com Customer Care Center acts as
an independent intermediary providing personal attention to consumers, as they
request it, throughout the purchase process. We monitor the purchase process to
ensure that consumers receive timely and appropriate responses from our member
dealers and other automotive-related vendors. We believe this ongoing
involvement in the process substantially increases consumer satisfaction.
Online Automotive-Related Community. Our Web site serves as an online
community where consumers can come to inquire, participate in message-board
discussions and learn about a wide variety of topics related to the automotive
world.
Benefits to Member Dealers
Performance-Based Program. Autoweb.com has designed a "pay for performance"
model to provide member dealers with a cost-effective pricing structure for
receiving consumer purchase inquiries. Unlike subscription models, where
dealers pay a flat monthly fee regardless of performance, we charge member
dealers only when we provide a qualified purchase inquiry to them. Our program
also is non-exclusive and therefore does not prevent member dealers from
generating sales leads through other online sources. In addition, our program
permits member dealers to select the geographic radius from which they receive
purchase inquiries. This allows member dealers to customize the geographic area
from which they receive purchase inquiries, based on their evaluation of which
purchase inquiries will be most likely to result in vehicle sales.
Efficient Marketing and Sales Process. Autoweb.com provides member dealers
with incremental revenues, and, according to our surveys, a significant
reduction in their average advertising cost per vehicle. By joining our member
dealer network, member dealers gain access to a large number of purchase-minded
consumers who have, in many instances, already chosen the vehicle they wish to
purchase. As a result, member dealers can complete the sales process more
quickly and efficiently, potentially enabling them over time to reduce their
labor and overhead costs.
Improved Consumer Interaction. Autoweb.com's Dealer Development and Support
Group instructs and supports member dealers regarding the Autoweb.com purchase
process. Our certification program is designed
31
<PAGE>
to enhance customer satisfaction and increase member dealer sales. In
addition, the Autoweb.com Customer Care Center serves as an extension of each
member dealer's sales process, helping to facilitate consumer satisfaction by
monitoring the progress of consumer purchase inquiries and facilitating timely
and appropriate responses. By enhancing the consumer buying experience, we
believe that we also help member dealers generate ongoing consumer loyalty.
Competitive Advantage in Local Marketplace. Autoweb.com member dealers
generally have limited exclusive territories. Our program allows member
dealers to exclude up to three franchises of the same make within a specified
radius, up to a maximum of 50 miles. This limited exclusive territory offers
member dealers a competitive advantage in those areas by enabling them to
exclude their most significant local competition while still providing
consumer choice.
Benefits to Others
Vehicle Manufacturers. Autoweb.com provides vehicle manufacturers with
access to a large number of purchase-minded consumers from an attractive
demographic base. Using the targeted nature of Internet advertising,
manufacturers can advertise their brand image effectively by targeting
Autoweb.com consumers. Furthermore, vehicle manufacturers can deliver
advertisements to consumers who are researching competitive vehicles, thereby
increasing the likelihood of influencing their purchase decisions.
Automotive-Related Vendors. We provide automotive-related vendors with
access to a large number of purchase-minded consumers in the process of
researching vehicles and automotive-related products and services. In many
instances, consumers seeking to purchase a vehicle are also in need of
insurance, financing, extended warranty protection, a roadside assistance
program or other related services. Consumers seeking automotive information
are also often interested in or specifically researching competitive providers
for their current automotive-related services. Automotive-related vendors can
advertise to these consumers or integrate their product with our Web site.
This provides the vendor with a competitive advantage and an opportunity to
gain market share in the online automotive services market.
Strategy
Our objective is to be the leading consumer automotive Internet service.
Key elements of our strategy include:
Leverage Operating Efficiencies. We have developed a scalable business
model characterized by multiple revenue sources and a leveragable online
infrastructure. Unlike a subscription-based model, our performance-based
pricing model results in increased revenue as more consumers make purchase
inquiries. Further, we intend to expand our range of service offerings to
increase our ability to generate additional revenue per visitor. We believe
our Internet-based model can support a significant increase in visitor traffic
without a corresponding increase in operating expenses. We intend to leverage
these operating efficiencies by increasing visitor traffic though continued
cost-effective advertising.
Increase Brand Awareness. We believe that building awareness of the
Autoweb.com brand is critical in our effort to be the leading consumer
automotive Internet service. To date, we have focused our consumer marketing
efforts primarily on online advertising through selected high traffic Web
sites. We currently have marketing arrangements with America Online, Netscape
Communications, Yahoo! and CNET's Search.com. Our strategy is to increase our
brand awareness further through continued online advertising, as well as
through advertising in traditional media, such as newspaper, radio and
television, ongoing public relations efforts and expanded affiliate
arrangements.
Increase Consumer Traffic. As part of our efforts to increase our consumer
traffic, we intend to continue to focus our online advertising on a variety of
high-traffic and specialty Web sites. In addition, in order to
32
<PAGE>
expand our reach on the Internet, we launched the Autoweb.com Affiliates
Program in the second quarter of 1998. Under this program, affiliated Web sites
are paid a fee to provide us with purchase inquiries. We currently have
revenue-sharing arrangements with companies such as Ameritech, America Online's
Digital City, Car and Driver and USA Today as a result of purchase inquiries
submitted by consumers through links between our Web site and the other
company's Web site. We intend to expand our revenue-sharing and affiliate
programs with other selected Web sites to drive additional consumer traffic to
our Web site.
Enhance and Broaden Content Offerings. We work with leading automotive
content providers, such as New Car Test Drive, Pep Boys and Kelley Blue Book,
to provide consumers with expert advice and information on our Web site. We
intend to improve the presentation and integration of our content and deploy
new versions of our Web site, thereby further establishing ourselves as a
comprehensive independent destination for automotive information and
encouraging repeat consumer visits. Additionally, we intend to broaden the
resources available to consumers by developing relationships with other leading
automotive content providers.
Deliver Additional Service Offerings. We intend to leverage our brand name
and online infrastructure by expanding the range of services that we provide to
consumers, member dealers and other third-party vendors. For example, we
anticipate offering consumers additional service offerings such as service
reminders, service appointment scheduling and expanded financing options. We
also intend to provide manufacturers with additional services such as general
consumer preference and behavior information derived from our consumer
database.
Expand and Enhance Member Dealer Network. We believe that expanding the size
and enhancing the quality of our member dealer network is critical to our
success. Our objective is to have at least one member dealer of each make
within a reasonable driving distance of every consumer in the United States,
with most consumers given a choice of several dealers within a specified
geography. We currently are offering our service in Canada and intend to expand
our Canadian member dealer network. Further, we intend to expand our member
dealer certification programs to continue to improve the quality of the
consumer service that they offer. For example, our Dealer Development and
Support Group evaluates member dealers, identifies "best practices" among them
and disseminates those practices across our entire member dealer network.
Encourage Loyalty Through Our Online Community. We believe that, by creating
an online automotive community that is attractive to consumers, we can
encourage repeat consumer visits, expand traffic through word-of-mouth
referrals and provide a differentiated competitive advantage to our member
dealers and automotive-related vendors. Our AutoTalk message board service
provides a forum for automobile enthusiasts to discuss topics of mutual
interest. In addition, we recently introduced our Blow Your Horn! service,
which provides consumers with the opportunity to respond to online surveys. We
intend to expand our community offerings through internal development as well
as strategic relationships.
33
<PAGE>
Services
We currently offer the following services on our Web site.
<TABLE>
<CAPTION>
CONSUMER SERVICES
- -------------------------------------------------------------------------------
Name of Service Description
- -------------------------------------------------------------------------------
<C> <S>
Commerce
- -------------------------------------------------------------------------------
Autoweb.com New Vehicle Program . Buy a new vehicle from our
network of certified member
dealers
Autoweb.com Pre-Owned Vehicle Program . Buy a vehicle listed in our large
database of pre-owned inventory,
either from one of our member
dealers or from another consumer
. List a pre-owned vehicle for sale
Autoweb.com Vehicle Insurance . Obtain insurance quotes from
State Farm Insurance
Autoweb.com Vehicle Financing . Arrange to finance your vehicle
Autoweb.com Extended Warranties . Purchase a Warranty Gold extended
warranty
Autoweb.com Accessories . Obtain accessories from
Autoaccessory.com
Autoweb.com Roadside Rescue . Join our emergency assistance,
towing and trip planning program
Autoweb.com Credit Reports . Purchase a personal credit report
- -------------------------------------------------------------------------------
Content
- -------------------------------------------------------------------------------
Autoweb.com New Vehicle Showroom . Obtain new vehicle specifications
(MSRP and invoice pricing,
photographs, performance,
interior comfort, safety,
warranties, engine, dimensions,
wheel and suspension)
Autoweb.com Pre-Owned Vehicle Prices . Obtain Kelley Blue Book pre-owned
vehicle values
Autoweb.com Test Drive Reviews . Obtain reviews from New Car Test
Drive
Autoweb.com Tips & Hints . Obtain automotive tips and hints
provided by Pep Boys
Autoweb.com Recalls & Service Bulletins . Obtain engine recall information
and technical service bulletins
Autoweb.com Member Dealer Pages . Obtain directions, contact
information and operating hours
Autoweb.com Loan Calculator . Calculate your loan payments
- -------------------------------------------------------------------------------
Community
- -------------------------------------------------------------------------------
Autoweb.com AutoTalk . Consumer automotive message board
discussion forums
Autoweb.com Blow Your Horn! . Cast your vote on automotive-
related issues
Autoweb.com Customer Care Center . Interact with our Customer Care
Center specialists
Autoweb.com Auto Notify . Receive automatic notification
when specified pre-owned vehicle
is located
Autoweb.com Canada . Visit our Canadian version with
member dealers, price and
specifications exclusive to
Canada
</TABLE>
34
<PAGE>
Commerce Services
New Vehicle Program. Consumers wishing to purchase a new vehicle first
complete a purchase inquiry through our Web site. They specify the desired
vehicle make, model and options on the purchase inquiry and provide their
contact information, including name, telephone number and e-mail address.
Member dealers agree to respond to consumers within 24 hours of receipt of a
purchase inquiry. The member dealer representatives explain the Autoweb.com
purchase process for buying a vehicle and answer consumers' questions about the
vehicle or the Autoweb.com purchase process. In addition, our contracts require
member dealers to designate a contact person and to give a competitive, firm
quote to consumers during their initial communication. If the terms are
acceptable, consumers can visit the showroom to finalize the purchase or member
dealers, in some cases, can deliver the vehicle directly to consumers and
complete the necessary documentation upon delivery. The Autoweb.com purchase
process is provided to consumers without charge; only member dealers pay a fee.
To monitor the process and ensure that our member dealers provide consumers
with high quality customer service, we created the Autoweb.com Customer Care
Center. The Autoweb.com Customer Care Center serves as an extension of each
member dealer's sales process, improving consumer satisfaction by monitoring
the progress of consumer purchase inquiries and facilitating timely and
appropriate responses. On the day that a purchase inquiry is submitted, the
Autoweb.com Customer Care Center contacts the consumer by e-mail to (1) thank
the consumer for using Autoweb.com; (2) assure the consumer that the purchase
inquiry has been forwarded to the chosen member dealer(s); (3) summarize the
Autoweb.com purchase process; (4) provide the name of the designated contact
person(s) at the member dealer(s); and (5) provide an e-mail address at
Autoweb.com for the submission of questions and concerns. We contact the
consumer again within the next 48 hours to determine if the process is being
followed. Two weeks after each purchase inquiry is submitted, the Autoweb.com
Customer Care Center sends the consumer an electronic survey concerning the
process and the Autoweb.com experience. The results of this survey are
summarized, evaluated by our management and made available to member dealers to
monitor their success.
We allow member dealers to create limited exclusive territories by excluding
up to three franchises of the same make within their selected radius, up to 50
miles. We believe the exclusive territories are sufficiently limited to ensure
that, once the member dealer network is complete, consumers will always be
within a reasonable driving distance of at least one Autoweb.com member dealer.
Prospective member dealers are informed of our consumers' value
expectations, as well as our sales standards and certification process. The
Autoweb.com Dealer Development and Support Group educates member dealers on the
Autoweb.com purchase program. For example, our member dealer certification team
evaluates member dealers, identifies "best practices" among them and
disseminates those practices across our entire member dealer network. We intend
to expand the Autoweb.com Dealer Development and Support Group to continue to
improve the quality of services offered by our member dealers to our consumers.
We believe this program improves consumer satisfaction by making the vehicle
buying process faster, better and easier and improves member dealer
satisfaction by increasing their closing rate and consumer loyalty. We use
sales standards and sales satisfaction metrics from our electronic surveys to
monitor our member dealers and assure high quality customer service. Member
dealers that consistently do not satisfy the agreed-upon standards are
terminated if additional training proves unsuccessful.
In February 1998, we introduced a new "pay for performance" pricing model.
Under this pricing model, member dealers pay a fee for each qualified purchase
inquiry that includes a specific desired vehicle, as well as a valid name and
phone number or e-mail address. In addition, member dealers identify a radius,
generally between 15 to 50 miles as measured between the centers of the member
dealer's and the consumer's zip codes, from which to receive inquiries. In this
way, we believe member dealers can accurately target its customers and pay only
for what they deem to be qualified, high potential leads.
35
<PAGE>
Prior to the introduction of the "pay for performance" pricing model, we
used a fixed-rate, subscription-based model. We believe this model proved
unsuccessful for the following reasons:
. The number of purchase inquiries to each dealer varied considerably and
thus did not consistently correlate with the cost of our service to the
member dealer. This resulted in member dealers in areas that received
comparatively few purchase inquiries, such as member dealers in rural
areas or areas in which use of the Internet was less widespread,
incurring costs equal to member dealers that received a far greater
number of purchase inquiries.
. Because the cost of our service was fixed regardless of the number of
delivered purchase inquiries, many member dealers responded only to the
purchase inquiries that appeared to be the most likely to result in an
eventual sale. Under the "pay for performance" pricing model, in which
the member dealer must pay for each qualified purchase inquiry received,
the member dealer has an incentive to perform in accordance with the
Autoweb.com purchase process and respond to each purchase inquiry.
Pre-Owned Vehicle Program. Consumers wishing to purchase a pre-owned vehicle
from Autoweb.com's member dealers or private sellers initiate a process similar
to that for purchasing new vehicles. However, whereas the same new vehicle can
be obtained from numerous dealers, pre-owned vehicles have unique colors,
options, mileage and maintenance records. Consumers search our pre-owned
vehicle database by specifying mileage, distance to a member dealer and make,
model and price of vehicle. Consumers then automatically receive the search
results indicating whether the vehicle is available through a member dealer or
private seller, and a detailed description of the pre-owned vehicle, including
mileage, equipment and, if available, a photograph. If a consumer's search is
successful, the consumer may complete a purchase inquiry that is subsequently
forwarded by e-mail or fax to the appropriate member dealer or private seller.
If the type of vehicle a consumer desires is not available at the time of the
request, the consumer can specify the make, model and age of the vehicle they
are seeking and request notification by e-mail when a vehicle matching the
requirements of the purchase inquiry becomes available. Upon receiving
notification, a consumer can then complete a purchase inquiry. Our Customer
Care Center also supports consumers in the pre-owned vehicle buying process.
Member dealers participating in the Pre-Owned Vehicle Program are bound to
the same process and customer service standards as member dealers in the
Autoweb.com New Vehicle Program. Unlike the New Vehicle Program, however, we do
not allow member dealers to exclude other dealers. We believe that each pre-
owned vehicle is unique, and, as a result, exclusive territories unduly
restrict consumer selection without a corresponding advantage to the member
dealers.
The Pre-Owned Vehicle Program utilizes the same "pay for performance"
pricing model as the New Vehicle Program, whereby member dealers pay a fee for
each qualified purchase inquiry. Typically, however, member dealers specify a
greater radius from which to receive inquiries about pre-owned vehicles than
they do for new vehicles, due to the unique nature of each pre-owned vehicle.
Our Pre-Owned Vehicle Program enables private sellers, for a fee, to list their
pre-owned vehicles by putting a description and optional photograph in our
database of pre-owned vehicles. If the private seller is dissatisfied with the
service, we will refund the fee.
Vehicle Insurance. We believe the sale of vehicle insurance is an important
extension to our vehicle purchase process. State Farm has the exclusive right
to market their insurance services and provide consumers with insurance quotes
on our Web site until June 1999.
Vehicle Financing. A natural extension of our vehicle purchase service is to
aid consumers in obtaining vehicle financing, regardless of their credit
profiles. To provide a comprehensive financing service offering to our
consumers, we have entered into an agreement under which State Farm Bank will
offer prime and sub-prime vehicle financing to consumers in the United States
on an exclusive basis through January 2000.
Extended Warranties. A new or pre-owned vehicle buyer may purchase an
extended warranty for the vehicle from Warranty Gold. Following an inquiry, the
consumer receives an immediate online quote.
36
<PAGE>
Advertising. Advertisers can purchase targeted banner advertising offering
automotive products and services related to the consumers' activities on our
Web site. In particular, using the interactive nature of online advertising, we
can reach this highly targeted audience at the time manufacturers most want to
promote, influence and maintain brand image and awareness.
Other. We provide consumers with the opportunity to purchase Autoweb.com
Roadside Rescue through our agreement with Continental Car Club, the largest
supplier of roadside assistance to dealers and lenders in the United States. We
intend to expand existing services and include additional automotive-related
services in order to provide consumers with a single online source to meet all
of their automotive needs. Planned services include a service to facilitate the
scheduling of vehicle service appointments, a personal valet system that
provides an electronic notification or reminder to vehicle owners of important
vehicle-ownership milestones and dates, and a new parts and improved
accessories service to bring additional convenience to consumers.
Content Services
Our Web site's New Vehicle Showroom, in addition to offering photographs of
listed vehicles, provides consumers with comprehensive new vehicle
specifications, including MSRP and invoice pricing, performance, interior
comfort, safety, warranties, engine, dimensions and wheel and suspension
information. Our Web site also contains supplementary expert advice and
information from leading automotive content providers, such as Kelley Blue
Book, New Car Test Drive and Pep Boys. In addition, we provide recall
information from 1963 to the present as well as a loan calculator to enable
consumers to calculate their potential loan payments. We provide consumers with
directions to our member dealers and list their contact information and hours
of information.
Community Services
We believe that by creating a compelling online automotive community, we can
encourage repeat consumer visits, expand traffic through word-of-mouth
referrals and provide a competitive advantage to our member dealers, vehicle
manufacturers and service vendors. We believe that we are the only online
vehicle purchasing service that provides a forum for automobile enthusiasts to
discuss topics of mutual interest. This forum, AutoTalk, is provided to
consumers at no charge. Our Web site also contains a polling feature called
Blow Your Horn! that enables visitors to respond to online questions and view
survey results and comments. We believe that AutoTalk and Blow Your Horn! could
become popular places to advertise goods and services. We intend to add an e-
mail based service to remind consumers of license renewal dates, smog test
appointments and other service requirements. We also intend to create
"membership" benefits that will motivate consumers to return to our Web site.
Sales
Sales to Dealers. We believe that the size and quality of our member dealer
network is critical to our success. Our sales force seeks to ensure that our
member dealer network provides sufficient coverage such that consumers are
always within a reasonable driving distance of at least one member dealer. Our
regional specialists analyze purchase inquiries from areas not currently
covered by our member dealer network and target dealers within these areas to
join our program. Dealers are chosen based on their ability to meet this
unsatisfied demand and their agreement to adhere to the Autoweb.com purchase
process. Regional Sales Managers are compensated based on building successful,
long-term dealer partnerships. We offer member dealers a source of incremental
sales and also ongoing information to increase future sales. We believe this is
critical to dealers faced with the prospect of unprecedented industry change,
and greatly increases our value to these dealers. The activities of our sales
force are primarily conducted over the telephone from our headquarters in Santa
Clara, California. The same sales force is responsible for both the new and
used vehicle programs, since our pre-owned vehicle program is also primarily
targeted to franchised dealers, as opposed to independent dealers.
Sales to Vehicle Manufacturers and Automotive-Related Vendors. The
Autoweb.com Business Development Group is responsible for expanding our
commerce services in the consumer automotive and related
37
<PAGE>
markets. Vendors are selected based on their ability to provide quality
services online that enhance our value to consumers. The Autoweb.com Business
Development Group is focused on expanding existing categories horizontally and
adding new valuable consumer vertical categories.
Sales to Advertisers. Our advertising sales effort is primarily targeted to
vehicle manufacturers and automotive-related mass market consumer vendors.
Campaign specifications are typically negotiated with the advertising agency or
directly with the manufacturer or automotive-related vendor.
Marketing
Our marketing strategy includes the following key points:
Build Our Brand. To date, we have focused almost exclusively on online
promotions, press releases to a broad range of consumer and trade publications,
and consumer promotion events to increase consumer traffic to our Web site. In
addition, our regular advertising in the leading automotive trade publications
has helped to build dealer brand awareness. However, over the longer term, we
believe that we will need to increase the use of traditional broad-based media
such as television, radio and newspapers in order to build our brand loyalty
significantly among consumers, dealers, advertisers and automotive-related
vendors.
Spend Efficiently on Advertising. The very broad consumer interest in the
automotive category allows us to use a versatile advertising strategy. As a
result, we have been able to build our brand effectively through the efficient
use of online advertising, including high profile, high traffic Web sites such
as America Online, Yahoo!, Netscape Communications and CNET's Search.com.
Increase Revenue Per Visitor. To increase revenue per visitor, we must
enhance and expand the content and increase the services available on our Web
site. We intend to add products and services to address more steps in the car
ownership cycle.
Develop Strategic Relationships. In addition to our advertisements, we have
created revenue-sharing relationships with brand leaders such as Ameritech, Car
and Driver, America Online's Digital City and USA Today. We intend to continue
to develop strategic relationships that will provide not only brand exposure,
but also valuable content for our Web site.
Expand the Autoweb.com Affiliates Program. The Autoweb.com Affiliates
Program allows other Web sites to link with the Autoweb.com Web site. The
affiliates receive a commission for each new and pre-owned vehicle purchase
inquiry or classified ad delivered. This program generates brand awareness and
revenue for very low relative cost. We intend to expand this program in the
future.
Support Services
Our Dealer Development and Support Group certifies that our member dealers
adopt the Autoweb.com purchase process and maintains communication with each
member dealer contact in order to seek to ensure a convenient, efficient
purchasing process for our consumers and member dealers. We make available
detailed monthly activity summaries for each member dealer which include the
total number of purchase inquiries and the results of consumer surveys. Our
Dealer Development and Support Group develops and presents formal training and
regional workshops, and produces and disseminates training tapes and regular
updates to our training manuals.
Technology
We believe that we have built a robust, scalable user interface and
transaction processing system that is designed around industry standard
architectures and internally-developed proprietary software. Our system
maintains operational data records regarding franchised dealers, including
billing information, pre-owned
38
<PAGE>
vehicle listings and new and pre-owned vehicle purchase inquiries. Our system
also handles all other aspects of the new and pre-owned vehicle buying process,
including submitting e-mail and facsimile copies to member dealers and
submitting insurance and finance inquiries, as well as other inquiries and
information to various vendors. Furthermore, the system sends a daily list that
matches pre-owned vehicles to those registered.
We have an online system available for member dealers, advertisers and
vendors to access relevant information. For example, member dealers can access
Autoweb.com's extranet to manage their pre-owned car inventory by adding,
modifying or updating their listings, as well as uploading pictures of pre-
owned cars. Member dealers can view their customer information and generate
reports based on their customers' survey responses. Autoweb.com affiliates can
also use our extranet to view activity summaries of their account.
The Autoweb.com service provides 24 hour a day, seven day a week
availability, subject to occasional short maintenance periods and power
outages. Our system hardware is hosted at our facility in Santa Clara,
California, which is equipped with redundant communications lines and emergency
power backup. Our network is protected by a firewall by Checkpoint. Our system
consists of Dell and Micron database servers running Microsoft SQL Server and a
suite of Pentium-based Microsoft Internet servers running on the Windows NT
operating system. Our Internet servers also utilize VeriSign Inc. digital
certificates for authentication. We use a load balancing systems and our own
redundant servers for our banner and delivery. We use Allaire Cold Fusion for
most of our Web application development and delivery.
We incurred $57,000, $325,000 and $586,000 in product development expenses
in 1996, 1997 and 1998, respectively. We anticipate that we will increase
resources for product development in the future as we add new features and
functionality to the Autoweb.com Web site.
Competition
The market for the purchase of vehicles and vehicle-related products and
services is intensely competitive, and we expect competition to increase
significantly, particularly on the Internet. Barriers to entry on the Internet
are relatively low, and we may face competitive pressures from numerous
companies. Currently, we believe our most significant competitors are
Microsoft's CarPoint and Autobytel.com. There are also a number of Web sites
that offer vehicles, particularly vehicle manufacturers' own Web sites and
sites for electronic classifieds, as well as vehicle-related products and
services. In addition, there are numerous Web sites that offer vehicle
information and other content, as well as community offerings, directly to the
vehicle buying consumer generally or to targeted audiences such as car
collectors. We could face competition in the future from vehicle manufacturers,
large dealer groups or traditional media companies, such as newspaper,
television and radio companies, many of which currently operate a Web site. In
addition to direct competitors, we also compete indirectly with vehicle
brokerage firms, discount warehouse clubs and automobile clubs. Several auction
Web sites have also recently announced their intention to auction vehicles on
the Internet.
We believe that the principal competitive factors in attracting consumers to
our Web site are:
. a positive vehicle purchasing experience for the consumer;
. brand awareness and loyalty;
. breadth of selections;
. ease of use;
. having adequate geographic coverage of member dealers;
. Web site functionality, responsiveness and information; and
. quality of content, other service offerings and customer service.
We believe that the principal competitive factors in attracting member
dealers, other automotive-related vendors and advertisers include:
. the volume of our Web site traffic;
. our brand awareness and loyalty;
39
<PAGE>
. the demographics of our consumers;
. the cost effectiveness of purchase inquiries we deliver; and
. the cost effectiveness of advertising on our Web site.
Many of our existing and potential competitors have longer operating
histories in the Internet market, greater name recognition, larger consumer
bases and significantly greater financial, technical and marketing resources
than we do. These competitors may be able to undertake more extensive marketing
campaigns for their brand, products and services, adopt more aggressive pricing
policies or make more attractive offers to potential employees. Furthermore,
our existing and potential competitors may develop offerings that equal or
exceed the quality of our offerings, or that achieve greater market acceptance,
than ours. We cannot assure you that we will be able to compete successfully
against our current or future competitors or that competition will not have a
material adverse effect on our business, results of operations and financial
condition.
Additionally, the e-commerce market is new and rapidly evolving, and we
expect competition among e-commerce companies to increase significantly. Our
ability to generate revenues from any of our present or future automotive-
related vendors may be adversely affected by competition among any such vendor
and other Internet retailers.
We cannot assure you that Web sites maintained by our existing and potential
competitors will not be perceived by consumers, vehicle dealers, other
potential automotive-related vendors or content providers, or advertisers as
being superior to ours. We also cannot assure you that we will be able to
increase our Web site traffic levels, purchase inquiries and click-throughs or
that competitors will not experience greater growth in these areas than we do.
See "Business--Competition."
Intellectual Property, Proprietary Rights and Licenses
We regard substantial elements of our Web site and underlying technology as
proprietary and attempt to protect them by relying on trademark, service mark,
copyright and trade secret laws, restrictions on disclosure and transferring
title and other methods. We also generally enter into confidentiality
agreements with our employees and consultants and with third parties in
connection with our license agreements. Such confidentiality agreements
generally seek to control access to, and distribution of, our technology,
documentation and other proprietary information. Despite these precautions, it
may be possible for a third party to copy or otherwise obtain and use our
proprietary information without authorization or to develop similar technology
independently. Although we have not conducted any comprehensive searches, we
are aware that the name "Autoweb" is already in use in several regions in the
United States and in Australia. We have not researched the effect of the use of
the name "Autoweb" by other companies on our trademark or the impact of this
use on our ability to obtain the mark in other countries. Further, even if the
mark is available, effective trademark, service mark, copyright and trade
secret protection may not be available in every country in which our services
are distributed or made available through the Internet, and policing
unauthorized use of our proprietary information may be difficult or expensive.
Legal standards relating to the validity, enforceability and scope of
protection of certain proprietary rights in Internet-related businesses are
uncertain and still evolving, and we can give no assurance regarding the future
viability or value of any of our proprietary rights. We also cannot assure you
that the steps that we have taken will prevent misappropriation or infringement
of our proprietary information, which could have a material adverse effect on
our business, results of operations and financial condition.
Litigation may be necessary in the future to enforce our intellectual
property rights, to protect our trade secrets or trademarks or to determine the
validity and scope of the proprietary rights of others. Such litigation might
result in substantial costs and diversion of resources and management
attention. Furthermore, our business activities may infringe upon the
proprietary rights of others and other parties may assert infringement claims
against us, including claims that arise from directly or indirectly providing
hyperlink text links to Web sites
40
<PAGE>
operated by third parties. Moreover, from time to time, we may be subject to
claims of alleged infringement by us or our member dealers of the trademarks,
service marks and other intellectual property rights of third parties. Such
claims and any resultant litigation, should it occur, might subject us to
significant liability for damages, might result in invalidation of our
proprietary rights and, even if not meritorious, could result in substantial
costs and diversion of resources and management attention and have a material
adverse effect on our business, results of operations and financial condition.
We currently license from third parties certain technologies and information
incorporated into our Web site. As we continue to introduce new services that
incorporate new technologies and information, we may be required to license
additional technology and information from others. We cannot assure you that
these third-party technology and information licenses will continue to be
available to us on commercially reasonable terms, if at all. Additionally, we
cannot assure you that the third parties from which we currently license our
technology and information will be able to defend their proprietary rights
successfully against claims of infringement. Any failure to obtain any of these
technology and information licenses could result in delays or reductions in the
introduction of new features, functions or services. It could also adversely
affect the performance of our existing services until equivalent technology or
information can be identified, obtained and integrated. See "Business--
Intellectual Property, Proprietary Rights and Licenses."
Privacy Policy
We believe 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 increase. We have adopted a privacy policy concerning
how we use information about our consumer visitors and the extent to which
others may have access to this information. We do not sell or rent any
personally identifiable information about our consumer visits to any third
party, although we may consider doing so in the future. We do use information
about our consumer visits for internal purposes in order to improve marketing
and promotional efforts, to analyze Web site usage statistically and to improve
content, product offerings and Web site layout.
Government Regulation
There are numerous state laws regarding the sale of vehicles. In addition,
government authorities may take the position that state or federal franchise
laws, vehicle brokerage laws, insurance licensing laws, motor vehicle dealer
laws or related consumer protection or product liability laws apply to aspects
of our business. As we introduce new services and expand our operations to
other countries, we will need to comply with additional licensing and
regulatory requirements.
We believe that neither our relationship with our member dealers nor our
member dealer subscription agreements constitute "franchises" under state or
federal franchise laws and that we are not subject to the coverage of state
motor vehicle dealer licensing laws. However, if our relationship or written
agreement with our member dealers were found to be a "franchise" under federal
or state franchise laws, we could be subjected to other regulations, such as
franchise disclosure, registration requirements and limitations on our ability
to effect changes in our relationships with our member dealers. We also believe
that our service does not qualify as an vehicle brokerage activity and
therefore state broker licensing requirements do not apply to us. In the event
that a state determines that we are acting as a broker, we may be required to
comply with burdensome licensing requirements or terminate our operations in
that state. In each case, our business, results of operations and financial
condition could be materially and adversely affected.
It is unclear how the various states will interpret the existing laws
regarding our existing business or any future changes to our business. In
December 1998, the Texas Department of Transportation notified us that, in
their opinion, our performance-based pricing model is illegal under Texas law.
We currently intend to challenge this decision. However, if we are not
successful in challenging this decision, we not only may have to pay
significant fines, but also will have either to cease doing business in Texas
or to change our pricing model for member dealers in Texas from performance-
based to subscription-based. State regulatory
41
<PAGE>
requirements may also include us within an industry-specific regulatory scheme,
such as the vehicle insurance or vehicle financing industries. In the event
that individual states' regulatory requirements change or additional
requirements are imposed on us, we may be required to modify aspects of our
business in those states in a manner that might undermine the attractiveness of
the Autoweb.com purchase process to consumers, member dealers, automotive-
related vendors or advertisers or require us to terminate operations in that
state, either of which could have a material adverse effect on our business,
results of operations and financial condition.
A number of legislative and regulatory proposals under consideration by
federal, state, local and foreign governmental organizations may lead to laws
or regulations concerning various aspects of the Internet, including, but not
limited to, online content, user privacy, taxation, access charges, liability
for third-party activities and jurisdiction. Additionally, it is uncertain as
to how existing laws will be applied to the Internet. The adoption of new laws
or the application of existing laws may decrease the growth in the use of the
Internet, which could in turn decrease the demand for our services, increase
our cost of doing business or otherwise have a material adverse effect on our
business, results of operations and financial condition.
The tax treatment of the Internet and e-commerce is currently unsettled. A
number of proposals have been made at the federal, state and local level and by
certain foreign governments that could impose taxes on the sale of goods and
services and certain other Internet activities. Recently, the Internet Tax
Information Act was signed into law placing a three-year moratorium on new
state and local taxes on Internet commerce. However, we can not assure you that
future laws imposing taxes or other regulations on commerce over the Internet
would not substantially impair the growth of e-commerce and as a result have a
material adverse effect on our business, results of operations and financial
condition.
Certain local telephone carriers have asserted that the increasing
popularity and use of the Internet has burdened the existing telecommunications
infrastructure, and that many areas with high Internet use have begun to
experience interruptions in telephone service. These carriers have petitioned
the Federal Communications Commission to impose access fees on Internet service
providers and online service providers. If such access fees are imposed, the
costs of communicating on the Internet could increase substantially,
potentially slowing the increasing use of the Internet, which could in turn
decrease demand for our services or increase our cost of doing business, and
thus have a material adverse effect on our business, results of operations and
financial condition. See "Business--Government Regulation."
Employees
As of December 31, 1998, we had 81 employees, including 43 in sales and
marketing, 17 in product development, and 21 in general and administration. We
consider our relations with our employees to be good. We have never had a work
stoppage, and no employees are represented under collective bargaining
agreements. We believe that our future success will depend in part on our
continued ability to attract, integrate, retain and motivate highly qualified
personnel, and upon the continued service of our senior management and key
technical personnel. Other than as described in "Management--Employment and
Severance Agreements," none of these individuals is bound by an employment
agreement. Competition for qualified personnel in our industry and geographical
location is intense, and we can not assure you that we will be successful in
attracting, integrating, retaining and motivating a sufficient number of
qualified personnel to conduct our business in the future.
Facilities
Our principal administrative, marketing and product development facilities
are located in approximately 23,880 square feet of office space in Santa Clara,
California. The lease for this space expires on October 31, 2002 and does not
provide for a renewal option. We believe that this space will be adequate to
meet our needs for the foreseeable future.
42
<PAGE>
MANAGEMENT
Executive Officers and Directors
The following table sets forth certain information regarding our executive
officers and directors.
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
Dean A. DeBiase......... 40 President, Chief Executive Officer and a Director
Farhang Zamani.......... 34 Chairman and Chief Technology Officer
Payam Zamani............ 27 Executive Vice President and a Director
David L. Greene......... 40 Vice President, Sales and Dealer Operations
Samuel M. Hedgpeth III.. 52 Vice President, Finance and Administration and Chief Financial Officer
Michele Hickford........ 40 Vice President, Marketing
Robert M. Shapiro....... 53 Vice President, Business Development and Advertising Sales
Mark N. Diker(1)........ 32 Director
Jay C. Hoag(1).......... 40 Director
Mark R. Ross(1)......... 53 Director
</TABLE>
- ---------------------
(1) Member of the Compensation Committee and the Audit Committee.
Dean A. DeBiase has served as President, Chief Executive Officer and a
director of Autoweb.com since December 1998. From March 1998 to December 1998,
he was the President of Start-Up-Partners, an Internet consulting company,
where he served as interim Chief Executive Officer and director of CatchTV, a
television/Web advertising and programming company. From January 1995 to March
1998, Mr. DeBiase was the President, Chief Executive Officer and a director of
Worldplay Entertainment, an online games and community company, which was a
wholly-owned subsidiary of America Online. From September 1993 to January 1995,
he was Vice President of Marketing of Zenith Electronics and Senior Vice
President of its Network Systems Division. Mr. DeBiase received a Bachelor of
Science degree in marketing from Northern Illinois University and a Masters in
Business Administration degree from the Keller Graduate School of Management.
Farhang Zamani is a co-founder of Autoweb.com and has been a director of
Autoweb.com since October 1995. He has served as Chairman since October 1995
and Chief Technology Officer of Autoweb.com since September 1998. He also
served as President and Chief Executive Officer of Autoweb.com from October
1995 to September 1998. From January 1993 to November 1995, Mr. Zamani held
various positions with Microsoft, including software engineer in the Microsoft
Office Group. Mr. Zamani received a Bachelor of Science degree in computer
science from California State University, Chico.
Payam Zamani is a co-founder of Autoweb.com and has been a director of
Autoweb.com since October 1995. He has served as Executive Vice President of
Autoweb.com since January 1999, as President and Chief Executive Officer from
October 1998 to December 1998, as Executive Vice President of Marketing and
Business Development from September 1997 to October 1998 and as Vice President,
Chief Financial Officer and Treasurer from October 1995 to September 1997. From
August 1993 to October 1995, Mr. Zamani was the Vice President of Operations
for TOTL Inc., a home and commercial property painting company and the parent
company of Student Works Painting. Mr. Zamani received a Bachelor of Science
degree in Environmental Toxicology with an emphasis in environmental law from
the University of California at Davis.
David L. Greene has served as Vice President, Sales and Dealer Operations of
Autoweb.com since January 1998. From December 1997 to January 1998, Mr. Greene
was a Training and Performance Consultant with the
43
<PAGE>
Rikess Group, a Los Angeles based training and consulting company focusing in
automotive sales. Prior to this, Mr. Greene was General Sales Manager with
several automotive dealerships, including Stanford Lincoln-Mercury from June
1997 to December 1997, Burlingame Ford from March 1996 to June 1997 and McHugh
Lincoln-Mercury from January 1989 to March 1996. Mr. Greene attended the
University of Southern California, where he majored in journalism.
Samuel M. Hedgpeth III has served as Vice President, Finance and
Administration, and Chief Financial Officer of Autoweb.com since September
1997. From April 1997 to September 1997, Mr. Hedgpeth served as a consultant to
various high technology companies, including Excite, Inc. From September 1994
to April 1997, Mr. Hedgpeth was Vice President, Finance and Administration and
Chief Financial Officer for Prism Solutions, a data warehousing software
company. From July 1990 to July 1994, Mr. Hedgpeth was Vice President, Finance
and Administration of Versant Object Technology Corporation, a computer
database company. Mr. Hedgpeth received a Bachelor of Science degree in
business administration from the University of California and a Master of
Business Administration degree from the University of California at Los
Angeles.
Michele Hickford has served as Vice President, Marketing of Autoweb.com
since December 1997. From July 1997 to November 1997, she served with
Autoweb.com as Director of Business Development. From February 1996 to May
1997, she was the Head of New Media for I.D.E.A., a London-based international
economic analysis firm. From August 1995 to January 1996, Ms. Hickford was Vice
President, Marketing of Sci-Fi Channel Europe, a cable and satellite television
broadcast company. From March 1994 to August 1995, she was Vice President,
Marketing and Research for Turner International, a cable and satellite
television broadcast company. Ms. Hickford received a Bachelor of Arts degree
with a minor in advertising in telecommunications and film from San Diego State
University.
Robert M. Shapiro has served as Vice President, Business Development and
Advertising Sales of Autoweb.com since December 1998. From June 1997 to
December 1998, he was a consultant with Shapiro Group, a consulting firm. From
May 1995 to June 1997, Mr. Shapiro was the Senior Vice President of Product
Management and Marketing with R. L. Polk, a global information services
company. From January 1984 to May 1995, Mr. Shapiro held a variety of
positions, including Vice President of Marketing, with Prodigy Services
Company, an interactive services provider. Mr. Shapiro received a Bachelor of
Arts degree in political science from the University of San Diego.
Mark N. Diker has been a director of Autoweb.com since June 1997. Since
December 1998, Mr. Diker has been a General Partner of Geocapital Partners,
L.L.C., a venture capital firm. He served as a Principal with Geocapital from
August 1996 to November 1998. From September 1994 to May 1996, he attended the
Harvard Graduate School of Business. From January 1992 to April 1994, Mr. Diker
served with Bankers Trust Company as a Vice President of its Japanese Equity
Derivative Group in Asia, where his responsibilities included risk management,
structuring and trading equity derivative products. Mr. Diker received a
Bachelor of Arts degree in government from Harvard College and a Masters in
Business Administration degree from the Harvard Graduate School of Business.
Jay C. Hoag has been a director of Autoweb.com since May 1998. Since June
1995, Mr. Hoag has been a General Partner of Technology Crossover Ventures, a
venture capital firm. From 1982 to December 1994, he served in a variety of
capacities at Chancellor Capital Management, Inc., a venture capital/portfolio
management firm. He received a Bachelor of Arts degree in Economics and
Political Science from Northwestern University and his Masters in Business
Administration degree with an emphasis in finance from the University of
Michigan.
Mark R. Ross has been a director of Autoweb.com since July 1996. Since May
1984, Mr. Ross has been the President, Chief Executive Officer and a director
of On Word Information, Inc., a database company specializing in imaging,
optical character recognition and document management. Since May 1996, Mr. Ross
has also been Managing Director of Internet Content Partners, L.L.C., a
merchant bank focusing on servicing Internet companies. During May and June
1994, Mr. Ross acted as a consultant to Motorola, helping Motorola
44
<PAGE>
evaluate its investments in Internet information/service businesses. Mr. Ross
received a Bachelor of Science degree in finance from Lehigh University and
studied at the graduate level in education at the University of Massachusetts.
Our Amended and Restated Certificate of Incorporation and Amended and
Restated Bylaws, which will become effective upon the completion of this
offering, provide that the Board will be divided into three classes, Class I,
Class II and Class III, with each class serving staggered three-year terms. The
Class I directors, initially Messrs. DeBiase and Ross, will stand for re-
election or election at the 2000 annual meeting of stockholders. The Class II
directors, initially Messrs. Diker and Payam Zamani, will stand for reelection
or election at the 2001 annual meeting of stockholders and the Class III
directors, initially Messrs. Hoag and Farhang Zamani, will stand for reelection
or election at the 2002 annual meeting of stockholders. Each officer serves at
the discretion of the Board.
Board Committees
The Audit Committee of the Board and the Compensation Committee of the Board
consist of Messrs. Diker, Hoag and Ross. The Audit Committee reviews our
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 our independent auditors.
The Compensation Committee makes recommendations to the Board concerning
salaries and incentive compensation for our officers and employees and
administers our employee benefit plans.
Compensation Committee Interlocks and Insider Participation
None of the members of the Compensation Committee of the Board has at any
time since the formation of Autoweb.com been an officer or employee of
Autoweb.com. No executive officer of Autoweb.com serves as a member of the
board of directors or compensation committee of any entity that has one or more
executive officers serving on Autoweb.com's Board or Compensation Committee.
Director Compensation
Directors of Autoweb.com 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 January 1999, the Board adopted, and in February 1999 our stockholders
are expected to approve, the Directors Plan. We have reserved a total of
150,000 shares of common stock for issuance under the Directors Plan. Members
of the Board who are not employees of Autoweb.com, or any parent, subsidiary or
affiliate of Autoweb.com, will be eligible to participate in the Directors Plan
unless they are representatives of venture capital funds or corporate
investors. 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 is or 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 15,000 shares
(an "Initial Grant") on the later of the Effective Date or the date such
director first becomes a director. Immediately following each Annual Meeting of
Autoweb.com, each eligible director will automatically be granted an additional
option to purchase 7,500 shares if such director has served continuously as a
member of the Board since the date of such director's Initial Grant. The term
of such options is ten years, provided that they will terminate seven months
following the date the director ceases to be a director or a consultant of
Autoweb.com or 12 months if the termination is due to death or disability. All
options granted under the Directors Plan will vest over four years at a rate of
2.08% per month, provided the optionee continues as a member of the Board or as
a consultant to Autoweb.com. In the event of Autoweb.com's dissolution or
liquidation or a "change in control" transaction, options granted under the
Directors Plan will become 100% vested and exercisable in full.
45
<PAGE>
Executive Compensation
The following table sets forth all compensation awarded to, earned by or
paid for services rendered to Autoweb.com in all capacities during 1998 by each
executive officer who earned more than $100,000 and each individual who served
as chief executive officer during any portion of 1998 (the "Named Executive
Officers").
Summary Compensation Table
<TABLE>
<CAPTION>
Long Term
Compensation
------------
Annual
Compensation Awards
------------------ ------------
Securities
Underlying
Name and Principal Positions Salary(1) Bonus Options
- ---------------------------- --------- -------- ------------
<S> <C> <C> <C>
Dean A. DeBiase
President and Chief Executive Officer(2)...... $ -- $ -- 1,780,476
Farhang Zamani
Chairman and Chief Technology Officer(2)...... 95,000 220,102 --
Payam Zamani
Executive Vice President(2)................... 95,000 220,102 --
David L. Greene
Vice President, Sales and Dealer Operations... 110,032 66,121 52,893
Samuel M. Hedgpeth III
Vice President, Finance and Chief Financial
Officer...................................... 140,833 36,101 60,883
Michele Hickford
Vice President, Marketing..................... 110,000 30,101 3,750
</TABLE>
- ---------------------
(1) Dean A. DeBiase and Robert M. Shapiro were each hired in December 1998 and
are compensated at the annual base salary rates of $250,000 and $120,000
respectively. See "Employment and Severance Agreements" below.
(2) Mr. DeBiase joined Autoweb.com as President and Chief Executive Officer in
December 1998. Payam Zamani was Chief Executive Officer from October 1998
to December 1998. Farhang Zamani was President and Chief Executive Officer
from October 1995 to September 1998.
46
<PAGE>
Option Grants in 1998
The following executive officers received grants of options in 1998.
<TABLE>
<CAPTION>
Number of Percentage of Potential Realizable Value at
Securities Total Options Assumed Annual Rates of Stock
Underlying Granted to Exercise Price Appreciation for Option Term(4)
Options Employees Price Expiration ---------------------------------------
Name Granted(1) in 1998(2) Per Share(3) Date 0% 5% 10%
- ---- ---------- ------------- ------------ ---------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Dean A. DeBiase......... 1,384,815 59.4 $0.50 12/16/08
395,661 17.0 $2.37 3/31/99
Farhang Zamani.......... -- -- -- -- -- -- --
Payam Zamani............ -- -- -- -- -- -- --
David L. Greene......... 33,393 1.4 $0.50 02/18/08
19,500 0.8 $0.50 10/21/08
Samuel M. Hedgpeth III.. 60,883 2.6 $0.50 03/18/08
Michele Hickford........ 3,750 0.2 $0.50 10/21/08
Robert M. Shapiro....... 52,500 2.3 $0.50 12/10/08
</TABLE>
- ---------------------
(1) All options granted are immediately exercisable and are either incentive
stock options or nonqualified stock options and generally vest over four
years at the rate of 25% of the shares subject to the option on the first
anniversary of the date of grant and 12.5% each six months thereafter.
Exceptions to this vesting schedule are noted under "Employment and
Severance Agreements." Unvested shares are subject to Autoweb.com's right
of repurchase upon termination of employment. Options expire ten years from
the date of grant.
(2) Based on options to purchase a total of 2,330,241 shares of common stock of
Autoweb.com granted during 1998.
(3) Options were granted at an exercise price equal to the fair market value of
our common stock, as determined by the Board.
(4) Potential realizable values are computed by (a) multiplying the number of
shares of common stock subject to a given option by the assumed initial
public offering price of $ per share, (b) assuming that the aggregate
stock value derived from that calculation compounds at the annual 0%, 5% or
10% rates shown in the table for the entire ten-year term of the option and
(c) subtracting from that result the aggregate option exercise price. The
0%, 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 our estimate or projection of future common stock prices.
Aggregate Option Exercises in 1998 and Values at December 31, 1998
The following table sets forth the number of shares acquired and the value
realized upon exercise of stock options during 1998 and the number of shares of
common stock subject to exercisable and unexercisable stock options held as of
December 31, 1998 by each of our executive officers. 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.
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Number of Underlying Unexercised In-the-Money Options at
Shares Options at December 31, 1998 December 31, 1998
Acquired on Value ---------------------------- -------------------------
Name Exercise Realized(2) Exercisable(3) Unexercisable Exercisable Unexercisable
---- ----------- ----------- -------------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Dean A. DeBiase......... -- $ -- 1,780,476 -- --
Farhang Zamani.......... -- -- -- -- -- --
Payan Zamani............ -- -- -- -- -- --
David L. Greene......... -- -- 52,893 -- --
Samuel M. Hedgpeth III.. 177,011(1) -- -- -- --
Michele Hickford........ -- -- 56,250 -- --
Robert M. Shapiro....... -- -- 52,500 -- --
</TABLE>
- ---------------------
(1) Of these shares, 36,290 are vested and 140,721 are unvested. The unvested
shares are subject to Autoweb.com'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) Of these shares, the following numbers are vested: Dean A. DeBiase--
1,018,828 shares, David L. Greene--none, Michele Hickford--8,349 shares and
Robert M. Shapiro--none.
47
<PAGE>
Employee Benefit Plans
1997 Stock Option Plan. In April 1997, the Board adopted and our
stockholders approved the 1997 Plan. At that time, 675,000 shares of common
stock were reserved for issuance under the 1997 Plan, which number has since
been increased to 2,970,894. As of December 31, 1998, options to purchase
223,075 shares of common stock had been exercised and options to purchase
1,831,391 shares of common stock were outstanding under the 1997 Plan with a
weighted average exercise price of $0.49, and 916,428 shares were available for
future grants. No further options will be granted under the 1997 Plan after the
Effective Date. Options granted under the 1997 Plan before its termination will
remain outstanding according to their terms. Options granted under the 1997
Plan are generally immediately exercisable and subject to repurchase by
Autoweb.com at the exercise price until they vest. In general, options vest
over a four-year period. Options under the 1997 Plan are subject to terms
substantially similar to those described below with respect to options to be
granted under the 1999 Equity Incentive Plan. The 1997 Plan does not provide
for issuance of restricted stock or stock bonus awards.
1999 Equity Incentive Plan. In January 1999, the Board adopted, and in
February 1999 our stockholders are expected to approve, the Equity Incentive
Plan and reserved for issuance thereunder 2,800,000 shares in addition to
shares under the 1997 Plan not issued or subject to outstanding grants on the
Effective Date and any shares issued under the 1997 Plan that are forfeited or
repurchased by Autoweb.com or that are issuable upon exercise of options
granted pursuant to the 1997 Plan that expire or become unexercisable for any
reason without having been exercised in full. The Equity Incentive Plan will
become effective on the Effective Date and will serve as the successor to the
1997 Plan. 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 Autoweb.com 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 Autoweb.com 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. The Equity Incentive Plan will
terminate in January 2009, unless it is terminated earlier in accordance with
its term. 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 Autoweb.com 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.
Diker, Hoag and Ross, all of whom are "non-employee directors" under applicable
federal securities laws and "outside directors" as defined under applicable
federal tax laws. The Compensation 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 Autoweb.com or of a parent or subsidiary of
Autoweb.com. NQSOs (and all other Awards other than ISOs) may be granted to
employees, officers, directors, consultants, independent contractors and
advisors of Autoweb.com or any parent or subsidiary of Autoweb.com, 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. The exercise price of ISOs must be at least equal to the
fair market value of Autoweb.com'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 Autoweb.com's common stock on the date of grant.
Options may be exercisable only as they vest or immediately exercisable with
the shares issued thereunder subject to our right of repurchase that lapses as
the shares vest. In general, options vest over a four-year period. The maximum
term of options granted under the Equity Incentive Plan is ten years. Awards
granted under the Equity Incentive Plan may
48
<PAGE>
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 the Award agreement with respect to Awards that are not ISOs).
Options granted under the Equity Incentive Plan generally may be exercised for
a period of time after the termination of the optionee's service to Autoweb.com
or a parent or subsidiary of Autoweb.com. Options will generally terminate
immediately upon termination for cause. The purchase price for restricted stock
will be determined by the Compensation Committee. Stock bonuses may be issued
for past services or may be awarded upon the completion of certain services or
performance goals.
In the event of Autoweb.com'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.
1999 Employee Stock Purchase Plan. In January 1999, the Board adopted, and
in February 1999 our stockholders are expected to approve, the Purchase Plan
and reserved a total of 400,000 shares of common stock for issuance thereunder.
On each January 1, the aggregate number of shares reserved for issuance under
the Purchase Plan will increase automatically by a number of shares equal to 1%
of Autoweb.com's outstanding shares on the preceding December 31. The aggregate
number of shares reserved for issuance under the Purchase Plan may not exceed
3,000,000 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 Autoweb.com'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
Autoweb.com (or its parent or any subsidiaries that Autoweb.com 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 an option under the
Purchase Plan) 5% stockholders of Autoweb.com (or its designated parent or
subsidiaries). Under the Purchase Plan, eligible employees will be permitted to
acquire shares of Autoweb.com's common stock through payroll deductions.
Eligible employees may select a rate of payroll deduction between 2% and 10% of
their compensation as defined in the Purchase Plan 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 Autoweb.com 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 Autoweb.com'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 Autoweb.com's common stock purchased under the Purchase Plan
is 85% of the lesser of the fair market value of Autoweb.com's common stock on
the first day of the applicable offering period or the last day of each
purchase period. A participant may not purchase more than 1,000 shares in any
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 will
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 provides that, in the event of
the proposed dissolution or liquidation of Autoweb.com, 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 January 2009, unless it is terminated earlier
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 except for the increased shares due to the
evergreen provision, stockholder approval is required to increase the number of
shares that may be issued or to
49
<PAGE>
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
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. Autoweb.com sponsors the Downtown Web, Inc. 401(k) Plan (the
"401(k) Plan"), a defined contribution plan intended to qualify under Section
401 of the Code. Employees who are at least 21 years old and who have been
employed with us for at least 90 days are generally eligible to participate and
may enter the 401(k) Plan as of the first day of any calendar quarter
("Participants"). Participants may make pre-tax contributions to the 401(k)
Plan of up to 15% of their eligible earnings, subject to a statutorily
prescribed annual limit. Each Participant is fully vested in his or her
contributions and the investment earnings thereon. We may make matching
contributions on a discretionary basis to the 401(k) Plan but had not done so
as of December 31, 1998. Contributions by the participants or Autoweb.com to
the 401(k) Plan, and the income earned on such contributions, are generally not
taxable to the participants until withdrawn. Contributions by Autoweb.com, if
any, are generally deductible by Autoweb.com 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.
Employment and Severance Agreements
Mr. DeBiase's offer letter, dated December 16, 1998, provides for an initial
annual salary of at least $250,000 commencing on January 1, 1999 and a $50,000
bonus to be paid on each of June 30, 1999 and December 31, 1999. The letter
provides that Mr. DeBiase's annual salary will not decrease below $250,000
during the course of his employment and that he will be eligible to earn an
annual bonus of at least $100,000 if he achieves certain performance objectives
and meets certain other requirements. The letter also provides for
reimbursement of up to $120,000 for relocation and interim living expenses. Mr.
DeBiase received an option, expiring on March 31, 1999, to purchase 395,661
shares of Autoweb.com Series D Preferred Stock at an exercise price of $2.37
per share. He exercised this option in January 1999, paying the exercise price
with a combination of $250,000 of cash and a promissory note for $686,398, and
borrowed an additional $135,586 from us to pay his withholding tax. The
promissory notes are full recourse, interest-free and secured by the shares
purchased. The notes are due and payable in three years. Mr. DeBiase also
received options to purchase 1,384,815 shares of Autoweb.com common stock, to
be classified as incentive stock options to the maximum extent possible, at an
exercise price of $.50 per share. These options vested on issue as to 623,166
shares and will vest as to 21,157 shares monthly commencing on January 10, 2000
until fully vested. Mr. DeBiase exercised these options in January 1999 with
regard to 199,999 shares, paying the exercise price with a $100,000 promissory
note. The promissory note is full recourse, interest-free and secured by the
shares purchased. The note is due and payable in three years. In the event of a
"change of control" event, these options will become vested as to 75% of the
unvested portion at the time of the event; thereafter, if he is terminated
without formal cause or he voluntarily resigns due to a constructive
termination, the remainder of his options will become vested. If Mr. DeBiase is
terminated without formal cause, he will receive severance equal to twelve
months' salary plus any "parachute payment" excise tax and will be entitled to
benefits for this same period. Mr. DeBiase's employment is at will and may be
terminated at any time, with or without formal cause.
Farhang and Payam Zamani each entered into employment agreements with us
that commenced on July 5, 1996, terminated on December 31, 1998 and provide for
an initial annual salary of $60,000. The agreements provided for unspecified
"incentive compensation" at the discretion of the Board and an additional bonus
of 2% of Autoweb.com net revenues in excess of $2.0 million for each calendar
year during the term of the agreement. If either individual's employment was
terminated or constructively terminated without good cause, he would have
received severance up to a maximum of six months' salary.
Mr. Hedgpeth's employment agreement, dated May 4, 1998, provides for an
initial annual salary of $145,000 commencing on March 1, 1998 and an annual
bonus of up to 25% of his annual salary based upon Autoweb.com's overall
performance and on the performance of Autoweb.com's finance department.
50
<PAGE>
Mr. Hedgpeth was issued stock options to purchase 134,128 shares of Autoweb.com
common stock at an exercise price of $.20 per share, and options to purchase
60,883 shares of Autoweb.com common stock at an exercise price of $.50 per
share issued under the 1997 Plan. If Mr. Hedgpeth is terminated without formal
cause prior to July 1, 1999, 100% of the unvested portion of his options will
become vested on the date of termination, he will receive severance equal to
his salary, without bonus, for a period of up to nine months after the
termination date, and he will be entitled to benefits during the period for
which he receives salary. Mr. Hedgpeth's employment is at will and may be
terminated at any time, with or without formal cause.
Mr. Shapiro's offer letter, dated November 9, 1998, provides for an initial
annual salary of $120,000 commencing on December 7, 1998 and an annual bonus of
up to $80,000. The letter also provides for reimbursement of certain relocation
expenses. Mr. Shapiro received options to purchase 52,500 shares of Autoweb.com
common stock at an exercise price of $0.50 under the 1997 Plan. Mr. Shapiro's
employment is at will and may be terminated at any time, with or without formal
cause.
Ms. Hickford's offer letter, dated July 28, 1997, provides for an initial
annual salary of $95,000 commencing on July 30, 1997 and an annual bonus equal
to 1% of our revenues over $4 million during 1997 and 1% of such revenues over
$10 million during 1998. Ms. Hickford received options to purchase 33,000
shares of Autoweb.com common stock at an exercise price of $0.50 under the 1997
Plan. Ms. Hickford's employment is at will and may be terminated at any time,
with or without formal cause.
Mr. Greene's offer letter, dated December 18, 1997, provides for an initial
annual salary of $110,000 commencing on January 19, 1998 and an annual bonus of
up to 60% of his annual salary based on dealer renewal and retention and on the
overall dealer training success rate. Mr. Greene received options to purchase
33,393 shares of Autoweb.com common stock at an exercise price of $0.50 under
the 1997 Plan. If Mr. Greene's employment is terminated without cause, he will
receive a severance payment equal to six months' salary. Mr. Greene's
employment is at will and may be terminated at any time, with or without formal
cause.
Indemnification of Directors and Executive Officers and Limitation of Liability
As permitted by the Delaware General Corporation Law (the "DGCL"),
Autoweb.com's Certificate of Incorporation includes a provision that eliminates
the personal liability of a director for monetary damages resulting from breach
of his fiduciary duty as a director, except for liability (i) for any breach of
the director's duty of loyalty to Autoweb.com 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, Autoweb.com's Bylaws provide that (i) Autoweb.com
is required to indemnify its directors and officers to the fullest extent
permitted by the DGCL, subject to certain limited exceptions, (ii) Autoweb.com
may indemnify its other employees and agents to the extent that it indemnifies
its officers and directors, unless otherwise required by law, its Certificate
of Incorporation, its Bylaws or agreements, (iii) Autoweb.com 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 limited exceptions and (iv) the rights conferred in the
Bylaws are not exclusive.
Prior to the completion of this offering, Autoweb.com 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 Autoweb.com's Certificate of
Incorporation and Bylaws and to provide additional procedural protections. At
present, there is no pending litigation or proceeding involving a director,
officer or employee of Autoweb.com for which indemnification is sought, nor is
Autoweb.com aware of any threatened litigation that may result in claims for
indemnification.
We currently carry liability insurance for our directors and officers and
intend to obtain a rider to extend that coverage for public securities matters.
51
<PAGE>
CERTAIN TRANSACTIONS
Since Autoweb.com was incorporated in October 1995, there has not been, nor
is there currently proposed, any transaction or series of similar transactions
to which Autoweb.com 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 Autoweb.com had or will have a direct or
indirect interest other than (1) compensation arrangements, which are described
where required under "Management," and (2) the transactions described below.
For clarity of presentation, share numbers and per share prices for the
transactions described below are adjusted for a three -for-two stock split of
our common stock and preferred stock to be effected prior to the effective date
of the Registration Statement of which this prospectus is a part.
Formation of Autoweb.com. In connection with the incorporation of
Autoweb.com in October 1995, Autoweb.com sold 3,600,000 shares of common stock
to each of Farhang Zamani and Payam Zamani, the founders of Autoweb.com. In
exchange for these shares, the founders assigned to Autoweb.com the assets and
liabilities of Autoweb Interactive, a partnership, including all right, title
and interest in the computer programs necessary to its Web site (together with
all related intellectual property rights), all right, title and interest in its
trade and service marks, the contracts with dealers that were assignable and
all goodwill in the company. The total value assigned to these assets was
$150,000.
Series A Financing Round. In June 1996 and June 1997, we sold 1,270,503
shares and 813,111 shares, respectively, of Series A Preferred Stock to On Word
Information, Inc., a 10% stockholder, for aggregate purchase prices of $150,000
and $95,773, respectively. On Word also received 594,360 shares of common
stock, valued at $70,002, for consulting services provided to Autoweb.com. We
also sold 466,972 shares of Series A Preferred Stock to each of Farhang and
Payam Zamani for an aggregate purchase price of $110,000. Each share of Series
A Preferred Stock will convert automatically into 1.0 share of common stock
upon the consummation of this offering.
Series B Financing Round. In June 1997, we sold 2,448,445 shares of Series B
Preferred Stock to one venture capital firm and a group of investors. Mark N.
Diker, one of our directors, is an affiliate of Geocapital IV, L.P., which
purchased 2,387,235 shares of Series B Preferred Stock for an aggregate
purchase price of $4,875,000. Each share of Series B Preferred Stock will
convert automatically into approximately 1.85 shares of common stock upon the
consummation of this offering.
Series C Financing Round. In May 1998, we sold 2,369,967 shares of Series C
Preferred Stock to five venture capital funds affiliated with Technology
Crossover Ventures for an aggregate purchase price of $5,000,002. Jay C. Hoag,
one of our directors, is a general partner of Technology Crossover Ventures.
Each share of Series C Preferred Stock will convert automatically into
approximately 1.15 shares of common stock upon the consummation of this
offering. In connection with this financing round, Technology Crossover
Ventures also received an option to purchase, subject to the managing
underwriter's consent, up to $3 million of our common stock at the initial
public offering price per share on the consummation of this offering.
Series D Financing Round. In October 1998, we sold 859,859 shares of Series
D Preferred Stock to one corporation and two venture capital funds for an
aggregate of $2,035,002. Each share of Series D Preferred Stock will convert
automatically into 1.0 share of common stock upon the consummation of this
offering.
Stock Repurchases. In May 1998, we repurchased 271,537 shares and 271,536
shares of Series A Preferred Stock from Farhang and Payam Zamani, respectively,
for an aggregate purchase price of $1,000,000. In October 1998, we repurchased
42,254 shares and 42,253 shares of Series A Preferred Stock from Farhang and
Payam Zamani, respectively, for an aggregate purchase price of $200,000.
Rights Agreement. In October 1998, Autoweb.com, the founders and other
certain stockholders entered into an Amended and Restated Rights Agreement
under which the founders and such stockholders have certain registration rights
with respect to their shares of common stock following this offering. See
"Description of Capital Stock--Registration Rights."
52
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information known to us with respect
to beneficial ownership of our common stock as of December 31, 1998 by (1) each
stockholder known by us to be the beneficial owner of more than 5% of our
common stock, (2) each of our directors, (3) the Named Executive Officers, (4)
all executive officers and directors as a group and (5) each Selling
Stockholder.
<TABLE>
<CAPTION>
Shares Beneficially Shares Beneficially
Owned Prior to Owned After
Offering(1) Number of Offering(1)(2)
-----------------------Shares Being ------------------------
Name of Beneficial Owner Number Percent Offered(2) Number Percent
- ------------------------ ------------ ---------------------- ------------- ----------
<S> <C> <C> <C> <C> <C>
Mark N. Diker........... 4,416,842 23.8% -- 4,416,842
Geocapital IV, L.P.(3)
Farhang Zamani(4)....... 3,753,181 20.2 75,000 3,678,181
Payam Zamani(5)......... 3,735,933 20.1 25,000 3,710,933
Jay C. Hoag............. 2,715,367 14.6 -- 2,715,367
Technology Crossover
Ventures II, L.P.(6)
Mark R. Ross............ 1,959,222 10.6 -- 1,959,222
On Word Information,
Inc.(7)
Dean A. DeBiase(8)...... 1,780,476 8.8 -- 1,780,476
Samuel M. Hedgpeth
III(9)................. 195,011 1.1 -- 195,011
Michele Hickford(10).... 56,250 * -- 56,250
David L. Greene(11)..... 52,893 * -- 52,893
All directors and
executive officers as a
group (10
persons)(12)........... 18,632,769 90.9 100,000 18,532,769
</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 December 31, 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 Autoweb.com, 75,000 shares from Farhang Zamani and 25,000
shares from Payam Zamani is not exercised.
(3) The address of Mr. Diker and Geocapital IV, L.P. is Two Executive Drive,
Fifth Floor, Fort Lee, New Jersey 07024.
(4) Mr. Zamani is Chairman, Chief Technology Officer and a director of
Autoweb.com. His address is c/o Autoweb.com, Inc., 3270 Jay Street,
Building 6, Santa Clara, California 95054.
(5) Mr. Zamani is Executive Vice President and a director of Autoweb.com. His
address is c/o Autoweb.com, Inc., 3270 Jay Street, Building 6, Santa
Clara, California 95054.
(6) Represents 1,298,961 shares held of record by Technology Crossover
Ventures II, L.P., 998,659 shares held of record by TCV II (Q), L.P.,
198,325 shares held of record by Technology Crossover Ventures II, C.V.,
177,226 shares held of record by TCV II Strategic Partners, L.P. and
42,196 shares held of record by TCV II, V.O.F. The address for Mr. Hoag
and each of these entities is Technology Crossover Ventures, 56 Main
Street, Suite 210, Millburn NJ 07041.
(7) Represents 1,864, 863 held of record by On Word Information, Inc., 84,906
shares held of record by Mr. Ross' wife and 9,453 shares held of record by
Mr. Ross. The address of Mr. Ross and On Word Information, Inc. is
8063 E. Glenrose Avenue, Scottsdale, AZ 85251.
(8) Mr. DeBiase is President, Chief Executive Officer and a director of
Autoweb.com. His address is c/o Autoweb.com, Inc., 3270 Jay Street,
Building 6, Santa Clara, California 95054.
(9) Represents 41,915 shares which are vested and 92,213 shares and 60,883
shares which are unvested as of December 31, 1998 and subject to
Autoweb.com's right of repurchase at their original exercise price of
$0.20 per share and $0.50 per share, respectively. Mr. Hedgpeth is Vice
President, Finance and Administration, and Chief Financial Officer of
Autoweb.com.
(10) Ms. Hickford is Vice President, Marketing of Autoweb.com.
(11) Mr. Greene is Vice President, Sales and Dealer Operations of Autoweb.com.
(12) Represents the shares beneficially owned by the persons and entities
described in footnotes (3)-(11).
53
<PAGE>
DESCRIPTION OF CAPITAL STOCK
Immediately following the closing of this offering, the authorized capital
stock of Autoweb.com will consist of 60,000,000 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 December 31, 1998, and assuming the conversion of all
outstanding preferred stock into common stock upon the closing of this
offering, there were outstanding 18,558,464 shares of common stock held of
record by 57 stockholders, options to purchase 2,227,052 shares of common stock
and warrants to purchase 136,537 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 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 Autoweb.com'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 Autoweb.com, 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 7 of Notes to Financial Statements for a description of the
Convertible Preferred. Following the offering, Autoweb.com 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 Autoweb.com and may
adversely affect the market price of the common stock and the voting and other
rights of the holders of common stock. We have no current plan to issue any
shares of preferred stock.
Registration Rights
Pursuant to the Amended and Restated Rights Agreement dated October 16, 1998
between Autoweb.com, the founders and certain investors (the "Rights
Agreement"), the investors, holding an aggregate of 10,783,287 shares of common
stock of Autoweb.com, 10,188,927 of which are issuable upon conversion of the
Series A, Series B, Series C and Series D preferred stock (collectively the
"Registrable Securities" and the holders of Registrable Securities,
collectively the "Holders"), have certain registration rights pertaining to the
Registrable Securities at any time after 180 days following the closing of this
offering. Under the Rights Agreement, the Holders, by written request of at
least 50% of the Registrable Securities then outstanding, may demand that
Autoweb.com file a registration statement under the Securities Act covering all
or a portion of the Holders' Registrable Securities, provided that, in the case
of a registration statement on a form other than a Form S-3, the registration
statement has an aggregate proposed offering price to the public, net of
underwriters' discounts
54
<PAGE>
and commissions, of at least $5,000,000 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 $2,500,000. The Holders may not demand more than three Form
S-3 registrations in total or more than two in any one year. These registration
rights are subject to Autoweb.com'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 addition, certain "piggyback" registration rights exist for the Holders'
Registrable Securities and the founders' 7,389,114 shares of common stock of
Autoweb.com (including an aggregate of 306,364 shares of common stock that are
issuable upon the conversion of the Series A preferred stock), or 7,289,114
shares if the underwriter's over-allotment is exercised in full ("Founders'
Shares"). If Autoweb.com proposes to register any of its common stock under the
Securities Act (other than pursuant to the Holders' demand registration rights
noted above), the Holders or founders may require Autoweb.com to include all or
a portion of their Registrable Securities or Founders' Shares in such
registration; provided, however, that the managing underwriter, if any, of any
such offering has certain rights to limit the number of Registrable Securities
and Founders' Shares proposed to be included in such registration to 30% of the
aggregate shares included in the offering.
All registration expenses incurred in connection with the above
registrations will be borne by Autoweb.com. The selling investor or founder
will pay all underwriting discounts and selling commissions applicable to the
sale of his, her or its Registrable Securities or Founders' Shares.
Demand and piggyback registration rights under the Rights Agreement
terminate with respect to each investor or founder, as applicable, when (1)
such investor or founder can sell his, her or its Registrable Securities or
Founders' Shares under Rule 144(k) or (2) such investor or founder may sell all
his, her or its shares in a three-month period under Rule 144 of the Securities
Act.
Anti-Takeover Provisions
Delaware Law
Upon the closing of this offering, Autoweb.com 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 stockholder) for three years following
the date that such stockholder became an "interested stockholder" unless (1)
the transaction is approved by the Board of Directors prior to the date the
"interested stockholder" attained such status, (2) 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 (3) 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. We have 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 Autoweb.com and,
accordingly, may discourage attempts to acquire Autoweb.com.
55
<PAGE>
Charter and Bylaw Provisions
Our Certificate of Incorporation and Bylaws provide, upon the completion of
this offering, for the division of the Board into three classes of two
directors each 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 Autoweb.com. In
addition, the Bylaws provide that any action required or permitted to be taken
by the stockholders of Autoweb.com 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 Bylaws
provide that special meetings of the stockholders may only be called by the
Chairman of the Board, the Chief Executive Officer, the President, the holders
of shares of Autoweb.com that are entitled to cast not less than 10% of the
total number of votes entitled to be cast by all stockholders at such meeting
or by the Board.
Our Bylaws provide that Autoweb.com will indemnify officers and directors
against losses that they may incur in investigations and legal proceedings
resulting from their services to Autoweb.com, which may include services in
connection with takeover defense measures. Such provisions may have the effect
of preventing changes in the management of Autoweb.com.
Transfer Agent and Registrar
The Transfer Agent and Registrar for Autoweb.com's common stock is .
Listing
We have applied to list our common stock on the Nasdaq National Market under
the trading symbol "AWEB."
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no market for our common stock, and
we can not assure you that a significant public market for our 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 our ability to raise
capital through sale of 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 our common stock in the public market after the
restrictions lapse could adversely affect the prevailing market price and our
ability to raise equity capital in the future.
Upon completion of this offering, Autoweb.com will have outstanding
shares of common stock, assuming no exercise of the Underwriters' over-
allotment option and no exercise of outstanding options or warrants. Of these
shares, the shares sold in this offering will be freely tradable without
restriction under the Securities Act unless purchased by "affiliates" of
Autoweb.com 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 providing that, with certain limited exceptions, the stockholder
will not offer, sell, contract to sell, pledge or otherwise dispose of,
directly or indirectly, any shares of common stock of Autoweb.com or any
securities convertible into or exchangeable or exercisable for such shares of
common stock or publicly disclose an intention to make any such offer, sale,
pledge or disposal for a period of 180 days following the date of the final
prospectus for this offering without the prior written consent of Credit Suisse
First Boston Corporation. 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 181 days
after the date of the final prospectus. Beginning 181 days after the date of
the final prospectus, 17,648,857 of these shares will be eligible for sale in
the public market, although all but 910,284 shares will be subject to certain
volume limitations. The majority of the remaining 909,607 shares will become
eligible for sale, subject to certain volume limitations, on October 16, 1999.
Holders of options to purchase Autoweb.com common stock are also subject to
180-day lock-up agreements.
56
<PAGE>
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 (1) 1% of the number of shares of common stock then outstanding
(which will equal approximately shares immediately after this offering) or
(2) 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
Autoweb.com. Under Rule 144(k), a person who is not deemed to have been an
affiliate of Autoweb.com 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 or consultant to Autoweb.com
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 180-day lock-up agreements or no sooner than 90 days after
the offering upon obtaining the prior written consent of Credit Suisse First
Boston Corporation.
Immediately after this offering, Autoweb.com intends to file a registration
statement under the Securities Act covering shares of common stock subject to
options outstanding under the 1997 Plan or reserved for issuance under the
Equity Incentive Plan, the Directors Plan and the Purchase Plan. Based on the
number of shares subject to outstanding options at December 31, 1998 and
currently reserved for issuance under all such plans, such registration
statement would cover approximately 5,577,052 shares. Such registration
statement will automatically become effective upon filing. Accordingly, shares
registered under such registration statement will, subject to Rule 144 volume
limitations applicable to affiliates of Autoweb.com, be available for sale in
the open market immediately after the 180-day lock-up agreements expire. Also
beginning 180 days 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."
57
<PAGE>
UNDERWRITING
Under the terms and subject to the conditions contained in the underwriting
agreement dated , 1999, we and the selling stockholders have agreed to sell
to the underwriters named below, for whom Credit Suisse First Boston
Corporation, Hambrecht & Quist LLC, BancBoston Robertson Stephens, Inc. and
Piper Jaffray Inc. are acting as representatives, the following respective
numbers of shares of common stock:
<TABLE>
<CAPTION>
Number of
Underwriter Shares
----------- ---------
<S> <C>
Credit Suisse First Boston Corporation.............................
Hambrecht & Quist LLC..............................................
BancBoston Robertson Stephens, Inc. ...............................
Piper Jaffray Inc. ................................................
-----
Total............................................................
=====
</TABLE>
The underwriting agreement provides that the underwriters are obligated to
purchase all the shares of common stock in the offering, if any are purchased,
other than those shares covered by the over-allotment option described below.
The underwriting agreement also provides that, if an underwriter defaults, the
purchase commitments of nondefaulting underwriters may be increased or the
offering of common stock may be terminated.
We and the selling stockholders have granted to the underwriters a 30-day
option to purchase on a pro rata basis up to additional shares from us and
an aggregate of 100,000 additional outstanding shares from the selling
stockholders at the initial public offering price less the underwriting
discounts and commissions. The option may be exercised only to cover over-
allotments of common stock.
The underwriters propose to offer the shares of common stock initially at
the public offering price on the cover page of this prospectus and to selling
group members at that price less a concession of $ per share. The
underwriters and the selling group members may allow a discount of $ per
share on sales to other broker/dealers. After the initial public offering, the
public offering price and concession and discount to dealers may be changed by
the representatives.
The following table summarizes the compensation and expenses we and the
selling stockholders will pay.
<TABLE>
<CAPTION>
Total
---------------------------------------
Without With
Per Share Over-Allotment Over-Allotment
--------- -------------- --------------
<S> <C> <C> <C>
Underwriting discounts and commissions
paid by us........................... $ $ $
Expenses payable by us................ $ $ $
Underwriting discounts and commissions
paid by the selling stockholders..... $ $ $
</TABLE>
The underwriters have informed us that they do not expect discretionary
sales to exceed 5% of the shares of common stock being offered.
We and our officers and directors and certain other stockholders have agreed
not to offer, sell, contract to sell, announce our intention to sell, pledge or
otherwise dispose of, directly or indirectly, or file with the Securities and
Exchange Commission a registration statement under the Securities Act relating
to, any additional shares of our common stock or securities convertible into to
exchangeable or exercisable for any shares of our common stock without the
prior written consent of Credit Suisse First Boston Corporation for a period of
180 days after the date of this prospectus, except in our case issuances
pursuant to the exercise of employee stock options outstanding on the date
hereof.
58
<PAGE>
The underwriters have reserved for sale, at the initial public offering
price up to shares of common stock as follows: (1) at our request, up to
shares for our certain other persons associated with Autoweb.com and (2) up
to an additional shares for the Preferred Stockholders in connection with a
preexisting contractual right between us and certain holders of preferred
stock. See "Certain Transactions" and "Principal and Selling Stockholders." As
a result, the number of shares of common stock available for sale to the
general public in the offering will be reduced to the extent such persons
purchase the reserved shares. Any reserved shares not so purchased will be
offered by the underwriters to the general public on the same terms as the
other shares.
We and the selling stockholders have agreed to indemnify the underwriters
against certain liabilities, including civil liabilities under the Securities
Act, or to contribute to payments which the underwriters may be required to
make in respect thereof.
We have applied to list the shares of common stock on The Nasdaq Stock
Market's National Market.
Prior to this offering, there has been no public market for the common
stock. The initial public offering price will be determined by negotiation
between us and the underwriters. The principal factors to be considered in
determining the public offering price include: the information set forth in
this prospectus and otherwise available to the underwriters; the history and
the prospects for the industry in which we will compete; the ability of our
management; the prospects for our future earnings; the present state of our
development and our current financial condition; the general condition of the
securities markets at the time of this offering; and the recent market prices
of, and the demand for, publicly traded common stock of generally comparable
companies.
The representatives may engage in over-allotment, stabilizing transactions,
syndicate covering transactions and penalty bids in accordance with Regulation
M under the Exchange Act. Over-allotment involves syndicate sales in excess of
the offering size, which creates a syndicate short position. Stabilizing
transactions permit bids to purchase the underlying security so long as the
stabilizing bids do not exceed a specified maximum. Syndicate covering
transactions involve purchases of the securities in the open market after the
distribution has been completed in order to cover syndicate short positions.
Penalty bids permit the representatives to reclaim a selling concession from a
syndicate member when the securities originally sold by such syndicate member
are purchased in a syndicate covering transaction to cover syndicate short
positions. Such stabilizing transactions, syndicate covering transactions and
penalty bids may cause the price of the securities to be higher than it would
otherwise be in the absence of such transactions. These transactions may be
effected on the Nasdaq National Market or otherwise and, if commenced, may be
discontinued at any time.
59
<PAGE>
NOTICE TO CANADIAN RESIDENTS
Resale Restrictions
The distribution of the common stock in Canada is being made only on a
private placement basis exempt from the requirement that Autoweb.com prepare
and file a prospectus with the securities regulatory authorities in each
province where trades of common stock are effected. Accordingly, any resale of
the common stock in Canada must be made in accordance with applicable
securities laws which will vary depending on the relevant jurisdiction, and
which may require resales to be made in accordance with available statutory
exemptions or pursuant to a discretionary exemption granted by the applicable
Canadian securities regulatory authority. Purchasers are advised to seek legal
advice prior to any resale of the common stock.
Representations of Purchasers
Each purchaser of common stock in Canada who receives a purchase
confirmation will be deemed to represent to Autoweb.com and the dealer from
whom such purchase confirmation is received that (1) such purchaser is entitled
under applicable provincial securities laws to purchase such common stock
without the benefit of a prospectus qualified under such securities laws, (2)
where required by law, such purchaser is purchasing as principal and not as
agent, and (3) such purchaser has reviewed the text above under "Resale
Restrictions."
Rights of Action (Ontario Purchasers)
The securities being offered are those of a foreign issuer and Ontario
purchasers will not receive the contractual right of action prescribed by
section 32 of the Regulation under the Securities Act (Ontario). As a result,
Ontario purchasers must rely on other remedies that may be available, including
common law rights of action for damages or rescission or rights of action under
the civil liability provisions of the U.S. federal securities laws.
Enforcement of Legal Rights
All of the issuer's directors and officers, as well as the experts named
herein, may be located outside of Canada and, as a result, it may not be
possible for Canadian purchasers to effect service of process within Canada
upon the issuer or such persons. All or a substantial portion of the assets of
the issuer and such persons may be located outside of Canada and, as a result,
it may not be possible to satisfy a judgment against the issuer or such persons
in Canada or to enforce a judgment obtained in Canadian courts against such
issuer or persons outside of Canada.
Notice to British Columbia Residents
A purchaser of common stock to whom the Securities Act (British Columbia)
applies is advised that such purchaser is required to file with the British
Columbia Securities Commission a report within ten days of the sale of any
common stock acquired by such purchaser pursuant to this offering. Such report
must be in the form attached to British Columbia Securities Commission Blanket
Order BOR #95/17, a copy of which may be obtained from Autoweb.com. Only one
such report must be filed in respect of common stock acquired on the same date
and under the same prospectus exemption.
Taxation and Eligibility for Investment
Canadian purchasers of common stock should consult their own legal and tax
advisors with respect to the tax consequences of an investment in the common
stock in their particular circumstances and with respect to the eligibility of
the common stock for investment by the purchaser under relevant Canadian
legislation.
60
<PAGE>
LEGAL MATTERS
Fenwick & West LLP, Palo Alto, California will pass upon the validity of the
issuance of the shares of common stock offered hereby. Wilson Sonsini Goodrich
& Rosati, Professional Corporation, Palo Alto, California will pass upon
certain legal matters in connection with this offering for the underwriters.
EXPERTS
The financial statements as of December 31, 1997 and 1998 and for each of
the years in the three-year period ended December 31, 1998 included in this
prospectus have been included in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority
this firm as experts in auditing and accounting.
ADDITIONAL INFORMATION
We have 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 Autoweb.com and the
common stock offered hereby, you should refer 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 we make
reference are not necessarily complete, and, in each instance, we make
reference 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. You may inspect a copy of the Registration Statement and the
exhibits and schedule thereto without charge at the offices of the Commission
at Judiciary Plaza, 450 Fifth Street, Washington, D.C. 20549, and you may
obtain copies of all or any part of the Registration Statement 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 Autoweb.com, that file
electronically with the Commission.
61
<PAGE>
AUTOWEB.COM, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Accountants.......................................... F-2
Balance Sheets............................................................. F-3
Statements of Operations................................................... F-4
Statement of Stockholders' Deficit......................................... F-5
Statements of Cash Flows................................................... F-6
Notes to Financial Statements.............................................. F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of Autoweb.com, Inc.
In our opinion, the accompanying balance sheets and the related statements
of operations, stockholders' deficit and of cash flows present fairly, in all
material respects, the financial position of Autoweb.com, Inc. as of December
31, 1997 and 1998 and the results of its operations and its cash flows for the
years ended December 31, 1996, 1997 and 1998, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards, which require that we plan and perform the audits 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, as
well as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion expressed above.
San Jose, California
January 25, 1999
To the Board of Directors and Stockholders of Autoweb.com, Inc.:
The financial statements included herein have been adjusted to give effect
to the reincorporation of Autoweb.com, Inc. in Delaware as described more fully
in Note 13 of Notes to Financial Statements. The above report is in the form
that will be signed by PricewaterhouseCoopers LLP upon effectiveness of such
reincorporation assuming that, from January 25, 1999 to the effective date of
such reincorporation, no other events shall have occurred that would affect the
accompanying financial statements or notes thereto.
/s/ PricewaterhouseCoopers LLP
San Jose, California
January 25, 1999
F-2
<PAGE>
AUTOWEB.COM, INC
BALANCE SHEETS
(In thousands, except share amounts)
<TABLE>
<CAPTION>
Pro Forma
Stockholders'
December 31, Equity at
----------------- December 31,
1997 1998 1998
------- -------- -------------
(unaudited)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.................. $ 1,819 $ 2,714
Accounts receivable, net of allowance for
doubtful accounts of $65 and $498 in 1997
and 1998, respectively.................... 450 2,147
Prepaid expenses and other current assets.. 550 1,162
------- --------
Total current assets..................... 2,819 6,023
Property and equipment, net.................. 475 1,162
------- --------
Total assets............................. $ 3,294 $ 7,185
======= ========
LIABILITIES, MANDATORILY REDEEMABLE
CONVERTIBLE PREFERRED STOCK AND
STOCKHOLDERS' (DEFICIT) EQUITY
Current liabilities:
Accounts payable and other accrued
expenses.................................. $ 816 $ 2,557
Accrued payroll and related expenses....... 164 624
Deferred revenue........................... 999 1,739
Current portion of capital lease
obligations............................... 27 14
Current portion of notes payable........... 40 289
------- --------
Total current liabilities................ 2,046 5,223
Capital lease obligations, net of current
portion..................................... 14 --
Notes payable, net of current portion........ 3 654
------- --------
Total liabilities........................ 2,063 5,877
------- --------
Mandatorily redeemable convertible preferred
stock, $0.001 par value:
Authorized: 13,649,976 shares
Issued and outstanding: 5,465,998 shares in
1997, 8,068,244 shares in 1998 and none in
pro forma................................. 5,261 12,969
------- --------
Commitments (Note 6)
Stockholders' (deficit) equity:
Common stock, $0.001 par value:
Authorized: 60,000,000 shares
Issued and outstanding: 7,812,360 shares
in 1997, 8,063,181 shares in 1998 and
18,558,464 pro forma..................... 2 2 $ 12
Additional paid-in capital.................. 111 11,371 24,330
Unearned stock-based compensation........... -- (5,406) (5,406)
Accumulated deficit......................... (4,143) (17,628) (17,628)
------- -------- --------
Total stockholders' (deficit) equity.... (4,030) (11,661) $ 1,308
------- -------- ========
Total liabilities, mandatorily
redeemable convertible preferred
stock and stockholders' (deficit)
equity............................... $ 3,294 $ 7,185
======= ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
AUTOWEB.COM, INC.
STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------
1996 1997 1998
------ ------- --------
<S> <C> <C> <C>
Net revenues........................................ $ 307 $ 3,492 $ 13,041
Cost of net revenues................................ 24 255 842
------ ------- --------
Gross profit.................................... 283 3,237 12,199
------ ------- --------
Operating expenses:
Sales and marketing............................... 866 5,216 13,619
Product development............................... 57 349 586
General and administrative........................ 195 643 3,818
Stock-based compensation.......................... -- -- 5,601
------ ------- --------
Total operating expenses........................ 1,118 6,208 23,624
------ ------- --------
Loss from operations................................ (835) (2,971) (11,425)
Interest and other income (expense), net............ (10) 51 (59)
------ ------- --------
Net loss............................................ $ (845) $(2,920) $(11,484)
====== ======= ========
Net loss per share:
Basic and diluted................................. $(0.11) $ (0.41) $ (1.58)
====== ======= ========
Weighted average shares--basic and diluted........ 7,497 7,794 7,850
====== ======= ========
Pro forma net loss per share:
Basic and diluted................................. $ (0.69)
========
Weighted average shares--basic and diluted........ 16,669
========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
AUTOWEB.COM, INC.
STATEMENT OF STOCKHOLDERS' DEFICIT
for the years ended December 31, 1996, 1997 and 1998
(In thousands)
<TABLE>
<CAPTION>
Mandatorily
Redeemable
Convertible
Preferred
Stock Common Stock Additional Unearned
--------------- ------------- Paid-in Stock-Based Accumulated
Shares Amount Shares Amount Capital Compensation Deficit Total
------ ------- ------ ------ ---------- ------------ ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balances, January 1, 1996..................... 7,200 $ 1 $ (94) $ (93)
Issuance of Series A mandatorily redeemable
convertible preferred stock................. 1,271 $ 150
Accretion of Series A mandatorily redeemable
convertible preferred stock to redemption
value....................................... 8 (8) (8)
Issuance of common stock in exchange for
consulting services......................... 594 1 $ 61 62
Net loss..................................... (845) (845)
----- ------- ----- --- ------- -------- --------
Balances, December 31, 1996................... 1,271 158 7,794 2 61 (947) (884)
Issuance of Series A mandatorily redeemable
convertible preferred stock................. 813 96
Accretion of Series A mandatorily redeemable
convertible preferred stock to redemption
value....................................... 26 (26) (26)
Issuance of Series B mandatorily redeemable
convertible preferred stock, net of costs... 2,448 4,621
Accretion of Series B mandatorily redeemable
convertible preferred stock to redemption
value....................................... 250 (250) (250)
Conversion of loans into Series A mandatorily
redeemable convertible preferred stock...... 934 110
Exercise of stock options.................... 18 4 4
Issuance of warrant to purchase common stock
in exchange for services.................... 46 46
Net loss..................................... (2,920) (2,920)
----- ------- ----- --- ------- -------- --------
Balances, December 31, 1997................... 5,466 5,261 7,812 2 111 (4,143) (4,030)
Accretion of Series A mandatorily redeemable
convertible preferred stock to redemption
value ...................................... 32 (32) (32)
Accretion of Series B mandatorily redeemable
convertible preferred stock to redemption
value ...................................... 499 (499) (499)
Issuance of Series C mandatorily redeemable
convertible preferred stock, net of costs... 2,370 4,965
Accretion of Series C mandatorily redeemable
convertible preferred stock to redemption
value....................................... 317 (317) (317)
Issuance of Series D mandatorily redeemable
convertible preferred stock, net of costs,
$93......................................... 860 1,942
Accretion of Series D mandatorily redeemable
convertible preferred stock to redemption
value....................................... 42 (42) (42)
Repurchase of Series A mandatorily redeemable
convertible preferred stock................. (628) (89) (1,111) (1,111)
Exercise of stock options.................... 205 57 57
Issuance of common stock in exchange for
intangible asset............................ 15 13 13
Issuance of common stock in exchange for
brokering services.......................... 15 50 50
Issuance of common stock in exchange for
consulting services......................... 16 54 54
Issuance of warrant to purchase common
stock....................................... 79 79
Unearned stock-based compensation............ 11,007 $(11,007)
Amortization of unearned stock-based
compensation................................ 5,601 5,601
Net loss..................................... (11,484) (11,484)
----- ------- ----- --- ------- -------- -------- --------
Balances, December 31, 1998................... 8,068 $12,969 8,063 $ 2 $11,371 $ (5,406) $(17,628) $(11,661)
- --------------------------------------------------
===== ======= ===== === ======= ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
AUTOWEB.COM, INC.
STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Year Ended December
31,
------------------------
1996 1997 1998
----- ------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss........................................... $(845) $(2,920) $(11,484)
Adjustments to reconcile net loss to net cash used
in operating activities:
Issuance of common stock in exchange for
services........................................ 62 -- 133
Depreciation and amortization.................... 40 158 551
Write down of intangible assets.................. -- 103 13
Provision for doubtful accounts.................. 21 45 433
Stock-based compensation expense for options
granted......................................... -- -- 5,601
Change in assets and liabilities:
Accounts receivable............................ (22) (471) (2,130)
Prepaid expenses and other current assets...... (5) (542) (612)
Payable to related parties..................... 44 -- --
Accounts payable and other accrued expenses.... 181 634 1,741
Accrued payroll and related expenses........... 3 160 460
Deferred revenue............................... 486 441 740
----- ------- --------
Net cash used in operating activities........ (35) (2,392) (4,554)
----- ------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property and equipment.............. (59) (519) (1,238)
Acquisition of intangibles......................... (23) -- --
----- ------- --------
Net cash used in investing activities............ (82) (556) (1,238)
----- ------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments under capital lease obligation.. (22) (11) (27)
Proceeds from borrowings under long-term debt
facility.......................................... -- -- 900
Proceeds from issuance of mandatorily redeemable
convertible preferred stock....................... 150 4,764 6,957
Proceeds from issuance of common stock............. -- 4 57
Repurchase of Series A mandatorily redeemable
convertible preferred stock....................... -- -- (1,200)
----- ------- --------
Net cash provided by financing activities........ 129 4,756 6,687
----- ------- --------
Net increase in cash and cash equivalents............ 11 1,808 895
Cash and cash equivalents, at beginning of year...... -- 11 1,819
----- ------- --------
Cash and cash equivalents, at end of year............ $ 11 $ 1,819 $ 2,714
===== ======= ========
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND
FINANCING ACTIVITIES:
Note issued to purchase intangibles................ $ 80 $ -- $ --
Obligations under capital leases acquired during
the year.......................................... $ 63 $ -- $ --
Conversion of loans into Series A mandatorily
redeemable convertible preferred stock............ $ -- $ 110 $ --
Unearned stock-based compensation related to stock
option grants..................................... $ -- $ -- $ 11,007
Accretion of mandatorily redeemable convertible
preferred stock................................... $ 8 $ 276 $ 890
Revenue and advertising expense from barter
transactions...................................... $ -- $ 331 $ 733
Acquisition of intangibles in exchange for common
stock............................................. -- -- $ 13
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for interest............. $ 10 $ 34 $ 101
Taxes paid during the year......................... $ 1 $ 1 $ 1
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
AUTOWEB.COM
NOTES TO FINANCIAL STATEMENTS
1. The Company
Autoweb.com, Inc. ("Company"), a California corporation, was incorporated on
October 3, 1995 as Downtown Web, Inc. The Company provides a consumer
automotive Internet service, whereby its Web site enables consumers to select
new or pre-owned vehicles from member dealers. The Company markets and sells
its services primarily in North America and operates in one business segment.
In connection with the incorporation of the Company, the founders transferred
some proprietary technology and other intangible assets to the Company in
exchange for 7,200,000 shares of common stock. For accounting purposes, no
value was assigned to this transaction as there was no predecessor basis in the
technology and other intangible assets.
2. Summary of Significant Accounting Policies
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 the
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.
Concentrations 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 two high credit
quality financial institutions in the United States. The Company maintains
allowances for potential credit losses and such losses have been within
management's expectations. In 1998, there was one customer that accounted for
13.8% of the Company's 1998 net revenues. There were no customers with a
balance due to the Company in excess of 10% of aggregate accounts receivable as
of December 31, 1998.
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with original
maturities of ninety days or less to be cash equivalents. Cash equivalents
consist primarily of deposits in money market funds.
Fair Value of Financial Instruments
Carrying amounts of certain of the Company's financial instruments,
including cash and cash equivalents, accounts receivable, accounts payable and
other accrued liabilities, approximate fair value due to their short
maturities.
Property and Equipment
Property and equipment are stated at cost and are depreciated on a straight
line basis over the estimated useful lives of the assets, generally two years.
Revenue Recognition
Revenues are derived primarily from fees charged to member dealers for each
qualified purchase inquiry provided to them by the Company. The revenue related
to the fee is recognized at the time the purchase inquiry is forwarded to the
member dealer provided that no significant obligations for the Company remain
and
F-7
<PAGE>
AUTOWEB.COM
NOTES TO FINANCIAL STATEMENTS--(Continued)
collection of the resulting receivable is probable. The Company establishes a
returns reserve for unqualified purchase inquiries at the time of revenue
recognition based upon the Company's historical experience. The Company
initially charged member dealers on a "subscription" model basis, whereby each
member dealer paid an initial set-up fee and/or a flat monthly fee in exchange
for receiving qualified purchase inquiries from the Company. In February 1998,
the Company began converting member dealers to the current "pay for
performance" model whereby a member dealer pays the Company a fee for each
qualified purchase inquiry. Under the former subscription model, revenue from
both the initial and/or monthly fee was initially deferred and then recognized
ratably over the term of the agreement, generally one year. Revenue from the
former subscription model is expected to largely cease in 1999.
The Company also derives revenue from the sale of banner advertisements,
which is recognized ratably in the period in which the advertisement is
displayed, provided that no significant obligations for the Company remain and
collection of the resulting receivable is probable. To the extent that minimum
guaranteed page deliveries are not met, the Company defers recognition of the
corresponding revenues until the guaranteed page deliveries are achieved.
Barter advertisement transactions are recorded at the lower of estimated fair
value of the services received or the estimated fair value of the
advertisements given.
Another significant source of revenue for the Company is derived from a
contract with an insurance company for providing customer referrals for
insurance. The fee from this contract is being recognized ratably over the term
of the agreement.
Product Development Costs
Product development costs include expenses incurred by the Company to
develop and enhance the Company's Web site. Product development costs are
expensed as incurred.
Advertising Expense
Advertising costs are expensed as incurred and totaled $226,000, $1.8
million and $5.8 million during the years ended December 31, 1996, 1997 and
1998, respectively.
Stock-Based Compensation
In 1997, the Company adopted the disclosure provisions of Financial
Accounting Standards Board ("FASB") Statement of Financial Accounting Standards
("SFAS") No. 123, "Accounting for Stock-based Compensation ." The Company has
elected to continue accounting for stock-based compensation issued to employees
using Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock
Issued to Employees," and, accordingly, pro forma disclosures required under
SFAS No. 123 have been presented (See Note 9). 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. Stock issued to
non-employees has been accounted for in accordance with SFAS No. 123 and valued
using the Black-Scholes model.
Income Taxes
The Company accounts for income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes." This statement prescribes the use of the
liability method whereby deferred tax asset and liability account balances are
calculated at the balance sheet date using current tax laws and rates in
effect. Valuation allowances are established when necessary to reduce deferred
tax assets where it is more likely than not that the deferred tax asset will
not be realized.
F-8
<PAGE>
AUTOWEB.COM
NOTES TO FINANCIAL STATEMENTS--(Continued)
Net Loss Per Share
The Company computes net loss 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 loss per share is
computed by dividing the net loss available to common stockholders for the
period by the weighted average number of common shares outstanding during the
period. Diluted net loss per share is computed by dividing the net loss 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, Series
B, Series C, and Series D mandatorily redeemable convertible preferred stock,
are included in the diluted net loss per share computation to the extent such
shares are dilutive.
<TABLE>
<CAPTION>
Years ended December
31,
-------------------------
1996 1997 1998
------ ------- --------
(In thousands, except
per share amounts)
<S> <C> <C> <C>
Numerator:
Net loss...................................... $ (845) $(2,920) $(11,484)
Accretion of mandatorily redeemable
convertible
preferred stock to redemption value:
Series A..................................... (8) (26) (32)
Series B..................................... -- (250) (499)
Series C..................................... -- -- (317)
Series D..................................... -- -- (42)
------ ------- --------
Net loss available to common stockholders..... $(853) $(3,196) $(12,374)
------ ------- --------
Denominator:
Weighted average shares--basic and diluted.... 7,497 7,794 7,850
------ ------- --------
Net loss per share--basic and diluted......... $(0.11) $ (0.41) $ (1.58)
====== ======= ========
</TABLE>
If the Company had reported net income, diluted net income per share would
have included the shares used in the computation of pro forma net loss per
share as well as an additional approximately 83,000 and 1.4 million common
equivalent shares related to the outstanding options and warrants not included
above (determined using the treasury stock method at the estimated fair value)
for the years ended December 31, 1997 and 1998, respectively.
Pro Forma Net Loss Per Share and Unaudited Pro Forma Stockholders' Equity
Pro forma net loss per share has been computed as described above and also
gives effect to the conversion of mandatorily redeemable convertible preferred
stock not included above that will automatically convert upon completion of the
Company's initial public offering (using the if-converted method). If the
offering contemplated by this prospectus is consummated, all of the mandatorily
redeemable convertible preferred stock outstanding as of December 31, 1998 will
automatically be converted into an aggregate of 10,495,291 shares of common
stock, based on the shares of mandatorily redeemable convertible preferred
stock outstanding at December 31, 1998. Unaudited pro forma stockholders'
equity at December 31, 1998, as adjusted for the conversion of mandatorily
redeemable convertible preferred stock, is disclosed on the balance sheet.
F-9
<PAGE>
AUTOWEB.COM
NOTES TO FINANCIAL STATEMENTS--(Continued)
Pro forma basic and diluted net loss per share is as follows (in thousands,
except per share amount):
<TABLE>
<CAPTION>
Year Ended
December 31, 1998
-----------------
<S> <C>
Net loss................................................ $(11,484)
========
Shares used in computing basic and diluted net loss per
share.................................................. 7,850
Adjusted to reflect the effect of the assumed conversion
of all mandatorily redeemable convertible preferred
stock from the date of issuance........................ 8,819
--------
Weighted average shares used in computing pro forma
basic and diluted net loss per share................... 16,669
========
Pro forma basic and diluted net loss per share.......... $ (0.69)
========
</TABLE>
Business Segments
In June 1997, the FASB issued SFAS No. 131, "Disclosure about Segments of an
Enterprise and Related Information." SFAS No. 131 requires publicly held
companies to report financial and other information about key revenue segments
of the entity for which such information is available and is utilized by the
chief operating decision maker. SFAS No. 131 is effective for fiscal years
commencing December 15, 1997. The Company conducts its business within one
business segment primarily within North America. Revenues from customers
outside of the United States were less than 10% of net revenues for all periods
presented in the accompanying statements of operations. There was one customer
which represented 13.8% of net revenues for the year ended December 31, 1998.
Comprehensive Income
Effective for the fiscal years commencing December 15, 1997, 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 during a period from non-owner sources. The Company's
total comprehensive loss was the same as its net loss for the year ended
December 31, 1998.
Recent Accounting Pronouncements
In March 1998, the Accounting Standards Executive Committee (AcSEC) 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.
In April 1998, AcSEC issued SOP 98-5, "Reporting on the Costs of Start-Up
Activities." This SOP provides guidance on the financial reporting of start-up
costs and organization costs. It requires the costs of start-up activities and
organization costs to be expensed as incurred. The SOP is effective for
financial statements for fiscal years beginning after December 15, 1998. The
Company does not expect that the adoption of SOP No. 98-5 will have a material
impact on its financial statements.
F-10
<PAGE>
AUTOWEB.COM
NOTES TO FINANCIAL STATEMENTS--(Continued)
3. Property and Equipment
Property and equipment consisted of the following:
<TABLE>
<CAPTION>
December 31,
---------------
1997 1998
------- -------
(In thousands)
<S> <C> <C>
Computer equipment and software............................. $ 465 $ 1,236
Office equipment............................................ 31 108
Furniture and fixtures...................................... 178 568
------ -------
674 1,912
Less accumulated depreciation and amortization.............. (199) (750)
------ -------
$ 475 $ 1,162
====== =======
</TABLE>
The cost and accumulated depreciation of assets acquired under capital
losses were $76,000 and $67,000 respectively at December 31, 1998.
4. Revolving Credit Facility
Under a revolving credit facility with a bank, the Company may borrow up to
the lesser of 70% of eligible accounts receivable or $1.3 million. There were
no borrowings under this credit agreement at December 31, 1998. Any borrowings
under this facility would bear interest at prime plus 1.0% (8.75% at December
31, 1998) and would be collaterized by accounts receivable. The credit
agreement requires the Company to comply with certain financial covenants.
5. Long-Term Debt
Long-term debt consists of an equipment loan facility of $1.1 million.
Equipment notes bear interest at an annual rate of 18.4%, mature between 1999
and 2001, and are collateralized by specific equipment. There are no remaining
amounts available under this facility. The loan facility agreement requires the
Company to comply with certain financial covenants, including restrictions of
dividend payments.
Future minimum principal payments are as follows (in thousands).
<TABLE>
<S> <C>
1999.................................................................. $ 289
2000.................................................................. 338
2001.................................................................. 316
-----
943
Less current portion.................................................. (289)
-----
$ 654
=====
</TABLE>
6. Commitments
Operating Lease
In August 1997, the Company relocated its corporate headquarters and signed
a new lease agreement for these facilities, which expires in October 2002.
F-11
<PAGE>
AUTOWEB.COM
NOTES TO FINANCIAL STATEMENTS--(Continued)
The future minimum lease payments under noncancelable operating leases are
(in thousands).
<TABLE>
<CAPTION>
Year Ending December 31,
------------------------
<S> <C>
1999................................................................ $ 547
2000................................................................ 561
2001................................................................ 575
2002................................................................ 490
------
$2,173
======
</TABLE>
Facility rent expense for the years ended December 31, 1996, 1997 and 1998,
was $44, $258 and $597, respectively.
Marketing Agreements
In December 1998, the Company entered into an agreement with a global
Internet media company to maintain certain exclusive promotional rights and
linkage with the media company and to provide for certain advertising. As of
December 31, 1998, the agreement required remaining minimum future payments
over the thirteen month term of the agreement of approximately $2.2 million.
The Company expenses all amounts ratably over the term of the agreement.
The Company also has multi-year agreements with other Internet advertisers
and automotive information providers that make available to consumers vehicle
research data over the Internet. Such agreements require that the Company pay
fees to these companies based on the volume of referrals received by the
Company from these services. The Company expenses these amounts as the services
are provided.
Litigation
From time to time, the Company may be involved in litigation arising out of
claims in the normal course of business. Based upon the information presently
available, including discussion with outside legal counsel, management believes
that there are no claims or actions pending or threatened against the Company,
the ultimate resolution of which will have a material adverse effect on the
Company's financial position, liquidity or results of operations.
7. Mandatorily Redeemable Convertible Preferred Stock
At December 31, 1997 and 1998, the amounts of the mandatorily redeemable
convertible preferred stock by series were as follows:
<TABLE>
<CAPTION>
Shares Issued
and Outstanding Net Amount
------------------- --------------
December 31, December 31,
Shares ------------------- --------------
Series Authorized 1997 1998 1997 1998
------ ---------- --------- --------- ------ -------
(In thousands)
<S> <C> <C> <C> <C> <C>
A 2,474,486 3,017,553 2,389,973 $ 390 $ 333
B 2,550,000 2,448,445 2,448,445 4,871 5,370
C 2,369,969 -- 2,369,967 -- 5,282
D 1,255,521 -- 859,859 -- 1,984
Undesignated 5,000,000 -- -- -- --
---------- --------- --------- ------ -------
13,649,976 5,465,998 8,068,244 $5,261 $12,969
========== ========= ========= ====== =======
</TABLE>
Under the Company's Certificate of Incorporation, the Company's preferred
stock is issuable in series and the Company's Board of Directors is authorized
to determine the rights, preferences and privileges of each
F-12
<PAGE>
AUTOWEB.COM
NOTES TO FINANCIAL STATEMENTS--(Continued)
series. At December 31, 1998, the terms of the mandatorily redeemable
convertible preferred stock are as follows:
Dividends:
The holders of Series A, Series B, Series C and Series D mandatorily
redeemable convertible preferred stock are entitled to cumulative
dividends of $0.012, $0.204, $0.211, and $0.237 per share, per annum,
respectively, when and if declared by the Board of Directors. Such
dividends will be declared or paid prior and in preference to any
declaration or payment of any dividend on the common stock, other than
a common stock dividend payable solely in shares of common stock. The
holders of the Series A, Series B, Series C and Series D mandatorily
redeemable convertible preferred stock are also entitled to receive
dividends at the same rate as dividends are paid on the common stock
(other than dividends payable in additional shares of common stock).
Each share of mandatorily redeemable convertible preferred stock would
be treated as being equal to the number or shares of common stock into
which each share of mandatorily redeemable convertible preferred stock
is then convertible.
Voting Rights:
Each share of Series A, Series B, Series C and Series D mandatorily
redeemable convertible preferred stock entitles a holder to the number
of votes per share equal to the number of shares of common stock
(including fractions of a share) into which each share of Series A,
Series B, Series C and Series D mandatorily redeemable convertible
preferred stock is then convertible.
Liquidation Preference:
Upon any liquidation, dissolution or winding up of the Company, the
holders of the Series A, Series B, Series C and Series D mandatorily
redeemable convertible preferred stock will be entitled to receive, in
equal preference, before any distribution or payment is made to the
holders of common stock, a sum equal to all accrued and accumulated but
unpaid dividends, in addition to an amount per share of equal to the
following: Series A-$0.12, Series B-$2.04, Series C-$2.11 and Series D-
$2.37.
Redemption:
At any time on or after June 30, 2003 and prior to June 30, 2006,
upon the written election of any holder of the Series A, Series B,
Series C and Series D mandatorily redeemable convertible preferred
stock, the Company must redeem in three annual installments the shares
of Series A, Series B, Series C, and Series D mandatorily redeemable
convertible preferred stock, paying for each share in cash an amount
equal to the price at which the first share of such series of preferred
stock was issued plus, for each such share, an amount equal to all
dividends accumulated thereon, whether declared or not, minus dividends
declared and paid thereon, computed to the redemption date.
Conversion:
Each share of Series A, Series B, Series C and Series D mandatorily
redeemable convertible preferred stock is convertible into the number
of shares of common stock determined by dividing $0.12, $2.04, $2.11
and $2.37, respectively, by the conversion price at the time in effect
for each such share of mandatorily redeemable convertible preferred
stock. The initial conversion price will be $0.12, $1.10, $1.84 and
$2.37 per share for the Series A, Series B, Series C and Series D
mandatorily redeemable convertible preferred stock, respectively.
Conversion can be requested at any time at the option of the holder.
F-13
<PAGE>
AUTOWEB.COM
NOTES TO FINANCIAL STATEMENTS--(Continued)
The mandatorily redeemable convertible preferred stock would
mandatorily convert into common stock at the conversion price
relevant at that time, if the Company closes a firm commitment
underwritten public offering of shares of common stock in which the
aggregate price received for such shares by the Company (net of
underwriting discounts, commissions and expenses) was at least $10.0
million and at a price per common share of at least $5.52 (subject to
adjustment for stock splits, stock dividends, recapitalizations and
the like).
Option for Series D Mandatorily Redeemable Convertible Preferred Stock
In December 1998, the Company granted an option to the Chief Executive
Officer to purchase up to 395,661 shares of the Company's Series D mandatorily
redeemable convertible preferred stock at $2.37 per share. Payment for this
stock may be in cash or, to the extent the Company's common stock is publicly
traded, with same day sale proceeds or pursuant to a net exercise of the
option. If the payment is in cash, it shall be in the amount of no less than
$250,000, with the balance, if any, to be financed by an interest free full
recourse promissory note secured by the stock. This note will be due and
payable on the third anniversary of the date of issuance of the stock. The
fair value of the option grant was estimated to be $1.7 million using the
intrinsic value method, and it is included in the stock-based compensation
charge in the year ended December 31, 1998.
8. Common Stock
The Company's Certificate of Incorporation, as amended, authorizes the
Company to issue 60,000,000 shares of common stock. Each share of common stock
has the right to one vote. The holders of common stock are also entitled to
receive dividends whenever funds are legally available and when declared by
the Board of Directors, subject to the prior rights of holders of all classes
of stock at the time outstanding having priority rights as to dividends.
At December 31, 1998, the Company had reserved shares of common stock for
future issuance as follows:
<TABLE>
<S> <C>
Conversion of Series A mandatorily redeemable convertible
preferred stock............................................... 2,389,973
Conversion of Series B mandatorily redeemable convertible
preferred stock............................................... 4,530,092
Conversion of Series C mandatorily redeemable convertible
preferred stock............................................... 2,715,367
Conversion of Series D mandatorily redeemable convertible
preferred stock............................................... 859,859
Exercise of options under stock options plan................... 2,227,052
Warrants....................................................... 136,537
----------
12,858,880
==========
</TABLE>
Warrants for Common Stock
On June 25, 1997 the Company issued warrants for common stock to a
preferred stockholder for services rendered. The warrants are subject to
adjustment based on the number of shares of common stock issuable to Series B
mandatorily redeemable convertible preferred stock on conversion. The total
shares underlying the warrant are 112,500 and are exercisable at a price equal
to 115% of the Series B mandatorily redeemable convertible preferred stock
conversion price. The fair value of the grant was estimated at $46,000 using
the Black-Scholes model and was charged to operating expenses in 1997.
On June 1, 1998 the Company issued warrants for common stock to a third
party in respect of a financing arrangement. The total shares underlying the
warrant are 45,302 and are exercisable at a price of $2.08 per share. The fair
value of the grant was estimated at $79,000 using the Black-Scholes model and
was charged to operating expenses in 1998.
F-14
<PAGE>
AUTOWEB.COM
NOTES TO FINANCIAL STATEMENTS--(Continued)
9. 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 of the Company are eligible
to participate in the Savings Plan. The Company is not required to contribute
to the Savings Plan and has made no contributions since the inception of the
Savings Plan.
1997 Stock Option Plan
In April 1997, the Company's Board of Directors adopted the 1997 Stock
Option Plan ("1997 Plan"). The 1997 Plan provides for the granting of stock
options to employees and consultants of the Company, (including officers and
directors who are also employees).
Options under the 1997 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 ("Incentive Stock Option") may not be less
than 100% of the estimated fair value of the shares on the date of grant, and
(ii) the exercise prices 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 that 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 Plan for the years ended
December 31, 1997 and 1998:
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------
1997 1998
----------------- -------------------
Weighted Weighted
Average Average
Exercise Exercise
Shares Price Shares Price
------- -------- --------- --------
<S> <C> <C> <C> <C>
Outstanding at beginning of year..... -- -- 362,505 $0.1762
Granted.............................. 395,000 $0.1748 1,934,580 $0.5000
Exercised............................ (18,000) $0.2000 (205,075) $0.2767
Cancelled............................ (14,495) $0.1009 (260,619) $0.3205
------- ------- --------- -------
Outstanding at end of year........... 362,505 $0.1770 1,831,391 $0.4864
======= ======= ========= =======
Options exercisable at year end
without the right of repurchase by
the Company......................... 0 478,277
======= =========
Weighted average minimum fair value
of options granted during year...... $ 0.04 $ 4.93
======= =========
</TABLE>
F-15
<PAGE>
AUTOWEB.COM
NOTES TO FINANCIAL STATEMENTS--(Continued)
The following table summarizes information about stock options outstanding
at December 31, 1998:
<TABLE>
<CAPTION>
Options Outstanding at
December 31, 1998
--------------------------------
Weighted
Average Weighted
Number of Remaining Average
Shares Contractual Exercise
Exercise Prices Outstanding Life Price
--------------- ----------- ----------- --------
<S> <C> <C> <C>
$0.007...................................... 20,621 8.25 $0.007
$0.20....................................... 46,385 8.73 $0.200
$0.333...................................... 4,977 8.81 $0.333
$0.50....................................... 1,759,408 9.87 $0.500
---------
1,831,391
=========
</TABLE>
Fair Value Disclosures
The Company calculated the minimum fair value of each option grant on the
date of grant using the minimum value option pricing model as prescribed by
SFAS No. 123 using the following assumptions:
<TABLE>
<CAPTION>
Year Ended
December 31,
------------
1997 1998
------ ------
<S> <C> <C>
Risk-free interest rates................................... 6.0% 5.5%
Expected lives............................................. 5 5
Dividend yield............................................. 0 0
</TABLE>
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options's vesting period. The
Company's pro forma information follows:
<TABLE>
<CAPTION>
Year Ended
December 31,
------------
1997 1998
------- --------
<S> <C> <C>
Net loss as reported.................................... $(2,920) $(11,484)
Accretion on mandatorily redeemable convertible
preferred stock........................................ (276) (890)
------- --------
Net loss available to common shareholders............... (3,196) (12,374)
Net loss--FAS 123 adjusted.............................. (3,197) (12,521)
Net loss per share--as reported (Note 2)
Basic and diluted..................................... $ (0.41) $ (1.58)
Net loss per share--FAS 123 adjusted
Basic and diluted..................................... $ (0.41) $ (1.60)
</TABLE>
The effects of applying SFAS 123 in this pro forma disclosure may not be
indicative of future amounts. Additional awards in future years are
anticipated.
Unearned Stock-Based Compensation
In connection with certain stock option grants during the year ended
December 31, 1998, the Company recorded unearned stock-based compensation
totalling $11.0 million, which is being amortized over the vesting periods of
the related options which is generally four years. Amortization of this stock-
based compensation recognized during the year ended December 31, 1998 totaled
approximately $5.6 million which reflected accelerated vesting associated with
approximately 1.4 million options of common stock granted to the Chief
F-16
<PAGE>
AUTOWEB.COM
NOTES TO FINANCIAL STATEMENTS--(Continued)
Executive Officer and the immediate vesting of the option for 396,000 shares of
Series D mandatorily redeemable convertible preferred stock granted to the
Chief Executive Officer (Note 7). If the stock-based compensation for the year
ended December 31, 1998 were allocated across the relevant functional expense
categories within operating expenses it would be allocated as follows (in
thousands):
<TABLE>
<CAPTION>
<S> <C>
Sales and marketing.................................................. $2,973
Product development.................................................. 1,176
General and administrative........................................... 1,452
------
$5,601
======
</TABLE>
11. Income Taxes
The principal items accounting for the difference between income taxes
computed at the U.S. statutory rate and the provision for income taxes are as
follows:
<TABLE>
<CAPTION>
December 31,
-------------------
1996 1997 1998
----- ----- -----
<S> <C> <C> <C>
U.S. statutory rate..................................... 34.0% 34.0% 34.0%
Operating losses not benefited.......................... (34.0) (34.0) (34.0)
----- ----- -----
-- -- --
===== ===== =====
</TABLE>
The Company's net deferred tax asset is comprised as follows:
<TABLE>
<CAPTION>
December 31,
----------------
1997 1998
------- -------
<S> <C> <C>
Net operating loss carryforwards........................... $ 1,077 $ 2,608
Other...................................................... 108 956
------- -------
1,185 3,564
Valuation allowance........................................ (1,185) (3,564)
------- -------
Net deferred tax asset..................................... $ -- $ --
======= =======
</TABLE>
As of December 31, 1998, the Company had net operating loss carryforwards
available to reduce its future taxable income of approximately $7.0 million for
federal and $4.0 million for state income tax purposes, respectively. The net
operating loss carryforwards expire between 2003 and 2018 for both federal and
state income tax purposes.
For federal and state tax purposes, the Company's net operating loss
carryforwards are subject to certain limitations on annual utilization in the
event of changes in ownership, as defined by federal and state law.
12. Related Party Transactions
At December 31, 1996, the Company owed a total of $110,000, to the founders
and directors. These amounts represented deferred salaries net of expense
advances, and were converted into $110,000 of Series A mandatorily redeemable
convertible preferred stock in May 1997.
At December 31, 1997, the Company had full recourse promissory notes
receivable totaling $100,000 from stockholders who are also related parties.
This amount is included in "prepaid expenses and other current assets." The
notes earn interest at 6.5% per annum and are collateralized by a total of
84,000 shares of Series A mandatorily redeemable convertible preferred stock
owned by the stockholders.
F-17
<PAGE>
AUTOWEB.COM
NOTES TO FINANCIAL STATEMENTS--(Continued)
At December 31, 1998, the Company had full recourse promissory notes
receivable totalling $174,900 from stockholders who are also related parties.
This amount is included in "prepaid expenses and other current assets". The
notes earn interest at rates of 5.59% to 6.5% per annum and are collateralized
by a total of 84,000 shares of Series A mandatorily redeemable convertible
preferred stock and 177,012 shares of common stock.
13. Subsequent Events
In January 1999, the Company's Board of Directors (i) authorized management
of the Company to file a Registration Statement with the Securities and
Exchange Commission permitting the Company to sell shares of its common stock
to the public, (ii) approved a three-for-two forward split of its common and
preferred stock, which will be effected prior to the closing of the public
offering and (iii) approved the reincorporation of the Company from California
to Delaware. All share data and stock option plan information have been
restated to reflect the forward split and the reincorporation.
If the offering is consummated under the terms presently anticipated, the
Series A, Series B, Series C and Series D mandatorily redeemable convertible
preferred stock outstanding at December 31, 1998 will automatically convert to
common stock upon the closing of the public offering in the manner disclosed in
Note 7 to the Note to Financial Statements.
In January 1999, the Company's Board of Directors (i) adopted the 1999
Equity Incentive Plan and 1999 Directors Stock Option Plan pursuant to which
2,950,000 additional shares of the Company's common stock have been reserved
for future issuance to selected employees, directors and non-employee directors
and consultants, (ii) authorized the adoption of the 1999 Employee Stock
Purchase Plan pursuant to which 400,000 shares of the Company's common stock
have been reserved for issuance to eligible employees, which number is subject
to automatic increase up to a maximum of 3,000,000 shares. These actions will
be given effect on the effective date of the Company's initial public offering
and will be submitted for approval by the Stockholders in February 1999.
F-18
<PAGE>
A map of North America showing the distribution of Autoweb.com Member
Dealerships
[Artwork]
<PAGE>
Illustrations of Autoweb.com's Otto and Webster characters.
[Artwork]
<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
Autoweb.com 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.............. $15,985
NASD filing fee.................................................. 6,250
Nasdaq National Market filing fee................................ 95,000
Accounting fees and expenses..................................... *
Legal fees and expenses.......................................... *
Road show expenses............................................... *
Printing and engraving expenses.................................. *
Blue sky fees and expenses....................................... *
Transfer agent and registrar fees and expenses................... *
Miscellaneous.................................................... *
-------
Total.......................................................... $ *
=======
</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
Certificate of Incorporation includes a provision that eliminates the personal
liability of its directors for monetary damages for breach of fiduciary duty as
a director, except for liability (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 Registrant's
Bylaws 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 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 of the indemnification
set forth in the Registrant's Certificate of Incorporation and to provide
additional procedural protections. At present, there is no pending litigation
or proceeding involving a director, officer or employee of the Registrant
regarding which indemnification is sought, nor is the Registrant aware of any
threatened litigation that may result in claims for indemnification.
II-1
<PAGE>
Reference is also made to Section of the Underwriting Agreement, which
provides for the indemnification of officers, directors and controlling persons
of the Registrant against certain liabilities. The indemnification provision in
the Registrant's Certificate of Incorporation, Bylaws and the Indemnity
Agreements entered into between the Registrant and each of its directors and
officers may be sufficiently broad to permit indemnification of the
Registrant's directors and officers for liabilities arising under the
Securities Act.
The Registrant maintains directors' and officers' liability insurance and
expects to obtain a rider to such coverage for securities matters.
See also the undertakings set out in response to Item 17.
Reference is made to the following documents filed as exhibits to this
Registration Statement regarding relevant indemnification provisions described
above and elsewhere herein:
<TABLE>
<CAPTION>
Exhibit Document Number
---------------- ------
<S> <C>
Underwriting Agreement (draft dated January , 1999)............... 1.01
Registrant's Certificate of Incorporation.......................... 3.01
Registrant's Bylaws................................................ 3.02
Amended and Restated Rights Agreement dated October 16, 1998....... 4.02
Form of Indemnity Agreement........................................ 10.01
</TABLE>
ITEM 15. Recent Sales of Unregistered Securities.
The following table sets forth information regarding all securities sold by
the Registrant since its incorporation on October 3, 1995. The numbers of
shares reflect a 3-for-2 stock split of the Registrant's common stock and
preferred stock to be effected in connection with the Registrant's
reincorporation prior to the effectiveness of this offering.
<TABLE>
<CAPTION>
Aggregate Purchase
Price
Title of Number of and Form of
Class of Purchasers Date of Sale Securities Securities Consideration
- ------------------- ------------ ---------- ---------- --------------------
<S> <C> <C> <C> <C> <C>
Farhang and Payam Zamani 10/17/95 Common Stock 7,200,000 $150,000 Assets and
liabilities
of
predecessor
partnership
On Word Information, 06/05/96 Series A 1,270,503(1) $150,000 Cash
Inc. Mandatorily
Redeemable
Convertible
Preferred Stock
On Word Information, 03/24/97 Common Stock 594,360 $70,002 Past
Inc. services
Farhang and Payam Zamani 05/21/97 Series A 933,944(1)(2) $110,000 Conversion
Mandatorily of Loans
Redeemable
Convertible
Preferred Stock
On Word Information, 06/25/97 Series A 813,106(1) $95,773 Cash
Inc. Mandatorily
Redeemable
Convertible
Preferred Stock
Chatsworth Capital 06/25/97 Warrant to -- -- --
Corporation purchase 112,500
shares of Common
Stock
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
Aggregate Purchase
Price
Title of Number of and Form of
Class of Purchasers Date of Sale Securities Securities Consideration
- ------------------- ------------ ---------- ---------- ----------------------
<S> <C> <C> <C> <C> <C>
One venture capital firm 06/26/97 Series B 2,448,445(1) $5,000,000 Cash
and a group of investors Mandatorily
Redeemable
Convertible
Preferred Stock
AutoKey Internet 01/22/98 Common Stock 14,706 $12,745 Purchase of
Communications Ltd Intangibles
Five affiliated venture 05/08/98 Series C 2,369,967(1) $5,000,002 Cash
capital firms Mandatorily
Redeemable
Convertible
Preferred Stock
Three venture capital 10/16/98 Series D 859,859(1) $2,035,002 Cash
firms Mandatorily
Redeemable
Convertible
Preferred Stock
CivicBanCorp 10/15/98 Warrant to -- -- --
purchase 24,037
shares of Common
Stock
Individual consultant 11/8/98 Common Stock 16,032 $53,440 Past
services
Chatsworth Capital 11/24/98 Common Stock 15,000 $50,000 Past
Corporation services
17 employee/ optionees Through Common Stock 423,074 $160,523 Cash and
January 25, (option exercises) promissory
1999 notes
One officer/director 1/25/98 Series D 395,661 $936,398 Cash and
Mandatorily Promissory
Redeemable note
Convertible
Preferred Stock
(option exercise)
</TABLE>
- ---------------------
(1) Each share of Series A, Series B, Series C and Series D Preferred Stock
will convert automatically into 1.0, 1.85, 1.15 and 1.0 shares of common
stock, respectively, upon the consummation of this offering.
(2) 543,073 and 84,507 of these shares were repurchased by the Registrant on
May 7, 1998 and October 7, 1998, respectively.
---------------------
All sales of common stock made pursuant to the exercise of stock options
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.
II-3
<PAGE>
ITEM 16. Exhibits and Financial Statement Schedules.
(a) The following exhibits are filed herewith:
<TABLE>
<CAPTION>
Number Exhibit Title
------ -------------
<C> <S>
1.01 Form of Underwriting Agreement (draft dated January , 1999).*
2.01 Agreement and Plan of Merger between Autoweb.com, Inc., a California
corporation and Registrant.
3.01 Registrant's Certificate of Incorporation.
3.02 Registrant's Bylaws.
3.03 Registrant's Certificate of Retirement of preferred stock.
3.04 Registrant's Certificate of Designation of preferred stock.
4.01 Form of Specimen Certificate for Registrant's common stock.*
4.02 Amended and Restated Rights Agreement dated October 16, 1998 between
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 between Registrant and each of its
directors and executive officers.
10.02 Form of Series A Preferred Stock Purchase Agreement by and among
Registrant, Farhang and Payam Zamani, and corresponding Form of
Amendment to Investors Rights Agreement by and among Registrant, On
Word Information, Inc. and Farhang and Payam Zamani.
10.03 Stock Repurchase Agreement dated May 7, 1998 between Registrant and
Farhang Zamani.
10.04 Stock Repurchase Agreement dated May 7, 1998 between Registrant and
Payam Zamani.
10.05 Stock Repurchase Agreement dated October 7, 1998 between Registrant and
Farhang Zamani.
10.06 Stock Repurchase Agreement dated October 7, 1998 between Registrant and
Payam Zamani.
10.07 Offer Letter dated December 16, 1998 by Registrant to Dean A. DeBiase.
10.08 Offer Letter dated August 19, 1997 by Registrant to Samuel M. Hedgpeth
III.
10.09 Employment Agreement dated May 4, 1998 between Registrant and Samuel M.
Hedgpeth III.
10.10 Offer Letter dated November 9, 1998 by Registrant to Robert M. Shapiro.
10.11 Offer Letter dated July 28, 1997 by Registrant to Michelle Hickford.
10.12 Offer Letter dated December 18, 1997 by Registrant to David L. Greene,
as amended December 11, 1998.
10.13 Lease Agreement dated August 27, 1997 by and among Boyd C. Smith,
Trustee, Louis B. Sullivan, Trustee and Registrant (related to
Registrant's facilities at 3270 Jay Street).
10.14 Loan Agreement and Commercial Security Agreement, each dated December
15, 1997, between Registrant and CivicBank of Commerce.
10.15 Form of Senior Loan and Security Agreement dated March 20, 1998 between
Registrant and Phoenix Leasing Incorporated.
10.16 New & Pre-Owned Car Agreement dated June 17, 1998 between Registrant
and Republic Industries, Inc.**
10.17 Services Agreement dated January 21, 1998, as amended January 5, 1999,
between Registrant and State Farm Mutual Automobile Insurance
Company.**
10.18 Services Agreement dated July 15, 1998 between Registrant and State
Farm Mutual Automobile Insurance Company.**
10.19 Advertising and Promotion Agreement dated December 17, 1998 between
Registrant and Yahoo! Inc.**
10.20 Registrant's 1997 Stock Option Plan and related documents.
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
Number Exhibit Title
------ -------------
<C> <S>
10.21 Registrant's 1999 Equity Incentive Plan and related documents.
10.22 Registrant's 1999 Directors Stock Option Plan and related documents.
10.23 Registrant's 1999 Employee Stock Purchase Plan.
10.24 Promissory notes from Dean DeBiase to Registrant.*
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.
** Confidential treatment has been requested with regard to certain portions of
this document. Such portions have been omitted from this filing and have
been filed separately with the Securities and Exchange Commission.
(b) The following financial statement schedule is filed herewith:
Schedule II--Valuation and Qualifying Accounts
Other financial statement schedules are omitted because the information
called for is not required or is shown either in the financial statements or
the notes thereto.
ITEM 17. Undertakings.
The undersigned Registrant hereby undertakes to provide to the Underwriters
at the closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions described under Item 14 above, or
otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other than
the payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the successful defense of
any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, 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 Santa Clara, State of
California, on the 25th day of January, 1999.
AUTOWEB.COM, INC.
/s/ Dean A. DeBiase
By: _____________________________________
Dean A. DeBiase
President and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS that each individual whose signature
appears below constitutes and appoints Dean A. DeBiase, Farhang Zamani, Payam
Zamani and Samuel M. Hedgpeth III, and each of them, his true and lawful
attorneys-in-fact and agents with full power of substitution, for him and in
his name, place and stead, in any and all capacities, to sign any and all
amendments (including post-effective amendments) to this Registration
Statement, and to sign any registration statement for the same offering covered
by the Registration Statement that is to be effective upon filing pursuant to
Rule 462(b) promulgated under the Securities Act, and all post-effective
amendments thereto, and to file the same, with all exhibits thereto and all
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents, and each of them, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agents or any of them, or his or their
substitute or substitutes, may lawfully do or cause to be done or by virtue
hereof.
Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated.
<TABLE>
<CAPTION>
Name Title Date
---- ----- ----
<S> <C> <C>
Principal Executive Officer:
/s/ Dean A. DeBiase President, Chief Executive January 25, 1999
______________________________________ Officer and Director
Dean A. DeBiase
Principal Financial Officer and
Principal Accounting Officer:
/s/ Samuel M. Hedgpeth III Vice President, Finance January 25, 1999
______________________________________ and Administration and
Samuel M. Hedgpeth III Chief Financial Officer
Additional Directors:
/s/ Mark N. Diker Director January 25, 1999
______________________________________
Mark N. Diker
/s/ Jay C. Hoag Director January 25, 1999
______________________________________
Jay C. Hoag
/s/ Mark R. Ross Director January 25, 1999
______________________________________
Mark R. Ross
/s/ Farhang Zamani Director January 25, 1999
______________________________________
Farhang Zamani
/s/ Payam Zamani Director January 25, 1999
______________________________________
Payam Zamani
</TABLE>
II-6
<PAGE>
SCHEDULE I
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
Balance at Balance
Beginning Additions at End
of Year (Reductions) Write-offs of Year
---------- ------------ ---------- -------
(In thousands)
<S> <C> <C> <C> <C>
Allowance for doubtful accounts:
Year ended December 31, 1996..... $ 0 $ 20 $ 0 $ 20
Year ended December 31, 1997..... 20 45 0 65
Year ended December 31, 1998..... 65 429 (4) 498
Valuation allowance for deferred
tax assets:
Year ended December 31, 1996..... 0 405 0 405
Year ended December 31, 1997..... 405 780 0 1,185
Year ended December 31, 1998..... 1,185 2,379 0 3,564
</TABLE>
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Exhibit Title
------- -------------
<C> <S>
1.01 Form of Underwriting Agreement (draft dated January , 1999).*
2.01 Agreement and Plan of Merger between Autoweb.com, Inc., a California
corporation and Registrant.
3.01 Registrant's Certificate of Incorporation.
3.02 Registrant's Bylaws.
3.03 Registrant's Certificate of Retirement of preferred stock.
3.04 Registrant's Certificate of Designation of preferred stock.
4.01 Form of Specimen Certificate for Registrant's common stock.*
4.02 Amended and Restated Rights Agreement dated October 16, 1998 between
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 between Registrant and each of its
directors and executive officers.
10.02 Form of Series A Preferred Stock Purchase Agreement by and among
Registrant, Farhang and Payam Zamani, and corresponding Form of
Amendment to Investors Rights Agreement by and among Registrant, On
Word Information, Inc. and Farhang and Payam Zamani.
10.03 Stock Repurchase Agreement dated May 7, 1998 between Registrant and
Farhang Zamani.
10.04 Stock Repurchase Agreement dated May 7, 1998 between Registrant and
Payam Zamani.
10.05 Stock Repurchase Agreement dated October 7, 1998 between Registrant
and Farhang Zamani.
10.06 Stock Repurchase Agreement dated October 7, 1998 between Registrant
and Payam Zamani.
10.07 Offer Letter dated December 16, 1998 by Registrant to Dean A. DeBiase.
10.08 Offer Letter dated August 19, 1997 by Registrant to Samuel M. Hedgpeth
III.
10.09 Employment Agreement dated May 4, 1998 between Registrant and Samuel
M. Hedgpeth III.
10.10 Offer Letter dated November 9, 1998 by Registrant to Robert M.
Shapiro.
10.11 Offer Letter dated July 28, 1997 by Registrant to Michelle Hickford.
10.12 Offer Letter dated December 18, 1997 by Registrant to David L. Greene,
as amended December 11, 1998.
10.13 Lease Agreement dated August 27, 1997 by and among Boyd C. Smith,
Trustee, Louis B. Sullivan, Trustee and Registrant (related to
Registrant's facilities at 3270 Jay Street).
10.14 Loan Agreement and Commercial Security Agreement, each dated December
15, 1997, between Registrant and CivicBank of Commerce.
10.15 Form of Senior Loan and Security Agreement dated March 20, 1998
between Registrant and Phoenix Leasing Incorporated.
10.16 New & Pre-Owned Car Agreement dated June 17, 1998 between Registrant
and Republic Industries, Inc.**
10.17 Services Agreement dated January 21, 1998, as amended January 5, 1999,
between Registrant and State Farm Mutual Automobile Insurance
Company.**
10.18 Services Agreement dated July 15, 1998 between Registrant and State
Farm Mutual Automobile Insurance Company.**
10.19 Advertising and Promotion Agreement dated December 17, 1998 between
Registrant and Yahoo! Inc.**
10.20 Registrant's 1997 Stock Option Plan and related documents.
10.21 Registrant's 1999 Equity Incentive Plan and related documents.
10.22 Registrant's 1999 Directors Stock Option Plan and related documents.
10.23 Registrant's 1999 Employee Stock Purchase Plan.
10.24 Promissory notes from Dean DeBiase to Registrant.*
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.
** Confidential treatment has been requested with regard to certain portions of
this document. Such portions have been omitted from this filing and have
been filed separately with the Securities and Exchange Commission.
<PAGE>
EXHIBIT 2.01
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (this "Merger Agreement") is made as
of ________, 1999 by and between Autoweb.com, Inc., a California corporation
("Autoweb.com California"), and Autoweb.com, Inc., a Delaware corporation
("Autoweb.com Delaware"). Autoweb.com California and Autoweb.com Delaware are
hereinafter sometimes collectively referred to as the "Constituent
Corporations."
R E C I T A L S
- - - - - - - -
A. Autoweb.com California was incorporated on October 3, 1995. Its
current authorized capital stock consists of: (1) 50,000,000 shares of Common
Stock, no par value ("Autoweb.com California Common Stock"), of which
[5,354,764] shares are issued and outstanding, and (2) 5,639,636 shares of
Preferred Stock no par value ("Autoweb.com California Preferred Stock"),
including (a) 1,649,657 shares of Series A Preferred Stock ("Autoweb.com
California Series A Stock"), of which 1,593,319 shares are issued and
outstanding; (b) 1,700,000 shares of Series B Preferred Stock ("Autoweb.com
California Series B Stock"), of which 1,632,297 shares are issued and
outstanding; (c) 1,579,979 shares of Series C Preferred Stock ("Autoweb.com
California Series C Stock"), all of which shares are issued and outstanding; and
(d) 837,014 shares of Series D Preferred Stock ("Autoweb.com California Series D
Stock"), 573,240 of which shares are issued and outstanding.
B. Autoweb.com Delaware was incorporated on January 20, 1999. Its
authorized capital stock consists of: (1) 60,000,000 shares of Common Stock,
with a par value of $0.001 per share ("Autoweb.com Delaware Common Stock"), of
which 1,000 shares are issued and outstanding; and (2) 13,649,976 shares of
Preferred Stock, $0.001 par value ("Autoweb.com Delaware Preferred Stock") of
which (a) 2,474,486 shares have been designated Series A Preferred Stock
("Autoweb.com Delaware Series A Stock"), none of which shares are issued and
outstanding; (b) 2,550,000 shares have been designated Series B Preferred Stock
("Autoweb.com Delaware Series B Stock"), none of which shares are issued and
outstanding; (c) 2,369,969 shares have been designated Series C Preferred Stock
("Autoweb.com Delaware Series C Stock"), none of which shares are issued and
outstanding; and (d) 1,255,521 shares of Series D Preferred Stock ("Autoweb.com
Delaware Series D Stock"), none of which shares are issued and outstanding.
C. The Boards of Directors of Autoweb.com California and Autoweb.com
Delaware deem it advisable and to the advantage of each of the Constituent
Corporations that Autoweb.com California merge with and into Autoweb.com
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
Autoweb.com California from California to Delaware.
D. The Boards of Directors of each of the Constituent Corporations
have approved this Merger Agreement.
<PAGE>
Autoweb.com, Inc. Corporation
Agreement and Plan of Merger
Now, Therefore, the parties do hereby adopt the plan of reorganization
set forth in this Merger Agreement and do hereby agree that Autoweb.com
California shall merge with and into Autoweb.com Delaware on the following
terms, conditions and other provisions:
1. Merger and Effective Date. On the Effective Date (as defined
-------------------------
below), Autoweb.com California shall be merged with and into Autoweb.com
Delaware (the "Merger"), and Autoweb.com 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 California, or 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, whichever later occurs (the
"Effective Date").
2. Effect of Merger. On the Effective Date, the separate corporate
----------------
existence of Autoweb.com California shall cease; the corporate identity,
existence, powers, rights and immunities of Autoweb.com Delaware as the
Surviving Corporation shall continue unimpaired by the Merger; and Autoweb.com
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 Autoweb.com
California, all without further act or deed.
3. Governing Documents. On the Effective Date, the Certificate of
-------------------
Incorporation of Autoweb.com Delaware in effect immediately prior to the
Effective Date shall become the Certificate of Incorporation of the Surviving
Corporation and the Bylaws of Autoweb.com Delaware in effect immediately prior
to the Effective Date shall become the Bylaws of the Surviving Corporation.
4. Directors and Officers. On the Effective Date, the directors and
----------------------
officers of Autoweb.com Delaware shall be and become the directors and officers
(holding the same titles and positions) of the Surviving Corporation, and after
the Effective Date shall serve in accordance with the Certificate of
Incorporation and Bylaws of the Surviving Corporation.
5. Shares of Autoweb.com California. On the Effective Date, each
--------------------------------
share of Autoweb.com California Common Stock of outstanding immediately prior
thereto shall be automatically changed and converted into one and one-half (1
1/2) fully paid and nonassessable, issued and outstanding shares of Autoweb.com
Delaware Common Stock. On the Effective Date, each share of Autoweb.com
California Series A Stock, Series B Stock, Series C Stock or Series D Stock
outstanding immediately prior thereto shall be automatically changed and
converted into one and one-half (1 1/2) fully paid and nonassessable, issued
and outstanding shares of Autoweb.com Delaware Series A Stock, Series B Stock,
Series C Stock or Series D Stock, respectively.
-2-
<PAGE>
Autoweb.com, Inc. Corporation
Agreement and Plan of Merger
6. Shares of Autoweb.com Delaware. On the Effective Date, all of the
------------------------------
previously issued and outstanding shares of Autoweb.com Delaware Common Stock
shall be automatically retired and cancelled.
7. Stock Certificates. On and after the Effective Date, all of the
------------------
outstanding certificates that, prior to that date, represented shares of
Autoweb.com California Common Stock shall be deemed for all purposes to evidence
ownership of and to represent the number of shares of Autoweb.com Delaware
Common Stock into which such shares of Autoweb.com California Common Stock are
converted as provided herein. On and after the Effective Date, all of the
outstanding certificates that, prior to that date, represented shares of
Autoweb.com California Series A Stock, Series B Stock, Series C Stock or Series
D Stock shall be deemed for all purposes to evidence ownership of and to
represent the number of shares of Autoweb.com Delaware Series A Stock, Series B
Stock, Series C Stock or Series D Stock, respectively, into which such shares of
Autoweb.com California Series A Stock, Series B Stock, Series C Stock or Series
D Stock are converted as provided herein. The registered owner on the books and
records of Autoweb.com California of any such outstanding stock certificate for
Autoweb.com California Common Stock or Autoweb.com California Series A Stock,
Series B Stock, Series C Stock or Series D Stock shall, until such certificate
shall have been surrendered for transfer or otherwise accounted for to
Autoweb.com 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 shares of Autoweb.com Delaware Common Stock or
Autoweb.com Delaware Series A Stock, Series B Stock, Series C Stock or Series D
Stock, respectively, evidenced by such outstanding certificate as above
provided.
8. Options; Warrants. Upon the Effective Date, all outstanding and
-----------------
unexercised portions of all options to purchase Autoweb.com California Common
Stock under the Autoweb.com California 1997 Stock Option Plan, and all other
outstanding options or warrants to purchase Autoweb.com California Common Stock
or Autoweb.com California Series A Stock, Series B Stock, Series C Stock or
Series D Stock, shall become options or warrants to purchase one and one-half (1
1/2) the number of shares of Autoweb.com Delaware Common Stock or Autoweb.com
California Series A Stock, Series B Stock, Series C Stock or Series D Stock,
respectively, at two-thirds (2/3) of the price set forth in such Autoweb.com
California option and/or warrant documents, with the same vesting schedule and
other material terms and conditions applying. Additionally, upon the Effective
Date, Autoweb.com Delaware shall adopt and assume the Autoweb.com California
1999 Equity Incentive Plan, the Autoweb.com California 1999 Employees Stock
Purchase Plan and the Autoweb.com California 1999 Directors Stock Option Plan.
9. Fractional Shares. No fractional shares of Autoweb.com Delaware
-----------------
Common Stock or Preferred Stock will be issued in connection with the Merger.
In lieu thereof, Autoweb.com Delaware shall pay each shareholder of Autoweb.com
California who would otherwise be entitled to receive a fractional share of
Autoweb.com 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 Autoweb.com California Common Stock or Preferred Stock,
as the case may be) a cash amount equal to the applicable fraction
-3-
<PAGE>
Autoweb.com, Inc. Corporation
Agreement and Plan of Merger
multiplied by the fair market value of a share of Autoweb.com Delaware Common
Stock or Preferred Stock, as the case may be, as determined by the Board of
Directors of Autoweb.com Delaware in good faith (the "Fair Market Value Per
Share"). Upon exercise of each assumed option of Autoweb.com California to
purchase Autoweb.com Delaware Common Stock, cash will be paid by Autoweb.com
Delaware in lieu of any fractional share of Autoweb.com 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. On the Effective Date, the obligations of
----------------------
Autoweb.com California under or with respect to every plan, trust, program and
benefit then in effect or administered by Autoweb.com California for the benefit
of the directors, officers and employees of Autoweb.com California or any of its
subsidiaries shall become the lawful obligations of Autoweb.com 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 upon the Effective Date, Autoweb.com Delaware hereby
expressly adopts and assumes all obligations of Autoweb.com 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 Autoweb.com California such deeds,
assignments and other instruments, and there shall be taken 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
Autoweb.com 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 Autoweb.com 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 Autoweb.com California and by the sole stockholder of
Autoweb.com Delaware, prior to or on the Effective Date.
13. Abandonment. At any time before the Effective Date, this Merger
-----------
Agreement may be terminated and the Merger abandoned by the Board of Directors
of Autoweb.com California or Autoweb.com Delaware, notwithstanding approval of
this Merger Agreement by the Boards of Directors and shareholders of Constituent
Corporations Autoweb.com California and Autoweb.com Delaware.
-4-
<PAGE>
Autoweb.com, Inc. Corporation
Agreement and Plan of Merger
14. Amendment. At any time before the Effective Date, 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 Autoweb.com California and by the sole stockholder of
Autoweb.com Delaware; provided, however, that any amendment made subsequent to
-------- -------
the adoption of this Agreement by the shareholders of Autoweb.com California or
the sole stockholder of Autoweb.com Delaware shall not: (a) 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 Autoweb.com California, (b) alter or change of any of the terms of the
Certificate of Incorporation of the Surviving Corporation to be effected by the
Merger, or (c) alter or change any of the terms or conditions of this Agreement
if such alteration or change would adversely affect the holders of any shares
of any class or series of Autoweb.com California or Autoweb.com 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
Internal Revenue Code of 1986, as amended.
16. Governing Law. This Agreement shall be governed by and construed
-------------
under the internal laws of the State of California 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 Autoweb.com 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.
(THE REMAINDER OF THIS PAGE LEFT INTENTIONALLY BLANK.)
-5-
<PAGE>
Autoweb.com, Inc. Corporation
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 thereunto duly authorized.
AUTOWEB.COM, INC. CORPORATION AUTOWEB.COM, INC.
COMMUNICATIONS CORPORATION, a Delaware
a California corporation corporation
By: ___________________________ By: ___________________________
Dean A. DeBiase Dean A. DeBiase
President and Chief President and Chief
Executive Officer Executive Officer
ATTEST: ATTEST:
- ------ ------
_______________________________ _______________________________
Farhang Zamani Farhang Zamani
Secretary Secretary
[Signature Page to Agreement and Plan of Merger]
-6-
<PAGE>
EXHIBIT 3.01
AUTOWEB.COM, INC.
Certificate of Incorporation
Article I
The name of the corporation is Autoweb.com, Inc.
Article II
The address of the registered office of the corporation in the State of
Delaware is 15 E. North Street, City of Dover 19901, 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
A. Authorization of Shares. The total number of shares of all classes of
-----------------------
stock which the corporation has authority to issue is seventy-three million six
hundred forty-nine thousand nine hundred and seventy-six (73,649,976) shares,
consisting of two classes: sixty million (60,000,000) shares of Common Stock,
$0.001 par value per share, and thirteen million six hundred forty nine thousand
nine hundred seventy six (13,649,976) shares of Preferred Stock, $0.001 par
value per share.
B. Designation of Future Series of Preferred Stock. 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). Subject to approval by the Board of Directors,
the number of authorized shares of Preferred Stock may 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 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 any series
<PAGE>
Autoweb.com, Inc.
Certificate of Incorporation
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.
If the certificate of designation creating a series of Preferred Stock so
provides, any shares of a series of Preferred Stock 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
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.
Article V
The Board of Directors of the corporation shall have the power to adopt,
amend or repeal the 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
A. Number of Directors. The number of directors constituting the entire
-------------------
Board shall be fixed from time to time by vote of a majority of the entire
Board, provided, however, that the number of directors constituting the entire
Board initially shall be six (6) until otherwise fixed by a majority of the
entire Board, and provided further, that the number of directors shall not be
reduced so as to shorten the term of any director at the time in office.
B. Classified Board. Upon the closing by the corporation of a firm
----------------
commitment underwritten public offering of shares of Common Stock in which the
aggregate price received for such shares by the corporation (net of underwriting
discounts and commissions and offering expenses) shall be at least $15,000,000
and at a price per share of Common Stock of at least $8.28 (subject to
adjustments for stock splits, stock dividends, recapitalizations and the like)
("Qualified IPO"), the Board of Directors shall be divided into three classes,
-------------
as nearly equal in numbers as the then total number of directors constituting
the entire Board permits with the term of office of one class expiring each
year. At the first annual meeting of stockholders following the closing of a
Qualified IPO, directors of the first class shall be elected to hold office for
a term expiring at the next succeeding annual meeting, directors at the second
class shall be elected to hold office for a term expiring at the second
succeeding annual meeting and directors of the third class shall be elected to
hold office for a term expiring at the third succeeding annual meeting. Any
vacancies in the Board of Directors for any reason, and any directorships
resulting from any increase in the number of directors, may be filled by the
Board of Directors, acting by a majority of the directors then in office,
although less than a quorum, and any directors so chosen shall hold office until
the
-2-
<PAGE>
Autoweb.com, Inc.
Certificate of Incorporation
next election of the class for which such directors shall have been chosen
and until their successors shall be elected and qualified. Subject to the
foregoing, at each annual meeting of stockholders following the closing of a
Qualified IPO, other than the first such meeting, the successors to the class of
directors whose term shall then expire shall be elected to hold office for a
term expiring at the third succeeding annual meeting.
C. Removal for Cause. Notwithstanding any other provisions of this
-----------------
Certificate of Incorporation or the Bylaws of the corporation (and
notwithstanding the fact that some lesser percentage may be specified by law,
this Certificate of Incorporation or the Bylaws of the corporation), any
director or the entire Board of Directors of the corporation may be removed at
any time, but only for cause and only by the affirmative vote of the holders of
75% or more of the outstanding shares of capital stock of the corporation
entitled to vote generally in the election of directors (considered for this
purpose as one class) cast at a meeting of the stockholders called for that
purpose. Notwithstanding the foregoing, and except as otherwise required by
law, whenever the holders of any one or more series of Preferred Stock shall
have the right, voting separately as a class, to elect one or more directors of
the corporation, the provisions of section C of this Article shall not apply
with respect to the director or directors elected by such holders of Preferred
Stock.
Article VIII
Effective immediately after the closing of an underwritten public offering
of shares of the corporation's Common Stock pursuant to a registration statement
filed with and declared effective by the Securities and Exchange Commission,
actions shall be taken by the corporation's stockholders only at annual or
special meetings of stockholders, and the corporation's stockholders shall not
be able to act by written consent.
Article IX
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 VIII, nor the adoption of
any provision of this Certificate of Incorporation inconsistent with this
Article VIII, 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 X
The name and mailing address of the incorporator is John F. Platz, c/o
Fenwick & West LLP, Two Palo Alto Square, Suite 700, Palo Alto, California
94306.
-3-
<PAGE>
Autoweb.com, Inc.
Certificate of Incorporation
The undersigned incorporator hereby acknowledges that the foregoing
certificate is his act and deed and that the facts stated herein are true.
Dated: January __, 1999
________________________________
John F. Platz, Incorporator
-4-
<PAGE>
================================================================================
EXHIBIT 3.02
BYLAWS
OF
AUTOWEB.COM, INC.
(a Delaware corporation)
As Adopted __________, 1999
================================================================================
<PAGE>
BYLAWS
OF
AUTOWEB.COM, INC.
(A Delaware Corporation)
TABLE OF CONTENTS
PAGE
----
Article I - STOCKHOLDERS........................................... 1
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........ 4
Section 1.10: Action by Written Consent of Stockholders.... 4
Section 1.11: Inspectors of Elections...................... 5
Section 1.12: Notice of Stockholder Business; Nominations.. 6
Article II - BOARD OF DIRECTORS.................................... 8
Section 2.1: Number; Qualifications....................... 8
Section 2.2: Election; Resignation; Removal; Vacancies.... 8
Section 2.3: Regular Meetings............................. 8
Section 2.4: Special Meetings............................. 9
Section 2.5: Telephonic Meetings Permitted................ 9
Section 2.6: Quorum; Vote Required for Action............. 9
Section 2.7: Organization................................. 9
Section 2.8: Written Action by Directors.................. 9
Section 2.9: Powers....................................... 9
Section 2.10: Compensation of Directors.................... 9
Article III - COMMITTEES........................................... 10
Section 3.1: Committees................................... 10
Section 3.2: Committee Rules.............................. 10
Article IV - OFFICERS.............................................. 10
Section 4.1: Generally.................................... 10
Section 4.2: Chief Executive Officer...................... 11
Section 4.3: Chairman of the Board........................ 11
Section 4.4: President.................................... 11
Section 4.5: Vice President............................... 12
i
<PAGE>
BYLAWS
OF
AUTOWEB.COM, INC.
(A Delaware Corporation)
TABLE OF CONTENTS
PAGE
----
Section 4.6: Chief Financial Officer...................... 12
Section 4.7: Treasurer.................................... 12
Section 4.8: Secretary.................................... 12
Section 4.9: Delegation of Authority...................... 12
Section 4.10: Removal...................................... 12
Article V - STOCK.................................................. 12
Section 5.1: Certificates................................. 12
Section 5.2: Lost, Stolen or Destroyed Stock Certificates;
Issuance of New Certificate.................. 13
Section 5.3: Other Regulations............................ 13
Article VI - INDEMNIFICATION....................................... 13
Section 6.1: Indemnification of Officers and Directors.... 13
Section 6.2: Advance of Expenses.......................... 13
Section 6.3: Non-Exclusivity of Rights.................... 14
Section 6.4: Indemnification Contracts.................... 14
Section 6.5: Effect of Amendment.......................... 14
Article VII - NOTICES.............................................. 14
Section 7.1: Notice....................................... 14
Section 7.2: Waiver of Notice............................. 14
Article VIII - INTERESTED DIRECTORS................................ 15
Article IX - GENERAL PROVISIONS.................................... 15
Section 9.1: Fiscal Year.................................. 15
Section 9.2: Seal......................................... 15
Section 9.3: Form of Records.............................. 15
Section 9.4: Reliance Upon Books and Records.............. 15
Section 9.5: Certificate of Incorporation Governs......... 16
Section 9.6: Severability................................. 16
Article X - AMENDMENT.............................................. 16
ii
<PAGE>
BYLAWS
OF
AUTOWEB.COM, INC.
(a Delaware corporation)
As Adopted January __, 1999
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 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 ten percent (10%) of the total number of
votes entitled to be cast by all shareholders at such meeting ("Ten Percent
-----------
Shareholders"), 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. Effective immediately after the closing of an
underwritten public offering of shares of the Corporation's Common Stock
pursuant to a registration statement filed with and declared effective by the
Securities and Exchange Commission, Ten Percent Shareholders may not call a
Special Meeting of Stockholders.
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>
Autoweb.com, Inc.
Bylaws
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. 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 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
-2-
<PAGE>
Autoweb.com, Inc.
Bylaws
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.
(b) Stockholder Request for Action by Written Consent. For such period of
-------------------------------------------------
time as stockholders are authorized to act by written consent pursuant to the
provisions of the Certificate of Incorporation and Section 1.10 hereof, any
stockholder of record seeking to have the stockholders authorize or take
corporate action by written consent without a meeting shall, by written notice
to the Secretary of the Corporation, request the Board of Directors to fix a
record date for such consent. Such request shall include a brief description of
the action proposed to be taken. The Board of Directors shall, within ten (10)
days after the date on which such a request is received, adopt a resolution
fixing the record date. Such record date shall not precede the date upon which
the resolution fixing the record date is adopted by the Board of Directors, and
shall not be more than ten (10) days after the date upon which the resolution
fixing the record date is adopted by the Board of Directors. If no record date
has been fixed by the Board of Directors within ten (10) days after the date on
which such a request is received, then the record date for determining
stockholders entitled to consent to corporate action in writing without a
meeting, when no prior action by the Board of Directors is required by
applicable law, shall be the first date on which a signed written consent
setting forth the action taken or proposed to be taken is 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. If no record date
has been fixed by the Board of Directors and prior action by the Board of
Directors is required by applicable law, then the record date for determining
stockholders entitled to consent to corporate action in writing without a
meeting shall be at the close of business on the date on which the Board of
Directors adopts the resolution taking such prior action.
-3-
<PAGE>
Autoweb.com, Inc.
Bylaws
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;
provided, however, that effective immediately after the closing of an
- -------- -------
underwritten public offering of shares of the Corporation's Common Stock
pursuant to a registration statement filed with and declared effective by the
Securities and Exchange Commission, any action required or permitted to be taken
by the Corporation's stockholders shall be taken only at a duly called annual or
special meeting of such stockholders, and the Corporation's stockholders shall
not be able to act by written consent. For such period of time as written
stockholder consents are permitted, such 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 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
-4-
<PAGE>
Autoweb.com, Inc.
Bylaws
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.
(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
-5-
<PAGE>
Autoweb.com, Inc.
Bylaws
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.
Section 1.12: Notice of Stockholder Business; Nominations.
------------ -------------------------------------------
1.12.1 Annual Meeting of Stockholders.
------------------------------
(a) Nominations of persons for election to the Board of Directors
and the proposal of business to be considered by the stockholders shall be made
at an annual meeting of stockholders (A) pursuant to the Corporation's notice of
such meeting, (B) by or at the direction of the Board of Directors or (C) by any
stockholder of the Corporation who was a stockholder of record at the time of
giving of the notice provided for in this Section 1.12, who is entitled to vote
at such meeting and who complies with the notice procedures set forth in this
Section 1.12 .
(b) For nominations or other business to be properly brought before
an annual meeting by a stockholder pursuant to clause (C) of subparagraph
1.12.1(a), the stockholder must have given timely notice thereof in writing to
the Secretary of the Corporation and such other business must otherwise be a
proper matter for stockholder action. To be timely, a stockholder's notice must
be delivered to the Secretary at the principal executive offices of the
Corporation not later than the close of business on the sixtieth (60th) day nor
earlier than the close of business on the ninetieth (90th) day prior to the
first anniversary of the preceding year's annual meeting; provided, however,
-------- -------
that in the event that the date of the annual meeting is more than thirty (30)
days before or more than sixty (60) days after such anniversary date, notice by
the stockholder to be timely must be so delivered not earlier than the close of
business on the ninetieth (90th) day prior to such annual meeting and not later
than the close of business on the later of the sixtieth (60th) day prior to such
annual meeting or the close of business on the tenth (10th) day following the
day on which public announcement of the date of such meeting is first made by
the Corporation. Such stockholder's notice shall set forth: (A) as to each
person whom the stockholder proposes to nominate for election or reelection as a
director all information relating to such person that is required to be
disclosed in solicitations of proxies for election of directors, or is otherwise
required, in each case pursuant to Regulation 14A under the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), including such person's written
------------
consent to being named in the proxy statement as a nominee and to serving as a
director if elected; (B) as to any other business that the stockholder proposes
to bring before the meeting, a brief description of the business desired to be
brought before the meeting, the reasons for conducting such business at the
meeting and any material interest in such business of such stockholder and the
beneficial owner, if any, on whose behalf the proposal is made; and (C) as to
the stockholder giving the notice and the beneficial owner, if any, on whose
behalf the nomination or proposal is made (i) the name and address of such
stockholder, as they appear on the Corporation's books, and of such
-6-
<PAGE>
Autoweb.com, Inc.
Bylaws
beneficial owner, and (ii) the class and number of shares of the Corporation
that are owned beneficially and held of record by such stockholder and such
beneficial owner.
(c) Notwithstanding anything in the second sentence of subparagraph
1.12.1(b) to the contrary, in the event that the number of directors to be
elected to the Board of Directors of the Corporation is increased and there is
no public announcement by the Corporation naming all of the nominees for
director or specifying the size of the increased board of directors at least
seventy (70) days prior to the first anniversary of the preceding year's annual
meeting (or, if the annual meeting is held more than thirty (30) days before or
sixty (60) days after such anniversary date, at least seventy (70) days prior to
such annual meeting), a stockholder's notice required by this Section 1.12 shall
also be considered timely, but only with respect to nominees for any new
positions created by such increase, if it shall be delivered to the Secretary of
the Corporation at the principal executive office of the Corporation not later
than the close of business on the tenth (10th) day following the day on which
such public announcement is first made by the Corporation.
1.12.2 Special Meetings of Stockholders. Only such business shall be
--------------------------------
conducted at a special meeting of stockholders as shall have been brought before
the meeting pursuant to the Corporation's notice of such meeting. Nominations
of persons for election to the Board of Directors may be made at a special
meeting of stockholders at which directors are to be elected pursuant to the
Corporation's notice of such meeting (a) by or at the direction of the Board of
Directors or (b) provided that the Board of Directors has determined that
directors shall be elected at such meeting, by any stockholder of the
Corporation who is a stockholder of record at the time of giving of notice of
the special meeting, who shall be entitled to vote at the meeting and who
complies with the notice procedures set forth in this Section 1.12. In the
event the Corporation calls a special meeting of stockholders for the purpose of
electing one or more directors to the Board of Directors, any such stockholder
may nominate a person or persons (as the case may be), for election to such
position(s) as specified in the Corporation's notice of meeting, if the
stockholder's notice required by subparagraph 1.12.1(b) shall be delivered to
the Secretary of the Corporation at the principal executive offices of the
Corporation not earlier than the ninetieth (90th) day prior to such special
meeting and not later than the close of business on the later of the sixtieth
(60th) day prior to such special meeting or the tenth (10th) day following the
day on which public announcement is first made of the date of the special
meeting and of the nominees proposed by the Board of Directors to be elected at
such meeting.
1.12.3 General.
-------
(a) Only such persons who are nominated in accordance with the
procedures set forth in this Section 1.12 shall be eligible to serve as
directors and only such business shall be conducted at a meeting of stockholders
as shall have been brought before the meeting in accordance with the procedures
set forth in this Section 1.12. Except as otherwise provided by law or these
bylaws, the chairman of the meeting shall have the power and duty to determine
whether a nomination or any business proposed to be brought before the meeting
was made or proposed, as the case may be, in accordance with the procedures set
forth in this Section 1.12 and, if any
-7-
<PAGE>
Autoweb.com, Inc.
Bylaws
proposed nomination or business is not in compliance herewith, to declare that
such defective proposal or nomination shall be disregarded.
(b) For purposes of this Section 1.12, the term "public announcement"
-------------------
shall mean disclosure in a press release reported by the Dow Jones News Service,
Associated Press or comparable national news service or in a document publicly
filed by the Corporation with the Securities and Exchange Commission pursuant to
section 13, 14 or 15(d) of the Exchange Act.
(c) Notwithstanding the foregoing provisions of this Section 1.12, a
stockholder shall also comply with all applicable requirements of the Exchange
Act and the rules and regulations thereunder with respect to the matters set
forth herein. Nothing in this Section 1.12 shall be deemed to affect any rights
of stockholders to request inclusion of proposals in the Corporation's proxy
statement pursuant to Rule 14a-8 under the Exchange Act.
ARTICLE II: BOARD OF DIRECTORS
Section 2.1: Number; Qualifications. The Board of Directors shall consist
----------- ----------------------
of the number of directors set forth in the Corporation's initial Certificate of
Incorporation (the "Initial Certificate"). Any modification in the number of
-------------------
directors constituting the Board of Directors shall be made according to the
procedure set forth in the Initial Certificate. Directors need not be
stockholders of the Corporation.
Section 2.2: Election; Resignation; Removal; Vacancies. The Board of
----------- -----------------------------------------
Directors shall initially consist of the following persons, who shall also
constitute the following initial classes of directors specified according to the
procedure set forth in the Initial Certificate:
First class: _______________
_______________
Second class: _______________
_______________
Third class: _______________
_______________
Each class of director shall hold office for the term specified in the
Initial Certificate 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. Removal of directors, and
vacancies arising with respect to the Board of Directors, shall be treated as
set forth in the Initial Certificate.
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.
-8-
<PAGE>
Autoweb.com, Inc.
Bylaws
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 twenty-four (24) 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.
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.
-9-
<PAGE>
Autoweb.com, Inc.
Bylaws
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.
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. 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
-10-
<PAGE>
Autoweb.com, Inc.
Bylaws
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.
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
-11-
<PAGE>
Autoweb.com, Inc.
Bylaws
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.
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.
-12-
<PAGE>
Autoweb.com, Inc.
Bylaws
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 or officer 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 or officer 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 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
-13-
<PAGE>
Autoweb.com, Inc.
Bylaws
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 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,
-14-
<PAGE>
Autoweb.com, Inc.
Bylaws
directors or members of a committee of directors need be specified in any
written waiver of notice.
ARTICLE VIII: INTERESTED DIRECTORS
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) he 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.
ARTICLE IX: GENERAL PROVISIONS
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
-15-
<PAGE>
Autoweb.com, Inc.
Bylaws
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.
ARTICLE X: AMENDMENT
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.
____________________________________________
-16-
<PAGE>
CERTIFICATION OF BYLAWS
OF
AUTOWEB.COM, INC.
(a Delaware corporation)
KNOW ALL BY THESE PRESENTS:
I, Farhang Zamani, certify that I am Secretary of Autoweb.com, 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: ______________, 1999
______________________________
Farhang Zamani
Secretary
<PAGE>
EXHIBIT 3.03
------------
CERTIFICATE OF RETIREMENT
OF
SERIES A, SERIES B, SERIES C AND SERIES D PREFERRED STOCK
OF
AUTOWEB.COM, INC.
Autoweb.com, Inc, a Delaware corporation, hereby certifies:
1. That at a duly noticed and held meeting, the Board of Directors of the
corporation duly adopted a resolution that identified shares of capital stock of
the corporation, which, to the extent hereinafter set forth, had the status of
retired shares.
2. The shares of capital stock of the corporation that are retired are
identified as being Series A, Series B, Series C, and Series D Preferred Stock,
each share with a par value of $0.001 per share.
3. That the Certificate of Incorporation of the corporation prohibits the
reissuance of the shares of Series A, Series B, Series C, and Series D Preferred
Stock; and pursuant to the provisions of Section 243 of the Delaware General
Corporation Law, upon the effective date of filing of this certificate, the
Certificate of Incorporation of the Company shall be amended so as to effect a
reduction in the authorized number of shares of the Company's capital stock to
the extent of, respectively, 2,474,486 shares of Series A Preferred Stock,
2,550,000 shares of Series B Preferred Stock, 2,369,969 shares of Series C
Preferred Stock and 1,255,521 shares of Series D Preferred Stock, being the
total number of shares retired with a par value of $0.001.
IN WITNESS WHEREOF, said corporation has caused this Certificate of
Retirement to be signed by its duly authorized officers this ____ day of
____________, 1999.
AUTOWEB.COM, INC
By:_____________________________________
Dean A. DeBiase, President and Chief
Executive Officer
<PAGE>
EXHIBIT 3.04
AUTOWEB.COM, INC.
Certificate of Designation
of
Preferred Stock
Pursuant to Section 151 of the
Delaware General Corporation Law
Autoweb.com, 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 four separate
series of Preferred Stock designated as Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock and Series D Preferred Stock.
Resolved, that the Corporation hereby designate and create four (4)
separate series of the authorized Preferred Stock designated as Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and Series D
Preferred Stock as follows:
A. Series of Preferred Stock. Of the thirteen million six hundred forty-
-------------------------
nine thousand nine hundred seventy-six (13,649,976) shares of Preferred Stock,
par value $0.001 per share, authorized to be issued by the Corporation, two
million four hundred seventy-four thousand four hundred eighty-six (2,474,486)
shares are hereby designated as "Series A Preferred Stock," two million five
hundred fifty thousand (2,550,000) shares are hereby designated as "Series B
Preferred Stock," two million three hundred sixty-nine thousand nine hundred
sixty-nine (2,369,969) shares are hereby designated as "Series C Preferred
Stock" and one million two hundred fifty-five thousand five hundred twenty-one
(1,255,521) shares are hereby designated "Series D Preferred Stock." 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.
B. Rights, Preference and Restrictions of Preferred Stock. The rights,
------------------------------------------------------
preferences, restrictions and other matters relating to the Series A Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock and Series D Preferred
Stock are as follows:
1. Dividend Provisions. The holders of outstanding shares of Series
-------------------
A, Series B, Series C and Series D Convertible Preferred Stock each shall be
entitled to receive dividends on such shares as within each Series, if and when
declared by the Board of Directors; provided, however, that such amounts shall
be paid, if at all, only as part of a payment pursuant to subsection B.2 or
subsection B.3 below. Holders of the outstanding shares of Series D Convertible
Preferred Stock shall be entitled to receive, out of any funds legally available
therefor, cumulative dividends at the annual rate of $0.237 per share of Series
D Convertible Preferred Stock that shall accrue from day to day, whether or not
earned or declared. Holders of
<PAGE>
Autoweb.com Delaware
Certificate of Designation
the outstanding shares of Series C Convertible Preferred Stock shall be entitled
to receive, out of any funds legally available therefor, cumulative dividends at
the annual rate of $0.21097 per share of Series C Convertible Preferred Stock
that shall accrue from day to day, whether or not earned or declared. Holders of
the outstanding shares of Series B Convertible Preferred Stock shall be entitled
to receive, out of any funds legally available therefor, cumulative dividends at
the annual rate of $0.204 per share of Series B Convertible Preferred Stock that
shall accrue from day to day, whether or not earned or declared. Holders of
outstanding shares of Series A Convertible Preferred Stock shall be entitled to
receive cumulative dividends, when and if declared by the Board of Directors,
out of any assets legally available therefor, at the annual rate of $0.012 per
share of Series A Convertible Preferred Stock. The holders of such outstanding
shares of Series A Convertible Preferred Stock, Series B Convertible Preferred
Stock, Series C Convertible Preferred Stock and Series D Convertible Preferred
Stock shall be entitled to such dividends on the Series A, Series B, Series C
and Series D Convertible Preferred Stock prior to and in preference to any
declaration or payment of any dividend on the Common Stock of the Corporation.
Any and all such dividends payable on the Series A, Series B, Series C or Series
D Convertible Preferred Stock shall be made on the basis of adjustments to the
Series A, Series B, Series C or Series D Convertible Preferred Stock to reflect
subsequent stock dividends, stock splits, recapitalizations and the like.
Notwithstanding the foregoing, the holders of the outstanding shares of Series
A, Series B, Series C and Series D Convertible Preferred Stock shall also be
entitled to receive, out of funds legally available therefor, dividends at the
same rate as dividends (other than dividends paid in additional shares of Common
Stock) are paid with respect to the Common Stock (treating each share of Series
A, Series B, Series C and Series D Convertible Preferred Stock as being equal to
the number of shares of Common Stock (including fractions of a share) into which
each share of Series A, Series B, Series C and Series D Convertible Preferred
Stock is then convertible).
2. Liquidation Preference.
----------------------
(a) Upon any liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary, the holders of the shares of
Series A, Series B. Series C and Series D Convertible Preferred Stock shall be
entitled to receive, in equal preference, before any distribution or payment is
made to the holders of Common Stock (A) for each share of Series A Convertible
Preferred Stock held by such holders, an amount equal to the sum of (i) $0.12
(adjusted to reflect subsequent stock dividends, stock splits, reorganizations
and the like) and (ii) all accrued and accumulated but unpaid dividends, whether
declared or not, on such share (the "Series A Preferred Return"), such aggregate
amount payable with respect to each share of Series A Convertible Preferred
Stock being sometimes referred to as the "Series A Liquidation Payment," (B) for
each share of Series B Convertible Preferred Stock held by such holders, an
amount equal to the sum of (i) $2.04211155 (adjusted to reflect subsequent stock
dividends, stock splits, reorganizations and the like) and (ii) all accrued and
accumulated but unpaid dividends, whether declared or not, on such share (the
"Series B Preferred Return"), such aggregate amount payable with respect to each
share of Series B Convertible Preferred Stock being sometimes referred to as the
"Series B Liquidation Payment," (C) for each share of Series C Convertible
Preferred Stock held by such holders, an amount equal to the sum of (i) $2.1097
(adjusted to reflect subsequent stock dividends, stock splits, reorganizations
and the like) and (ii)
-2-
<PAGE>
Autoweb.com Delaware
Certificate of Designation
all accrued and accumulated but unpaid dividends, whether declared or not, on
such share (the "Series C Preferred Return"), such aggregate amount payable with
respect to each share of Series C Convertible Preferred Stock being sometimes
referred to as the "Series C Liquidation Payment" and (D) for each share of
Series D Convertible Preferred Stock held by such holders, an amount equal to
the sum of (i) $2.37 (adjusted to reflect subsequent stock dividends, stock
splits, reorganizations and the like) and (ii) all accrued and accumulated but
unpaid dividends, whether declared or not, on such share (the "Series D
Preferred Return"), such aggregate amount payable with respect to each share of
Series D Convertible Preferred Stock being sometimes referred to as the "Series
D Liquidation Payment." If upon such liquidation, dissolution or winding up of
the Corporation, whether voluntary or involuntary, the assets to be distributed
among the holders of Series A, Series B, Series C and Series D Convertible
Preferred Stock shall be insufficient to permit payment to the holders of Series
A, Series B, Series C and Series D Convertible Preferred Stock of the Series A
Liquidation Payment, the Series B Liquidation Payment, the Series C Liquidation
Payment and the Series D Liquidation Payment, respectively, then the entire
assets of the Corporation to be so distributed shall be distributed ratably
among the holders of Series A, Series B, Series C and Series D Convertible
Preferred Stock in proportion to the full amounts they would otherwise be
entitled to receive. Upon any such liquidation, dissolution or winding up of the
Corporation, after the holders of Series A, Series B, Series C and Series D
Convertible Preferred Stock shall have been paid the Series A Liquidation
Payment, the Series B Liquidation Payment, the Series C Liquidation Payment and
the Series D Liquidation Payment, respectively, the remaining net assets of the
Corporation shall be distributed to the holders of Common Stock, Series A,
Series B, Series C and Series D Convertible Preferred Stock ratably as if all
shares of Preferred Stock had been converted into Common Stock. Written notice
of such liquidation, dissolution or winding up, stating a payment date, the
amount of the Series A Liquidation Payment, Series B Liquidation Payment, Series
C Liquidation Payment and the Series D Liquidation Payment and the place where
said Series A Liquidation Payment, Series B Liquidation Payment, Series C
Liquidation Payment and Series D Liquidation Payment shall be payable, shall be
delivered in person, mailed by certified or registered mail, return receipt
requested, or sent by telecopier or telex, not less than 20 days prior to the
payment date stated therein, to the holders of Series A, Series B. Series C and
Series D Convertible Preferred Stock, such notice to be addressed to each such
holder at its address as shown on the records of the Corporation. The
consolidation, reorganization or merger (or similar transaction or series of
transactions) of the Corporation into or with any other entity or entities which
results in the exchange of outstanding shares of the Corporation for securities
or other consideration issued or paid or caused to be issued or paid by any such
entity or affiliate thereof (other than a merger to reincorporate the
Corporation in a different jurisdiction) which results in the Corporation's
shareholders immediately prior to such transaction holding less than 50% of the
voting power of the surviving or continuing entity, or the sale, lease,
abandonment, transfer or other disposition by the Corporation of all or
substantially all its assets, shall be deemed to be a liquidation, dissolution
or winding up of the Corporation within the meaning of the provisions of this
Section 2.
(b) (i) In any of such events, if the consideration received by the
Corporation is other than cash, its value will be deemed its fair market value.
Any securities shall be valued as follows:
-3-
<PAGE>
Autoweb.com Delaware
Certificate of Designation
(A) Securities not subject to investment letter or other
similar restrictions on free marketability covered by (B) below:
(1) If traded on a securities exchange or through
the Nasdaq National Market, the value shall be deemed to be the average of the
closing prices of the securities on such exchange over the thirty (30) day
period ending three (3) days prior to the closing;
(2) If actively traded over-the-counter, the value
shall be deemed to be the average of the closing bid or sale prices (whichever
is applicable) over the thirty (30) day period ending three (3) days prior to
the closing; and
(3) If there is no active public market, the value
shall be the fair market value thereof, as mutually determined by the
Corporation and the holders of at least a majority of the voting power of all
then outstanding shares of Preferred Stock (voting together on an as-converted
basis).
(B) The method of valuation of securities subject to
investment letter or other restrictions on free marketability (other than
restrictions arising solely by virtue of a stockholder's status as an affiliate
or former affiliate) shall be to make an appropriate discount from the market
value determined as above in (A)(1), (2) or (3) to reflect the approximate fair
market value thereof, as mutually determined by the Corporation and the holders
of at least a majority of the voting power of each of the then outstanding
shares of the Series A, Series B, Series C and Series D Convertible Preferred
Stock (voting together on an as-converted basis).
(ii) In the event the requirements of this subsection 2(b)
are not complied with, the Corporation shall forthwith either:
(A) cause such closing to be postponed until such time
as the requirements of this Section 2 have been complied with; or
(B) cancel such transaction, in which event the rights,
preferences and privileges of the holders of the Series A, Series B, Series C
and Series D Convertible Preferred Stock shall revert to and be the same as such
rights. preferences and privileges existing immediately prior to the date of the
first notice referred to in subsection 2(a) hereof.
3. Redemption. The shares of Series A, Series B, Series C and
----------
Series D Convertible redeemed as follows:
(a) Optional Redemption. Commencing at any time on or after June 30,
-------------------
2003 and prior to June 30, 2006, upon the option and written election of any
holder of the Series A, Series B, Series C and Series D Convertible Preferred
Stock, the Corporation shall redeem in three (3) annual installments (each
payment date being referred to herein as a "Redemption Date") that number of
outstanding shares of Series A, Series B, Series C and Series D Convertible
Preferred Stock requested to be redeemed by such holder, at the price and terms
-4-
<PAGE>
Autoweb.com Delaware
Certificate of Designation
stated in this Section 3. Subject to the following provisions of this Section 3,
the number of shares of Series A, Series B, Series C and Series D Convertible
Preferred Stock that the Corporation shall be required to redeem on any one
Redemption Date shall be equal, respectively, to the amounts determined (i) by
dividing (x) the number of shares of Series A Convertible Preferred Stock
outstanding immediately prior to such Redemption Date that have been requested
to be redeemed pursuant to this Section 3(a) by (y) the number of remaining
Redemption Dates (including the Redemption Date to which such calculation
applies); (ii) by dividing (x) the number of shares of Series B Convertible
Preferred Stock outstanding immediately prior to such Redemption Date that have
been requested to be redeemed pursuant to this Section 3(a) by (y) the number of
remaining Redemption Dates (including the Redemption Date to which such
calculation applies); (iii) by dividing (x) the number of shares of Series C
Convertible Preferred Stock outstanding immediately prior to such Redemption
Date that have been requested to be redeemed pursuant to this Section 3(a) by
(y) the number of remaining Redemption Dates (including the Redemption Date to
which such calculation applies); and (iv) by dividing (x) the number of shares
of Series D Convertible Preferred Stock outstanding immediately prior to such
Redemption Date that have been requested to be redeemed pursuant to this Section
3(a) by (y) the number of remaining Redemption Dates (including the Redemption
Date to which such calculation applies).
(b) Redemption Price and Payment. The shares of Series A, Series B.
----------------------------
Series C and Series D Convertible Preferred Stock shall be redeemed by paying
for each share in cash an amount equal to the price at which the first share of
such series of Preferred Stock was issued ("Original Purchase Price") plus, for
each such share, an amount equal to all dividends accumulated thereon, whether
declared or not, minus dividends declared and paid thereon, computed to such
Redemption Date, such amount being referred to herein as the "Redemption Price."
Such payment shall be made in full on the applicable Redemption Date to the
holders entitled thereto. If the funds of the Corporation legally available for
redemption of the shares of the Series A, Series B, Series C and Series D
Convertible Preferred Stock are insufficient to redeem the total number of
shares of Series A. Series B, Series C and Series D Convertible Preferred Stock
on such date, each redemption of shares of Series A, Series B, Series C and
Series D Convertible Preferred Stock shall be made so that the number of shares
of Series A, Series B, Series C and Series D Convertible Preferred Stock held by
each registered holder requesting redemption pursuant to Section 3(a) shall be
reduced in the same proportion that the total number of shares of Series A,
Series B, Series C and Series D Convertible Preferred Stock then held by such
registered holder bears to the aggregate number of shares of Series A, Series B,
Series C and Series D Convertible Preferred Stock then held by the holders of
Series A, Series B, Series C and Series D Convertible Preferred Stock requesting
redemption. At any time thereafter when additional funds of the Corporation are
legally available for the redemption of the Series A, Series B, Series C and
Series D Convertible Preferred Stock, such funds will immediately be used to
redeem the balance of the shares which the Corporation has become obligated to
redeem on any Redemption Date but which it has not redeemed.
(c) Equitable Adjustment. The Series A, Series B, Series C and Series
--------------------
D Redemption Prices set forth in this Section 3 shall be subject to adjustment
for equitable dividends, combinations, reorganizations, recapitalizations,
reclassifications, or other similar
-5-
<PAGE>
Autoweb.com Delaware
Certificate of Designation
events involving a change in the Series A, Series B, Series C and Series D
Convertible Preferred Stock, as the case may be.
(d) Redemption Mechanics. If the holders of the outstanding shares of
--------------------
Series A, Series B, Series C and Series D Convertible Preferred Stock elect to
have the Corporation redeem a portion or all of their outstanding shares of
Preferred Stock as aforesaid, written notice to that effect shall be given by
such holders to the Corporation at least sixty (60) days prior to the Redemption
Date, which notice shall also set forth the date fixed for redemption pursuant
to this Section 3. If such notice is given, then at least forty-five (45) days
prior to the Redemption Date, written notice (hereinafter referred to as the
"Redemption Notice") shall be mailed, postage prepaid, by the Corporation to
each other holder of record of the Series A, Series B, Series C and Series D
Convertible Preferred Stock, at its address shown on the records of the
Corporation; provided, however, that the Corporation's failure to give such
Redemption Notice shall in no way affect its obligation to redeem the shares of
Series A, Series B. Series C and Series D Convertible Preferred Stock as
provided in Section 3(a) hereof. The Redemption Notice shall contain the
following information:
(i) the number of shares of Series A, Series B, Series C and
Series D Convertible Preferred Stock which are to be redeemed by the Corporation
and the total number of shares of Series A, Series B, Series C or Series D
Convertible Preferred Stock held by all other holders; and
(ii) the Redemption Date and the applicable Series A, Series
B, Series C and Series D Redemption Prices.
Following receipt of the Redemption Notice, additional holders may elect to
participate in the redemption by delivery of written notice to that effect given
by such holders to the Corporation at least twenty (20) days prior to the
Redemption Date. Three (3) days prior to the applicable Redemption Date, the
Corporation shall deposit the applicable Redemption Price of the Series A,
Series B, Series C or Series D Convertible Preferred Stock surrendered for
redemption in the Redemption Notice, and not yet redeemed or converted, with a
bank or trust company having aggregate capital and surplus in excess of
$100,000,000 as a trust fund for the benefit of the respective holders of the
shares surrendered for redemption and not yet redeemed. Simultaneously, this
Corporation shall deposit irrevocable instructions and authority to such bank or
trust company to publish the Redemption Notice thereof (or to complete such
publication if theretofore commenced) and to pay, on and after the Redemption
Date, the Redemption Price of the Series A, Series B, Series C or Series D
Convertible Preferred Stock to the holders thereof upon surrender of their
certificates. Any moneys deposited by the Corporation pursuant to this Section
3(d) for the redemption of shares which are thereafter converted into shares of
Common Stock pursuant to Section 4 no later than the close of business on the
Redemption Date shall be returned to the Corporation forthwith upon such
conversion. The balance of any moneys deposited by the Corporation pursuant to
this Section 3(d) remaining unclaimed at the expiration of one year following
the Redemption Date shall thereafter be returned to the Corporation, provided
that the stockholder to which such monies would be payable hereunder shall be
entitled, upon proof of its ownership of the Series A, Series B, Series C or
Series D Convertible Preferred
-6-
<PAGE>
Autoweb.com Delaware
Certificate of Designation
Stock and payment of any bond requested by the Corporation, to receive such
monies, but without interest, from the Redemption Date.
(e) Surrender of Certificates. Each holder of shares of Series A,
-------------------------
Series B, Series C and Series D Convertible Preferred Stock to be redeemed shall
surrender the certificate(s) representing such shares to the Corporation, and,
thereupon, the Redemption Price for such shares as set forth in this Section 3
shall be paid to the order of the person whose name appears on such
certificate(s), and each surrendered certificate shall be canceled and retired.
In the event some, but not all, of the shares of Preferred Stock represented by
a certificate(s) surrendered by a holder are being redeemed, the Corporation
shall execute and deliver to or on the order of the holder, at the expense of
the Corporation, a new certificate representing the number of shares of Series
A, Series B, Series C or Series D Convertible Preferred Stock which were not
redeemed.
(f) Dividends and Conversion After Redemption. From and after the
-----------------------------------------
later of (i) the Redemption Date or (ii) forty-five (45) days from the date the
Corporation shall have given the Redemption Notice, unless there has been a
default in payment of the Redemption Price, no shares of Preferred Stock
designated for redemption shall be entitled to any further dividends pursuant to
Section 3 hereof or to the conversion provisions set forth in Section 4 hereof.
(g) Redeemed or Otherwise Acquired Shares to be Retired. Any shares
---------------------------------------------------
of Preferred Stock redeemed pursuant to this Section 3 or otherwise acquired by
the Corporation in any manner whatsoever shall be canceled and shall not under
any circumstances be reissued; and the Corporation may from time to time take
such appropriate corporate actions as may be necessary to reduce accordingly the
number of authorized shares of Series A, Series B, Series C and Series D
Convertible Preferred Stock.
4. Conversion. The holders of outstanding shares of Series A, Series
----------
B, Series C and Series D Convertible Preferred Stock shall have the following
conversion rights:
(a) Right to Convert. Subject to the terms and conditions of this
----------------
Section 4, the holder of any share or shares of Series A Convertible Preferred
Stock shall have the right, at its option and at any time, to convert any such
shares of Series A Convertible Preferred Stock (except that upon any liquidation
of the Corporation the right of conversion shall terminate at the close of
business on the business day fixed for payment of the amount distributable on
the Series A Convertible Preferred Stock) into such number of fully paid and
nonassessable shares of Common Stock as is obtained by (i) multiplying the
number of shares of Series A Convertible Preferred Stock to be converted by
$0.12; and (ii) dividing the result by the conversion price of $0.12 per share
or, in case an adjustment of such conversion price has taken place pursuant to
the further provisions of this Section 4, then by the conversion price as last
adjusted and in effect at the date any share or shares of Series A Convertible
Preferred Stock are surrendered for conversion (such conversion price, or such
conversion price as last adjusted, being referred to as the "Series A Conversion
Price"). Subject to the terms and conditions of this Section 4, the holder of
any share or shares of Series B Convertible Preferred Stock shall have the
right, at its option and at any time, to convert any such shares of Series B
Convertible
-7-
<PAGE>
Autoweb.com Delaware
Certificate of Designation
Preferred Stock (except that upon any liquidation of the Corporation the right
of conversion shall terminate at the close of business on the business day fixed
for payment of the amount distributable on the Series B Convertible Preferred
Stock) into such number of fully paid and nonassessable shares of Common Stock
as is obtained by (i) multiplying the number of shares of Series B Convertible
Preferred Stock to be converted by $2.04211155; and (ii) dividing the result by
the conversion price of $1.1037298 per share or, in case an adjustment of such
conversion price has taken place pursuant to the further provisions of this
Section 4, then by the conversion price as last adjusted and in effect at the
date any share or shares of Series B Convertible Preferred Stock are surrendered
for conversion (such conversion price, or such conversion price as last
adjusted, being referred to as the "Series B Conversion Price"). Subject to the
terms and conditions of this Section 4, the holder of any share or shares of
Series C Convertible Preferred Stock shall have the right, at its option and at
any time, to convert any such shares of Series C Convertible Preferred Stock
(except that upon any liquidation of the Corporation the right of conversion
shall terminate at the close of business on the business day fixed for payment
of the amount distributable on the Series C Convertible Preferred Stock) into
such number of fully paid and nonassessable shares of Common Stock as is
obtained by (i) multiplying the number of shares of Series C Convertible
Preferred Stock to be converted by $2.1097; and (ii) dividing the result by the
conversion price of $1.8413695 per share or, in case an adjustment of such
conversion price has taken place pursuant to the further provisions of this
Section 4, then by the conversion price as last adjusted and in effect at the
date any share or shares of Series C Convertible Preferred Stock are surrendered
for conversion (such conversion price, or such conversion price as last
adjusted, being referred to as the "Series C Conversion Price"). Subject to the
terms and conditions of this Section 4, the holder of any share or shares of
Series D Convertible Preferred Stock shall have the right, at its option and at
any time, to convert any such shares of Series D Convertible Preferred Stock
(except that upon any liquidation of the Corporation the right of conversion
shall terminate at the close of business on the business day fixed for payment
of the amount distributable on the Series D Convertible Preferred Stock) into
such number of fully paid and nonassessable shares of Common Stock as is
obtained by (i) multiplying the number of shares of Series D Convertible
Preferred Stock to be converted by $2.37; and (ii) dividing the result by the
conversion price of $2.37 per share or, in case an adjustment of such conversion
price has taken place pursuant to the further provisions of this Section 4, then
by the conversion price as last adjusted and in effect at the date any share or
shares of Series D Convertible Preferred Stock are surrendered for conversion
(such conversion price, or such conversion price as last adjusted, being
referred to as the "Series D Conversion Price"). Such rights of conversion shall
be exercised by the holder thereof by giving written notice to the Corporation
that the holder elects to convert a stated number of shares of Series A, Series
B, Series C or Series D Convertible Preferred Stock into Common Stock and by
surrender of a certificate or certificates for the shares so to be converted to
the Corporation at its principal office (or such other office or agency of the
Corporation as the Corporation may designate by notice in writing to the holders
of the Series A, Series B, Series C or Series D Convertible Preferred Stock) at
any time during its usual business hours on the date set forth in such notice,
together with a statement of the name or names (with address) in which the
certificate or certificates for shares of Common Stock shall be issued.
-8-
<PAGE>
Autoweb.com Delaware
Certificate of Designation
(b) Issuance of Certificates, Time Conversion Effected. Promptly
--------------------------------------------------
after the receipt of the written notice referred to in Section 4(a) and
surrender of the certificate or certificates for the share or shares of Series
A, Series B, Series C or Series D Convertible Preferred Stock to be converted,
the Corporation shall issue and deliver, or cause to be issued and delivered, to
the holder, registered in such name or names as such holder may direct, a
certificate or certificates for the number of whole shares of Common Stock
issuable upon the conversion of such share or shares of Series A, Series B,
Series C or Series D Convertible Preferred Stock. To the extent permitted by
law, such conversion shall be deemed to have been effected and the Series A
Conversion Price, Series B Conversion Price, Series C Conversion Price and
Series D Conversion Price, as applicable, shall be determined as of the close of
business on the date on which such written notice shall have been received by
the Corporation and the certificate or certificates for such share or shares
shall have been surrendered as aforesaid, and at such time the rights of the
holder of such share or shares of Series A. Series B, Series C or Series D
Convertible Preferred Stock shall cease, and the person or persons in whose name
or names any certificate or certificates for shares of Common Stock shall be
issuable upon such conversion shall be deemed to have become the holder or
holders of record of the shares represented thereby. In the event the
conversion is in connection with an underwritten offering of securities pursuant
to the Securities Act of 1933, as amended, the conversion may, at the option of
any holder tendering Series A, Series B, Series C or Series D Convertible
Preferred Stock for conversion, be conditioned upon the closing with the
underwriters of the sale of securities pursuant to such offering, in which event
the person entitled to receive the Common Stock upon conversion of the Series A,
Series B, Series C or Series D Convertible Preferred Stock shall not be deemed
to have converted such shares of Series A, Series B, Series C or Series D
Convertible Preferred Stock until immediately prior to the closing of such sale
of securities.
(c) Fractional Shares; Dividends; Partial Conversion. No fractional
------------------------------------------------
shares shall be issued upon conversion of Series A, Series B, Series C or Series
D Convertible Preferred Stock into Common Stock and no payment or adjustment
shall be made upon any conversion on account of any cash dividends on the Common
Stock in lieu of such fractional share issued upon such conversion. At the time
of each conversion, the Corporation shall pay in cash an amount equal to all
dividends, excluding dividends accrued and unpaid on the shares of Series A,
Series B, Series C or Series D Convertible Preferred Stock surrendered for
conversion to the date upon which such conversion is deemed to take place as
provided in Section 4(b). In case the number of shares of Series A, Series B,
Series C or Series D Convertible Preferred Stock are represented by the
certificate or certificates surrendered pursuant to Section 4(b) exceeds the
number of shares converted, the Corporation shall, upon such conversion, execute
and deliver to the holder, at the expense of the Corporation, a new certificate
or certificates for the number of shares of Series A, Series B, Series C or
Series D Convertible Preferred Stock represented by the certificate or
certificates surrendered which are not to be converted. If any fractional
shares of Common Stock would, except for the provisions of the first sentence of
this Section 4(c), be delivered upon such conversion, the Corporation, in lieu
of delivering such fractional share, shall pay to the holder surrendering the
Series A, Series B, Series C or Series D Convertible Preferred Stock for
conversion an amount in cash equal to the current market price of such
fractional share as determined in good faith by the Board of Directors of the
Corporation.
-9-
<PAGE>
Autoweb.com Delaware
Certificate of Designation
(d) Adjustment of Price Upon Certain Dilutive Issuances of Common
-------------------------------------------------------------
Stock. Except as provided in Section 4(e), if and whenever the Corporation
- -----
shall issue or sell, or is, in accordance with Sections 4(d)(i) through
4(d)(vii), deemed to have issued or sold, any shares of Common Stock (the
"Additional Shares") for a consideration per share less than the Series A
Conversion Price, Series B Conversion Price, Series C Conversion Price or Series
D Conversion Price in effect immediately prior to the time of such issue or
sale, then, forthwith upon such issue or sale, the Series A Conversion Price,
Series B Conversion Price, Series C Conversion Price or Series D Conversion
Price shall be reduced, as the case may be, to the price (to the nearest tenth
of a cent) determined by the following formula:
CS + C
-----
CP(2) = CP(1)* CP(1)
----------------------
CS + AS
where:
(1) CP(l) = the conversion price for such series of Preferred Stock in effect
on the date immediately prior to such issue of Additional Shares;
(2) CP(2) = the conversion price for such series of Preferred Stock as so
adjusted;
(3) CS = the number of shares of Common Stock outstanding immediately
prior to such issuance of Additional Shares (including shares of
Common Stock issuable upon conversion or exercise of any
Convertible Securities (as defined below) (which includes such
series of Preferred Stock), or upon exercise of Options (as
defined below));
(4) C the aggregate consideration, if any, received by the Corporation
upon such issue or sale by the Corporation of the Additional
Shares, provided that if such shares are issued without
consideration, then C shall be zero (0); and
(5) AS = the number of such Additional Shares so issued by the
Corporation.
For purposes of this Section 4(d), the following Sections 4(d)(i) to
4(d)(vii) shall also be applicable:
(i) Issuance of Rights or Options. In case at any time the
-----------------------------
Corporation shall in any manner grant (whether directly or by assumption in a
merger or otherwise) any warrants or other rights to subscribe for or to
purchase, or any options for the purchase of, Common Stock or any stock or
security convertible into or exchangeable for Common Stock (such warrants,
rights or options being called "Options" and such convertible or exchangeable
stock or securities being called "Convertible Securities"), whether or not such
Options or the right to convert or exchange any such Convertible Securities are
immediately exercisable, and the price per share for which Common Stock is
issuable upon the exercise of
-10-
<PAGE>
Autoweb.com Delaware
Certificate of Designation
such Options or upon the conversion or exchange of such Convertible Securities
(determined by dividing (i) the total amount, if any, received or receivable by
the Corporation as consideration for the granting of such Options, plus the
minimum aggregate amount of additional consideration payable to the Corporation
upon the exercise of all such Options, plus, in the case of such Options which
relate to Convertible Securities, the minimum aggregate amount of additional
consideration, if any, payable upon the issue or sale of such Convertible
Securities and upon the conversion or exchange thereof, by (ii) the total
maximum number of shares of Common Stock issuable upon the exercise of such
Options or upon the conversion or exchange of all such Convertible Securities
issuable upon the exercise of such Options, assuming the satisfaction of any
conditions to exercisability including, without limitation, the passage of time)
shall be less than the Series A Conversion Price, Series B Conversion Price,
Series C Conversion Price or Series D Conversion Price, as the case may be, in
effect immediately prior to the time of the granting of such Options, then the
total number of shares of Common Stock issuable upon the exercise of such
Options or upon conversion or exchange of the total maximum amount of such
Convertible Securities issuable upon the exercise of such Options shall be
deemed to have been issued for such price per share as of the date of granting
of such Options or the issuance of such Convertible Securities and thereafter
shall be deemed to be outstanding. Except as otherwise provided in Section
4(d)(iii), no adjustment of the Applicable Conversion Price shall be made upon
the actual issue of such Common Stock or of such Convertible Securities upon
exercise of such Options or upon the actual issue of such Common Stock upon
conversion or exchange of such Convertible Securities.
(ii) Issuance of Convertible Securities. In case the Corporation
----------------------------------
shall in any manner issue (whether directly or by assumption in a merger or
otherwise) or sell any Convertible Securities whether or not the rights to
exchange or convert any such Convertible Securities are immediately exercisable,
and the price per share for which Common Stock is issuable upon such conversion
or exchange (determined by dividing (i) the total amount received or receivable
by the Corporation as consideration for the issue or sale of such Convertible
Securities, plus the minimum aggregate amount of additional consideration, if
any, payable to the Corporation upon the conversion or exchange thereof by (ii)
the total maximum number of shares of Common Stock issuable upon the conversion
or exchange of all such Convertible Securities) shall be less than the Series A
Conversion Price, Series B Conversion Price, Series C Conversion Price or Series
D Conversion Price, as the case may be, in effect immediately prior to the time
of such issue or sale, then the total maximum number of shares of Common Stock
issuable upon conversion or exchange of all such Convertible Securities shall be
deemed to have been issued for such price per share as of the date of the issue
or sale of such Convertible Securities and therefore deemed to be outstanding
provided that (a) except as otherwise provided in Section 4(d)(iii), no
adjustment of the Series A Conversion Price, Series B Conversion Price, Series C
Conversion Price or Series D Conversion Price, as the case may be, shall be
made, upon the actual issue of such Common Stock upon conversion or exchange of
such Convertible Securities and (b) if any such issue or sale of such
Convertible Securities is made upon exercise of any Options to purchase any such
Convertible Securities for which adjustments of the Series A Conversion Price,
Series B Conversion Price, Series C Conversion Price or Series D Conversion
Price, as the case may be, have been or are to be made pursuant to other
provisions of Section 4(d), no further adjustment of the Series A Conversion
Price, Series B Conversion
-11-
<PAGE>
Autoweb.com Delaware
Certificate of Designation
Price, Series C Conversion Price or Series D Conversion Price shall be made by
reason of such issue or sale.
(iii) Change in Option Price or Conversion Rate. Upon the
-----------------------------------------
happening of any of the following events, namely, if the purchase price provided
for in any Option referred to in Section 4(d)(i), the additional consideration.
if any, payable upon the conversion or exchange of Securities referred to in
Section 4(d)(i) or 4(d)(ii), or the rate at which Convertible Securities
referred to in Section 4(d)(i) or 4(d)(ii) are, convertible, into or
exchangeable for Common Stock shall change at any time (including, but not
limited to, changes under or by reason of provisions designed to protect against
dilution), the Series A Conversion Price, Series B Conversion Price, Series C
Conversion Price or Series D Conversion Price in effect at the time of such
event shall forthwith be readjusted to the Series A Conversion Price, Series B
Conversion Price, Series C Conversion Price or Series D Conversion Price, as the
case may be, which would have been in effect at such time had such Options or
Convertible Securities still outstanding provided for such changed purchase
price, additional consideration or conversion rate, as the case may be, at the
time initially granted, issued or sold, but only if as a result of such
adjustment the Series A Conversion Price, Series B Conversion Price, Series C
Conversion Price or Series D Conversion Price then in effect hereunder is
thereby reduced; and on the termination of any such Option or any such right to
convert or exchange such Convertible Securities, the Series A Conversion Price,
Series B Conversion Price, Series C Conversion Price or Series D Conversion
Price then in effect hereunder shall forthwith be increased to the Series A
Conversion Price, Series B Conversion Price, Series C Conversion Price or Series
D Conversion Price which would have been in effect at the time of such
termination had such Option or Convertible Securities, to the extent outstanding
immediately prior to such termination, never been issued.
(iv) Stock Dividends. In case the Corporation shall declare a
---------------
dividend or make any other distribution upon any stock of the Corporation
payable in Common Stock (except for dividends or distributions upon the Common
Stock), Options or Convertible Securities, any Common Stock, Options or
Convertible Securities, as the case may be, issuable in payment of such dividend
or distribution shall be deemed to have been issued or sold at a price per share
equal to $.01.
(v) Consideration for Stock. In case any shares of Common
-----------------------
Stock, Options or Convertible Securities to be issued or sold for cash, the
consideration received therefor shall be deemed to be the amount received by the
Corporation therefor, without deduction therefrom of any expenses incurred or
any underwriting commissions or concessions paid or allowed by the Corporation
in connection therewith. In case any shares of Common Stock, Options or
Convertible Securities shall be issued or sold for a consideration other than
cash, the amount of the consideration other than cash received by the
Corporation shall be deemed to be the fair value of such consideration as
determined in good faith by the Board of Directors of the Corporation, without
deduction of any expenses incurred or any underwriting commissions or
concessions paid or allowed by the Corporation in connection therewith. In case
any Options shall be issued in connection with the issue and sale of other
securities of the Corporation, together comprising one integral transaction in
which no specific consideration is
-12-
<PAGE>
Autoweb.com Delaware
Certificate of Designation
allocated to such Options by the parties thereto, such Options shall be deemed
to have been issued for such consideration as determined in good faith by the
Board of Directors of the Corporation.
(vi) Record Date. In case the Corporation shall take a record of
-----------
the holders of its Common Stock for the purpose of entitling them (1) to receive
a dividend or other distribution payable in Common Stock, Options or Convertible
Securities or (ii) to subscribe for or purchase Common Stock, Options or
Convertible Securities, then such record date shall be deemed to be the date of
the issue or sale of the shares of Common Stock deemed to have been issued or
sold upon the declaration of such dividend or the making of such other
distribution or the date of the granting of such right of subscription or
purchase, as the case may be.
(vii) Treasury Shares. The disposition of any shares of Common
---------------
Stock owned or held by or for the account of the Corporation shall be considered
an issue or sale of Common Stock for the purpose of this Section 4(d).
(e) Certain Issues of Common Stock Excepted. Anything herein to the
---------------------------------------
contrary notwithstanding, the Corporation shall not be required to make any
adjustment of the Series A Conversion Price, Series B Conversion Price, Series C
Conversion Price or Series D Conversion Price in the case of the issuance from
and after the date of filing of these Restated Articles of the following
issuances of its securities: (1) up to an aggregate of 2,970,894 shares of
Common Stock (adjusted to reflect subsequent stock splits, stock dividends,
recapitalizations and the like) to directors, officers, employees or consultants
of the Corporation in connection with their service as directors of the
Corporation, their employment by the Corporation or their retention as
consultants by the Corporation pursuant to a stock grant, stock option,
restricted stock purchase agreement, stock appreciation right. stock option
plan, restricted stock plan, stock purchase plan or other employee stock
incentive program or agreement approved by the Board of Directors of the
Corporation, plus such number of shares of Common Stock which are repurchased by
the Corporation from such persons after such date pursuant to contractual rights
held by the Corporation and at repurchase prices not exceeding the respective
original purchase prices paid by such persons to the Corporation therefor; (ii)
the conversion or exercise of any securities which are outstanding as of the
date of the filing of these Restated Articles or (iii) any other transaction
which is approved by the Corporation's Board of Directors (including all
directors elected by holders of Series A, Series B and Series C Convertible
Preferred Stock pursuant to Section 5 hereof).
(f) Subdivision or Combination of Common Stock. In case the
------------------------------------------
Corporation shall at any time subdivide (by any stock split stock dividend or
otherwise) its outstanding shares of Common Stock into a greater number of
shares, the Series A Conversion Price, Series B Conversion Price, Series C
Conversion Price or Series D Conversion Price in effect immediately prior to
such subdivision shall be proportionately reduced and. conversely, in case the
outstanding shares of Common Stock shall be combined into a smaller number of
shares, the Series A Conversion Price, Series B Conversion Price, Series C
Conversion Price or Series D Conversion Price in effect immediately prior to
such combination shall be
-13-
<PAGE>
Autoweb.com Delaware
Certificate of Designation
proportionately increased. In the event of any such subdivision or combination,
no further adjustment shall be made pursuant to Section (4)(d)(iv) by reason
thereof.
(g) Reorganization or Reclassification. If any capital reorganization
----------------------------------
or reclassification of the capital stock of the Corporation shall be effected in
such a way that holders of Common Stock shall be entitled to receive stock,
securities or assets with respect to or in exchange for Common Stock, then, as a
condition of such reorganization or reclassification, lawful and adequate
provisions shall be made whereby each holder of a share or shares of Series A,
Series B. Series C and Series D Convertible Preferred Stock shall thereupon have
the right to receive, upon the basis and upon the terms and conditions specified
herein and in lieu of the shares of Common Stock immediately theretofore
receivable upon the conversion of such share or shares of Series A, Series B,
Series C and Series D Convertible Preferred Stock, respectively, such shares of
stock, securities or assets as may be issued or payable with respect to or in
exchange for a number of outstanding shares of such Common Stock equal to the
number of shares of such Common Stock immediately theretofore receivable upon
such conversion had such reorganization or reclassification not taken place, and
in any such case appropriate provisions shall be made with respect to the rights
and interests of such holder to the end that the provisions hereof (including
without limitation provisions for adjustments of the Series A Conversion Price,
Series B Conversion Price, Series C Conversion Price and Series D Conversion
Price) shall thereafter be applicable, as nearly as may be, in relation to any
shares of stock, securities or assets thereafter deliverable upon the exercise
of such conversion rights.
(h) Notice of Adjustment. Upon any adjustment of the Series A
--------------------
Conversion Price, Series B Conversion Price, Series C Conversion Price or Series
D Conversion Price, then and in each such case the Corporation shall give
written notice thereof, by mailing such notice by United States Postal Service
via Certified or Registered Mail, Return Receipt Requested, addressed to each
holder of shares of Series A, Series B, Series C and Series D Convertible
Preferred Stock at the address of such holder as shown on, the books of the
Corporation, which notice shall state the Series A Conversion Price, Series B
Conversion Price, Series C Conversion Price or Series D Conversion Price
resulting from such adjustment, setting forth in reasonable detail the method
upon which such calculation is based.
(i) Other Notices. In case at any time:
-------------
(i) the Corporation shall declare any dividend upon its Common
Stock payable in cash, stock, Options or Convertible Securities or make any
other distribution to the holders of its Common Stock;
(ii) the Corporation shall offer for subscription pro rata to
the holders of its Common Stock any additional shares of stock of any class or
other rights,
(iii) there shall be any capital reorganization or
reclassification of the capital stock of the Corporation, or a consolidation or
merger of the Corporation with or into another entity or entities, or a sale,
lease, abandonment, transfer or other disposition of all or substantially all
its assets; or
-14-
<PAGE>
Autoweb.com Delaware
Certificate of Designation
(iv) there shall be a voluntary or involuntary dissolution,
liquidation or winding up of the Corporation;
then, in any one or more of said cases, the Corporation shall give. by mailing
such notice(s) by United States Postal Service via Certified or Registered Mail,
Return Receipt Requested, addressed to each holder of any shares of Series A,
Series B, Series C and Series D Convertible Preferred Stock at the address of
such holder as shown on the books, or the Corporation, (a) at least 20 days'
prior written notice of the date on which the books of the Corporation shall
close or a record shall be taken for such dividend, distribution or subscription
rights or for determining rights to vote in respect of any such reorganization,
reclassification, consolidation, merger, disposition, dissolution, liquidation
or winding up and (b) in the case of any such reorganization, reclassification,
consolidation, merger, disposition, dissolution, liquidation or winding up, at
least 20 days' prior written notice of the date when the same shall take place.
Such notice in accordance with the foregoing clause (a) shall also specify, in
the case of any such dividend, distribution or subscription rights, the date on
which the holders of Common Stock shall be entitled thereto and such notice in
accordance with the foregoing clause (b) shall also specify the date on which
the holders of Common Stock shall be entitled to exchange their Common Stock for
securities or other property deliverable upon such reorganization,
reclassification, consolidation, merger, disposition, dissolution, liquidation
or winding up, as the case may be.
(j) Stock to be Reserved. The Corporation will at all times reserve
--------------------
and keep available out of its authorized Common Stock, solely for the purpose of
issuance upon the conversion of Series A, Series B, Series C and Series D
Convertible Preferred Stock as herein provided, such number of shares of Common
Stock as shall then be issuable upon the conversion of all outstanding shares of
Series A, Series B, Series C and Series D Convertible Preferred Stock. The
Corporation covenants that all shares of Common Stock which shall be so issued
shall be duly and validly issued and fully paid and nonassessable and free from
all taxes, liens and charges with respect to the issue thereof, and. without
limiting the generality of the foregoing, the Corporation covenants that it will
from time to time take all such action as may be requisite to assure that the
par value per share of the Common Stock is at all times equal to or less than
the Series A Conversion Price, Series B Conversion Price, Series C Conversion
Price and Series D Conversion Price in effect at the time. The Corporation will
take all such action as may be necessary to assure that all such shares of
Common Stock may be so issued without violation of any applicable law or
regulation, or of any requirement of any national securities exchange upon which
the Common Stock may be listed. The Corporation will not take any action which
results in any adjustment of the Series A Conversion Price, Series B Conversion
Price, Series C Conversion Price and Series D Conversion Price if the total
number of shares of Common Stock issued and issuable after such action upon
conversion of the Series A, Series B, Series C and Series D Convertible
Preferred Stock would exceed the total number of shares of Common Stock then
authorized by the Restated Articles.
(k) No Reissuance of Series A. Series B, Series C or Series D
---------------------------------------------------------
Convertible Preferred Stock. Shares of Series A, Series B, Series C or Series D
- ---------------------------
Convertible
-15-
<PAGE>
Autoweb.com Delaware
Certificate of Designation
Preferred Stock which are converted into shares of Common Stock as provided
herein shall not be reissued.
(1) Definition of Common Stock. As used in this Section 4, the term
--------------------------
"Common Stock" shall mean and include the Corporation's authorized Common Stock
as constituted on the date of filing of these terms of the Series A, Series B,
Series C and Series D Convertible Preferred Stock, and shall also include any
capital stock of any class of the Corporation thereafter authorized which shall
not be limited to a fixed sum or percentage in respect of the rights of the
holders thereof to participate in dividends or in the distribution of assets
upon the voluntary or involuntary liquidation, dissolution or winding up of the
Corporation; provided that the shares of Common Stock receivable upon conversion
of shares of Series A, Series B, Series C and Series D Convertible Preferred
Stock shall include only shares designated as Common Stock of the Corporation on
the date of filing of this instrument, or in case of any reorganization or
reclassification of the outstanding shares thereof, the stock, securities or
assets provided for in Section 4(g).
(m) Mandatory Conversion. Upon the earlier of (i) the closing by the
--------------------
Corporation of a firm commitment underwritten public offering of shares of
Common Stock in which the aggregate price received for such shares by the
Corporation (net of underwriting discounts and commissions and offering
expenses) shall be at least $15,000,000 and at a price per common share of at
least $5.52 (subject to adjustment for stock splits, stock dividends,
recapitalizations and the like) ("Qualified IPO"), and (ii) the date on which
the holders of at least three-fourths of the then outstanding shares of
Preferred Stock (voting together on an as-converted basis) consent in writing to
such conversion then, effective upon such event, all outstanding shares of
Series A, Series B, Series C and Series D Convertible Preferred Stock shall
automatically convert to shares of Common Stock on the basis set forth in this
Section 4 and holders of shares of Series A, Series B, Series C and Series D
Convertible Preferred Stock so converted may deliver to the Corporation at its
principal office (or such other office or agency of the Corporation as the
Corporation may designate by notice in writing to such holders) during its usual
business hours, the certificate or certificates for the shares so converted. As
promptly as practicable thereafter, the Corporation shall issue and deliver to
such holder a certificate or certificates for the number of whole shares of
Common Stock to which such holder is entitled, together with any cash dividend
and payment in lieu of fractional shares to which such holder may be entitled
pursuant to Section 4(c). Until such time as a holder of shares of Series A,
Series B, Series C and Series D Convertible Preferred Stock shall surrender his
or its certificates therefor as provided above, such certificates shall be
deemed to represent the shares of Common Stock to which such holder shall be
entitled upon the surrender thereof.
5. Voting Rights
-------------
(a) General Voting Rights. Except as may be otherwise provided
---------------------
in the Restated Articles or bylaws, the Series A, Series B, Series C and Series
D Convertible Preferred Stock shall vote together with all other classes and
series of stock of the Corporation as a single class on all actions to be taken
by the stockholders of the Corporation. Each share of Series A, Series B, Series
C and Series D Convertible Preferred Stock shall entitle the holder
-16-
<PAGE>
Autoweb.com Delaware
Certificate of Designation
thereof to such number of votes per share on each such action as shall equal the
number of shares of Common Stock (including fractions of a share) into which
each share of Series A. Series B, Series C and Series D Convertible Preferred
Stock is then convertible.
(b) Voting for the Election of Directors. The holders of each of the
------------------------------------
Series A, Series B and Series C Convertible Preferred Stock, each voting as a
separate series, shall each be entitled to elect one director of the
Corporation. At any meeting (or in a written consent in lieu thereof) held for
the purpose of electing directors, the presence in person or by proxy (or the
written consent) of the holders of a majority of the shares of Series A
Convertible Preferred Stock then outstanding shall constitute a quorum of the
Series A Convertible Preferred Stock for the election of the director to be
elected solely by the holders of the Series A Convertible Preferred Stock. A
vacancy in any directorship elected by the holders of the Series A Convertible
Preferred Stock shall be filled only by vote or written consent of the holders
of the Series A Convertible Preferred Stock. At any meeting (or in a written
consent in lieu thereof) held for the purpose of electing directors, the
presence in person or by proxy (or the written consent) of the holders of a
majority of the shares of Series B Convertible Preferred Stock then outstanding
shall constitute a quorum of the Series B Convertible Preferred Stock for the
election of the director to be elected solely by the holders of the Series B
Convertible Preferred Stock. A vacancy in any directorship elected by the
holders of the Series B Convertible Preferred Stock shall be filled only by vote
or written consent of the holders of the Series B Convertible Preferred Stock.
At any meeting (or in a written consent in lieu thereof) held for the purpose of
electing directors, the presence in person or by proxy (or the written consent)
of the holders of a majority of the shares of Series C Convertible Preferred
Stock then outstanding shall constitute a quorum of the Series C Convertible
Preferred Stock for the election of the director to be elected solely by the
holders of the Series C Convertible Preferred Stock. A vacancy in any
directorship elected by the holders of the Series C Convertible Preferred Stock
shall be filled only by vote or written consent of the holders of the Series C
Convertible Preferred Stock. The holders of shares of Common Stock, voting as a
separate class, shall be entitled to elect two directors of the Corporation. At
any meeting (or in a written consent in lieu thereof) held for the purpose of
electing directors, the presence in person or by proxy (or the written consent)
of the holders of a majority of the shares of Common Stock then outstanding
shall constitute a quorum of the Common Stock for the election of director(s) to
be elected solely by the holders of the Common Stock. A vacancy in any
directorship elected by the holders of the Common Stock shall be filled only by
vote or written consent of the holders of the Common Stock. The holders of the
outstanding Common Stock and Preferred Stock, voting together as a single class,
shall be entitled to elect all other members of the Corporation's Board of
Directors. The voting rights set forth in this Section 5(b) shall terminate
automatically upon the closing of the sale of shares of Common Stock of the
Corporation pursuant to a Qualified IPO.
6. Protective Provisions. At any time when shares of Series A,
---------------------
Series B, Series C or Series D Convertible Preferred Stock are outstanding,
except where the vote or written consent of the holders of a greater number of
shares of the Corporation is required by law or by the Restated Articles and in
addition to any other vote required by law or the Restated Articles, without the
approval of the holders of at least a majority of the then outstanding shares of
Series A, Series B, Series C and Series D Convertible Preferred Stock, given in
writing or by
-17-
<PAGE>
Autoweb.com Delaware
Certificate of Designation
vote at a meeting, consenting or voting (as the case may be) together as a
class, the Corporation will not:
(i) Create or authorize the creation of any additional class or
series of shares of stock unless the same ranks junior to the Series A, Series
B, Series C and Series D Convertible Preferred Stock as to the rights,
preferences, privileges and powers of such series of Preferred Stock, or change
the authorized amount of the Series A, Series B, Series C and Series D
Convertible Preferred Stock and Common Stock or change the authorized amount of
any additional class or series of shares of stock unless the same ranks junior
to the Series A, Series B, Series C and Series D Convertible Preferred Stock as
to the rights, preferences, privileges and powers of such series of Preferred
Stock, or create or authorize any obligation or security convertible into shares
of Series A, Series B, Series C and Series D Convertible Preferred Stock or into
shares of any other class or series of stock unless the same ranks junior to the
Series A, Series B, Series C and Series D Convertible Preferred Stock as to the
rights,, preferences, privileges and powers of such series of Preferred Stock,
whether any such creation, authorization or increase shall be by means of
amendment to the Restated Articles or by merger, consolidation or otherwise;
(ii) Consent to any liquidation, dissolution or winding up of
the Corporation or consolidate or merge into or with any other entity or
entities or sell, lease, abandon, transfer or otherwise dispose of all or
substantially all its assets;
(iii) Amend, alter or repeal its Restated Articles if the effect
would be detrimental or adverse in any manner with respect to the rights,
preferences, privileges or powers of the holders of the Series A, Series B,
Series C and Series D Convertible Preferred Stock;
(iv) sell, convey, or otherwise dispose of or encumber all of
substantially all of its property or business or merger into or consolidate with
any other corporation (other than a wholly-owned subsidiary corporation) or
effect any transaction or series or related transactions in which more than
fifty percent (50%) of the voting power of the Corporation is disposed of,
(v) Redeem or otherwise acquire any shares of Series A, Series
B, Series C and Series D Convertible Preferred Stock except pursuant to Section
3 hereof,
(vi) Redeem or otherwise acquire any shares of Common Stock,
except for the Corporation purchasing such shares at cost from employees,
directors and consultants pursuant to standard agreements of the Corporation
under which the Corporation has the option to repurchase such shares at cost or
at cost upon termination of employment; or
(vii) Declare any dividends on the Common Stock of the
Corporation.
In addition, a majority of the outstanding shares of a series of Preferred Stock
shall be required to (i) amend or waive any provision of the Corporation's
Restated Articles or Bylaws that adversely
-18-
<PAGE>
Autoweb.com Delaware
Certificate of Designation
affects the rights, preferences or privileges of that series of Preferred Stock
in a manner different from that of the other series of Preferred Stock or (ii)
increase the authorized number of shares of any series of Preferred Stock.
7. Status of Converted Stock. In the event any shares of Preferred
-------------------------
Stock shall be converted pursuant to Section 4 hereof, the shares so converted
shall be canceled and shall not be issuable by this Corporation. The Articles
of Incorporation of this Corporation shall be appropriately amended to affect
the corresponding reduction in this Corporation's authorized capital stock.
8. Repurchase of Shares. Each holder of Preferred Stock shall, by
--------------------
virtue of its acceptance of a stock certificate evidencing Preferred Stock, be
deemed to have consented to distributions made by this Corporation for
repurchase by this Corporation of its Common Stock pursuant to its agreements
with certain of the holders thereof.
IN WITNESS WHEREOF, the Corporation has caused this Certificate of
Designation to be signed and attested by its duly authorized officers this _____
day of __________, 1999.
________________________________
Dean A. DeBiase, President
and Chief Executive Officer
-19-
<PAGE>
Exhibit 4.02
AMENDED AND RESTATED RIGHTS AGREEMENT
This Amended and Restated Rights Agreement (the "Agreement") is made as of
this 16th day of October, 1998, by and among Autoweb.com, Inc., a California
corporation (the "Company"), the persons or entities listed on Schedule A
----------
attached hereto (individually, an "Investor," and collectively, the
"Investors"), the Founders (as hereinafter defined), and the shareholders named
on Schedule B attached hereto (individually, a "Shareholder," and collectively,
----------
the "Shareholders").
RECITALS
WHEREAS, the Company, the Founders and the Shareholders entered into that
certain Amended and Restated Registration Rights Agreement dated May 8, 1998
(the "Rights Agreement"), pursuant to which, among other things, the Company
granted certain registration and other rights to the Founders and such
Shareholders;
WHEREAS, the Company now proposes to issue and sell up to an aggregate of
710,000 shares of Series D Convertible Preferred Stock to the Investors pursuant
to a Series D Convertible Preferred Stock Purchase Agreement of even date
herewith (the "Purchase Agreement");
WHEREAS, pursuant to Section 9.3 of the Rights Agreement the parties
thereto wish to enter into this Agreement in order to amend, restate and replace
their rights and obligations under the Rights Agreement with the rights and
obligations set forth in this Agreement and to permit the Investors to become
parties to this Agreement.
AGREEMENT
NOW THEREFORE, in consideration of the foregoing and of the mutual promises
and covenants contained herein, the parties agree as follows:
1. Certain Definitions. As used in this Agreement, the following terms
-------------------
shall have the following meanings:
1.1 Commission means the Securities and Exchange Commission, or any
----------
other federal agency at the time administering the Securities Act and the
Exchange Act.
1.2 Common Stock means (a) the Company's Common Stock, as authorized
------------
on the date of this Agreement, (b) any other capital stock of any class or
classes (however designated) of the Company, authorized on or after the date
hereof, the holders of which shall have the right, without limitation as to
amount, either to all or to a share of the balance of current dividends and
liquidating dividends after the payment of dividends and distributions on any
shares entitled to preference, and the holders of which shall ordinarily, in the
absence of contingencies or in the absence of any provision to the contrary in
the Company's Amended and Restated Articles of Incorporation, as amended (the
"Articles"), be entitled to vote for the
<PAGE>
election of a majority of directors of the Company (even though the right so to
vote has been suspended by the happening of such a contingency or provision),
and (c) any other securities into which or for which any of the securities
described in (a) or (b) may be convened or exchanged pursuant to a plan of
recapitalization, reorganization, merger, sale of assets or otherwise.
1.3 Exchange Act means the Securities 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 Founders means Farhang Zamani and Payam Zamani.
--------
1.5 Founder Shares shall mean the shares of Common Stock that the
--------------
Founders own, or have the right to acquire on the date hereof or in the future,
but excluding any such Common Stock that has been (a) registered under the
Securities Act pursuant to an effective registration statement filed thereunder
and disposed of in accordance with the registration statement covering them or
(b) publicly sold pursuant to Rule 144 under the Securities Act.
1.6 Indebtedness means with respect to any Person (a) all
------------
indebtedness or other obligations of such Person for borrowed money or for the
deferred purchase price of property or services, other than for trade accounts
payable incurred in the ordinary course of the Company's business, (b) all
Indebtedness described in clause (a) of any other Person in respect of which
such Person is liable, contingently or otherwise, to pay or advance money or
property as guarantor, endorser or otherwise (except as endorser for collection
in the ordinary course of business), and (c) all lease obligations of such
Person which are required, in accordance with generally accepted accounting
principles ("GAAP"), to be capitalized on the books of the lessee.
1.7 Person means an individual, corporation, partnership, joint
------
venture, trust, or unincorporated organization, or a government or any agency or
political subdivision thereof.
1.8 Preferred Shares means the Series A Convertible Preferred Stock,
----------------
Series B Convertible Preferred Stock, Series C Convertible Preferred Stock and
Series D Convertible Preferred Stock of the Company.
1.9 Qualified Public Offering means a public, underwritten offering
-------------------------
of the capital stock of the Company which generates net proceeds to the Company
in excess of $15,000,000 and offers such shares of capital stock at a minimum
sale price of $8.28 (subject to adjustment for stock splits, stock dividends,
recapitalizations and the like).
1.10 Registrable Securities means any shares of Common Stock owned by
----------------------
an Investor or Shareholder as of the date hereof or its permitted successors and
assigns, including shares of Common Stock issued or issuable upon conversion of
any Preferred Shares; except for (i) any shares of such Common Stock (A) which
have at any time been sold by such parties other than to a permitted transferee,
as provided for in Section 2.8 hereof, of an Investor or a Shareholder, and (B)
which have at any time been sold in a registered public offering or pursuant to
Rule 144 promulgated under the Securities Act, and (ii) the Founder Shares.
2
<PAGE>
1.11 Securities Act means 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.
1.12 Shares means any and all shares of Common Stock or Preferred
------
Shares owned by an Investor or a Shareholder.
1.13 Subsidiary means any Person of which a Person at the applicable
----------
time owns or controls, directly or indirectly through one or more Subsidiaries,
a majority of the voting stock.
2. Registration Rights
-------------------
2.1 Piggyback Registrations.
-----------------------
(a) If at any time or times the Company shall determine to
register any of its Common Stock or securities convertible into or
exchangeable for Common Stock under the Securities Act, whether in connection
with a public offering of securities by the Company (a "primary offering"), a
public offering thereof by shareholders (a "secondary offering"), or both (but
not in connection with a registration effected solely to implement an employee
benefit plan or a transaction to which Rule 145 or any other similar role of
the Commission under the Securities Act is applicable), the Company will
promptly give written notice thereof to the holders (the "Holders") of
Registrable Securities and Founder Shares then outstanding, and will use its
best efforts to effect the registration under the Securities Act of all
Registrable Securities and Founder Shares which the Holders may request in a
writing delivered to the Company within fifteen (15) days after the notice
given by the Company; provided, however, that the number of shares of
-----------------
Registrable Securities and Founder Shares to be included in such an
underwriting may be reduced (pro rata among the requesting Holders based upon
the number of shares of Registrable Securities and Founder Shares owned by all
such Holders) if and to the extent that the managing underwriter shall be of
the opinion that such inclusion would adversely affect the marketing of the
securities to be sold by the Company therein, provided, that the Company shall
--------
first exclude from such registration, in the following order, all shares of
Common Stock sought to be included therein by (i) any holder thereof not
having any such contractual, registration rights, and (ii) any holder thereof
having contractual, registration rights subordinate and junior to the rights
of the Holders of Registrable Securities or Founder Shares, provided further,
that in no event shall the Registrable Securities and the Founder Shares be
reduced to less than thirty percent (30%) of the of the aggregate shares to be
offered in any such offering. For purposes of the preceding parenthetical
concerning pro rata apportionment, for any selling shareholder that is a
Holder of Registrable Securities and that is a partnership or corporation, the
partners, retired partners and shareholders of such Holder, or the estates and
family members of any such partners and retired partners and any trusts for
the benefit of any of the foregoing persons shall be deemed to be a single
selling Holder, and any pro rata reduction with respect to such selling
Holder shall be based upon the aggregate amount of Registrable Securities
owned by all such related entities and individuals.
3
<PAGE>
(b) Underwriting. If the registration of which the Company gives
------------
notice is for a registered public offering involving an underwriting, the
Company shall so advise the Holders as a part of the written notice given
pursuant to Section 2.1 (a). In such event the right of any Holder to
registration pursuant to Section 2.1 shall be conditioned upon such Holder's
participation in such underwriting to the extent provided herein. All Holders
proposing to distribute their securities through such underwriting shall
(together with the Company and the other holders distributing their securities
through such underwriting) enter into an underwriting agreement in customary
form with the managing underwriter selected for such underwriting by the Company
in the event of an offering pursuant to this Section 2.1 and by two-thirds of
the Holders, subject to the approval of the Company, which at royal shall not be
unreasonably withheld, in the event of an offering pursuant to Section 2.2 or
Section 2.3 below. Notwithstanding any other provision of this Section 2.1, if
the managing underwriter determines that marketing factors require limitation of
the number of shares to be underwritten, the managing underwriter may limit the
Registrable Securities and Founder Shares to be included in such registration as
provided for in Section 2.1(a) above. To facilitate the allocation of shares in
accordance with the provisions of Section 2.1(a) above, the Company may round
the number of shares allocated to any Holder or holder to the nearest 100
shares. If any Holder or holder disapproves of the terms of any such
underwriting, he may elect to withdraw therefrom by written notice to the
Company and the managing underwriter. Any securities withdrawn from such
underwriting shall be withdrawn from such registration, and shall not be
transferred in a public distribution prior to ninety (90) days after the
effective date of the registration statement relating thereto, or such other
shorter period of time as the underwriters may require.
4
<PAGE>
2.2 Form S-3.
--------
(a) If the Company becomes eligible to use Form S-3, the Company shall
use its reasonable efforts to continue to qualify at all times for registration
on Form S-3. If and when the Company becomes entitled to use Form S-3, the
Holders of Registrable Securities shall have the right to request registration
of shares of Registrable Securities held by them on Form S-3 for a public
offering of shares of Registrable Securities, of which the reasonably
anticipated aggregate price to the public, net of underwriting discounts and
commissions, is $2,500,000; provided, however, that the Company shall not be
obligated to effect more than three (3) registrations pursuant to this Section
2.2 and provided further that the Company shall not be obligated to effect more
than two (2) registrations pursuant to this Section 2.2 in any twelve (12) month
period. Such requests shall be in writing and shall state the number of shares
of Registrable Securities to be disposed of and the intended method of
disposition of such shares by such Holder or Holders. The Company shall use best
efforts to maintain such registration under this Section 2.2 until the earlier
of (i) 180 days from the effectiveness of such registration or (ii) the date
that all such shares so registered under the Form S-3 registration have been
sold. Notwithstanding the foregoing, the Company shall not be required to effect
a registration under this Section 2.2 if such Holders of Registrable Securities
may then sell all Registrable Securities within a 90 day period without
registration under the Securities Act. The substantive provisions of Section 2.1
(b) shall be applicable to each underwritten registration initiated under this
Section 2.2(a).
(b) Notwithstanding the foregoing, the Company shall not be
obligated to take any action pursuant to this Section 2.2:
(1) 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;
(2) if the Company, within ten (10) days of the receipt of
the request of the Holders of Registrable Securities, 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 than with
respect to a registration statement relating to a Rule 145 transaction, an
offering solely to employees or any other registration which is not
appropriate for the registration of Registrable Securities);
(3) within one hundred twenty (120) days of the effective
date of any registration, provided that the Company is actively employing in
good faith all reasonable efforts to cause such registration statement to
become effective; or
(4) if the Company shall furnish to such Holders of
Registrable Securities 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 for the registration statement to be
filed at such time, then the Company's obligation to use its best efforts to
file a registration statement shall be deferred for a period not to exceed
ninety (90)
5
<PAGE>
days from the receipt of the request to file such registration by such Holders,
provided that the Company may not use this right more than once in any twelve
(12) month period.
2.3 Request for Registration.
------------------------
(a) If the Company shall receive at any time after the 180 day
period following the Company's initial public offering, a written request from
Holders of an aggregate of not less than fifty percent (50%) of Registrable
Securities then outstanding that the Company file a registration statement
under the Securities Act covering the registration of Registrable Securities
having an aggregate proposed offering price to the public, net of underwriting
discounts and commission of not less than $5,000,000 and not previously
registered pursuant to a registration under the Securities Act, then the
Company shall, on one occasion only:
(i) within ten (10) clays of the receipt thereof, give
written notice of such request to all Holders of Registrable Securities; and
(ii) effect as soon as practicable, and in any event within
sixty (60) days of the receipt of such request, the registration under the
Securities Act of all Registrable Securities which the Holders of Registrable
Securities request to be registered.
(b) Notwithstanding the foregoing, if the Company shall furnish
to Holders of Registrable Securities requesting a registration statement
pursuant to this Section 2.3, a certificate signed by the President of the
Company stating that in the good faith judgment of the Board of Directors of
the Company, it would be seriously detrimental to the Company and its
shareholders for such registration statement to be filed and it is therefore
essential to defer the filing of such registration statement, the Company
shall have the right to defer taking action with respect to such filing for a
period of not more than ninety (90) days after receipt of the request of the
Holders; provided, however, the Company may not use this fight more than once
in any twelve (12) month period.
2.4 Registration Expenses. (a) In the event of a registration
---------------------
described in Sections 2.1.2.2 and 2.3, all expenses of registration and offering
of the Company and the Holders participating in the offering including, without
limitation, printing expenses, fees and disbursements of counsel, and
independent public accountants, fees and expenses (including, without
limitation, counsel fees incurred in connection with complying with state
securities or "blue sky" laws, fees of the National Association of Securities
Dealers, Inc. and fees of transfer agents and registrars), shall be borne by the
Company, except that the Holders shall bear underwriting commissions and
discounts attributable to their Registrable Securities or Founder Shares, as the
case may be, being registered. Notwithstanding the foregoing, the Company shall
pay reasonable legal fees for one special counsel to the Holders.
2.5 Further Obligations of the Company. Whenever under the preceding
----------------------------------
sections of this Agreement the Company is required hereunder to register
Registrable Securities or Founder Shares, it agrees that it shall also do the
following:
6
<PAGE>
(a) Use its best efforts to diligently prepare for filing with the
Commission a registration statement and such amendments and supplements to said
registration statement and the prospectus used in connection therewith as may be
necessary to keep said registration statement effective and to comply with the
provisions of the Securities Act with respect to the sale of securities covered
by said registration statement for the period necessary to complete the proposed
public offering;
(b) Furnish to each selling Holder such copies of each
preliminary and final prospectus and such other documents as such Holder may
reasonably request to facilitate the public offering of its Registrable
Securities or Founder Shares;
(c) Enter into and perform its obligations under an underwriting
agreement with provisions reasonably required by the proposed underwriter for
the selling Holders, if any; and
(d) Use its best efforts to register or qualify the Registrable
Securities and Founder Shares covered by said registration statement under the
securities or "blue-sky" laws of such jurisdictions as any selling holder of
Registrable Securities or Founder Shares may reasonably request, provided that
the Company shall not be required to register in any states which shall require
it to qualify to do business or subject itself to general service of process as
a condition of such registration.
2.6 Indemnification.
---------------
(a) Incident to any registration referred to in this Agreement,
and subject to applicable law, the Company will indemnify each underwriter,
each Holder of Registrable Securities and Founder Shares so registered, each
person controlling any of them, and the partners or officers, directors and
shareholders of each Holder against all claims, losses, damages and
liabilities (joint or several), including legal and other expenses reasonably
incurred in investigating or defending it against the same, arising out of any
untrue or alleged untrue statement of a material fact contained in any
prospectus or other document (including any related registration statement or
any amendments or supplements thereto) 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 arising out of any violation or
alleged violation by the Company of the Securities Act, the Exchange Act, any
state securities or "blue-sky" laws or any rule or regulation thereunder in
connection with such registration; provided, however, that the Company will
not be liable in any case to the extent that any such claim, loss, damage or
liability arises out of or is based upon an untrue statement or omission based
upon information furnished in writing to the Company by such Holder expressly
for use therein.
(b) In the event of any registration of any of the Registrable
Securities or Founder Shares under the Securities Act pursuant to this
Agreement, each seller of Registrable Securities or Founder Shares included in
such registration, as the case may be, will indemnify and hold harmless the
Company, each of its directors and officers and each underwriter (if any) and
each person, if any, who controls the Company or any such underwriter within the
meaning of the Securities Act or the Exchange Act against any claims, losses,
damages and liabilities
7
<PAGE>
(joint or several), including legal and other expenses reasonably incurred in
investigating or defending it against the same, arising out of any untrue or
alleged untrue statement of a material fact contained in any prospectus or other
document (including any related registration statement or any amendments or
supplements thereto) or any omission or alleged omission to state thereto a
material fact required to be stated therein or necessary to make the statements
therein not misleading, provided that the statement or omission was made in
reliance upon and in conformity with information furnished in writing to the
Company by or on behalf of such selling Holder, expressly for use in connection
with the preparation of such registration statement, prospectus, amendment of
supplement; provided, however, that the obligations of such selling Holders
hereunder shall be limited to an amount equal to the net proceeds to each Holder
of Registrable Securities or Founder Shares sold as contemplated herein.
(c) Each party entitled to indemnification under this Section
2.6 (the "Indemnified Party") shall give notice to the party required to
provide indemnification (the "Indemnifying Party") promptly after such
Indemnified Party has actual knowledge of any claim as to which indemnity may
be sought, and shall permit the Indemnifying Party to assume the defense of
any such claim or any litigation resulting therefrom, provided that counsel
for the Indemnifying Party, who shall conduct the defense of such claim or
litigation, shall be approved by the Indemnified Party (whose approval shall
not unreasonably be withheld), and the Indemnified Party may participate in
such defense at such party's expense, provided; however, that the Indemnified
Party shall have the right to retain its own counsel, with the fees and
expenses to be paid by the Indemnifying Party, if representation of such
Indemnified Party by the counsel retained by the Indemnifying Party would be
appropriate due to actual or potential differing interests between such
Indemnified Party and any other party represented by such counsel in such
proceeding, and provided further that the failure of any Indemnified Party to
give notice as provided herein shall not relieve the Indemnifying Party of its
obligations under this Section 2.6 unless the failure to give such notice is
materially prejudicial to an Indemnifying Party's ability to defend such
action and provided further, that the Indemnifying Party shall not assume the
defense for matters as to which there is a conflict of interest or separate
and different defenses. No Indemnifying Party, in the defense of any such
claim or litigation, shall, except with the consent of each Indemnified Party,
consent to entry of any judgment or enter into any settlement.
(d) If the indemnification provided for in this Section 2.6 is
held by a court of competent jurisdiction to be unavailable to an Indemnified
Party with respect to any losses, claims, damages or liabilities referred to
herein, the Indemnifying Party, in lieu of indemnifying such Indemnified Party
thereunder, shall to the extent permitted by applicable law contribute to the
amount paid or payable by such Indemnified Party as a result of such loss,
claim, damage or liability in such proportion as is appropriate to reflect the
relative fault of the Indemnifying Party on the one hand and of the
Indemnified Party on the other in connection with the act or omission that
resulted in such loss, claim, damage or liability, as well as any other
relevant equitable considerations. The relative fault of the Indemnifying
Party and of the Indemnified Party shall be determined by a court of law by
reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or the omission to state a material fact relates
to information supplied by the Indemnifying Party or by the Indemnified
8
<PAGE>
Party and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission; provided, that in
no event shall any contribution by a Holder hereunder exceed the net proceeds
from the offering received by such Holder.
2.7 Rule 144 Requirements. If the Company becomes subject to the
---------------------
reporting requirements of either Section 13 or Section 15(d) of the Exchange
Act, the Company will use its best efforts to file with the Commission such
information as the Commission may require under either of said Sections; and in
such event, the Company shall use its best efforts to take all action as may be
required as a condition to the availability of Rule 144 under the Securities Act
(or any successor exemptive rule hereinafter in effect). The Company shall
furnish to any Holder of Registrable Securities or Founder Shares upon request,
a written statement executed by the Company as to the steps it has taken to
comply with the current public information requirements of Rule 144.
2.8 Transfer Of Registration Rights. The registration rights of the
-------------------------------
Holders under Section 2 of this Agreement may be transferred to any transferee
of any Registrable Securities or Founder Shares who (i) is a Holder of
Registrable Securities or Founders Shares as of the date of this Agreement, (ii)
is an affiliate, as that term is defined in the Investment Company Act of 1940,
of a Holder of Registrable Securities as of the date of this Agreement
(including a partner of such Holder), (iii) is the owner of an investment
account which is managed or advised by an Investor, Technology Crossover
Management IL L.L.C. ("TCV") or by Geocapital Management, L.P. ("GeoCapital"),
or by an affiliate of an Investor, TCV or Geocapital (iv) acquires at least
100,000 shares of Common Stock, assuming conversion of all Preferred Shares (or
such lesser number of shares of Common Stock which constitutes the total number
of shares of Common Stock purchased by the transferring Holder of Registrable
Securities or Founder Shares under this Agreement) (as adjusted for stock
splits, stock dividends, reclassifications, recapitalizations or other similar
events), (v) receives such Registrable Securities as a result of a
reorganization, distribution, dissolution or other such similar event undertaken
by OnWord Information, Inc. or (vi) is a subsidiary, parent, partner, limited
partner, retired partner or shareholder of a Holder. Each such transferee shall
be deemed to be a "Holder" for purposes of this Agreement; provided, that, no
transfer of registration rights by a Holder pursuant to this Section 2.8 shall
create any additional rights in the transferee beyond those rights granted to
Holders in this Agreement.
2.9 Granting Of Registration Rights. The Company shall not, without
-------------------------------
the prior written consent of the holders of at least a majority in interest of
the Registrable Securities, grant any rights to any Persons to register any
shares of capital stock or other securities of the Company if such rights could
reasonably be expected to be superior to or be on parity with, the rights of the
Holders of Registrable Securities granted pursuant to this Agreement.
2.10 Termination of Registration Rights. The obligations of the
----------------------------------
Company pursuant to this Section 2 shall terminate with respect to any Holder on
the date on which the Holder can sell any Registrable Securities or Founder
Shares under Rule 144(k) or sell all of his/her remaining Registrable Securities
or Founder Shares under Rule 144 during any three (3) month period.
9
<PAGE>
3. Right of First Refusal and Co-Sale.
----------------------------------
3.1 Right of First Refusal on Sales.
-------------------------------
(a) Sales to Third Parties. If at any time an Investor or a
----------------------
Shareholder (an "Offeror") desires to sell, transfer or otherwise dispose of
all or any part of his Shares pursuant to a bona fide offer from a third party
(the "Proposed Transferee"), such Offeror shall submit a written offer (the
"Offer") to sell such Shares (the "Offered Shares") to the Company and the
other parties hereto (the "Purchasing Parties") on terms and conditions,
including price (the "Offered Price"), not less favorable to the Purchasing
Parties than those on which the Offeror proposes to sell such Offered Shares
to the Proposed Transferee. The Offer shall disclose the identity of the
Proposed Transferee, the Offered Shares proposed to be sold, the total number
of Shares owned by the Offeror, the terms and conditions, including the
Offered Price and any other material facts relating to the proposed sale and
shall include a copy of any written proposal, term sheet or other agreement
relating to the proposed transfer. The Offer shall further state that the
Purchasing Parties may acquire, in accordance with the provisions of this
Agreement, the Offered Shares for the Offered Price and upon the other terms
and conditions, including deferred payment (if applicable), set forth therein.
(b) The Company's and the Purchasing Parties' Right of First
--------------------------------------------------------
Refusal.
- -------
(i) The Company shall have the opportunity to purchase all
or any part of the Offered Shares. If the Company desires to purchase all or
any pan of the Offered Shares, it must, within the fifteen (15) day period
(the "Company Refusal Period") commencing on the date of the Offer, give
written notice to the Offeror of the Company's election to purchase the
Offered Shares. In the event that the Company elects not to purchase all of
the Offered Shares, the remaining Offered Shares may be purchased by the
Investors and Shareholders as set forth below. Within fifteen (15) days after
expiration of the Company Refusal Period, the Company will give written notice
(the "Company's Expiration Notice") to the Shareholders and the Investors
specifying either (A) that all or a portion of the Offered Shares was
subscribed by the Company exercising its Right of First Refusal or (B) that
the Company waived its right to purchase any of the Offered Shares.
Notwithstanding any failure by the Company to deliver a Company's Expiration
Notice, a failure by the Company to exercise its rights within the Company
Refusal Period shall be deemed a waver of such right.
(ii) In the event the Company does not purchase all of the
Offered Shares, each Investor and Shareholder (excluding the Offeror) shall
have the opportunity to purchase its pro rata share of the remaining Offered
Shares. For purposes of this Section 3 only, an Investor's and a Shareholder's
pro rata share shall be determined by dividing the number of Shares held by
the Investor or Shareholder by the total number of Shares held by all
Investors and Shareholders. For purposes of this Section 3, all of the shares
of the Company's Common Stock which a party has the fight to acquire from the
Company upon the conversion, exercise or exchange of any of the securities of
the Company then owned by such party shall be deemed to be Shares then owned
by such party. (The amount of Offered Shares that each Investor and
Shareholder is entitled to purchase under this Section 3.1 (b) shall be
referred to as its "Pro Rata
10
<PAGE>
Fraction"). If any Investor or Shareholder, or their respective assignees,
desire to purchase any of the remaining Offered Shares, such Investor or
Shareholder must, within a ten (10) day period (the "Investor Refusal Period")
commencing on the later of the date of (A) the Company's Expiration Notice or
(B) by the 30th day after the Offer, give written notice ("Investor Notice") to
the Offeror and to the Company of such party's election to purchase its Pro Rata
Fraction of the Offered Shares. In the event that any Investor or Shareholder
elects not to purchase its Pro Rata Fraction of the Offered Shares, such
Investor and Shareholder shall, within five (5) days after the expiration of the
Investor Refusal Period, give written notice ("Investor's Expiration Notice") to
the Offeror that such Investor or Shareholder is waiving its right to purchase
its Pro Rata Fraction of the Offered Shares. Any Offered Shares not purchased by
an Investor or Shareholder may be purchased by the other Investors and
Shareholders. Notwithstanding any failure by an Investor or Shareholder to
deliver an Investor's Expiration Notice, a failure by an Investor or Shareholder
to exercise its Right of First Refusal within the Investor Refusal Period shall
be deemed a waiver of such right.
(c) Closing on Offered Shares. Sales of the Offered Shares to be sold
-------------------------
to the Company, the Investors or the Shareholders pursuant to this Section 3
shall be made at the offices of the Company on the 45th day following the date
the Offer was made (or if such 45th day is not a business day, then on the next
succeeding business day). Such sales shall be effected by the Offeror's delivery
to the Purchasing Party of a certificate or certificates evidencing the Offered
Shares to be purchased by it, duly endorsed for transfer to such Purchasing
Party, against payment to the Offeror of the Offered Price therefor by such
Purchasing Party. If the Offered Price includes consideration other than cash,
the cash equivalent value of the non-cash consideration will be determined by
the Board of Directors of the Company in good faith, which determination will be
binding upon the parties absent fraud or error.
(d) Sales to Proposed Transferee. If the Purchasing Parties do not
----------------------------
purchase all of the Offered Shares, the Offered Shares not so purchased may be
sold by the Offeror at any time within ninety (90) days after the date the Offer
was made, subject to the provisions of Sections 3.2 and 3.3 below. Any such sale
shall be to the Proposed Transferee, at not less than the Offered Price and upon
other terms and conditions, if any, not more favorable to the Proposed
Transferee than those specified in the Offer. Any Offered Shares not sold within
such 90-day period shall continue to be subject to the requirements of a prior
offer pursuant to this Section 3.1. If Offered Shares are sold pursuant to this
Section 3.1 to any purchaser who is not a party to this Agreement, the Offered
Shares so sold shall no longer be subject to this Agreement.
3.2 Right of Participation in Sales by a Shareholder.
------------------------------------------------
(a) Co-Sale Right. If at any time an Offeror desires to sell all or
-------------
any part of the Shares owned by him to any Proposed Transferee in accordance
with Section 3.1, each of the other Investors and Shareholders shall have the
right to sell to the Proposed Transferee, as a condition to such sale by the
Offeror, upon the same economic terms and legal conditions as involved in such
sale by the Offeror, a number of Shares equal to the Investor's or the
Shareholder's Pro Rata Fraction of the Offered Shares. In the event that the
Investor or the
11
<PAGE>
Shareholder does not hold any of the series, class or type of Shares that the
Proposed Transferee proposes to purchase from the Offeror and the Proposed
Transferee is unwilling to purchase a different series, class or type of Shares
from the Investor or Shareholder, then the Investor or Shareholder shall have
the Put Right set forth in Section 3.4 below with respect to its Pro Rata
Fraction of the Offered Shares.
(b) Notice of Intent to Participate. Each Investor and Shareholder
-------------------------------
wishing to so participate in any sale under this Section 3.2 shall notify the
Offeror in writing of such intention as soon as practicable after such
Investor's and Shareholder's receipt of the Offer made pursuant to Section 3.1,
and in any event within ten (10) days after the date of the Investor's
Expiration Notice. Such notification shall be delivered in person or mailed to
the Offeror at the address set forth in accordance with Section 9.4 below.
(c) Sale to Proposed Transferee. The Offeror and each participating
---------------------------
Investor and Shareholder shall sell to the Proposed Transferee those Shares
proposed to be sold by the Offeror and the participating Investor and/or
Shareholder at not less than the Offered Price and upon other terms and
conditions, if any, not more favorable to the Proposed Transferee than those in
the Offer provided by the Offeror under Section 3.1 above.
(d) Continuation of Restrictions. Any Shares sold by the Offeror
----------------------------
and/or participating Investor or Shareholder to any third party pursuant to this
Section 3.2 shall still be subject to the restrictions or benefits imposed by
Section 3 of this Agreement, and such third party shall be required to execute a
counterpart of this Agreement.
3.3 Prohibited and Permitted Transfers.
----------------------------------
(a) Prohibited Transfers. Neither an Investor nor a Shareholder may
--------------------
sell, assign, transfer, grant an option to or for, pledge, hypothecate,
mortgage, encumber or dispose of all or any of his Shares except as expressly
provided in this Agreement.
(b) Permitted Transfers. Notwithstanding the foregoing, the terms and
-------------------
conditions of Sections 3.1 and 3.2 hereof shall not apply to any Permitted
Transfer by an Investor or a Shareholder. For purposes of this Agreement,
"Permitted Transfer" means any transfer by an Investor or a Shareholder (a) of
such party's Shares to or for the benefit of any parent, sibling, spouse, child
or grandchild Of such Investor or Shareholder, or to a mist for the benefit of
any of the foregoing, or (b) by will or the laws of descent and distribution to
a Permitted Transferee (any person referred to in this paragraph being defined
as a "Permitted Transferee"), (c) of up to one percent (1%) of the shares of
Common Stock of the Company then outstanding on a fully-diluted and as converted
to Common Stock basis in any twelve (12) month period, (d) to an affiliate (as
that term is defined in the Securities Act) or (e) the transfer of Preferred
Shares or Common Stock by virtue of a reorganization, distribution, dissolution
or other such similar event undertaken by OnWord Information, Inc.; provided,
that it shall be a condition of each such transfer that the Permitted Transferee
agree to be bound by the terms and conditions of Section 3 of this Agreement as
an Investor or Shareholder and executes a counterpart of Section 3 of this
Agreement.
12
<PAGE>
As used hereto, the term "Shareholder" and "Investor" are deemed to include
any Permitted Transferees of the Shareholder or Investor, except as expressly
provided otherwise.
3.4 Put Right. In the event of any sale, transfer, assignment or
---------
disposition of any Shares by an Investor or Shareholder in violation of any
provision of this Section 3 (a "Violating Investor"), the other Investors and
Shareholders shall each have the right to elect to cause such Violating Investor
to purchase, and such Violating Investor shall be obligated to purchase, from
such Investor and Shareholder, and at the same price per share and on the same
terms and conditions as involved in such sale by such Violating Investor, such
number of shares of capital stock {calculated on a fully-diluted basis) equal to
the number of Shares sold by such Violating Investor multiplied by a fraction,
the numerator of which is the aggregate number of Shares owned by such Investor
or Shareholder and the denominator of which is the sum of all Shares owned by
all Investors and Shareholders desiring to sell shares to such Violating
Investor under this Section 3.
4. Right to Participate in Sale of Additional Securities.
-----------------------------------------------------
4.1 Right of First Offer. The Company hereby covenants and agrees
--------------------
that it shall not, until such date as the Company completes a Qualified Public
Offering, issue or sell any (i) shares of capital stock of the Company, (ii)
securities convertible into or carrying any rights to purchase capital stock of
the Company, or (iii) options, warrants or other right to subscribe for,
purchase or otherwise acquire any capital stock of the Company, other than in
connection with such Qualified Public Offering, unless (a) the Company has
received a bona fide, arms' length offer to purchase such securities from a
third party and (b) the Company first submits a written offer (the "Written
Offer") to each Investor and Shareholder that, together with its affiliates,
owns in the aggregate at least 100,000 Shares, to permit them to purchase their
"proportionate share" of such securities on terms and conditions, including
price, not less favorable to the Investors and Shareholders than those offered
by such other prospective purchaser. Each Investor and Shareholder shall have
the right to elect to purchase a number of such securities based on the ratio
which the Common Stock of the Company owned by the Investor or Shareholder or
obtainable by said Investor or Shareholder upon conversion of the Preferred
Shares owned by him (as the case may be) bears to all the issued and outstanding
shares of Common Stock of the Company, including shares of Common Stock issuable
upon exercise or conversion of any outstanding Preferred Shares or other
convertible securities. The Company's offer to the Investors and Shareholders
shall remain open and irrevocable for a period of thirty (30) days following
receipt by the Investors and Shareholders of the Written Offer. Promptly upon
the expiration of such thirty (30) day period, the Company shall, in writing,
inform each Investor and Shareholder which elects to purchase all the securities
available to it of any other Investor's or Shareholder's failure to do likewise.
During the ten (10) day period commencing after the receipt of such information,
each fully-exercising Investor and Shareholder shall have the right to elect to
purchase up to its proportionate share of the securities not subscribed for by
the other Investors and Shareholders based on the ratio which the Common Stock
of the Company owned by the fully exercising Investor or Shareholder or
obtainable by said Investor or Shareholder upon conversion of the Preferred
Shares owned by him bears to the Common Stock of the Company owned by, or
obtainable upon conversion of the Preferred Shares owned by all
13
<PAGE>
fully exercising Investors and Shareholders who desire to purchase certain of
the unsubscribed for securities.
4.2 Transfer of Rights. Any Investor or Shareholder may transfer its
------------------
right to be offered any such opportunity to any transferee who (i) is an
Investor or Shareholder, (ii) is an affiliate, as that term is defined in the
Securities Act, of an Investor or Shareholder (including a partner of an
Investor or Shareholder), (iii) has theretofore acquired from an Investor or
Shareholder at least 100,000 Shares (or such lesser number of Shares which
constitutes the total number of Shares purchased by the transferee under this
Agreement) (as adjusted for stock splits, stock dividends, reclassifications,
recapitalizations or other similar events) or (iv) receives Preferred Shares or
Common Stock by virtue of a reorganization, distribution, dissolution or
liquidation or such other similar event undertaken by On Word Information, Inc.
or (v) is a subsidiary, parent, partner, limited partner, retired partner or
shareholder of an Investor or Shareholder.
4.3 Sale by Company. Any securities offered to the Investors and
---------------
Shareholders pursuant to this Section 4 which such Investors and Shareholders
have not elected to purchase within the time fixed herein may, within ninety
(90) days after the date for making such election, be sold by the Company at not
less than the same price and upon terms not materially less favorable to the
Company than were offered to the Investors and Shareholders but may not
otherwise be sold without renewed compliance with this Section 4.
4.4 Excluded Securities. Notwithstanding the above, the Company may
-------------------
from the date hereof, without having offered such securities to the Investors
and Shareholders, issue (i) up to an aggregate of 750,588 shares of Common Stock
(as adjusted for stock splits, stock dividends, reclassifications,
recapitalizations or other similar events) for issuance to or for the benefit of
employees or directors, consultants, and others pursuant to warrants or stock
option, stock purchase or similar plans approved by the Board of Directors; (ii)
securities offered to the public in a Qualified Public Offering; (iii)
securities issued pursuant to the acquisition of another corporation by the
Company by merger, purchase of substantially all of the assets or other
reorganization whereby the Company or its purchasers own not less than fifty-one
percent (51%) of the voting power of the surviving or successor corporation;
(iv) up to an aggregate of 710,000 shares of Series D Convertible Preferred
Stock; (v) Common Stock issued upon conversion of the Preferred Shares; (vi)
warrant or warrants for the purchase of shares of capital stock of the Company
(and stock issued upon exercise of such warrant or warrants) which have been
approved by the Board of Directors of the Company and issued in connection with
an equipment lease, equipment financing or bank line financing; or (vii) stock
issued in connection with stock splits, stock dividends, recapitalizations and
the like by the Company.
5. Termination of Rights Under Sections 3 and 4. The rights and
--------------------------------------------
obligations granted to the parties pursuant to Sections 3 and 4 of this
Agreement shall terminate upon a Qualified Public Offering.
6. Legends. Any certificates representing shares of capital stock subject
-------
to this Agreement shall bear a legend indicating the existence of the
restrictions imposed hereunder.
14
<PAGE>
7. Lock-Up Agreement. Each of the Founders, Investors and Shareholders
-----------------
hereby agree that in connection with the Company's initial public offering, upon
the request of the Company or the principal underwriter managing the initial
public offering, not to sell, make any short sale of, loan, grant an option for
the purchase of, or otherwise dispose of any Registrable Securities now owned or
hereafter acquired by him without the prior written consent of the Company or
such managing underwriter, as the case may be, for one hundred and eighty (180)
days or such other shorter period of time as such underwriter may specify;
provided (i) that the officers, directors, each of the Investors and any
shareholder holding more than one percent (1%) of the outstanding voting
securities of the Company also agree to such restriction and (ii) any
discretionary waiver or termination of these restrictions by the Company or the
managing underwriter shall apply to all persons subject to such agreements pro-
rata based on the number of shares held by such persons on a fully-diluted and
as-converted to Common Stock basis.
8. Covenants Of The Company.
------------------------
So long as an Investor or Shareholder, together with any of its affiliates,
holds in the aggregate, at least 100,000 Shares, and until the Company completes
a Qualified Public Offering, the Company shall comply with the following
covenants.
8.1 Financial Statements: Restatements and Accounting Provision. The
-----------------------------------------------------------
Company shall furnish to the Investors and Shareholders the following reports:
(a) within one hundred and twenty (120) days after the end of each fiscal year,
an audited consolidated balance sheet of the Company as at the end of such year,
together with audited consolidated statements of income, shareholders' equity
and cash flows of the Company for such year, certified by independent public
accountants of recognized standing (which shall be one of the six largest
independent public accounting firms in the United States, or such other
independent public accountants of recognized national or regional standing as
may be approved by the Board of Directors of the Company) prepared in accordance
with GAAP; (b) within forty-five (45) days after the end of each quarter, an
unaudited consolidated balance sheet of the Company as of the end of such
quarter, an unaudited consolidated statement of invoice and cash flows for the
Company for such quarter and for the year to date prepared in accordance with
GAAP (except that such financial statements need not contain footnotes or other
normal year end adjustments) and fairly reflecting the financial affairs of the
Company subject to year-end adjustments; (c) within thirty (30) days after the
end of each month, an unaudited consolidated balance sheet of the Company as at
the end of such month and an unaudited consolidated statement of income and cash
flows for the Company for such month and for the year to date prepared in
accordance with GAAP (except that such financial statements need not contain
footnotes or other normal year end adjustments) and fairly reflecting the
financial affairs of the Company subject to year-end adjustments; (d) within
sixty (60) days prior to the start of each fiscal year, a proposed budget for
such fiscal year which shall include, where appropriate, capital and operating
expense budgets, cash flow projections and income and loss projections for the
Company; and (e) such other financial information as the Investors may
reasonably request, including without limitation, certificates of the principal
financial officer of the Company concerning compliance with the covenants of the
Company under Section 4.1 hereof. At any time when the Company has Subsidiaries,
all financial statements furnished hereunder will be consolidated.
15
<PAGE>
8.2 Conduct of Business. The Company shall continue to engage
-------------------
principally in the business of being an Internet content provider principally
engaged in the automotive markets, and shall engage in only such additional
business activities as (a) shall be reasonably related or incidental thereto and
which shall facilitate the conduct, development or expansion of such business,
or (b) which shall be approved or ratified by the Board of Directors. The
Company will keep in full force and effect its corporate existence and will
comply in all material respects with all applicable laws and regulations in the
conduct of its business. As of the date of this Agreement, (i) the Company will
be an eligible corporation as defined in Section 1202(e)(4) of the Internal
Revenue Code of 1986, as amended (the "Code"), (ii) the Company will not have
made any purchases of its own stock during the one-year period proceeding the
date of this Agreement having an aggregate value exceeding five percent (5%) of
the aggregate value of all its stock as of the beginning of such period and
(iii) the Company's aggregate gross assets, as defined by Code Section
1202(d)(2), at no time between October 5, 1995 and through the date of this
Agreement, have exceeded or will exceed $50 million, taking into account the
assets of any corporations required to be aggregated with the Company in
accordance with Code Section 1202(d)(3); provided further, for so long as shares
of Preferred Stock or the Common Stock issuable upon conversion thereof
(together, the "Qualified Stock") are held by an Investor or Shareholder or a
transferee in whose hands the Qualified Stock is eligible to qualify as
"Qualified Small Business Stock" as defined in Section 1202(c) of the Code, the
Company will use its best efforts to cause the Qualified Stock to qualify as
"Qualified Small Business Stock." The Company will, as a condition of employment
of any employee or consultant of the Company, require that that employee or
consultant enter into a inventions and confidentiality agreement with the
Company.
8.3 Adverse Changes. The Company shall promptly advise the Investors
---------------
and the Shareholders of (a) any event which represents a material adverse change
in the business, assets or condition, financial or otherwise, or operations of
the Company and Co) any suit or proceeding commenced or threatened against the
Company which, if adversely determined, would result in such a material adverse
change.
8.4 Insurance. The Company shall keep its insurable properties
---------
insured by financially sound and reputable insurers against the perils of
liability, casualty, fire and extended coverage in amounts of coverage at least
equal to those customarily maintained by companies in the same or a similar
business of similar size. The Company shall also maintain with such insurers
insurance against other hazards and risks and liability to persons and property,
to the extent and in the manner customary for corporations engaged in the same
or a similar business of similar size.
8.5 Life Insurance. The Company shall maintain and continue to pay
--------------
the premiums on a key-man term life insurance policy on the life of each of the
Founders, in the amount of not less than $2,000,000, naming the Company as
beneficiary provided that such coverage is available to the Company on
reasonable terms and such coverage is approved by the Board of Directors. The
life insurance proceeds received by the Company, if' any, shall be used for
valid business purposes of the Company as approved by the Board of Directors of
the Company.
16
<PAGE>
8.6 Maintenance of Properties. The Company will maintain all
-------------------------
properties used or useful in the conduct of its business in good repair, working
order and condition as necessary to permit such business to be properly and
advantageously conducted.
8.7 Affiliated Transactions. All transactions between the Company
-----------------------
and any officer, Founder, director or shareholder of the Company or Persons
controlled by or affiliated with such officer, Founder, director or
shareholder, other than transactions in their capacity as such, shall be
conducted on an arms-length basis, shall be on terms and conditions no less
favorable to the Company than could be obtained from nonrelated Persons and
shall be unanimously approved in advance by the disinterested Directors of the
Company after full disclosure of the terms thereof.
8.8 Lock-Up for Certain Shareholders. The Company will cause .any
--------------------------------
compensation benefit plan or contract, whether now existing or here, after
created, under which offers and sales of securities of the Company are made to
officers, directors and the Founders of the Company, to provide that in
connection with an underwritten public offering, upon the request of the Company
or the principal underwriter managing such public offering, resales of such
securities may not be sold without the prior written consent of the Company or
such underwriters, as the case may be, for at least one hundred and eighty (180)
days or such other shorter period of time as the underwriters of such offering
may specify, but in no event greater than the period of time imposed on the
Investors and Shareholders pursuant to Section 7 herein.
8.9 Inspection. The Company shall permit authorized representatives
----------
of the Investors and the Shareholders to visit and inspect any of the properties
of the Company, including its books of account (and to make copies thereof and
take extracts therefrom), and to discuss its affairs, finances and accounts with
its officers, administrative employees and independent accountants, all at such
reasonable times upon prior notice and during normal business hours and as often
as may be reasonably requested; provided that all such information provided to
the Investors and the Shareholders by the Company will be maintained as
confidential by the Investors and the Shareholders, will not be disclosed to
third parties and will not be used by the Investors or the Shareholders in a
manner that is adverse to the Company.
8.10 Board of Directors Meeting. The Company will reimburse full
--------------------------
coach airfare and all other direct out-of-pocket expenses reasonably incurred by
each director elected by each series of Preferred Shares in attending meetings
of the Board of Directors or any committee thereof or in conducting any other
business of the Company which has been requested of such 'director by the Board
of Directors or any committee thereof or by senior management. The Company shall
ensure that meetings of its full Board of Directors are held at least four (4)
times each year and at intervals of not more than four (4) months. The Company's
Articles and Bylaws, each as amended from time to time, shall provide for
indemnification and exculpation of directors from personal liability, to the
fullest extent permitted under applicable state law. The Company shall, from
time to time, consider the appropriateness of obtaining directors' and officers'
liability insurance, and, if appropriate and approved by the Board of Directors
of the Company, the Company shall obtain such insurance providing reasonable
coverage and the payment of reasonable premiums.
17
<PAGE>
8.11 Loans and Advances. The Company will not make any loan or
------------------
advance to, or own any stock or other securities of, any Person without the
approval of the Board of Directors, except that the Company may own all of the
outstanding capital stock of a Subsidiary.
8.12 Indebtedness. Except as set forth on Exhibit 2 to the Purchase
------------
Agreement, the Company will not create, incur, assume or suffer to exist any
Indebtedness, or repay any Indebtedness existing on the date of this Agreement
to its shareholders, except as unanimously approved by the Board of Directors of
the Company.
8.13 Executive Search. The Company will use commercially reasonable
----------------
efforts to hire a chief executive officer following the date of this Agreement.
Such chief executive officer shall be approved in advance of being hired by a
majority of the members of the Board of Directors of the Company.
8.14 Matters Requiring Majority Approval of the Board of Directors.
-------------------------------------------------------------
So long any Investor or Shareholder owns, beneficially or of record, at least
100,000 Shares (as adjusted for stock splits, stock dividends and the like), the
matters (a), (c), (e), (i), and (s) below shall require the approval by more
than fifty percent (50%) of the members of the Board of Directors of the
Company, including a majority of the directors elected by the holders of each
series of the Preferred Shares. The remainder of the items and matters shall
require the approval by more than fifty percent (50%) of the members of the
Board of Directors of the Company. Any of such items (a), (c), (e), (i), and (s)
below may also be approved by more than fifty percent (50%) of the members of a
duly authorized committee of the Board of Directors so long as a majority of the
directors elected by holders of each series of the Preferred Shares are then
members of such committee and vote in favor of such an approval:
(a) the Company's annual business plan, including marketing and
personnel plans;
(b) the Company's multi-year strategic plans and any changes in
the strategy or policy falling outside of the approved strategic plan;
(c) the Company's annual budget, including, inter alia, the
budgeted income statement, capital expenditure budget and cash flow, and any
revision thereto;
(d) any proposal for the raising of additional finance falling
outside the annual budget previously approved by the Board of Directors;
(e) except as otherwise provided herein, the remuneration of
officers and directors of the Company, including the adoption of stock option,
incentive, bonus, or other compensation plans;
(f) the entry into change, alternation, or termination of any
contract or employment or other material contract in respect to the provisions
of any services or service to the Company other than one terminable at will by
the Company on thirty days notice or less;
18
<PAGE>
(g) the entry into, change, or alteration or termination of the
terms of any transaction or agreement with any director or shareholder of the
Company or any person associated with or affiliated to such person;
(h) any revaluation of the Company's assets;
(i) the acquisition by the Company, whether by formation or
otherwise, of any subsidiary company, partnership, or joint venture company
of the stock or substantially all of the assets of any company or business or
the making of any investments m any other company or business;
(j) any material alterations to the personnel policies and
practices of the Company;
(k) the settlement, assignment, compromise, or release of any
claim of, or against, the Company in excess of $50,000 and the submission of
any of the Company's disputes to arbitration or other alternate dispute
resolution or the admission of any liability in excess of $50,000;
(l) any material transaction other than in the ordinary course of
business;
(m) the establishment of or any variation to the equity
structure or the ratio between equity and debt of the Company from time to
time;
(n) any change in the Company's fiscal year,
(o) any claims, disclaimers, election, or consent of a material
nature for tax purposes;
(p) any decision or agreement to prosecute, defend, or settle any
legal or administrative proceedings or arbitration or other form of alternate
dispute resolution in excess of $50,000 (other than routine debt collection);
(q) any material change in the Company's accounting or reporting
policies or procedures unless the change is recommended by the independent
certified public accountants retained to audit the Company's financial
statements;
(r) the filing of a petition in bankruptcy or for
reorganization under any bankruptcy law or law for the relief of debtors or
the making of an assignment for the benefit of creditors; and
(s) take any action or make any expenditure, capital or
otherwise, in excess of $100,000, which action or expenditure falls outside of
the annual business plan and budget approved by the Board of Directors of the
Company.
9. Miscellaneous
-------------
19
<PAGE>
9.1 Damages. The rights of the parties under this Agreement are
-------
unique and, accordingly, the parties shall have the right, in addition to such
other remedies as may be available to any of them at law or in equity, to
enforce their rights hereunder by actions for specific performance in addition
to any other legal or equitable remedies they might have to the extent permitted
by law.
9.2 No Waiver, Cumulative Remedies. No failure or delay on the part
------------------------------
of any party to this Agreement in exercising any right, power or remedy
hereunder shall operate as a waiver thereof; nor shall any single or partial
exercise of any such right, power or remedy preclude any other or further
exercise thereof or the exercise of any other right, power or remedy hereunder.
The remedies herein provided are cumulative and not exclusive of any remedies
provided by law.
9.3 Amendments and Waivers. Except as hereinafter provided,
----------------------
amendments to this Agreement shall require and shall be effective upon receipt
of the written consent of: (a) the Company and (b) the holders of at least
seventy-five percent (75%) of the Registrable Securities. In the case of any
amendment adversely affecting the rights of the Founders, Investors or
Shareholders, the holders of at least a majority in interest of the Founder
Shares or Shares held by the Founders, Investors or Shareholders, as the case
may be, shall be required; provided, however, that if an amendment shall
adversely affect a holder or holders of Registrable Securities but not all
holders of Registrable Securities, then the consent required by (b) above shall
include the consent of such adversely affected holder or holders. Except as
hereinafter provided, compliance with any covenant or provision set forth herein
may be waived upon written consent by the party or parties whose rights are
being waived; provided, that (A) if the rights of holders of Registrable
Securities arc being waived, upon the written consent of the holders of at least
seventy-five percent (75%) of the Registrable Securities and (B) if the rights
of a Founder are being waived, upon the written consent of the holders of at
least a majority in interest of the Founder Shares. Notwithstanding the
foregoing, no waivers or amendments shall be effective to reduce the percentage
in interest of the Registrable Securities the consent of the holders of which is
required to amend this Section 9.3. Any waiver or amendments may be given
subject to satisfaction of conditions stated therein and any waiver or
amendments shall be effective only in the specific instance and for the specific
purpose for which given.
9.4 Notices. As the terms "notice" or "notices" are used herein as
-------
between the parties, such term shall mean a written document, explaining in
reason for the notice, and the same shall be mailed by United States Postal
Service via Certified Mail, Return Receipt Requested, or by express courier
service addressed as follows:
to the Company or the Founders:
Autoweb.com, Inc.
3270 Jay Street, Building 6
Santa Clara, CA 95054
Attention: Mr. Farhang Zamani
20
<PAGE>
with a copy by mail and fax (which shall not constitute notice) to:
Gray Cary Ware & Freidenrich LLP
400 Hamilton Avenue
Palo Alto, CA 94301-1825
Attention: Thomas W. Furlong, Esq.
Telephone: 650-328-6561
Facsimile: 650-327-3699
to the Investors:
Torstar Corporation
One Yonge Street
Toronto, CANADA M5E1P9
Attention: Anthony Brown
Telephone: 416.869.4980
Facsimile: 416.869.4183
with a copy by mail and fax (which shall not constitute notice) to:
Torstar Corporation
One Yonge Street
Toronto, CANADA M5E1P9
Attention: General Counsel
Telephone: 416.869.4232
Facsimile: 416.869.4183
to the Shareholders, at such Shareholder's address as set forth in the
Company's records.
Such notice shall be deemed to have been given on the date placed in the U.S.
Mails or delivered to an express courier, and sent by fax to counsel, whether
actually received by the addressee or not. The parties shall, as a matter of
convenience and courtesy, send each party receiving notice a copy of said notice
by facsimile or electronic means, but such notifications shall not be deemed
lawful "notice" as required hereby. The parties may from time to time amend the
above addresses and names by written notice given the other party.
9.5 Binding Effect: Assignment. This Agreement shall be binding upon
--------------------------
and inure to the benefit of the parties hereto and their respective heirs,
successors and assigns, except that the Company shall not have the right to
delegate its obligations hereunder or to assign its rights hereunder or any
interest herein without the prior written consent of the holders of at least a
majority in interest of the Registrable Securities.
9.6 Prior Agreements. This Agreement constitutes the entire
----------------
agreement between the parties with respect to the subject matters hereof and
restates and supersedes all prior oral and written agreements (including,
without limitation, the Rights Agreement and the
21
<PAGE>
Stockholders Agreement) and understandings between them or any of them as to
such subject matters.
9.7 Severability. The provisions of this Agreement are severable
------------
and, in the event that any court of competent jurisdiction shall determine
that any one or more of the provisions or part of a provision contained in
this Agreement, shall, for any reason, be held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other provision or part of a provision of this Agreement,
but this Agreement shall be reformed and construed as if such invalid or
illegal or unenforceable provision, or pan of a provision, had never been
contained herein, and such provisions or part reformed so that it would be
valid, legal and enforceable to the maximum extent possible.
9.8 Governing Law. This Agreement shall be governed by and construed
-------------
in accordance with the substantive laws of the State of California, without
regard to conflict of laws principles.
9.9 Headings. Article, section and subsection headings in this
--------
Agreement are included herein for convenience of reference only and shall not
constitute a part of this Agreement for any other purpose.
9.10 Counterparts. This Agreement may be executed in any number of
------------
counterparts, all of which taken together shall constitute one and the same
instrument, and any of the parties hereto may execute this Agreement by signing
any such counterpart.
9.11 Further Assurances. From and alter the date of this Agreement,
------------------
upon the request of any party hereto, the other parties shall execute and
deliver such instruments, documents and other writings as may be reasonably
necessary or desirable to confirm and carry out and to effectuate fully the
intent and purposes of this Agreement.
[REST OF THIS PAGE INTENTIONALLY LEFT BLANK]
22
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Rights Agreement as
of the day and year first above written.
AUTOWEB.COM, INC.
By: /s/ Payam Zamani
----------------------------------------------
Name: Payam Zamani
Title: President/CEO
FOUNDERS
/s/ Farhang Zamani
---------------------------------------------
Farhang Zamani
/s/ Payam Zamani
---------------------------------------------
Payam Zamani
[SIGNATURE PAGE TO AMENDED AND RESTATED RIGHTS AGREEMENT]
<PAGE>
COUNTERPART SIGNATURE PAGE TO
THE AMENDED AND RESTATED RIGHTS AGREEMENT
October 16, 1998
INVESTOR:
TORSTAR CORPORATION,
a Canadian corporation
By: /s/ David Wetherald
-----------------------------------
Printed: David Wetherald
-----------------------------
Title: General Counsel & Secretary
-------------------------------
<PAGE>
COUNTERPART SIGNATURE PAGE TO
THE AMENDED AND RESTATED RIGHTS AGREEMENT
October 16, 1998
INVESTOR:
GCWF Investment Partners
---------------------------------------
By: Gray Ware Corporation
------------------------------------
By: /s/ Thomas Furlong
------------------------------------
Printed: Thomas Furlong
-------------------------------
Title: Vice President
-------------------------------
<PAGE>
COUNTERPART SIGNATURE PAGE TO
THE AMENDED AND RESTATED RIGHTS AGREEMENT
October 16, 1998
INVESTOR:
GCWF Investment Associates
---------------------------------------
By: /s/ Thomas Furlong
------------------------------------
Printed: Thomas Furlong
-------------------------------
Title: General Partner
-------------------------------
<PAGE>
COUNTERPART SIGNATURE PAGE TO
THE AMENDED AND RESTATED RIGHTS AGREEMENT
October 16, 1998
SHAREHOLDERS
Agree and Acknowledge that this Agreement supersedes in its entirety the
Amended and Restated Registration Rights Agreement dated May 8, 1998.
TCV II, V.O.F.
By: /s/ Robert C. Bensky
-------------------------------
Name: Robert C. Bensky
-----------------------------
Title: Chief Financial Officer
----------------------------
<PAGE>
COUNTERPART SIGNATURE PAGE TO
THE AMENDED AND RESTATED RIGHTS AGREEMENT
October 16, 1998
SHAREHOLDERS
Agree and Acknowledge that this Agreement supersedes in its entirety the
Amended and Restated Registration Rights Agreement dated May 8, 1998.
Technology Crossover Ventures II, L.P.
By: /s/ Robert C. Bensky
-------------------------------------
Name: Robert C. Bensky
-----------------------------------
Title: Chief Financial Officer
-----------------------------------
<PAGE>
COUNTERPART SIGNATURE PAGE TO
THE AMENDED AND RESTATED RIGHTS AGREEMENT
October 16, 1998
SHAREHOLDERS
Agree and Acknowledge that this Agreement supersedes in its entirety the
Amended and Restated Registration Rights Agreement dated May 8, 1998.
TCV II (Q), L.P.
By: /s/ Robert C. Bensky
-------------------------------
Name: Robert C. Bensky
----------------------------
Title: Chief Financial Officer
----------------------------
<PAGE>
COUNTERPART SIGNATURE PAGE TO
THE AMENDED AND RESTATED RIGHTS AGREEMENT
October 16, 1998
SHAREHOLDERS
Agree and Acknowledge that this Agreement supersedes in its entirety the
Amended and Restated Registration Rights Agreement dated May 8, 1998.
TCV II Strategic Partners, L.P.
By: /s/ Robert C. Bensky
-------------------------------
Name: Robert C. Bensky
----------------------------
Title: Chief Financial Officer
----------------------------
<PAGE>
COUNTERPART SIGNATURE PAGE TO
THE AMENDED AND RESTATED RIGHTS AGREEMENT
October 16, 1998
SHAREHOLDERS
Agree and Acknowledge that this Agreement supersedes in its entirety the
Amended and Restated Registration Rights Agreement dated May 8, 1998.
Technology Crossover Ventures II, C.V.
By: /s/ Robert C. Bensky
------------------------------------
Name: Robert C. Bensky
---------------------------------
Title: Chief Financial Officer
---------------------------------
<PAGE>
COUNTERPART SIGNATURE PAGE TO
THE AMENDED AND RESTATED RIGHTS AGREEMENT
October 16, 1998
SHAREHOLDERS
Agree and Acknowledge that this Agreement supersedes in its entirety the
Amended and Restated Registration Rights Agreement dated May 8, 1998.
By: /s/ R.A. Vines
------------------------------
Name: R.A. Vines
-----------------------------
Title: General Partner
----------------------------
<PAGE>
COUNTERPART SIGNATURE PAGE TO
THE AMENDED AND RESTATED RIGHTS AGREEMENT
October 16, 1998
SHAREHOLDERS
Agree and Acknowledge that this Agreement supersedes in its entirety the
Amended and Restated Registration Rights Agreement dated May 8, 1998.
By: On Word Information
-------------------------------
Name: Mark Ross
---------------------------
Title: President
---------------------------
<PAGE>
SCHEDULE A
THE INVESTORS
TORSTAR CORPORATION
GCWF INVESTMENT PARTNERS
GCWF INVESTMENT ASSOCIATES
<PAGE>
SCHEDULE B
THE SHAREHOLDERS
----------------
<TABLE>
<CAPTION>
Series A Preferred Stock Shareholders:
<S> <C>
Larry Abrams 22,000 shares of Series A Preferred
Amerinda Alpern 1,831 shares of Series A Preferred
Edward M. Alpern 12,007 shares of Series A Preferred
Mark Cherney 2,245 shares of Series A Preferred
Fran R. Farkas 3,205 shares of Series A Preferred
Dr. Simon & Mrs. Flueur Frank 6,386 shares of Series A Preferred
Edmund A. Geller, M.D. 3,543 shares of Series A Preferred
Eloise Geller, in trust for Francisco Max Geller 3,379 shares of Series A Preferred
Mona Geller 312 shares of Series A Preferred
Jeffrey B. Hirsch, Sr. 10,463 shares of Series A Preferred
Marc S. Jaffe 484 shares of Series A Preferred
Julie Levitt 3,692 shares of Series A Preferred
Nancy Levitt 3,692 shares of Series A Preferred
Richard Levitt, M.D. 1,162 shares of Series A Preferred
OnWord Information, Inc. 847,002 shares of Series A Preferred
Point Break Ventures, LLC 41,752 shares of Series A Preferred
Raifman & Edwards LIP 145,000 shares of Series A Preferred
Albert A. Reff, M.D. 1,321 shares of Series A Preferred
Joshua Ross 151,029 shares of Series A Preferred
Mark Ross 6,302 shares of Series A Preferred
Martin A. Rubin 1,614 shares of Series A Preferred
John Rys-Davies 60,619 shares of Series A Preferred
John F. Schmelzer 3,432 shares of Series A Preferred
Roni Weisberg-Ross 56,604 shares of Series A Preferred
Farhang Zamani 130,290 shares of Series A Preferred
Payam Zamani 130,291 shares of Series A Preferred
Series B Preferred Stock Shareholders
Broadview Partners Group 40,807 shares of Series B Preferred
Geocapital IV, L.P. 1,591,490 shares of Series B Preferred
Series C Preferred Stock Shareholders
TCV II, V.O.F. 24,553 shares of Series C Preferred
Technology Crossover Ventures II, L.P. 755,820 shares of Series C Preferred
TCV II (Q), L.P. 581,085 shares of Series C Preferred
TCV II Strategic Partners, L.P. 103,122 shares of Series C Preferred
Technology Crossover Ventures IT, C.V. 115,399 shares of Series C Preferred
</TABLE>
<PAGE>
EXHIBIT 10.01
AUTOWEB.COM, INC.
Indemnity Agreement
This Indemnity Agreement, dated as of January 21, 1999, is made by and
between Autoweb.com, 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 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 its subsidiaries and to encourage such individuals to take the
business risks necessary for the success of the Company and its subsidiaries, it
is necessary for the Company to contractually indemnify its officers and
directors and the officers and directors of its subsidiaries, 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 and its subsidiaries;
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 and/or the
subsidiaries of the Company free from undue concern for claims for damages
arising out of or related to such services to the Company and/or the
subsidiaries of the Company.
Now, Therefore, the parties hereto, intending to be legally bound, hereby
agree as follows:
1. Definitions.
-----------
1.1 Agent. For the purposes of this Agreement, "agent" of the Company
-----
means any person who is or was a director or officer of the Company or a
subsidiary of the Company; or is or was serving at the request of, for the
convenience of, or to represent the interest of the Company or a subsidiary of
the Company as a director or officer of another foreign or domestic
<PAGE>
Indemnity Agreement
corporation, partnership, joint venture, trust or other enterprise or an
affiliate of the Company; or was a director or officer of a foreign or
domestic corporation which was a predecessor corporation of the Company or a
subsidiary of the Company, or was a director or officer of another enterprise
or affiliate of the Company at the request of, for the convenience of, or to
represent the interests of such predecessor corporation. The term "enterprise"
includes any employee benefit plan of the Company, its subsidiaries,
affiliates and predecessor corporations.
1.2 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 either the investigation, defense or appeal of a proceeding or establishing
or enforcing a right to indemnification 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
other subsidiaries, or by one or more other 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 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 Bylaws or charter documents of the Company or any
subsidiary of the Company; provided, however, that Indemnitee may at any time
and for any reason resign from such position (subject to any contractual
obligation that Indemnitee may have assumed apart from this Agreement) and that
the Company or any subsidiary shall have no obligation under this Agreement to
continue Indemnitee in any such position.
3. Maintenance of Liability Insurance. The Company hereby covenants and
----------------------------------
agrees that, so long as the Indemnitee shall continue to serve as an agent of
the Company and thereafter so long as the Indemnitee shall be subject to any
possible proceeding by reason of the fact that the Indemnitee was an agent of
the Company, the Company, shall use reasonable efforts to obtain and maintain in
full force and effect directors' and officers' liability insurance ("D&O
Insurance") in reasonable amounts from established and reputable insurers.
Notwithstanding the foregoing, the Company shall have no obligation to obtain or
maintain D&O Insurance if the Company determines in good faith that such
insurance is not reasonably available, the premium costs for such insurance are
disproportionate to the amount of coverage provided, the coverage provided by
such insurance is limited by exclusions so as to provide an insufficient
-2-
<PAGE>
Indemnity Agreement
benefit, or the Indemnitee is covered by similar insurance maintained by a
subsidiary of the Company.
4. Mandatory Indemnification. The Company shall indemnify Indemnitee:
-------------------------
4.1 Third Party Actions. If the Indemnitee is a person who was or is
-------------------
a party or is threatened to be made a party to any proceeding (other than an
action by or in the right of the Company) by reason of the fact that he is or
was an agent of the Company, or by reason of anything done or not done by him in
any such capacity, against any and all expenses and liabilities of any type
whatsoever (including, but not limited to, judgments, fines, ERISA excise taxes
or penalties, and amounts paid in settlement) actually and reasonably incurred
by him in connection with the investigation, defense, settlement or appeal of
such proceeding if he acted in good faith and in a manner he reasonably believed
to be in or not opposed to the best interests of the Company, and, with respect
to any criminal action or proceeding, had no reasonable cause to believe his
conduct was unlawful; and
4.2 Derivative Actions. If the Indemnitee is a person who was or is a
------------------
party or is threatened to be made a party to any proceeding by or in the right
of the Company to procure a 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) which have been paid directly to Indemnitee by D&O Insurance.
5. 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 not entitled, however, to indemnification for all of
the total amount thereof, the Company shall nevertheless indemnify the
Indemnitee for such total amount except as to the portion thereof to which the
Indemnitee is not entitled.
-3-
<PAGE>
Indemnity Agreement
6. Mandatory Advancement of Expenses. Subject to Section 10 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. Indemnitee hereby undertakes to
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 twenty (20) days following delivery of a written request therefor by the
Indemnitee to the Company. Notwithstanding the foregoing provisions of this
Section 6, unless otherwise determined pursuant to Section 8, no advance shall
be made by the Company if a determination is reasonably and promptly made by the
Board of Directors by a majority vote of a quorum consisting of directors who
are not parties to the proceeding (or, if no such quorum exists, by independent
legal counsel in a written opinion) that the facts known to the decision making
party at the time such determination is made demonstrate clearly and
convincingly that such person acted in bad faith or in a manner that such person
did not believe to be in the best interests of the Company and its shareholders.
7. Notice and Other Indemnification Procedures.
-------------------------------------------
7.1 Notice. 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 Insurance. 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 policies.
7.3 Procedure. 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, upon the delivery to the Indemnitee of
written notice of its election so to do. 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 counsel in any such proceeding at the Indemnitee's expense;
(b) the Indemnitee shall have the right to employ his counsel in connection with
any such proceeding, at the expense of the Company, if such counsel serves in a
review,
-4-
<PAGE>
Indemnity Agreement
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 Indemnitee's counsel shall be at the expense of the Company.
8. Determination of Right to Indemnification.
-----------------------------------------
8.1 Success on the Merits. To the extent the Indemnitee has been
---------------------
successful on the merits or otherwise in defense of any proceeding referred to
in Section 4.1 or 4.2 of this Agreement or in the defense of any claim, issue or
matter described therein, the Company shall indemnify the Indemnitee against
expenses actually and reasonably incurred by him in connection with the
investigation, defense or appeal of such proceeding.
8.2 Standard of Conduct. In the event that Section 8.1 is
-------------------
inapplicable, 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 Forum. 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:
(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 selected by the Indemnitee, and reasonably approved
by the Board, which counsel shall make such determination in a written
opinion; or
(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.
8.4 Claim. As soon as practicable, and in no event later than 30 days
-----
after written notice of the Indemnitee's choice of forum pursuant to Section 8.3
above, the Company shall, at its own expense, submit to the selected forum in
such manner as the Indemnitee or the Indemnitee's counsel may reasonably
request, 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.
-5-
<PAGE>
Indemnity Agreement
8.5 Determination. If the forum listed in Section 8.3 hereof selected
-------------
by Indemnitee determines that Indemnitee is entitled to indemnification with
respect to a specific proceeding, such determination shall be final and binding
on the Company. If the forum listed in Section 8.3 hereof selected by
Indemnitee determines that Indemnitee is not entitled to indemnification with
respect to a specific proceeding, the Indemnitee shall have the right to apply
to the Court of Chancery of Delaware, the court in which that proceeding is or
was pending or any other court of competent jurisdiction, for the purpose of
enforcing the Indemnitee's right to indemnification pursuant to the Agreement.
8.6 Expenses of Hearing. 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 of Directors or brought to
establish or enforce a right to indemnification under this Agreement, the Bylaws
or charter documents of the Company or any subsidiary, or any statute or law or
otherwise as required under Section 145, but such indemnification or advancement
of expenses may be provided by the Company in specific cases if the Board of
Directors finds it to be appropriate; or
9.2 Lack of Good Faith. To indemnify the Indemnitee for any expenses
------------------
incurred by the Indemnitee with respect to any proceeding instituted by the
Indemnitee to enforce or interpret this Agreement, if a court of competent
jurisdiction determines that each of the material assertions made by the
Indemnitee in such proceeding was not made in good faith or was frivolous; or
9.3 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; or
9.4 Claims by the Company for Willful Misconduct. To indemnify or
--------------------------------------------
advance expenses to the Indemnitee under this Agreement for any expenses
incurred by the Indemnitee with respect to any proceeding or claim brought by
the Company against Indemnitee for willful misconduct, unless a court of
competent jurisdiction determines that each of such claims was not made in good
faith or was frivolous; or
-6-
<PAGE>
Indemnity Agreement
9.5 Securities Law Actions. To indemnify the Indemnitee on account of
----------------------
any suit in which judgment is rendered against Indemnitee for an accounting of
profits made from the purchase or sale by Indemnitee of securities of the
Company pursuant to the provisions of Section 16(b) of the Securities and
Exchange Act of 1934 and amendments thereto or similar provisions of any
federal, state or local statutory law or in any situation which is contrary to
any undertaking given by the Company to the Securities and Exchange Commission;
or
9.6 Willful Misconduct. To indemnify the Indemnitee on account of
------------------
Indemnitee's conduct which is finally adjudged to have been knowingly fraudulent
or deliberately dishonest, or to constitute willful misconduct or a knowing
violation of the law; or
9.7 Improper Personal Benefit. To indemnify the Indemnitee on account
-------------------------
of Indemnitee's conduct from which Indemnitee derived an improper personal
benefit; or
9.8 Breach of Duty of Loyalty. To indemnify the Indemnitee on account
-------------------------
of conduct that constituted a breach of Indemnitee's duty of loyalty to the
Company or its stockholders; or
9.9 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 law 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
shareholders or disinterested directors, other agreements, or otherwise, both as
to action in his official capacity and to action in another capacity while
occupying his position as an agent of the Company, and the Indemnitee's rights
hereunder shall continue after the Indemnitee has ceased acting as an agent of
the Company and shall inure to the benefit of the heirs, executors and
administrators of the Indemnitee.
11. General Provisions
------------------
11.1 Interpretation of Agreement. It is understood that the parties
---------------------------
hereto intend this Agreement to be interpreted and enforced so as to provide
indemnification to the Indemnitee to the fullest extent now or hereafter
permitted by law.
11.2 Severability. If any provision or provisions of this Agreement
------------
shall be held to be invalid, illegal or unenforceable for any reason whatsoever,
(a) the validity, legality and enforceability of the remaining provisions of the
Agreement (including, without limitation, all portions of any paragraphs of this
Agreement containing any such provision held to be invalid,
-7-
<PAGE>
Indemnity Agreement
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 12 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 payment under this Agreement, the
-----------
Company shall be subrogated to the extent of such payment to all of the rights
of recovery of Indemnitee, who shall execute all documents required and shall do
all acts that may be necessary 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 Notices. 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.
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
with 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.
[The remainder of this page left intentionally blank]
-8-
<PAGE>
Indemnity Agreement
The parties hereto have entered into this Indemnity Agreement effective
as of the date first written above.
COMPANY:
Autoweb.com, Inc.
By: ___________________________________
Dean A. DeBiase, President and
Chief Executive Officer
Address: 3270 Jay Street, Building 6
Santa Clara, California 95054
INDEMNITEE:
By: ____________________________________
Name: __________________________________
Address: _______________________________
_______________________________
[Signature page to Autoweb.com, Inc. Indemnity Agreement]
-9-
<PAGE>
EXHIBIT 10.02
DOWNTOWN WEB, INC.
SERIES A PREFERRED STOCK PURCHASE AGREEMENT
THIS AGREEMENT is entered into as of May ___, 1997 by and among Downtown
Web, Inc. (the "Company"), a California corporation dba AutoWeb Interactive and
each of those purchasers listed on Exhibit 1 hereto (individually referred to as
---------
a "Purchaser" and collectively as the "Purchasers").
In consideration of the mutual promises, covenants and conditions
hereinafter set forth, the parties hereto agree as follows:
1. Authorization and Sale of the Shares.
------------------------------------
(a). Authorization; Articles of Incorporation. The Company has
----------------------------------------
authorized the issuance and sale pursuant to the terms and conditions hereof of
up to 622,630 shares of its Series A Preferred Stock (the "Preferred Shares"),
having the rights, preferences, privileges and restrictions as set forth in the
Articles of Incorporation of the Company, as amended to date (the "Articles")
and substantially in the form attached hereto as Exhibit 2.
----------
(b). Issuance and Sale. Subject to the terms and conditions hereof, on
-----------------
the Closing Date (as defined below), the Company will issue and sell to the
Purchasers up to 622,630 Preferred Shares, at a purchase price of $0.17667 per
share.
2. Closing; Delivery.
-----------------
(a). Closing Date. The purchase and sale of up to 622,630 of the
------------
Preferred Shares to the Purchasers (the "Closing") shall take place at such time
and place as shall be acceptable to the Company and the Purchasers (a "Closing
Date").
(b). Delivery. Subject to the terms of this Agreement, at the Closing,
--------
the Company will deliver to each Purchaser a stock certificate registered in
each Purchaser's name representing the number of Preferred Shares purchased by
each Purchaser at the Closing in exchange for the cancellation of existing
indebtedness to each Purchaser from the Company in the amount of $55,000 as
described in each individual's respective employment agreement. The number of
Preferred Shares being purchased is set forth opposite such Purchaser's name on
Exhibit 1.
- ---------
3. Representations and Warranties of the Purchasers and Restrictions on
--------------------------------------------------------------------
Transfer Imposed by the Securities Act of 1933 and the California Corporate
- ----------------------------------------------------------------------------
Securities Law of 1968.
- -----------------------
4. Representations and Warranties by the Purchasers. Each of the
------------------------------------------------
Purchasers represents and warrants to the Company, severally and not jointly, as
follows:
<PAGE>
(a). The Preferred Shares and the Common Stock of the Company issuable
upon the proper conversion of the Preferred Shares (the "Underlying Common
Shares") (collectively, the "Securities") will be acquired for the Purchaser's
own account, for investment and not with a view to, or for resale in connection
with, any distribution or public offering thereof within the meaning of the
Securities Act or the California Corporate Securities Law of 1968, as amended
(the "California Law").
(b). Each Purchaser understands that the Securities have not been
registered under the Securities Act by reason of their issuance in a
transaction exempt from the registration and prospectus delivery requirements
of the Securities Act pursuant to Section 4(2) thereof, that the Company has no
present intention of registering the Securities, that the Securities must be
held by such Purchaser indefinitely, and that such Purchaser must therefore
bear the economic risk of such investment indefinitely, unless a subsequent
disposition thereof is registered under the Securities Act or is exempt from
registration. Purchaser further understands that the Securities have not been
qualified under the California Law by reason of their issuance in a transaction
exempt from the qualification requirements of the California Law pursuant to
Section 25102(f) thereof, which exemption depends upon, among other things, the
bona fide nature of such Purchaser's investment intent expressed above.
(c). During the negotiation of the transactions contemplated herein,
Purchaser and its representatives have been afforded full and free access to
corporate books, financial statements, records, contracts, documents, and other
information concerning the Company, and to its offices and facilities, have
been afforded an opportunity to ask such questions of the Company's officers,
employees, agents, accountants and representatives concerning the Company's
business, operations, financial condition, assets, liabilities and other
relevant matters as they have deemed necessary or desirable, and have been given
all such information as has been requested, in order to evaluate the merits and
risks of the prospective investment contemplated herein.
(d). Each Purchaser and its representatives have been solely
responsible for such Purchaser's own "due diligence" investigation of the
Company and its management and business, for its own analysis of the fairness
and desirability of the terms of the investment; in taking any action or
performing any role relative to the arranging of the proposed investment, such
Purchaser has acted solely in its own interest, and neither such Purchaser nor
any of its representatives has acted as an agent of the Company. Purchaser has
such knowledge and experience in financial and business matters that it is
capable of evaluating the merits and risks of the purchase of the Securities
pursuant to the terms of this Agreement and of protecting its interests in
connection therewith.
(e). Each Purchaser is able to bear the economic risk of the purchase
of the Securities pursuant to the terms of this Agreement, including a complete
loss of such Purchaser's investment in the Securities.
(f). Each Purchaser has the full right, power and authority to enter
into and perform such Purchaser's obligations under this Agreement, and this
Agreement constitutes a
2
<PAGE>
valid and binding obligation of such Purchaser enforceable in accordance with
its terms except as limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other laws of general application relating to or
affecting enforcement of creditors rights and rules or laws concerning equitable
remedies.
(g). No consent, approval or authorization of or designation,
declaration or filing with any governmental authority on the part of such
Purchaser is required in connection with the valid execution and delivery of
this Agreement.
5. Legends. Each certificate or instrument representing the Securities
-------
may be endorsed with legends in substantially the following forms:
(a). "THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE "ACT") AND ARE "RESTRICTED
SECURITIES" AS DEFINED IN THE RULE 144 PROMULGATED UNDER THE ACT. THE
SECURITIES MAY NOT BE SOLD OR OFFERED FOR SALE OR OTHERWISE DISTRIBUTED EXCEPT
(I) IN CONJUNCTION WITH AN EFFECTIVE REGISTRATION STATEMENT FOR THE SHARES
UNDER SUCH ACT, OR (II) IN COMPLIANCE WITH RULE 144 OR (III) PURSUANT TO AN
OPINION OF COUNSEL TO THE CORPORATION THAT SUCH REGISTRATION OR COMPLIANCE IS
NOT REQUIRED AS TO SUCH SALE, OFFER OR DISTRIBUTION."
(b). Any other legends required by California law or other applicable
state securities laws.
The Company need not register a transfer of any Securities, and may also
instruct its transfer agent not to register the transfer of the Securities,
unless the conditions specified in the foregoing legends are satisfied to the
extent applicable.
6. Removal of Legends and Transfer Restrictions.
--------------------------------------------
(a). Any legend endorsed on the Securities pursuant to Section 4.2(a)
and the stop transfer instructions with respect to the Securities shall be
removed and the Company shall issue a certificate or instrument without such
legend to the holder thereof if such Securities are registered under the
Securities Act and a prospectus meeting the requirements of Section 10 of the
Securities Act is available, if such legend may be properly removed under the
terms of Rule 144 promulgated under the Securities Act or if such holder
provides the Company with an opinion of counsel for such holder reasonably
satisfactory to legal counsel for the Company, to the effect that a sale,
transfer or assignment of such Securities may be made without registration.
(b). Any legend endorsed on a certificate pursuant to Section 4.2(c)
and the stop transfer instructions with respect to such Securities shall be
removed upon receipt by the Company of an order of the California Department of
Corporations or other appropriate state securities authority authorizing such
removal, which order the Company shall seek in a timely manner in those
circumstances in which such order is appropriate in the Company's reasonable
opinion.
3
<PAGE>
7. Miscellaneous.
-------------
(a). Waivers and Amendments. With the written consent of the record
----------------------
holders of at least a majority of the Preferred Shares, the rights of the
holders of the Purchasers under this Agreement may be waived or amended (either
generally or in a particular instance); provided, however, that no such waiver
or amendment shall reduce the aforesaid proportion of Preferred Shares, the
holders of which are required to consent to any waiver or supplemental
agreement, without the consent of the record holders of all of the Preferred
Shares. Upon the effectuation of each such waiver or amendment, the Company
shall promptly give written notice thereof to the record holders of the
Preferred Shares who have not previously consented thereto in writing. Except
to the extent provided in this Section 4.1, this Agreement or any provision
hereof may be amended, waived, discharged or terminated only by a statement in
writing signed by the party against which enforcement of the amendment, waiver,
discharge or termination is sought.
(b). Governing Law. This Agreement shall be governed in all respects
-------------
by 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.
(c). Successors and Assigns. Except as otherwise expressly provided
----------------------
herein, the provisions hereof shall inure to the benefit of, and be binding
upon, the successors, assigns, heirs, executors and administrators of the
parties hereto.
(d). Entire Agreement. This Agreement, the exhibits to this Agreement
----------------
and the other documents delivered pursuant hereto constitute the full and entire
understanding and agreement between the parties with regard to the subjects
hereof and thereof.
(e). Notices, etc. All notices and other communications required or
------------
permitted hereunder shall be in writing and shall be sent by facsimile,
overnight courier or mailed by certified or registered mail, postage prepaid,
return receipt requested, to the facsimile number or address shown on the
signature pages to this Agreement or to such other facsimile number address
provided to the parties to this Agreement in accordance with this Section 4.6.
Such notices or other communications shall be deemed received upon receipt of a
confirmation of facsimile receipt or three (3) business days after deposit in
the mails.
(f). Separability. In case any provision of this Agreement shall be
------------
declared invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby.
(g). Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
4
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and year first above written.
COMPANY:
Downtown Web, Inc.
By:_____________________________
Frank Zamani, President
Address: 100 Saratoga Avenue, Suite 200
Santa Clara, CA 95051
Phone No.: (408) 554-9552
Fax No.: (408) 777-9553
5
<PAGE>
COUNTERPART SIGNATURE PAGE TO
DOWNTOWN WEB, INC.
SERIES A PREFERRED STOCK PURCHASE AGREEMENT
MAY ___, 1997
PURCHASERS:
______________________________
Frank Zamani
Address:______________________
______________________________
______________________________
Phone No.:____________________
Fax No.:______________________
______________________________
Payam Zamani
Address:______________________
______________________________
______________________________
Phone No.:____________________
Fax No.:______________________
6
<PAGE>
Exhibit 1
---------
DOWNTOWN WEB, INC.
Schedule of Purchasers to the
Series A Preferred Stock Purchase Agreement
Dated May ___, 1997
<TABLE>
<CAPTION>
Name of Purchaser Number of Preferred Shares Amount Invested
- ----------------- -------------------------- ---------------
<S> <C> <C>
Frank Zamani 311,315 $55,000
Payam Zamani 311,315 $55,000
------- -------
Total 622,630 $110,000
======= ========
</TABLE>
7
<PAGE>
AMENDMENT TO
INVESTOR'S RIGHTS AGREEMENT
This Amendment to that certain Investor's Rights Agreement dated as of June
5, 1996 (the "Rights Agreement"), by and between Downtown Web, Inc. (the
"Company"), a California corporation dba AutoWeb Interactive and On Word
Information, Inc. (the "Prior Investor") is made as of May ___, 1997 by and
among the Company, the Prior Investor and the undersigned purchasers of Series A
Preferred Stock of the Company (the "New Investors"). Capitalized terms used
herein and not otherwise defined herein shall have the same meanings as in the
Rights Agreement.
RECITALS
--------
A. The Company and the Prior Investor have previously entered into the
Rights Agreement .
B. The Board of Directors of the Company has determined that it is in the
best interests of the Company to amend the Rights Agreement to make the New
Investors parties thereto.
C. It is intended that by their signatures hereto the New Investors become
parties to the Rights Agreement, as amended by this Agreement, effective as of
the date upon which they purchase shares of Series A Preferred Stock and be
included in the definitions of "Investor" (except for the purposes of Section
2.4 therein) and "Holder" as those terms are defined in the Rights Agreement.
NOW, THEREFORE, IT IS AGREED between the parties as follows:
1. The recitals of the Rights Agreement are deleted in their entirety and are
amended to read as follows:
"A. The Investor has previously been granted certain registration rights
and other rights by the Company pursuant to this Agreement.
B. The Company proposes to sell and issue up to an aggregate of up to
approximately 622,630 shares of its Series A Preferred Stock (the "Shares") to
certain investors (the "New Investors") pursuant to the Series A Preferred Stock
Purchase Agreement of even date herewith and desires that the New Investors
receive the same rights as the Investor, except for those rights described in
Section 2.4 therein.
C. Pursuant to Section 3.7 of this Agreement, holders of a majority of the
Registrable Securities currently outstanding desire to amend this Agreement to
grant registration rights and other rights to the New Investors identical to the
registration rights of the Investor.
8
<PAGE>
D. The New Investors desire to become a party to this Agreement as amended
hereby."
2. By their signature hereto, the New Investors become parties to the Rights
Agreement, as amended by this Agreement, and are included for all purposes in
the definition of "Holder" and "Investor" as those terms are defined in the
Rights Agreement; provided, however, that the New Investors shall have no rights
pursuant to Section 2.4 of the Rights Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first written above.
"COMPANY"
DOWNTOWN WEB, INC.
By:___________________________
Frank Zamani, President
"PRIOR INVESTOR"
ON WORD INFORMATION, INC.
By:___________________________
Mark Ross, President
"NEW INVESTORS"
______________________________
Frank Zamani
______________________________
Payam Zamani
9
<PAGE>
Exhibit 10.03
AUTOWEB.COM, INC.
STOCK REPURCHASE AGREEMENT
THIS STOCK REPURCHASE AGREEMENT (the "Agreement") is made and entered into
by and between Autoweb.com, Inc., a California corporation (the "Company"), and
Farhang Zamani (the "Seller").
RECITALS
--------
A. The Seller owns shares of the Company's issued and outstanding Series A
Preferred Stock (the "Shares").
B. The Company wishes to repurchase and the Seller wishes to sell Shares
subject to the terms and conditions set forth herein.
AGREEMENT
---------
NOW, THEREFORE, in consideration of the mutual covenants and conditions
contained herein, it is hereby agreed by and among the parties hereto as
follows:
1. Repurchase of Shares. Effective as of the date hereof, the Seller hereby
--------------------
sells, assigns, transfers and delivers to the Company and the Company hereby
purchases from the Seller, all of his right, title and interest in that number
of Shares equal to $500,000.00 (the "Purchase Price") divided by the Series C
Conversion Price (as adjusted pursuant to Article III.B Section 4(e) of the
Second Amended and Restated Articles of Incorporation). The Seller shall deliver
the stock certificate evidencing the Shares, duly endorsed for transfer to the
Company (or shall instruct the escrow agent holding the certificate evidencing
the Shares to effect such transfer of the certificate) and the Company shall
deliver the Purchase Price to the Seller.
2. Representations of the Seller. Seller represents and warrants that he is
-----------------------------
the lawful and beneficial owner of the Shares free and clear of any and all
liens, encumbrances, restrictions and claims of any kind and the Seller has full
legal right, power, and authority to sell, assign, transfer and convey the
Shares in accordance with the terms of the Agreement. In addition, the Seller
realizes that the value of the Company's common stock may increase or decrease
in the future, and the Seller and his or her successors and assigns hereby
release the Company from any claims based on or arising out of this Agreement.
3. Successors and Assigns. This Agreement shall inure to the benefit of and
----------------------
be binding upon the parties hereto and their respective heirs, executors,
administrators, successors and assigns.
<PAGE>
4. Further Action. The parties agree to execute such further instruments
--------------
and to take such further action as may reasonably be necessary to carry out the
intent of this Agreement.
5. Severability. If any provision of this Agreement is held by a court
------------
of competent jurisdiction to be invalid, void or unenforceable, the remaining
provisions of this Agreement shall continue in full force and effect without
being impaired or invalidated in any way and shall be construed in accordance
with the purposes and intent of this Agreement.
6. Entire Agreement. This Agreement constitutes the entire agreement
----------------
between Seller and the Company with respect to the subject matter contained
herein, and cancels and revokes any prior understandings or agreements between
Seller and the Company with respect to such subject matter.
7. Counterparts. This Agreement may be executed in one or more
------------
counterpart, each which shall be an original, but all of which together shall be
deemed to be one and the same instrument.
8. Governing Law. This Agreement shall be governed and construed in
-------------
accordance with the laws of the State of California.
IN WITNESS WHEREOF, this Agreement has been executed by the parties hereto
as of the dates set forth below.
AUTOWEB.COM, INC.
By: /s/ Payam Zamani
-----------------------------
Title: EVP
--------------------------
Date: 5/7/98
---------------------------
/s/ Farhang Zamani
--------------------------------
Farhang Zamani
Date: 5/7/98
---------------------------
2
<PAGE>
Exhibit 10.04
AUTOWEB.COM, INC.
STOCK REPURCHASE AGREEMENT
THIS STOCK REPURCHASE AGREEMENT (the "Agreement") is made and entered into
by and between Autoweb.com, Inc., a California corporation (the "Company), and
Payam Zamani (the "Seller").
RECITALS
--------
A. The Seller owns shares of the Company's issued and outstanding Series A
Preferred Stock (the "Shares").
B. The Company wishes to repurchase and the Seller wishes to sell Shares
subject to the terms and conditions set forth herein.
AGREEMENT
---------
NOW, THEREFORE, in consideration of the mutual covenants and conditions
contained herein, it is hereby agreed by and among the parties hereto as
follows:
1. Repurchase of Shares. Effective as of the date hereof, the Seller
--------------------
hereby sells, assigns, transfers and delivers to the Company and the Company
hereby purchases from the Seller, all of his right, title and interest in that
number of Shares equal to $500,000.00 (the "Purchase Price") divided by the
Series C Conversion Price (as adjusted pursuant to Article III.B Section 4(e) of
the Second Amended and Restated Articles of Incorporation). The Seller shall
deliver the stock certificate evidencing the Shares, duly endorsed for transfer
to the Company (or shall instruct the escrow agent holding the certificate
evidencing the Shares to effect such transfer of the certificate) and the
Company shall deliver the Purchase Price to the Seller.
2. Representations of the Seller. Seller represents and warrants that he
-----------------------------
is the lawful and beneficial owner of the Shares free and clear of any and all
liens, encumbrances, restrictions and claims of any kind and the Seller has full
legal right, power, and authority to sell, assign, transfer and convey the
Shares in accordance with the terms of the Agreement. In addition, the Seller
realizes that the value of the Company's common stock may increase or decrease
in the future, and the Seller and his or her successors and assigns hereby
release the Company from any claims based on or arising out of this Agreement.
3. Successors and Assigns. This Agreement shall inure to the benefit of
----------------------
and be binding upon the parties hereto and their respective heirs, executors,
administrators, successors and assigns.
1
<PAGE>
4. Further Action. The parties agree to execute such further instruments
--------------
and to take such further action as may reasonably be necessary to carry out the
intent of this Agreement.
5. Severability. If any provision of this Agreement is held by a court of
------------
competent jurisdiction to be invalid, void or unenforceable, the remaining
provisions of this Agreement shall continue in full force and effect without
being impaired or invalidated in any way and shall be construed in accordance
with the purposes and intent of this Agreement.
6. Entire Agreement. This Agreement constitutes the entire agreement
----------------
between Seller and the Company with respect to the subject matter contained
herein, and cancels and revokes any prior understandings or agreements between
Seller and the Company with respect to such subject matter.
7. Counterparts. This Agreement may be executed in one or more
------------
counterpart, each which shall be an original, but all of which together shall be
deemed to be one and the same instrument.
8. Governing Law. This Agreement shall be governed and construed in
-------------
accordance with the laws of the State of California.
IN WITNESS WHEREOF, this Agreement has been executed by the parties hereto
as of the dates set forth below.
AUTOWEB.COM, INC.
By: /s/ Farhang Zamani
-----------------------
Title: President and CEO
---------------------
Date: 5/7/98
----------------------
/s/ Payam Zamani
___________________________
Payam Zamani
Date: 5/7/98
______________________
2
<PAGE>
EXHIBIT 10.05
AUTOWEB.COM, INC.
STOCK REPURCHASE AGREEMENT
THIS STOCK REPURCHASE AGREEMENT (the "Agreement") is made and entered into
by and between Autoweb.com, Inc., a California corporation (the "Company"), and
Fahrang Zamani (the "Seller").
RECITALS
--------
A. The Seller owns shares of the Company's issued and outstanding Series A
Preferred Stock (the "Shares").
B. The Company wishes to repurchase and the Seller wishes to sell Shares
subject to the terms and conditions set forth herein.
AGREEMENT
---------
NOW, THEREFORE, in consideration of the mutual covenants and conditions
contained herein, it is hereby agreed by and among the parties hereto as
follows:
1. Repurchase of Shares. Effective as of the date hereof, the Seller
--------------------
hereby sells, assigns, transfers and delivers to the Company and the Company
hereby purchases from the Seller, all of his right, title and interest in that
number of Shares equal to $100,000.00 (the "Purchase Price") divided by the
Series D Conversion Price (as adjusted pursuant to Article III.B Section 4(d) of
the Third Amended and Restated Articles of Incorporation). The Seller shall
deliver the stock certificate evidencing the Shares, duly endorsed for transfer
to the Company (or shall instruct the escrow agent holding the certificate
evidencing the Shares to effect such transfer of the certificate) and the
Company shall deliver the Purchase Price to the Seller. Because the exact
number of Shares to be sold to the Company will not be determinable until a
future date, the parties to this Agreement agree that the stock certificate
representing all of the Shares held by Seller will be held in escrow by legal
counsel for the Company until such time as the exact number of Shares to be sold
to the Company is determinable.
2. Representations of the Seller. Seller represents and warrants that he
-----------------------------
is the lawful and beneficial owner of the Shares free and clear of any and all
liens, encumbrances, restrictions and claims of any kind and the Seller has full
legal right, power, and authority to sell, assigns transfer and convey the
Shares in accordance with the terms of the Agreement. In addition, the Seller
realizes that the value of the Company's common stock may increase or decrease
in the future, and the Seller and his or her successors and assigns hereby
release the Company from any claims based on or arising out of this Agreement.
3. Successors and Assigns. This Agreement shall inure to the benefit of
----------------------
and be binding upon the parties hereto and their respective heirs, executors,
administrators, successors and assigns.
<PAGE>
4. Further Action. The parties agree to execute such further instruments
--------------
and to take such further action as may reasonably be necessary to carry out the
intent of this Agreement.
5. Severability. If any provision of this Agreement is held by a court of
------------
competent jurisdiction to be invalid, void or unenforceable, the remaining
provisions of this Agreement shall continue in full force and effect without
being impaired or invalidated in any way and shall be construed in accordance
with the purposes and intent of this Agreement.
6. Entire Agreement. This Agreement constitutes the entire agreement
----------------
between Seller and the Company with respect to the subject matter contained
herein, and cancels and revokes any prior understandings or agreements between
Seller and the Company with respect to such subject matter.
7. Counterparts. This Agreement may be executed in one or more
------------
counterpart, each which shall be an original, but all of which together shall be
deemed to be one and the same instrument.
8. Governing Law. This Agreement shall be governed and construed in
-------------
accordance with the laws of the State of California.
IN WITNESS WHEREOF, this Agreement has been executed by the parties hereto
as of the dates set forth below.
AUTOWEB.COM, INC.
By: /s/ Payam Zamani
-------------------------------
Title: President and CEO
-------------------------------
Date: 10/7/98
-------------------------------
/s/ Farhang Zamani
---------------------------------------
Farhang Zamani
Date: 10/7/98
-------------------------------
<PAGE>
Exhibit 10.06
AUTOWEB.COM, INC.
STOCK REPURCHASE AGREEMENT
THIS STOCK REPURCHASE AGREEMENT (the "Agreement") is made and entered into
by and between Autoweb.com, Inc., a California corporation (the "Company"), and
Payam Zamani (the "Seller").
RECITALS
--------
A. The Seller owns shares of the Company's issued and outstanding Series A
Preferred Stock (the "Shares").
B. The Company wishes to repurchase and the Seller wishes to sell Shares
subject to the terms and conditions set forth herein.
AGREEMENT
---------
NOW, THEREFORE, in consideration of the mutual covenants and conditions
contained herein, it is hereby agreed by and among the parties hereto as
follows:
1. Repurchase of Shares. Effective as of the date hereof, the Seller
--------------------
hereby sells, assigns, transfers and delivers to the Company and the Company
hereby purchases from the Seller, all of his right, title and interest in that
number of Shares equal to $100,000.00 (the "Purchase Price") divided by the
Series D Conversion Price (as adjusted pursuant to Article III.B Section 4(d) of
the Third Amended and Restated Articles of Incorporation). The Seller shall
deliver the stock certificate evidencing the Shares, duly endorsed for transfer
to the Company (or shall instruct the escrow agent holding the certificate
evidencing the Shares to effect such transfer of the certificate) and the
Company shall deliver the Purchase Price to the Seller. Because the exact
number of Shares to be sold to the Company will not be determinable until a
future date, the parties to this Agreement agree that the stock certificate
representing all of the Shares held by Seller will be held in escrow by legal
counsel for the Company until such time as the exact number of Shares to be sold
to the Company is determinable.
2. Representations of the Seller. Seller represents and warrants that he
-----------------------------
is the lawful and beneficial owner of the Shares free and clear of any and all
liens, encumbrances, restrictions and claims of any kind and the Seller has full
legal right, power, and authority to sell, assigns transfer and convey the
Shares in accordance with the terms of the Agreement. In addition, the Seller
realizes that the value of the Company's common stock may increase or decrease
in the future, and the Seller and his or her successors and assigns hereby
release the Company from any claims based on or arising out of this Agreement.
3. Successors and Assigns. This Agreement shall inure to the benefit of
----------------------
and be binding upon the parties hereto and their respective heirs, executors,
administrators, successors and assigns.
<PAGE>
4. Further Action. The parties agree to execute such further instruments
---------------
and to take such further action as may reasonably be necessary to carry out the
intent of this Agreement.
5. Severability. If any provision of this Agreement is held by a court
------------
of competent jurisdiction to be invalid, void or unenforceable, the remaining
provisions of this Agreement shall continue in full force and effect without
being impaired or invalidated in any way and shall be construed in accordance
with the purposes and intent of this Agreement.
6. Entire Agreement. This Agreement constitutes the entire agreement
----------------
between Seller and the Company with respect to the subject matter contained
herein, and cancels and revokes any prior understandings or agreements between
Seller and the Company with respect to such subject matter.
7. Counterparts. This Agreement may be executed in one or more
------------
counterpart, each which shall be an original, but all of which together shall be
deemed to be one and the same instrument.
8. Governing Law. This Agreement shall be governed and construed in
-------------
accordance with the laws of the State of California.
IN WITNESS WHEREOF, this Agreement has been executed by the parties hereto
as of the dates set forth below.
AUTOWEB.COM, INC.
By: /s/ Farhang Zamani
-----------------------------
Title:
--------------------------
Date:
---------------------------
/s/ Payam Zamani
--------------------------------
Payam Zamani
Date: 10/7/98
---------------------------
2
<PAGE>
Exhibit 10.07
December 16, 1998
PRIVATE & CONFIDENTIAL
Mr. Dean DeBiase
1565 Kathryn Lane
Lake Forest, IL 60045
Dear Dean:
Autoweb.com, Inc. (the "Company") is pleased to offer you a position as
President and Chief Executive Officer of the Company and a position on its Board
of Directors, on the terms set forth in this letter agreement, effective upon
your acceptance by execution of a counterpart copy of this letter where
indicated below.
1. Reporting Duties and Responsibilities; Employment at Will; Board
----------------------------------------------------------------
Matters. In this position you will report to the Board of Directors of the
- -------
Company. This offer is for a full-time position, located at the offices of the
Company, except as reasonable travel to other locations may be necessary to
fulfill your responsibilities. Your employment with the Company is on an "at
will" basis, and either you or the Company may terminate your employment with
the Company at any time, for any or no reason. Upon your commencement of
employment as the Company's Chief Executive Officer, the Board of Directors will
elect you to fill a position on the Company's Board of Directors, and while you
remain the Chief Executive Officer of the Company, the Board of Directors will
continue to nominate you for a position on the Board of Directors of the
Company. Your full-time employment (at full pay and benefits) will begin on
January 1, 1999, although you will commence employment on a part-time basis
(without pay or benefits) upon execution of this letter agreement.
2. Salary and Vesting Continuation.
-------------------------------
(a) If the Company terminates your employment for any reason other
than Cause (as defined below), then the Company will (i) pay you a lump sum
payment in an amount equal to twelve (12) months of your then current salary,
and, if your termination occurs prior to December 31, 1999, you shall also be
entitled to the payment of the guaranteed bonus described below to the extent it
has not already been paid to you; (ii) allow you to continue to participate in
all pension, profit-sharing and any other retirement plans of the Company that
you are participating in at the time of your termination for the twelve (12)
month period following your termination, solely for the purpose of permitting
you to continue to vest in such plans; and (iii) allow you to continue to
participate in the Company's medical and other insurance plans for the twelve
(12) month period following your termination, at the Company's expense. In
exchange for the foregoing compensation, you agree for a period equal to the
lesser of one (1) year
<PAGE>
following your termination or the number of months you were employed by the
Company as of your termination not to (i) engage or participate in any effort or
act to solicit the Company's customers, suppliers, employees or contractors to
cease doing business or their employment or association with the Company or (ii)
engage as an individual proprietor, partner, stockholder, officer, employee,
director, joint venturer, lender or in any capacity whatsoever (otherwise than
as a holder of not more than one percent (1%) of the total outstanding stock of
a publicly held company) in any business enterprise which offers products or
services that directly compete with products or services offered by the Company
at the time of your termination or resignation. "Business enterprise" for
purposes of the preceding sentence shall refer only to the division, subsidiary
or business unit that you are engaged with, and you shall not be deemed to be in
direct competition if the business enterprise you are engaged with is not in
direct competition with the Company even though some other business enterprise
that is affiliated with the business enterprise you are engaged with may be in
such competition. The Company further agrees to pay any "parachute payment"
excise tax which may be imposed on you as a result of any payments under this
paragraph.
(b) In the event of a Change of Control, seventy-five percent (75%)
of the greater of (i) the stock options to acquire Company securities granted to
you pursuant to this letter and (ii) the securities of the Company (including
stock options) that you hold as of the date of the Change of Control that are
unvested, will immediately vest on the date of the Change of Control.
(c) If during the first twelve (12) months following a Change of
Control, the Company (or the surviving company if the Company is not the
surviving company as a result of a merger or consolidation which is a Change of
Control) terminates your employment for any reason other than Cause or you
resign your employment with the Company as a consequence of a Constructive
Termination (as defined below), then any securities of the Company held by you
that are unvested as of the date of termination of your employment will
immediately vest.
(d) For purposes of this agreement, the following terms shall have
the following meanings:
(i) "Cause" shall mean (i) material and willful violation
of any federal or state law; (ii) conviction of any act of fraud with respect to
the Company; or (iii) conviction of a felony or a crime causing material harm to
the standing and reputation of the Company.
(ii) "Change of Control" shall mean (i) the sale, lease,
conveyance or other disposition of all or substantially all of the Company's
assets as an entirety or substantially as an entirety to any person, entity or
group of persons acting in concert; (ii) any "person" (as such term is used in
Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended)
becoming the "beneficial owner" (as defined in Rule 13(d)-3 under said Act),
directly or indirectly, of securities of the Company representing more than 50%
of the total voting power represented by the Company's then outstanding voting
securities; (iii) a merger or consolidation of the Company with any other
corporation, other than a merger or consolidation which would result in the
voting securities of the Company outstanding immediately prior thereto
continuing
2
<PAGE>
to represent (either by remaining outstanding or by being converted into voting
securities of the surviving entity) at least 50% of the total voting power
represented by the voting securities of the Company or such surviving entity
outstanding immediately after such merger or consolidation; or (iv) the
liquidation or winding up of the business of the Company.
(iii) "Constructive Termination" shall mean that the
Company, without your prior written approval, has (i) materially reduced your
title, authority or responsibilities; (ii) reduced your salary or bonus plans;
or (iii) relocated your principal place of work by a distance of more than 50
miles.
You agree that the payments set forth in this offer letter, including paragraph
3 below, constitute all payments (except for accrued vacation and salary) that
you shall be entitled to in the event of any termination of employment.
3. Salary; Bonus; Benefits and Vacation; Relocation. Your base salary
------------------------------------------------
will be $250,000 per year payable in accordance with the Company's customary
payroll practice as in effect from time to time. Unless your employment is
terminated by the Company for Cause prior to December 31, 1999, you will also be
paid a $100,000 bonus as follows: $50,000 on June 30, 1999 and $50,000 on
December 31, 1999. In no event will your annual base salary be reduced below
$250,000 during your employment by the Company. The Company agrees that it shall
establish bonus plans each fiscal year during your employment in which you shall
be entitled to participate and pursuant to which you shall have the potential to
earn at least $100,000 per fiscal year, subject to achieving any performance
objectives or satisfying other requirements under the bonus plans. You will
receive the Company's standard employee benefits package, and will be subject to
the Company's vacation policy, as such package and policy are in effect from
time to time; provided that (i) you will immediately be entitled to three (3)
weeks of paid vacation each year and (ii) you will be entitled to immediate
coverage under the Company's health, dental, disability and life insurance plans
commencing January 1, 1999. You will also be entitled to be reimbursed for up to
$120,000 of reasonable documented commuting, interim living, relocation and
other miscellaneous expenses incurred by you and your family in connection with
traveling and relocating to the San Francisco Bay area in connection with
accepting employment with the Company.
4. Option and Stock Issuance.
-------------------------
(a) Option. Promptly following your commencement of employment
------
with the Company but in no event later than January 31, 1999, the Company will
issue you an option to purchase 923,210 shares of the Company's common stock at
an exercise price of $0.75 per share. This option will be an incentive stock
option to the maximum extent possible, will be immediately exercisable, and will
vest as follows: 25% will be vested upon grant and the balance will vest on a
pro rata monthly basis over three years commencing on the first anniversary of
the date of grant; provided that an additional 20% of the original stock option
grant will become vested upon the Company's initial underwritten public offering
of its securities. This option may be exercised by you at any time up to ten
(10) years following the
3
<PAGE>
date of grant of the option, provided that following termination of your
employment you may only exercise the option to the extent it is vested.
(b) Stock. Until March 31, 1999, as long as you are an
-----
employee of the Company you will have the option to purchase up to 263,774
shares of the Company's Series D Preferred Stock at $3.55 per share. Your
payment for this stock may be in cash or, to the extent the Company's common
stock is publicly traded, with same day sale proceeds or pursuant to a net
exercise of the option. If the payment is in cash, it shall be in the amount of
no less than $250,000, with the balance, if any, to be financed by an interest
free full recourse promissory note secured by the stock. This note will be due
and payable on the third anniversary of the date of issuance of the stock.
5. Confidential Information. As an employee of the Company, you will
------------------------
have access to certain Company confidential information and you may, during the
course of your employment, develop certain information or inventions that will
be the property of the Company. To protect the interest of the Company, you will
need to sign the Company's standard "Employee Inventions and Confidentiality
Agreement" in the form previously provided to you as a condition of your
employment. We wish to impress upon you that we do not wish you to bring with
you any confidential or proprietary material of any former employer or to
violate any other obligation to your former employers.
6. At-Will Employment. While we look forward to a long and profitable
------------------
relationship, should you decide to accept our offer, you will be an at-will
employee of the Company, which means the employment relationship can be
terminated by either of us for any reason at any time, with or without cause or
advance notice. Any statements of representations to the contrary (and, indeed,
any statements contradicting any provision in this letter) should be regarded by
you as ineffective. Further, your participation in any stock option or benefit
program is not to be regarded as assuring you of continuing employment for any
particular period of time.
7. Authorization to Work. Because of Federal regulations adopted in
---------------------
the Immigration Reform and Control Act of 1986, you will need to present
documentation demonstrating that you have authorization to work in the United
States. If you have any questions about this requirement, which applies to U.S.
citizens and non-U.S. citizens alike, please contact our human resources
department.
8. Term of Offer. This offer will remain open until December 17,
-------------
1998. If you decide to accept our offer, and I hope that you will, please sign
the enclosed copy of this letter agreement in the space indicated and return it
to me. Upon your signature below, this will become our binding agreement with
respect to the subject matter of this letter, superseding in their entirety all
other or prior agreements by you with the Company as to the specific subjects of
this letter agreement, and will be binding upon and inure to the benefit of our
respective successors and assigns, and your heirs, administrators and executors.
This agreement may not be assigned by you. This agreement will be governed by
California law, and may only be amended
4
<PAGE>
in a writing signed by you and the Company. In the event of any conflict between
the terms of this letter agreement and the relevant terms of relevant Company
benefit plans, the terms of this letter agreement shall control.
We are excited to have you join us and look forward to working with you.
Sincerely,
Autoweb.com, Inc.
By: /s/ Payam Zamani
-------------------------------------------
Payam Zamani, Co-Founder, President and CEO
Acknowledged, Accepted and Agreed: Date:
/s/ Dean DeBiase 12-16-98
- --------------------------------- --------------------------
Dean DeBiase
5
<PAGE>
Exhibit 10.8
August 19, 1997
Mr. Sam Hedgpeth
Dear Mr. Hedgpeth:
I am pleased to offer you a position with Downtown Web, Inc., a California
corporation dba AutoWeb Interactive (the "Company") as its Chief Financial
Officer, commencing on September 9, 1997. In this capacity you would report
directly to me.
If you decide to join us, you will receive a base salary of (i) $1,000.00
per month during the period beginning on the date you become an employee and
ending two months thereafter, (ii) $9,000.00 per month during the period
beginning on the date you have been an employee of the Company for two months
and ending two months thereafter and (iii) $100,000.00 per month thereafter.
All base salary amounts will be paid in accordance with the Company's normal
payroll procedures. In addition, you will be eligible to receive annual bonuses
beginning in 1998 when and if approved by the Company's Board of Directors. You
will also be covered by the employee benefits generally granted to each employee
after you have been employed by the Company for three months. Until such time,
the Company will reimburse you for expenditures under COBRA coverage for up to
$1,000.00 per month.
The Board of Directors has granted to you a qualified stock option under
the Company's 1997 Stock Option Plan for 89,419 shares of the stock with an
exercise price of $0.31 per share, which the Board of Directors has determined
to be the current fair market value of such stock. The option grant is subject
to your execution of the Company's standard form of qualified stock option
agreement and will be governed by the terms and conditions of that agreement.
You will also be eligible to purchase shares of a new series of the Company's
Preferred Stock in amounts of up to a maximum of 50% of your base salary at a
purchase price per share to be determined by the Company's Board of Directors.
If you choose to accept this offer, your employment with the Company will
be voluntarily entered into and will be for no specified period. As a result,
you will be free to resign at any time, for any reason or for no reason, as you
deem appropriate. The Company will have a similar right and may conclude its
employment relationship with you at any time, with or without cause.
For purposes of federal immigration law, you will be required to provide to
the Company documentary evidence of your identity and eligibility for employment
in the United States. Such documentation must be provided to us within three
(3) business days of your date of hire, or our employment relationship with you
may be terminated.
<PAGE>
In the event of any dispute or claim relating to or arising out of our
employment relationship, this agreement, or the termination of our employment
relationship (including, but not limited to, any claims of wrongful termination
or age, sex, disability, race or other discrimination), you and the Company
agree that all such disputes shall be fully, finally and exclusively resolved by
binding arbitration conducted by the American Arbitration Association in Santa
Clara County, California, and we waive our rights to have such disputes tried by
a court or jury. However, we agree that this arbitration provision shall not
apply to any disputes or claims relating to or arising out of the misuse or
misappropriation of the Company's trade secrets or proprietary information.
To indicate your acceptance of the Company's offer, please sign and date
this letter in the space provided below and return it to me. A duplicate
original is enclosed for your records. You will be required to sign an Employee
Inventions and Proprietary Rights Assignment Agreement as a condition of your
employment. This letter, along with any agreements relating to proprietary
rights between you and the Company, set forth the terms of your employment with
the Company and supersede any prior representations or agreements, whether
written or oral. This letter may not be modified or amended except by a written
agreement, signed by the Company and by you.
We look forward to working with you at AutoWeb Interactive. Welcome
aboard!
Sincerely,
/s/ Farhang Zamani
------------------------------
Farhang Zamani
President and Chief Executive
AGREED TO AND ACCEPTED:
/s/ Sam Hedgpeth
- -----------------------------
Mr. Sam Hedgpeth
Dated as of August 20, 1997
2
<PAGE>
Exhibit 10.9
EMPLOYMENT AGREEMENT
--------------------
This Employment Agreement is made and entered into by and between
Autoweb.com, Inc. (the "Company") and Sam Hedgpeth ("Hedgpeth").
1. Position and Duties. You will be employed by the Company as its Chief
-------------------
Financial Officer reporting to the President or the Chief Executive Officer of
the Company, or, in the discretion of the President or the Chief Executive
Officer, to a Chief Operating Officer. You accept employment with the Company
on the terms and conditions set forth in this Agreement, and you agree to
devote your full business time, energy and skill to your duties at the Company.
These duties shall include, but not be limited to, any duties consistent with
your position, as well as any other duties which may be assigned to you from
time to time.
2. Term of Employment. Your employment with the Company is for a sixteen
------------------
month period, commencing on March 1, 1998 (the "Term), subject to the provisions
regarding termination set forth below. Upon the termination of your employment,
neither you nor the Company shall have any further obligation or liability to
the other, except as set forth in Paragraphs 4 and 5 below. If your employment
with the Company continues after the Term, your employment relationship with the
Company will be at-will, meaning that either you or the Company can terminate
your employment at any time with or without cause or notice.
3. Compensation. You will be compensated by the Company for your services
------------
as follows:
(a) Salary: You will be paid a monthly salary of $12,083.13 less
------
applicable withholding, in accordance with the Company's normal payroll
procedures. Your salary may be reviewed from time to time and may be subject to
adjustment based upon various factors including, but not limited to, your
performance and the Company's profitability.
(b) Bonus: You will be eligible for a bonus of up to 25% of your
-----
annual salary based upon the performance of the Company and of the finance team.
Performance goals on which bonus eligibility will be based will be set
independently from this Agreement.
(c) Benefits: You will have the right, on the same basis as other
--------
executive employees of the Company, to participate in and to receive benefits
under any of the Company's employee benefit plans, including the Company's group
health, dental and disability or other group insurance plans as well as under
the Company's 401(k) plan. In addition, you will be entitled to the benefits
afforded to other executive employees under the company's vacation, holiday and
business expense reimbursement policies.
(d) Stock Options: You have been issued options to purchase 89,419
-------------
shares of the common stock of the Company at an exercise price of $0.30 per
share subject to the terms of the Company's 1997 Stock Option Plan. You have
also been granted options to purchase an additional 40,581 shares of the
Company's common stock (for 130,000 total shares options),
<PAGE>
which will be treated as an incentive stock option(s) to the maximum extent
permitted under the Internal Revenue Code and the Company's Stock Option Plan,
at an exercise price of $0.75 per share; such option(s) will vest 25% one year
after the date of grant and an additional 12.5% at the conclusion of each six
month period thereafter. You will be eligible to purchase stock of the Company
in the anticipated upcoming Series C financing only in the event, and on the
same basis as, other employees are permitted to purchase such stock. Your
receipt of the foregoing option(s) will be subject to your acceptance of the
Company's standard form of stock option agreement and the Company's 1997 Stock
Option Plan, which will set forth the specific terms and conditions governing
each option.
4. Benefits Upon Voluntary Termination. In the event that you resign from
-----------------------------------
your employment with the Company, or in the event that your employment
terminates as a result of your death or disability, you shall be entitled to no
compensation or benefits from the Company other than those earned under
Paragraph 3 through the date of your termination or as may be required by law.
In particular, you shall not be entitled to any bonus under subsection 3(b)
unless that bonus was earned prior to the date of your termination. You agree
that in the event you resign from your employment with the Company for any
reason, you shall provide the Company with one months' written notice of your
resignation. The Company may, in its sole discretion, elect to waive all or any
part of such notice period and accept your resignation at an earlier date.
5. Benefits Upon Other Termination. Notwithstanding Paragraph 2 above,
-------------------------------
you agree that your employment may be terminated by the Company at any time,
with or without cause. In the event your employment is terminated by the Company
for the reasons set forth below, you shall be entitled to the following:
(a) Termination for Cause: If your employment is terminated by the
---------------------
Company at any time for cause, you shall be entitled to no compensation or
benefits from the Company other than those earned under Paragraph 3 through the
date of your termination. In particular, you shall not be entitled to any bonus
under subsection 3(b) unless that bonus was earned prior to the date of your
termination for cause.
For purposes of this Agreement, a termination "for cause" occurs if you
are terminated for any of the following reasons: (i) theft, dishonesty, or
falsification of any employment or Company records; (ii) improper disclosure of
the Company's confidential or proprietary information; (iii) any action by you
which has a material detrimental effect on the Company's reputation or business;
(iv) habitual neglect of your duties or failure or inability to perform any
reasonable assigned duties after written notice from the Company of, and
reasonable opportunity to cure, such failure or inability; or (v) your
conviction for any criminal act which impairs your ability to perform your
duties under this Agreement.
(b) Termination for Other than Cause: If your employment is
--------------------------------
terminated by the Company during the Term for any reason other than cause, all
stock options referenced in section 3(d) herein shall become immediately vested
on your termination date and you shall
2
<PAGE>
receive severance payments at your final salary rate, less applicable
withholding and benefits, for a period of:
(1) the earlier of either the expiration of the Term of six months
following your termination date in the event that the Company has completed an
initial public offering of the Company's stock on or before your termination
date.
(2) the earlier of either the expiration of the Term or nine months
following your termination date in the event that the Company has not completed
an initial public offering of the Company's stock on or before your termination
date.
Severance payments will be made in accordance with the Company's normal payroll
procedures, and will be less applicable withholding. In addition to any
severance and benefits to which you are entitled under this subsection, you
shall also be entitled to receive any compensation and benefits which you earn
under Paragraph 3 through the date of your termination; provided, however, that
you shall not be entitled to any bonus under subsection 3(b) unless that bonus
was earned prior to the date of your termination.
6. Exclusive Remedy. We agree that the severance payments described in
----------------
Paragraph 5(b) shall be your sole and exclusive remedy in the event that the
Company terminates your employment without cause, and you shall be entitled to
no other compensation for any damage or injury arising out of the termination of
your employment by the Company.
7. Confidential and Proprietary Information. As a condition of your
----------------------------------------
employment with the Company, you agree to sign its standard form of employee
confidentiality and assignment of inventions agreement at the start of your
employment.
8. Dispute Resolution. In the event of any dispute or claim relating to or
------------------
arising out of our employment relationship, the termination of that relationship
or this Agreement (including, but not limited to, any claims of wrongful
termination or other discrimination), we agree that all such disputes shall be
fully and finally resolved by binding arbitration conducted by the American
Arbitration Association in Santa Clara County, California. We hereby agree to
waive our respective rights to have any such disputes tried by a judge or jury.
Provided, however, that this arbitration provision shall not apply to any
disputes or claims relating to or arising out of the actual or alleged misuse or
misappropriation of trade secrets or proprietary information.
9. Attorneys' Fees. The prevailing party shall be entitled to recover
---------------
from the losing party its attorneys' fees and costs incurred in any action
brought to enforce any right arising out of this Agreement.
10. Interpretation. This Agreement shall be interpreted in accordance with
--------------
and governed by the laws of the State of California.
3
<PAGE>
11. Assignment. In view of the personal nature of the services to be
----------
performed under this Agreement by you, you shall not have the right to assign or
transfer any of your obligations under this Agreement.
12. Entire Agreement. This Agreement, along with any agreements relating
----------------
to proprietary rights or stock options referred to herein, constitute the entire
agreement between you and the Company regarding the terms and conditions of your
employment, and they supersede all prior negotiations, representations or
agreements between you and the Company regarding your employment, whether
written or oral.
13. Modification. This Agreement may only be modified or amended by a
------------
supplemental written agreement signed by you and an authorized member of the
Board of Directors.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
and year written below.
Sincerely,
AUTOWEB.COM INC.
Date: 5/4/98 By: /s/ Farhang Zamani
------------------------- ------------------------------
Its: President and CEO
-----------------------------
Date: 5/4/98 /s/ Sam Hedgpeth
------------------------- ---------------------------------
Sam Hedgpeth
4
<PAGE>
Exhibit 10.10
November 9, 1998
Robert M. Shapiro
4087 Cranbrook Court
Bloomfield Hills, MI 48301
Dear Robert:
I am pleased to confirm our offer to you with Autoweb.com (the "Company") in the
position of Vice President, Business Development and Advertising Sales. This
letter is intended to set forth the terms and conditions of Autoweb.com's offer
of employment.
Your employment as Vice President, Business Development and Advertising Sales
will commence on December 7, 1998 or sooner with a semi-monthly rate of
$5,000.00, which is equivalent in $120,000.00 annually. You will also be
eligible for a bonus paid out quarterly of up to $80,000.00 annually. Terms and
conditions to be established within 45 days of hire.
To assist you in your relocation to Santa Clara, CA, Autoweb.com will provide up
to $35,000.00 in relocation expenses. If you voluntary terminate or are
terminated with cause before completing one (1) year of employment following
your annual start date, you agree to reimburse Autoweb.com or have deducted from
any money due you this relocation advance. We will recover at the rate of 1/12
per month, therefore if you leave the Company after one year there will be no
recovery. You will assume tax consequences for any relocation money paid to you
or on your behalf in compliance with IRS regulations regarding moving expenses.
The first 90 days of employment are considered an introductory period. You will
be eligible to receive certain employee benefits including health, vision and
dental insurance effective your first day of employment, and our 401(k) plan
effective at a later date. You will also be eligible for fifteen days of Paid
Time Off (PTO) and ten paid holidays per year. You will also be entitled to
35,000 shares of stock options, which will vest over a four-year period and will
be more fully detailed in documentation to be supplied to you after your arrival
at Autoweb.com.
If you choose to accept this offer, year employment with the Company will be
voluntarily entered into and will be for no specified period. As a result, you
will be free to resign at any time, for any reason or for no reason, as you deem
appropriate. The Company will have a similar right and may conclude its
employment relationship with you at any time, with or without cause.
For purposes of federal immigration law, you will be required to provide to the
Company documentary evidence of your identity and eligibility for employment in
the United States. Such documentation must be provided to us within three (3)
business days of your date of hire. Because of this federal law, our employment
offer must be contingent upon your timely provision of information for
immigration purposes. Please let us know as quickly as possible if
<PAGE>
Robert M. Shapiro
4087 Cranbrook Court
Page 2
you foresee some delay in obtaining the necessary documents, so that we can do
whatever we can to help. Your employment offer is also contingent upon the
completion of an application and the results of a Background Check as authorized
in your application.
In the event of any dispute or claim relating to or arising out of our
employment relationship, this agreement, or the termination of our employment
relationship (including, but not limited to, any claims of wrongful termination
or age, sex, disability, rate or other discrimination), you and the Company
agree that all such disputes shall be fully, finally and exclusively resolved by
binding arbitration conducted by the American Arbitration Association in San
Mateo County, California, and we waive our rights to have such disputes tried by
a court or jury. However, we agree that this arbitration provision shall not
apply to any disputes or claims relating to or arising out of the misuse or
misappropriation of the Company's trade secrets or proprietary information.
To indicate your acceptance of the Company's offer, please sign and date this
letter in the space provided below and return it to me as soon as possible. I
have enclosed a duplicate original for your records. You will be required to
sign an Employee Inventions and Proprietary Rights Assignment Agreement and an
Employee Non Disclosure Agreement as a condition of your employment. This
letter, along with any agreements relating to proprietary rights between you and
the Company, set forth the terms of your employment with the Company and
supersede any prior representations or agreements, whether written or oral. This
letter may not be modified or amended except through a written agreement signed
by the Company. This offer will expire 11/12/98.
We look forward to working with you at Autoweb.com. Welcome aboard!
Sincerely,
/s/ Payam Zamani
---------------------------
Payam Zamani
Co-Founder, President & CEO
AGREED TO AND ACCEPTED:
/s/ Robert M. Shapiro
- -------------------------
Robert M. Shapiro
<PAGE>
Exhibit 10.11
Auto Web Interactive
OFFER LETTER
July 28, 1997
Dear Ms. Hickford:
I am pleased to present our offer to you to join us as Director of Business
Development of AutoWeb Interactive (AWI). This letter is intended to set forth
the terms and conditions of AWI's offer of employment.
Your employment as Director of Business Development will commence on July 30,
1997, with an annual salary of $95,000, payable semi-monthly. Your performance
will be reviewed in accordance with general company practice, which at present
is every six months. You will also receive a bonus in February of 1998 equal to
1% of company revenues over $4 million for 1997. The bonus in February of 1999
will be equal to 1% of company revenues over $10 million for 1998.
You will also be entitled to 22,000 stock options at a price of $0.30 per share,
which will vest over a four-year period and will be more fully detailed in
documentation to be supplied to you after your arrival at AWI.
You are eligible for 15 days paid vacation and sick days which will accrue
monthly and other benefits as Management shall from time to time establish.
Medical insurance coverage and access to the AWI 401k program will be granted
after 3 months of employment. Our benefit package is subject to periodic
adjustments, and certain features of the package may be added, modified or
deleted over time.
As Director of Business Development you will be expected to devote your full
time and efforts to the performance of your duties. Your duties will include all
tasks and projects relevant to business development. You will be reimbursed for
all reasonable and necessary travelling, hotel, meal, entertainment and similar
out of pocket expenses incurred provided proper receipts and vouchers are
submitted in accordance with Company policy. In addition, you will implement and
adhere to the corporate policies and procedures established by the Company and
report directly to the Executive Vice President of AWI. The notice period for
termination of employment applicable to you or the company is 2 weeks, to be
given in writing.
This letter contains all of the terms with respect to our offer of employment to
you to become Director of Business Development with AWI. There are no other
expressed or implied promises, representations, or contracts being offered
to you. If you believe that there are, you
<PAGE>
must include them in your response to this offer. Should you have any questions
concerning its provisions or any other aspect of employment with AWI, I would be
happy to discuss them with you.
Let me reiterate how enthusiastic we are about you, and how much we look forward
to you joining us at AWI. Please acknowledge your acceptance of this offer by
signing and returning a copy of this letter to me.
Best regards,
/s/ Payam Zamani
Payam Zamani
Executive Vice President
Agreed to: /s/ Michelle Hickford 7 August 1997
____________________________ _____________
Michelle Hickford Date
<PAGE>
EXHIBIT 10.12
December 18, 1997
Mr. David Greene
2299 Constitution Drive
San Jose, CA 95124
Dear Dave:
I am pleased to confirm our offer to you with Autoweb.com (the "Company") in the
position of Director of Customer Care and Dealer Support. This letter is
intended to set forth the terms and conditions of Autoweb.com's offer of
employment.
Your employment as Director of Customer Care and Dealer Support will commence as
soon as possible, with a semi-monthly salary of $4,583.34, which is equivalent
to $110,000.00 annually. You will also be eligible for a bonus in 1998 which
will be based on dealer renewal and retention, and the overall dealer training
success rate. Your performance will be reviewed on a quarterly basis, at which
that time you will be eligible for the bonus payment. This bonus for the year
may be equal up to 60% of your base salary. The first 90 days of employment are
considered a probationary period. You will be eligible to receive certain
employee benefits for you and your family including health, vision and dental
insurance effective your first day of employment, and our 401(k) plan effective
at a later date. You will also be eligible for two weeks paid vacation and ten
paid holidays per year. You will also be entitled to 22,262 stock options, which
will vest over a four year period and will be more fully detailed in
documentation to be supplied to you after your arrival at Autoweb.com.
If you choose to accept this offer, your employment with the Company will be
voluntarily entered into and will be for no specified period. As a result, you
will be free to resign at any time, for any reason or for no reason, as you deem
appropriate. The Company will have a similar right and may conclude its
employment relationship with you at any time, with or without cause. If, for
some reason, your employment is concluded without cause the Company will pay you
severance in the amount of one (1) month's base salary.
For purposes of federal immigration law, you will be required to provide to the
Company documentary evidence of your identity and eligibility for employment in
the United States. Such documentation must be provided to us within three (3)
business days of your date of hire. Because of this federal law, our employment
offer must be contingent upon your timely provision of information for
immigration purposes. Please let us know as quickly as possible if you foresee
some delay in obtaining the necessary documents, so that we can do whatever we
can to help.
<PAGE>
In the event of any dispute or claim relating to or arising out of our
employment relationship, this agreement, or the termination of our employment
relationship (including, but not limited to, any claims of wrongful termination
or age, sex, disability, rate or other discrimination), you and the Company
agree that all such disputes shall be fully, finally and exclusively resolved by
binding arbitration conducted by the American Arbitration Association in San
Mateo County, California, and we waive our rights to have such disputes tried by
a court or jury. However, we agree that this arbitration provision shall not
apply to any disputes or claims relating to or arising out of the misuse or
misappropriation of the Company's trade secrets or proprietary information.
To indicate your acceptance of the Company's offer, please sign and date this
letter in the space provided below and return it to me as soon as possible. I
have enclosed a duplicate original for your records. You will be required to
sign an Employee Inventions and Proprietary Rights Assignment Agreement and an
Employee Non Disclosure Agreement as a condition of your employment. This
letter, along with any agreements relating to proprietary rights between you and
the Company, set forth the terms of your employment with the Company and
supersede any prior representations or agreements, whether written or oral.
This letter may not be modified or amended except through a written agreement
signed by the Company. This offer will expire 12-24-97.
We look forward to working with you at Autoweb.com. Welcome aboard!
Sincerely,
/s/ Payam Zamani
--------------------------------------
Payam Zamani, Executive Vice President
AGREED TO AND ACCEPTED:
/s/ David Greene
- ----------------------------------
David Greene
START DATE:
1-19-98
- ----------------------------------
2
<PAGE>
December 11, 1998
Mr. David Greene
2299 Constitution Drive
San Jose, CA 95124
Dear David:
This is an Amendment to your original offer letter from Autoweb.com dated
December 18, 1997.
As indicated in the last line of the second paragraph, Autoweb.com has provided
salary protection (severance) equal to one month's base salary if your
employment is concluded without cause.
As of today, December 11, 1998, your original offer is revised. Effective today,
if, your employment is concluded at the initiation of the Company without cause,
the Company will pay you severance in the amount of six (6) month's base salary.
This provision does not change the at will nature of your employment nor does it
alter any other aspect of the original offer letter. Again, any further
modification or amendment must be through a written agreement signed by the
Company.
Sincerely,
/s/ Payam Zamani
- -------------------------------
Payam Zamani, President and CEO
<PAGE>
Exhibit 10.13
BLDG: Jay 6
OWNER: 60
PROP: 606
UNIT: 2
TENANT: 60603
LEASE AGREEMENT
This Lease, made this 27th day of August, 1997 between BOYD C. SMITH,
Trustee, or his Successor Trustee, UTA dated 12/27/76 (RICHARD T. PEERY 1976
CHILDREN TRUSTS) and LOUIS B. SULLIVAN, Trustee, dba FAMILY INVESTMENTS, or his
Successor Trustee, UTA dated 12/27/76 (JOHN ARRILLAGA 1976 Children Trusts),
hereinafter called Landlord, and DOWNTOWN WEB, INC., a California corporation
(dba AUTOWEB INTERACTIVE, hereinafter called Tenant.
WITNESSETH:
Landlord hereby leases to Tenant and Tenant hereby hires and takes from
Landlord those certain premises (the "Premises") outlined in red on Exhibit "A"
attached. hereto and incorporated herein by this reference thereto more
particularly described as follows:
A portion of that certain 45,000 +/- square foot, two-story building located at
3270 Jay Street, Suite 300, Santa Clara, California 95054, consisting of
approximately 23,880+/- square feet on the first and second floors of the
building. Said Premises is more particularly shown within the area outlined in
Red on Exhibit A attached. The entire parcel, of which the Premises is a part,
---------
is shown within the area outlined in Green on Exhibit A attached, The Premises
---------
shall be improved by Landlord as shown on Exhibit B attached hereto, and is
---------
leased on an "as-is" basis, in its present condition, and in the configuration
as shown in Red on Exhibit B attached hereto.
---------
As used herein the Complex shall mean and include all of the land outlined in
Green and described in Exhibit A attached hereto, and all of the buildings,
improvements, fixtures and equipment now or hereafter situated on said land.
Said letting and hiring is upon and subject to the terms, covenants and
conditions hereinafter set forth and Tenant covenants as a material part of the
consideration for this Lease to perform and observe each and all of said terms,
covenants and conditions. This Lease is made upon the conditions of such
performance and observance.
1. USE. Tenant shall use the Premises only in conformance with applicable
governmental laws, regulations, rules and ordinances for the purpose of general
office, light manufacturing, research and development, and storage and other
uses necessary for Tenant to conduct Tenant's business, provided that such uses
shall be in accordance with all applicable governmental laws and ordinances, and
for no other purpose. Tenant shall not do or permit to be done in or about the
Premises or the Complex nor bring or keep or permit to be brought or kept in or
about the Premises or the Complex anything which is prohibited by or will in any
way increase the existing rate of (or otherwise affect) fire or any insurance
covering the Complex or any part thereof, of any of its contents, or will cause
a cancellation of any insurance covering the Complex or any part thereof, or any
of its contents. Tenant shall not do or permit to be done anything in, on or
1
<PAGE>
about the Premises or the Complex which will in any way obstruct or interfere
with the rights of other tenants or occupants of the Complex or injure or annoy
them, or use or allow the Premises to be used for any improper, immoral,
unlawful or objectionable purpose, nor shall Tenant cause, maintain or permit
any nuisance in, on or about the Premises of the Complex. No sale by auction
shall be permitted on the Premises. Tenant shall not place any loads upon the
floors, walls, or ceiling, which endanger the structure, or place any harmful
fluids or other materials in the drainage system of the building, or overload
existing electrical or other mechanical system. No waste materials or refuse
shall be dumped upon or permitted to remain upon any part of the Premises or
outside of the building in which the Premises are a part, except in trash
containers placed inside exterior enclosures designated by Landlord for that
purpose, or inside of the building proper where designated by Landlord. No
materials, supplies, equipment, finished products or semi-finished products, raw
materials or articles of any nature shall be stored upon or permitted to remain
outside the Premises or on any portion of common areas of the Complex. 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 commit or suffer to be committed any waste in or
upon the Premises. Tenant shall indemnify, defend and hold Landlord harmless
against any loss, expense, damage, attorney's fees, or liability arising out of
failure of Tenant to comply with any applicable law. Tenant shall comply with
any covenant, condition, or restriction ("CC&Rs") affecting the Premises. The
provisions of this paragraph are for the benefit of Landlord only and shall not
be construed to be for the benefit of any tenant or occupant of the Complex.
2. TERM*
A. The term of this Lease shall be for a period of FIVE (5) years,
SEVENTEEN (17) days (unless sooner terminated as hereinafter provided) and
subject to Paragraphs 2(B) and 3, shall commence on the 15th day of October,
1997 and end on the 31st of October of 2002.
B. Possession of the Premises shall be deemed tendered and the term of
this Lease shall commence when the first of the following occur:
(a) One day after a Certificate of Occupancy is granted by the proper
governmental agency, or, if the governmental agency having jurisdiction over the
area in which the Premises are situated does not issue certificates of
occupancy, then the same number of days after certification by Landlord's
architect or contractor that Landlord's construction work has been completed; or
(b) Upon the occupancy of the Premises by any of Tenant's operating
personnel; or
(c) When the Tenant Improvements have been substantially completed for
Tenant's use and occupancy, in accordance and compliance with Exhibit B of this
Lease Agreement; or
(d) As otherwise agreed in writing.
2
<PAGE>
*It is agreed in the event said Lease commences on a date other than the first
day of the month the term of the Lease will be extended to account for the
number of days in the partial month. The Basic Rent during the resulting
partial month will be pro-rated (for the number of days in the partial month) at
the Basic Rent scheduled for the projected commencement date as shown in
Paragraph 43.
3. POSSESSION. If Landlord, for any reason whatsoever, cannot deliver
possession of said premises to Tenant at the commencement of the said term, as
hereinbefore specified, this Lease shall not be void or voidable; no obligation
of Tenant shall be affected thereby; now shall Landlord or Landlord's agents be
liable to Tenant for any loss or damages resulting therefrom; but in the event
the commencement and termination dates of the Lease, and all other dated
affected thereby shall be revised to conform to the date of Landlord's delivery
of possession, as specified in paragraph 2(b), above. The above is, however,
subject to the provision that the period of delay of delivery of the premises
shall not exceed 30 days from the commencement date herein (except those delays
caused by Acts of God, strikes, war, utilities, governmental bodies, weather,
unavailable materials, and delays beyond Landlord's control shall be excluded in
calculating such period) in which instance Tenant, at its option, may, by
written notice to Landlord, terminate this Lease.
4. RENT.
A. Basic Rent: Tenant agrees to pay to Landlord at such place as Landlord
may designate without deduction, offset, prior notice, or demand, and Landlord
agrees to accept as Basic Rent for the leased Premises the total sum of TWO
MILLION EIGHT HUNDRED EIGHTEEN THOUSAND ONE HUNDRED EIGHTY SIX AND 65/100
($2,818,186.65) Dollars in lawful money of the United States of America, payable
as follows:
SEE PARAGRAPH 43 FOR BASIC RENT SCHEDULE
B. Time for Payment. In the event that the term of this Lease commences
on a date other than the first day of a calendar month, on the date of
commencement of the term hereof Tenant shall pay to Landlord as rent for the
period from such date of commencement to the first day of the next succeeding
calendar month that proportion of the monthly rent hereunder which the number of
days between such date of commencement and the first day of the next succeeding
calendar month bears to thirty (30). In the event that the term of this Lease
for any reason ends on a date other than the last day of a calendar month, on
the first day of the last calendar month of the term hereof Tenant shall pay to
Landlord as rent for the period from said first day of said last calendar month
to and including the last day of the term hereof that proportion of the monthly
rent hereunder which the number of days between said first day of said last
calendar month and the last day of the term hereof bears to thirty (30).
C. Late Charge. Notwithstanding any other provision of this Lease, if
Tenant is in default in the payment of rental as set forth in this Paragraph 4
when due, or any part thereof, Tenant agrees to pay Landlord, in addition to the
delinquent rental due, a late charge for each
3
<PAGE>
rental payment in default ten (10) days. Said late charge shall equal ten (10%)
percent of each rental payment so in default.
D. Additional Rent. Beginning with the commencement date of the term of
this Lease, Tenant shall pay to Landlord in addition to the Basic Rent and as
Additional Rent the following:
(a) Tenant's proportionate share of all Taxes relating to the Complex as
set forth in Paragraph 12, and
(b) Tenant's proportionate share of all insurance premiums relating to he
Complex, as set forth in Paragraph 15, and
(c) Tenant's proportionate share of expenses for the operation,
management, maintenance and repair of the Building (including common
areas of the Building) and Common Areas of the Complex in which the
Premises are located as set forth in Paragraph 7, and
(d) All charges, costs and expenses which Tenant is required to pay
hereunder, together with all interest and penalties, costs and
expenses including attorneys' fees and legal expenses that may accrue
thereto in the event of Tenant's failure to pay such amounts, and all
damages, reasonable costs and expenses which Landlord may incur by
means of default of Tenant or failure on Tenant's part to comply with
the terms of this Lease. In the event of nonpayment by Tenant of
Additional Rent, Landlord shall have all the rights and remedies with
respect thereto as Landlord has for nonpayment of rent.
The Additional Rent due hereunder shall be paid to Landlord or Landlord's agent
(i) within five days for taxes and insurance and within thirty days for all
other Additional Rent items, after presentation of invoice from Landlord or
Landlord's agent, setting forth such Additional Rent and/or (ii) at the option
of Landlord Tenant shall pay to Landlord monthly, in advance, Tenant's prorata
share of an amount estimated by Landlord to be Landlord's approximate average
monthly expenditure for such Additional Rent items, which estimated amount shall
be reconciled within 120 days of the end of each calendar year, or more
frequently if Landlord so elects to do so at Landlord's sole and absolute
discretion, compared to Landlord's actual expenditure for said Additional Rent
items, with Tenant paying to Landlord, upon demand, any amount of accrued
expenses expended by Landlord in excess of said estimated amount, or Landlord
crediting to Tenant (providing Tenant is not in default in the performance of
any of the terms, covenants and conditions of this Lease) any amount of
estimated payments made by Tenant in excess of Landlord's actual expenditures
for said Additional Rent items.
The respective obligations of Landlord and Tenant under this paragraph
shall survive the expiration or other termination of the term of this Lease and
if the term hereof shall expire or shall otherwise terminate on a day other than
the last day of a calendar year, the actual Additional Rent incurred for the
calendar year in which the term hereof expires or otherwise terminates shall
4
<PAGE>
be determined and settled on the basis of the statement of actual Additional
Rent for such calendar year and shall be prorated in the proportion which the
number of days in such calendar year preceding such expiration or termination
bears to 365.
E. Fixed Management Fee. Beginning with the Commencement Date of the Term
of this Lease, Tenant shall pay to Landlord, in addition to the Basic Rent and
Additional Rent, a fixed monthly management fee ("Management Fee") equal to 3%
of the Basic Rent due for each month during the Lease Term.
F. Place of Payment of Rent and Additional Rent. All Basic Rent hereunder
and all payments hereunder for Additional Rent shall be paid to Landlord at the
office of Landlord at A&P Family Investments, 2560 Mission College Blvd., Suite
101, Santa Clara, CA 95054, or to such other person or to such other place as
Landlord may from time to time designate in writing.
*G. Security Deposit. Concurrently with Tenant's execution of this Lease,
Tenant shall deposit with Landlord the sum of NINETY SEVEN THOUSAND NINE HUNDRED
EIGHT AND NO/100 ($97,908.00) Dollars. Said 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 during
the term hereof. If Tenant defaults with respect to any provision of this
Lease, including, but not limited to, the provisions relating to the payment of
rent and any of the monetary sums due herewith, 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 other 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
used or applied, 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 fully and faithfully performs
every provision of this Lease to be performed by it, the Security Deposit or any
balance thereof shall be returned to Tenant (or at Landlord's option, to the
last assignee of Tenant's interest hereunder) as the expiration of the Lease
term and 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 whereupon Tenant agrees to release Landlord
from liability for the return of such Deposit or the accounting therefor.
5. RULES AND REGULATIONS AND COMMON AREA. 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, invitees and customers shall, in
common with other occupants of the Complex in which the Premises are located,
and their respective employees, invites and customers and others entitled to the
use thereof, have the non-exclusive right to use the access roads, parking
areas, and facilities provided and designated by Landlord for the general use
and convenience of the occupants of the Complex in which the Premises are
located, 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
5
<PAGE>
changes in the shape, size, location, amount and extent of Common Area. Landlord
further reserves the right to promulgate such reasonable rules and regulations
relating to the use of the Common Area, and any part or parts thereof, as
Landlord may deem appropriate for the best interests of the occupants of the
Complex. 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, and all amendments shall be effective upon
delivery of a copy to Tenant. Landlord shall not be responsible to Tenant for
the non-performance by any other tenant or occupant of the Complex of any of
said Rules and Regulations.
*$48,954.00 Cash due upon Lease execution.
$48,954.00 Promissory Note due October 1, 1998.
Landlord shall operate, manage and maintain the Common Area. The manner in
which the Common Area shall be maintained and the expenditures for such
maintenance shall be at the discretion of Landlord.
6. PARKING. Tenant shall have the right to use with other tenants or occupants
of the Complex 110 parking spaces in the common parking areas of the Complex.
Tenant agrees that Tenant, Tenant's employees, agents, representatives and/or
invitees shall not use parking spaces in excess of said 110 spaces allocated to
Tenant hereunder. Landlord shall have the right, at Landlord's sole discretion,
to specifically designate the location of Tenant's parking spaces within the
common parking areas of the Complex in the event of a dispute among the tenants
occupying the building and/or Complex referred to herein in which event, Tenant
agrees that Tenant, Tenant's employees, agents, representatives and/or invitees
shall not use any parking spaces other than those parking spaces specifically
designated by Landlord for Tenant's use. Said parking spaces, if specifically
designated by Landlord to Tenant, may be relocated by Landlord at anytime, and
from time to time. Landlord reserves the right, at Landlord's sole discretion,
to rescind any specific designation of parking spaces, thereby returning
Tenant's parking spaces to the common parking area. Landlord shall give Tenant
written notice of any change in Tenant's parking spaces. Tenant shall not, at
any time, park, or permit to be parked, any trucks or vehicles adjacent to the
loading areas so as to interfere in any way with the sue of such areas, nor
shall Tenant at any time park, or permit the parking of Tenant's trucks or other
vehicles or the trucks and vehicles 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 nor permit to be parked, any inoperative vehicles or
equipment on any portion of the common parking area or other common areas of the
Complex. Tenant agrees to assume responsibility for compliance by its employees
with the provisions contained herein. If Tenant or its employees park in other
than such designated parking areas, then Landlord may charge Tenant ,as an
additional charge, and Tenant agrees to pay, Ten ($10.00) Dollars per day for
each day or partial day each such vehicle is parked in any area other than that
designated. Tenant hereby authorizes Landlord, at Tenant's sole expense, to tow
away from the Complex any vehicle belonging to Tenant or Tenant's employees
parked in violation of these provisions, or to attach violation stickers or
notices to such vehicles. Tenant shall use the parking areas for vehicle
parking only, and shall not sue the parking areas for storage.
6
<PAGE>
7. EXPENSES OF OPERATION, MANAGEMENT, AND MAINTENANCE OF THE COMPLEX AND
BUILDING IN WHICH THE PREMISES ARE LOCATED. As additional Rent and in
accordance with Paragraph 4D of this Lease, Tenant shall pay to landlord
Tenant's proportionate share (calculated on a square footage or other equitable
basis as calculated by Landlord) of all expenses of operation, management,
maintenance and repair of the Common Area of the Complex including, but not
limited to, license, permit, and inspection fees; security; utility charges
associated with exterior landscaping and lighting (including water and sewer
charges); all charges incurred in the maintenance and replacement of landscaped
areas, lakes, parking lots and paved areas (including repairs, replacements,
resealing and restriping), sidewalks, driveways; maintenance, repair and
replacement of all fixtures and electrical, mechanical, and plumbing systems;
structural elements and exterior surfaces of the buildings; salaries and
employee benefits of personnel and payroll taxes applicable thereto; supplies,
materials, equipment and tools; the cost of capital expenditures which have the
effect of reducing operating expenses, provided, however, that in the event
Landlord makes such capital Improvements, Landlord shall amortize its Investment
in said improvements (together with interest at the rat eof fifteen (15%)
percent per annum on the unamortized balance) at an operating expense in
accordance with standard accounting practices, provided, that such amortization
is not at a rate greater than the anticipated savings in the operating expenses.
"Additional Rent" as used herein shall not include Landlord's debt
repayments; interest on charges; expenses directly or indirectly incurred by
Landlord for the benefit of any other tenant; cost for the installation of
partitioning or any other tenant improvements; cost of attracting tenants;
depreciation; interest, or executive salaries.
As Additional Rent and in accordance with paragraph 4D of this Lease,
Tenant shall pay its proportionate share (calculated on a square footage or
other equitable basis as calculated by landlord) of the cost of operation
(including common utilities), management, maintenance, and repair of the
building (including common areas such as lobbies, restrooms, janitor's closets,
hallways, elevators, mechanical and telephone rooms, stairwells, entrances,
spaces above the ceilings and janitorization of said common areas) in which the
Premises are located. The maintenance items herein referred to include, but are
not limited to, all windows, window frames, plate glass, glazing, truck doors,
main plumbing systems of the building (such as water and drain lines, sinks,
toilets, faucets, drains, showers and water fountains), main electrical systems
(such as panels and conduits), heating and airconditioning systems (such as
compressors, fans, air handlers, ducts, boilers, heaters), store fronts, roofs,
downspouts, building common area interiors (such as wall coverings, window
coverings, floor coverings and partitioning), ceilings, building exterior doors,
skylights (if any), automatic fire extinguishing systems, and elevators,
license, permit, and inspection fees; security; salaries and employee benefits
of personnel and payroll taxes applicable therein; supplies, materials,
equipment and tools; the cost of capital expenditures which have the effect of
reducing operating expenses, provided, however, that in the event Landlord makes
such capital improvements, Landlord shall amortize its investment in said
improvements (together with interest at the rate of fifteen (15%) percent per
annum on the unamortized balance) as an operating expense in accordance with
standard accounting practices, provided, that such amortization is not at a rate
greater than the anticipated savings in the operating expenses. Tenant hereby
waives all rights under, and benefits of, subsection 1
7
<PAGE>
of Section 1932 and Sections 1941 and 1942 of the California Civil Code and
under any similar law, statute or ordinance now or hereafter in effect.
8. ACCEPTANCE AND SURRENDER OF PREMISES. By entry hereunder, Tenant accepts
the Premises as being in good and sanitary order, condition and repair and
accepts the building and improvements included in the Premises in their present
condition and without representation or warranty by landlord as to the
conditions of such building or as to the use or occupancy which may be made
thereof. Any exceptions to the foregoing must be by written agreement executed
by Landlord and Tenant. Tenant agrees on the last day of the Lease term, or on
the sooner termination of this Lease, to surrender the Premises promptly and
peaceably to Landlord in good condition and repair (damage by Acts of God, fire,
normal wear and tear excepted), with all interior walls painted, or cleaned so
that they appear freshly painted, and repaired and replaced, if damaged; all
floors cleaned and waxed; all carpets cleaned and shampooed; the airconditioning
and heating equipment service by a reputable and licensed service firm and in
good operating condition (provided the maintenance of such equipment has been
Tenant's responsibility during the term of this lease) together with all
alterations, additions, and Improvements which may have been made in, to, or on
the Premises (except movable trade fixtures installed at the expense of Tenant)
except that Tenant shall ascertain from Landlord within thirty (30) days before
the end of the term of this Lease whether Landlord desires to have the Premises
or any part or parts thereof restored to their condition and configuration as
when the Premises were delivered to Tenant and if Landlord shall so desire, then
Tenant shall restore said Premises or such part or parts thereof before the end
of this Lease at Tenant's sole cost and expense. Tenant, on or before the end
of the term or sooner termination of this Lease, shall remove all of Tenant's
personal property and trade fixtures from the Premises, and all property not so
removed on or before the end of the term or sooner termination of this Lease
shall be deemed abandoned by Tenant and title to same shall thereupon pass to
Landlord without compensation to Tenant. Landlord may, upon termination of this
Lease shall be deemed abandoned by Tenant and title to same shall thereupon pass
to Landlord without compensation to Tenant. Landlord may, upon termination of
this Lease, remove all moveable furniture and equipment so abandoned by Tenant,
at Tenant's sole cost, and repair any damage caused by such removal at Tenant's
sole cost. If the Premises be no surrendered at the end of the term or sooner
termination of this Lease, Tenant shall indemnify Landlord against loss or
liability resulting from the delay by Tenant in so surrendering the Premises
including, without limitation, any claims made by any succeeding tenant founded
on such delay. Nothing contained herein shall be construed as an extension of
the terms hereof or as a consent of Landlord to any holding over by Tenant. The
voluntary or other surrender of this lease or the Premises by Tenant or a mutual
condition of this lease shall not work as merger and, at the option of landlord,
shall either terminate all or any existing sublease or subtenancies or operate
as an assignment to landlord of all or any such sublease or subtenancies.
9. ALTERATIONS AND ADDITIONS. Tenant shall not make, or suffer to be made,
any alteration or addition to the Premises, or any part thereof, without the
written consent of landlord first had and obtained by Tenant, but at the cost of
Tenant, and any addition to, or alteration of, the Premises, except removeable
furniture and trade fixtures, shall at once become a part of the Premises and
belong to landlord. Landlord reserves the right to approve all contractors and
8
<PAGE>
mechanics proposed by Tenant to make such alterations and additions. Tenant
shall retain title to all moveable furniture and trade fixtures placed in the
Premises. All heating, lighting, electrical, airconditioning, floor to ceiling
partitioning, drapery, carpeting, and floor installations made by Tenant,
together with all property that has become an integral part of the Premises,
shall not be deemed trade fixtures. Tenant agrees that it will not proceed to
make such alteration or additions, without having obtained consent from Landlord
to do so, and until five (5) days from the receipt of such consent, in order
that Landlord may post appropriate notices to avoid any liability to contractors
or material suppliers for payment for Tenant's improvements, Tenant will at all
times permit such notices to be posted and remain posted until the completion of
work. Tenant shall, if required by Landlord, secure at Tenant's own cost and
expense, a completion and lien indemnity bond, satisfactory to landlord, for
such work. Tenant further covenants and agrees that any mechanic's lien filed
against the Premises or against the Complex for work claimed to have been done
for, or materials claimed to have been furnished to Tenant, will be discharged
by Tenant, by bond or otherwise, within ten (10) days after the filing thereof,
at the cost and expense of Tenant. Any exceptions to the foregoing must be made
in writing and executed by both Landlord and Tenant.
10. TENANT MAINTENANCE. Tenant shall, at its sole cost and expense, keep and
maintain the Premises (including appurtenances) and every part thereof in a high
standard of maintenance and repair, and in good and sanitary condition.
Tenant's maintenance and repair responsibilities herein referred to include, but
are not limited to, janitorization, plumbing systems within the Premises (such
as water and drain lines, sinks), electrical systems within the non-common areas
of the Premises (such as outlets, lighting fixtures, lamps, bulbs, tubes,
ballasts), heading and airconditioning controls within the non-common areas of
the Premises (such as mixing boxes, thermostats, time clocks, supply and return
grills), all Interior improvements within the premises including but not limited
to: wall coverings, acoustical ceilings, vinyl tile, carpeting, partitioning,
doors (both interior and exterior, including closing mechanisms, latches,
locks), and all other interior improvements of any nature whatsoever. Tenant
agrees to provide carpet shields under all rolling chairs or to otherwise be
responsible for wear and tear of the carpet caused by such rolling chairs if
such wear and tear exceeds that caused that caused by normal foot traffic in
surrounding areas. Areas of excessive wear shall be replaced at Tenant's sole
expense upon Lease termination. See Paragraphs 55 and 56.
11. UTILITIES OF THE BUILDING IN WHICH THE PREMISES ARE LOCATED. As
Additional Rent and in accordance with paragraph 4D of this Lease, Tenant shall
pay its proportionate share (calculated on a square footage or other equitable
basis as calculated by Landlord) of the cost of all utility charges such as
water, gas, electricity, telephone, telex and other electronic communications
service, sewer service, waste pick-up and any other utilities, materials or
services furnished directly to the building in which the Premises are located,
including, without limitation, any temporary or permanent utility surcharge or
other exactions whether or not hereinafter imposed.
Landlord shall not be liable for and Tenant shall not be entitled to any
abatement or reduction of rent by reason of any interruption or failure of
utility services tot he Premises when such interruption or failure is caused by
accident, breakage, repair, strikes, lockouts, or other
9
<PAGE>
labor disturbances or labor disputes of any nature, or by any other cause,
similar or dissimilar, beyond the reasonable control of Landlord.
Provided that Tenant is not in default in the performance or observance of
any of the terms, covenants or conditions of this Lease to be performed or
observed by it, Landlord shall furnish to the Premises between the hours of 8:00
AM and 6:00 PM, Mondays through Fridays (holidays excepted) and subject to the
rules and regulations of the Complex hereinbefore referred to, reasonable
quantities of water, gas and electricity suitable for the intended use of the
Premises and heat and airconditioning required in Landlord's judgment for the
comfortable use and occupation of the Premises for such purposes. Tenant may,
from time to time, have its staff and equipment operate on a twenty-four hour-a-
day, seven day-a-week schedule, and Tenant shall pay for any extra utilities
used by Tenant. Tenant agrees that at all times it will cooperate fully with
Landlord and abide by all reasonable regulations and requirements that Landlord
may prescribe for the proper functioning and protection of the building heating,
ventilating and airconditioning system. Whenever heat generating machines,
equipment, or any other devices (including exhaust fans) are used in the
Premises by Tenant which affect the temperature or otherwise maintained by the
airconditioning system, Landlord shall have the right to install supplementary
airconditioning units in the Premises and the cost thereof, including the costs
of installation and the cost of operation and maintenance thereof, shall be paid
by Tenant to Landlord upon demand by Landlord. Tenant will not, without the
written consent of Landlord (which approval shall not be unreasonably withheld),
use any apparatus or device in the Premises (including, without limitation),
electronic data processing machines or machines using current in excess of 110
Volts which will in any way increase the amount of electricity, gas, water or
airconditioning usually furnished or supplied to premises being used as general
office space, or connect with electric current (except through existing
electrical outlets in the Premises), or with gas or water pipes any apparatus or
device for the purposes of using electric current, gas, or water. If Tenant
shall require water, gas, or electric current in excess of that usually
furnished or supplied to premises being used as general office space, Tenant
shall first obtain the written consent of Landlord, which consent shall not be
unreasonably withheld and Landlord may cause an electric current, gas, or water
meter to be installed in the Premises in order to measure the amount of electric
current, gas or water consumed for any such excess use. The cost of any such
meter and of the installation, maintenance and repair thereof, all charges for
such excess water, gas and electric current consumed (as shown by such meters
and at the rates then charged by the furnishing public utility and any
additional expense incurred by landlord in keeping account of electric current,
gas, or water so consumed shall be paid by Tenant, and Tenant agrees to pay
Landlord therefor promptly upon demand by Landlord. See Paragraph 54.
12. TAXES. A. As Additional Rent and in accordance with Paragraph 4D of this
lease, Tenant shall pay to landlord Tenant's proportionate share of all Real
Property Taxes, which prorata share shall be allocated to the leased Premised by
square footage or other equitable basis, as calculated by Landlord. The term
"Real Property Taxes", as used herein, shall mean (i) all taxes, assessments,
levies and other charges of any kind or nature whatsoever, general and special,
foreseen and unforeseen (including all installments of principal and interest
required to pay any general or special assessments for public improvements and
any increases resulting from reassessments caused by any change in ownership of
the Complex) now or hereafter imposed by
10
<PAGE>
any governmental or quasi-governmental authority or special district having the
direct or indirect power to tax or levy assessments, which are levied or
assessed against, or with respect to the value, occupancy or use of, all or any
portion of the Complex (as now constructed or as may at any time hereafter be
constructed, altered, or otherwise changed) or landlord's interest therein; any
improvements located within the Complex (regardless of ownership); the fixtures,
equipment and other property of Landlord, real or personal, that are an integral
part of and located in the Complex or parking areas, public utilities, or energy
within the Complex; (ii) all charges, levies or fees imposed by reason of
environmental regulation or other governmental control of the Complex; and (iii)
all costs and fees (including attorneys' fees) incurred by Landlord in
contesting any Real Property Tax and in negotiating with public authorities as
to any Real Property Tax. If at any time during the term of this Lease the
taxation or assessment of the Complex prevailing as of the commencement date of
this Lease shall be altered so that in lieu of or in addition to any Real
Property Tax described above there shall be levied, assessed or imposed (whether
by reason of a change in the method of taxation of assessment, creation of a new
tax or charge, or any other cause) an alternate or additional tax or charge (i)
on the value, use or occupancy of the Complex or Landlord's interest therein or
(ii) on or measured by the gross receipts, income or rentals from the Complex,
on landlord's business of leasing the Complex, or computed in any manner with
respect to the operation of the Complex, then say such tax or charge, however
designated, shall be included within the meaning of the term "Real Property
Taxes" for purposes of this Lease. If any Real Property Tax is based upon
property or rents unrelated to the Complex, then only that part of such real
Property Tax that is fairly allocable to the Complex shall be included within
the meaning of the term "Real Property Taxes". Notwithstanding the foregoing,
the term "Real Property Taxes" shall not include estate, inheritance, gift or
franchise taxes of Landlord or the federal or state net income tax imposed on
Landlord's income from all sources.
B. Taxes on Tenant's Property
(a) Tenant shall be liable for and shall pay ten days before
delinquency, taxes levied against any personal property or trade fixtures placed
by Tenant in or about the Premises. If any such taxes on Tenant's personal
property or trade fixtures are levied against Landlord or Landlord's property or
if the assessed value of the Premises is increased by the inclusion therein of a
value placed upon such personal property or trade fixtures of Tenant and if
Landlord, after written notice to Tenant, pays the taxes based on such increased
assessment, which landlord shall have the right to do regardless of the validity
thereof, but only under proper protest if requested by Tenant, Tenant shall upon
demand, as the case may be, repay to Landlord the taxes so levied against
Landlord, or the proportion of such taxes resulting from such increase in the
assessment; provided that in any such event Tenant shall have the right, in the
name of Landlord and with landlord's full cooperation, to bring suit in any
court of competent jurisdiction to recover the amount of any such taxes so paid
under protest, and any amount so recovered shall belong to Tenant.
(b) If the Tenant improvements in the Premises, whether installed,
and/or paid for by Landlord or Tenant and whether or not affixed to the real
property so as to become a part thereof, are assessed for real property tax
purposes at a valuation higher than the valuation at
11
<PAGE>
which standard office improvements in other space in the Complex are assessed,
then the real property taxes and assessments levied against Landlord or the
Complex by reason of such excess assessed valuation shall be deemed to be taxes
levied against personal property of Tenant and shall be governed by the
provisions of 18a, above. If the records of the County Assessor are available
and sufficiently detailed to serve as a basis for determining whether said
Tenant Improvements are assessed at a higher valuation than standard office
improvements in other space in the Complex, such records shall be binding on
both the Landlord and the Tenant. If the records of the County Assessor are not
available or sufficiently detailed to serve as a basis for making said
determination, the actual cost of construction shall be used.
13. LIABILITY INSURANCE. Tenant, at Tenant's expense, agrees to keep in force
during the term of this Lease a policy of commercial general liability insurance
with a combined single limit coverage of not less than Two Million Dollars
($2,000,000) per occurrence for injuries to or death of persons occurring in, on
or about the Premises or the Complex, and property damage insurance. The policy
or policies affecting such insurance, certificates of insurance of which shall
be furnished to landlord, shall name Landlord as additional insureds, and shall
insure any liability of Landlord, contingent or otherwise, as respects acts or
omissions of Tenant, its agents, employees or invitees or otherwise by any
conduct or transactions of any of said persons in or about or concerning the
Premises, including any failure of Tenant to observe or perform any of its
obligations hereunder, shall be issued by an insurance company admitted to
transact business in the State of California; and shall provide that the
insurance effected thereby shall not be canceled, except upon thirty (30) days'
prior written notice to Landlord, if, during the term of this lease, in the
considered opinion of landlord's Lender, Insurance advisor, or counsel, the
amount of insurance described in this paragraph 13 is not adequate. Tenant
agrees to increase said coverage to such reasonable amount as landlord's Lender,
insurance advisor, or counsel shall deem adequate.
14. TENANT'S PERSONAL PROPERTY INSURANCE AND WORKMAN'S COMPENSATION INSURANCE.
Tenant shall maintain a policy or policies of fire and property damage insurance
in "all risk" form with a sprinkler leakage endorsement insuring the personal
property, inventory, trade fixtures, and leasehold improvements within the
leased Premises for the full replacement value thereof. The proceeds from any
of such policies shall be used for the repair or replacement of such items so
insured.
Tenant shall also maintain a policy or policies of workman's compensation
insurance and any other employee benefit insurance sufficient to comply with all
laws.
15. PROPERTY INSURANCE. Landlord shall purchase and keep in force and as
Additional Rent and in accordance with Paragraph 4D of this Lease, Tenant shall
pay to Landlord (or Landlord's agent if so directed by Landlord) Tenant's
proportionate share (calculated to a square footage or other equitable basis as
calculated by Landlord) of the deductibles on insurance claims and the cost of
policy or policies of insurance covering loss or damage to the Premises and
Complex in the amount of the full replacement value thereof, providing
protection against those perils included within the classification of "all
risks" insurance and flood and/or earthquake insurance, if available, plus a
policy of rental income
12
<PAGE>
insurance in the amount of one hundred (100%) percent of twelve (12) months
Basic Rent, plus amounts paid as Additional Rent. If such insurance cost is
increased due to Tenant's use of the Premises or the Complex, Tenant agrees to
pay to landlord the full cost of such increase. Tenant shall have no interest in
nor any right to the proceeds of any insurance procured by Landlord for the
Complex.
Landlord and Tenant do each hereby respectively release the other, to the
extent of insurance coverage of the releasing party, from any liability for loss
or damage caused by fire or any of the extended coverage casualties included in
the releasing party's insurance policies, irrespective of the cause of such fire
or casualty; provided, however, that if the insurance policy of either releasing
party prohibits such waiver, then this waiver shall not take effect until
consent to such waiver is obtained. If such waiver is so prohibited, the
insured party affected shall promptly notify the other party thereof.
16. 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 Complex by
or from any cause whatsoever, including, without limitation; gas, fire, oil,
electricity or leakage of any character from the roof, walls, basement or other
portion of the premises or the Complex but excluding, however, the willful
misconduct or negligence of landlord, its agents, servants, employees, invitees,
or contractors of which negligence landlord has knowledge and reasonable time to
correct. Except as to injury to persons or damage to property or any damage
arising from the willful misconduct or the negligence of landlord, its agents,
servants, employees, invitees, or contractors, Tenant shall hold landlord
harmless from and defend Landlord against any and all expenses, including
reasonable attorneys' fees. In connection therewith, 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, or any part thereof, from any cause whatsoever.
17. COMPLIANCE. Tenant, at its sole cost and expense, shall promptly comply
with all laws, statutes, ordinances and governmental laws, regulations or
requirements now or hereafter in effect; with the requirements of any board of
fire underwriters or other similar body now or hereafter constituted; and with
any direction or occupancy certificate issued pursuant to law by any public
officer; provided, however, that no such failure shall be deemed a breach of the
provision, 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 Landlord be a
party thereto or not, 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 paragraph shall
not be interpreted as requiring Tenant to make structural changes or
improvements, except to the extent such changes or improvements are required as
a result of Tenant's use of the premises. Tenant shall, at its sole cost and
expense, comply with any and all requirements pertaining to said Premises, of
any insurance organization or company, necessary for the maintenance of
reasonable fire and public liability insurance covering the premises. See
Paragraph 55.
13
<PAGE>
18. LIENS. Tenant shall keep the Premises and the Complex free from any
liens arising out of any work performed, materials furnished or obligation
incurred by Tenant. 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
incurred by it in connection therewith, shall be payable to Landlord by Tenant
on demand with interest at the prime rate of interest as quoted by the Bank of
America.
19. ASSIGNMENT AND SUBLETTING. Tenant shall not assign, transfer, or
hypothecate the leasehold estate under this Lease, or any interest therein, and
shall not sublet the Premises, or any part thereof, or any right or privilege
appurtenant thereto, or suffer any other person or entity to occupy or use the
Premises, or any portion thereof, without, in each case, the prior written
consent of Landlord which consent will not be unreasonably withheld. As a
condition for granting this consent to any assignments, transfer, or subletting,
Landlord shall require Tenant to pay to landlord, as Additional Rent, all rents
and/or additional consideration due Tenant from its assignees, transferees, or
subtenants in excess of the Rent payable by Tenant to landlord hereunder, Tenant
shall, by thirty (30) days written notice, advise Landlord of its intent to
assignor transfer Tenant's interest in the Lease or sublet the Premises or any
portion thereof for any part of the term hereof. Within thirty (30) days after
receipt of said written notice, Landlord may, in its sole discretion, elect to
terminate this Lease as to the portion of the Premises described in Tenant's
notice on the date specified in Tenant's notice by giving written notice of such
election to terminate. If no such notice to terminate is given to Tenant within
said thirty (30) day period, Tenant may proceed to locate an acceptable
sublesee, assignee, or other transferee for presentment to Landlord for
Landlord's approval, all in accordance with the terms, covenants, and conditions
of this paragraph 19. If Tenant intends to sublet the entire Premises and
landlord elect; to terminate this Lease, this Lease shall be terminated on the
date specified in Tenant's notice. If, however, this Lease shall terminate
pursuant to the foregoing with respect to less than all the Premises, the rent,
as defined and reserved hereinabove shall be adjusted on a pro rata basis to the
number of square feet retained by Tenant, and this Lease as so amended shall
continue in full force and effect. In the event Tenant is allowed to assign,
transfer or sublet the whole or any part of the Premises, with the prior written
consent of Landlord, no assignee, transferee or subtenant shall assign or
transfer this Lease, either in whole or in part, or sublet the whole or any part
of the Premises, without also having obtained the prior written consent of
landlord. A consent of Landlord to one assignment, transfer, hypothecation,
subletting, occupation or use by any other person shall not release Tenant from
any of Tenant's obligations hereunder or be deemed to be a consent to any
subsequent similar or dissimilar assignment, transfer, hypothecation,
subletting, occupation or use by any other person. Any such assignment,
transfer, hypothecation, subletting, occupation or use without such consent
shall be void and shall constitute a breach of this Lease by Tenant and shall,
at the option of landlord exercised by written notice to Tenant, terminate this
Lease. The leasehold estate under this Lease shall not, nor shall any interest
therein, be assignable for any purpose by operation of law without the written
consent of Landlord. As a condition to its consent, Landlord shall require
Tenant to pay all expenses in connection with the assignment, and Landlord shall
require Tenant's assignee or
14
<PAGE>
transferee (or other assignee or transferees) to assume in writing all of the
obligations under this Lease and for Tenant to remain liable to landlord under
the Lease.
Notwithstanding the above, in no event will Landlord consent to a sub-
sublease. See Paragraph 50.
20. SUBORDINATION AND MORTGAGES. In the event Landlord's title or leasehold
interest is now or hereafter encumbered by a deed of trust, upon the interest of
Landlord and the land and buildings in which the demised Premises are located,
to secure a loan from a lender thereinafter referred to as "Lender" to Landlord,
Tenant shall, at the request of Landlord or Lender, execute in writing an
agreement subordinating its rights under this Lease to the lien of such deed of
trust, or, if so requested, agreeing that the lien of Lender's deed of trust
shall be or remain subject and subordinate to the rights of Tenant under this
Lease. 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 rent and observe and perform all of the provisions set forth in
this lease.
21. ENTRY BY LANDLORD. Landlord reserves, and all at all reasonable times
after at least 24 hours notice (except in emergencies) have, the right to enter
the Premises to inspect them to perform any services to be provided by Landlord
hereunder; to submit the Premises to prospective purchases, mortgagers or
tenants; to post notices of nonresponsibility; and to alter, improve or repair
the Premises and any portion of the Complex, all without abatement of rent; and
may erect scaffolding and other necessary structures in or through the Premises
where reasonably required by the character of the work to be performed;
provided, however that the business of Tenant shall be interfered with to the
least extent that is reasonably practical. For each of the foregoing purposes,
any entry to the Premises obtained by Landlord by any of said means, or
otherwise, shall not under any circumstances by 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.
Landlord shall also have the right at any time to change the arrangement or
location of entrances or passageways, doors and doorways, and corridors,
elevators, stairs, toilets or other public parts of the Complex and to change
the name, number or designation by which the Complex is commonly know, and none
of the foregoing shall be deemed an actual or constructive eviction of Tenant,
or shall entitle Tenant to any reduction of rent hereunder.
22. BANKRUPTCY AND DEFAULT. The commencement of a bankruptcy action or
liquidation action or reorganization action or insolvency action or an
assignment of or by Tenant for the benefit of creditors, or any similar action
undertaken by Tenant, or the insolvency of Tenant, shall, at landlord's option,
constitute a breach of this Lease by Tenant. If the trustee or receiver
appointed to serve during a bankruptcy, liquidation, reorganization, insolvency
or similar action elects to reject Tenant's unexpired Lease, the trustee or
receiver shall notify Landlord in writing of its election within thirty (30)
days after an order for relief in a liquidation action or within thirty (30)
days after the commencement of any action.
15
<PAGE>
Within thirty (30) days after court approval of the assumption of this
Lease, the trustee or receive shall cure (or provide adequate assurance to the
reasonable satisfaction of Landlord that the trustee or receiver shall cure) any
and all previous defaults under the unexpired Lease and shall compensate
Landlord for all actual pecuniary loss and shall provide adequate assurance of
future performance under said Lease to the reasonable satisfaction of Landlord.
Adequate assurance of future performance, as used herein, includes, but shall
not be limited to: (i) assurance of source and payment of rent, and other
consideration due under this Lease; (ii) assurance that the assumption or
assignment of this lease will not breach substantially any provision, such as
radius, location, use, or exclusivity provision, in any agreement relating to
the above described Premises.
Nothing contained in this section shall affect the existing right of
landlord to refuse to accept an assignment upon commencement of or in connection
with a bankruptcy, liquidation, reorganization or insolvency action or an
assignment of Tenant for the benefit of creditors or other similar act. Nothing
contained in this Lease shall be construed as giving or granting or creating an
equity in the demised Premises to Tenant. In no event shall the leasehold
estate under this Lease, or any interest therein, be assigned by voluntary or
involuntary bankruptcy proceeding without the prior written consent of Landlord.
In no event shall this Lease or any rights or privileges hereunder be an asset
of Tenant under any bankruptcy, insolvency or reorganization proceedings.
The failure to perform or honor any covenant, condition or representation
made under this Lease shall constitute a default hereunder by Tenant upon
expiration of the appropriate grace period hereinafter provided. Tenant shall
have a period of five (5) days from the date of written notice from Landlord
within which to cure any default in the payment of rental or adjustment thereto.
Tenant shall have a period of thirty (30) days from the date of written notice
from Landlord within which to cure any other default under this Lease. Upon an
uncured default of this Lease by Tenant, Landlord shall have the following
rights and remedies in addition to any other rights or remedies available to
Landlord at law or in equity:
(a) The rights and remedies provided for by California Civil Code Section
1951.2 including but not limited to, recovery of the worth at the time of award
of the amount by which the unpaid rent for the balance of the term after the
time of award exceeds the amount of rental loss for the same period that Tenant
proves could be reasonably avoided, as computed pursuant to subsection (b) of
said Section 1951.2. Any proof by Tenant under subparagraphs (2) and (3) of
Section 1951.2 of the California Civil Code of the amount of rental loss that
could be reasonably avoided shall be made in the following manner: Landlord and
Tenant shall each select a licensed real estate broker in the business of
renting property of the same type and use as the Premises and in the same
geographic vicinity. Such two real estate brokers shall select a third licensed
real estate broker, and the three licensed real estate brokers so selected shall
determine the amount of the rental loss that could be reasonably avoided from
the balance of the term of this Lease after the time of award. The declaration
of the majority of said licensed real estate brokers shall be final and binding
upon the parties hereto.
16
<PAGE>
(b) The rights and remedies provided by California Civil Code Section which
allows Landlord to continue the Lease in effect and to enforce all of its rights
and remedies under this Lease, including the right to recover rent as it becomes
due, for so long as Landlord does not terminate Tenant's right to possession;
acts of maintenance or preservation, efforts to relet the Premises, or the
appointment of a receiver upon Landlord's initiative to protect its interest
under this Lease shall not constitute a termination of Tenant's right to
possession.
(c) The right to terminate this Lease by giving notice to Tenant in
accordance with applicable law.
(d) To the extent permitted by law, the right and power, to enter the
Premises and remove therefrom all persons and property, to store such property
in a public warehouse or elsewhere at the cost of and for the account of Tenant,
and to sell such property and apply such proceeds therefrom pursuant to
applicable California law. Landlord may from time to time sublet the Premises
or any part thereof for such term or terms (which may extend beyond the term of
this Lease) and at such rent and such other terms as Landlord in its sole
discretion may deem advisable, with the right to make alterations and repairs to
the Premises. Upon each subletting, (i) Tenant shall be immediately liable to
pay Landlord, in addition to indebtedness other than rent due hereunder, the
cost of such subletting, including, but not limited to, reasonable attorneys'
fees, and any real estate commissions actually paid, and the cost of such
alterations and repairs incurred by Landlord and the amount, if any, by which
the rent hereunder for the period of such subletting (to the extent such period
does not exceed the term hereof) exceeds the amount to be paid as rent for the
Premises for such period or (ii) at the option of Landlord, rents received for
such subletting shall be applied first to payment of indebtedness other than
rent due hereunder from Tenant to Landlord; second, to the payment of any costs
of such subletting and of such alterations and repairs; third to payment of rent
due and unpaid hereunder; and the residue, if any, shall be held by landlord and
applied in payment of future rent as the same becomes due hereunder. If Tenant
has been credited with any rent to be received by such subletting under option
(i) and such rent shall not be promptly paid to Landlord by the subtenant(s), or
if such rentals received from such subletting under option (ii) during any month
be less than that to be paid during that month by Tenant hereunder, Tenant shall
pay any such deficiency to Landlord. Such deficiency shall be calculated and
paid monthly. For all purposes set forth in this subparagraph d. No taking
possession of the Premises by Landlord shall be construed as an election on its
part to terminate this Lease unless a written notice of such intention be given
to Tenant. Notwithstanding any such subletting without termination, Landlord
may at any time hereafter elect to terminate this Lease for such previous
breach.
(e) The right to have a receive appointed for Tenant upon application by
Landlord, to take possession of the Premises and to apply any rental collected
from the Premises and to exercise all other rights and remedies granted to
Landlord pursuant to subparagraph d. above. See Paragraph 51.
23. ABANDONMENT. Tenant shall not vacate or abandon the Premises at any time
during the term of this Lease and if Tenant shall abandon, vacate or surrender
said Premises, or be dispossessed by the process of law, or otherwise, any
personal property belonging to Tenant and
17
<PAGE>
left on the Premises shall be deemed to be abandoned, at the option of Landlord,
except such property as may be mortgaged to Landlord. See Paragraph 52.
24. DESTRUCTION. In the event the Premises are destroyed in whole or in part
from any cause, except for routine maintenance and repairs and incidental damage
and destruction caused from vandalism and accidents for which Tenant is
responsible for under Paragraph 10, Landlord may, at its option:
(a) Rebuild or restore the Premises to their condition prior to the damage
or destruction; or
(b) Terminate this Lease. (providing that the Premises is damaged to the
extent of 33 1/3% of the replacement cost).
If Landlord does not give Tenant notice in writing within thirty (30) days
from the destruction of the Premises of its election to either rebuild and
restore them, or to terminate this Lease, Landlord shall be deemed to have
elected to rebuild or restore them, in which event Landlord agrees, at its
expense, promptly to rebuild or restore the Premises to their condition prior to
the damage or destruction. Tenant shall be entitled to a reduction in rent
while such repair is being made in the proportion that the area of the Premises
rendered untenantable by such damage bears to the total area of the Premises.
If Landlord initially estimates that the rebuilding or restoration will exceed
180 days or if Landlord does not complete the rebuilding restoration within one
hundred eighty (180) days following the date of destruction (such period of time
to be extended for delays caused by the fault or neglect of Tenant because of
Acts of God, acts of public agencies, labor disputes, strikes, fires, freight
embargoes, rainy or stormy weather, inability to obtain materials, supplies or
fuels, acts of contractors or subcontractors, or delay of the contractors or
subcontractors due to such causes or other contingencies beyond the control of
landlord), then Tenant shall have the right to terminate this Lease by giving
fifteen (15) days prior written notice to Landlord. Notwithstanding anything
herein to the contrary, Landlord's obligation to rebuild or restore shall be
limited to the building and interior improvements constructed by Landlord as
they existed as of the commencement of the Lease and shall not include
restoration of Tenant's trade fixtures, equipment, merchandise, or any
Improvements, alterations or additions made by Tenant to the Premises, which
Tenant shall forthwith replace or fully repair at Tenant's sole cost and expense
provided this Lease is not cancelled according to the provisions above.
Unless this Lease is terminated pursuant to the foregoing provisions, this
Lease shall remain in full force and effect. Tenant hereby expressly waives the
provisions of Section 1932, Subdivision 2, in Section 1933, Subdivision 4 of the
California Civil Code.
In the event that the building in which the Premises are situated is
damaged or destroyed to the extent of not less than 33-1/3% of the replacement
cost thereof. Landlord may elect to terminate this Lease, whether the Premises
be injured or not. Notwithstanding anything to the contrary herein, Landlord
may terminate this Lease in the event of an uninsured event or if insurance
proceeds are insufficient to cover 100% of the rebuilding costs net of the
deductible.
18
<PAGE>
25. 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 and all payment, income, rent, award, or any interest
therein whatsoever which may be paid or made in connection with such taking or
conveyance, and Tenant shall have no claim against Landlord or otherwise for the
value of any unexpired term of this lease. Notwithstanding the foregoing
paragraph, any compensation specifically awarded Tenant for loss of business,
Tenant's personal property, moving cost or loss of goodwill, shall be and remain
the property of Tenant.
If (i) any action or proceeding is commenced for such taking of the
Premises or any part thereof, or if Landlord is advised in writing by any entity
or body having the right or power of condemnation of its intention to condemn
the premises or any portion thereof, or (ii) any of the foregoing events occur
with respect to the taking of any space in ;the Complex not leased hereby, or if
any such spaces so taken or conveyed in lieu of such taking and Landlord shall
decide to discontinue the use and operation of the Complex, or decide to
demolish, alter or rebuild the Complex, then, in any of such events Landlord
shall have the right to terminate this lease by giving Tenant written notice
thereof within sixty (60) days of the date of receipt of said written advice, or
commencement of said action or proceeding, or taking conveyance, which
termination shall take place as of the first to occur of the last day of the
calendar month next following the month in which such notice is given or the
date on which title to the Premises shall vest in the condemnor.
In the event of such a partial taking or conveyance of the Premises, if the
portion of the Premises taken or conveyed is so substantial that the Tenant can
no longer reasonably conduct its business, Tenant shall have the privilege of
terminating this Lease within sixty (60) days from the date of such taking or
conveyance, upon written notice to Landlord of its intentions so to do, and upon
giving of such notice this Lease shall terminate on the last day of the calendar
month next following the month in which such notice is given, upon payment by
Tenant of the rent from the date of such taking or conveyance to the date of
termination.
If a portion of the Premises be taken by condemnation or conveyance in lieu
thereof and neither Landlord nor Tenant shall terminate this Lease as provided
herein, the Lease shall continue in full force and effect as to the part of the
Premises not so taken or conveyed, and the rent herein shall be apportioned as
of the date of such taking or conveyance so that thereafter the rent to be paid
by Tenant shall be in the ratio that the area of the portion of the Premises not
so taken or conveyed bears so the total area of the Premises prior to such
taking.
26. SALE OR CONVEYANCE BY LANDLORD. In the event of a sale or conveyance of
the Complex or any interest therein, by any owner of the reversion then
constituting Landlord, the transferor shall thereby be released from any further
liability upon any of the terms, covenants or conditions (express or implied)
herein contained in favor of Tenant, and in such event, insofar as such transfer
is concerned. Tenant agrees to look solely to the responsibility of the
successor in interest of such transferor in and to the Complex and this Lease.
This Lease
19
<PAGE>
shall not be affected by any such sale or conveyance, and Tenant agrees to
attorn to the successor in interest of such transferor.
27. ATTORNMENT TO LENDER OR THIRD PARTY. In the event the interest of Landlord
in the land and buildings in which the leased 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 the lender or any
third party through judicial foreclosure or by exercise of a power of sale at
private trustee's foreclosure sale. Tenant hereby agrees to attorn to the
purchaser at any such foreclosure sale and to recognize such purchaser as the
Landlord under this Lease. In the event the lien of the deed of trust securing
the loan from a Lender to Landlord is prior and paramount to the Lease, this
Lease shall nonetheless continue in full force and effect for the remainder of
the unexpired term hereof, at the same rental herein reserved and upon all the
other terms, conditions and covenants herein contained.
28. HOLDING OVER. Any holding over by Tenant after expiration or other
termination of the term of this Lease with the written consent of Landlord
delivered to Tenant shall not constitute a renewal or extension of the Lease or
give Tenant any rights in or to the leased Premises except as expressly provided
in this Lease. Any holding over after the expiration or other termination of
the term of this Lease, with the consent of Landlord, shall be construed to the
a tenancy from month to month on the same terms and conditions herein specified
insofar as applicable except that the monthly Basic Rent shall be increased to
an amount equal to one hundred fifty (150%) percent of the monthly Basic Rent
required during the last month of the Lease term.
29. CERTIFICATE OF ESTOPPEL. Tenant shall at any time upon not less than ten
(10) days prior written notice from Landlord execute, acknowledge and deliver to
Landlord a statement in writing (i) certifying that this Lease is unmodified and
in full force and effect (or, if modified, stating the nature of such
modification and certifying that this Lease, as so modified, is in full force
and effect) and the date to which the rent and other charges are paid in
advance, if any, and (ii) acknowledging that there are not, to Tenant's
knowledge, any uncured defaults on the part of Landlord hereunder, or specifying
such defaults, if any, are claimed. Any such statement may be conclusively
relied upon by any prospective purchaser or encumbrances of the Premises,
Tenant's failure to deliver such statement within such time shall be conclusive
upon Tenant that this Lease is in full force and effect, without modification
except as may be represented by Landlord; that there are no uncured defaults in
Landlord's performance, and that not more than one moth's rent has been paid in
advance.
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 minor changes as Landlord or Landlord's architect determines to
be desirable in the course of construction of the Premises, and no such changes,
or any changes in plans for any other portions of the Complex shall affect this
Lease or entitle Tenant to any reduction of rent hereunder or result in any
liability of Landlord to Tenant. Landlord does not guarantee the accuracy of
any drawings supplied to Tenant and verification of the accuracy of such
drawings rests with Tenant.
20
<PAGE>
31. RIGHT OF LANDLORD TO PERFORM. All terms, covenants and conditions of this
Lease to be performed or observed by Tenant shall be performed or observed by
Tenant at Tenant's sole cost and expense and without any reduction of rent. If
Tenant shall fail to pay any sum of money, or other rent, acquired to be paid by
it hereunder and such failure shall continue for five (5) days after written
notice by Landlord, or shall fail to perform any other term or covenant
hereunder on its part to be performed, and such failure shall continue to thirty
(30) days after written notice thereof by Landlord, Landlord, without waiving or
releasing Tenant from any obligation of Tenant hereunder, may, but shall not be
obligated to, make any such payment or perform any such other term or covenant
on Tenant's part to be performed. All sums so paid by Landlord and all
necessary consents of such performance by Landlord together with interest
thereon at the rate of the prime rate of interest per annum as quoted by the
Bank of America from the date of such payment or performance by Landlord, shall
be paid (and Tenant covenant to make such payment) to Landlord on demand by
Landlord, and Landlord shall have (in addition to any other right or remedy of
Landlord) the same rights and remedies in the event of nonpayment by Tenant in
the case of failure by Tenant in the payment of rent hereunder.
32. ATTORNEY FEES.
(A) In the event that either Landlord or Tenant should bring suit for the
possession of the Premises, for the recovery of any sum due under this Lease, or
because of the breach of any provision of this Lease, or for any other relief
against the other party hereunder, then all costs and expenses, including
reasonable attorneys' fees, incurred by the prevailing party therein shall be
paid by the other party, which obligation on the part of the other party shall
be deemed to have accrued on the date of the commencement of such action and
shall be enforceable whether or not the action is prosecuted to judgment.
(B) Should Landlord be named as a defendant in any suit brought against
Tenant in connection with or arising out of Tenant's occupancy hereunder, Tenant
shall pay to Landlord its costs and expenses incurred in such suit, including a
reasonable attorney's fee.
33. WAIVER. The waiver by either party of the other party's failure to perform
or observe any term, covenant or condition herein contained to be performed or
observed by such waiving party shall not be deemed to be a wavier of such term,
covenant or condition or of any subsequent failure of the party failing to
perform or observe the same or any other such term, covenant or condition
therein contained, and no custom or practice which may develop between the
parties hereto during the term hereof shall be deemed a waiver of, or in any way
affect, the right of either party to insist upon performance and observance by
the other party in strict accordance with the terms hereof.
34. NOTICES. All notices, demands, requests, advices or designations which may
be or are required to be given by either party to the other hereunder shall be
in writing. All notices, demands, requests, advices or designations by Landlord
to Tenant shall be sufficiently given, made or delivered if personally served on
Tenant by leaving the same at the Premises or if sent by United States certified
or registered mail, postage prepaid, addressed to Tenant at the Premises. All
notices, demands, requests, advices or designations by Tenant to Landlord shall
be
21
<PAGE>
sent by United States certified or registered mail, postage prepaid,
addressed to Landlord at its offices at A&P Family Investments, 2560 Mission
Collage Blvd., Suite 101, Santa Clara, CA 95054. Each notice, request, demand,
advice or designation referred to in this paragraph shall be deemed received on
the date of the personal service or mailing thereof in the manner herein
provided, as the case may be.
35. EXAMINATION OF LEASE. Submission of this instrument for examination or
signature by Tenant does not constitute a reservation of or option for a lease,
and this instrument is not effective as a lease or otherwise audit its execution
and delivery by both Landlord and Tenant.
36. 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 witness notice by Tenant to
Landlord and to the holder of any first mortgage or deed of trust covering the
Premises whose name and address shall have heretofore been furnished to Tenant
is writing, specifying wherein Landlord has failed to perform such obligations;
provided, however, that if the mature 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.
37. CORPORATE AUTHORITY. If Tenant is a corporation, (or a partnership) each
individual executing this Lease on behalf of said corporation (or partnership)
represents and warrants that he is duly authorized to execute and deliver this
Lease on behalf of said corporation (or partnership) in accordance with the by-
laws of said corporation (or partnership in accordance with the partnership
agreement) and that this Lease is binding upon said corporation (or partnership)
in accordance with its terms. If Tenant is a corporation, tenant shall, within
thirty (30) days after execution of this Lease, deliver to landlord a certified
copy of the resolution of the Board of Directors of said corporation authorizing
or ratifying the execution of this Lease.
39. LIMITATION OF LIABILITY. In consideration of the benefits accruing
hereunder, Tenant and all successors and assigns covenant and agree that, in the
event of any actual or alleged failure, breach or default hereunder by Landlord:
(i) the sole and exclusive remedy shall be against Landlord's interest in
the Premises leased herein;
(ii) no partner of Landlord shall be sued or named as a party in any suit
or action (except as may be necessary to secure jurisdiction of the
partnership);
(iii) no service of process shall be made against any partner of Landlord
(except as may be necessary to secure jurisdiction of the
partnership);
(iv) no partner of Landlord shall be required to answer or otherwise plead
to any service of process;
22
<PAGE>
(v) no judgment will be taken against any partner of Landlord;
(vi) any judgement taken against and partner of Landlord may be vacated and
set aside at any time without hearing;
(vii) no writ of execution will ever be levied against the assets of any
partner of Landlord;
(viii) these covenants and agreements are enforceable both by landlord and
also by any partner of Landlord.
Tenant agrees that each of the foregoing covenants and agreements shall be
applicable to any covenant or agreement either expressly contained in this Lease
or imposed by statue or at common law.
40. MISCELLANEOUS AND GENERAL PROVISIONS.
a. Tenant shall not, without the written consent of Landlord, use the name
of the building for any purpose other than as the address of the business
conducted by Tenant in the Premises.
b. 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 invalid, unenforceable or ineffective for any reason
whatsoever, all other provisions hereof shall be and remain in full force
and effect.
c. The term "Premises" includes the space leased hereby and any
improvements now or hereafter installed therein or attached thereto. The
term "Landlord" or any pronoun used in place thereof includes the plural as
well as the singular and the successors and assigns of Landlord. The term
"Tenant" or any pronoun used in place thereof includes the plural as well
as the singular and individuals, firms, associations, partnerships and
corporations, and their and each of their respective heirs, executors,
administrators, successors and permitted assigns, according to the context
hereof and the provisions of this Lease shall inure to the benefit of and
bind such heirs, executors, administrators, successors and permitted
assigns.
The term "person" includes the plural as well as the singular and
individuals, firms, associations, partnerships and corporations. Words
used in any gender include other genders. If there are more than one
Tenant the obligations of Tenant hereunder are joint and several. The
paragraph headings of this Lease are for convenience of reference only and
shall have no effect upon the construction or interpretation of any
provision hereof.
d. Time is of the essence of this lease and of each and all of its
provisions.
23
<PAGE>
e. 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 by any reputable title company, licensed to operate in
the State of California, to remove the cloud or encumbrance created by this
Lease from the real property of which Tenant's Premises are a part.
f. This instrument along with any exhibits and attachments hereto
constitutes the entire agreement between Landlord and Tenant relative to
the Premises and this agreement 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 and their
agents or representative relative to the leasing of the Premises are merged
in or revoked by the agreement.
g. Neither Landlord not Tenant shall record this Lease or a short form
memorandum hereof without the consent of the other.
h. Tenant further agrees to execute any amendments required by a lender to
enable Landlord to obtain financing, so long as Tenant's rights hereunder
are not substantially affected.
i. Paragraph 43 through 57 are added hereto and are included as a part of
this lease.
j. Clauses, plots and riders, if any, signed by Landlord and Tenant and
endorsed on or affixed to this Lease are a part hereof.
k. Tenant covenants and agrees that no diminution or shouting off of
light, air or view by any structure which may be hereafter erected (whether
or not by Landlord) shall in any way affect his Lease entitle Tenant t any
reduction of rent hereunder or result in any liability of Landlord to
Tenant.
41. BROKERS. Tenant warrants that it had dealings with only the following real
estate brokers or agents in connection with the negotiation of this Lease; none
and that it knows of no other real estate broker or agent who is entitled to a
commission in connection with this Lease.
42. SIGNS. No sign, placard, picture, advertisement, name or notice shall be
inscribed, displayed or printed or affixed on or to any part of the outside of
the Premises or any exterior windows of the Premises without the written consent
of Landlord first had and obtained and Landlord shall have the right to remove
any such sign, placard, picture, advertisement, name or notice without notice to
and at the expense of Tenant. If Tenant is allowed to print or affix or in any
way place a sign in, on, or about the manner as to restore all aspects of the
appearance of the Premises to the condition prior to the placement of said sign.
All approved signs or lettering on outside doors shall be printed, painted,
affixed or inscribed at the expense of Tenant by a person approved of by
Landlord. Tenant shall not place
24
<PAGE>
anything or allow anything to be placed near the glass of any window, door
partition or wall which may appear unsightly form outside the Premises.
LANDLORD: TENANT:
JOHN ARRILLAGA DOWNTOWN WEB, INC.
1976 CHILDREN TRUSTS a California corporation
By: /s/ Louis B. Sullivan By: /s/ Payam Zamani
-------------------------- ----------------------------
Louis B. Sullivan, Trustee
Date: 9/29/97 Title: EVP
------------------------ --------------------------
RICHARD T. PEERY
1976 CHILDREN TRUSTS Type or Print Name Payam Zamani
-------------
Date: 9/23/97
--------------------------
By: /s/ Boyd C. Smith
--------------------------
Boyd C. Smith, Trustee
Date: 2 Oct. 97
------------------------
25
<PAGE>
Paragraphs 43 through 57 to Lease Agreement dated August 27, 1997, By and
Between the John Arrillaga 1976 Children Trusts and the Richard T. Peery 1976
Children Trusts, as Landlord, and Downtown Web, Inc., a California corporation
(d.b.a. Autoweb Interactive), as Tenant for 23,880+ Square Feet of Space Located
at 3270 Jay Street, Suite 200, Santa Clara, California.
43. BASIC RENT: In accordance with Paragraph 4A herein, the total aggregate
----------
sum of TWO MILLION EIGHT HUNDRED EIGHTEEN THOUSAND ONE HUNDRED EIGHTY SIX AND
65/100 DOLLARS ($2,818,186.65), shall be payable as follows:
On October 15, 1997, the sum of TWENTY FOUR THOUSAND TWO HUNDRED TWENTY SIX
AND 65/100 DOLLARS ($24,226.65) shall be due, representing the prorated Basic
Rent for the period of October 15, 1997 through October 31, 1997.
On November 1, 1997, the sum of FORTY FOUR THOUSAND ONE HUNDRED SEVENTY
EIGHT AND NO/100 DOLLARS ($44,178.00) shall be due, and a like sum due on the
first day of each month thereafter, through and including October 1, 1998.
On November 1, 1998, the sum of FORTY FIVE THOUSAND THREE HUNDRED SEVENTY
TWO AND NO/100 DOLLARS ($45,372.00) shall be due, and a like sum due on the
first day of each month thereafter, through and including October 1, 1999.
On November 1, 1999, the sum of FORTY SIX THOUSAND FIVE HUNDRED SIXTY SIX
AND NO/100 DOLLARS ($46,566.00) shall be due, and a like sum due on the first
day of each month thereafter, through and including October 1, 2000.
On November 1, 2000, the sum of FORTY SEVEN THOUSAND SEVEN HUNDRED SIXTY
AND NO/100 DOLLARS ($47,760.00) shall be due, and a like sum due on the first
day of each month thereafter, through and including October 1, 2001.
On November 1, 2001, the sum of FORTY EIGHT THOUSAND NINE HUNDRED FIFTY
FOUR AND NO/100 DOLLARS ($48,954.00) shall be due, and a like sum due on the
first day of each month thereafter, through and including October 1, 2002; or
until the entire aggregate sum of TWO MILLION EIGHT HUNDRED EIGHTEEN THOUSAND
ONE HUNDRED EIGHTY SIX AND 65/100 DOLLARS ($2,818,186.65) has been paid.
44. EARLY OCCUPANCY: In the event the Premises leased hereunder become
---------------
available for Tenant's use and occupancy prior to the scheduled Commencement
Date hereof, Tenant shall have the right to occupy the Premises as of the date
Landlord so completes said Premises for Tenant's use and occupancy. This Lease
shall commence and Tenant shall pay to Landlord, effective as of the date
Premises are delivered to Tenant, all Additional Rent expenses which are
Tenant's responsibility hereunder (however, Tenant shall not be responsible for
paying Basic Rent during the early occupancy period), and Tenant shall be
obligated to perform, and be bound by, each and every term, covenant, and
condition of this Lease. In the event Tenant occupies the Premises prior to
October 15, 1997, the Term of this Lease will be extended to include the early
occupancy period (i.e. If Tenant occupies said space on October 10, 1997, the
Lease Term will be extended for five (5) days from a five (5) year seventeen
(17) day Term to a five (5) year twenty two (22) day Term).
45. "AS-IS" BASIS: Subject only to Paragraphs 55, 56 and 57, and to Landlord
-------------
making the improvements shown on Exhibit B attached hereto, it is hereby agreed
---------
that the Premises leased hereunder is leased strictly on an "as-is" basis and in
its present condition, and in the configuration as shown on Exhibit B attached
---------
hereto, and by reference made a part hereof. It is specifically agreed between
the parties that after Landlord makes the interior improvements as shown on
Exhibit B, Landlord shall not be required to make, nor be responsible for any
- ---------
cost, in connection with any repair, restoration, and/or improvement to the
Premises in order for this Lease to commence, or thereafter, throughout the Term
of this Lease. Notwithstanding anything to the contrary within this Lease,
Landlord makes no warranty or representation of any kind or
26
<PAGE>
nature whatsoever as to the condition or repair of the Premises, nor as to the
use or occupancy which may be made thereof.
46. CONSENT: Whenever the consent of one party to the other is required
-------
hereunder, such consent shall not be unreasonably withheld.
47. CHOICE OF 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
provisions of this Lease shall be invalid, unenforceable, or ineffective for any
reason whatsoever, all other provisions hereof shall be and remain in full force
and effect.
48. AUTHORITY TO EXECUTE. The parties executing this Lease Agreement hereby
--------------------
warrant and represent that they are properly authorized to execute this Lease
Agreement and bind the parties on behalf of whom they execute this Lease
Agreement and to all of the terms, covenants and conditions of this Lease
Agreement as they relate to the respective parties hereto.
49. ASSESSMENT CREDITS: The demised property herein may be subject to a
------------------
special assessment levied by the City of Santa Clara as part of an Improvement
District. As a part of said special assessment proceedings (if any), additional
bonds were or may be sold and assessments were or may be levied to provide for
construction contingencies and reserve funds. Interest shall be earned on such
funds created for contingencies and on reserve funds which will be credited for
the benefit of said assessment district. To the extent surpluses are created in
said district through unused contingency funds, interest earnings or reserve
funds, such surpluses shall be deemed the property of Landlord. Notwithstanding
that such surpluses may be credited on assessments otherwise due against the
Leased Premises, Tenant shall pay to Landlord, as additional rent if, and at the
time of any such credit of surpluses, an amount equal to all such surpluses so
credited. For example: if (i) the property is subject to an annual assessment
of $1,000.00, and (ii) a surplus of $200.00 is credited towards the current
year's assessment which reduces the assessment amount shown on the property tax
bill from $1,000.00 to $800.00, Tenant shall, upon receipt of notice from
Landlord, pay to Landlord said $200.00 credit as Additional Rent.
50. ASSIGNMENT AND SUBLETTING (CONTINUED): Any and all sublease agreement(s)
-------------------------------------
between Tenant and any and all subtenant(s) (which agreements must be consented
to by Landlord, pursuant to the requirements of this Lease) shall contain the
following language:
"If Landlord and Tenant jointly and voluntarily elect, for any reason
whatsoever, to terminate the Master Lease prior to the scheduled Master Lease
termination date, then this Sublease (if then still in effect) shall terminate
concurrently with the termination of the Master Lease. Subtenant expressly
acknowledges and agrees that (1) the voluntary termination of the Master Lease
by Landlord and Tenant and the resulting termination of this Sublease shall not
give Subtenant any right or power to make any legal or equitable claim against
Landlord, including without limitation any claim for interference with contract
or interference with prospective economic advantage, and (2) Subtenant hereby
waives any and all rights it may have under law or at equity against Landlord to
challenge such an early termination of the Sublease, and unconditionally
releases and relieves Landlord, and its officers, directors, employees and
agents, from any and all claims, demands, and/or causes of action whatsoever
(collectively, "Claims"), whether such matters are known or unknown, latent or
apparent, suspected or unsuspected, foreseeable or unforeseeable, which
Subtenant may have arising out of or in connection with any such early
termination of this Sublease. Subtenant knowingly and intentionally waives any
and all protection which is or may be given by Section 1542 of the California
Civil Code which provides as follows: "A general release does not extend to
claims which the creditor does not know or suspect to exist in his favor at the
time of executing the release, which if known by him must have materially
affected his settlement with debtor.
The term of this Sublease is therefore subject to early termination.
Subtenant's initials here below evidence (a) Subtenant's consideration of and
agreement to this early termination provision, (b) Subtenant's acknowledgment
that, in determining the net benefits to be derived by
27
<PAGE>
Subtenant under the terms of this Sublease, Subtenant has anticipated the
potential for early termination, and (c) Subtenant's agreement to the general
waiver and release of Claims above.
Initials: __________ Initials:__________"
Subtenant Tenant
51. BANKRUPTCY AND DEFAULT: Paragraph 22 is modified to provide that with
----------------------
respect to non-monetary defaults not involving Tenant's failure to pay Basic
Rent or Additional Rent, Tenant shall not be in default of any non-monetary
obligation if (i) more than thirty (30) days is required to cure such non-
monetary default, and (ii) Tenant commences cure of such default as soon as
reasonably practicable after receiving written notice of such default from
Landlord and thereafter continuously and with due diligence prosecutes such cure
to completion.
52. ABANDONMENT: Paragraph 23 is modified to provide that Tenant shall not
-----------
be in default under the Lease if it leaves all or any part of Premises vacant so
long as (i) Tenant is performing all of its other obligations under the Lease
including the obligation to pay Basic Rent and Additional Rent (ii) Tenant
provides on-site security during normal business hours for those parts of the
Premises left vacant, (iii) such vacancy does not materially and adversely
affect the validity or coverage of any policy of insurance carried by Landlord
with respect to the Premises, and (iv) the utilities and heating and ventilation
system are operated and maintained to the extent necessary to prevent damage to
the Premises or its systems.
53. HAZARDOUS MATERIALS: Landlord and Tenant agree as follows with respect to
-------------------
the existence or use of "Hazardous Materials" (as defined herein) on, in, under
or about the Premises and real property located beneath said Premises and the
common areas of the Complex (hereinafter collectively referred to as the
"Property"):
A. As used herein, the term "Hazardous Materials" shall mean any material,
waste, chemical, mixture or byproduct which is or hereafter is defined, listed
or designated under Environmental Laws (defined below) as a pollutant, or as a
contaminant, or as a toxic or hazardous substance, waste or material, or any
other unwholesome, hazardous, toxic, biohazardous, or radioactive material,
waste, chemical, mixture or byproduct, or which is listed, regulated or
restricted by any Environmental Law (including, without limitation, petroleum
hydrocarbons or any distillates or derivatives or fractions thereof,
polychlorinated biphenyls, or asbestos). As used herein, the term
"Environmental Laws" shall mean any applicable Federal, State of California or
local government law (including common law), statute, regulation, rule,
ordinance, permit, license, order, requirement, agreement, or approval, or any
determination, judgment, directive, or order of any executive or judicial
authority at any level of Federal, State of California or local government
(whether now existing or subsequently adopted or promulgated) relating to
pollution or the protection of the environment, ecology, natural resources, or
public health and safety.
B. Tenant shall obtain Landlord's written consent, which may be withheld
in Landlord's discretion, prior to the occurrence of any Tenant's Hazardous
Materials Activities (defined below); provided, however, that Landlord's consent
shall not be required for normal use in compliance with applicable Environmental
Laws of customary household and office supplies (Tenant shall first provide
Landlord with a list of said materials use), such as mild cleaners, lubricants
and copier toner. As used herein, the term "Tenant's Hazardous Materials
Activities" shall mean any and all use, handling, generation, storage, disposal,
treatment, transportation, release, discharge, or emission of any Hazardous
Materials on, in, beneath, to, from, at or about the Property, in connection
with Tenant's use of the Property, or by Tenant or by any of Tenant's agents,
employees, contractors, vendors, invitees, visitors or its future subtenants or
assignees. Tenant agrees that any and all Tenant's Hazardous Materials
Activities shall be conducted in strict, full compliance with applicable
Environmental Laws at Tenant's expense, and shall not result in any
contamination of the Property or the environment. Tenant agrees to provide
28
<PAGE>
Landlord with prompt written notice of any spill or release of Hazardous
Materials at the Property during the term of the Lease of which Tenant becomes
aware, and further agrees to provide Landlord with prompt written notice of any
violation of Environmental Laws in connection with Tenant's Hazardous Materials
Activities of which Tenant becomes aware. If Tenant's Hazardous Materials
Activities involve Hazardous Materials other than normal use of customary
household and office supplies, Tenant also agrees at Tenant's expense: (i) to
install such Hazardous Materials monitoring, storage and containment devices as
Landlord reasonably deems necessary (Landlord shall have no obligation to
evaluate the need for any such installation or to require any such
installation); (ii) provide Landlord with a written inventory of such Hazardous
Materials, including an update of same each year upon the anniversary date of
the Commencement Date of the Lease ("Anniversary Date"); and (iii) on each
Anniversary Date, to retain a qualified environmental consultant, acceptable to
Landlord, to evaluate whether Tenant is in compliance with all applicable
Environmental Laws with respect to Tenant's Hazardous Materials Activities.
Tenant, at its expense, shall submit to Landlord a report from such
environmental consultant which discusses the environmental consultant's findings
within two (2) months of each Anniversary Date. Tenant, at its expense, shall
promptly undertake and complete any and all steps necessary, and in full
compliance with applicable Environmental Laws, to fully correct any and all
problems or deficiencies identified by the environmental consultant, and
promptly provide Landlord with documentation of all such corrections.
C. Prior to termination or expiration of the Lease, Tenant, at its
expense, shall (i) properly remove from the Property all Hazardous Materials
which come to be located at the Property in connection with Tenant's Hazardous
Materials Activities, and (ii) fully comply with and complete all facility
closure requirements of applicable Environmental Laws regarding Tenant's
Hazardous Materials Activities, including but not limited to (x) properly
restoring and repairing the Property to the extent damaged by such closure
activities, and (y) obtaining from the local Fire Department or other
appropriate governmental authority with jurisdiction a written concurrence that
closure has been completed in compliance with applicable Environmental Laws.
Tenant shall promptly provide Landlord with copies of any claims, notices, work
plans, data and reports prepared, received or submitted in connection with any
such closure activities.
D. If Landlord, in its sole discretion, believes that the Property has
become contaminated as a result of Tenant's Hazardous Materials Activities,
Landlord in addition to any other rights it may have under this Lease or under
Environmental Laws or other laws, may enter upon the Property and conduct
inspection, sampling and analysis, including but not limited to obtaining and
analyzing samples of soil and groundwater, for the purpose of determining the
nature and extent of such contamination. Tenant shall promptly reimburse
Landlord for the costs of such an investigation, including but not limited to
reasonable attorneys' fees Landlord incurs with respect to such investigation,
that discloses Hazardous Materials contamination for which Tenant is liable
under this Lease. Except as may be required of Tenant by applicable
Environmental Laws, Tenant shall not perform any sampling, testing, or drilling
to identify the presence of any Hazardous Materials at the Property, without
Landlord's prior written consent which may be withheld in Landlord's discretion.
Tenant shall promptly provide Landlord with copies of any claims, notices, work
plans, data and reports prepared, received or submitted in connection with any
sampling, testing or drilling performed pursuant to the preceding sentence.
E. Tenant shall indemnify, defend (with legal counsel acceptable to
Landlord, whose consent shall not unreasonably be withheld) and hold harmless
Landlord, its employees, assigns, successors, successors-in-interest, agents and
representatives from and against any and all claims (including but not limited
to third party claims from a private party or a government authority),
liabilities, obligations, losses, causes of action, demands, governmental
proceedings or directives, fines, penalties, expenses, costs (including but not
limited to reasonable attorneys', consultants' and other experts' fees and
costs), and damages, which arise from or relate to: (i) Tenant's Hazardous
Materials Activities; (ii) any Hazardous Materials contamination caused by
Tenant prior to the Commencement Date of the Lease; or (iii) the breach of any
obligation of Tenant under this Paragraph 53 (collectively, "Tenant's
Environmental Indemnification"). Tenant shall not be responsible for any off-
site originated Hazardous Materials contamination that migrates on to this
Property, provided said off-site originated contamination has not been caused or
contributed to by Tenant. Tenant's Environmental Indemnification shall include
but is not
29
<PAGE>
limited to the obligation to promptly and fully reimburse Landlord for losses in
or reductions to rental income, and diminution in fair market value of the
Property. Tenant's Environmental Indemnification shall further include but is
not limited to the obligation to diligently and properly implement to
completion, at Tenant's expense, any and all environmental investigation,
removal, remediation, monitoring, reporting, closure activities, or other
environmental response action (collectively, "Response Actions"). Tenant shall
promptly provide Landlord with copies of any claims, notices, work plans, data
and reports prepared, received or submitted in connection with any Response
Actions.
It is agreed that the Tenant's responsibilities related to Hazardous Materials
will survive the expiration or termination of this Lease and that Landlord may
obtain specific performance of Tenant's responsibilities under this Paragraph
53.
54. UTILITIES: It is understood that, as of the Lease Commencement Date,
---------
Tenant shall be the sole occupant of the building located at 3270 Jay Street,
Santa Clara, of which the Leased Premises is a part. Tenant agrees to be
responsible for paying 100% of the utilities, including, but not limited to,
water, sewer, gas and electricity, for the entire building until such time as
the remaining vacant space in the building is leased. Tenant agrees that the
utilities for said building will be placed in Tenant's name and that Tenant will
pay all utilities directly to the respective company(s). When any of the
remaining vacant space in said building is leased, Landlord will notify Tenant
and Landlord will transfer all utilities into Landlord's name and subject to the
entire provisions of this Paragraph 54, Tenant will pay its pro rata charge for
said utilities monthly in advance as described in and subject to Paragraph 4
"Rent" and Paragraph 11 "Utilities" of this Lease. If Tenant shall require
water, gas, or electric current in excess of that usually furnished or supplied
to Premises being used as general office space, Tenant shall first obtain the
written consent of Landlord, which consent shall not be unreasonably withheld
and Landlord may cause an electric current, gas and/or water meter to be
installed in the Premises in order to measure the amount of electric current,
gas or water consumed for any such excess use. The cost of any such meter and
of the installation, maintenance and repair thereof, all charges for water, gas
and electric current consumed by Tenant (as shown by such meters and at the
rates then charged by the furnishing public utility); and any additional expense
incurred by Landlord in keeping account of electric current, gas, or water so
consumed shall be paid by Tenant, and Tenant agrees to pay Landlord therefor
promptly upon demand by Landlord.
55. COMPLIANCE CONTINUED: Any non-conformance of the improvements installed
--------------------
and paid for by Landlord as set forth on Exhibit B, required to be corrected by
---------
the governing agency, shall be corrected at the cost and expense of Landlord if
such non-conformance exists as of the Commencement Date of the Lease and further
provided that such governing agency's requirement to correct the non-conformance
is not initiated as a result of: (i) any future improvements made by or for
Tenant; or (ii) any permit request made to a governing agency by or for Tenant.
Any non-conformance of the Premises occurring after the Commencement Date of
this Lease Agreement shall be the responsibility of Tenant to correct at
Tenant's cost and expense.
56. MAINTENANCE OF THE PREMISES: Notwithstanding anything to the contrary in
---------------------------
Paragraph 10, Landlord shall repair, including replacement related to, damage to
the structural shell, foundation, and roof structure (but not the interior
improvements, roof membrane, or glazing) of the building leased hereunder at
Landlord's cost, however, Landlord shall amortize the cost of the repair over
the useful life of said repair, and Tenant shall be responsible for paying to
Landlord one hundred percent (100%) of Tenant's pro rata share of the
amortization of said cost over the full Term remaining in the Lease at the time
the repair and/or replacement is made; provided Tenant has not caused such
damage, in which event Tenant shall be responsible for 100 percent of any such
costs for repair and/or replacement or damage so caused by the Tenant. For
Example: In the event (i) the roof purlin is repaired at a cost of $10,000, and
(ii) said repaired purlin has a useful life of twenty years, and (iii) Tenant
has one year remaining in its Lease Term at the time said repair was made,
Tenant would be charged its prorata share of $500 ($10,000 / 20 years x 1 year =
$500) as Additional Rent, in which case said amount would be due within thirty
(30) days of notice from Landlord. Tenant hereby waives all rights under, and
benefits of subsection I of Section 1932 and Sections 1941 and 1942 of the
California Civil Code and under
30
<PAGE>
any similar law, statute or ordinance now or hereafter in effect.
Notwithstanding the foregoing, a crack in the foundation or exterior walls, or
any other defect in the Building that does not endanger the structural integrity
of the building, or which is not life-threatening, and for which Tenant is not
responsible, shall not be considered material, and Landlord may elect, in its
sole and absolute discretion, not to repair and/or replace the same.
In the event the Term of the Lease is extended for any reason whatsoever,
Tenant's pro rata share of the earlier repair and/or replacement cost shall be
increased to include the additional amount payable to Landlord due to the
Extended Term of the Lease. For Example: In the event: (i) the roof purlin was
repaired as illustrated above; and (ii) Tenant exercises its Option to Extend
this Lease for an additional five year period, Tenant would be liable for an
additional payment to Landlord of $2,500 as Additional Rent. Said payment would
be due in full immediately upon Tenant's execution of an agreement extending the
Term of the Lease.
57. PUNCH LIST: In addition to and notwithstanding anything to the contrary in
----------
Paragraphs 10 and 45 of this Lease, Tenant shall have thirty (30) days after the
Commencement Date to provide Landlord with a written "punch list" pertaining to
defects in the Building and in the interior improvements constructed by Landlord
for Tenant. As soon as reasonably possible thereafter, Landlord, or one of
Landlord's representatives (if so approved by Landlord), and Tenant shall
conduct a joint walk-through of the Premises (if Landlord so requires), and
inspect such Tenant Improvements, using their best efforts to agree on the
incomplete or defective construction related to the Tenant Improvements
installed by Landlord. After such inspection has been completed, Landlord shall
prepare, and both parties shall sign, a list of all "punch list" items which the
parties reasonably agree are (i) to be corrected by Landlord (but which shall
exclude any damage or defects caused by Tenant, its employees, agents or parties
Tenant has contracted with to work on the Premises) or (ii) if said defects
and/or damaged item(s) are not material, Landlord may elect, in its sole and
absolute discretion, not to repair such item(s), but to acknowledge in written
form the defect and/or damaged item(s); in which case, notwithstanding anything
to the contrary in said Lease Paragraph 8 ("Acceptance and Surrender"), Tenant
shall not be responsible upon Lease Termination to repair said item(s) so noted
by Landlord. Landlord shall have thirty (30) days thereafter (or longer if
necessary, provided Landlord is diligently pursuing the completion of the same)
to complete, at Landlord's expense, the "punch list" items without the
Commencement Date of the Lease and Tenant's obligation to pay Rental thereunder
being affected. Notwithstanding the foregoing, a crack in the foundation, or
exterior walls or any other defect in the structure or Building that does not
endanger the structural integrity of the building, or which is not life-
threatening, shall not be considered material, nor shall Landlord be responsible
for repair of same. This Paragraph shall be of no force and effect if Tenant
shall fail to give any such notice to Landlord within thirty (30) days after the
Commencement Date of this Lease.
31
<PAGE>
EXHIBIT 10.14
LOAN AGREEMENT
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Principal Loan Date Maturity Loan No. Call Collateral Account Officer Initials
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$1,250,000.00 12-15-1997 11-30-1998 182000339 401 06 WSK
- ------------------------------------------------------------------------------------------------------------------------------------
References in the shaded area are for Lender's use only and do not limit the applicability of this document to any particular loan
or item.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
Borrower: DOWNTOWN WEB, INC. DBA AUTOWEB.COM Lender: CivicBank of Commerce
3270 Jay Street Fremont Office
Santa Clara, CA 95054 2201 Walnut Avenue, Suite 100
Fremont, CA 94538
===================================================================================================================
</TABLE>
THIS LOAN AGREEMENT between DOWNTOWN WEB, INC. DBA AUTOWEB.COM ("Borrower") and
CivicBank of Commerce ("Lender") is made and executed on the following terms and
conditions. Borrower has received prior commercial loans from Lender or has
applied to Lender for a commercial loan or loans and other financial
accommodations, including those which may be described on any exhibit or
schedule attached to this Agreement. All such loans and financial
accommodations, together with all future loans and financial accommodations from
Lender to Borrower, are referred to in this Agreement individually as the "Loan"
and collectively as the "Loans." Borrower understands and agrees that: (a) in
granting, renewing, or extending any Loan, Lender is relying upon Borrower's
representations, warranties, and agreements, as set forth in this Agreement; (b)
the granting, renewing, or extending of any Loan by Lender at all times shall be
subject to Lender's sole judgment and discretion; and (c) all such Loans shall
be and shall remain subject to the following terms and conditions of this
Agreement.
TERM. This Agreement shall be effective as of December 15, 1997, and shall
continue thereafter until all Indebtedness of Borrower to Lender has been
performed in full and the parties terminate this Agreement in writing.
DEFINITIONS. The following words shall have the following meanings when used in
this Agreement. Terms not otherwise defined in this Agreement shall have the
meanings attributed to such terms in the Uniform Commercial Code. All
references to dollar amounts shall mean amounts in lawful money of the United
States of America.
Agreement. The word "Agreement" means this Loan Agreement, as this Loan
Agreement may be amended or modified from time to time, together with all
exhibits and schedules attached to this Loan Agreement from time to time.
Account. The word "Account" means a trade account, account receivable, or
other right to payment for goods sold or services rendered owing to Borrower
(or to a third party grantor acceptable to Lender).
Account Debtor. The words "Account Debtor" mean the person or entity obligated
upon an Account.
Advance. The word "Advance" means a disbursement of Loan funds under this
Agreement.
Borrower. The word "Borrower" means DOWNTOWN WEB, INC. DBA AUTOWEB.COM. The
word "Borrower" also includes, as applicable, all subsidiaries and affiliates
of Borrower as provided below in the paragraph titled "Subsidiaries and
Affiliates."
Borrower Base. The words "Borrowing Base" mean, as determined by Lender from
time to time, the lesser of (a) $1,250,000.00; or (b) 70.000% of the aggregate
amount of Eligible Accounts.
Business Day. The words "Business Day" mean a day on which commercial banks
are open for business in the State of California.
<PAGE>
CERCLA. The word "CERCLA" means the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, as amended.
Cash Flow. The words "Cash Flow" mean net income after taxes, and exclusive of
extraordinary gains and income, plus depreciation and amortization.
Collateral. The word "Collateral" means and includes without limitation all
property and assets granted as collateral security for a Loan, whether real or
personal property, whether granted directly or indirectly, whether granted now
or in the future, and whether granted in the form of a security interest,
mortgage, deed of trust, assignment, pledge, chattel mortgage, chattel trust,
factor's lien, equipment trust, conditional sale, trust receipt, lien, charge,
lien or title retention contract, lease or consignment intended as a security
device, or any other security or lien interest whatsoever, whether created by
law, contract, or otherwise. The word "Collateral" includes without limitation
all collateral described below in the section titled "COLLATERAL."
Debt. The word "Debt" means all of Borrower's liabilities excluding
Subordinated Debt.
Eligible Accounts. The words "Eligible Accounts" mean, at any time, all of
Borrower's Accounts which contain selling terms and conditions acceptable to
Lender. The net amount of any Eligible Account against which Borrower may
borrow shall exclude all returns, discounts, credits, and offsets of any
nature. Unless otherwise agreed to by Lender in writing, Eligible Accounts do
not include:
(a) Accounts with respect to which the Account Debtor is an officer, an
employee or agent of Borrower.
(b) Accounts with respect to which the Account Debtor is a subsidiary of,
or affiliated with or related to Borrower or its shareholders,
officers, or directors.
(c) Accounts with respect to which goods are placed on consignment,
guaranteed sale, or other terms by reason of which the payment by the
Account Debtor may be conditional.
(d) Accounts with respect to which the Account Debtor is not a resident of
the United States, except to the extent such Accounts are supported by
insurance, bonds or other assurances satisfactory to Lender.
(e) Accounts with respect to which Borrower is or may become liable to the
Account Debtor for goods sold or services rendered by the Account
Debtor to Borrower.
(f) Accounts which are subject to dispute, counterclaim, or setoff.
(g) Accounts with respect to which the goods have not been shipped or
delivered, or the services have not been rendered, to the Account
Debtor.
(h) Accounts with respect to which Lender, in its sole discretion, deems
the creditworthiness or financial condition of the Account Debtor to
be unsatisfactory.
(i) Accounts of any Account Debtor who has filed or has had filed against
it a petition in bankruptcy or an application for relief under any
provision of any state or federal bankruptcy, insolvency, or
debtor-in-releif acts; or who has had appointed a trustee, custodian,
or receiver for the assets of such Account Debtor; or who has made an
assignment for the benefit of creditors or has become insolvent or
fails generally to pay its debts (including its payrolls) as such
debts become due.
(j) Accounts with respect to which the Account Debtor is the United States
government or any department or agency of the United States.
2
<PAGE>
(k) Accounts which have not been paid in full within 60 days from the
invoice date. The entire balance of any Account of any single Account
debtor will be ineligible whenever the portion of the Account which
has not been paid within 60 days from the invoice date is in excess of
20.000% of the total amount outstanding on the Account.
(l) That portion of the Accounts of any single Account Debtor which
exceeds 25.000% of all of Borrower's Accounts.
(m) (i) Retentions; (ii) Maintenance Contracts; (iii) Prebillings; (iv)
Accounts Receivable where Borrower fails to provide Lender with
requested financial information concerning the subject accounts
receivable.
ERISA. The word "ERISA" means the Employee Retirement Income Security Act of
1974, as amended.
Event of Default. The words "Event of Default" mean and include without
limitation any of the Events of Default set forth below in the section titled
"EVENTS OF DEFAULT."
Expiration Date. The words "Expiration Date" mean the date of termination of
Lender's commitment to lend under this Agreement.
Grantor. The word "Grantor" means and includes without limitation each and all
of the persons or entities granting a Security Interest in any Collateral for
the Indebtedness, including without limitation all Borrowers granting such a
Security Interest.
Guarantor. The word "Guarantor" means and includes without limitation each and
all of the guarantors, sureties, and accommodation parties in connection with
any indebtedness.
Indebtedness. The word "Indebtedness" means and includes without limitation
all Loans, together with all other obligations, debts and liabilities of
Borrower to Lender, or any one or more of them, as well as all claims by Lender
against Borrower, or any one or more of them; whether now or hereafter
existing, voluntary or involuntary, due or not due, absolute or contingent,
liquidated or unliquidated; whether Borrower may be liable individually or
jointly with others; whether Borrower may be obligated as a guarantor, surety,
or otherwise; whether recovery upon such indebtedness may be or hereafter may
become barred by any statute of limitations; and whether such indebtedness may
be or hereafter may become otherwise unenforceable.
Lender. The word "Lender" means CivicBank of Commerce, its successors and
assigns.
Line of Credit. The words "Line of Credit" mean the credit facility described
in the Section titled "LINE OF CREDIT" below.
Liquid Assets. The words "Liquid Assets" mean Borrower's cash on hand plus
Borrower's readily marketable securities.
Loan. The word "Loan" or "Loans" means and includes without limitation any and
all commercial loans and financial accommodations from Lender to Borrower,
whether now or hereafter existing, and however evidenced, including without
limitation those loans and financial accommodations described herein or
described on any exhibit or schedule attached to this Agreement from time to
time.
Note. The word "Note" means and includes without limitation Borrower's
promissory note or notes, if any, evidencing Borrower's Loan obligations in
favor of Lender, as well as any substitute, replacement or refinancing note or
notes therefor.
Permitted Liens. The words "Permitted Liens" mean: (a) liens and security
interests securing Indebtedness owed by Borrower to Lender; (b) liens for
taxes, assessments, or similar charges either
3
<PAGE>
not yet due or being contested in good faith; (c) liens of materialmen,
mechanics, warehousemen, or carriers, or other like liens arising in the
ordinary course of business and securing obligations which are not yet
delinquent; (d) purchase money liens or purchase money security interests upon
or in any property acquired or held by Borrower in the ordinary course of
business to secure indebtedness outstanding on the date of this Agreement or
permitted to be incurred under the paragraph of this Agreement titled
"Indebtedness and Liens"; (e) liens and security interests which, as of the
date of this Agreement, have been disclosed to and approved by the Lender in
writing; and (f) those liens and security interests which in the aggregate
constitute an immaterial and insignificant monetary amount with respect to the
net value of Borrower's assets.
Related Documents. The words "Related Documents" mean and include without
limitation all promissory notes, credit agreements, loan agreements,
environmental agreements, guaranties, security agreements, mortgages, deeds of
trust, and all other instruments, agreements and documents, whether now or
hereafter existing, executed in connection with the Indebtedness.
Security Agreement. The words "Security Agreement" mean and include without
limitation any agreements, promises, covenants, arrangements, understandings or
other agreements, whether created by law, contract, or otherwise, evidencing,
governing, representing, or creating a Security Interest.
Security Interest. The words "Security Interest" mean and include without
limitation any type of collateral security, whether in the form of a lien,
charge, mortgage, deed of trust, assignment, pledge, chattel mortgage, chattel
trust, factor's lien, equipment trust, conditional sale, trust receipt, lien or
title retention contract, lease or consignment intended as a security device,
or any other security or lien interest whatsoever, whether created by law,
contract, or otherwise.
SARA. The word "SARA" means the Superfund Amendments and Reauthorization Act
of 1986 as now or hereafter amended.
Subordinated Debt. The words "Subordinated Debt" mean indebtedness and
liabilities of Borrower which have been subordinated by written agreement to
indebtedness owed by Borrower to Lender in form and substance acceptable to
Lender.
Tangible Net Worth. The words "Tangible Net Worth" mean Borrower's total
assets excluding all intangible assets (i.e., goodwill, trademarks, patents,
copyrights, organizational expenses, and similar intangible items, but
including leaseholds and leasehold improvements) less total Debt.
Working Capital. The words "Working Capital" mean Borrower's current assets,
excluding prepaid expenses, less Borrower's current liabilities.
LINE OF CREDIT. Lender agrees to make Advances to Borrower from time to time
from the date of this Agreement to the Expiration Date, provided the aggregate
amount of such Advances outstanding at any time does not exceed the Borrowing
Base. Within the foregoing limits, Borrower may borrow, partially or wholly
prepay, and reborrow under this Agreement as follows.
Conditions Precedent to Each Advance. Lender's obligation to make any Advance
to or for the account of Borrower under this Agreement is subject to the
following conditions precedent, with all documents, instruments, opinions,
reports, and other items required under this Agreement to be in form and
substance satisfactory to Lender:
(a) Lender shall have received evidence that this Agreement and all
Related Documents have been duly authorized, executed, and delivered
by Borrower to Lender.
(b) Lender shall have received such opinions of counsel, supplemental
opinions, and documents as Lender may request.
4
<PAGE>
(c) The security interests in the Collateral shall have been duly
authorized, created, and perfected with first lien priority and shall
be in full force and effect.
(d) All guaranties required by Lender for the Line of Credit shall have
been executed by each Guarantor, delivered to Lender, and be in full
force and effect.
(e) Lender, at its option and for its sole benefit, shall have conducted
an audit of Borrower's Accounts, books, records, and operations, and
Lender shall be satisfied as to their condition.
(f) Borrower shall have paid to Lender all fees, costs, and expenses
specified in this Agreement and the Related Documents as are then due
and payable.
(g) There shall not exist at the time of any Advance a condition which
would constitute an Event of Default under this Agreement, and
Borrower shall have delivered to Lender the compliance certificate
called for in the paragraph below titled "Compliance Certificate."
Making Loan Advances. Advances under the Line of Credit may be requested
orally subject to the limitations set forth below. All oral requests shall be
confirmed in writing on the day of the request. Each Advance shall be
conclusively deemed to have been made at the request of and for the benefit of
Borrower (a) when credited to any deposit account of Borrower maintained with
Lender or (b) when advanced in accordance with the instructions of an
authorized person. Lender, at its option, may set a cutoff time, after which
all requests for Advances will be treated as having been requested on the next
succeeding Business Day.
Mandatory Loan Repayments. If at any time the aggregate principal amount of
the outstanding Advances shall exceed the applicable Borrowing Base, Borrower,
immediately upon written or oral notice from Lender, shall pay to Lender an
amount equal to the difference between the outstanding principal balance of the
Advances and the Borrowing Base. On the Expiration Date, Borrower shall pay to
Lender in full the aggregate unpaid principal amount of all Advances then
outstanding and all accrued unpaid interest, together with all other applicable
fees, costs and charges, if any, not yet paid.
Minimum Interest Payment. Borrower recognizes that Lender has incurred and
will continue to incur certain costs and expenses in connection with
establishing, maintaining, servicing, and administering the credit facility.
To ensure that Lender is able to recover such costs and expenses, Borrower
agrees that, notwithstanding any other provision of this Agreement, the
promissory note for the Line of Credit, or the Related Documents, Lender shall
be entitled to collect a minimum monthly interest charge of $250.00, which
Borrower hereby promises and agrees to pay.
Loan Account. Lender shall maintain on its books a record of account in which
Lender shall make entries for each Advance and such other debits and credits as
shall be appropriate in connection with the credit facility. Lender shall
provide Borrower with periodic statements of Borrower's account, which
statements shall be considered to be correct and conclusively binding on
Borrower unless Borrower notifies Lender to the contrary within thirty (30)
days after Borrower's receipt of any such statement which Borrower deems to be
incorrect.
COLLATERAL. To secure payment of the Line of Credit and performance of all
other Loans, obligations and duties owed by Borrower to Lender, Borrower (and
others, if required) shall grant to Lender Security Interests in such property
and assets as Lender may require (the "Collateral"), including without
limitation Borrower's present and future Accounts and general intangibles.
Lender's Security Interests in the Collateral shall be continuing liens and
shall include the proceeds and products of the Collateral, including without
limitation the proceeds of any insurance. With respect to the Collateral,
Borrower agrees and represents and warrants to Lender:
5
<PAGE>
Perfection of Security Interests. Borrower agrees to execute such financing
statements and to take whatever other actions are requested by Lender to
perfect and continue Lender's Security Interests in the Collateral. Upon
request of Lender, Borrower will deliver to Lender any and all of the documents
evidencing or constituting the Collateral, and Borrower will note Lender's
interest upon any and all chattel paper if not delivered to Lender for
possession by Lender. Contemporaneous with the execution of this Agreement,
Borrower will execute one or more UCC financing statements and any similar
statements as may be required by applicable law, and will file such financing
statements and all such similar statements in the appropriate location or
locations. Borrower hereby appoints Lender as its irrevocable attorney-in-fact
for the purpose of executing any documents necessary to perfect or to continue
any Security Interest. Lender may at any time, and without further
authorization from Borrower, file a carbon, photograph, facsimile, or other
reproduction of any financing statement for use as a financing statement.
Borrower will reimburse Lender for all expenses for the perfection,
termination, and the continuation of the perfection of Lender's security
interest in the Collateral. Borrower promptly will notify Lender of any change
in Borrower's name including any change to the assumed business names of
Borrower. Borrower also promptly will notify Lender of any change in
Borrower's Social Security Number or Employer Identification Number. Borrower
further agrees to notify Lender in writing prior to any change in address or
location of Borrower's principal governance office or should Borrower merge or
consolidate with any other entity.
Collateral Records. Borrower does now, and at all times hereafter shall, keep
correct and accurate records of the Collateral, all of which records shall be
available to Lender or Lender's representative upon demand for inspection and
copying at any reasonable time. With respect to the Accounts, Borrower agrees
to keep and maintain such records as Lender may require, including without
limitation information concerning Eligible Accounts and Account balances and
agings.
Collateral Schedules. Concurrently with the execution and delivery of this
Agreement, Borrower shall execute and deliver to Lender a schedule of Accounts
and Eligible Accounts, in form and substance satisfactory to the Lender.
Thereafter and at such frequency as Lender shall require, Borrower shall
execute and deliver to Lender such supplemental schedules of Eligible Accounts
and such other matters and information relating to Borrower's Accounts as
Lender may request.
Representations and Warranties Concerning Accounts. With respect to the
Accounts, Borrower represents and warrants to Lender: (a) Each Account
represented by Borrower to be an Eligible Account for purposes of this
Agreement conforms to the requirements of the definition of an Eligible
Account; (b) All Account information listed on schedules delivered to Lender
will be true and correct, subject to immaterial variance; and (c) Lender, its
assigns, or agents shall have the right at any time and at Borrower's expense
to inspect, examine, and audit Borrower's records and to confirm with Account
Debtors the accuracy of such Accounts.
Remittance Account. Borrower agrees that Lender may at any time require
Borrower to institute procedures whereby the payments and other proceeds of the
Accounts shall be paid by the Account Debtors under a remittance account or
lock box arrangement with Lender, or Lender's agent, or with one or more
financial institutions designated by Lender. Borrower further agrees that, if
no Event of Default exists under this Agreement, any and all of such funds
received under such a remittance account or lock box arrangement shall, at
Lender's sole election and discretion, either be (a) paid or turned over to
Borrower; (b) deposited into one or more accounts for the benefit of Borrower
(which deposit accounts shall be subject to a security assignment in favor of
Lender); (c) deposited into one or more accounts for the joint benefit of
Borrower and Lender (which deposit accounts shall likewise be subject to a
security assignment in favor of Lender); (d) paid or turned over to Lender to
be applied to the Indebtedness in such order and priority as Lender may
determine within its sole discretion; or (e) any combination of the foregoing
as Lender shall determine from time to time. Borrower further
6
<PAGE>
agrees that, should one or more Events of Default exist, any and all funds
received under such a remittance account or lock box arrangement shall be paid
or turned over to Lender to be applied to the Indebtedness, again in such order
and priority as Lender may determine within its sole discretion.
ADDITIONAL CREDIT FACILITIES. In addition to the Line of Credit facility, the
following credit accommodations are either in place or will be made available to
Borrower:
Term Loan. Subject to the terms and conditions of this Agreement and the
exhibit, a term loan is either in place or will be made available to Borrower
as set forth in an exhibit, which is attached hereto and made a part hereof.
REPRESENTATIONS AND WARRANTIES. Borrower represents and warrants to Lender, as
of the date of this Agreement, as of the date of each disbursement of Loan
proceeds, as of the date of any renewal, extension or modification of any Loan,
and at all times any Indebtedness exists:
Organization. Borrower is a corporation which is duly organized, validly
existing, and in good standing under the laws of the State of California and is
validly existing and in good standing in all states in which Borrower is doing
business. Borrower has the full power and authority to own its properties and
to transact the businesses in which it is presently engaged or presently
proposes to engage. Borrower also is duly qualified as a foreign corporation
and is in good standing in all states in which the failure to so qualify would
have a material adverse effect on its businesses or financial condition.
Authorization. The execution, delivery, and performance of this Agreement and
all Related Documents by Borrower, to the extent to be executed, delivered or
performed by Borrower, have been duly authorized by all necessary action by
Borrower; do not require the consent or approval of any other person,
regulatory authority or governmental body; and do not conflict with, result in
a violation of, or constitute a default under (a) any provision of its articles
of incorporation or organization, or bylaws, or any agreement or other
instrument binding upon Borrower or (b) any law, governmental regulation, court
decree, or order applicable to Borrower.
Financial Information. Each financial statement of Borrower supplied to Lender
truly and completely disclosed Borrower's financial condition as of the date of
the statement, and there has been no material adverse change in Borrower's
financial condition subsequent to the date of the most recent financial
statement supplied to Lender. Borrower has no material contingent obligations
except as disclosed in such financial statements.
Legal Effect. This Agreement constitutes, and any instrument or agreement
required hereunder to be given by Borrower when delivered will constitute,
legal, valid and binding obligations of Borrower enforceable against Borrower
in accordance with their respective terms.
Properties. Except for Permitted Liens, Borrower owns and has good title to
all of Borrower's properties free and clear of all Security Interests, and has
not executed any security documents or financing statements relating to such
properties. All of Borrower's properties are titled in Borrower's legal name,
and Borrower has not used, or filed a financing statement under, any other name
for at least the last five (5) years.
Hazardous Substances. The terms "hazardous waste," "hazardous substance,"
"disposal," "release," and "threatened release," as used in this Agreement,
shall have the same meanings as set forth in the "CERCLA," "SARA," the
Hazardous Materials Transportation Act, 49 U.S.C. Section 1801, et seq., the
Resource Conservation and Recovery Act, 42 U.S.C. Section 6901, et seq.,
Chapters 6.5 through 7.7 of Division 20 of the California Health and Safety
Code, Section 25100, et seq., or other applicable state or Federal laws, rules,
or regulations adopted pursuant to any of the foregoing. Except as disclosed
to and acknowledged by Lender in writing, Borrower represents and warrants
that: (a)
7
<PAGE>
During the period of Borrower's ownership of the properties, there has been no
use, generation, manufacture, storage, treatment, disposal, release or
threatened release of any hazardous waste or substance by any person on, under,
about or from any of the properties, (b) Borrower has no knowledge of, or
reason to believe that there has been (i) any use, generation, manufacture,
storage, treatment, disposal, release, or threatened release of any hazardous
waste or substance on, under, about or from the properties by any prior owners
or occupants of any of the properties, or (ii) any actual or threatened
litigation or claims of any kind by any person relating to such matters. (c)
Neither Borrower nor any tenant, contractor, agent or other authorized user of
any of the properties shall use, generate, manufacture, store, treat, dispose
of, or release any hazardous waste or substance on, under, about or from any of
the properties; and any such activity shall be conducted in compliance with all
applicable federal, state, and local laws, regulations, and ordinances,
including without limitation those laws, regulations and ordinances described
above. Borrower authorizes Lender and its agents to enter upon the properties
to make such inspections and tests as Lender may deem appropriate to determine
compliance of the properties with this section of the Agreement. Any
inspections or tests made by Lender shall be at Borrower's expense and for
Lender's purposes only and shall not be construed to create any responsibility
or liability on the part of Lender to Borrower or to any other person. The
representations and warranties contained herein are based on Borrower's due
diligence in investigating the properties for hazardous waste and hazardous
substances. Borrower hereby (a) releases and waives any future claims against
Lender for indemnity or contribution in the event Borrower becomes liable for
cleanup or other costs under any such laws, and (b) agrees to indemnify and
hold harmless Lender against any and all claims, losses, liabilities, damages,
penalties, and expenses which Lender may directly or indirectly sustain or
suffer resulting from a breach of this section of the Agreement or as a
consequence of any use, generation, manufacture, storage, disposal, release or
threatened release occurring prior to Borrower's ownership or interest in the
properties, whether or not the same was or should have been known to Borrower.
The provisions of this section of the Agreement, including the obligation to
indemnify, shall survive the payment of the Indebtedness and the termination or
expiration of this Agreement and shall not be affected by Lender's acquisition
of any interest in any of the properties, whether by foreclosure or otherwise.
Litigation and Claims. No litigation, claim, investigation, administrative
proceeding or similar action (including those for unpaid taxes) against
Borrower is pending or threatened, and no other event has occurred which may
materially adversely affect Borrower's financial condition or properties, other
than litigation, claims, or other events, if any, that have been disclosed to
and acknowledged by Lender in writing.
Taxes. To the best of Borrower's knowledge, all tax returns and reports of
Borrower that are or were required to be filed, have been filed, and all taxes,
assessments and other governmental charges have been paid in full, except those
presently being or to be contested by Borrower in good faith in the ordinary
course of business and for which adequate reserves have been provided.
Lien Priority. Unless otherwise previously disclosed to Lender in writing,
Borrower has not entered into or granted any Security Agreements, or permitted
the filing or attachment of any Security Interests on or affecting any of the
Collateral directly or indirectly securing repayment of Borrower's Loan and
Note, that would be prior or that may in any way be superior to Lender's
Security Interests and rights in and to such Collateral.
Binding Effect. This Agreement, the Note, all Security Agreements directly or
indirectly securing repayment of Borrower's Loan and Note and all of the
Related Documents are binding upon Borrower as well as upon borrower's
successors, representatives and assigns, and are legally enforceable in
accordance with their respective terms.
8
<PAGE>
Commercial Purposes. Borrower intends to use the Loan proceeds solely for
business or commercial related purposes.
Employee Benefit Plans. Each employee benefit plan as to which Borrower may
have any liability complies in all material respects with all applicable
requirements of law and regulations, and (i) no Reportable Event nor Prohibited
Transaction (as defined in ERISA) has occurred with respect to any such plan,
(ii) Borrower has not withdrawn from any such plan or initiated steps to do so,
(iii) no steps have been taken to terminate any such plan, and (iv) there are
no unfunded liabilities other than those previously disclosed to Lender in
writing.
Location of Borrower's Offices and Records. Borrower's place of business, or
Borrower's Chief executive office, if Borrower has more than one place of
business, is located at 3270 Jay Street, Santa Clara, CA 95054. Unless
Borrower has designated otherwise in writing this location is also the office
or offices where Borrower keeps its records concerning the Collateral.
Information. All information heretofore or contemporaneously herewith
furnished by Borrower to Lender for the purposes of or in connection with this
Agreement or any transaction contemplated hereby is, and all information
hereafter furnished by or on behalf of Borrower to Lender will be, true and
accurate in every material respect on the date as of which such information is
dated or certified; and none of such information is or will be incomplete by
omitting to state any material fact necessary to make such information not
misleading.
Survival of Representations and Warranties. Borrower understands and agrees
that Lender, without independent investigation, is relying upon the above
representations and warranties in extending Loan Advances to Borrower.
Borrower further agrees that the foregoing representations and warranties shall
be continuing in nature and shall remain in full force and effect until such
time as Borrower's Indebtedness shall be paid in full, or until this Agreement
shall be terminated in the manner provided above, whichever is the last to
occur.
AFFIRMATIVE COVENANTS. Borrower covenants and agrees with Lender that, while
this Agreement is in effect, Borrower will:
Litigation. Promptly inform Lender in writing of (a) all material adverse
changes in Borrower's financial condition, and (b) all existing and all
threatened litigation, claims, investigations, administrative proceedings or
similar actions affecting Borrower or any Guarantor which could materially
affect the financial condition of Borrower or the financial condition of any
Guarantor.
Financial Records. Maintain its books and records in accordance with generally
accepted accounting principles, applied on a consistent basis, and permit
Lender to examine and audit Borrower's books and records at all reasonable
times.
Financial Statements. Furnish Lender with, as soon as available, but in no
event later than thirty (30) days after the end of each fiscal year, Borrower's
balance sheet and income statement for the year ended, audited by a certified
public accountant satisfactory to Lender, and, as soon as available, but in no
event later than thirty (30) days after the end of each month, Borrower's
balance sheet and profit and loss statement for the period ended, prepared and
certified as correct to the best knowledge and belief by Borrower's chief
financial officer or other officer or person acceptable to Lender. All
financial reports required to be provided under this Agreement shall be
prepared in accordance with generally accepted accounting principles, applied
on a consistent basis, and certified by Borrower as being true and correct.
Additional Information. Furnish such additional information and statements,
lists of assets and liabilities, agings of receivables and payables, inventory
schedules, budgets, forecasts, tax returns, and
9
<PAGE>
other reports with respect to Borrower's financial condition and business
operations as Lender may request from time to time.
Financial Covenants and Ratios. Comply with the following covenants and
ratios:
Tangible Net Worth. Maintain a minimum Tangible Net Worth of not less than
$1,500,000.00.
Other Ratio. Maintain a ratio of Quick Ratio of 1.50 to 1.00.
The following provisions shall apply for purposes of determining compliance
with the foregoing financial covenants and ratios: Quick Ratio as defined as
cash plus Eligible Accounts Receivable divided by Term Loan outstandings.
Except as provided above, all computations made to determine compliance with
the requirements contained in this paragraph shall be made in accordance with
generally accepted accounting principles, applied on a consistent basis, and
certified by Borrower as being true and correct.
Insurance. Maintain fire and other risk insurance, public liability insurance,
and such other insurance as Lender may require with respect to Borrower's
properties and operations, in form, amounts, coverages and with insurance
companies reasonably acceptable to Lender. Borrower, upon request of Lender,
will deliver to Lender from time to time the policies or certificates of
insurance in form satisfactory to Lender, including stipulations that coverages
will not be cancelled or diminished without at least thirty (30) days prior
written notice to Lender. Each insurance policy also shall include an
endorsement providing that coverage in favor of Lender will not be impaired in
any way by any act, omission or default of Borrower or any other person. In
connection with all policies covering assets in which Lender holds or is
offered a security interest for the Loans, Borrower will provide Lender with
such loss payable or other endorsements as Lender may require.
Insurance Reports. Furnish to Lender, upon request of Lender, reports on each
existing insurance policy showing such information as Lender may reasonably
request, including without limitation the following: (a) the name of the
insurer; (b) the risks insured; (c) the amount of the policy; (d) the
properties insured; (e) the then current property values on the basis of which
insurance has been obtained, and the manner of determining those values; and
(f) the expiration date of the policy. In addition, upon request of Lender
(however not more often than annually), Borrower will have an independent
appraiser satisfactory to Lender determine, as applicable, the actual cash
value or replacement cost of any Collateral. The cost of such appraisal shall
be paid by Borrower.
Other Agreements. Comply with all terms and conditions of all other
agreements, whether now or hereafter existing, between Borrower and any other
party and notify Lender immediately in writing of any default in connection
with any other such agreements.
Loan Proceeds. Use all Loan proceeds solely for Borrower's business
operations, unless specifically consented to the contrary by Lender in writing.
Taxes, Charges and Liens. Pay and discharge when due all of its indebtedness
and obligations, including without limitation all assessments, taxes,
governmental charges, levies and liens, of every kind and nature, imposed upon
Borrower or its properties, income, or profits, prior to the date on which
penalties would attach, and all lawful claims that, if unpaid, might become a
lien or charge upon any of Borrower's properties, income, or profits. Provided
however, Borrower will not be required to pay and discharge any such
assessment, tax, charge, levy, lien or claim so long as (a) the legality of the
same shall be contested in good faith by appropriate proceedings, and (b)
Borrower shall have established on its books adequate reserves with respect to
such contested assessment, tax, charge, levy, lien, or claim in accordance with
generally accepted accounting practices. Borrower, upon demand of Lender, will
furnish to Lender evidence of payment of the assessments, taxes, charges,
levies, liens and claims and will authorize the appropriate governmental
official to deliver to Lender at any time a written
10
<PAGE>
statement of any assessments, taxes, charges, levies, liens and claims against
Borrower's properties, income, or profits.
Performance. Perform and comply with all terms, conditions, and provisions set
forth in this Agreement and in the Related Documents in a timely manner, and
promptly notify Lender if Borrower learns of the occurrence of any event which
constitutes an Event of Default under this Agreement or under any of the
Related Documents.
Operations. Maintain executive and management personnel with substantially the
same qualifications and experience as the present executive and management
personnel; provide written notice to Lender of any change in executive and
management personnel; conduct its business affairs in a reasonable and prudent
manner and in compliance with all applicable federal, state and municipal laws,
ordinances, rules and regulations respecting its properties, charters,
businesses and operations, including without limitation, compliance with the
Americans With Disabilities Act and with all minimum funding standards and
other requirements of ERISA and other laws applicable to Borrower's employee
benefit plans.
Inspection. Permit employees or agents of Lender at any reasonable time to
inspect any and all Collateral for the Loan or Loans and Borrower's other
properties and to examine or audit Borrower's books, accounts, and records and
to make copies and memoranda of Borrower's books, accounts, and records. If
Borrower now or at any time hereafter maintains any records (including without
limitation computer generated records and computer software programs for the
generation of such records) in the possession of a third party, Borrower, upon
request of Lender, shall notify such party to permit Lender free access to such
records at all reasonable times and to provide Lender with copies of any
records it may request, all at Borrower's expense.
Compliance Certificate. Unless waived in writing by Lender, provide Lender at
least annually and at the time of each disbursement of Loan proceeds with a
certificate executed by Borrower's chief financial officer, or other officer or
person acceptable to Lender, certifying that the representations and warranties
set forth in this Agreement are true and correct as of the date of the
certificate and further certifying that, as of the date of the certificate, no
Event of Default exists under this Agreement.
Environmental Compliance and Reports. Borrower shall comply in all respects
with all environmental protection federal, state and local laws, statutes,
regulations and ordinances; not cause or permit to exist, as a result of an
intentional or unintentional action or omission on its part or on the part of
any third party, on property owned and/or occupied by Borrower, any
environmental activity where damage may result to the environment, unless such
environmental activity is pursuant to and in compliance with the conditions of
a permit issued by the appropriate federal, state or local governmental
authorities; shall furnish to Lender promptly and in any event within thirty
(30) days after receipt thereof a copy of any notice, summons, lien, citation,
directive, letter or other communication from any governmental agency or
instrumentality concerning any intentional or unintentional action or omission
on Borrower's part in connection with any environmental activity whether or not
there is damage to the environment and/or other natural resources.
Additional Assurances. Make, execute and deliver to Lender such promissory
notes, mortgages, deeds of trust, security agreements, financing statements,
instruments, documents and other agreements as Lender or its attorneys may
reasonably request to evidence and secure the Loans and to perfect all Security
Interests.
RECOVERY OF ADDITIONAL COSTS. If the imposition of or any change in any law,
rule, regulation or guideline, or the interpretation or application of any
thereof by any court or administrative or governmental authority (including any
request or policy not having the force of law) shall impose,
11
<PAGE>
modify or make applicable any taxes (except U.S. federal, state or local income
or franchise taxes imposed on Lender), reserve requirements, capital adequacy
requirements or other obligations which would (a) increase the cost to Lender
for extending or maintaining the credit facilities to which this Agreement
relates, (b) reduce the amounts payable to Lender under this Agreement or the
Related Documents, or (c) reduce the rate of return on Lender's capital as a
consequence of Lender's obligations with respect to the credit facilities to
which this Agreement relates, then Borrower agrees to pay Lender such additional
amounts as will compensate Lender therefor, within five (5) days after Lender's
written demand for such payment, which demand shall be accompanied by an
explanation of such imposition or charge and a calculation in reasonable detail
of the additional amounts payable by Borrower, which explanation and
calculations shall be conclusive in the absence of manifest error.
NEGATIVE COVENANTS. Borrower covenants and agrees with Lender that while this
Agreement is in effect, Borrower shall not, without the prior written consent of
Lender:
Indebtedness and Liens. (a) Except for trade debt incurred in the normal
course of business and indebtedness to Lender contemplated by this Agreement,
create, incur or assume indebtedness for borrowed money, including capital
leases, (b) except as allowed as a Permitted Lien, sell, transfer, mortgage,
assign, pledge, lease, grant a security interest in, or encumber any of
Borrower's assets, or (c) sell with recourse any of Borrower's accounts, except
to Lender.
Continuity of Operations. (a) Engage in any business activities substantially
different than those in which Borrower is presently engaged, (b) cease
operations, liquidate, merge, transfer, acquire or consolidate with any other
entity, change ownership, change its name, dissolve or transfer or sell
Collateral out of the ordinary course of business, (c) pay any dividends on
Borrower's stock (other than dividends payable in its stock), provided, however
that notwithstanding the foregoing, but only so long as no Event of Default has
occurred and is continuing or would result from the payment of dividends, if
Borrower is a "Subchapter S Corporation" (as defined in the Internal Revenue
Code of 1986, as amended), Borrower may pay cash dividends on its stock to its
shareholders from time to time in amounts necessary to enable the shareholders
to pay income taxes and make estimated income tax payments to satisfy their
liabilities under federal and state law which arise solely from their status as
Shareholders of a Subchapter S Corporation because of their ownership of shares
of stock of Borrower, or (d) purchase or retire any of Borrower's outstanding
shares or alter or amend Borrower's capital structure.
Loans, Acquisitions and Guaranties. (a) Loan, invest in or advance money or
assets, (b) purchase, create or acquire any interest in any other enterprise or
entity, or (c) incur any obligation as surety or guarantor other than in the
ordinary course of business.
CESSATION OF ADVANCES. If Lender has made any commitment to make any Loan to
Borrower, whether under this Agreement or under any other agreement, Lender
shall have no obligation to make Loan Advances or to disburse Loan proceeds if:
(a) Borrower or any Guarantor is in default under the terms of this Agreement or
any of the Related Documents or any other agreement that Borrower or any
Guarantor has with Lender; (b) Borrower or any Guarantor becomes insolvent,
files a petition in bankruptcy or similar proceedings, or is adjudged a
bankrupt; (c) there occurs a material adverse change in Borrower's financial
condition, in the financial condition of any Guarantor, or in the value of any
Collateral securing any Loan; or (d) any Guarantor seeks, claims or otherwise
attempts to limit, modify or revoke such Guarantor's guaranty of the Loan or any
other loan with Lender.
12
<PAGE>
MODIFIED ACCOUNTS RECEIVABLE LINE OF CREDIT SPECIFIC PROVISIONS (LOAN NUMBER
182000339 ONLY).
1. Borrower shall provide to Lender monthly Accounts Receivable Agings, Accounts
Payable Agings, and Borrowing Base Certificate within thirty (30) days of
each month end. In addition, Borrower shall provide to Lender Borrowing Base
Certificates with each advance.
2. In the event of default of Loan Number 182000340 as described below, this
credit facility shall be converted to a FORMAL ACCOUNTS RECEIVABLE LINE OF
CREDIT and Borrower shall provide the following:
a) Borrower shall provide to Lender Borrowing Base Certificates with each
advance request.
b) Borrower shall execute a Commercial Pledge Agreement upon the opening of
a cash collateral account to be used for the receipt of accounts
receivable collections.
c) All accounts receivable collections shall be submitted to Lender on a
daily basis, and they shall be applied to the loan balance (payment in
kind).
ADDITIONAL PROVISIONS.
1. Borrower shall permit Lender to conduct Business Trade Checks annually.
2. Borrower shall provide to Lender monthly Accounts Receivable Agings, Accounts
Payable Agings and Borrowing Base Certificates within thirty (30) days of
month end.
3. Borrower shall maintain profitable operations on a quarterly basis beginning
September 30, 1998.
4. CivicBank of Commerce (Lender) shall remain the primary bank depository.
5. Borrower shall notify Lender immediately in writing if it becomes involved in
any litigation.
6. Borrower shall obtain a minimum of Three Million and 00/100 Dollars
($3,000,000.00) in new equity capital by April 1, 1998.
7. Borrower shall provide to Lender by April 1, 1998, Warrants representing
Fifty Thousand and 00/100 Dollars ($50,000.00) of common stock priced
according to the most recent Three Million and 00/100 Dollars ($3,000,000.00)
equity investment.
8. Advances under Loan Number 182000340 are limited to 65% of purchased price of
equipment. Borrower shall provide the Lender copies of all invoices.
ACCOUNTS RECEIVABLE EXAM PROVISION.
1. This credit facility is subject to an immediate Accounts Receivable Exam by
Lender, or its designated agent. This Accounts Receivable Exam must be in
form and substance satisfactory to Lender.
2. Borrower shall permit Lender, or its designated agent to perform Accounts
Receivable Exams semi-annually, or as deemed appropriate by Lender. All said
Exams must be in form and substance satisfactory to Lender.
3. All costs incurred during the course of said Exams are for the account of the
Borrower.
LENDER'S REMEDIES UNDER DEFAULT (LOAN NUMBER 182000340). In addition to those
remedies available to the Lender in the Events of Default section enumerated in
the Loan Documents, Lender shall upon default have the option to do the
following:
13
<PAGE>
The balance of the Term Loan (Loan Number 182000340) debt will be added to the
balance of the Modified Accounts Receivable Line of Credit (Loan Number
182000339) and that Line shall immediately be converted to a Formal Accounts
Receivable Line of Credit and;
a) The limit of the Formal Accounts Receivable Line of Credit shall be
changed to the greater of One Million Two Hundred Fifty Thousand and
00/100 Dollars ($1,250,000.00) or the sum of the two loan balances
(182000339 and 182000340) until November 30, 1998; and
b) on November 30, 1998, the limit shall decrease to the outstanding
balance of the outstanding Term Loan at the time of default ("Term Loan
Balance") and the limit shall be further reduced on a monthly basis so
that the Term Loan Balance reach zero in accordance with the maturity
date of the existing Term Loan; and
c) the interest rate will increase by a minimum of one percent (1.000%)
over the then current rate.
RIGHT OF SETOFF. Borrower grants to Lender a contractual possessory security
interest in, and hereby assigns, conveys, delivers, pledges, and transfers to
Lender all Borrower's right, title and interest in and to, Borrower's accounts
with Lender (whether checking, savings, or some other account), including
without limitation all accounts held jointly with someone else and all accounts
Borrower may open in the future, excluding however all IRA and Keogh accounts,
and all trust accounts for which the grant of a security interest would be
prohibited by law. Borrower authorizes Lender, to the extent permitted by
applicable law, to charge or setoff all sums owing on the Indebtedness against
any and all such accounts.
EVENTS OF DEFAULT. Each of the following shall constitute an Event of Default
under this Agreement:
Default on Indebtedness. Failure of Borrower to make any payment when due on
the Loans.
Other Defaults. Failure of Borrower or any Grantor to comply with or to
perform when due any other term, obligation, covenant or condition contained in
this Agreement or in any of the Related Documents, or failure of Borrower to
comply with or to perform any other term, obligation, covenant or condition
contained in any other agreement between Lender and Borrower.
Default in Favor of Third Parties. Should Borrower or any Grantor default
under any loan, extension of credit, security agreement, purchase or sales
agreement, or any other agreement, in favor of any other creditor or person
that may materially affect any of Borrower's property or Borrower's or any
Grantor's ability to repay the Loans or perform their respective obligations
under this Agreement or any of the Related Documents.
False Statements. Any warranty, representation or statement made or furnished
to Lender by or on behalf of Borrower or any Grantor under this Agreement or
the Related Documents is false or misleading in any material respect at the
time made or furnished, or becomes false or misleading at any time thereafter.
Defective Collateralization. This Agreement or any of the Related Documents
ceases to be in full force and effect (including failure of any Security
Agreement to create a valid and perfected Security Interest) at any time and
for any reason.
Insolvency. The dissolution or termination of Borrower's existence as a going
business, the insolvency of Borrower, the appointment of a receiver for any
part of Borrower's property, any assignment for the benefit of creditors, any
type of creditor workout, or the commencement of any proceeding under any
bankruptcy or insolvency laws by or against Borrower.
14
<PAGE>
Creditor or Forfeiture Proceedings. Commencement of foreclosure or forfeiture
proceedings, whether by judicial proceeding, self-help, repossession or any
other method, by any creditor of Borrower, any creditor of any Grantor against
any collateral securing the Indebtedness, or by any governmental agency. This
includes a garnishment, attachment, or levy on or of any of Borrower's deposit
accounts with Lender.
Events Affecting Guarantor. Any of the preceding events occurs with respect to
any Guarantor of any of the Indebtedness or any Guarantor dies or becomes
incompetent, or revokes or disputes the validity of, or liability under, any
Guaranty of the Indebtedness.
Change In Ownership. Any change in ownership of twenty-five percent (25%) or
more of the common stock of Borrower.
Adverse Change. A material adverse change occurs in Borrower's financial
condition, or Lender believes the prospect of payment or performance of the
Indebtedness is impaired.
EFFECT OF AN EVENT OF DEFAULT. If any Event of Default shall occur, except
where otherwise provided in this Agreement or the Related Documents, all
commitments and obligations of Lender under this Agreement or the Related
Documents or any other agreement immediately will terminate (including any
obligation to make Loan Advances or disbursements), and, at Lender's option, all
Indebtedness immediately will become due and payable, all without notice of any
kind to Borrower, except that in the case of an Event of Default of the type
described in the "Insolvency" subsection above, such acceleration shall be
automatic and not optional. In addition, Lender shall have all the rights and
remedies provided in the Related Documents or available at law, in equity, or
otherwise. Except as may be prohibited by applicable law, all of Lender's
rights and remedies shall be cumulative and may be exercised singularly or
concurrently. Election by Lender to pursue any remedy shall not exclude pursuit
of any other remedy, and an election to make expenditures or to take action to
perform an obligation of Borrower or of any Grantor shall not affect Lender's
right to declare a default and to exercise its rights and remedies.
MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of
this Agreement:
Amendments. This Agreement, together with any Related Documents, constitutes
the entire understanding and agreement of the parties as to the matters set
forth in this Agreement. No alteration of or amendment to this Agreement shall
be effective unless given in writing and signed by the party or parties sought
to be charged or bound by the alteration or amendment.
Applicable Law. This Agreement has been delivered to Lender and accepted by
Lender in the State of California. If there is a lawsuit, Borrower agrees upon
Lender's request to submit to the jurisdiction of the courts of Alameda County,
the State of California. Lender and Borrower hereby waive the right to any
jury trial in any action, proceeding, or counterclaim brought by either Lender
or Borrower against the other. Subject to the provisions on arbitration, this
Agreement shall be governed by and construed in accordance with the laws of the
State of California.
Arbitration. Lender and Borrower agree that all disputes, claims and
controversies between them, whether individual, joint, or class in nature,
arising from this Agreement or otherwise, including without limitation contract
and tort disputes, shall be arbitrated pursuant to the Rules of the American
Arbitration Association, upon request of either party. No act to take or
dispose of any Collateral shall constitute a waiver of this arbitration
agreement or be prohibited by this arbitration agreement. This includes,
without limitation, obtaining injunctive relief or a temporary restraining
order; invoking a power of sale under any deed of trust or mortgage; obtaining
a writ of attachment or imposition of a receiver; or exercising any rights
relating to personal property, including taking or
15
<PAGE>
disposing of such property with or without judicial process pursuant to Article
9 of the Uniform Commercial Code. Any disputes, claims, or controversies
concerning the lawfulness or reasonableness of any act, or exercise of any
right, concerning any Collateral, including any claim to rescind, reform, or
otherwise modify any agreement relating to the Collateral, shall also be
arbitrated, provided however that no arbitrator shall have the right or the
power to enjoin or restrain any act of any party. Lender and Borrower agree
that in the event of an action for judicial foreclosure pursuant to California
Code of Civil Procedure Section 726, or any similar provision in any other
state, the commencement of such an action will not constitute a waiver of the
right to arbitrate and the court shall refer to arbitration as much of such
action, including counterclaims, as lawfully may be referred to arbitration.
Judgment upon any award rendered by any arbitrator may be entered in any court
having jurisdiction. Nothing in this Agreement shall preclude any party from
seeking equitable relief from a court of competent jurisdiction. The statute of
limitations, estoppel, waiver, laches, and similar doctrines which would
otherwise be applicable in an action brought by a party shall be applicable in
any arbitration proceeding, and the commencement of an arbitration proceeding
shall be deemed the commencement of an action for these purposes. The Federal
Arbitration Act shall apply to the construction, interpretation, and
enforcement of this arbitration provision.
Caption Headings. Caption headings in this Agreement are for convenience
purposes only and are not to be used to interpret or define the provisions of
this Agreement.
Multiple Parties; Corporate Authority. All obligations of Borrower under this
Agreement shall be joint and several, and all references to Borrower shall mean
each and every Borrower. This means that each of the persons signing below is
responsible for all obligations in this Agreement.
Consent to Loan Participation. Borrower agrees and consents to Lender's sale
or transfer, whether now or later, of one or more participation interests in
the Loans to one or more purchasers, whether related or unrelated to Lender.
Lender may provide, without any limitation whatsoever, to any one or more
purchasers, or potential purchasers, any information or knowledge Lender may
have about Borrower or about any other matter relating to the Loan, and
Borrower hereby waives any rights to privacy it may have with respect to such
matters. Borrower additionally waives any and all notices of sale of
participation interests, as well as all notices of any repurchase of such
participation interests. Borrower also agrees that the purchasers of any such
participation interests will be considered as the absolute owners of such
interests in the Loans and will have all the rights granted under the
participation agreement or agreements governing the sale of such participation
interests. Borrower further waives all rights of offset or counterclaim that
it may have now or later against Lender or against any purchaser of such a
participation interest and unconditionally agrees that either Lender or such
purchaser may enforce Borrower's obligation under the Loans irrespective of the
failure or insolvency of any holder of any interest in the Loans. Borrower
further agrees that the purchaser of any such participation interests may
enforce its interests irrespective of any personal claims or defenses that
Borrower may have against Lender.
Costs and Expenses. Borrower agrees to pay upon demand all of Lender's
expenses, including without limitation attorneys' fees, incurred in connection
with the preparation, execution, enforcement, modification and collection of
this Agreement or in connection with the Loans made pursuant to this Agreement.
Lender may pay someone else to help collect the Loans and to enforce this
Agreement, and Borrower will pay that amount. This includes, subject to any
limits under applicable law, Lender's attorneys' and Lender's legal expenses,
whether or not there is a lawsuit, including attorneys' fees for bankruptcy
proceedings (including efforts to modify or vacate any automatic stay or
injunction), appeals, and any anticipated post-judgment collection services.
Borrower also will pay any court costs, in addition to all other sums provided
by law.
16
<PAGE>
Notices. All notices required to be given under this Agreement shall be given
in writing, may be sent by telefacsimile (unless otherwise required by law),
and shall be effective when actually delivered or when deposited with a
nationally recognized overnight courier or deposited in the United States mail,
first class, postage prepaid, addressed to the party to whom the notice is to
be given at the address shown above. Any party may change its address for
notices under this Agreement by giving formal written notice to the other
parties, specifying that the purpose of the notice is to change the party's
address. To the extent permitted by applicable law, if there is more than one
Borrower, notice to any Borrower will constitute notice to all Borrowers. For
notice purposes, Borrower will keep Lender informed at all times of Borrower's
current address(es).
Severability. If a court of competent jurisdiction finds any provision of this
Agreement to be invalid or unenforceable as to any person or circumstance, such
finding shall not render that provision invalid or unenforceable as to any
other persons or circumstances. If feasible, any such offending provision
shall be deemed to be modified to be within the limits of enforceability or
validity; however, if the offending provision cannot be so modified, it shall
be stricken and all other provisions of this Agreement in all other respects
shall remain valid and enforceable.
Subsidiaries and Affiliates of Borrower. To the extent the context of any
provisions of this Agreement makes it appropriate, including without limitation
any representation, warranty or covenant, the word "Borrower" as used herein
shall include all subsidiaries and affiliates of Borrower. Notwithstanding the
foregoing however, under no circumstances shall this Agreement be construed to
require Lender to make any Loan or other financial accommodation to any
subsidiary or affiliate of Borrower.
Successors and Assigns. All covenants and agreements contained by or on behalf
of Borrower shall bind its successors and assigns and shall inure to the
benefit of Lender, its successors and assigns. Borrower shall not, however,
have the right to assign its rights under this Agreement or any interest
therein, without the prior written consent of Lender.
Survival. All warranties, representations, and covenants made by Borrower in
this Agreement or in any certificate or other instrument delivered by Borrower
to Lender under this Agreement shall be considered to have been relied upon by
Lender and will survive the making of the Loan and delivery to Lender of the
Related Documents, regardless of any investigation made by Lender or on
Lender's behalf.
Time Is of the Essence. Time is of the essence in the performance of this
Agreement.
Waiver. Lender shall not be deemed to have waived any rights under this
Agreement unless such waiver is given in writing and signed by Lender. No
delay or omission on the part of Lender in exercising any right shall operate
as a waiver of such right or any other right. A waiver by Lender of a
provision of this Agreement shall not prejudice or constitute a waiver of
Lender's right otherwise to demand strict compliance with that provision or any
other provision of this Agreement. No prior waiver by Lender, nor any course
of dealing between Lender and Borrower, or between Lender and any Grantor,
shall constitute a waiver of any of Lender's rights or of any obligations of
Borrower or of any Grantor as to any future transactions. Whenever the consent
of Lender is required under this Agreement, the granting of such consent by
Lender in any instance shall not constitute continuing consent in subsequent
instances where such consent is required, and in all cases such consent may be
granted or withheld in the sole discretion of Lender.
17
<PAGE>
BORROWER ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS LOAN AGREEMENT, AND
BORROWER AGREES TO ITS TERMS. THIS AGREEMENT IS DATED AS OF DECEMBER 15, 1997.
BORROWER:
DOWNTOWN WEB, INC. DBA AUTOWEB.COM
By: /s/ Sam Hedgpeth
----------------------------------------------------
Sam Hedgpeth, Vice President/Chief Financial Officer
LENDER:
CivicBank of Commerce
By: /s/ William S. Keller
----------------------------------------------------
Authorized Officer
18
<PAGE>
COMMERCIAL SECURITY AGREEMENT
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Principal Loan Date Maturity Loan No. Call Collateral Account Officer Initials
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$1,250,000.00 12-15-1997 11-30-1998 182000339 401 06 WSK
- ------------------------------------------------------------------------------------------------------------------------------------
References in the shaded area are for Lender's use only and do not limit the applicability of this document to any particular loan
or item.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
Borrower: DOWNTOWN WEB, INC. DBA AUTOWEB.COM Lender: CivicBank of Commerce
3270 Jay Street Fremont Office
Santa Clara, CA 95054 2201 Walnut Avenue, Suite 100
Fremont, CA 94538
=================================================================================================
</TABLE>
THIS COMMERCIAL SECURITY AGREEMENT is entered into between DOWNTOWN WEB, INC.
DBA AUTOWEB.COM (referred to below as "Grantor"); and CivicBank of Commerce
(referred to below as "Lender"). For valuable consideration, Grantor grants to
Lender a security interest in the Collateral to secure the Indebtedness and
agrees that Lender shall have the rights stated in this Agreement with respect
to the Collateral, in addition to all other rights which Lender may have by law.
DEFINITIONS. The following words shall have the following meanings when used in
this Agreement. Terms not otherwise defined in this Agreement shall have the
meanings attributed to such terms in the Uniform Commercial Code. All
references to dollar amounts shall mean amounts in lawful money of the United
States of America.
Agreement. The word "Agreement" means this Commercial Security Agreement,
as this Commercial Security Agreement may be amended or modified from time
to time, together with all exhibits and schedules attached to this
Commercial Security Agreement from time to time.
Collateral. The word "Collateral" means the following described property
of Grantor, whether now owned or hereafter acquired, whether now existing
or hereafter arising, and wherever located:
All accounts, chattel paper, inventory, equipment and general
intangibles, together with the following specifically described
property: furniture
In addition, the word "Collateral" includes all the following, whether now
owned or hereafter acquired, whether now existing or hereafter arising, and
wherever located:
(a) All attachments, accessions, accessories, tools, parts, supplies,
increases, and additions to and all replacements of and substitutions
for any property described above.
(b) All products and produce of any of the property described in this
Collateral section.
19
<PAGE>
(c) All accounts, general intangibles, instruments, rents, monies,
payments, and all other rights, arising out of a sale, lease, or other
disposition of any of the property described in this Collateral
section.
(d) All proceeds (including insurance proceeds) from the sale,
destruction, loss, or other disposition of any of the property
described in this Collateral section.
(e) All records and data relating to any of the property described in
this Collateral section, whether in the form of a writing, photograph,
microfilm, microfiche, or electronic media, together with all of
Grantor's right, title, and interest in and to all computer software
required to utilize, create, maintain, and process any such records or
data on electronic media.
Event of Default. The words "Event of Default" mean and include without
limitation any of the Events of Default set forth below in the section
titled "Events of Default."
Grantor. The word "Grantor" means DOWNTOWN WEB, INC. DBA AUTOWEB.COM, its
successors and assigns.
Guarantor. The word "Guarantor" means and includes without limitation each
and all of the guarantors, sureties, and accommodation parties in
connection with the Indebtedness.
Indebtedness. The word "Indebtedness" means the indebtedness evidenced by
the Note, including all principal and interest, together with all other
indebtedness and costs and expenses for which Grantor is responsible under
this Agreement or under any of the Related documents.
Lender. The word "Lender" means CivicBank of Commerce, its successors and
assigns.
Note. The word "Note" means the note or credit agreement dated December
15, 1997, in the principal amount of $1,250,000.00 from DOWNTOWN WEB, INC.
DBA AUTOWEB.COM to Lender, together with all renewals of, extensions of,
modifications of, refinancings of, consolidations of and substitutions for
the note or credit agreement.
Related Documents. The words "Related Documents" mean and include without
limitation all promissory notes, credit agreements, loan agreements,
environmental agreements, guaranties, security agreements, mortgages, deeds
of trust, and all other instruments, agreements and documents, whether now
or hereafter existing, executed in connection with the Indebtedness.
RIGHT OF SETOFF. Grantor hereby grants Lender a contractual possessory security
interest in and hereby assigns, conveys, delivers, pledges, and transfers all of
Grantor's right, title and interest in and to Grantor's accounts with Lender
(whether checking, savings, or some other account), including all accounts held
jointly with someone else and all accounts Grantor may open in the future,
excluding, however, all IRA and Keogh accounts, and all trust accounts for
20
<PAGE>
which the grant of a security interest would be prohibited by law. Grantor
authorizes Lender, to the extent permitted by applicable law, to charge or
setoff all Indebtedness against any and all such accounts.
OBLIGATIONS OF GRANTOR. Grantor warrants and covenants to Lender as follows:
Perfection of Security Interest. Grantor agrees to execute such financing
statements and to take whatever other actions are required by Lender to
perfect and continue Lender's security interest in the Collateral. Upon
request of Lender, Grantor will deliver to Lender any and all of the
documents evidencing or constituting the Collateral, and Grantor will note
Lender's interest upon any and all chattel paper if not delivered to Lender
for possession by Lender. Grantor hereby appoints Lender as its
irrevocable attorney-in-fact for the purpose of executing any documents
necessary to perfect or to continue the security interest granted in this
Agreement. Lender may at any time, and without further authorization from
Grantor, file a carbon, photographic or other reproduction of any financing
statement or of this Agreement for use as a financing statement. Grantor
will reimburse Lender for all expenses for the perfection and the
continuation of the perfection of Lender's security interest in the
Collateral. Grantor promptly will notify Lender before any change in
Grantor's name including any change to the assumed business names of
Grantor. This is a continuing Security Agreement and will continue in
effect even though all or any part of the Indebtedness is paid in full and
even though for a period of time Grantor may not be indebted to Lender.
No Violation. The execution and delivery of this Agreement will not
violate any law or agreement governing Grantor or to which Grantor is a
party, and its certificate or articles of incorporation and bylaws do not
prohibit any term or condition of this Agreement.
Enforceability of Collateral. To the extent the Collateral consists of
accounts, chattel paper, or general intangibles, the Collateral is
enforceable in accordance with its terms, is genuine, and complies with
applicable laws concerning form, content and manner of preparation and
execution, and all persons appearing to be obligated on the Collateral have
authority and capacity to contract and are in fact obligated as they appear
to be on the Collateral. At the time any account becomes subject to a
security interest in favor of Lender, the account shall be a good and valid
account representing an undisputed, bona fide indebtedness incurred by the
account debtor, for merchandise held subject to delivery instructions or
theretofore shipped or delivered pursuant to a contract of sale, or for
services theretofore performed by Grantor with or for the account debtor;
there shall be no setoffs or counterclaims against any such account; and no
agreement under which any deductions or discounts may be claimed shall have
been made with the account debtor except those disclosed to Lender in
writing.
Location of the Collateral. Grantor, upon request of Lender, will deliver
to Lender in form satisfactory to Lender a schedule of real properties and
Collateral locations relating to Grantor's operations, including without
limitation the following: (a) all real property owned or being purchased
by Grantor; (b) all real property being rented or leased by
21
<PAGE>
Grantor; (c) all storage facilities owned, rented, leased, or being used by
Grantor; and (d) all other properties where Collateral is or may be
located. Except in the ordinary course of its business, Grantor shall not
remove the Collateral from its existing locations without the prior written
consent of Lender.
Removal of Collateral. Grantor shall keep the Collateral (or to the extent
the Collateral consists of intangible property such as accounts, the
records concerning the Collateral) at Grantor's address shown above, or at
such other locations as are acceptable to Lender. Except in the ordinary
course of its business, including the sales of inventory, Grantor shall not
remove the Collateral from its existing locations without the prior written
consent of Lender. To the extent that the Collateral consists of vehicles,
or other titled property, Grantor shall not take or permit any action which
would require application for certificates of title for the vehicles
outside the State of California, without the prior written consent of
Lender.
Transactions Involving Collateral. Except for inventory sold or accounts
collected in the ordinary course of Grantor's business, Grantor shall not
sell, offer to sell, or otherwise transfer or dispose of the Collateral.
While Grantor is not in default under this Agreement, Grantor may sell
inventory, but only in the ordinary course of its business and only to
buyers who qualify as a buyer in the ordinary course of business. A sale
in the ordinary course of Grantor's business does not include a transfer in
partial or total satisfaction of a debt or any bulk sale. Grantor shall
not pledge, mortgage, encumber or otherwise permit the Collateral to be
subject to any lien, security interest, encumbrance, or charge, other than
the security interests provided for in this Agreement, without the prior
written consent of Lender. This includes security interest even if junior
in right to the security interest granted under this Agreement. Unless
waived by Lender, all proceeds from any disposition of the Collateral (for
whatever reason) shall be held in trust for Lender and shall not be
commingled with any other funds; provided however, this requirement shall
not constitute consent by Lender to any sale or other disposition. Upon
receipt, Grantor shall immediately deliver any such proceeds to Lender.
Title. Grantor represents and warrants to Lender that it holds good and
marketable title to the Collateral, free and clear of all liens and
encumbrances except for the lien of this Agreement. No financing statement
covering any of the Collateral is on file in any public office other than
those which reflect the security interest created by this Agreement or to
which Lender has specifically consented. Grantor shall defend Lender's
rights in the Collateral against the claims and demands of all other
persons.
Collateral Schedules and Locations. As often as Lender shall require, and
insofar as the Collateral consists of accounts and general intangibles,
Grantor shall deliver to Lender schedules of such Collateral, including
such information as Lender may require, including without limitation names
and addresses of account debtors and agings of accounts and general
intangibles. Insofar as the Collateral consists of inventory and
equipment, Grantor shall deliver to Lender, as often as Lender shall
require, such lists, descriptions, and designations of such Collateral as
Lender may require to identify the
22
<PAGE>
nature, extent, and location of such Collateral. Such information shall be
submitted for Grantor and each of its subsidiaries or related companies.
Maintenance and Inspection of Collateral. Grantor shall maintain all
tangible Collateral in good condition and repair. Grantor will not commit
or permit damage to or destruction of the Collateral or any part of the
Collateral. Lender and its designated representatives and agents shall
have the right at all reasonable times to examine, inspect, and audit the
Collateral wherever located. Grantor shall immediately notify Lender of
all cases involving the return, rejection, repossession, loss or damage of
or to any Collateral; of any request for credit or adjustment or of any
other dispute arising with respect to the Collateral; and generally of all
happenings and events affecting the Collateral for the value or the amount
of the Collateral.
Taxes, Assessments and Liens. Grantor will pay when due all taxes,
assessments and liens upon the Collateral, its use or operation, upon this
Agreement, upon any promissory note or notes evidencing the Indebtedness or
upon any of the other Related Documents. Grantor may withhold any such
payment or may elect to contest any lien if Grantor is in good faith
conducting an appropriate proceeding to contest the obligation to pay and
so long as Lender's interest in the Collateral is not jeopardized in
Lender's sole opinion. If the Collateral is subjected to a lien which is
not discharged within fifteen (15) days, Grantor shall deposit with Lender
cash, a sufficient corporate surety bond or other security satisfactory to
Lender in an amount adequate to provide for the discharge of the lien plus
any interest, costs, attorneys' fees or other charges that could accrue as
a result of foreclosure or sale of the Collateral. In any contest Grantor
shall defend itself and Lender and shall satisfy any final adverse judgment
before enforcement against the Collateral. Grantor shall name Lender as an
additional obligee under any surety bond furnished in the contest
proceedings.
Compliance With Governmental Requirements. Grantor shall comply promptly
with all laws, ordinances, rules and regulations of all governmental
authorities, now or hereafter in effect, applicable to the ownership,
production, disposition, or use of the Collateral. Grantor may contest in
good faith any such law, ordinance or regulation and withhold compliance
during any proceeding, including appropriate appeals, so long as Lender's
interest in the Collateral, in Lender's opinion, is not jeopardized.
Hazardous Substances. Grantor represents and warrants that the Collateral
never has been, and never will be so long as this Agreement remains a lien
on the Collateral, used for the generation, manufacture, storage,
transportation, treatment, disposal, release or threatened release of any
hazardous waste or substance, as those terms are defined in the
Comprehensive Environmental Response, Compensation, and Liability Act of
1980, as amended, 42 U.S.C. Section 9601, et seq. ("CERCLA"), the Superfund
Amendments and Reauthorization Act of 1986, Pub. L. No. 99-499 ("SARA"),
the Hazardous Materials Transportation Act, 49 U.S.C. Section 1801, et
seq., the Resource Conservation and Recovery Act, 42 U.S.C. Section 6901,
et seq., Chapters 6.5 through 7.7 of Division 20 of the California Health
and Safety Code, Section 25100, et seq., or other applicable state
23
<PAGE>
or Federal laws, rules or regulations, adopted pursuant to any of the
foregoing. The terms "hazardous waste" and "hazardous substance" shall also
include, without limitation, petroleum and petroleum by-products or any
fraction thereof and asbestos. The representations and warranties contained
herein are based on Grantor's due diligence in investigating the Collateral
for hazardous wastes and substances. Grantor hereby (a) releases and waives
any future claims against Lender for indemnity or contribution in the event
Grantor becomes liable for cleanup or other costs under any such laws, and
(b) agrees to indemnify and hold harmless Lender against any and all claims
and losses resulting from a breach of this provision of this Agreement.
This obligation to indemnify shall survive the payment of the Indebtedness
and the satisfaction of this Agreement.
Maintenance of Casualty Insurance. Grantor shall procure and maintain all
risks insurance, including without limitation fire, theft and liability
coverage together with such other insurance as Lender may require with
respect to the Collateral, in form, amounts, coverages and basis reasonably
acceptable to Lender and issued by a company or companies reasonably
acceptable to Lender. Grantor, upon request of Lender, will deliver to
Lender from time to time the policies or certificates of insurance in form
satisfactory to Lender, including stipulations that coverages will not be
cancelled or diminished without at least thirty (30) days' prior written
notice to Lender and not including any disclaimer of the insurer's
liability for failure to give such a notice. Each insurance policy also
shall include an endorsement providing that coverage in favor of Lender
will not be impaired in any way by any act, omission or default of Grantor
or any other person. In connection with all policies covering assets in
which Lender holds or is offered a security interest, Grantor will provide
Lender with such loss payable or other endorsements as Lender may require.
If Grantor at any time fails to obtain or maintain any insurance as
required under this Agreement, Lender may (but shall not be obligated to)
obtain such insurance as Lender deems appropriate, including if it so
chooses "single interest insurance," which will cover only Lender's
interest in the Collateral.
Application of Insurance Proceeds. Grantor shall promptly notify Lender of
any loss or damage to the Collateral. Lender may make proof of loss if
Grantor fails to do so within fifteen (15) days of the casualty. All
proceeds of any insurance on the Collateral, including accrued proceeds
thereon, shall be held by Lender as part of the Collateral. If Lender
consents to repair or replacement of the damaged or destroyed Collateral,
Lender shall, upon satisfactory proof of expenditure, pay or reimburse
Grantor from the proceeds for the reasonable cost of repair or restoration.
If Lender does not consent to repair or replacement of the Collateral,
Lender shall retain a sufficient amount of the proceeds to pay all of the
Indebtedness, and shall pay the balance to Grantor. Any proceeds which
have not been disbursed within six (6) months after their receipt and which
Grantor has not committed to the repair or restoration of the Collateral
shall be used to prepay the Indebtedness.
Insurance Reserves. Lender may require Grantor to maintain with Lender
reserves for payment of insurance premiums, which reserves shall be created
by monthly payments from Grantor of a sum estimated by Lender to be
sufficient to produce, at least fifteen (15) days before the premium due
date, amounts at least equal to the insurance premiums to be paid. If
fifteen
24
<PAGE>
(15) days before payment is due, the reserve funds are insufficient,
Grantor shall upon demand pay any deficiency to Lender. The reserve funds
shall be held by Lender as a general deposit and shall constitute a non-
interest-bearing account which Lender may satisfy by payment of the
insurance premiums required to be paid by Grantor as they become due.
Lender does not hold the reserve funds in trust for Grantor, and Lender is
not the agent of Grantor for payment of the insurance premiums required to
be paid by Grantor. The responsibility for payment of premiums shall remain
Grantor's sole responsibility.
Insurance Reports. Grantor, upon request of Lender, shall furnish to
Lender reports on each existing policy of insurance showing such
information as Lender may reasonably request including the following: (a)
the name of the insurer; (b) the risks insured; (c) the amount of the
policy; (d) the property insured; (e) the then current value on the basis
of which insurance has been obtained and the manner of determining that
value; and (f) the expiration date of the policy. In addition, Grantor
shall upon request by Lender (however not more often than annually) have an
independent appraiser satisfactory to Lender determine, as applicable, the
cash value or replacement cost of the Collateral.
GRANTOR'S RIGHT TO POSSESSION AND TO COLLECT ACCOUNTS. Until default and except
as otherwise provided below with respect to accounts, Grantor may have
possession of the tangible personal property and beneficial use of all the
Collateral and may use it in any lawful manner not inconsistent with this
Agreement or the Related Documents, provided that Grantor's right to possession
and beneficial use shall not apply to any Collateral where possession of the
Collateral by Lender is required by law to perfect Lender's security interest in
such Collateral. Until otherwise notified by Lender, Grantor may collect any of
the Collateral consisting of accounts. At any time and even though no Event of
Default exists, Lender may exercise its rights to collect the accounts and to
notify account debtors to make payments directly to Lender for application to
the Indebtedness. If Lender at any time has possession of any Collateral,
whether before or after an Event of Default, Lender shall be deemed to have
exercised reasonable care in the custody and preservation of the Collateral if
Lender takes such action for that purpose as Grantor shall request or as Lender,
in Lender's sole discretion shall deem appropriate under the circumstances, but
failure to honor any request by Grantor shall not of itself be deemed to be a
failure to exercise reasonable care. Lender shall not be required to take any
steps necessary to preserve any rights in the Collateral against prior parties,
nor to protect, preserve or maintain any security interest given to secure the
Indebtedness.
EXPENDITURES BY LENDER. If not discharged or paid when due, Lender may (but
shall not be obligated to) discharge or pay any amounts required to be
discharged or paid by Grantor under this Agreement, including without limitation
all taxes, liens, security interests, encumbrances, and other claims, at any
time levied or placed on the Collateral. Lender also may (but shall not be
obligated to) pay all costs for insuring, maintaining and preserving the
Collateral. All such expenditures incurred or paid by Lender for such purposes
will then bear interest at the rate charged under the Note from the date
incurred or paid by Lender to the date of repayment by Grantor. All such
expenses shall become a part of the Indebtedness and, at
25
<PAGE>
Lender's option, will (a) be payable on demand, (b) be added to the balance of
the Note and be apportioned among and be payable with any installment payments
to become due during either (i) the term of any applicable insurance policy or
(ii) the remaining term of the Note, or (c) be treated as a balloon payment
which will be due and payable at the Note's maturity. This Agreement also will
secure payment for these amounts. Such right shall be in addition to all other
rights and remedies to which Lender may be entitled upon the occurrence of an
Event of Default.
EVENTS OF DEFAULT. Each of the following shall constitute an Event of Default
under this Agreement.
Default on Indebtedness. Failure of Grantor to make any payment when on
the Indebtedness.
Default in favor of Third Parties. Should Borrower or any Grantor default
under any loan, extension of credit, security agreement, purchase or sales
agreement, or any other agreement, in favor of any other creditor or person
that may materially affect any of Borrower's property or Borrower's or any
Grantor's ability to repay the Loans or perform their respective
obligations under this Agreement or any of the Related Documents.
False Statements. Any warranty, representation or statement made or
furnished to Lender by or on behalf of Grantor under this Agreement, the
Note or the Related Documents is false or misleading in any material
respect, either now or at the time made or furnished.
Defective Collateralization. This Agreement or any of the Related
Documents ceases to be in full force and effect (including failure of any
collateral documents to create valid and perfected security interest or
lien) at any time and for any reason.
Insolvency. The dissolution or termination of Grantor's existence as a
going business, the insolvency of Grantor, the appointment of a receiver
for any part of Grantor's property, any assignment for the benefit of
creditors, any type of creditor workout, or the commencement of any
proceeding under any bankruptcy or insolvency laws by or against Grantor.
Creditor or Forfeiture Proceedings. Commencement of foreclosure or
forfeiture proceedings, whether by judicial proceeding, self-help,
repossession or any other method, by any creditor of Grantor or by any
governmental agency against the Collateral or any other collateral securing
the Indebtedness. This includes a garnishment of any of Grantor's deposit
accounts with Lender.
Events Affecting Guarantor. Any of the preceding events occurs with
respect to any Guarantor of any of the Indebtedness or such Guarantor dies
or becomes incompetent.
Adverse Change. A material adverse change occurs in Grantor's financial
condition, or Lender believes the prospect of payment or performance of the
Indebtedness is impaired.
26
<PAGE>
RIGHTS AND REMEDIES ON DEFAULT. If an Event of Default occurs under this
Agreement, at any time thereafter, Lender shall have all the rights of a secured
party under the California Uniform Commercial Code. In addition and without
limitation, Lender may exercise any one or more of the following rights and
remedies:
Accelerate Indebtedness. Lender may declare the entire Indebtedness,
including any prepayment penalty which Grantor would be required to pay,
immediately due and payable, without notice.
Assemble Collateral. Lender may require Grantor to deliver to Lender all
or any portion of the Collateral and any and all certificates of title and
other documents relating to the Collateral. Lender may require Grantor to
assemble the Collateral and make it available to Lender at a place to be
designated by Lender. Lender also shall have full power to enter upon the
property of Grantor to take possession of and remove the Collateral. If
the Collateral contains other goods not covered by this Agreement at the
time of repossession, Grantor agrees Lender may take such other goods,
provided that Lender makes reasonable efforts to return them to Grantor
after repossession.
Sell the Collateral. Lender shall have full power to sell, lease,
transfer, or otherwise deal with the Collateral or proceeds thereof in its
own name or that of Grantor. Lender may sell the Collateral at public
auction or private sale. Unless the Collateral threatens to decline
speedily in value or is of a type customarily sold on a recognized market,
Lender will give Grantor reasonable notice of the time after which any
private sale or any other intended disposition of the Collateral is to be
made. The requirements of reasonable notice shall be met if such notice is
given at least ten (10) days, or such lesser time as required by state law,
before the time of the sale or disposition. All expenses relating to the
disposition of the Collateral, including without limitation the expenses of
retaking, holding, insuring, preparing for sale and selling the Collateral,
shall become a part of the Indebtedness secured by this Agreement and shall
be payable on demand, with interest at the Note rate from date of
expenditure until repaid.
Appoint Receiver. To the extent permitted by applicable law, Lender shall
have the following rights and remedies regarding the appointment of a
receiver: (a) Lender may have a receiver appointed as a matter of right,
(b) the receiver may be an employee of Lender and may serve without bond,
and (c) all fees of the receiver and his or her attorney shall become part
of the Indebtedness secured by this Agreement and shall be payable on
demand, with interest at the Note rate from date of expenditure until
repaid.
Collect Revenues, Apply Accounts. Lender, either itself or through a
receiver, may collect the payments, rents, income, and revenues from the
Collateral. Lender may at any time in its discretion transfer any
Collateral into its own name or that of its nominee and receive the
payments, rents, income, and revenues therefrom and hold the same as
security for the Indebtedness or apply it to payment of the Indebtedness in
such order of preference as Lender may determine. Insofar as the
Collateral consists of accounts, general intangibles, insurance policies,
instruments, chattel paper, choses in action, or
27
<PAGE>
similar property, Lender may demand, collect, receipt for, settle,
compromise, adjust, sue for, foreclose, or realize on the Collateral as
Lender may determine, whether or not Indebtedness or Collateral is then
due. For these purposes Lender may, on behalf of and in the name of
Grantor, receive, open and dispose of mail addressed to Grantor; change any
address to which mail and payments are to be sent; and endorse notes,
checks, drafts, money orders, documents of title, instruments and items
pertaining to payment, shipment, or storage of any Collateral. To
facilitate collection, Lender may notify account debtors and obligors on
any Collateral to make payments directly to Lender.
Obtain Deficiency. If Lender chooses to sell any or all of the Collateral,
Lender may obtain a judgment against Grantor for any deficiency remaining
on the Indebtedness due to Lender after application of all amounts received
from the exercise of the rights provided in this Agreement. Grantor shall
be liable for a deficiency even if the transaction described in this
subsection is a sale of accounts or chattel paper.
Other Rights and Remedies. Lender shall have all the rights and remedies
of a secured creditor under the provisions of the Uniform Commercial Code,
as may be amended from time to time In addition, Lender shall have and may
exercise any or all other rights and remedies it may have available at law,
in equity, or otherwise.
Cumulative Remedies. All of Lender's rights and remedies, whether
evidenced by this Agreement or the Related Documents or by any other
writing, shall be cumulative and may be exercised singularly or
concurrently. Election by Lender to pursue any remedy shall not exclude
pursuit of any other remedy, and an election to make expenditures or to
take action to perform an obligation of Grantor under this Agreement, after
Grantor's failure to perform, shall not affect Lender's right to declare a
default and to exercise its remedies.
MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of
this Agreement:
Amendments. This Agreement, together with any Related Documents,
constitutes the entire understanding and agreement of the parties as to the
matters set forth in this Agreement. No alternation of or amendment to
this Agreement shall be effective unless given in writing and signed by the
party or parties sought to be charged or bound by the alteration or
amendment.
Applicable Law. This Agreement has been delivered to Lender and accepted
by Lender in the State of California. If there is a lawsuit, Grantor
agrees upon Lender's request to submit to the jurisdiction of the courts of
Alameda County, the State of California. Lender and Grantor hereby waive
the right to any jury trial in any action, proceeding, or counterclaim
brought by either Lender or Grantor against the other. Subject to the
provisions on arbitration, this Agreement shall be governed by and
construed in accordance with the laws of the State of California.
28
<PAGE>
Arbitration. Lender and Grantor agree that all disputes, claims and
controversies between them, whether individual, joint, or class in nature,
arising from this Agreement or otherwise, including without limitation
contract and tort disputes, shall be arbitrated pursuant to the Rules of
the American Arbitration Association, upon request of either party. No act
to take or dispose of any Collateral shall constitute a waiver of this
arbitration agreement or be prohibited by this arbitration agreement. This
includes, without limitation, obtaining injunctive relief or a temporary
restraining order; invoking a power of sale under any deed of trust or
mortgage; obtaining a writ of attachment or imposition of a receiver; or
exercising any rights relating to personal property, including taking or
disposing of such property with or without judicial process pursuant to
Article 9 of the Uniform Commercial Code. Any disputes, claims, or
controversies concerning the lawfulness or reasonableness of any act, or
exercise of any right, concerning any Collateral, including any claim to
rescind, reform, or otherwise modify any agreement relating to the
Collateral, shall also be arbitrated, provided however that no arbitrator
shall have the right or the power to enjoin or restrain any act of any
party. Lender and Grantor agree that in the event of an action for
judicial foreclosure pursuant to California Code of Civil Procedure Section
726, or any similar provision in any other state, the commencement of such
an action will not constitute a waiver of the right to arbitrate and the
court shall refer to arbitration as much of such action, including
counterclaims, as lawfully may be referred to arbitration. Judgement upon
any award rendered by any arbitrator may be entered in any court having
jurisdiction. Nothing in this Agreement shall preclude any party from
seeking equitable relief from a court of competent jurisdiction. The
statute of limitations, estoppel, waiver, laches, and similar doctrines
which would otherwise be applicable in an action brought by a party shall
be applicable in any arbitration proceeding, and the commencement of an
arbitration proceeding shall be deemed the commencement of an action for
these purposes. The Federal Arbitration Act shall apply to the
construction, interpretation, and enforcement of this arbitration
provision.
Attorneys' Fees; Expenses. Grantor agrees to pay upon demand all of
Lender's costs and expenses, including attorneys' fees and Lender's legal
expenses, incurred in connection with the enforcement of this Agreement.
Lender may pay someone else to help enforce this Agreement, and Grantor
shall pay the costs and expenses of such enforcement. Costs and expenses
include Lender's attorneys' fees and legal expenses whether or not there is
a lawsuit, including attorneys' fees and legal expenses for bankruptcy
proceedings (and including efforts to modify or vacate any automatic stay
or injunction), appeals, and any anticipated post-judgment collection
services. Grantor also shall pay all court costs and such additional fees
as may be directed by the court.
Caption Headings. Caption headings in this Agreement are for convenience
purposes only and are not to be used to interpret or define the provisions
of this Agreement.
Multiple Parties; Corporate Authority. All obligations of Grantor under
this Agreement shall be joint and several, and all references to Grantor
shall mean each and
29
<PAGE>
every Grantor. This means that each of the persons signing below is
responsible for all obligations in this Agreement.
Notices. All notices required to be given under this Agreement shall be
given in writing, may be sent by telefacsimile (unless otherwise required
by law), and shall be effective when actually delivered or when deposited
with a nationally recognized overnight courier or deposited in the United
States mail, first class, postage prepaid, addressed to the party to whom
the notice is to be given at the address shown above. Any party may change
its address for notices under this Agreement by giving formal written
notice to the other parties, specifying that the purpose of the notice is
to change the party's address. To the extent permitted by applicable law,
if there is more than one Grantor, notice to any Grantor will constitute
notice to all Grantors. For notice purposes, Grantor will keep Lender
informed at all times of Grantor's current address(es).
Power of Attorney. Grantor hereby appoints Lender as its true and lawful
attorney-in-fact, irrevocably, with full power of substitution to do the
following: (a) to demand, collect, receive, receipt for, sue and recover
all sums of money or other property which may now or hereafter become due,
owing or payable from the Collateral; (b) to execute, sign and endorse any
and all claims, instruments, receipts, checks, drafts or warrants issued in
payment for the Collateral; (c) to settle or compromise any and all claims
arising under the Collateral, and, in the place and stead of Grantor, to
execute and deliver its release and settlement for the claim; and (d) to
file any claim or claims or to take any action or institute or take part in
any proceedings, either in its own name or in the name of Grantor, or
otherwise, which in the discretion of Lender may seem to be necessary or
advisable. This power is given as security for the Indebtedness, and the
authority hereby conferred is and shall be irrevocable and shall remain in
full force and effect until renounced by Lender.
Preference Payments. Any monies Lender pays because of an asserted
preference claim in Borrower's bankruptcy will become a part of the
Indebtedness and, at Lender's option, shall be payable by Borrower as
provider above in the "EXPENDITURES BY LENDER" paragraph.
Severability. If a court of competent jurisdiction finds any provision of
this Agreement to be invalid or unenforceable as to any person or
circumstance, such finding shall not render that provision invalid or
unenforceable as to any other persons or circumstances. If feasible, any
such offending provision shall be deemed to be modified to be within the
limits of enforceability or validity; however, if the offending provision
cannot be so modified, it shall be stricken and all other provisions of
this Agreement in all other respects shall remain valid and enforceable.
Successor Interests. Subject to the limitations set forth above on
transfer of the Collateral, this Agreement shall be binding upon and inure
to the benefit of the parties, their successors and assigns.
30
<PAGE>
Waiver. Lender shall not be deemed to have waived any rights under this
Agreement unless such waiver is given in writing and signed by Lender. No
delay or omission on the part of Lender in exercising any right shall
operate as a waiver of such right or any other right. A waiver by Lender
of a provision of this Agreement shall not prejudice or constitute a waiver
of Lender's right otherwise to demand strict compliance with that provision
or any other provision of this Agreement. No prior waiver by Lender, nor
any course of dealing between Lender and Grantor, shall constitute a waiver
of any of Lender's rights or of any of Grantor's obligations as to any
future transactions. Whenever the consent of Lender is required under this
Agreement, the granting of such consent by Lender in any instance shall not
constitute continuing consent to subsequent instances where such consent is
required and in all cases such consent may be granted or withheld in the
sole discretion of Lender.
Waiver of Co-obligor's Rights. If more than one person is obligated for
the Indebtedness, Borrower irrevocably waives, disclaims and relinquishes
all claims against such other person which Borrower has or would otherwise
have by virtue of payment of the Indebtedness or any part thereof,
specifically including but not limited to all rights of indemnity,
contribution or exoneration.
GRANTOR ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS COMMERCIAL SECURITY
AGREEMENT, AND GRANTOR AGREES TO ITS TERMS. THIS AGREEMENT IS DATED DECEMBER
15, 1997.
GRANTOR:
DOWNTOWN WEB, INC. DBA AUTOWEB.COM
By: /s/ Sam Hedgpeth
-----------------------------------------------------
Sam Hedgpeth, Vice President/Chief Financial Officer
31
<PAGE>
EXHIBIT 10.15
SENIOR LOAN AND SECURITY AGREEMENT NO. 0146
THIS SENIOR LOAN AND SECURITY AGREEMENT NO. 0146 (this "Security Agreement") is
dated as of March 20, 1998 between DOWNTOWN WEB, INC. DBA AUTOWEB.COM, a
California corporation ("Borrower") and PHOENIX LEASING INCORPORATED, a
California corporation ("Lender").
RECITALS
A. Borrower desires to borrow from Lender in one or more borrowings an
amount not to exceed $750,000 in the aggregate, and Lender desires to loan,
subject to the terms and conditions herein set forth, such amount to Borrower
(each, a "Loan" and collectively, the "Loans"). Such borrowings shall be
evidenced by one or more Senior Secured Promissory Notes (each, a "Note" and
collectively, the "Notes"), in the form attached hereto.
B. As security for Borrower's obligations to Lender under this Security
Agreement, the Notes and any other agreement between Borrower and Lender,
Borrower will grant to Lender hereunder a first priority security interest in
certain of its equipment, machinery, fixtures, other items and intangibles,
including but not limited to high end PC's, workstations, furniture and office
equipment and also certain custom use equipment, installation and delivery
costs, purchase tax, toolings, software and other items generally considered
fungible or expendable ("Soft Costs") whether now owned by Borrower or hereafter
acquired, and all substitutions and replacements of and additions, improvements,
accessions and accumulations to said equipment, machinery and fixtures and other
items, together with all rents, issues, income, profits and proceeds therefrom
(collectively, the "Collateral") which is described on the Note attached hereto
or any subsequently-executed Note entered into by Lender and Borrower and which
incorporates this Security Agreement by reference.
NOW, THEREFORE, THE PARTIES AGREE AS FOLLOWS:
SECTION 1. TERM OF AGREEMENT. The term of this Security Agreement begins on
the date set forth above and shall continue thereafter and be in effect so long
as and at any time any Note entered into pursuant to this Security Agreement is
in effect. The Term and monthly payment amount payable with respect to each
item of Collateral shall be as set forth in and as stated in the respective
Note(s). The terms of each Note hereto are subject to all conditions and
provisions of this Security Agreement as it may at any time be amended. Each
Note shall constitute a separate and independent Loan and contractual obligation
of Borrower and shall incorporate the terms and conditions of this Security
Agreement and any additional provisions contained in such Note. In the event of
a conflict between the terms and conditions of this Security Agreement and any
provisions of such Note, the provisions of such Note shall prevail with respect
to such Note only.
SECTION 2. NON-CANCELABLE LOAN. This Security Agreement and each Note cannot
be canceled or terminated except as expressly provided herein. Borrower agrees
that its obligations to pay all monthly payment amounts and other sums payable
hereunder (and under any Note) and the rights of Lender and any assignee in and
to such rent and other sums, are absolute and unconditional and are not subject
to any abatement, reduction, setoff, defense, counterclaim or recoupment due or
alleged to be due to, or by reason of, any past, present or future claims which
Borrower may have against Lender, any assignee, the manufacturer or seller of
the Collateral, or against any person for any reason whatsoever.
<PAGE>
SECTION 3. LENDER COMMITMENT. (a) General Terms. Subject to the terms and
-------------
conditions of this Security Agreement and so long as no Event of Default or
event which with the giving of notice or passage of time, or both, could become
an Event of Default has occurred or is continuing, Lender hereby agrees to make
one or more senior secured Loans to Borrower, subject to the following
conditions: (i) each Loan shall be evidenced by a Note; (ii) the total
principal amount of the Loans shall not exceed $750,000 in the aggregate (the
"Commitment") provided that no more than 20% of the amount of the utilized
Commitment may be used to finance Soft Costs; (iii) at the time of each Loan, no
Event of Default or event which with the giving of notice or passage of time, or
both, could become an Event of Default shall have occurred and be continuing, as
reasonably determined by Lender, and certified by Borrower; (iv) the amount of
each Loan shall be at least $20,000 except for a final Loan which may be less
than $20,000; (v) Lender shall not be obligated to make any Loan after December
31, 1998; (vi) for each Loan, Borrower shall present to Lender a list of
proposed Collateral for approval by Lender in its sole discretion; (vii) for
each Loan, Borrower shall have provided Lender with each of the closing
documents described in Exhibit A hereto (which documents shall be in form and
substance reasonably acceptable to Lender); (viii) Borrower is performing
substantially in accordance with its business plan referred to as "Autoweb
Quarterly Income Statement" dated December 5, 1997 and "Autoweb Cash Flow thru
12/98" dated 5:07pm 2/26/98 (the "Business Plan"), as may be amended from time
to time in form and substance acceptable to Lender; (ix) there shall be no
material adverse change in Borrower's condition, financial or otherwise, that
would materially impair the ability of Borrower to meet its payment and other
obligations under this Loan (a "Material Adverse Effect") as reasonably
determined by Lender, and Borrower so certifies, from (yy) the date of the most
recent financial statements delivered by Borrower to Lender to (zz) the date of
the proposed Loan; (x) Borrower shall use the proceeds of all Loans hereunder
for working capital; (xi) at the time of each Loan, Borrower has reimbursed
Lender for all UCC filing and search costs, inspection and labeling costs, and
appraisal fees, if any; (xii) all Collateral has been marked and labeled by
Lender or Lender's agent; and (xiii) Lender has received in form and substance
acceptable to Lender: (a) Borrower's interim financial statements signed by a
financial officer of Borrower, (b) for any funding after the first $500,000,
evidence of Borrower's receipt of $5,000,000 equity no later than May 31, 1998
("Equity"); (c) for any funding prior to Borrower's receipt of Equity, evidence
of Borrower's $500,000 cash position or equivalent amount of credit line
availability; and (d) complete copies of the Borrower's audit reports for its
most recent fiscal year, which shall include at least Borrower's balance sheet
as of the close of such year, and Borrower's statement of income and retained
earnings and of changes in financial position for such year, prepared on a
consolidated basis and certified by independent public accountants. Such
certificate shall not be qualified or limited because of restricted or limited
examination by such accountant of any material portion of the company's records.
Such reports shall be prepared in accordance with generally accepted accounting
principles and practices consistently applied.
(b) The Notes. Each Loan shall be evidenced by a Note which may or may
---------
not be prepaid in whole or in part. Each Note shall bear interest and be
payable at the times and in the manner provided therein. Following payment of
the Indebtedness related to each Note, Lender shall promptly return such Note,
marked "canceled," to Borrower.
SECTION 4. SECURITY INTERESTS. (a) Borrower hereby grants to Lender a first
security interest in all Collateral; (b) This Security Agreement secures (i)
the payment of the principal of and interest on the Notes and all other sums due
thereunder and under this Security Agreement (the "Indebtedness") and (ii) the
performance by Borrower of all of its other covenants now or hereafter existing
under the Notes, this Security Agreement and any other obligation owed by
Borrower to Lender (the "Obligations").
<PAGE>
SECTION 5. BORROWER'S REPRESENTATIONS AND WARRANTIES. Borrower represents and
warrants that (a) it is in good standing under the laws of the state of its
formation, duly qualified to do business and will remain duly qualified during
the term of each Loan in each state where necessary to carry on its present
business and operations, including the jurisdiction(s) where the Collateral will
be located as specified on each Exhibit A to each Note, except where failure to
be so qualified would not have a Material Adverse Effect; (b) it has full
authority to execute and deliver this Security Agreement and the Notes and
perform the terms hereof and thereof, and this Security Agreement and the Notes
have been duly authorized, executed and delivered and constitute valid and
binding obligations of Borrower enforceable in accordance with their terms; (c)
the execution and delivery of this Security Agreement and the Notes will not
contravene any law, regulation or judgment affecting Borrower or result in any
breach of any material agreement or other instrument binding on Borrower; (d) no
consent of Borrower's shareholders or holder of any indebtedness, or filing
with, or approval of, any governmental agency or commission, which has not
already been obtained or performed, as appropriate, is a condition to the
performance of the terms of this Security Agreement or the Notes; (e) there is
no action or proceeding pending or threatened against Borrower before any court
or administrative agency which might have a Material Adverse Effect on the
business, financial condition or operations of Borrower; (f) at the time any
Loan is made hereunder, Borrower owns and will keep all of the Collateral free
and clear of all liens, claims and encumbrances, and, except for this Security
Agreement, there is no deed of trust, mortgage, security agreement or other
third party interest against any of the Collateral; (g) at the time any Loan is
made hereunder, Borrower has good and marketable title to the Collateral; (h) at
the time any Loan is made hereunder, all Collateral has been received, installed
and is ready for use and is satisfactory in all respects for the purposes of
this Security Agreement; (i) the Collateral is, and will remain at all times
under applicable law, removable personal property, which is free and clear of
any lien or encumbrance except in favor of Lender, notwithstanding the manner in
which the Collateral may be attached to any real property; (j) all credit and
financial information submitted to Lender herewith or at any other time is and
will at the time given be true and correct in all material respects; (k) the
security interest granted to Lender hereunder is a first priority security
interest; and (l)Borrower owes approximately $30,000 to Autonet, Inc. pursuant
to a certain promissory note. Borrower represents and warrants to Lender that
Borrower shall not borrow any additional funds from Autonet, Inc. after March
27, 1998. Borrower shall use its best efforts to promptly obtain an
Intercreditor Agreement from Autonet, Inc.
SECTION 6. METHOD AND PLACE OF PAYMENT. Borrower shall pay to Lender, at such
address as Lender specifies in writing, all amounts payable to it under this
Security Agreement and the Notes.
SECTION 7. LOCATION; INSPECTION; LABELS. All of the Collateral shall be
located at the address (the "Collateral Location") shown on Exhibit A to each
Note and shall not be moved without Lender's prior written consent which
location shall in all events be within the United States. All of the records
regarding the Collateral shall be located at 3270 Jay Street, Bldg. 6, Santa
Clara, CA 95054, or such other location of which Borrower has given notice to
Lender in accordance with this Security Agreement. Lender shall have the right
to inspect Collateral, including records relating thereto, and Borrower's books
and records at any time (upon reasonable notification) during regular business
hours, such books and records to be maintained in accordance with generally
accepted accounting principles. Borrower shall be responsible for all labor,
material and freight charges incurred in connection with any removal or
relocation of Collateral which is requested by Borrower and consented to by
Lender, as well as for any charges due to the installation or moving of the
Collateral. Payments under the Notes and under this Security Agreement shall
continue during any period in which the Collateral is in transit
<PAGE>
during a relocation. During Borrower's regular business hours and upon at least
two days' notice to Borrower, Lender or its agent shall mark and label
Collateral, which labels (to be provided by Lender) shall state that such
Collateral is subject to a security interest of Lender, and Borrower shall keep
such labels on the Collateral as so labeled.
SECTION 8. COLLATERAL MAINTENANCE. (a) General. Borrower will reasonably
-------
permit Lender to inspect each item of Collateral and its maintenance records
during Borrower's regular business hours. Borrower will at its sole expense
comply with all applicable laws, rules, regulations, requirements and orders
with respect to the use, maintenance, repair, condition, storage and operation
of each item of Collateral. Except as required herein, Borrower will not make
any addition or improvement to any item of Collateral that is not readily
removable without causing material damage to any item or impairing its original
value or utility. Any addition or improvement that is so required or cannot be
so removed will immediately become Collateral of Lender.
(b) Service and Repair. With respect to computer equipment, other than personal
------------------
computers, Borrower has entered into, and will maintain in effect, vendor's
standard maintenance contract or another contract satisfactory to Lender for a
period equal to the term of each Loan and extensions thereto which provides for
the maintenance of the Collateral in good condition and working order and
repairs and replacement of parts thereof, all in accordance with the terms of
such maintenance contract. Borrower shall have that Collateral certified for the
vendor's standard maintenance agreement before Lender acquires any interest in
the Collateral as provided in this Security Agreement. With respect to any other
Collateral, Borrower will at its sole expense maintain and service and repair
any damage to each item of Collateral in a manner consistent with prudent
industry practice and Borrower's own practice so that such item of Collateral is
at all times (i) in the same condition as when delivered to Borrower, except for
ordinary wear and tear, and (ii) in good operating order for the function
intended by its manufacturer's warranties and recommendations.
SECTION 9. LOSS OR DAMAGE. Borrower assumes the entire risk of loss to the
Collateral through use, operation or otherwise. Borrower hereby indemnifies and
holds harmless Lender from and against all claims, loss of Loan payments, costs,
damages, and expenses relating to or resulting from any loss, damage or
destruction of the Collateral, any such occurrence being hereinafter called a
"Casualty Occurrence." No later than the first payment date following such
Casualty Occurrence, or, if there is no such payment date, no later than thirty
(30) days after such Casualty Occurrence, Borrower shall, at its election,
either: (a) repair the Collateral returning it to good operating condition, or
(b) replace the Collateral with Collateral acceptable to Lender in its
reasonable discretion, in good condition and repair taking all steps required by
Lender to perfect Lender's first priority security interest therein and (which
replacement Collateral shall be subject to the terms of this Security
Agreement), or (c) on the first day payment is due on any Note following the
Casualty Occurrence, or if there is no such payment date, thirty (30) days after
such Casualty Occurrence, pay to Lender an amount equal to the Balance Due (as
defined below) for each lost or damaged item of Collateral. The Balance Due for
each such item is the sum of: (i) all amounts for each item which may be then
due or accrued to the payment date, plus (ii) as of such payment date, an amount
equal to the product of the fraction specified below times the sum of all
remaining payments under the respective Note, including the amount of any
mandatory or optional payment required or permitted to be paid by Borrower to
Lender at the maturity of the Note. The numerator of the fraction shall be the
collateral value (as set forth on the applicable Note) of the item and the
denominator shall be the aggregate collateral value of all items under the Note.
Upon the making of such payments, Lender shall release such item of Collateral
from its lien hereunder.
SECTION 10. INSURANCE. Borrower at its expense shall keep the Collateral
insured against all risks of physical loss for at least the replacement value of
the Collateral and in no event for less than the
<PAGE>
amount payable following a Casualty Occurrence (as provided in Section 9). Such
insurance shall provide for a loss payable endorsement to Lender and/or any
assignee of Lender. Borrower shall maintain commercial general liability
insurance, including products liability and completed operations coverage, with
respect to loss or damage for personal injury, death or property damage in an
amount not less than $2,000,000 in the aggregate, naming Lender and/or Lender's
assignee as additional insured. Such insurance shall contain insurer's agreement
to give thirty (30) days' advance written notice to Lender before cancellation
or material change of any policy of insurance. Borrower will provide Lender and
any assignee of Lender with a certificate of insurance from the insurer
evidencing Lender's or such assignee's interest in the policy of insurance. Such
insurance shall cover any Casualty Occurrence to any unit of Collateral.
Notwithstanding anything in Section 9 or this Section 10 to the contrary, this
Security Agreement and Borrower's obligations hereunder shall remain in full
force and effect with respect to any unit of Collateral which is not subject to
a Casualty Occurrence. If Borrower fails to provide or maintain insurance as
required herein, Lender shall have the right, but shall not be obligated, to
obtain such insurance. In that event, Borrower shall pay to Lender the cost
thereof.
SECTION 11. MISCELLANEOUS AFFIRMATIVE COVENANTS. So long as any portion of the
Indebtedness is unpaid and as long as any of the Obligations are outstanding
Borrower will: (a) duly pay all governmental taxes and assessments at the time
they become due and payable; provided, however, Borrower may contest the same in
good faith so long as no payment default by Borrower has occurred and is
continuing; (b) comply with all applicable material governmental laws, rules
and regulations relating to its business and the Collateral where a failure to
comply would have a Material Adverse Effect; (c) take no action to adversely
affect Lender's security interest in the Collateral as a first and prior
perfected security interest; (d) furnish Lender with its annual audited
financial statements within ninety (90) days following the end of Borrower's
fiscal year, unaudited quarterly financial statements within forty-five (45)
days after the end of each fiscal quarter, and within thirty (30) days of the
end of each month a financial statement for that month prepared by Borrower, and
including an income statement and balance sheet, all of which shall be certified
by an officer of Borrower as true and correct and shall be prepared in
accordance with generally accepted accounting principles consistently applied,
and such other information as Lender may reasonably request; and (e) promptly
(but in no event more than five (5) days after the occurrence of such event)
notify Lender of any change in Borrower's condition during the commitment period
which constitutes a Material Adverse Effect, and of the occurrence of any Event
of Default.
SECTION 12. INDEMNITIES. Borrower will protect, indemnify and save harmless
Lender and any assignees from and against all liabilities, obligations, claims,
damages, penalties, causes of action, costs and expenses (including reasonable
attorneys' fees and expenses), imposed upon or incurred by or asserted against
Lender or any assignee of Lender by Borrower (excluding, however, actions
brought by Borrower against Lender for breach of contract)or any third party by
reason of the occurrence or existence (or alleged occurrence or existence) of
any act or event relating to or caused by any portion of the Collateral, or its
purchase, acceptance, possession, use, maintenance or transportation, including
without limitation, consequential or special damages of any kind, any failure on
the part of Borrower to perform or comply with any of the terms of this Security
Agreement or any Note, claims for latent or other defects, claims for patent,
trademark or copyright infringement and claims for personal injury, death or
property damage, including those based on Lender's negligence or strict
liability in tort and excluding only those based on Lender's gross negligence or
willful misconduct. In the event that any action, suit or proceeding is brought
against Lender by reason of any such occurrence, Borrower, upon Lender's
request, will, at Borrower's expense, resist and defend such action, suit or
proceeding or cause the same to be resisted and defended by counsel designated
by Borrower and reasonably approved by
<PAGE>
Lender. Borrower's obligations under this Section 12 shall survive the payment
in full of all the Indebtedness and the performance of all Obligations with
respect to acts or events occurring or alleged to have occurred prior to the
payment in full of all the Indebtedness and the performance of all Obligations.
SECTION 13. TAXES. Borrower agrees to reimburse Lender (or pay directly if
instructed by Lender) and any assignee of Lender for, and to indemnify and hold
Lender and any assignee harmless from, all fees (including, but not limited to,
license, documentation, recording and registration fees), and all sales, use,
gross receipts, personal property, occupational, value added or other taxes,
levies, imposts, duties, assessments, charges, or withholdings of any nature
whatsoever, together with any penalties, fines, additions to tax, or interest
thereon (the foregoing collectively "Impositions"), except same as may be
attributable to Lender's income, arising at any time prior to or during the term
of any Notes or of this Security Agreement, or upon termination or early
termination of this Security Agreement and levied or imposed upon Lender
directly or otherwise by any Federal, state or local government in the United
States or by any foreign country or foreign or international taxing authority
upon or with respect to (a) the Collateral, (b) the exportation, importation,
registration, purchase, ownership, delivery, leasing, financing, possession,
use, operation, storage, maintenance, repair, return, sale, transfer of title,
or other disposition thereof, (c) the rentals, receipts, or earnings arising
from the Collateral, or any disposition of the rights to such rentals, receipts,
or earnings, (d) any payment pursuant to this Security Agreement or the Notes,
or (e) this Security Agreement, the Notes or any transaction or any part hereof
or thereof.
SECTION 14. RELEASE OF LIENS. Upon payment of all of the Indebtedness and
performance of all of the Obligations, Lender shall execute UCC termination
statements and such other documents as Borrower shall reasonably request to
evidence the release of Lender's lien relating to the Collateral.
SECTION 15. ASSIGNMENT. WITHOUT LENDER'S PRIOR WRITTEN CONSENT WHICH CONSENT
WILL NOT BE UNREASONABLY WITHHELD OR DELAYED, BORROWER SHALL NOT (a) ASSIGN,
TRANSFER, PLEDGE, HYPOTHECATE OR OTHERWISE DISPOSE OF THIS SECURITY AGREEMENT,
ANY NOTE, ANY COLLATERAL, OR ANY INTEREST THEREIN, (b) LEASE OR LEND COLLATERAL
OR PERMIT IT TO BE USED BY ANYONE OTHER THAN BORROWER OR BORROWER'S EMPLOYEES,
CONTRACTORS AND AGENTS OR (c) MERGE INTO, CONSOLIDATE WITH OR CONVEY OR TRANSFER
ITS PROPERTIES SUBSTANTIALLY AS AN ENTIRETY TO ANY OTHER PERSON OR ENTITY
EXCEPT TO A SUCCESSOR IN INTEREST TO ALL OR SUBSTANTIALLY ALL OF THE BUSINESS OF
BORROWER; PROVIDED, HOWEVER, THAT, THE FINANCIAL CONDITION OF SUCH SUCCESSOR IS
GREATER THAN OR EQUAL TO BORROWER AS DETERMINED IN GOOD FAITH BY LENDER AND THE
SUCCESSOR'S BUSINESS AND ITS MAJOR INVESTORS ARE REASONABLY ACCEPTABLE TO
LENDER. LENDER MAY ASSIGN ANY OF THE NOTES, THIS SECURITY AGREEMENT OR ITS
SECURITY INTEREST IN ANY OR ALL COLLATERAL, OR ANY OR ALL OF THE ABOVE, IN WHOLE
OR IN PART TO ONE OR MORE ASSIGNEES OR SECURED PARTIES WITHOUT NOTICE TO
BORROWER. If Borrower is given notice of such assignment it agrees to
acknowledge receipt thereof in writing and Borrower shall execute such
additional documentation as Lender's assignee and/or secured party shall
reasonably require at Lender's expense. Each such assignee and/or secured party
shall have all of the rights, but (except as provided in this Section 15) none
of the obligations, of Lender under this Security Agreement, unless such
assignee or secured party expressly agrees to assume such obligations in
writing. Borrower shall not assert against any assignee and/or secured party any
defense, counterclaim or offset that Borrower may have against Lender.
Notwithstanding any such assignment, and providing no Event of Default has
occurred and is continuing, Lender, or its assignees, secured parties, or their
agents or assigns, shall not interfere with
<PAGE>
Borrower's right to quietly enjoy use of Collateral subject to the terms and
conditions of this Security Agreement. Subject to the foregoing, the Notes and
this Security Agreement shall inure to the benefit of, and are binding upon, the
successors and assignees of the parties hereto. Borrower acknowledges that any
such assignment by Lender will not change Borrower's duties or obligations under
this Security Agreement and the Notes or increase any burden or risk on
Borrower.
SECTION 16. DEFAULT. (a) Events of Default. Any of the following events or
-----------------
conditions shall constitute an "Event of Default" hereunder: (i) Borrower's
failure to pay any monies due to Lender hereunder or under any Note beyond the
tenth (10th) day after the same is due; (ii) Borrower's failure to comply with
its obligations under Section 10 or Section 15; (iii) any representation or
warranty of Borrower made in this Security Agreement or the Notes or in any
other agreement, statement or certificate furnished to Lender in connection with
this Security Agreement or the Notes shall prove to have been incorrect in any
material respect when made or given; (iv) Borrower's failure to comply with or
perform any material term, covenant or condition of this Security Agreement or
any Note or under any other agreement between Borrower and Lender or under any
lease or mortgage of real property covering the location of the Collateral if
such failure to comply or perform is not cured by Borrower within thirty (30)
days after Borrower knows of the noncompliance or nonperformance or notice from
Lender or such longer period that Borrower is diligently attempting to effect
such cure; (v) seizure of any of the Collateral under legal process; (vi) the
filing by or against Borrower or any guarantor under any guaranty executed in
connection with this Security Agreement ("Guarantor") of a petition for
reorganization or liquidation under the Bankruptcy Code or any amendment thereto
or under any other insolvency law providing for the relief of debtors; (vii) the
voluntary or involuntary making of an assignment of a substantial portion of its
assets by Borrower or by any Guarantor for the benefit of its creditors, the
appointment of a receiver or trustee for Borrower or any Guarantor or for any of
Borrower's or Guarantor's assets, the institution by or against Borrower or any
Guarantor of any formal or informal proceeding for dissolution, liquidation,
settlement of claims against or winding up of the affairs of Borrower or any
Guarantor provided that in the case of all such involuntary proceedings, same
are not dismissed within sixty (60) days after commencement; (viii) the making
by Borrower or by any Guarantor of a transfer of all or a material portion of
Borrower's or Guarantor's assets or inventory not in the ordinary course of
business.
(b) Remedies. If any Event of Default has occurred, Lender may in its
--------
sole discretion exercise one or more of the following remedies with respect to
any or all of the Collateral: (i) declare due any or all of the aggregate sum
of all remaining payments under the Notes, including the amount of any mandatory
or optional payment required or permitted to be paid by Borrower to Lender at
the maturity of the Notes ("Remaining Payments"); (ii) proceed by appropriate
court action or actions either at law or in equity to enforce Borrower's
performance of the applicable covenants of the Notes and this Security Agreement
or to recover all damages and expenses incurred by Lender by reason of an Event
of Default; (iii) except as provided by law, without court order or prior
demand, enter upon the premises where the Collateral is located and take
immediate possession of and remove it without liability of Lender to Borrower or
any other person or entity; (iv) terminate this Security Agreement and sell the
Collateral at public or private sale, or otherwise dispose of, hold, use or
lease any or all of the Collateral in a commercially reasonable manner; or (v)
exercise any other right or remedy available to it under applicable law. If
Lender has declared due any or all of the Remaining Payments, Borrower will pay
immediately to Lender, without duplication, (A) the Remaining Payments, (B) all
amounts which may be then due or accrued, and (C) all other amounts due under
this Security Agreement and under the Notes (Lender's Return, as referred to
below, means the amounts described in clauses (A), (B) and (C) above). The net
<PAGE>
proceeds of any sale or lease of such Collateral will be credited against
Lender's Return. The net proceeds of a sale of the Collateral pursuant to this
Section 16(b) is defined as the sales price of the Collateral less selling
expenses, including, without limitation, costs of remarketing the Collateral and
all refurbishing costs and commissions paid with respect to such remarketing.
The net proceeds of a lease of the Collateral pursuant to this Section 16(b) is
defined as the amount equal to the monthly payments due under such lease
(discounted at 6% per annum compounded monthly on the basis of a 360 day year
(the "Discount Rate") plus the residual value of the Collateral at the end of
the basic term of such lease, as reasonably determined by Lender, and discounted
at the Discount Rate.
Borrower agrees to pay all reasonable out-of-pocket costs of Lender incurred in
enforcement of this Security Agreement, the Notes or any instrument or agreement
required under this Security Agreement, including, but not limited to reasonable
attorneys' fees and litigation expenses and fees of collection agencies ("Remedy
Expenses"). At Lender's request, Borrower shall assemble the Collateral and
make it available to Lender at such time and location as Lender may reasonably
designate. Borrower waives any right it may have to redeem the Collateral.
Declaration that any or all amounts under this Security Agreement and/or the
Notes are immediately due and payable and Lender's taking possession of any or
all Equipment shall not terminate this Security Agreement or any of the Notes
unless Lender so notifies Borrower in writing. None of the above remedies is
intended to be exclusive but each is cumulative and may be enforced separately
or concurrently.
(c) Application of Proceeds. The proceeds of any sale of all or any part
-----------------------
of the Collateral and the proceeds of any remedy afforded to Lender by this
Security Agreement shall be paid to and applied as follows:
First, to the payment of reasonable costs and expenses of suit or
-----
foreclosure, if any, and of the sale, if any, including, without limitation,
refurbishing costs, costs of remarketing and commissions related to remarketing,
all Remedy Expenses, all expenses, liabilities and advances incurred or made
pursuant to this Security Agreement or any Note by Lender in connection with
foreclosure, suit, sale or enforcement of this Security Agreement or the Notes,
and taxes, assessments or liens superior to Lender's security interest granted
by this Security Agreement;
Second, to the payment of all other amounts not described in item
------
Third below due under this Security Agreement and all Notes;
- ------
Third, to pay Lender an amount equal to Lender's Return, to the extent
------
not previously paid by Borrower; and
Fourth, to the payment of any surplus to Borrower or to whomever may
------
lawfully be entitled to receive it.
(d) Effect of Delay; Waiver; Foreclosure on Collateral. No delay or
--------------------------------------------------
omission of Lender, in exercising any right or power arising from any Event of
Default shall prevent Lender from exercising that right or power if the Event of
Default continues. No waiver of an Event of Default, whether full or partial,
by Lender or such holder shall be taken to extend to any subsequent Event of
Default, or to impair the rights of Lender in respect of any damages suffered as
a result of the Event of Default. The giving, taking or enforcement of any other
or additional security, collateral or guaranty for the payment or discharge of
the Indebtedness and performance of the Obligations shall in no way operate to
prejudice, waive or affect the security interest created by this Security
Agreement or any rights, powers or remedies
<PAGE>
exercised hereunder or thereunder. Lender shall not be required first to
foreclose on the Collateral prior to bringing an action against Borrower for
sums owed to Lender under this Security Agreement or under any Note.
SECTION 17. LATE PAYMENTS. Borrower shall pay Lender a late charge of 10% of
any payment owed Lender by Borrower which is not paid when due (taking into
account applicable grace periods), for every month such payment is not paid when
due, but in no event an amount greater than the highest rate permitted by
applicable law. If such amounts have not been received by Lender at Lender's
place of business or by Lender's designated agent by the date such amounts are
due under this Security Agreement or the Notes, Lender shall bill Borrower for
such charges. Borrower acknowledges that invoices for amounts due hereunder or
under the Notes are sent by Lender for Borrower's convenience only. Borrower's
non-receipt of an invoice will not relieve Borrower of its obligation to make
payments hereunder or under the Notes.
SECTION 18. PAYMENTS BY LENDER. If Borrower shall fail to make any payment or
perform any act required hereunder (including, but not limited to, maintenance
of any insurance required by Section 10), then Lender may, but shall not be
required to, after such notice to Borrower as is reasonable under the
circumstances, make such payment or perform such act with the same effect as if
made or performed by Borrower. Borrower will upon demand reimburse Lender for
all sums paid and all reasonable costs and expenses incurred in connection with
the performance of any such act.
SECTION 19. FINANCING STATEMENTS. Borrower will execute all financing
statements pursuant to the Uniform Commercial Code and all such other documents
reasonably requested by Lender to perfect Lender's security interests hereunder.
Borrower authorizes Lender to file financing statements signed only by Lender
(where such authorization is permitted by law) at all places where Lender deems
necessary.
SECTION 20. NATURE OF TRANSACTION. Lender makes no representation whatsoever,
express or implied, concerning the legal character of the transaction evidenced
hereby, for tax or any other purpose.
SECTION 21. SUSPENSION OF LENDER'S OBLIGATIONS. The obligations of Lender
hereunder will be suspended to the extent that Lender is hindered or prevented
from complying therewith because of labor disturbances, including but not
limited to strikes and lockouts, acts of God, fires, floods, storms, accidents,
industrial unrest, acts of war, insurrection, riot or civil disorder, any order,
decree, law or governmental regulations or interference, failure of the
manufacturer to deliver any item of Collateral or any cause whatsoever not
within the sole and exclusive control of Lender.
SECTION 22. LENDER'S EXPENSE. Borrower shall pay Lender all reasonable costs
and expenses including reasonable attorney's fees and the fees of collection
agencies, incurred by Lender (a) in enforcing any of the terms, conditions or
provisions hereof and related to the exercise of its remedies, and (b) in
connection with any bankruptcy or post-judgment proceeding, whether or not suit
is filed and, in each and every action, suit or proceeding, including any and
all appeals and petitions therefrom.
SECTION 23. ALTERATIONS; ATTACHMENTS. No alterations or attachments shall be
made to the Collateral without Lender's prior written consent, which shall not
be given for changes that will affect the reliability and utility of the
Collateral or which cannot be removed without damage to the Collateral, or which
in any way affect the value of the Collateral for purposes of resale or lease.
All
<PAGE>
attachments and improvements to the Collateral shall be deemed to be
"Collateral" for purposes of the Security Agreement, and a first priority
security interest therein shall immediately vest in Lessor.
SECTION 24. CHATTEL PAPER. (a) One executed copy of the Security Agreement
will be marked "Original" and all other counterparts will be duplicates. To the
extent, if any, that this Security Agreement constitutes chattel paper (as such
term is defined in the Uniform Commercial Code as in effect in any applicable
jurisdiction) no security interest in the Security Agreement may be created in
any documents other than the "Original." (b) There shall be only one original
of each Note and it shall be marked "Original," and all other counterparts will
be duplicates. To the extent, if any, that any Notes(s) to this Security
Agreement constitutes chattel paper (or as such term is defined in the Uniform
Commercial Code as in effect in any applicable jurisdiction) no security
interest in any Note(s) may be created in any documents other than the
"Original."
SECTION 25. SOFTWARE. For the term of this Security Agreement, and so long as
no Event of Default has occurred and is continuing, Lender hereby assigns to
Borrower all of Lender's rights, if any, under any license agreement executed by
Lender in connection with the Collateral (except for any right of Lender to be
reimbursed for the license fee). Borrower agrees to be bound by the provisions
of any such license agreement and to perform all obligations of Lender (except
Lender's payment obligations) thereunder. Borrower acknowledges that all of
Borrower's obligations under the Security Agreement with respect to the
Collateral will apply equally to the software, including but not limited to
Borrower's obligation to pay rent to Lender.
SECTION 26. COMMITMENT FEE. Borrower has paid to Lender a commitment fee
("Fee") of $10,000. The Fee shall be applied by Lender first to reimburse
Lender for all out-of-pocket UCC and other search costs, inspections and
labeling costs and appraisal fees, if any, incurred by Lender, and then
proportionally to the first monthly payment for each Note hereunder in the
proportion that the Collateral value for such Note bears to Lender's entire
commitment. However, the portion of the Fee which is not applied to such
monthly payments shall be non-refundable except if Lender defaults in its
obligation to fund Loans pursuant to Section 3.
SECTION 27. NOTICES. All notices hereunder shall be in writing, by registered
mail, or reliable messenger or delivery service (including overnight service)
and shall be directed, as the case may be, to Lender at 2401 Kerner Boulevard,
San Rafael, California 94901, Attention: Asset Management and to Borrower at
3270 Jay Street, Bldg. 6, Santa Clara, CA 95054, Attention: Sam Hedgpeth.
SECTION 28. MISCELLANEOUS. (a) Borrower shall provide Lender with such
corporate resolutions, financial statements and other documents as Lender shall
reasonably request from time to time. (b) Borrower represents that the
Collateral hereunder is used solely for business purposes. (c) Time is of the
essence with respect to this Security Agreement. (d) Borrower acknowledges that
Borrower has read this Security Agreement and the Notes, understands them and
agrees to be bound by their terms and further agrees that this Security
Agreement and the Notes constitute the entire agreement between Lender and
Borrower with respect to the subject matter hereof and supersede all previous
agreements, promises, or representations. (e) This Security Agreement and the
Notes may not be changed, altered or modified except by an instrument signed by
an officer or authorized representative of Lender and Borrower. (f) Any failure
of Lender to require strict performance by Borrower or any waiver by Lender of
any provision herein or in a Note shall not be construed as a consent or waiver
of any other breach of the same or any other provision. (g) If any provision of
this Security Agreement or any Note is held invalid, such invalidity shall not
affect any other provisions hereof or thereof. (h) The obligations
<PAGE>
of Borrower to pay the Indebtedness and perform the Obligations shall survive
the expiration or earlier termination of this Security Agreement and each Note
until all Obligations of Borrower to Lender have been met and all liabilities of
Borrower to Lender and any assignee have been paid in full. (i) Borrower will
notify Lender at least 30 days before changing its name or principal place of
business. (j) Borrower will, at its expense, promptly execute and deliver to
Lender such documents and assurances (including financing statements) and take
such further action as Lender may reasonably request in order to carry out the
intent of this Security Agreement and Lender's rights and remedies. (k) Borrower
hereby appoints Lender (and each of Lender's officers, employees or agents
designated by Lender), with full power of substitution by Lender, as Borrower's
attorney, with power to execute and deliver on Borrower's behalf financing
statements and other documents necessary to perfect and/or give notice of
Lender's security interest in any of the Collateral.
SECTION 29. JURISDICTION AND WAIVER OF JURY TRIAL. This Security Agreement and
the Notes shall be deemed to have been negotiated, entered into and performed in
the State of California and it is understood and agreed that the validity of
this Security Agreement and of any of the terms and provisions, of the Security
Agreement and Notes, as well as the rights and duties of Lender and Borrower,
shall be construed pursuant to and in accordance with the laws of the State of
California, without giving effect to conflicts of law principles. It is agreed
that exclusive jurisdiction and venue for any legal action between the parties
arising out of or relating to this Security Agreement and each Note shall be in
the Superior Court for Marin County, California, or, in cases where federal
diversity jurisdiction is available, in the United States District Court for the
Northern District of California situated in San Francisco. BORROWER, TO THE
EXTENT IT MAY LAWFULLY DO SO, HEREBY WAIVES ITS RIGHT TO TRIAL BY JURY IN ANY
ACTION BROUGHT ON OR WITH RESPECT TO THIS SECURITY AGREEMENT, ANY NOTE, ANY
SECURITY DOCUMENTS, OR ANY OTHER AGREEMENTS EXECUTED IN CONNECTION HEREWITH.
SECTION 30. ADDITIONAL INTEREST COMPENSATION:
(a) General. Borrower shall have the option to choose a final payment or Note
-------
extension election ("Additional Interest Compensation") at the expiration of the
first Note's term. Borrower shall provide written notice of its election to
Lender at least 90 days prior to the end of the term of the first Note. That
choice shall be an election of Borrower's additional interest compensation
election for all, but not less than all, of the Collateral under all Notes under
the Security Agreement. In the event Borrower does not provide 90 days' prior
written notice of its election, Borrower shall be deemed to have elected
Election No. 2.
(b) End of Loan Position Elections. As Additional Interest Compensation,
------------------------------
Borrower shall have the option:
Election No. 1: Make a final payment equal to 15% of the Note's original
- --------------
principal amount.
Election No. 2: Extend the Note's term for an additional 12 months ("Extended
- --------------
Term") for a monthly rate of 1.5% of the Note's original principal amount.
SECTION 31. ADJUST-A-LOAN OPTION:
General: During the term of any Note ("Old Note"), Borrower shall have the
- -------
option to remove all or part of such Old Note's Collateral ("Removed
Collateral") and obtain financing from Lender for new Collateral ("New
Collateral") under a new Note ("New Note"), subject to the following:
<PAGE>
(a) New Note Amount: The principal amount of the New Note shall be the sum
---------------
of: (i) the remaining payments attributable to the Removed Collateral due under
the Old Note , including the Additional Interest Compensation payment,
("Remaining Payments") and (ii) the cost of the New Collateral. The Remaining
Payments shall be discounted to present value at a rate of 6% per annum,
compounded monthly. The principal amount of the New Note shall be reduced by
any trade-in value or resale proceeds received by Lender for the Removed
Collateral. For purposes of this Section, the Additional Interest Compensation
payment shall be assumed to be the greatest amount Borrower would be required to
pay under Election No. 1 in Section 30 above.
(b) Old Note Amount: If any item of Collateral remains on the Old Note,
---------------
the monthly payment amount for the Old Note will be reduced in proportion to the
Removed Collateral's value.
(c) Option Preconditions: Borrower's right to exercise this Adjust-A-Loan
--------------------
Option ("Option") is conditioned upon the following: (i) no Event of Default
under the Security Agreement has theretofore occurred or is continuing; (ii) the
New Note financing terms are subject to Lender's then current loan rates and
documentation requirements; (iii) Lender is satisfied with Borrower's
creditworthiness; (iv) the New Collateral is acceptable to Lender; (v) Borrower
has given Lender at least 90 days' prior written notice of its desire to
exercise the Option; (vi) the principal amount of the New Note using the formula
set forth in (a) above is not less than zero.
PHOENIX LEASING INCORPORATED DOWNTOWN WEB, INC. DBA AUTOWEB.COM
By:___________________________ By:_______________________________
Name:_________________________ Name (Print):_____________________
Title:________________________ Title:____________________________
HEADQUARTERS LOCATION:
----------------------
3270 Jay Street, Bldg. 6
Santa Clara, CA 95054
County of Santa Clara
EXHIBITS AND SCHEDULES:
-----------------------
Exhibit A -- Closing Memorandum
<PAGE>
Exhibit 10.16
New & Pre-Owned Car Agreement
This New & Pre-owned Car Agreement (the "Agreement") is entered into by and
between Republic Industries, Inc., ("you" or "Republic Industries") located at
110 S.E. 6th Street, Fort Lauderdale, FL 33301 and Autoweb.com, Inc., a
California corporation, ("we" or "Autoweb.com") located at 3270 Jay Street,
Building 6, Santa Clara, CA 95054. The effective date of this Agreement is 17
June , 1998 (the "Effective Date"). Republic Industries' franchises and
dealerships that are subject to this Agreement are listed in the New Car or Pre-
owned Car Order Schedules that Republic Industries may submit from time to time.
What we agree to do
From Autoweb.com's internet web site at "www.autoweb.com" (the "Site"), we
will provide to you certain information about a customer order, including the
name and telephone number or email address of the customer, the type of
inventory requested and other digital information provided by the customer in
connection with the Inquiry (the "Inquiry").
Provided a territory is available, we agree to provide you Inquiries as soon
as practicable following receipt of a New Car or Pre-owned Car Order Schedule,
which you may submit from time to time. We agree, provided your account is in
good standing, to give you priority over other retail car sellers as areas
become available.
We agree to provide you access to Autoweb.com trainers and provide you with
the Autoweb.com Member Dealer Success Manual.
We agree to make a reasonable effort to update the Site with current
information about the pre-owned cars in your inventory (the "Inventory"). We
agree to work with you to develop an automatic update capability so your
Inventory can be current each business day.
What you agree to do
You agree to appoint a primary contact at each location and to have that
contact, or his designate, respond to each Inquiry delivered to you by 5:00
p.m. local time on the following business day. The contact person will
cheerfully answer consumer questions regarding Autoweb.com, the Autoweb.com
process of buying a car, the dealership and the automobile that is the subject
of the Inquiry. You agree to notify us promptly if the contact changes.
You agree to give your best price over the phone or by email on the first
contact with the customer associated with the Inquiry or as soon as
practicable after identifying the customers needs. You agree to follow all
other guidelines in the Autoweb.com Member Dealer Success Manual.
You agree to review Your Page at least once per week and to notify Autoweb.com
of all inaccuracies or other changes, such as business hours and primary
contact person, that will keep Your Page current. You agree that at all times
you will possess and maintain the technical capability to receive the
Inquiries both through either e-mail and facsimile.
**Confidential treatment has been requested with respect to certain
information contained in this document. Confidential portions have
been omitted from the public filing and have been filed separately
with the Securities and Exchange Commission.
1
<PAGE>
Fees
We will invoice you [ ]** dollars ($[ ])** for each Inquiry. The
price per Inquiry will not increase during the first [ ]** ([ ])** months of
this Agreement. You elect to receive Inquiries from the approximate distance
from your dealership as specified in each New Car and Pre-Owned Car Order
Schedule and as measured from center of zip code to center of zip code. Each
billing will be for the previous months Inquiries delivered to you. You
understand we do not guarantee you will be able to increase the distance in
the future. You agree to pay the invoice within thirty (30) days. A
Qualified Inquiry is an Inquiry that is delivered to you and that has a name
and a valid telephone number or email address. We will automatically credit
you [ ]** % ([ ] percent) of each invoice to allow for Inquiries that are
not Qualified Inquiries. You understand and agree that an Inquiry is an
expression of interest on the part of a consumer and that it does not
necessarily lead to a sale of a vehicle.
You agree to purchase [ ]** ([ ])** inquiries in advance. Payment
is due within 30 days of the Effective date.
Other Agreements
All information provided to customer about you is your responsibility. You
acknowledge that you, and not Autoweb.com, are offering automobiles for sale.
Title and risk of loss of your inventory remains with you and does not
transfer or vest in Autoweb.com
You agree that your pre-owned vehicles have been inspected and have undergone
the inspection of the components listed in Addendum 1 of this agreement and
that any repairs have been made to put them in good working order. You also
agree to provide a limited 90 day or 3000 mile, whichever comes first, power
train warranty for each car. We agree to identify your Inventory as
"Autoweb.com Certified." You will notify us of any cars not meeting the
criteria of Addendum 1 as part of the automatic used car update.
You agree that we will have sole discretion over the design of the look and
style of the Site and Your Page. You agree that we are not liable to you or to
any third party for any inaccuracies on Your Page.
You agree the design, layout, graphics and programming of Your Page is the
property of Autoweb.com.
Warranties
AUTOWEB PROVIDES THE AUTOWEB.COM SERVICES AND ALL OTHER SERVICES PERFORMED BY
AUTOWEB UNDER THIS AGREEMENT "AS IS". EXCEPT AS PROVIDED BELOW, AUTOWEB MAKES
NO WARRANTIES WITH RESPECT TO THE PERFORMANCE OF ITS SOFTWARE, EXPRESS OR
IMPLIED, AND AUTOWEB EXPRESSLY DISCLAIMS ALL OTHER WARRANTIES, INCLUDING BUT
NOT LIMITED TO THE IMPLIED WARRANTIES OF NON-INFRINGEMENT, MERCHANTABILITY AND
FITNESS FOR A PARTICULAR PURPOSE.
Republic Industries warrants that 1) its new car dealers are licensed
franchises, 2) the rights granted by Republic Industries to Autoweb.com under
this Agreement do not infringe the proprietary rights of third parties,
including copyrights, trademarks and trade secrets, 3) any
**Confidential treatment has been requested with respect to certain
information contained in this document. Confidential portions have
been omitted from the public filing and have been filed separately
with the Securities and Exchange Commission.
2
<PAGE>
information provided to Autoweb.com for listing on the Autoweb.com are
truthful and accurate, 4) Republic Industries will provide its customers with
all information and notices legally required under the laws applicable to the
jurisdiction where the customer is located or will be using its inventory and
5) Republic Industries' promotion and distribution of its inventory does not
violate any applicable laws or regulations. Republic Industries shall defend,
indemnify and hold harmless Autoweb.com and its directors, officers and agents
from and against any claims, liabilities, expenses or demands arising out of a
breach of the foregoing warranties.
Autoweb.com represents and warrants that the Autoweb.com services and
deliverable provided under this Agreement will not infringe the proprietary
rights of third parties, including copyrights trade marks and trade secrets.
Other
The term of this Agreement will remain in effect for one (1) year after the
Effective Date and will renew for successive one year periods until cancelled
in accordance with this Agreement. Notwithstanding the foregoing, either
party may terminate this Agreement upon written notice of a breach by the
other party of any term contained herein or, after six (6) months, upon 30
days notice, for any reason. Notwithstanding the foregoing Autoweb.com shall
not be able to terminate the Agreement without cause until Republic
Industries has received its initial [ ]** ([ ])** Inquiries. If this
Agreement is terminated or expires, with the exception of the initial
purchase of [ ] Inquiries, we will refund the unused portion of any
Inquiries purchased in advance.
Republic Industries agrees that from time to time Autoweb.com may change the
terms and conditions of this Agreement, including but not limited to pricing
(the "Changes"). We agree to provide you with written sixty (60) day, advance
notice of the Changes. The notice will be sent to the address on the first
page of this Agreement, ATTN: Contract Administration. We agree that if you
do not accept the Changes, you may immediately cancel the Agreement without
penalty.
The provisions of Fees, Warranties, Other Agreements and Other shall survive
the termination of this Agreement for any reason. All other rights and
obligations of the parties shall cease upon termination of this Agreement.
Upon termination of this Agreement, we will delete Your Page.
This Agreement sets forth the entire agreement and understanding of the
parties relating to the subject matter herein. This Agreement merges and
supersedes all prior or contemporaneous agreements, discussions and
understandings between the parties, oral or written, regarding such subject
matter. No modification to, or amendment of, this Agreement, shall be
effective unless it is signed by both parties.
Autoweb.com shall not be liable to Republic Industries or any third party for
damages related to service interruption, corruption of information contained
in the Site or Your Page, the removal of any listing, or any delay on the part
of Autoweb.com to perform services hereunder, if beyond its reasonable
control.
**Confidential treatment has been requested with respect to certain
information contained in this document. Confidential portions have
been omitted from the public filing and have been filed separately
with the Securities and Exchange Commission.
3
<PAGE>
THE PARTIES AGREE THAT IN NO EVENT WILL AUTOWEB.COM BE LIABLE TO REPUBLIC
INDUSTRIES OR ANY OTHER PARTY, UNDER ANY THEORY OF LIABILITY, WHETHER IN AN
ACTION BASED ON A CONTRACT, TORT (INCLUDING NEGLIGENCE) OR ANY OTHER LEGAL
THEORY, HOWEVER ARISING, OR FOR ANY LOSS OF USE, INTERRUPTION OF BUSINESS, OR
INDIRECT, SPECIAL, INCIDENTAL, OR CONSEQUENTIAL DAMAGES OF ANY KIND, WHETHER
OR NOT AUTOWEB HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGE. EXCEPT IN
THE CASE OF A BREACH IF ITS WARRANTY OF NON-INFRINGEMENT, IN NO EVENT WILL
AUTOWEB.COM'S LIABILITY UNDER THIS AGREEMENT EXCEED THE AMOUNT RECEIVED BY
AUTOWEB FROM REPUBLIC INDUSTRIES PURSUANT TO THIS AGREEMENT.
In the event any provision of this Agreement (or portion thereof) is
determined by a court of competent jurisdiction to be invalid, illegal, or
otherwise unenforceable, such provision shall be deemed to have been deleted
from this Agreement, while the remainder of this Agreement shall remain in
full force and effect.
Either party may assign this Agreement without the other party's consent in
connection with a merger, acquisition or reorganization of such party,
provided that, if the assignee is a direct competitor of the other party, then
the other party may terminate this Agreement upon thirty (30) days written
notice to the assigning party.
The failure of either party to require performance by the other party of any
provision hereof shall not affect the full right to require such performance
at any time thereafter; nor shall the waiver by either party of a breach of
any provision hereof be taken or held to be a waiver of the provision itself.
This Agreement shall be governed by and construed under the laws of the State
of California. The prevailing party in any legal action brought by one party
against the other arising out of this Agreement shall be entitled, in addition
to any other rights and remedies it may have, to reimbursement for its
expenses, including court costs, expert witness fees and reasonable attorneys'
fees.
This Agreement may be executed in any number of counterparts, and each
executed counterpart shall have the same force and effect as an original
instrument.
Autoweb.com, Inc. Republic Industries
By: /s/ Payam Zamani By: /s/
_________________________ _________________________
Title: EVP Title: V.P. Internet Services
______________________ ______________________
Date: 6/17/98 Date: 17 Jun 98
_______________________ _______________________
4
<PAGE>
Exhibit 10.17
SERVICES AGREEMENT
Agreement #4727911
This Services Agreement (the "Agreement") between Downtown Web, Inc. d.b.a.
Autoweb.com ("VENDOR"), a California corporation, whose address is 3270 Jay
Street, Santa Clara, CA 95054, and State Farm Mutual Automobile Insurance
Company, an Illinois corporation, acting on its behalf and that of its
subsidiaries and affiliates ("STATE FARM"), a company having its corporate
headquarters at One State Farm Plaza, Bloomington, IL 61710, shall be effective
according to its terms as of the "Effective Date" (as defined on the signature
page attached hereto). Any capitalized terms not defined in the body of this
Agreement are defined in Exhibit "A" attached hereto.
W I T N E S S E T H
WHEREAS, VENDOR has developed and operates an Internet WWW site for the
purpose of promoting, marketing, and facilitating the sale of cars and car
insurance; and
WHEREAS, certain services and participation in VENDOR's services are
requested by STATE FARM; and
WHEREAS, VENDOR has agreed to provide such services and participation in
accordance with the terms and conditions of the Agreement.
NOW, THEREFORE, the parties hereby agree as follows:
1. VENDOR agrees to provide those services to STATE FARM as set forth in
Exhibit A, attached hereto and incorporated here in (the "Services"). In
exchange for the Services, STATE FARM shall pay to VENDOR the fees as are set
forth in Exhibit A.
Bills for all other fees described in Exhibit A are due and payable by
STATE FARM within thirty (30) days of the receipt of an accurate invoice by
STATE FARM.
2. Each party shall keep confidential, and not use for any purpose except to
perform its respective obligations pursuant to this Agreement, and proprietary,
trade secret, business, copyright, patent or other such information of the other
party, or of any of its vendors, suppliers, independent contractor insurance
agents or customers, which it learns as the result of carrying out its
obligations thereunder ("Confidential Information"); provided, however, that
Confidential Information does not include information that: (a) receiving party
can demonstrate was known by receiving party prior to the disclosure thereof by
disclosing party; (b) properly came into the possession of receiving party from
a third party which was not under any obligation to maintain the confidentiality
of such information; (c) has become part of the public domain through no act or
fault on the part of the receiving party in breach of this Agreement; or (d)
receiving party can demonstrate was independently developed by or for receiving
party without the use of
**Confidential treatment has been requested with respect to certain
information contained in this document. Confidential portions have
been omitted from the public filing and have been filed separately
with the Securities and Exchange Commission.
<PAGE>
Confidential Information. Each party expressly further agrees that it shall
return any such information and copies thereof to the other party upon
completion of its duties under this Agreement, or upon the other party's
request. The terms of this Section 2 shall survive the termination of this
Agreement. The foregoing prohibition on non-disclosure shall not apply to the
extent that disclosure of Confidential Information to proper legal and
regulatory authorities is required by law or regulation. In the event the
receiving party receives a request to disclose all or any part of the
Confidential Information under the terms of a valid subpoena or order issued by
a court of competent jurisdiction or by a governmental body, the receiving party
agrees to: (a) notify the disclosing party promptly of such request; (b) provide
the disclosing party with reasonable assistance in obtaining an order or other
reliable assurance that confidential treatment will be accorded to such portion
of the Confidential Information that the disclosing party so designates. The
parties acknowledge that a breach of the Section 2 would cause irreparable harm
to the disclosing party, which would not have an adequate remedy at law, and
agree that such party may seek equitable relief.
3. VENDOR represents and warrants that it has the ability an expertise to
perform its responsibilities hereunder and shall perform the Services in a
professional and workmanlike manner. EXCEPT AS EXPRESSLY PROVIDED IN THIS
AGREEMENT, VENDOR MAKES NO OTHER WARRANTIES EITHER EXPRESS OR IMPLIED, AS TO THE
SERVICES, MATERIALS, OR INFORMATION PROVIDED HEREUNDER, AND HEREBY EXPRESSLY
DISCLAIMS ALL IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR ANY
PARTICULAR PURPOSE.
4. The parties expressly agree that VENDOR shall be an independent contractor
for all purposes in the performance of this Agreement and that none of its
employees or agents shall be considered an employee of STATE FARM for any
purpose.
5. The parties agree the HTML content of STATE FARM's carrier screen and
carrier information shall be developed specifically for STATE FARM by VENDOR and
shall be considered a "Work Made for Hire". Such content shall be the sole and
absolute property of STATE FARM and STATE FARM reserves all rights of ownership,
including but not limited to copyright and other proprietary rights. Except for
STATE FARM's ownership of the content of the foregoing carrier screen and
carrier information, the parties agree VENDOR shall acquire no ownership or
intellectual property rights in the form or content of carrier screen and/or
carrier information by virtue of its posting on the VENDOR's site, nor shall
STATE FARM acquire any rights in the form or content of the VENDOR's site or any
information posted thereon other than STATE FARM's own information.
6. a. VENDOR expressly agrees, anything herein to the contrary
notwithstanding, that it shall indemnify, defend, and hold STATE FARM fully
harmless against any loss, damages, claims or expenses of any kind whatsoever,
including costs and reasonable attorneys' fees, which STATE FARM shall incur to
the extent caused by or arising from the negligent acts of, or negligent failure
to act by VENDOR, its employees or agents in the performance of this Agreement.
2
<PAGE>
b. STATE FARM expressly agrees, anything herein to the contrary
notwithstanding, that it shall indemnify, defend and hold VENDOR fully harmless
against any loss, damages, claims of expenses of any kind whatsoever, including
costs and reasonable attorneys' fees, which VENDOR shall incur to the extent
caused by or arising from the negligent acts of, or negligent failure to act by
STATE FARM or its employees or agents in the performance of this Agreement.
c. In the event of an indemnifiable event, either party shall give prompt
notice of any such claim to the other party, and the indemnifying party shall
have the right and obligation to control and direct the investigation, defense
and settlement of each such claim. The indemnified party shall reasonably
cooperate in connection with the foregoing. The rights and obligations of the
parties pursuant to this Section 6 shall survive any termination or expiration
of this Agreement.
7. The term of this Agreement shall be as set forth in Exhibit A and shall run
for an initial period of six (6) months from date of execution. If either party
neglects or fails to perform any of its material obligations under this
Agreement and such failure continues for a period excess of thirty (30) days
after written notice (containing a reasonably detailed statement of the alleged
failure to perform) thereof from the non-breaching party, the non-breaching
party shall have the right to terminate this Agreement immediately upon further
written notice to the breaching party. During any notice and cure period, both
parties shall continue to be bound by all the terms and conditions of this
Agreement.
8. Anything in the Agreement to the contrary notwithstanding, neither party may
delegate or assign its rights or duties under the Agreement to any other entity,
including an entity which affiliates or merges with or acquires such party,
except when such delegation or assignment is approved in advance by the other
party in writing, which approval shall not be unreasonably withheld.
9. EXCEPT FOR SECTIONS 6 AND 12, UNDER NO CIRCUMSTANCES WHATSOEVER SHALL EITHER
PARTY BE LIABLE TO THE OTHER FOR ANY SPECIAL, CONSEQUENTIAL, INDIRECT,
CIRCUMSTANTIAL, OR INCIDENTAL DAMAGES, LOSS OF PROFITS OR REVENUE, LOSS OF DATA,
OR INTERRUPTION OF BUSINESS OF ANY KIND WHATSOEVER IN ANY WAY ARISING OUT OF OR
RELATED TO THIS AGREEMENT, REGARDLESS OF THE FORM OF ACTION, WHETHER IN
CONTRACT, TORT, (INCLUDING NEGLIGENCE), STRICT PRODUCT LIABILITY OR OTHERWISE,
EVEN IF ANY REPRESENTATIVE OF SUCH PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF
OR COULD HAVE FORESEEN SUCH DAMAGES. EXCEPT FOR SECTIONS 6 AND 12, IN NO EVENT
WHATSOEVER SHALL EITHER PARTY'S LIABILITY FOR DIRECT DAMAGES TO THE OTHER PARTY
FOR ANY OTHER REASON WHATSOEVER EXCEED IN THE AGGREGATE THE SUM OF FIFTY
THOUSAND DOLLARS ($50,000.00). THE FOREGOING LIMITATION OF LIABILITY SHALL NOT
APPLY TO THE COMPENSATION PAYABLE UNDER THIS AGREEMENT.
3
<PAGE>
10. It is expressly agreed that if either party, on any occasion, fails to
perform any term of this Agreement, and the other party does not enforce that
term, the failure to enforce on that occasion shall not constitute a waiver of
that term by the other party. A waiver of any provision of this Agreement or
any right or obligations of either party hereunder shall be effective only to
the extent provided to a writing signed and delivered by the party waiving
compliance.
11. Anything in this Agreement to the contrary notwithstanding, under no
circumstances whatsoever shall STATE FARM pay any taxes which it does not
customarily pay in transactions of the nature set forth in this Agreement.
Under no circumstances whatsoever shall STATE FARM be liable for any penalties,
fines or other such charges incurred due to the failure of VENDOR to timely pay
when due any taxes owed by it under this Agreement.
12. Anything in this Agreement to the contrary notwithstanding, each party at
its own expense shall defend, indemnify and hold the other fully harmless
against any action asserted against such party (and specifically including costs
and reasonable attorneys' fees associated with any such action) to the extent
that it is based on a claim that any materials, content or services provided by
the indemnifying party under this Agreement infringe upon any patent, copyright,
license or other property right or proprietary right of any third party (as used
in this Section 12, a "Claim of Infringement"): Either party shall promptly
notify the other in writing of any such claim. If as a result of any Claim of
Infringement, the indemnified party is enjoined from using the materials,
content or services, or if the indemnified party believes that such materials,
content or services are likely to become the subject of a Claim of Infringement,
the indemnifying party as its option and expense may procure the right for the
indemnified party to continue to use the materials, content or services, or
replace or modify the materials, contents or services so as to make such non-
infringing. The rights and obligations of the parties pursuant of this Section
12 shall survive any termination or expiration of the Agreement so long as such
replacement or modification shall not materially degrade the performance
rendered to the indemnified party pursuant to this Agreement. A party shall not
have any liability under this Section 12 to the extent the Claim of Infringement
is caused by the party seeing indemnification hereunder.
13. Neither party shall be liable for any delays in performance hereunder due
to unforeseen circumstances beyond its control including, but not limited to,
acts of nature, fire, flood, acts of governments, delays in transportation, and
delays in delivery or inability of suppliers to deliver. In such event, this
Agreement shall remain valid and the rights and obligations it sets forth shall
be resumed when such party shall again be able to perform its obligations;
however, in such event, the parties hereby mutually agree on an outside
limitation date not in excess of sixty (60) days. If such party is unable to
resume the performance of its obligations within such period, then either party
shall have the option to terminate this Agreement by so notifying the other
party in writing.
14. This Agreement together with Exhibit A hereto shall be an agreement binding
upon each of the parties hereto, their successors and, to the extent permitted,
their assigns. This Agreement shall be effective upon written execution by both
parties. This Agreement
4
<PAGE>
shall be governed by the laws of the State of Illinois without regard to its
conflict of laws procedures. This Agreement cannot be amended or otherwise
modified except as agreed to in writing by each of the parties hereto. This
Agreement and Exhibit A represent the sole agreement between the parties and
supersede and merge any prior agreement, oral or written, between the parties
with respect to the subject matter hereof, including, but not limited to any
letters of intent and confidentiality agreements. Any additional or different
terms in the parties' communications, whether acknowledgments, invoices or
otherwise, are hereby deemed to be material alterations and notice of objection
to them and rejection of them is hereby given. The headings used in this
Agreement are for convenience only shall not be considered in its
interpretation.
15. VENDOR expressly agrees that it shall not disclose or otherwise identify
STATE FARM or any of its subsidiaries or affiliates in any of VENDOR's
advertising, publications or other media which are displayed or disseminated to
VENDOR's customers or other parties. The foregoing shall not apply to (I)
VENDOR including STATE FARM's name or trademarks on its website as specified in
this Agreement; or (ii) a one-time single-issuance initial press release by
VENDOR, subject to STATE FARM's advance written approval, announcing the
addition of STATE FARM to the VENDOR's site under this Agreement. This section
shall survive the termination or expiration of this Agreement.
16. Except as otherwise specified herein, all notices, demand or communications
required hereunder shall be in writing and delivered personally, or sent either
by the equivalent of U.S. certified mail, postage prepaid return receipt
requested or by overnight delivery air courier (e.g. Federal Express) to the
parties at their respective addresses set forth on the signature page attached
hereto. All notices, requests, demands, or communications shall be deemed
effective immediately upon the earlier of personal delivery, or four (4) days
following deposit in the mails as set forth above, or one (1) business day
following delivery to the overnight delivery air courier in accordance with this
section. The parties may change their respective addresses for notification of
five (5) days advance written notice pursuant to the procedures set forth in
this Section.
17. Each party shall, at its own expense, comply with any applicable
governmental law, statute, ordinance, administrative order, rule, or regulation
relating to its business or its duties, obligations and performance under this
Agreement, shall procure and maintain in force all governmental licenses and pay
all fees and other charges required thereby; including, but not limited to STATE
FARM's obligation to obtain regulatory approval for the terms and conditions of
its applications, policies, endorsements, forms and advertising, and shall
cooperate to the extent reasonably necessary to enable the other party hereto to
comply with applicable law or regulations, or the reasonable requirements,
requests or investigations of proper regulatory authorities.
5
<PAGE>
IN WITNESS WHEREOF, VENDOR and STATE FARM have caused this Agreement to be
executed by their respective, duly authorized officers.
This Agreement shall become effective on the date the second of the two
parties to sign executes this Agreement below.
DOWNTOWN WEB, INC. STATE FARM MUTUAL AUTOMOBILE
d.b.a. Auutoweb.com INSURANCE COMPANY
3270 Jay Street One State Farm Plaza
Santa Clara, CA 95054 Bloomington, IL 61710
/s/ Payam Zamani /s/ Charles R. Wright
- ----------------------------------- ---------------------------------------
Signature Signature
Payam Zamani Charles R. Wright
- ----------------------------------- ---------------------------------------
Printed or Typed Name Printed or Typed Name
Co-Founder and EVP Agency Vice President
- ----------------------------------- ---------------------------------------
Title Title
1/20/98 1/21/98
- ----------------------------------- ---------------------------------------
Date Date
6
<PAGE>
EXHIBIT A
Term:
One (1) year with an option to renegotiate after the initial six (6)
months.
Distribution:
STATE FARM will be provided with a fixed presentation on VENDOR's insurance
page.
Program:
Individuals interested in receiving insurance quotes will fill out an
inquiry form and the information will be submitted to STATE FARM.
Inquiries:
STATE FARM inquiries will be sent twice daily to the closest STATE FARM
agent. A copy may also be E-mailed to STATE FARM's headquarters.
Promotions:
This partnership will be promoted through the VENDOR's website.
Compensation:
$[ ]** inquiry will be invoiced on a monthly basis.
A $[ ]** set-up fee will be due immediately. This fee will be set
against the initial [ ]** inquiries.
- -------------
**Confidential treatment has been requested with respect to certain
information contained in this document. Confidential portions have
been omitted from the public filing and have been filed separately
with the Securities and Exchange Commission.
7
<PAGE>
AMENDMENT #1
This is an Amendment (the "Amendment") to that certain Services Agreement,
Agreement #4727911, dated January 21, 1998, (the "Agreement") between State Farm
Mutual Automobile Insurance Company, its subsidiaries and affiliates ("STATE
FARM") and Downtown Web, Inc., d/b/a Autoweb.com, Inc. (the "VENDOR").
W I T N E S S E T H
-------------------
WHEREAS, the parties have entered into the Agreement, and as it is the
desire of the parties to amend the Agreement as herein set forth, the parties
agree as follows:
1. A new Exhibit B shall be added, which is attached hereto and
incorporated herein by reference.
2. All references to "Exhibit A" in the Agreement shall mean and refer to
Exhibits A and B.
3. Section 9 of the Agreement is amended as follows: The first clause of
the first and second sentences shall read; "Except for Sections 6, 12
and State Farm's representations and warranties in "Services" in
Exhibit B.
4. This Amendment, together with the Agreement (and any attachments,
addenda, and supplements thereto) shall be the complete and exclusive
statement of the Agreement between the parties as to the subject
matter of the Agreement, and shall be binding upon each of the parties
hereto. In the event of a conflict between the terms and conditions
hereof, and the terms and conditions of the Agreement, the terms and
conditions hereof shall govern. Neither this Amendment nor the
Agreement can be amended or otherwise modified, except as agreed to in
writing by each of the parties hereto. This Amendment, together with
the Agreement, shall be governed by the internal laws of the State of
Illinois and shall be effective upon execution by both parties.
5. Except as expressly amended herein, the Agreement shall remain in full
force and effect.
** Confidential treatment has been requested with respect to certain
information contained in this document. Confidential portions have
been omitted from the public filing and have been filed separately
with the Securities and Exchange Commission.
8
<PAGE>
This Amendment shall become effective on the date the second of the two
parties to sign executes this Amendment below.
Downtown Web, Inc., d/b/a STATE FARM MUTUAL
AUTOWEB.COM, INC. AUTOMOBILE
3270 Jay Street INSURANCE COMPANY
Santa Clara, CA 95054 One State Farm Plaza
Bloomington, IL 61710
/s/ Sam Hedgpeth /s/ John J. Killian
- ----------------------------------- ---------------------------------------
Signature Signature
Sam Hedgpeth John J. Killian
- ----------------------------------- ---------------------------------------
Printed or Typed Name Printed or Typed Name
Chief Financial Officer Vice President and Controller
- ----------------------------------- ---------------------------------------
Title Title
1/5/99 January 5, 1999
- ----------------------------------- ---------------------------------------
Date Date
9
<PAGE>
Exhibit B
Term:
- ----
One (1) year commencing February 1, 1999.
Right of First Refusal:
- ----------------------
VENDOR grants STATE FARM an option to renew this Agreement for an
additional year starting February 1, 2000, on terms and conditions to be
mutually agreed upon by the parties. Such option must be exercised by
STATE FARM on or before January 31, 2000. VENDOR also grants STATE FARM
the right of first refusal for any bonafide written offer received by
VENDOR from a third party. VENDOR must submit a copy of any written offer
to STATE FARM within 7 days of receipt if VENDOR plans to accept such
offer. STATE FARM will have the option to agree to match the offer for a
period of 30 days after its receipt of such offer from VENDOR.
Services:
- --------
VENDOR will provide STATE FARM's Car Finance Plan Program with the
exclusive fixed presentation for financing available to users from various
pages within the VENDOR's autoweb.com site in the United States as
determined by VENDOR and is reasonably acceptable to STATE FARM.
STATE FARM's Car Finance Plan participating lenders shall be solely
responsible for processing the financing applications and providing notice
of acceptance or rejection to applicants. STATE FARM warrants and
represents that it will require the participating lenders to perform all
such service in a prompt and professional manner and to comply with all
applicable laws and regulations. VENDOR shall not be deemed in any way to
be responsible for the manner in which STATE FARM or the participation
lenders conduct their business. If VENDOR is contacted by a STATE FARM
customer, VENDOR's sole responsibility to such customer shall be to provide
that customer with information to contact STATE FARM directly.
Program:
- -------
Individuals interested in receiving automobile financing will fill out an
inquiry form and the information will be submitted to the applicable Car
Finance Plan participating lenders as may be agreed between the parties.
Inquiries:
- ---------
STATE FARM financing applications will be transmitted to STATE FARM's Car
Finance Plan Program and the participating lenders in a manner reasonably
acceptable to STATE FARM.
**Confidential treatment has been requested with respect to certain
information contained in this document. Confidential portions have
been omitted from the public filing and have been filed separately
with the Securities and Exchange Commission.
10
<PAGE>
Promotions:
- ----------
This program will be promoted through the VENDOR's United States web site.
Vendor will integrate the application throughout VENDOR's United States web
site in a manner reasonably acceptable to STATE FARM.
Compensation:
- ------------
[ ]** dollars ($[ ])** to be paid by January 15, 1999.
[ ]** dollars ($[ ])** per application after [ ]**
([ ])** applications have been provided to STATE FARM's
participating lenders.
[ ]** dollars ($[ ])** per funded loan after [ ]**
([ ])** loans have been funded by the participating lenders.
**Confidential treatment has been requested with respect to certain
information contained in this document. Confidential portions have
been omitted from the public filing and have been filed separately
with the Securities and Exchange Commission.
11
<PAGE>
Exhibit 10.18
SERVICES AGREEMENT
Agreement #
This Services Agreement (the "Agreement") between Autoweb.com, Inc.
("VENDOR"), a California corporation, whose address is 3270 Jay Street, Santa
Clara, CA 95054, and State Farm Mutual Automobile Insurance Company, an Illinois
corporation, acting on its behalf and that of its subsidiaries and affiliates
("STATE FARM"), a company having its corporate headquarters at One State Farm
Plaza, Bloomington, IL 61710, shall be effective according to its terms as of
the "Effective Date" (as defined on the signature page attached hereto). Any
capitalized terms not defined in the body of this Agreement are defined in
Exhibit "A" attached hereto.
W I T N E S E T H
WHEREAS, VENDOR has developed and operates an Internet WWW site for the
purpose of promoting, marketing, and facilitating the sale of cars and car
insurance; and
WHEREAS, certain services and participation in VENDOR's services are
requested by STATE FARM; and
WHEREAS, VENDOR has agreed to provide such services and participation in
accordance with the terms and conditions of the Agreement.
NOW, THEREFORE, the parties hereby agree as follows:
1. VENDOR agrees to provide those services to STATE FARM as set forth in
Exhibit A, attached hereto and incorporated here in (the "Services"). In
exchange for the Services, STATE FARM shall pay to VENDOR the fees as are set
forth in Exhibit A.
Bills for all other fees described in Exhibit A are due and payable by
STATE FARM within thirty (30) days of the receipt of an accurate invoice by
STATE FARM.
2. Each party shall keep confidential, and not use for any purpose except to
perform Its respective obligations pursuant to this Agreement, and proprietary,
trade secret, business, copyright, patent or other such information of the other
party, or of any of its vendors, suppliers, independent contractor insurance
agents or customers, which it learns as the result of carrying out its
obligations thereunder ("Confidential Information"); provided, however, that
Confidential Information does not include information that: (a) receiving party
can demonstrate was known by receiving party prior to the disclosure thereof by
disclosing party; (b) properly came into the possession of receiving party from
a third party which was not under any obligation to maintain the confidentiality
of such information; (c) has become part of the public domain through no act or
fault on the part of the receiving party in breach of this Agreement; or (d)
receiving party can demonstrate was independently developed by or for receiving
party without the use of Confidential
**Confidential treatment has been requested with respect to certain information
contained in this document. Confidential portions have been omitted from the
public filing and have been filed separately with the Securities and Exchange
Commission.
<PAGE>
Information. Each party expressly further agrees that it shall return any such
information and copies thereof to the other party upon completion of its duties
under this Agreement, or upon the other party's request. The terms of this
Section 2 shall survive the termination of this Agreement. The foregoing
prohibition on non-disclosure shall not apply to the extent that disclosure of
Confidential Information to proper legal and regulatory authorities is required
by law or regulation. In the event the receiving party receives a request to
disclose all or any part of the Confidential Information under the terms of a
valid subpoena or order issued by a court of competent jurisdiction or by a
governmental body, the receiving party agrees to: (a) notify the disclosing
party promptly of such request; (b) provide the disclosing party with reasonable
assistance in obtaining an order or other reliable assurance that confidential
treatment will be accorded to such portion of the Confidential Information that
the disclosing party so designates. The parties acknowledge that a breach of the
Section 2 would cause irreparable harm to the disclosing party, which would not
have an adequate remedy at law, and agree that such party may seek equitable
relief.
3. VENDOR represents and warrants that it has the ability an expertise to
perform its responsibilities hereunder and shall perform the Services in a
professional and workmanlike manner. EXCEPT AS EXPRESSLY PROVIDED IN THIS
AGREEMENT, VENDOR MAKES NO OTHER WARRANTIES EITHER EXPRESS OR IMPLIED, AS TO THE
SERVICES, MATERIALS, OR INFORMATION PROVIDED HEREUNDER, AND HEREBY EXPRESSLY
DISCLAIMS ALL IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR ANY
PARTICULAR PURPOSE.
4. The parties expressly agree that VENDOR shall be an independent contractor
for all purposes in the performance of this Agreement and that none of its
employees or agents shall be considered an employee of STATE FARM for any
purpose.
5. The parties agree the HTML content of STATE FARM's carrier screen and
carrier information shall be developed specifically for STATE FARM by VENDOR and
shall be considered a "Work Made for Hire". Such content shall be the sole and
absolute property of STATE FARM and STATE FARM reserves all rights of ownership,
including but not limited to copyright and other proprietary rights. Except for
STATE FARM's ownership of the content of the foregoing carrier screen and
carrier information, the parties agree VENDOR shall acquire no ownership or
intellectual property rights in the form or content of carrier screen and/or
carrier information by virtue of its posting on the VENDOR's site, nor shall
STATE FARM acquire any rights in the form or content of the VENDOR's site or any
information posted thereon other than STATE FARM's own information.
6. a. VENDOR expressly agrees, anything herein to the contrary
notwithstanding, that it shall indemnify, defend, and hold STATE FARM fully
harmless against any loss, damages, claims or expenses of any kind whatsoever,
including costs and reasonable attorneys' fees, which STATE FARM shall incur to
the extent caused by
<PAGE>
or arising from the negligent acts of, or negligent failure to act by VENDOR,
its employees or agents in the performance of this Agreement.
b. STATE FARM expressly agrees, anything herein to the contrary
notwithstanding, that it shall indemnify, defend and hold VENDOR fully harmless
against any loss, damages, claims of expenses of any kind whatsoever, including
costs and reasonable attorneys' fees, which VENDOR shall incur to the extent
caused by or arising from the negligent acts of, or negligent failure to act by
STATE FARM or its employees or agents in the performance of this Agreement.
c. In the event of an indemnifiable event, either party shall give prompt
notice of any such claim to the other party, and the indemnifying party shall
have the right and obligation to control and direct the investigation, defense
and settlement of each such claim. The indemnified party shall reasonably
cooperate in connection with the foregoing. The rights and obligations of the
parties pursuant to this Section 6 shall survive any termination or expiration
of this Agreement.
7. The term of this Agreement shall be as set forth in Exhibit A. If either
party neglects or fails to perform any of its material obligations under this
Agreement and such failure continues for a period excess of thirty (30) days
after written notice (containing a reasonably detailed statement of the alleged
failure to perform) thereof from the non-breaching party, the non-breaching
party shall have the right to terminate this Agreement immediately upon further
written notice to the breaching party. During any notice and cure period, both
parties shall continue to be bound by all the terms and conditions of this
Agreement.
8. Anything in the Agreement to the contrary notwithstanding, neither party may
delegate or assign its rights or duties under the Agreement to any other entity,
including an entity which affiliates or merges with or acquires such party,
except when such delegation or assignment is approved in advance by the other
party in writing, which approval shall not be unreasonably withheld.
9. EXCEPT FOR SECTIONS 6 AND 12, UNDER NO CIRCUMSTANCES WHATSOEVER SHALL EITHER
PARTY BE LIABLE TO THE OTHER FOR ANY SPECIAL, CONSEQUENTIAL, INDIRECT,
CIRCUMSTANTIAL, OR INCIDENTAL DAMAGES, LOSS OF PROFITS OR REVENUE, LOSS OF DATA,
OR INTERRUPTION OF BUSINESS OF ANY KIND WHATSOEVER IN ANY WAY ARISING OUT OF OR
RELATED TO THIS AGREEMENT, REGARDLESS OF THE FORM OF ACTION, WHETHER IN
CONTRACT, TORT, (INCLUDING NEGLIGENCE), STRICT PRODUCT LIABILITY OR OTHERWISE,
EVEN IF ANY REPRESENTATIVE OF SUCH PART HAS BEEN ADVISED OF THE POSSIBILITY OF
OR COULD HAVE FORESEEN SUCH DAMAGES. EXCEPT FOR SECTIONS 6 AND 12, IN NO EVENT
WHATSOEVER SHALL EITHER PARTY'S LIABILITY FOR DIRECT DAMAGES TO THE OTHER PARTY
FOR ANY OTHER REASON WHATSOEVER EXCEED IN THE AGGREGATE THE SUM OF FIFTY
THOUSAND
<PAGE>
DOLLARS ($50,000.00). THE FOREGOING LIMITATION OF LIABILITY SHALL NOT
APPLY TO THE COMPENSATION PAYABLE UNDER THIS AGREEMENT.
10. It is expressly agreed that if either party, on any occasion, fails to
perform any term of this Agreement, and the other party does not enforce that
term, the failure to enforce on that occasion shall not constitute a waiver of
that term by the other party. A waiver of any provision of this Agreement or
any right or obligations of either party hereunder shall be effective only to
the extent provided to a writing signed and delivered by the party waiving
compliance.
11. Anything in this Agreement to the contrary notwithstanding, under no
circumstances whatsoever shall STATE FARM pay any taxes which it does not
customarily pay in transactions of the nature set forth in this Agreement.
Under no circumstances whatsoever shall STATE FARM be liable for any penalties,
fines or other such charges incurred due to the failure of VENDOR to timely pay
when due any taxes owed by it under this Agreement
12. Anything in this Agreement to the contrary notwithstanding, each party at
its own expense shall defend, indemnify and hold the other fully harmless
against any action asserted against such party (and specifically including costs
and reasonable attorneys' fees associated with any such action) to the extent
that it is based on a claim that any materials, content or services provided by
the indemnifying party under this Agreement infringe upon any patent, copyright,
license or other property right or proprietary right of any third party (as used
in this Section 12, a "Claim of Infringement"). Either party shall promptly
notify the other in writing of any such claim. If as a result of any Claim of
Infringement, the indemnified party is enjoined from using the materials,
content or services, or if the indemnified party believes that such materials,
content or services are likely to become the subject of a Claim of Infringement,
the indemnifying party as its option and expense may procure the right for the
indemnified party to continue to use the materials, content or services, or
replace or modify the materials, contents or services so as to make such non-
infringing. The rights and obligations of the parties pursuant of this Section
12 shall survive any termination or expiration of the Agreement so long as such
replacement or modification shall not materially degrade the performance
rendered to the indemnified party pursuant to this Agreement. A party shall not
have any liability under this Section 12 to the extent the Claim of Infringement
is caused by the party seeing indemnification hereunder.
13. Neither party shall be liable for any delays in performance hereunder due
to unforeseen circumstances beyond its control including, but not limited to,
acts of nature, fire, flood, acts of governments, delays in transportation, and
delays in delivery or inability of suppliers to deliver. In such event, this
Agreement shall remain valid and the rights and obligations it sets forth shall
be resumed when such party shall again be able to perform its obligations;
however, in such event, the parties hereby mutually agree on an outside
limitation date not in excess of sixty (60) days. If such party is unable to
resume
<PAGE>
the performance of its obligations within such period, then either party
shall have the option to terminate this Agreement by so notifying the other
party in writing.
14. This Agreement together with Exhibit A hereto shall be an agreement binding
upon each of the parties hereto, their successors and, to the extent permitted,
their assigns. This Agreement shall be effective upon written execution by both
parties. This Agreement shall be governed by the laws of the State of Illinois
without regard to its conflict of laws procedures. This Agreement cannot be
amended or otherwise modified except as agreed to in writing by each of the
parties hereto. This Agreement and Exhibit A represent the sole agreement
between the parties and supersede and merge any prior agreement, oral or
written, between the parties with respect to the subject matter hereof,
including, but not limited to any letters of intent, confidentiality agreements
and the agreement between the parties dated January 21, 1998. Any additional or
different terms in the parties' communications, whether acknowledgments,
invoices or otherwise, are hereby deemed to be material alterations and notice
of objection to them and rejection of them is hereby given. The headings used
in this Agreement are for convenience only shall not be considered in its
interpretation.
15. VENDOR expressly agrees that it shall not disclose or otherwise identify
STATE FARM or any of its subsidiaries or affiliates in any of VENDOR's
advertising, publications or other media which are displayed or disseminated to
VENDOR's customers or other parties. The foregoing shall not apply to (I)
VENDOR including STATE FARM's name or trademarks on its website as specified in
this Agreement; or (ii) a one-time single-issuance initial press release by
VENDOR, subject to STATE FARM's advance written approval, announcing the
addition of STATE FARM to the VENDOR's site under this Agreement. This section
shall survive the termination or expiration of this Agreement.
16. Except as otherwise specified herein, all notices, demand or communications
required hereunder shall be in writing and delivered personally, or sent either
by the equivalent of U.S. certified mail, postage prepaid return receipt
requested or by overnight delivery air courier (e.g. Federal Express) to the
parties at their respective addresses set forth on the signature page attached
hereto. All notices, requests, demands, or communications shall be deemed
effective immediately upon the earlier of personal delivery, or four (4) days
following deposit in the mails as set forth above, or one (1) business day
following delivery to the overnight delivery air courier in accordance with this
section. The parties may change their respective addresses for notification of
five (5) days advance written notice pursuant to the procedures set forth in
this Section.
17. Each party shall, at its own expense, comply with any applicable
governmental law, statute, ordinance, administrative order, rule, or regulation
relating to its business or its duties, obligations and performance under this
Agreement, shall procure and maintain in force all governmental licenses and pay
all fees and other charges required thereby; including, but not limited to STATE
FARM's obligation to obtain regulatory approval for the terms and conditions of
its applications, policies, endorsements, forms and
<PAGE>
advertising, and shall cooperate to the extent reasonably necessary to enable
the other party hereto to comply with applicable law or regulations, or the
reasonable requirements, requests or investigations of proper regulatory
authorities.
18. The parties agree to engage in discussions regarding other potential
business opportunities, including but not limited to automobile financing.
IN WITNESS WHEREOF, VENDOR and STATE FARM have caused this Agreement to be
executed by their respective, duly authorized officers.
This Agreement shall become effective on July 15, 1998.
AUTOWEB.COM, INC. STATE FARM MUTUAL
3270 Jay Street AUTOMOBILE
Santa Clara, CA 95054 INSURANCE COMPANY
One State Farm Plaza
Bloomington, IL 61710
/s/ Payam Zamani /s/ Charles R. Wright
- ----------------------------- ------------------------------
Signature Signature
Payam Zamani Charles R. Wright
- ----------------------------- ------------------------------
Printed or Typed Name Printed or Typed Name
EVP Agency Vice President
- ----------------------------- ------------------------------
Title Title
7/22/98 7/26/98
- ----------------------------- ------------------------------
Date Date
<PAGE>
Exhibit A
Term:
An initial term of one (1) year with a right of first refusal on an
additional year under terms and conditions to be negotiated in good faith
between the parties and completed thirty (30) days before the end of the
initial term.
Distribution:
STATE FARM will be provided with an exclusive, fixed presentation on
VENDOR's insurance page for insurance applicants, as well as other
exclusive presentations to which the parties agree. VENDOR may run banner
advertisements for other insurance companies on pages where STATE FARM is
not present.
Program:
Individuals interested in receiving insurance quotes will fill out an
inquiry form and the information will be submitted to STATE FARM.
Inquiries:
STATE FARM inquiries will be sent twice daily to the closest STATE FARM
agent. A copy may also be E-mailed to STATE FARM's headquarters.
Promotions:
This partnership will be promoted through the VENDOR's website.
Compensation:
[ ]** dollars ($[ ])** at contract signing.
**Confidential treatment has been requested with respect to certain
information contained in this document. Confidential portions have
been omitted from the public filing and have been filed separately
with the Securities and Exchange Commission.
<PAGE>
EXHIBIT 10.19
AUTOMOTIVE PROGRAM
ADVERTISING AND PROMOTION AGREEMENT
This Advertising and Promotion Agreement (this "Agreement") is entered
---------
into as of December 17, 1998 (the "Effective Date") between Yahoo! Inc., a
--------------
California corporation with offices at 3420 Central Expressway, Santa Clara, CA
95051 ("Yahoo") and Autoweb-com Inc., a California corporation with offices at
-----
3270 Jay Street, Bldg. 6, Santa Clara, CA 95054 ("Autoweb").
In consideration of the mutual promises contained in this Agreement, Yahoo
and Autoweb hereby agree as follows-
1. Definitions.
-----------
The following. terms are used in this Agreement with the respective
meanings set forth below:
"Autoweb Banner" shall mean an advertising promotion substantially similar
--------------
in form as that set forth on Exhibit B that: (a) promotes the on-line sale of
Autoweb products and services, (b) has dimensions no larger than 468 pixels wide
by 60 pixels high, (c) does not have "looped" animation, (d) does not have any
animation longer than four seconds, (e) has a file size of no greater than 12K,
and (f) will permit users to navigate directly to a Page on the Autoweb Site
relating to the Autoweb Banner content. These specifications may be modified by
Yahoo provided that such modifications do not adversely impact Autoweb.
"Autoweb Button" shall mean a link substantially similar in form as that
--------------
set forth on Exhibit B that: (a) contains an Autoweb logo and has dimensions no
---------
larger than 88 pixels wide by 31 pixels high, (b does not contain animation, (c)
has a file size of no greater than 1.5K, (d) and will permit users to navigate
directly to a Page on the Autoweb Site relating to the Page on which such
Autoweb Button appears. These specifications may be modified by Yahoo provided
that such modifications do not adversely impact Autoweb.
"Autoweb Classified Link" shall mean a text link substantially similar in
-----------------------
form as that set forth on Exhibit B that will permit users to navigate directly
to a Page on the Autoweb Site relating to the Autoweb Listing to which the text
link refers.
"Autoweb Competitor" shall mean the merchants listed on Exhibit B to this
------------------
Agreement.
"Autoweb Inktomi Search Button" shall mean a link substantially
-----------------------------
similar in form as that set forth on Exhibit B that: (a) contains an Autoweb
---------
logo and has dimensions no larger than 88 pixels wide by 31 pixels high, (b)
does not contain animation, and (c) has a file size of no greater than 1.5K.
"Autoweb Link" shall mean any link placed by Yahoo under this Agreement,
------------
including, without limitation, the Autoweb Banner, Autoweb Button, Autoweb
Inktomi Search Button and Autoweb Classified link.
- ----------------
** Confidential treatment has been requested with respect to certain
information contained in this document. Confidential portions have
been omitted from the public filing and have been filed separately
with the Securities and Exchange Commission.
1
<PAGE>
"Autoweb Listings" shall mean those used car listings appearing on the
----------------
Autoweb Site.
"Autoweb Site" shall mean the web site owned by Autoweb currently located
------------
at http://www.autoweb.com.
----------------------
"Auto Merchant" shall mean any company or other entity primarily engaged in
-------------
the online sale of Auto Products.
"Auto Merchant Program" shall mean Yahoo's program consisting of certain
---------------------
marketing, advertising and prom(! tional activities with Auto Merchants as
further described in this Agreement.
"Auto Merchant Program Participant" shall mean an Auto Merchant that has
---------------------------------
purchased a link on the Included Page.
"Auto Products" shall mean autos and related goods and services.
-------------
"Above-the-Fold" means situated on the portion of a Page that is designed
--------------
to be visible on a standard computer screen with a resolution of 800 pixels by
600 pixels.
"Included Pages" shall mean the automotive-related directory pages
--------------
and keyword search results pages of the Yahoo Main Site, Yahoo Autos, Yahoo
Yellow Pages, and Yahoo Classifieds that are identified on Exhibit A. From time
to time and at any time during the Term of this Agreement, Yahoo shall have the
right to modify the Included Pages by adding to or deleting from pages
identified on Exhibit A due to changes in Yahoo's directory, provided; however,
that any such changes that materially adversely effect Autoweb shall take effect
only upon Autoweb's consent thereto. For the avoidance of doubt, the "Edmunds"
pricing information currently located at http://autos.yahoo.com/edmunds/ will be
------------------------------
included only Yahoo makes it available as Included Pages to the other Auto
Merchant Program Participants.
"Inktomi results Pages" shall mean any Page that appears when a user
---------------------
submits a search query to the Yahoo Main Site that defaults to Page on which the
search results are powered by the Inktomi search engine.
"Launch Date" shall mean the date on which Yahoo activates an Autoweb Link.
-----------
"Page" means any World Wide Web page (or, for online media other than Web
----
sites, the equivalent unit of the relevant protocol).
"Page View" shall mean a user's request for a Page.
---------
"Term" shall mean the period beginning on the Effective Date and continuing
----
for a period of thirteen (13) full calendar months following the Launch Date.
"Yahoo Main Site" shall mean Yahoo's principal U.S. based directory to the
---------------
World Wide Web currently locate at http://www.yahoo.com.
-------------------
2
<PAGE>
"Yahoo Properties" shall mean any Yahoo branded or co-branded media
----------------
properties, including, without limitation, Internet guides, that are developed
in whole or in part by Yahoo or its affiliates.
2. Autoweb Banner.
--------------
2.1 Upon execution of this Agreement, Autoweb shall execute Yahoo's
standard insertion orders against the Autoweb Banner promotions
referenced in this Agreement. Yahoo will provide the Autoweb Banner
placements in accordance with the terms of such insertion orders at no
extra charge (beyond that specified in this Agreement) to Autoweb.
3 Autoweb Buttons.
---------------
3.1 Yahoo shall provide an Autoweb Button in one of the three following
formats on The Included Pages. One (1) Autoweb Button shall be
accompanied by one text link; one (1) Autoweb Button shall be
accompanied by three (3) text links, and one (1) Autoweb Button shall
have no text links. In no case shall an Autoweb Button text link
exceed sixteen (16) characters. Autoweb Buttons shall be placed on
the Included Pages (i) no less prominently than any other Auto
Merchant Program button appearing on the Included Pages (e.g., any
rotation of Auto Merchant Program buttons shall be equal); and (ii)
more prominently than any Yahoo branded button on the Included Pages.
Yahoo shall ensure that at any given time - no less than one (1) Auto
Merchant Program button (or portion thereof) appears Above the Fold on
the Included Pages.
4. Autoweb Inktomi Search Button.
-----------------------------
4.1 Yahoo shall provide the Autoweb Inktomi Search Button, accompanied by
one (1) text link not to exceed sixteen (16) characters, on the
Inktomi Results Pages. The Autoweb Inktomi Search Button shall be
placed on the Inktomi Results Pages substantially similar to other
Yahoo advertiser's buttons appearing on such pages as shown on Exhibit
-------
B. When commercially practicable (based upon Yahoo's design and use of
-
the Inktomi Results Pages), Yahoo shall ensure that the Autoweb
Inktomi Search Button appears above the Fold.
5. Autoweb Classified Links.
------------------------
5.1 Yahoo shall provide an Autoweb Classified Link for each Autoweb
Listing. The Autoweb Listings shall be placed in the appropriate
categories of the Yahoo auto classifieds service, provided that the
placement of the Autoweb Listings within each category shall be at
Yahoo's sole discretion. The Autoweb Listings shall be provided by
Autoweb to Yahoo pursuant to Yahoo's standard specifications for auto
classifieds listings and shall be updated by Autoweb on a regular
basis.
3
<PAGE>
6. Implementation.
--------------
6.1 Subject to the provisions of this Agreement, Yahoo will be solely
responsible for the user interface and placement of the Autoweb Links
and Autoweb shall be solely responsible for and shall provide Yahoo
with all artwork and design elements of the Autoweb Links.
6.2 Autoweb shall promptly provide Yahoo all URLS, URL formats (as
applicable), content, and other materials necessary for Yahoo to
provide the Autoweb Links. All content and material contained in the
Autoweb Links is subject to Yahoo's approval and must comply with all
applicable federal, state and local laws, rules and regulations,
including, without limitation, consumer protection laws and rules and
regulations governing product claims, truth in labeling, and false
advertising.
6.3 Autoweb hereby grants to Yahoo a non-exclusive, worldwide, fully paid
license to use, reproduce and display the Autoweb Listings, and the
Autoweb name and logo (i) to indicate the location of the Autoweb
Links as set forth herein and (ii) in connection with the marketing
and promotion of Autoweb in the Yahoo Properties.
6.4 In no event shall any initial Page on the Autoweb Site to which users
Click-through from any Autoweb Button provided pursuant to the Auto
Merchant Program, contain graphic or textual hyperlinks, banner
advertisements or promotions of any of the following Yahoo
competitors: Amazon, eBay, Excite, Lycos, Microsoft, America Online,
Netscape, CNET and Infoseek, and their successors.
6.5 The Autoweb Site shall comply with the scale, speed and performance
requirements mutually agreed upon by the parties but in no event less
than that provided by the Yahoo Main Site.
7. Limited Exclusivity; Right of First Presentation.
------------------------------------------------
7.1 Yahoo shall not include graphic links (merchant buttons) to more than
three (3) Auto Merchants on the Included Pages. In addition, Yahoo
shall not display any banner advertisements on the Included Pages for
any Autoweb Competitor; provided, however, that notwithstanding the
foregoing, Auto Merchant Program Participants shall not be precluded
from purchasing banner advertising on the Included Pages Autoweb.
7.2 Yahoo will provide written notice to Autoweb in the event that Yahoo
intends to create, acquire, develop or otherwise make available a
promotional opportunity relating to Auto Products similar in scope and
nature to the program described in this Agreement on a Yahoo
navigational web site that is directed to an audience within the
United States and is not the subject of this Agreement (provided that
such navigational web site is solely owned, created, and branded by
Yahoo).
4
<PAGE>
Autoweb acknowledges that the foregoing applies only to new
promotional opportunities providing merchant prominence similar to
that described herein and does not apply to routine promotions and
advertisements offered in the ordinary course of Yahoo's business with
respect to such other navigational web site(s). Yahoo shall describe
the opportunity and Yahoo's business requirements for the opportunity
in its written notice to Autoweb. Thereafter, the parties will use
good-faith efforts to negotiate and execute a written amendment to
this Agreement to include such property under reasonable terms and
conditions. If Autoweb declines to commence negotiations with Yahoo
regarding an opportunity described in the notice within five (5)
business days after receiving such written notice from Yahoo, or if
the parties fail to reach agreement within ten (10) business days
following the commencement of good faith negotiations (or such later
date as is agreed by the parties), Yahoo may offer the opportunity to
any third party.
8. Page Views.
----------
8.1 With respect to the Autoweb Banner, Autoweb Buttons and Autoweb
Inktomi Search Button, Yahoo shall deliver a minimum [ ]**
([ ])** Page Views.
8.2 Yahoo will deliver such Page Views allocated as follows: [ ]**
([ ])** Page Views of the Autoweb Buttons; [ ]**
([ ])** Page Views of the Autoweb Banner; [ ]**
([ ])**Page Views of the Autoweb Inktomi Search Button.
8.3 Yahoo shall use commercially reasonable efforts to deliver the Page
Views evenly throughout the Term of this Agreement. In the event that
Yahoo fails to deliver the number of Page Views referred to in Section
8.1 above at the expiration of the Term, Yahoo will "make good" the
shortfall by extending its obligations under Sections 2, 3 and 4 in
the areas of the Yahoo Main Site set forth, therein (or similar
inventory) beyond the end of the Term until such Page View obligation
is satisfied. The provisions set forth in this Section 8.3 set forth
the entire liability of Yahoo, and Autoweb's sole remedy, for Yahoo's
breach of its Page View obligations set forth in this Section 8.
8.4 Yahoo shall provide Autoweb access to an electronic database that
describes (in reasonable detail) Yahoo's calculation of the Page Views
delivered during the period
9. Compensation.
------------
9.1 Slotting Fee. In consideration of Yahoo's performance and obligations
------------
as set forth herein, Autoweb will pay Yahoo a non-refundable slotting
fee equal to [ ]** dollars ($[ ])**. Such fee shall be paid
to Yahoo as set forth below
**Confidential treatment has been requested with respect to certain
information contained in this document. Confidential portions have
been omitted from the public filing and have been filed separately
with the Securities and Exchange Commission.
5
<PAGE>
with the first payment designated as a set up fee for the design,
consultation, development, implementation and placement of the Autoweb
Links.
Payment Date
---------------------------------------------------------------------
$[ ]** upon execution of this Agreement
$[ ]** December 15, 1998
$[ ]** commencing January 1, 1999 and continuing monthly
thereafter until December 1, 1999 (totaling twelve
payments)
9.2 Referral Fee. In addition to the compensation described in Section 9.1
------------
above, Autoweb shall pay Yahoo a quarterly referral fee equal to
$[ ]** for each Click-through under the Auto Merchant Program.
Payments will be made on April 1, 1999, July 1, 1999, October 1, 1999
and January 1, 2000 with respect to Click-throughs that occur in the
prior calendar quarter. Fees resulting from Click-throughs occurring
in December 1998 shall be included in the first referral fee payment.
9.3 Payment Information. All payments herein are non-refundable and
-------------------
noncreditable and shall be made by Autoweb via wire transfer into
Yahoo's main account pursuant to the wire transfer instructions set
forth on Exhibit C.
9.4 Late Payments. Any portion of the above payments which has not been
-------------
paid to Yahoo within ten (10) days of the dates set forth above shall
bear interest at the lesser of (i) one percent (1%) per month or (ii)
the maximum amount allowed by law. Notwithstanding the foregoing, any
failure by Autoweb to make the payments specified in Sections 9.1 and
9.2 on the dates set forth herein shall constitute a material breach
of this Agreement.
10. Termination.
-----------
10.1 Term. This Agreement shall commence upon the Effective Date and,
----
unless terminated as provided herein, shall remain in effect for the
Term.
10.2 Termination by Either Party with Cause. This Agreement maybe
--------------------------------------
terminated at any time by either party: (1) immediately upon written
notice if the other party: (a) becomes insolvent; (b) files a petition
in bankruptcy; or (c) makes an assignment for the benefit of its
creditors; or (ii) thirty (30) days after written notice to the other
party of such other party's breach of any of its obligations under
this Agreement in any material respect (ten (10) days in the case of a
failure to pay), which breach is not remedied within such notice
period. In the event that Yahoo provides a notice of termination under
clause (ii) above, Yahoo shall have the right to suspend performance
under Sections 2, 3 and 4 of this Agreement for the notice period
unless and until the breach is fully remedied by Autoweb prior to the
expiration of the notice period.
**Confidential treatment has been requested with respect to certain
information contained in this document. Confidential portions have
been omitted from the public filing and have been filed separately
with the Securities and Exchange Commission.
6
<PAGE>
10.3 Survival. The provisions of Sections 1, 8.3, 9, 10.3 and 11-5 shall
--------
survive expiration or termination of this Agreement.
11. Confidential Information and Publicity.
--------------------------------------
11.1 Terms and Conditions. The terms and conditions of this Agreement shall
--------------------
be considered confidential and shall not be disclosed to any third
parties except to such party's accountants, attorneys, or except as
otherwise required by law. Neither party shall make any public
announcement regarding the existence of this Agreement without the
other party's prior written approval and consent.
11.2 Publicity. Any and all publicity relating to this Agreement and
---------
subsequent transactions between Yahoo and Autoweb and the method of
its release shall be approved in advance of the release by both Yahoo
and Autoweb.
11.3 Nondisclosure Agreement. Yahoo and Autoweb acknowledge and agree to
-----------------------
the terms of the Mutual Nondisclosure Agreement attached hereto as
Exhibit D with respect to the use and disclosure of confidential
information and all discussions, pertaining to or leading to this
Agreement.
11.4 User Data. All information and data provided to Yahoo by users of the
---------
Yahoo Properties or otherwise collected by Yahoo relating to user
activity on the Yahoo Properties shall be retained by and owned solely
by Yahoo. All information and data provided to Autoweb on the Autoweb
Site or otherwise collected by Autoweb relating to user activity on
the Autoweb Site shall be retained by and owned solely by Autoweb.
Each party agrees to use such information only as authorized by the
user and shall not disclose, sell, license or otherwise transfer any
such user information to any third party or use the information for
the transmission of "junk mail," "spam", or any other unsolicited
mass distribution of information.
11.5 Privacy of User Information. Autoweb shall ensure that all information
---------------------------
provided by users of the Autoweb Site is maintained, accessed and
transmitted in a secure environment and in compliance with security
specifications to be mutually agreed upon by the parties. Autoweb
shall provide a link to its policy (or to Yahoo's policy) regarding
the protection of user data on those pages of the Autoweb Site where
the user is requested to provide personal or financial information.
12. Indemnification.
---------------
12.1 Autoweb, at its own expense, will indemnify, defend and hold harmless
Yahoo and its employees, representatives, agents and affiliates,
against any claim, suit, action, or other proceeding brought against
Yahoo based on or arising from a claim any Autoweb trademark, service
mark or other Autoweb brand feature, any material, product or service
produced, distributed, offered or provided by Autoweb, or any material
presented on the Autoweb Site, infringes in any manner
7
<PAGE>
any copyright, patent, trademark, trade secret or any other
intellectual property right of any third party, is or contains any
material or information that is obscene, defamatory, libelous,
slanderous, or that violates any law or regulation, or that otherwise
violates any rights of any person or entity, including, without
limitation, rights of publicity, privacy or personality, or has other-
wise resulted in any consumer fraud, product liability, tort, breach
of contract, injury, damage or harm of any kind to any third party;
provided, however, that in any such case: (x) Yahoo provides Autoweb
with prompt notice of any such claim; (y) Yahoo permits Autoweb to
assume and control the defense of such action upon Autoweb's written
notice to Yahoo of its intention to indemnify; and (z) upon Autoweb's
written request, and at no expense to Yahoo, Yahoo will provide to
Autoweb all available information and assistance necessary for Autoweb
to defend such claim. Autoweb will not enter into any settlement or
compromise of any such claim, which settlement or compromise would
result in any liability to Yahoo, without Yahoo's prior written
consent, which shall not unreasonably be withheld. Autoweb will pay
any and all costs, damages, and expenses, including, but not limited
to, reasonable attorneys' fees and costs awarded against or otherwise
incurred by Yahoo in connection with or arising from any such claim,
suit, action or proceeding.
12.2 Yahoo, at its own expense, will indemnify, defend and hold harmless
Autoweb and its employees, representatives, agents and affiliates,
against any claim, suit, action, or other proceeding brought against
Autoweb based on or arising from a claim that any Yahoo trademark,
service mark or other Yahoo brand feature infringes in any manner any
copyright, patent, trademark, trade secret or any other intellectual
property right of any third party; provided, however, that in any such
case: (x) Autoweb provides Yahoo with prompt notice of any such claim;
(y) Autoweb permits Yahoo to assume and control the defense of such
action upon Yahoo's written notice to Autoweb of its intention to
indemnify; and (z) upon Yahoo's written request, and at no expense to
Autoweb, Autoweb will provide to Yahoo all available information and
assistance necessary for Yahoo to defend such claim. Yahoo will not
enter into any settlement or compromise of any such claim, which
settlement or compromise would result in any liability to Autoweb,
without Autoweb's prior written consent, which shall not unreasonably
be withheld. Yahoo will pay any and all costs, damages, and expenses,
including, but not limited to, reasonable attorneys' fees and costs
awarded against or otherwise incurred by Autoweb in connection with or
arising from any such claim, suit, action or proceeding.
13. Limitation of Liability.
-----------------------
13.1 EXCEPT AS PROVIDED IN SECTION 11, UNDER NO CIRCUMSTANCES SHALL
AUTOWEB, YAHOO, OR ANY AFFILIATE BE LIABLE TO THE OTHER PARTY FOR
INDIRECT, INCIDETNTAL, CONSEQUENTIAL, SPECIAL OR EXEMPLARY DAMAGES
ARISING FROM THIS
8
<PAGE>
AGREEMENT, EVEN IF THAT PARTY HAS BEEN ADVISED OF THE POSSIBILITY
OF SUCH DAMAGES, SUCH AS, BUT NOT LIMITED TO, LOSS OF REVENUE OR
ANTICIPATED PROFITS OR LOST BUSINESS.
14. Insurance.
---------
14.1 Autoweb agrees that it will maintain insurance with a carrier that is
reasonably acceptable by Yahoo and with coverage for commercial
general liability and errors and omissions of at least one million
dollars per occurrence. Autoweb will name Yahoo as an additional
insured on such insurance and will provide evidence of such insurance
to Yahoo within ten (I0) days of the Effective Date. Such insurance
policy shall not be cancelled or modified without Yahoo's prior
written consent.
15. General Provisions.
------------------
15.1 Independent Contractors. It is the intention of Yahoo and Autoweb that
-----------------------
Yahoo and Autoweb are, and shall be deemed to be, independent
contractors with respect to the subject matter of this Agreement, and
nothing contained in this Agreement shall be deemed or construed in
any manner whatsoever as creating any partnership, joint venture,
employment, agency, fiduciary or other similar relationship between
Yahoo and Autoweb.
15.2 Entire Agreement. This Agreement, together with all Exhibits hereto,
----------------
represents the entire agreement between Yahoo and Autoweb with respect
to the subject matter hereof and thereof and shall supersede all prior
agreements and communications of the parties, oral or written,
including without limitation the Letter of Agreement dated November
[20], 1998, between Yahoo and Autoweb.
15.3 Amendment and Waiver. No amendment to, or waiver of, any provision of
--------------------
this Agreement shall be effective unless in writing and signed by both
parties. The waiver by any party of any breach or default shall not
constitute a waiver of any different or subsequent breach or default.
15.4 Governing Law. This Agreement shall be governed by and interpreted in
-------------
accordance with the laws of the State of California without regard to
the conflicts of laws principles thereof.
15.5 Successors and Assigns. Neither party shall assign its rights or
----------------------
obligations under this Agreement without the prior written consent of
the other party, which shall not unreasonably be withheld or delayed.
Notwithstanding the foregoing, either party may assign this Agreement
to an entity who acquires substantially all of the stock or assets of
a party to this Agreement; provided that consent will be required in
the event that the non-assigning party reasonably determines that the
assignee will not have sufficient capital or assets to perform its
obligations hereunder, or that the assignee is a direct competitor of
the non-assigning party. All terms and
9
<PAGE>
provisions of this Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective permitted
transferees, successors and assigns.
15.6 Force Majeure. Neither party shall be liable for failure to perform or
-------------
delay in performing any obligation (other than the payment of money)
under this Agreement if such failure or delay is due to fire, flood,
earthquake, strike, war (declared or undeclared), embargo, blockade,
legal prohibition, governmental action, riot, insurrection, damage,
destruction or any other similar cause beyond the control of such
party.
15.7 Notices. All notices, requests and other communications called for by
-------
this agreement shall be deemed to have been given immediately if made
by facsimile or Electronic mail (confirmed by concurrent written
notice sent via overnight courier for delivery by the next business
day), if to Yahoo at 3420 Central Expressway, Santa Clara, CA 95051,
Fax: (408) 731-3301 Attention: Vice President (e-mail: [email protected]
inc.com),. with a copy to its General Counsel (e-mail: jplace@yahoo-
inc.com), and if to Autoweb at the physical and Electronic mail
addresses set forth on the signature page of this Agreement, or to
such other addresses as either party shall specify to the other.
Notice by any other means shall be deemed made when actually received
by the party to which notice is provided.
15.8 Severability. If any provision of this Agreement is held to be
------------
invalid, illegal or unenforceable for any reason, such invalidity,
illegality or unenforceability shall not effect any other provisions
of this Agreement, and this Agreement shall be construed as if such
invalid, illegal or unenforceable provision had never been contained
herein.
15.9 Sole Responsibility. Autoweb will remain solely responsible for the
-------------------
operation of the Autoweb Site, and Yahoo will remain solely
responsible for the operation of the Yahoo Main Site. Each party:
(a)acknowledges that the Autoweb Site and the Yahoo Main Site may be
subject to temporary shutdowns due to causes beyond the operating
party's reasonable control; and (b) subject to the terms of this
Agreement, retains sole right and control over the programming,
content and conduct of transactions over its respective Internet-based
service.
15.1 Counterparts. This Agreement may be executed in two counterparts, both
------------
of which taken together shall constitute a single instrument.
Execution and delivery of this Agreement may be evidenced by facsimile
transmission.
15.11 Authority. Each of Yahoo and Autoweb represents and warrants that the
---------
negotiation and entry of this Agreement will not violate, conflict
with, interfere with, result in a breach of, or constitute a default
under any other agreement to which they are a party.
10
<PAGE>
15.12 Attorneys Fees. The prevailing party in any action to enforce this
--------------
Agreement shall be entitled to reimbursement of its expenses,
including reasonable attorneys' fees.
This Advertising and Promotion Agreement has been executed by the duly
authorized representatives of the parties, effective as of the Effective Date.
YAHOO! INC. AUTOWEB
By: By: /s/ Payam Zamani
------------------------------ -------------------------------
Name: Name: Payam Zamani
----------------------------- ------------------------------
Title: Title: President
---------------------------- -----------------------------
Attn: VP, Business Development Attn:
3420 Central Express Way
Santa Clara, CA 95051
Tel.: (408) 731-3300
Fax: (408) 731-3302 Tel:
e-mail: [email protected] Fax:
11
<PAGE>
EXHIBIT 10.20
DOWNTOWN WEB, INC. DBA AUTOWEB INTERACTIVE
1997 STOCK OPTION PLAN
1. Establishment, Purpose and Term of Plan.
---------------------------------------
1.1 Establishment. The Downtown Web, Inc. dba AutoWeb Interactive
1997 Stock Option Plan (the "Plan") is hereby established effective as of April
2, 1997.
1.2 Purpose. The purpose of the Plan is to advance the interests of
the Participating Company Group and its shareholders by providing an incentive
to attract, retain and reward persons performing services for the Participating
Company Group and by motivating such persons to contribute to the growth and
profitability of the Participating Company Group.
1.3 Term of Plan. The Plan shall continue in effect until the earlier
of its termination by the Board or the date on which all of the shares of Stock
available for issuance under the Plan have been issued and all restrictions on
such shares under the terms of the Plan and the agreements evidencing Options
granted under the Plan have lapsed. However, all Options shall be granted, if at
all, within ten (10) years from the earlier of the date the Plan is adopted by
the Board or the date the Plan is duly approved by the shareholders of the
Company.
2. Definitions and Construction.
----------------------------
2.1 Definitions. Whenever used herein, the following terms shall have
their respective meanings set forth below:
(a) "Board" means the Board of Directors of the Company. If one or
more Committees have been appointed by the Board to administer the Plan, "Board"
also means such Committee(s).
(b) "Code" means the Internal Revenue Code of 1986, as amended,
and any applicable regulations promulgated thereunder.
(c) "Committee" means the Compensation Committee or other
committee of the Board duly appointed to administer the Plan and having such
powers as shall be specified by the Board. Unless the powers of the Committee
have been specifically limited, the Committee shall have all of the powers of
the Board granted herein, including, without limitation, the power to amend or
terminate the Plan at any time, subject to the terms of the Plan and any
applicable limitations imposed by law.
(d) "Company" means Downtown Web, Inc. dba AutoWeb Interactive, a
California corporation, or any successor corporation thereto.
(e) "Consultant" means any person, including an advisor, engaged
by a Participating Company to render services other than as an Employee or a
Director.
1
<PAGE>
(f) "Director" means a member of the Board or of the board of
directors of any other Participating Company.
(g) "Employee" means any person treated as an employee (including
an officer or a Director who is also treated as an employee) in the records of a
Participating Company; provided, however, that neither service as a Director nor
payment of a director's fee shall be sufficient to constitute employment for
purposes of the Plan.
(h) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
(i) "Fair Market Value" means, as of any date, the value of a
share of Stock or other property as determined by the Board, in its sole
discretion, or by the Company, in its sole discretion, if such determination is
expressly allocated to the Company herein, subject to the following:
(i) If, on such date, there is a public market for the Stock,
the Fair Market Value of a share of Stock shall be the closing sale price of a
share of Stock (or the mean of the closing bid and asked prices of a share of
Stock if the Stock is so quoted instead) as quoted on the Nasdaq National
Market, the Nasdaq Small-Cap Market or such other national or regional
securities exchange or market system constituting the primary market for the
Stock, as reported in the Wall Street Journal or such other source as the
-------------------
Company deems reliable. If the relevant date does not fall on a day on which the
Stock has traded on such securities exchange or market system, the date on which
the Fair Market Value shall be established shall be the last day on which the
Stock was so traded prior to the relevant date, or such other appropriate day as
shall be determined by the Board, in its sole discretion.
(ii) If, on such date, there is no public market for the
Stock, the Fair Market Value of a share of Stock shall be as determined by the
Board without regard to any restriction other than a restriction which, by its
terms, will never lapse.
(j) "Incentive Stock Option" means an Option intended to (as set
forth in the Option Agreement) and which qualifies as an incentive stock option
within the meaning of Section 422(b) of the Code.
(k) "Insider" means an officer or a Director of the Company or any
other person whose transactions in Stock are subject to Section 16 of the
Exchange Act.
(l) "Nonstatutory Stock Option" means an Option not intended to be
(as set forth in the Option Agreement) or which does not qualify as an Incentive
Stock Option.
(m) "Option" means a right to purchase Stock (subject to
adjustment as provided in Section 4.2) pursuant to the terms and conditions of
the Plan. An Option may be either an Incentive Stock Option or a Nonstatutory
Stock Option.
2
<PAGE>
(n) "Option Agreement" means a written agreement between the
Company and an Optionee setting forth the terms, conditions and restriction of
the Option granted to the Optionee and any shares acquired upon the exercise
thereof.
(o) "Optionee" means a person who has been granted one or more
Options.
(p) "Parent Corporation" means any present or future "parent
corporation" of the Company, as defined in Section 424(e) of the Code.
(q) "Participating Company" means the Company or any Parent
Corporation or Subsidiary Corporation.
(r) "Participating Company Group" means, at any point in time, all
corporations collectively which are then Participating Companies.
(s) "Rule 16b-3" means Rule 16b-3 under the Exchange Act, as
amended from time to time, or any successor rule or regulation.
(t) "Stock" means the common stock, without par value, of the
Company, as adjusted from time to time in accordance with Section 4.2.
(u) "Subsidiary Corporation" means any present or future
"subsidiary corporation" of the Company, as defined in Section 424(f) of the
Code.
(v) "Ten Percent Owner Optionee" means an Optionee who, at the
time an Option is granted to the Optionee, owns stock possessing more than ten
percent (10%) of the total combined voting power of all classes of stock of a
Participating Company within the meaning of Section 422(b)(6) of the Code.
2.2 Construction. Captions and titles contained herein are for
convenience only and shall not affect the meaning or interpretation of any
provision of the Plan. Except when otherwise indicated by the context, the
singular shall include the plural and the plural shall include the singular. Use
of the term "or" is not intended to be exclusive, unless the context clearly
requires otherwise.
3. Administration.
--------------
3.1 Administration by the Board. The Plan shall be administered by
the Board. All questions of interpretation of the Plan or of any Option shall be
determined by the Board, and such determinations shall be final and binding upon
all persons having an interest in the Plan or such Option. Any officer of a
Participating Company shall have the authority to act on behalf of the Company
with respect to any matter, right, obligation, determination or election which
is the responsibility of or which is allocated to the Company herein, provided
the officer has apparent authority with respect to such matter, right,
obligation, determination or election.
3
<PAGE>
3.2 Administration with Respect to Insiders. With respect to
participation by Insiders in the Plan, at any time that any class of equity
security of the Company is registered pursuant to Section 12 of the Exchange
Act, the Plan shall be administered in compliance with the requirements, if any,
of Rule 16b-3.
3.3 Powers of the Board. In addition to any other powers set forth in
the Plan and subject to the provisions of the Plan, the Board shall have the
full and final power and authority, in its sole discretion:
(a) to determine the persons to whom, and the time or times at
which, Options shall be granted and the number of shares of Stock to be subject
to each Option;
(b) to designate Options as Incentive Stock Options or
Nonstatutory Stock Options;
(c) to determine the Fair Market Value of shares of Stock or other
property;
(d) to determine the terms, conditions and restrictions applicable
to each Option (which need not be identical) and any shares acquired upon the
exercise thereof, including, without limitation, (i) the exercise price of the
Option, (ii) the method of payment for shares purchased upon the exercise of the
Option, (iii) the method for satisfaction of any tax withholding obligation
arising in connection with the Option or such shares, including by the
withholding or delivery of shares of stock, (iv) the timing, terms and
conditions of the exercisability of the Option or the vesting of any shares
acquired upon the exercise thereof, (v) the time of the expiration of the
Option, (vi) the effect of the Optionee's termination of employment or service
with the Participating Company Group on any of the foregoing, and (vii) all
other terms, conditions and restrictions applicable to the Option or such shares
not inconsistent with the terms of the Plan;
(e) to approve one or more forms of Option Agreement;
(f) to amend, modify, extend, or renew, or grant a new Option in
substitution for, any Option or to waive any restrictions or conditions
applicable to any Option or any shares acquired upon the exercise thereof;
(g) to amend the exercisability of any Option or the vesting of
any shares acquired upon the exercise thereof, including with respect to the
period following an Optionee's termination of employment or service with the
Participating Company Group;
(h) to prescribe, amend or rescind rules, guidelines and policies
relating to the Plan, or to adopt supplements to, or alternative versions of,
the Plan, including, without limitation, as the Board deems necessary or
desirable to comply with the laws of, or to accommodate the tax policy or custom
of, foreign jurisdictions whose citizens may be granted Options; and
4
<PAGE>
(i) to correct any defect, supply any omission or reconcile any
inconsistency in the Plan or any Option Agreement and to make all other
determinations and take such other actions with respect to the Plan or any
Option as the Board may deem advisable to the extent consistent with the Plan
and applicable law.
4. Shares Subject to Plan.
----------------------
4.1 Maximum Number of Shares Issuable. Subject to adjustment as
provided in Section 4.2, the maximum aggregate number of shares of Stock that
may be issued under the Plan shall be four hundred fifty thousand (450,000
shares) and shall consist of authorized but unissued or reacquired shares of
Stock or any combination thereof. If an outstanding Option for any reason
expires or is terminated or canceled, or if shares of Stock acquired, subject to
repurchase, upon the exercise of an Option are repurchased by the Company, the
shares of Stock allocable to the unexercised portion of such Option or such
repurchased shares of Stock shall again be available for issuance under the
Plan.
4.2 Adjustments for Changes in Capital Structure. In the event of any
stock dividend, stock split, reverse stock split, recapitalization, combination,
reclassification or similar change in the capital structure of the Company,
appropriate adjustments shall be made in the number and class of shares subject
to the Plan and to any outstanding Options and in the exercise price per share
of any outstanding Options. If a majority of the shares which are of the same
class as the shares that are subject to outstanding Options are exchanged for,
converted into, or otherwise become (whether or not pursuant to an Ownership
Change Event, as defined in Section 8.1) shares of another corporation (the "New
Shares"), the Board may unilaterally amend the outstanding Options to provide
that such Options are exercisable for New Shares. In the event of any such
amendment, the number of shares subject to, and the exercise price per share of,
the outstanding Options shall be adjusted in a fair and equitable manner as
determined by the Board, in its sole discretion. Notwithstanding the foregoing,
any fractional share resulting from an adjustment pursuant to this Section 4.2
shall be rounded up or down to the nearest whole number, as determined by the
Board, and in no event may the exercise price of any Option be decreased to an
amount less than the par value, if any, of the stock subject to the Option. The
adjustments determined by the Board pursuant to this Section 4.2 shall be final,
binding and conclusive.
5. Eligibility and Option Limitations.
----------------------------------
5.1 Persons Eligible for Options. Options may be granted only to
Employees, Consultants, and Directors. For purposes of the foregoing sentence,
"Employees," "Consultants" and "Directors" shall include prospective Employees,
prospective Consultants and prospective Directors to whom Options are granted in
connection with written offers of employment or other service relationship with
the Participating Company Group. Eligible persons may be granted more than one
(1) Option.
5.2 Option Grant Restrictions. Any person who is not an Employee on
the effective date of the grant of an Option to such person may be granted only
a Nonstatutory Stock Option. An Incentive Stock Option granted to a prospective
Employee upon the condition that
5
<PAGE>
such person become an Employee shall be deemed granted effective on the date
such person commences service with a Participating Company, with an exercise
price determined as of such date in accordance with Section 6.1.
5.3 Fair Market Value Limitation. To the extent that options
designated as Incentive Stock Options (granted under all stock option plans of
the Participating Company Group, including the Plan) become exercisable by an
Optionee for the first time during any calendar year for stock having an
aggregate Fair Market Value greater than One Hundred Thousand Dollars
($100,000), the portion of such options which exceeds such amount shall be
treated as Nonstatutory Stock Options. For purposes of this Section 5.3, options
designated as Incentive Stock Options shall be taken into account in the order
in which they were granted, and the Fair Market Value of stock shall be
determined as of the time the option with respect to such stock is granted. If
the Code is amended to provide for a different limitation from that set forth in
this Section 5.3, such different limitation shall be deemed incorporated herein
effective as of the date and with respect to such Options as required or
permitted by such amendment to the Code. If an Option is treated as an Incentive
Stock Option in part and as a Nonstatutory Stock Option in part by reason of the
limitation set forth in this Section 5.3, the Optionee may designate which
portion of such Option the Optionee is exercising. In the absence of such
designation, the Optionee shall be deemed to have exercised the Incentive Stock
Option portion of the Option first. Separate certificates representing each such
portion shall be issued upon the exercise of the Option.
6. Terms and Conditions of Options. Options shall be evidenced by Option
-------------------------------
Agreements specifying the number of shares of Stock covered thereby, in such
form as the Board shall from time to time establish. Option Agreements may
incorporate all or any of the terms of the Plan by reference and shall comply
with and be subject to the following terms and conditions:
6.1 Exercise Price. The exercise price for each Option shall be
established in the sole discretion of the Board; provided, however, that (a) the
exercise price per share for an Incentive Stock Option shall be not less than
the Fair Market Value of a share of Stock on the effective date of grant of the
Option, (b) the exercise price per share for a Nonstatutory Stock Option shall
be not less than eighty-five percent (85%) of the Fair Market Value of a share
of Stock on the effective date of grant of the Option, and (c) no Option granted
to a Ten Percent Owner Optionee shall have an exercise price per share less than
one hundred ten percent (110%) of the Fair Market Value of a share of Stock on
the effective date of grant of the Option. Notwithstanding the foregoing, an
Option (whether an Incentive Stock Option or a Nonstatutory Stock Option) may be
granted with an exercise price lower than the minimum exercise price set forth
above if such Option is granted pursuant to an assumption or substitution for
another option in a manner qualifying under the provisions of Section 424(a) of
the Code.
6.2 Exercise Period. Options shall be exercisable at such time or
times, or upon such event or events, and subject to such terms, conditions,
performance criteria, and restrictions as shall be determined by the Board and
set forth in the Option Agreement evidencing such Option; provided, however,
that (a) no Option shall be exercisable after the
6
<PAGE>
expiration of ten (10) years after the effective date of grant of such Option,
(b) no Incentive Stock Option granted to a Ten Percent Owner Optionee shall be
exercisable after the expiration of five (5) years after the effective date of
grant of such Option, and (c) no Option granted to a prospective Employee,
prospective Consultant or prospective Director may become exercisable prior to
the date on which such person commences service with a Participating Company.
6.3 Payment of Exercise Price.
(a) Forms of Consideration Authorized. Except as otherwise
provided below, payment of the exercise price for the number of shares of Stock
being purchased pursuant to any Option shall be made (i) in cash, by check, or
cash equivalent, (ii) by tender to the Company of shares of Stock owned by the
Optionee having a Fair Market Value (as determined by the Company without regard
to any restrictions on transferability applicable to such stock by reason of
federal or state securities laws or agreements with an underwriter for the
Company) not less than the exercise price, (iii) by the assignment of the
proceeds of a sale or loan with respect to some or all of the shares being
acquired upon the exercise of the Option (including, without limitation, through
an exercise complying with the provisions of Regulation T as promulgated from
time to time by the Board of Governors of the Federal Reserve System) (a
"Cashless Exercise"), (iv) by the Optionee's promissory note in a form approved
by the Company, (v) by such other consideration as may be approved by the Board
from time to time to the extent permitted by applicable law, or (vi) by any
combination thereof. The Board may at any time or from time to time, by adoption
of or by amendment to the standard forms of Option Agreement described in
Section 7, or by other means, grant Options which do not permit all of the
foregoing forms of consideration to be used in payment of the exercise price or
which otherwise restrict one or more forms of consideration.
(b) Tender of Stock. Notwithstanding the foregoing, an Option may
not be exercised by tender to the Company of shares of Stock to the extent such
tender of Stock would constitute a violation of the provisions of any law,
regulation or agreement restricting the redemption of the Company's stock.
Unless otherwise provided by the Board, an Option may not be exercised by tender
to the Company of shares of Stock unless such shares either have been owned by
the Optionee for more than six (6) months or were not acquired, directly or
indirectly, from the Company.
(c) Cashless Exercise. The Company reserves, at any and all
times, the right, in the Company's sole and absolute discretion, to establish,
decline to approve or terminate any program or procedures for the exercise of
Options by means of a Cashless Exercise.
(d) Payment by Promissory Note. No promissory note shall be
permitted if the exercise of an Option using a promissory note would be a
violation of any law. Any permitted promissory note shall be on such terms as
the Board shall determine at the time the Option is granted. The Board shall
have the authority to permit or require the Optionee to secure any promissory
note used to exercise an Option with the shares of Stock acquired upon the
exercise of the Option or with other collateral acceptable to the Company.
Unless otherwise
7
<PAGE>
provided by the Board, if the Company at any time is subject to the regulations
promulgated by the Board of Governors of the Federal Reserve System or any other
governmental entity affecting the extension of credit in connection with the
Company's securities, any promissory note shall comply with such applicable
regulations, and the Optionee shall pay the unpaid principal and accrued
interest, if any, to the extent necessary to comply with such applicable
regulations.
6.4 Tax Withholding. The Company shall have the right, but not the
obligation, to deduct from the shares of Stock issuable upon the exercise of an
Option, or to accept from the Optionee the tender of, a number of whole shares
of Stock having a Fair Market Value, as determined by the Company, equal to all
or any part of the federal, state, local and foreign taxes, if any, required by
law to be withheld by the Participating Company Group with respect to such
Option or the shares acquired upon the exercise thereof. Alternatively or in
addition, in its sole discretion, the Company shall have the right to require
the Optionee, through payroll withholding, cash payment or otherwise, including
by means of a Cashless Exercise, to make adequate provision for any such tax
withholding obligations of the Participating Company Group arising in connection
with the Option or the shares acquired upon the exercise thereof. The Company
shall have no obligation to deliver shares of Stock or to release shares of
Stock from an escrow established pursuant to the Option Agreement until the
Participating Company Group's tax withholding obligations have been satisfied by
the Optionee.
6.5 Repurchase Rights. Shares issued under the Plan may be subject to
a right of first refusal, one or more repurchase options, or other conditions
and restrictions as determined by the Board, in its sole discretion, at the time
the Option is granted. The Company shall have the right to assign at any time
any repurchase right it may have, whether or not such right is then exercisable,
to one or more persons as may be selected by the Company. Upon request by the
Company, each Optionee shall execute any agreement evidencing such transfer
restrictions prior to the receipt of shares of Stock hereunder and shall
promptly present to the Company any and all certificates representing shares of
Stock acquired hereunder for the placement on such certificates of appropriate
legends evidencing any such transfer restrictions.
7. Standard Forms of Option Agreement.
----------------------------------
7.1 Incentive Stock Options. Unless otherwise provided by the Board
at the time the Option is granted, an Option designated as an "Incentive Stock
Option" shall comply with and be subject to the terms and conditions set forth
in the form of Immediately Exercisable Incentive Stock Option Agreement adopted
by the Board concurrently with its adoption of the Plan and as amended from time
to time.
7.2 Nonstatutory Stock Options. Unless otherwise provided by the
Board at the time the Option is granted, an Option designated as a "Nonstatutory
Stock Option" shall comply with and be subject to the terms and conditions set
forth in the form of Immediately Exercisable Nonstatutory Stock Option Agreement
adopted by the Board concurrently with its adoption of the Plan and as amended
from time to time.
8
<PAGE>
7.3 Standard Term of Options. Except as otherwise provided in Section
6.2 or by the Board in the grant of an Option, any Option granted hereunder
shall have a term of ten (10) years from the effective date of grant of the
Option.
7.4 Authority to Vary Terms. The Board shall have the authority from
time to time to vary the terms of any of the standard forms of Option Agreement
described in this Section 7 either in connection with the grant or amendment of
an individual Option or in connection with the authorization of a new standard
form or forms; provided, however, that the terms and conditions of any such new,
revised or amended standard form or forms of Option Agreement are not
inconsistent with the terms of the Plan. Such authority shall include, but not
by way of limitation, the authority to grant Options which are not immediately
exercisable.
8. Transfer of Control.
-------------------
8.1 Definitions.
(a) An "Ownership Change Event" shall be deemed to have occurred
if any of the following occurs with respect to the Company:
(i) the direct or indirect sale or exchange in a single or
series of related transactions by the shareholders of the Company of more than
fifty percent (50%) of the voting stock of the Company;
(ii) a merger or consolidation in which the Company is a
party;
(iii) the sale, exchange, or transfer of all or substantially
all of the assets of the Company; or
(iv) a liquidation or dissolution of the Company.
(b) A "Transfer of Control" shall mean an Ownership Change Event
or a series of related Ownership Change Events (collectively, the "Transaction")
wherein the shareholders of the Company immediately before the Transaction do
not retain immediately after the Transaction, in substantially the same
proportions as their ownership of shares of the Company's voting stock
immediately before the Transaction, direct or indirect beneficial ownership of
more than fifty percent (50%) of the total combined voting power of the
outstanding voting stock of the Company or the corporation or corporations to
which the assets of the Company were transferred (the "Transferee
Corporation(s)"), as the case may be. For purposes of the preceding sentence,
indirect beneficial ownership shall include, without limitation, an interest
resulting from ownership of the voting stock of one or more corporations which,
as a result of the Transaction, own the Company or the Transferee
Corporation(s), as the case may be, either directly or through one or more
subsidiary corporations. The Board shall have the right to determine whether
multiple sales or exchanges of the voting stock of the Company or multiple
Ownership Change Events are related, and its determination shall be final,
binding and conclusive.
9
<PAGE>
8.2 Effect of Transfer of Control on Options. In the event of a
Transfer of Control, the surviving, continuing, successor, or purchasing
corporation or parent corporation thereof, as the case may be (the "Acquiring
Corporation"), may either assume the Company's rights and obligations under
outstanding Options or substitute for outstanding Options substantially
equivalent options for the Acquiring Corporation's stock. For purposes of this
Section 8.2, an Option shall be deemed assumed if, following the Transfer of
Control, the Option confers the right to purchase in accordance with its terms
and conditions, for each share of Stock subject to the Option immediately prior
to the Transfer of Control, the consideration (whether stock, cash or other
securities or property) to which a holder of a share of Stock on the effective
date of the Transfer of Control was entitled. Any Options which are neither
assumed or substituted for by the Acquiring Corporation in connection with the
Transfer of Control nor exercised as of the date of the Transfer of Control
shall terminate and cease to be outstanding effective as of the date of the
Transfer of Control. Notwithstanding the foregoing, shares acquired upon
exercise of an Option prior to the Transfer of Control and any consideration
received pursuant to the Transfer of Control with respect to such shares shall
continue to be subject to all applicable provisions of the Option Agreement
evidencing such Option except as otherwise provided in such Option Agreement.
Furthermore, notwithstanding the foregoing, if the corporation the stock of
which is subject to the outstanding Options immediately prior to an Ownership
Change Event described in Section 8.1(a)(i) constituting a Transfer of Control
is the surviving or continuing corporation and immediately after such Ownership
Change Event less than fifty percent (50%) of the total combined voting power of
its voting stock is held by another corporation or by other corporations that
are members of an affiliated group within the meaning of Section 1504(a) of the
Code without regard to the provisions of Section 1504(b) of the Code, the
outstanding Options shall not terminate unless the Board otherwise provides in
its sole discretion.
9. Provision of Information. At least annually, copies of the Company's
------------------------
balance sheet and income statement for the just completed fiscal year shall be
made available to each Optionee and purchaser of shares of Stock upon the
exercise of an Option. The Company shall not be required to provide such
information to persons whose duties in connection with the Company assure them
access to equivalent information.
10. Nontransferability of Options. During the lifetime of the Optionee, an
-----------------------------
Option shall be exercisable only by the Optionee or the Optionee's guardian or
legal representative. No Option shall be assignable or transferable by the
Optionee, except by will or by the laws of descent and distribution.
11. Indemnification. In addition to such other rights of indemnification
---------------
as they may have as members of the Board or officers or employees of the
Participating Company Group, members of the Board and any officers or employees
of the Participating Company Group to whom authority to act for the Board or the
Company is delegated shall be indemnified by the Company against all reasonable
expenses, including attorneys' fees, actually and necessarily incurred in
connection with the defense of any action, suit or proceeding, or in connection
with any appeal therein, to which they or any of them may be a party by reason
of any action taken or failure to act under or in connection with the Plan, or
any right granted hereunder, and against all
10
<PAGE>
amounts paid by them in settlement thereof (provided such settlement is approved
by independent legal counsel selected by the Company) or paid by them in
satisfaction of a judgment in any such action, suit or proceeding, except in
relation to matters as to which it shall be adjudged in such action, suit or
proceeding that such person is liable for gross negligence, bad faith or
intentional misconduct in duties; provided, however, that within sixty (60) days
after the institution of such action, suit or proceeding, such person shall
offer to the Company, in writing, the opportunity at its own expense to handle
and defend the same.
12. Termination or Amendment of Plan. The Board may terminate or amend the
--------------------------------
Plan at any time. However, subject to changes in applicable law, regulations or
rules that would permit otherwise, without the approval of the Company's
shareholders there shall be (a) no increase in the maximum aggregate number of
shares of Stock that may be issued under the Plan (except by operation of the
provisions of Section 4.2), (b) no change in the class of persons eligible to
receive Incentive Stock Options, and (c) no other amendment of the Plan that
would require approval of the Company's shareholders under any applicable law,
regulation or rule. In any event, no termination or amendment of the Plan may
adversely affect any then outstanding Option or any unexercised portion thereof,
without the consent of the Optionee, unless such termination or amendment is
required to enable an Option designated as an Incentive Stock Option to qualify
as an Incentive Stock Option or is necessary to comply with any applicable law,
regulation or rule.
13. Shareholder Approval. The Plan or any increase in the maximum number
--------------------
of shares of Stock issuable thereunder as provided in Section 4.1 (the "Maximum
Shares") shall be approved by the shareholders of the Company within twelve (12)
months of the date of adoption thereof by the Board. Options granted prior to
shareholder approval of the Plan or in excess of the Maximum Shares previously
approved by the shareholders shall become exercisable no earlier than the date
of shareholder approval of the Plan or such increase in the Maximum Shares, as
the case may be.
IN WITNESS WHEREOF, the undersigned Secretary of the Company certifies that
the foregoing Downtown Web, Inc. dba AutoWeb Interactive 1997 Stock Option Plan
was duly adopted by the Board on April 2, 1997.
11
<PAGE>
PLAN HISTORY
------------
April 2, 1997 Board adopts Plan, with an initial reserve of 450,000 shares.
April 2, 1997 Shareholders approve Plan, with an initial reserve of 450,000
shares.
12
<PAGE>
THE SECURITIES WHICH ARE THE SUBJECT OF THIS AGREEMENT HAVE NOT BEEN QUALIFIED
WITH THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE
ISSUANCE OF SUCH SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE
CONSIDERATION THEREFOR PRIOR TO SUCH QUALIFICATION IS UNLAWFUL, UNLESS THE SALE
OF SECURITIES IS EXEMPT FROM QUALIFICATION BY SECTION 25100, 25102, OR 25105 OF
THE CALIFORNIA CORPORATIONS CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT
ARE EXPRESSLY CONDITIONED UPON SUCH QUALIFICATION BEING OBTAINED, UNLESS THE
SALE IS SO EXEMPT.
THE SECURITY REPRESENTED BY THIS CERTIFICATE HAS BEEN ACQUIRED FOR INVESTMENT
AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF.
NO SUCH SALE OR DISPOSITION MAY BE EFFECTED WITHOUT AN EFFECTIVE REGISTRATION
STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY
THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF 1933.
DOWNTOWN WEB, INC. DBA AUTOWEB INTERACTIVE
IMMEDIATELY EXERCISABLE
INCENTIVE STOCK OPTION AGREEMENT
THIS IMMEDIATELY EXERCISABLE INCENTIVE STOCK OPTION AGREEMENT (the "Option
Agreement") is made and entered into as of _______________, 19__, by and between
Downtown Web, Inc. dba AutoWeb Interactive and
__________________________________ (the "Optionee").
The Company has granted to the Optionee pursuant to the Downtown Web, Inc.
dba AutoWeb Interactive 1997 Stock Option Plan (the "Plan") an option to
purchase certain shares of Stock, upon the terms and conditions set forth in
this Option Agreement (the "Option"). The Option shall in all respects be
subject to the terms and conditions of the Plan, the provisions of which are
incorporated herein by reference.
1. Definitions and Construction.
----------------------------
1.1 Definitions. Unless otherwise defined herein, capitalized terms
shall have the meanings assigned to such terms in the Plan. Whenever used
herein, the following terms shall have their respective meanings set forth
below:
(a) "Date of Option Grant" means _____________________, 199_.
(b) "Number of Option Shares" means ____________________ shares
of Stock, as adjusted from time to time pursuant to Section 9.
<PAGE>
(c) "Exercise Price" means $____ per share of Stock, as adjusted
from time to time pursuant to Section 9.
(d) "Initial Exercise Date" means the Date of Option Grant.
(e) "Initial Vesting Date" means _____________, 19__.
(f) "Vested Ratio" means, on any relevant date, the ratio
determined as follows:
<TABLE>
<CAPTION>
Vested Ratio
------------
<S> <C>
Prior to Initial Vesting Date 0
On Initial Vesting Date, provided the Optionee's
Service has not terminated prior to such date 1/4
Plus
----
For each six months of the Optionee's continuous
Service from the Initial Vesting Date until the
Vested Ratio equals 1/1, an additional 1/8
</TABLE>
(g) "Option Expiration Date" means the date ten (10) years after
the Date of Option Grant.
(h) "Company" means Downtown Web, Inc. dba AutoWeb Interactive, a
California corporation, or any successor corporation thereto.
(i) "Disability" means the inability of the Optionee, in the
opinion of a qualified physician acceptable to the Company, to perform the major
duties of the Optionee's position with the Participating Company Group because
of the sickness or injury of the Optionee.
(j) "Securities Act" means the Securities Act of 1933, as
amended.
(k) "Service" means the Optionee's employment or service with the
Participating Company Group, whether in the capacity of an Employee, a Director
or a Consultant. The Optionee's Service shall not be deemed to have terminated
merely because of a change in the capacity in which the Optionee renders Service
to the Participating Company Group or a change in the Participating Company for
which the Optionee renders such Service, provided that there is no interruption
or termination of the Optionee's Service. Furthermore, the Optionee's Service
with the Participating Company Group shall not be deemed to have terminated if
the Optionee takes any military leave, sick leave, or other bona fide leave of
absence approved by the Company; provided, however, that if any such leave
exceeds ninety (90) days, on the ninety-first (91st) day of such leave the
Optionee's Service shall be deemed to have terminated unless the Optionee's
right to return to Service with the Participating Company Group is guaranteed by
statute or contract. Notwithstanding the foregoing, unless otherwise
2
<PAGE>
designated by the Company or required by law, a leave of absence shall not be
treated as Service for purposes of determining the Optionee's Vested Ratio. The
Optionee's Service shall be deemed to have terminated either upon an actual
termination of Service or upon the corporation for which the Optionee performs
Service ceasing to be a Participating Company. Subject to the foregoing, the
Company, in its sole discretion, shall determine whether the Optionee's Service
has terminated and the effective date of such termination.
1.2 Construction. Captions and titles contained herein are for
convenience only and shall not affect the meaning or interpretation of any
provision of this Option Agreement. Except when otherwise indicated by the
context, the singular shall include the plural and the plural shall include the
singular. Use of the term "or" is not intended to be exclusive, unless the
context dearly requires otherwise.
2. Tax Consequences.
----------------
2.1 Tax Status of Option. This Option is intended to be an Incentive
Stock Option within the meaning of Section 422(b) of the Code, but the Company
does not represent or warrant that this Option qualifies as such. The Optionee
should consult with the Optionee's own tax advisor regarding the tax effects of
this Option and the requirements necessary to obtain favorable income tax
treatment under Section 422 of the Code, including, but not limited to, holding
period requirements. (NOTE: If the aggregate Exercise Price of the Option (that
is, the Exercise Price multiplied by the Number of Option Shares) plus the
aggregate exercise price of any other Incentive Stock Options held by the
Optionee (whether granted pursuant to the Plan or any other stock option plan of
the Participating Company Group) is greater than One Hundred Thousand Dollars
($100,000), the Optionee should contact the Chief Financial Officer of the
Company to ascertain whether the entire Option qualifies as an Incentive Stock
Option.)
2.2 Election Under Section 83(b) of the Code. If the Optionee
exercises this Option to purchase shares of Stock that are both nontransferable
and subject to a substantial risk of forfeiture, the Optionee understands that
the Optionee should consult with the Optionee's tax advisor regarding the
advisability of filing with the Internal Revenue Service an election under
Section 83(b) of the Code, which must be filed no later than thirty (30) days
after the date on which the Optionee exercises the Option. Shares acquired upon
exercise of the Option are nontransferable and subject to a substantial risk of
forfeiture if, for example, (a) they are unvested and are subject to a right of
the Company to repurchase such shares at the Optionee's original purchase price
if the Optionee's Service terminates, (b) the Optionee is an Insider and
exercises the Option within six (6) months of the Date of Option Grant (if a
class of equity security of the Company is registered under Section 12 of the
Exchange Act), or (c) the Optionee is subject to a restriction on transfer to
comply with "Pooling-of-Interests Accounting" rules. Failure to file an election
under Section 83(b), if appropriate, may result in adverse tax consequences to
the Optionee. The Optionee acknowledges that the Optionee has been advised to
consult with a tax advisor prior to the exercise of the Option regarding the tax
consequences to the Optionee of the exercise of the Option. AN ELECTION UNDER
SECTION 83(b) MUST BE FILED WITHIN 30 DAYS AFTER THE DATE ON WHICH THE OPTIONEE
PURCHASES SHARES. THIS TIME PERIOD CANNOT BE EXTENDED. THE OPTIONEE
3
<PAGE>
ACKNOWLEDGES THAT TIMELY FILING OF A SECTION 83(b) ELECTION IS THE OPTIONEE'S
SOLE RESPONSIBILITY, EVEN IF THE OPTIONEE REQUESTS THE COMPANY OR ITS
REPRESENTATIVE TO FILE SUCH ELECTION ON HIS OR HER BEHALF.
3. Administration. All questions of interpretation concerning this Option
--------------
Agreement shall be determined by the Board. All determinations by the Board
shall be final and binding upon all persons having an interest in the Option.
Any officer of a Participating Company shall have the authority to act on behalf
of the Company with respect to any matter, right, obligation, or election which
is the responsibility of or which is allocated to the Company herein, provided
the officer has apparent authority with respect to such matter, right,
obligation, or election.
4. Exercise of the Option.
----------------------
4.1 Right to Exercise.
(a) Except as otherwise provided herein, the Option shall be
exercisable on and after the Initial Exercise Date and prior to the termination
of the Option (as provided in Section 6) in an amount not to exceed the Number
of Option Shares less the number of shares previously acquired upon exercise of
the Option, subject to the Optionee's agreement that any shares purchased upon
exercise are subject to the Company's repurchase rights set forth in Section 11
and Section 12. Notwithstanding the foregoing, except as provided in Section
4.1(b), the aggregate Fair Market Value of the shares of Stock with respect to
which the Optionee may exercise the Option for the first time during any
calendar year, when added to the aggregate Fair Market Value of the shares
subject to any other options designated as Incentive Stock Options granted to
the Optionee under all stock option plans of the Participating Company Group
prior to the Date of Option Grant with respect to which such options are
exercisable for the first time during the same calendar year, shall not exceed
One Hundred Thousand Dollars ($100,000). For purposes of the preceding sentence,
options designated as Incentive Stock Options shall be taken into account in the
order in which they were granted, and the Fair Market Value of shares of stock
shall be determined as of the time the option with respect to such shares is
granted. Such limitation on exercise shall be referred to in this Option
Agreement as the "ISO Exercise Limitation." If Section 422 of the Code is
amended to provide for a different limitation from that set forth in this
Section 4.1(a), the ISO Exercise Limitation shall be deemed amended effective as
of the date required or permitted by such amendment to the Code. The ISO
Exercise Limitation shall terminate upon the earlier of (i) the Optionee's
termination of Service, (ii) the day immediately prior to the effective date of
a Transfer of Control in which the Option is not assumed or substituted for by
the Acquiring Corporation as provided in Section 8, or (iii) the day ten (10)
days prior to the Option Expiration Date. Upon such termination of the ISO
Exercise Limitation, the Option shall be deemed a Nonstatutory Stock Option to
the extent of the number of shares subject to the Option which would otherwise
exceed the ISO Exercise Limitation.
(b) Notwithstanding any other provision of this Option Agreement,
if compliance with the ISO Exercise Limitation as set forth in Section 4.1(a)
will result in the
4
<PAGE>
exercisability of any Vested Shares (as defined in Section 11.2) being delayed
more than thirty (30) days beyond the date such shares become Vested Shares (the
"Vesting Date"), the Option shall be deemed to be two (2) options. The first
option shall be for the maximum portion of the Number of Option Shares that can
comply with the ISO Exercise Limitation without causing the Option to be
unexercisable in the aggregate as to Vested Shares on the Vesting Date for such
shares. The second option, which shall not be treated as an Incentive Stock
Option as described in section 422(b) of the Code, shall be for the balance of
the Number of Option Shares; that is, those such shares which, on the respective
Vesting Date for such shares, would be unexercisable if included in the first
option and thereby made subject to the ISO Exercise Limitation. Shares treated
as subject to the second option shall be exercisable on the same terms and at
the same time as set forth in this Option Agreement; provided, however, that
(i)the second sentence of Section 4.1(a) shall not apply to the second option
and (ii) each such share shall become a Vested Share on the Vesting Date on
which such share must first be allocated to the second option pursuant to the
preceding sentence. Unless the Optionee specifically elects to the contrary in
the Optionee's written notice of exercise, the first option shall be deemed to
be exercised first to the maximum possible extent and then the second option
shall be deemed to be exercised.
4.2 Method of Exercise. Exercise of the Option shall be by written
notice to the Company which must state the election to exercise the Option, the
number of whole shares of Stock for which the Option is being exercised and such
other representations and agreements as to the Optionee's investment intent with
respect to such shares as may be required pursuant to the provisions of this
Option Agreement. The written notice must be signed by the Optionee and must be
delivered in person, by certified or registered mail, return receipt requested,
by confirmed facsimile transmission, or by such other means as the Company may
permit, to the Chief Financial Officer of the Company, or other authorized
representative of the Participating Company Group, prior to the termination of
the Option as set forth in Section 6, accompanied by (i) full payment of the
aggregate Exercise Price for the number of shares of Stock being purchased and
(ii) an executed copy, if required herein, of the then current form of escrow
agreement referenced below. The Option shall be deemed to be exercised upon
receipt by the Company of such written notice, the aggregate Exercise Price,
and, if required by the Company, such executed agreement.
4.3 Payment of Exercise Price.
(a) Forms of Consideration Authorized. Except as otherwise
provided below, payment of the aggregate Exercise Price for the number of shares
of Stock for which the Option is being exercised shall be made (i) in cash, by
check, or cash equivalent, (ii) by tender to the Company of whole shares of
Stock owned by the Optionee having a Fair Market Value (as determined by the
Company without regard to any restrictions on transferability applicable to such
stock by reason of federal or state securities laws or agreements with an
underwriter for the Company) not less than the aggregate Exercise Price, (iii)
by means of a Cashless Exercise, as defined in Section 4.3(c), or (iv) by any
combination of the foregoing.
(b) Tender of Stock. Notwithstanding the foregoing, the Option
may not be exercised by tender to the Company of shares of Stock to the extent
such tender of Stock
5
<PAGE>
would constitute a violation of the provisions of any law, regulation or
agreement restricting the redemption of the Company's stock. The Option may not
be exercised by tender to the Company of shares of Stock unless such shares
either have been owned by the Optionee for more than six (6) months or were not
acquired, directly or indirectly, from the Company.
(c) Cashless Exercise. A "Cashless Exercise" means the
assignment in a form acceptable to the Company of the proceeds of a sale or loan
with respect to some or all of the shares of Stock acquired upon the exercise of
the Option pursuant to a program or procedure approved by the Company
(including, without limitation, through an exercise complying with the
provisions of RegulationT as promulgated from time to time by the Board of
Governors of the Federal Reserve System). The Company reserves, at any and all
times, the right, in the Company's sole and absolute discretion, to decline to
approve or terminate any such program or procedure.
4.4 Tax Withholding. At the time the Option is exercised, in whole
or in part, or at any time thereafter as requested by the Company, the Optionee
hereby authorizes withholding from payroll and any other amounts payable to the
Optionee, and otherwise agrees to make adequate provision for (including by
means of a Cashless Exercise to the extent permitted by the Company), any sums
required to satisfy the federal, state, local and foreign tax withholding
obligations of the Participating Company Group, if any, which arise in
connection with the Option, including, without limitation, obligations arising
upon (i) the exercise, in whole or in part, of the Option, (ii) the transfer, in
whole or in part, of any shares acquired upon exercise of the Option, (iii) the
operation of any law or regulation providing for the imputation of interest, or
(iv) the lapsing of any restriction with respect to any shares acquired upon
exercise of the Option. The Optionee is cautioned that the Option is not
exercisable unless the tax withholding obligations of the Participating Company
Group are satisfied. Accordingly, the Optionee may not be able to exercise the
Option when desired even though the Option is vested, and the Company shall have
no obligation to issue a certificate for such shares or release such shares from
any escrow provided for herein.
4.5 Certificate Registration. Except in the event the Exercise Price
is paid by means of a Cashless Exercise, the certificate for the shares as to
which the Option is exercised shall be registered in the name of the Optionee,
or, if applicable, in the names of the heirs of the Optionee.
4.6 Restrictions on Grant of the Option and Issuance of Shares. The
grant of the Option and the issuance of shares of Stock upon exercise of the
Option shall be subject to compliance with all applicable requirements of
federal, state or foreign law with respect to such securities. The Option may
not be exercised if the issuance of shares of Stock upon exercise would
constitute a violation of any applicable federal, state or foreign securities
laws or other law or regulations or the requirements of any stock exchange or
market system upon which the Stock may then be listed. In addition, the Option
may not be exercised unless (i) a registration statement under the Securities
Act shall at the time of exercise of the Option be in effect with respect to the
shares issuable upon exercise of the Option or (ii) in the opinion of legal
counsel to the Company, the shares issuable upon exercise of the Option may be
issued in accordance with
6
<PAGE>
the terms of an applicable exemption from the registration requirements of the
Securities Act. THE OPTIONEE IS CAUTIONED THAT THE OPTION MAY NOT BE EXERCISED
UNLESS THE FOREGOING CONDITIONS ARE SATISFIED. ACCORDINGLY, THE OPT'IONEE MAY
NOT BE ABLE TO EXERCISE THE OPTION WHEN DESIRED EVEN THOUGH THE OPTION IS
VESTED. Questions concerning this restriction should be directed to the Chief
Financial Officer of the Company. The inability of the Company to obtain from
any regulatory body having jurisdiction the authority, if any, deemed by the
Company's legal counsel to be necessary to the lawful issuance and sale of any
shares subject to the Option shall relieve the Company of any liability in
respect of the failure to issue or sell such shares as to which such requisite
authority shall not have been obtained. As a condition to the exercise of the
Option, the Company may require the Optionee to satisfy any qualifications that
may be necessary or appropriate, to evidence compliance with any applicable law
or regulation and to make any representation or warranty with respect thereto as
may be requested by the Company.
4.7 Fractional Shares. The Company shall not be required to issue
fractional shares upon the exercise of the Option.
5. Nontransferability of the Option. The Option may be exercised during
--------------------------------
the lifetime of the Optionee only by the Optionee or the Optionee's guardian or
legal representative and may not be assigned or transferred in any manner except
by will or by the laws of descent and distribution. Following the death of the
Optionee, the Option, to the extent provided in Section 7, may be exercised by
the Optionee's legal representative or by any person empowered to do so under
the deceased Optionee's will or under the then applicable laws of descent and
distribution.
6. Termination of the Option. The Option shall terminate and may no
-------------------------
longer be exercised on the first to occur of (a) the Option Expiration Date,
(b)the last date for exercising the Option following termination of the
Optionee's Service as described in Section 7, or (c)a Transfer of Control to the
extent provided in Section 8.
7. Effect of Termination of Service.
--------------------------------
7.1 Option Exercisability.
(a) Disability. If the Optionee's Service with the Participating
Company Group is terminated because of the Disability of the Optionee, the
Option, to the extent unexercised and exercisable on the date on which the
Optionee's Service terminated, may be exercised by the Optionee (or the
Optionee's guardian or legal representative at any time prior to the expiration
of six (6) months after the date on which the Optionee's Service terminated, but
in any event no later than the Option Expiration Date. (NOTE: If the Option is
exercised more than three (3) months after the date on which the Optionee's
Service as an Employee terminated as a result of a Disability other than a
permanent and total disability as defined in Section 22(e)(3) of the Code, the
Option will be treated as a Nonstatutory Stock Option and not as an Incentive
Stock Option to the extent required by Section 422 of the Code.)
7
<PAGE>
(b) Death. If the Optionee's Service with the Participating
Company Group is terminated because of the death of the Optionee, the Option, to
the extent unexercised and exercisable on the date on which the Optionee's
Service terminated, may be exercised by the Optionee's legal representative or
other person who acquired the right to exercise the Option by reason of the
Optionee's death at any time prior to the expiration of six (6) months after the
date on which the Optionee's Service terminated, but in any event no later than
the Option Expiration Date. The Optionee's Service shall be deemed to have
terminated on account of death if the Optionee dies within thirty (30) days
after the Optionee's termination of Service.
(c) Other Termination of Service. If the Optionee's Service with
the Participating Company Group terminates for any reason, except Disability or
death, the Option, to the extent unexercised and exercisable by the Optionee on
the date on which the Optionee's Service terminated, may be exercised by the
Optionee within thirty (30) days (or such other longer period of time as
determined by the Board, in its sole discretion) after the date on which the
Optionee's Service terminated, but in any event no later than the Option
Expiration Date.
7.2 Additional Limitation on Option Exercise. Notwithstanding the
provisions of Section 7.1, the Option may not be exercised after the Optionee's
termination of Service to the extent that the shares to be acquired upon
exercise of the Option would be subject to the Unvested Share Repurchase Option
as provided in Section 11.
7.3 Extension if Exercise Prevented by Law. Notwithstanding the
foregoing, if the exercise of the Option within the applicable time periods set
forth in Section7.1 is prevented by the provisions of Section 4.6, the Option
shall remain exercisable until three (3) months after the date the Optionee is
notified by the Company that the Option is exercisable, but in any event no
later than the Option Expiration Date. The Company makes no representation as to
the tax consequences of any such delayed exercise. The Optionee should consult
with the Optionee's own tax advisor as to the tax consequences to the Optionee
of any such delayed exercise.
7.4 Extension if Optionee Subject to Section 16(b). Notwithstanding
the foregoing, if a sale within the applicable time periods set forth in Section
7.1 of shares acquired upon the exercise of the Option would subject the
Optionee to suit under Section 16(b) of the Exchange Act, the Option shall
remain exercisable until the earliest to occur of (i)the tenth (10th) day
following the date on which a sale of such shares by the Optionee would no
longer be subject to such suit, (ii) the one hundred and ninetieth (190th) day
after the Optionee's termination of Service, or (iii) the Option Expiration
Date. The Company makes no representation as to the tax consequences of any such
delayed exercise. The Optionee should consult with the Optionee's own tax
advisor as to the tax consequences to the Optionee of any such delayed exercise.
8. Transfer of Control.
-------------------
8.1 Definitions.
8
<PAGE>
(a) An "Ownership Change Event" shall be deemed to have occurred
if any of the following occurs with respect to the Company:
(i) the direct or indirect sale or exchange in a single or
series of related transactions by the shareholders of the Company of more than
fifty percent (50%) of the voting stock of the Company;
(ii) a merger or consolidation in which the Company is a
party;
(iii) the sale, exchange, or transfer of all or substantially
all of the assets of the Company; or
(iv) a liquidation or dissolution of the Company.
(b) A "Transfer of Control" shall mean an Ownership Change Event
or a series of related Ownership Change Events (collectively, the "Transaction")
wherein the shareholders of the Company immediately before the Transaction do
not retain immediately after the Transaction, in substantially the same
proportions as their ownership of shares of the Company's voting stock
immediately before the Transaction, direct or indirect beneficial ownership of
more than fifty percent (50%) of the total combined voting power of the
outstanding voting stock of the Company or the corporation or corporations to
which the assets of the Company were transferred (the "Transferee
Corporation(s)"), as the case may be. For purposes of the preceding sentence,
indirect beneficial ownership shall include, without limitation, an interest
resulting from ownership of the voting stock of one or more corporations which,
as a result of the Transaction, own the Company or the Transferee
Corporation(s), as the case may be, either directly or through one or more
subsidiary corporations. The Board shall have the right to determine whether
multiple sales or exchanges of the voting stock of the Company or multiple
Ownership Change Events are related, and its determination shall be final,
binding and conclusive.
8.2 Effect of Transfer of Control on Option. In the event of a
Transfer of Control, the surviving, continuing, successor, or purchasing
corporation or parent corporation thereof, as the case may be (the "Acquiring
Corporation"), may either assume the Company's rights and obligations under the
Option or substitute for the Option a substantially equivalent option for the
Acquiring Corporation's stock. For purposes of this Section 8.2, the Option
shall be deemed assumed if, following the Transfer of Control, the Option
confers the right to purchase in accordance with its terms and conditions, for
each share of Stock subject to the Option immediately prior to the Transfer of
Control, the consideration (whether stock, cash or other securities or property)
to which a holder of a share of Stock on the effective date of the Transfer of
Control was entitled. The Option shall terminate and cease to be outstanding
effective as of the date of the Transfer of Control to the extent that the
Option is neither assumed or substituted for by the Acquiring Corporation in
connection with the Transfer of Control nor exercised as of the date of the
Transfer of Control. Notwithstanding the foregoing, shares acquired upon
exercise of the Option prior to the Transfer of Control and any consideration
received pursuant to the Transfer of Control with respect to such shares shall
continue to be subject to all applicable provisions of this Option Agreement
except as otherwise provided
9
<PAGE>
herein. Furthermore, notwithstanding the foregoing, if the corporation the stock
of which is subject to the Option immediately prior to an Ownership Change Event
described in Section 8.1(a)(i) constituting a Transfer of Control is the
surviving or continuing corporation and immediately after such Ownership Change
Event less than fifty percent (50%) of the total combined voting power of its
voting stock is held by another corporation or by other corporations that are
members of an affiliated group within the meaning of Section 1504(a) of the Code
without regard to the provisions of Section 1504(b) of the Code, the Option
shall not terminate unless the Board otherwise provides in its sole discretion.
9. Adjustments for Changes in Capital Structure. In the event of any
--------------------------------------------
stock dividend, stock split, reverse stock split, recapitalization, combination,
reclassification, or similar change in the capital structure of the Company,
appropriate adjustments shall be made in the number, Exercise Price and class of
shares of stock subject to the Option. If a majority of the shares which are of
the same class as the shares that are subject to the Option are exchanged for,
converted into, or otherwise become (whether or not pursuant to an Ownership
Change Event) shares of another corporation (the "New Shares"), the Board may
unilaterally amend the Option to provide that the Option is exercisable for New
Shares. In the event of any such amendment, the Number of Option Shares and the
Exercise Price shall be adjusted in a fair and equitable manner, as determined
by the Board, in its sole discretion. Notwithstanding the foregoing, any
fractional share resulting from an adjustment pursuant to this Section 9 shall
be rounded up or down to the nearest whole number, as determined by the Board,
and in no event may the Exercise Price be decreased to an amount less than the
par value, if any, of the stock subject to the Option. The adjustments
determined by the Board pursuant to this Section 9 shall be final, binding and
conclusive.
10. Rights as a Shareholder, Employee or Consultant. The Optionee shall
-----------------------------------------------
have no rights as a shareholder with respect to any shares covered by the Option
until the date of the issuance of a certificate for the shares for which the
Option has been exercised (as evidenced by the appropriate entry on the books of
the Company or of a duly authorized transfer agent of the Company). No
adjustment shall be made for dividends, distributions or other rights for which
the record date is prior to the date such certificate is issued, except as
provided in Section9. If the Optionee is an Employee, the Optionee understands
and acknowledges that, except as otherwise provided in a separate, written
employment agreement between a Participating Company and the Optionee, the
Optionee's employment is "at will" and is for no specified term.. Nothing in
this Option Agreement shall confer upon the Optionee, whether an Employee or
Consultant, any right to continue in the Service of a Participating Company or
interfere in any way with any right of the Participating Company Group to
terminate the Optionee's Service as an Employee or Consultant, as the case may
be, at any time.
11. Unvested Share Repurchase Option.
--------------------------------
11.1 Grant of Unvested Share Repurchase Option. In the event the
Optionee's Service with the Participating Company Group is terminated for any
reason or no reason, with or without cause, or if the Optionee, the Optionee's
legal representative, or other holder of shares acquired upon exercise of the
Option attempts to sell, exchange, transfer, pledge,
10
<PAGE>
or otherwise dispose of (other than pursuant to an Ownership Change Event) any
shares acquired upon exercise of the Option which exceed the Vested Shares as
defined in Section 11.2 below (the "Unvested Shares"), the Company shall have
the right to repurchase the Unvested Shares under the terms and subject to the
conditions set forth in this Section11 (the "Unvested Share Repurchase Option").
11.2 Vested Shares and Unvested Shares Defined. The "Vested Shares"
shall mean, on any given date, a number of shares of Stock equal to the Number
of Option Shares multiplied by the Vested Ratio determined as of such date and
rounded down to the nearest whole share. On such given date, the "Unvested
Shares" shall mean the number of shares of Stock acquired upon exercise of the
Option which exceed the Vested Shares determined as of such date.
11.3 Exercise of Unvested Share Repurchase Option. The Company may
exercise the Unvested Share Repurchase Option by written notice to the Optionee
within sixty (60) days after (a) termination of the Optionee's Service (or
exercise of the Option, if later) or (b) the Company has received notice of the
attempted disposition of Unvested Shares. If the Company fails to give notice
within such sixty (60) day period, the Unvested Share Repurchase Option shall
terminate unless the Company and the Optionee have extended the time for the
exercise of the Unvested Share Repurchase Option. The Unvested Share Repurchase
Option must be exercised, if at all, for all of the Unvested Shares, except as
the Company and the Optionee otherwise agree.
11.4 Payment for Shares and Return of Shares to Company. The purchase
price per share being repurchased by the Company shall be an amount equal to the
Optionee's original cost per share, as adjusted pursuant to Section 9 (the
"Repurchase Price"). The Company shall pay the aggregate Repurchase Price to the
Optionee in cash within thirty (30) days after the date of the written notice to
the Optionee of the Company's exercise of the Unvested Share Repurchase Option.
For purposes of the foregoing, cancellation of any indebtedness of the Optionee
to any Participating Company shall be treated as payment to the Optionee in cash
to the extent of the unpaid principal and any accrued interest canceled. The
shares being repurchased shall be delivered to the Company by the Optionee at
the same time as the delivery of the Repurchase Price to the Optionee.
11.5 Assignment of Unvested Share Repurchase Option. The Company
shall have the right to assign the Unvested Share Repurchase Option at any time,
whether or not such option is then exercisable, to one or more persons as may be
selected by the Company.
11.6 Ownership Change Event. Upon the occurrence of an Ownership
Change Event, any and all new, substituted or additional securities or other
property to which the Optionee is entitled by reason of the Optionee's ownership
of Unvested Shares shall be immediately subject to the Unvested Share Repurchase
Option and included in the terms "Stock" and "Unvested Shares" for all purposes
of the Unvested Share Repurchase Option with the same force and effect as the
Unvested Shares immediately prior to the Ownership Change Event. While the
aggregate Repurchase Price shall remain the same after such Ownership Change
11
<PAGE>
Event, the Repurchase Price per Unvested Share upon exercise of the Unvested
Share Repurchase Option following such Ownership Change Event shall be adjusted
as appropriate. For purposes of determining the Vested Ratio following an
Ownership Change Event, credited Service shall include all Service with any
corporation which is a Participating Company at the time the Service is
rendered, whether or not such corporation is a Participating Company both before
and after the Ownership Change Event.
12. Right of First Refusal.
-----------------------
12.1 Grant of Right of First Refusal. Except as provided in Section
12.7 below, in the event the Optionee, the Optionee's legal representative, or
other holder of shares acquired upon exercise of the Option proposes to sell,
exchange, transfer, pledge, or otherwise dispose of any Vested Shares (the
"Transfer Shares") to any person or entity, including, without limitation, any
shareholder of the Participating Company Group, the Company shall have the right
to repurchase the Transfer Shares under the terms and subject to the conditions
set forth in this Section 12 (the "Right of First Refusal").
12.2 Notice of Proposed Transfer. Prior to any proposed transfer of
the Transfer Shares, the Optionee shall deliver written notice (the "Transfer
Notice") to the Company describing fully the proposed transfer, including the
number of Transfer Shares, the name and address of the proposed transferee (the
"Proposed Transferee") and, if the transfer is voluntary, the proposed transfer
price, and containing such information necessary to show the bona fide nature of
the proposed transfer. In the event of a bona fide gift or involuntary transfer,
the proposed transfer price shall be deemed to be the Fair Market Value of the
Transfer Shares, as determined by the Board in good faith. If the Optionee
proposes to transfer any Transfer Shares to more than one Proposed Transferee,
the Optionee shall provide a separate Transfer Notice for the proposed transfer
to each Proposed Transferee. The Transfer Notice shall be signed by both the
Optionee and the Proposed Transferee and must constitute a binding commitment of
the Optionee and the Proposed Transferee for the transfer of the Transfer Shares
to the Proposed Transferee subject only to the Right of First Refusal.
12.3 Bona Fide Transfer. If the Company determines that the
information provided by the Optionee in the Transfer Notice is insufficient to
establish the bona fide nature of a proposed voluntary transfer, the Company
shall give the Optionee written notice of the Optionee's failure to comply with
the procedure described in the Section 12, and the Optionee shall have no right
to transfer the Transfer Shares without first complying with the procedure
described in this Section 12. The Optionee shall not be permitted to transfer
the Transfer Shares if the proposed transfer is not bona fide.
12.4 Exercise of Right of First Refusal. If the Company determines
the proposed transfer to be bona fide, the Company shall have the right to
purchase all, but not less than all, of the Transfer Shares (except as the
Company and the Optionee otherwise agree) at the purchase price and on the terms
set forth in the Transfer Notice by delivery to the Optionee of a notice of
exercise of the Right of First Refusal within thirty (30) days after the date
the Transfer Notice is delivered to the Company. The Company's exercise or
failure to exercise the Right of
12
<PAGE>
First Refusal with respect to any proposed transfer described in a Transfer
Notice shall not affect the Company's right to exercise the Right of First
Refusal with respect to any proposed transfer described in any other Transfer
Notice, whether or not such other Transfer Notice is issued by the Optionee or
issued by a person other than the Optionee with respect to a proposed transfer
to the same Proposed Transferee. If the Company exercises the Right of First
Refusal, the Company and the Optionee shall thereupon consummate the sale of the
Transfer Shares to the Company on the terms set forth in the Transfer Notice
within sixty (60) days after the date the Transfer Notice is delivered to the
Company (unless a longer period is offered by the Proposed Transferee);
provided, however, that in the event the Transfer Notice provides for the
payment for the Transfer Shares other than in cash, the Company shall have the
option of paying for the Transfer Shares by the present value cash equivalent of
the consideration described in the Transfer Notice as reasonably determined by
the Company. For purposes of the foregoing, cancellation of any indebtedness of
the Optionee to any Participating Company shall be treated as payment to the
Optionee in cash to the extent of the unpaid principal and any accrued interest
canceled.
12.5 Failure to Exercise Right of First Refusal. If the Company fails
to exercise the Right of First Refusal in full (or to such lesser extent as the
Company and the Optionee otherwise agree) within the period specified in Section
12.4 above, the Optionee may conclude a transfer to the Proposed Transferee of
the Transfer Shares on the terms and conditions described in the Transfer
Notice, provided such transfer occurs not later than ninety (90) days following
delivery to the Company of the Transfer Notice. The Company shall have the right
to demand further assurances from the Optionee and the Proposed Transferee (in a
form satisfactory to the Company) that the transfer of the Transfer Shares was
actually carried out on the terms and conditions described in the Transfer
Notice. No Transfer Shares shall be transferred on the books of the Company
until the Company has received such assurances, if so demanded, and has approved
the proposed transfer as bona fide. 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 this Section 12.
12.6 Transferees of Transfer Shares. All transferees of the Transfer
Shares or any interest therein, other than the Company, shall be required as a
condition of such transfer to agree in writing (in a form satisfactory to the
Company) that such transferee shall receive and hold such Transfer Shares or
interest therein subject to all of the terms and conditions of this Option
Agreement, including this Section 12 providing for the Right of First Refusal
with respect to any subsequent transfer. Any sale or transfer of any shares
acquired upon exercise of the Option shall be void unless the provisions of this
Section 12 are met.
12.7 Transfers Not Subject to Right of First Refusal. The Right of
First Refusal shall not apply to any transfer or exchange of the shares acquired
upon exercise of the Option if such transfer or exchange is in connection with
an Ownership Change Event. If the consideration received pursuant to such
transfer or exchange consists of stock of a Participating Company, such
consideration shall remain subject to the Right of First Refusal unless the
provisions of Section 12.9 below result in a termination of the Right of First
Refusal.
13
<PAGE>
12.8 Assignment of Right of First Refusal. The Company shall have the
right to assign the Right of First Refusal at any time, whether or not there has
been an attempted transfer, to one or more persons as may be selected by the
Company.
12.9 Early Termination of Right of First Refusal. The other
provisions of this Option Agreement notwithstanding, the Right of First Refusal
shall terminate and be of no further force and effect upon (a) the occurrence of
a Transfer of Control, unless the Acquiring Corporation assumes the Company's
rights and obligations under the Option or substitutes a substantially
equivalent option for the Acquiring Corporation's stock for the Option, or
(b)the existence of a public market for the class of shares subject to the Right
of First Refusal. A "public market" shall be deemed to exist if (i) such stock
is listed on a national securities exchange (as that term is used in the
Exchange Act) or (ii) such stock is traded on the over-the-counter market and
prices therefor are published daily on business days in a recognized financial
journal.
13. Escrow.
------
13.1 Establishment of Escrow. To ensure that shares subject to the
Unvested Share Repurchase Option or the Right of First Refusal will be available
for repurchase, the Company may require the Optionee to deposit the certificate
evidencing the shares which the Optionee purchases upon exercise of the Option
with an escrow agent designated by the Company under the terms and conditions of
escrow and security agreements approved by the Company. If the Company does not
require such deposit as a condition of exercise of the Option, the Company
reserves the right at any time to require the Optionee to so deposit the
certificate in escrow. Upon the occurrence of an Ownership Change Event or a
change, as described in Section 9, in the character or amount of any of the
outstanding stock of the corporation the stock of which is subject to the
provisions of this Option Agreement, any and all new, substituted or additional
securities or other property to which the Optionee is entitled by reason of the
Optionee's ownership of shares of Stock acquired upon exercise of the Option
that remain, following such Ownership Change Event or change described in
Section 9, subject to the Unvested Share Repurchase Option or the Right of First
Refusal shall be immediately subject to the escrow to the same extent as such
shares of Stock immediately before such event. The Company shall bear the
expenses of the escrow.
13.2 Delivery of Shares to Optionee. As soon as practicable after the
expiration of the Unvested Share Repurchase Option and the Right of First
Refusal, but not more frequently than twice each calendar year, the escrow agent
shall deliver to the Optionee the shares and any other property no longer
subject to such restrictions.
13.3 Notices and Payments. In the event the shares and any other
property held in escrow are subject to the Company's exercise of the Unvested
Share Repurchase Option or the Right of First Refusal, the notices required to
be given to the Optionee shall be given to the escrow agent, and any payment
required to be given to the Optionee shall be given to the escrow agent. Within
thirty (30) days after payment by the Company, the escrow agent shall
14
<PAGE>
deliver the shares and any other property which the Company has purchased to the
Company and shall deliver the payment received from the Company to the Optionee.
14. Stock Distributions Subject to Option Agreement. If, from time to
-----------------------------------------------
time, there is any stock dividend, stock split or other change, as described in
Section 9, in the character or amount of any of the outstanding stock of the
corporation the stock of which is subject to the provisions of this Option
Agreement, then in such event any and all new, substituted or additional
securities to which the Optionee is entitled by reason of the Optionee's
ownership of the shares acquired upon exercise of the Option shall be
immediately subject to the Unvested Share Repurchase Option and the Right of
First Refusal with the same force and effect as the shares subject to the
Unvested Share Repurchase Option and the Right of First Refusal immediately
before such event.
15. Notice of Sales Upon Disqualifying Disposition. The Optionee shall
----------------------------------------------
dispose of the shares acquired pursuant to the Option only in accordance with
the provisions of this Option Agreement. In addition, the Optionee shall
promptly notify the Chief Financial Officer of the Company if the Optionee
disposes of any of the shares acquired pursuant to the Option within one (1)
year after the date the Optionee exercises all or part of the Option or within
two(2) years after the Date of Option Grant and shall provide the Company with a
description of the terms and circumstances of such disposition. Until such time
as the Optionee disposes of such shares in a manner consistent with the
provisions of this Option Agreement, unless otherwise expressly authorized by
the Company, the Optionee shall hold all shares acquired pursuant to the Option
in the Optionee's name (and not in the name of any nominee) for the one-year
period immediately after the exercise of the Option and the two-year period
immediately after Date of Option Grant. At any time during the one-year or two-
year periods set forth above, the Company may place a legend on any certificate
representing shares acquired pursuant to the Option requesting the transfer
agent for the Company's stock to notify the Company of any such transfers. The
obligation of the Optionee to notify the Company of any such transfer shall
continue notwithstanding that a legend has been placed on the certificate
pursuant to the preceding sentence.
16. Legends. The Company may at any time place legends referencing the
-------
Unvested Share Repurchase Option, the Right of First Refusal and any applicable
federal, state or foreign securities law restrictions on all certificates
representing shares of stock subject to the provisions of this Option Agreement.
The Optionee shall, at the request of the Company, promptly present to the
Company any and all certificates representing shares acquired pursuant to the
Option in the possession of the Optionee in order to carry out the provisions of
this Section. Unless otherwise specified by the Company, legends placed on such
certificates may include, but shall not be. limited to, the following:
16.1 "THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD,
TRANSFERRED, ASSIGNED OR HYPOTHECATED UNLESS THERE IS AN EFFECTIVE REGISTRATION
STATEMENT UNDER SUCH ACT COVERING SUCH SECURITIES, THE SALE IS MADE IN
ACCORDANCE WITH
15
<PAGE>
RULE 144 OR RULE 701 UNDER THE ACT, OR THE COMPANY RECEIVES AN OPINION OF
COUNSEL FOR THE HOLDER OF THESE SECURITIES REASONABLY SATISFACTORY TO THE
COMPANY, STATING THAT SUCH SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION IS EXEMPT
FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SUCH ACT."
16.2 Any legend required to be placed thereon by the Commissioner of
Corporations of the State of California.
16.3 "THE SHARES REPRESENTED BY TIHS CERTIFICATE ARE SUBJECT TO AN
UNVESTED SHARE REPURCHASE OPTION IN FAVOR OF THE CORPORATION OR ITS ASSIGNEE SET
FORTH IN AN AGREEMENT BETWEEN THE CORPORATION AND THE REGISTERED HOLDER, OR SUCH
HOLDER'S PREDECESSOR IN INTEREST, A COPY OF WHICH IS ON FILE AT THE PRINCIPAL
OFFICE OF THIS CORPORATION."
16.4 "THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A
RIGHT OF FIRST REFUSAL OPTION IN FAVOR OF THE CORPORATION OR ITS ASSIGNEE SET
FORTH IN AN AGREEMENT BETWEEN THE CORPORATION AND THE REGISTERED HOLDER, OR SUCH
HOLDER'S PREDECESSOR IN INTEREST, A COPY OF WHICH IS ON FILE AT THE PRINCIPAL
OFFICE OF THIS CORPORATION."
16.5 "THE SHARES EVIDENCED BY THIS CERTIFICATE WERE ISSUED BY THE
CORPORATION TO THE REGISTERED HOLDER UPON EXERCISE OF AN INCENTIVE STOCK OPTION
AS DEFINED IN SECTION 422 OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED
("ISO"). IN ORDER TO OBTAIN THE PREFERENTIAL TAX TREATMENT AFFORDED TO ISOs, THE
SHARES SHOULD NOT BE TRANSFERRED PRIOR TO _____________. SHOULD THE REGISTERED
HOLDER ELECT TO TRANSFER ANY OF THE SHARES PRIOR TO THIS DATE AND FOREGO ISO TAX
TREATMENT, THE TRANSFER AGENT FOR THE SHARES SHALL NOTIFY THE CORPORATION
IMMEDIATELY. THE REGISTERED HOLDER SHALL HOLD ALL SHARES PURCHASED UNDER THE
INCENTIVE STOCK OPTION IN THE REGISTERED HOLDER'S NAME (AND NOT IN THE NAME OF
ANY NOMINEE) PRIOR TO TFUS DATE OR UNTIL TRANSFERRED AS DESCRIBED ABOVE."
17. Public Offering. The Optionee hereby agrees that in the event of any
---------------
underwritten public offering of stock, including an initial public offering of
stock, made by the Company pursuant to an effective registration statement filed
under the Securities Act, the Optionee shall not offer, sell, contract to sell,
pledge, hypothecate, grant any option to purchase or make any short sale of, or
otherwise dispose of any shares of stock of the Company or any rights to acquire
stock of the Company for such period of time from and after the effective date
of such registration statement as may be established by the underwriter for such
public offering; provided, however, that such period of time shall not exceed
one hundred eighty (180) days from the effective date of the registration
statement to be filed in connection with such public offering.
16
<PAGE>
The foregoing limitation shall not apply to shares registered in the public
offering under the Securities Act. The Optionee shall be subject to this Section
provided and only if the officers and directors of the Company are also subject
to similar arrangements.
18. Restrictions on Transfer of Shares. No shares acquired upon exercise
----------------------------------
of the Option may be sold, exchanged, transferred (including, without
limitation, any transfer to a nominee or agent of the Optionee), assigned,
pledged, hypothecated or otherwise disposed of, including by operation of law,
in any manner which violates any of the provisions of this Option Agreement and,
except pursuant to an Ownership Change, until the date on which such shares
become Vested Shares, and any such attempted disposition shall be void. The
Company shall not be required (a) to transfer on its books any shares which will
have been transferred in violation of any of the provisions set forth in this
Option Agreement or (b) to treat as owner of such shares or to accord the right
to vote as such owner or to pay dividends to any transferee to whom such shares
will have been so transferred.
19. Binding Effect. Subject to the restrictions on transfer set forth
--------------
herein, this Option Agreement shall inure to the benefit of and be binding upon
the parties hereto and their respective heirs, executors, administrators,
successors and assigns.
20. Termination or Amendment. The Board may terminate or amend the Plan or
------------------------
the Option at any time; provided, however, that except as provided in Section
8.2 in connection with a Transfer of Control, no such termination or amendment
may adversely affect the Option or any unexercised portion hereof without the
consent of the Optionee unless such termination or amendment is necessary to
comply with any applicable law or government regulation or is required to enable
the Option to qualify as an Incentive Stock Option. No amendment or addition to
this Option Agreement shall be effective unless in writing.
21. Notices. Any notice required or permitted hereunder shall be given in
-------
writing and shall be deemed effectively given (except to the extent that this
Option Agreement provides for effectiveness only upon actual receipt of such
notice) upon personal delivery or upon deposit in the United States Post Office,
by registered or certified mail, with postage and fees prepaid, addressed to the
other party at the address shown below that party's signature or at such other
address as such party may designate in writing from time to time to the other
party.
22. Integrated Agreement. This Option Agreement and the Plan constitute
--------------------
the entire understanding and agreement of the Optionee and the Participating
Company Group with respect to the subject matter contained herein or therein,
and there are no agreements, understandings, restrictions, representations, or
warranties among the Optionee and the Participating Company Group with respect
to such subject matter other than those as set forth or provided for herein or
therein. To the extent contemplated herein or therein, the provisions of this
Option Agreement shall survive any exercise of the Option and shall remain in
full force and effect.
23. Applicable Law. This Option Agreement shall be governed by 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 the State
of California.
17
<PAGE>
DOWNTOWN WEB, INC. DBA
AUTOWEB INTERACTIVE
By: ____________________________________
Frank Zamani
President
Address:
100 Saratoga Avenue, Suite 200
Santa Clara, California 95051
The Optionee represents that the Optionee is familiar with the terms and
provisions of this Option Agreement, including the Unvested Share Repurchase
Option set forth in Section11 and the Right of First Refusal set forth in
Section 12 and hereby accepts the Option subject to all of the terms and
provisions thereof. The Optionee hereby agrees to accept as binding, conclusive
and final all decisions or interpretations of the Board upon any questions
arising under this Option Agreement. The undersigned acknowledges receipt of a
copy of the Plan.
OPTIONEE
Date:____________________ ________________________________________
Optionee Address:
________________________________________
________________________________________
18
<PAGE>
THE SECURITIES WHICH ARE THE SUBJECT OF THIS AGREEMENT HAVE NOT BEEN
QUALIFIED WITH THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA AND
THE ISSUANCE OF SUCH SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE
CONSIDERATION THEREFOR PRIOR TO SUCH QUALIFICATION IS UNLAWFUL, UNLESS THE SALE
OF SECURITIES IS EXEMPT FROM QUALIFICATION BY SECTION 25100, 25102, OR 25105 OF
THE CALIFORNIA CORPORATIONS CODE. THE RIGHTS OF ALL PARTIES TO TIHS AGREEMENT
ARE EXPRESSLY CONDITIONED UPON SUCH QUALIFICATION BEING OBTAINED, UNLESS THE
SALE IS SO EXEMPT.
THE SECURITY REPRESENTED BY THIS CERTIFICATE HAS BEEN ACQUIRED FOR
INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR
DISTRIBUTION THEREOF. NO SUCH SALE OR DISPOSITION MAY BE EFFECTED WITHOUT AN
EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL
SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE
SECURITIES ACT OF 1933.
DOWNTOWN WEB, INC. DBA AUTOWEB INTERACTIVE
IMMEDIATELY EXERCISABLE
NONSTATUTORY STOCK OPTION AGREEMENT
THIS IMMEDIATELY EXERCISABLE NONSTATUTORY STOCK OPTION AGREEMENT (the
"Option Agreement") is made and entered into as of ____________________, 19___,
by and between Downtown Web, Inc. dba AutoWeb Interactive and
__________________________ (the "Optionee").
The Company has granted to the Optionee pursuant to the Downtown Web, Inc.
dba AutoWeb Interactive 1997 Stock Option Plan (the "Plan") an option to
purchase certain shares of Stock, upon the terms and conditions set forth in
this Option Agreement (the "Option"). The Option shall in all respects be
subject to the terms and conditions of the Plan, the provisions of which are
incorporated herein by reference.
1. Definitions and Construction
----------------------------
1.1 Definitions. Unless otherwise defined herein, capitalized terms
shall have the meanings assigned to such terms in the Plan. Whenever used
herein, the following terms shall have their respective meanings set forth
below:
(a) "Date of Option Grant" means ________________, 19__.
(b) "Number of Option Shares" means _____________ shares of
Stock, as adjusted from time to time pursuant to Section 9.
<PAGE>
(c) "Exercise Price" means $ _____________ per share of Stock, as
adjusted from time to time pursuant to Section 9.
(d) "Initial Exercise Date" means the later of the Date of Option
Grant or the date the Optionee's Service commences.
(e) "Initial Vesting Date" means _____________, 19__.
(f) "Vested Ratio" means, on any relevant date, the ratio
determined as follows:
<TABLE>
<CAPTION>
Vested Ratio
------------
<S> <C>
Prior to Initial Vesting Date 0
On Initial Vesting Date, 1/4
provided the Optionee's Service
has not terminated prior to such
date
Plus
----
For each six months of the 1/8
Optionee's continuous Service
from the Initial Vesting Date
until the Vested Ratio equals
1/1, an additional
</TABLE>
(g) "Option Expiration Date" means the date ten (10) years after
the Date of Option Grant.
(h) "Company" means Downtown Web, Inc. dba AutoWeb Interactive, a
California corporation, or any successor corporation thereto.
(i) "Disability" means the inability of the Optionee, in the
opinion of a qualified physician acceptable to the Company, to perform the major
duties of the Optionee's position with the Participating Company Group because
of the sickness or injury of the Optionee.
(j) "Securities Act" means the Securities Act of 1933, as
amended.
(k) "Service" means the Optionee's employment or service with the
Participating Company Group, whether in the capacity of an Employee, a Director
or a Consultant. The Optionee's Service shall not be deemed to have terminated
merely because of a change in the capacity in which the Optionee renders Service
to the Participating Company Group or a change in the Participating Company for
which the Optionee renders such Service, provided that there is no interruption
or termination of the Optionee's Service. Furthermore, the Optionee's Service
with the Participating Company Group shall not be deemed to have
2
<PAGE>
terminated if the Optionee takes any military leave, sick leave, or other bona
fide leave of absence approved by the Company; provided, however, that if any
such leave exceeds ninety (90) days, on the ninety-first (91st) day of such
leave the Optionee's Service shall be deemed to have terminated unless the
Optionee's right to return to Service with the Participating Company Group is
guaranteed by statute or contract. Notwithstanding the foregoing, unless
otherwise designated by the Company or required by law, a leave of absence shall
not be treated as Service for purposes of determining the Optionee's Vested
Ratio. The Optionee's Service shall be deemed to have terminated either upon an
actual termination of Service or upon the corporation for which the Optionee
performs Service ceasing to be a Participating Company. Subject to the
foregoing, the Company, in its sole discretion, shall determine whether the
Optionee's Service has terminated and the effective date of such termination.
1.2 Construction. Captions and titles contained herein are for
convenience only and shall not affect the meaning or interpretation of any
provision of this Option Agreement. Except when otherwise indicated by the
context, the singular shall include the plural and the plural shall include the
singular. Use of the term "or" is not intended to be exclusive, unless the
context dearly requires otherwise.
2. Tax Consequences.
----------------
2.1 Tax Status of Option. This Option is intended to be a
Nonstatutory Stock Option and shall not be treated as an Incentive Stock Option
within the meaning of Section 422(b) of the Code.
2.2 Election Under Section 83(b) of the Code. If the Optionee
exercises this Option to purchase shares of Stock that are both nontransferable
and subject to a substantial risk of forfeiture, the Optionee understands that
the Optionee should consult with the Optionee's tax advisor regarding the
advisability of filing with the Internal Revenue Service an election under
Section 83(b) of the Code, which must be filed no later than thirty (30) days
after the date on which the Optionee exercises the Option. Shares acquired upon
exercise of the Option are nontransferable and subject to a substantial risk of
forfeiture if, for example, (a) they are unvested and are subject to a right of
the Company to repurchase such shares at the Optionee's original purchase price
if the Optionee's Service terminates, (b) the Optionee is an Insider and
exercises the Option within six (6) months of the Date of Option Grant (if a
class of equity security of the Company is registered under Section 12 of the
Exchange Act), or (c) the Optionee is subject to a restriction on transfer to
comply with "Pooling-of-Interests Accounting" rules. Failure to file an election
under Section 83(b), if appropriate, may result in adverse tax consequences to
the Optionee. The Optionee acknowledges that the Optionee has been advised to
consult with a tax advisor prior to the exercise of the Option regarding the tax
consequences to the Optionee of the exercise of the Option. AN ELECTION UNDER
SECTION 83(b) MUST BE FILED WITHIN 30 DAYS AFTER THE DATE ON WHICH THE OPTIONEE
PURCHASES SHARES. THIS TIME PERIOD CANNOT BE EXTENDED. THE OPTIONEE ACKNOWLEDGES
THAT TIMELY FILING OF A SECTION 83(b) ELECTION IS THE OPTIONEE'S SOLE
RESPONSIBILITY, EVEN IF THE OPTIONEE REQUESTS THE
3
<PAGE>
COMPANY OR ITS REPRESENTATIVE TO FILE SUCH ELECTION ON HIS OR HER BEHALF.
3. Administration. All questions of interpretation concerning this Option
--------------
Agreement shall be determined by the Board. All determinations by the Board
shall be final and binding upon all persons having an interest in the Option.
Any officer of a Participating Company shall have the authority to act on behalf
of the Company with respect to any matter, right, obligation, or election which
is the responsibility of or which is allocated to the Company herein, provided
the officer has apparent authority with respect to such matter, right,
obligation, or election.
4. Exercise of the Option.
----------------------
4.1 Right to Exercise. Except as otherwise provided herein, the
Option shall be exercisable on and after the Initial Exercise Date and prior to
the termination of the Option (as provided in Section 6) in an amount not to
exceed the Number of Option Shares less the number of shares previously acquired
upon exercise of the Option, subject to the Optionee's agreement that any shares
purchased upon exercise are subject to the Company's repurchase rights set forth
in Section 11 and Section 12.
4.2 Method of Exercise. Exercise of the Option shall be by written
notice to the Company which must state the election to exercise the Option, the
number of whole shares of Stock for which the Option is being exercised and such
other representations and agreements as to the Optionee's investment intent with
respect to such shares as may be required pursuant to the provisions of this
Option Agreement. The written notice must be signed by the Optionee and must be
delivered in person, by certified or registered mail, return receipt requested,
by confirmed facsimile transmission, or by such other means as the Company may
permit, to the Chief Financial Officer of the Company, or other authorized
representative of the Participating Company Group, prior to the termination of
the Option as set forth in Section 6, accompanied by (i) full payment of the
aggregate Exercise Price for the number of shares of Stock being purchased and
(ii) an executed copy, if required herein, of the then current form of escrow
agreement referenced below. The Option shall be deemed to be exercised upon
receipt by the Company of such written notice, the aggregate Exercise Price,
and, if required by the Company, such executed agreement.
4.3 Payment of Exercise Price.
(a) Forms of Consideration Authorized. Except as otherwise
provided below, payment of the aggregate Exercise Price for the number of shares
of Stock for which the Option is being exercised shall be made (i) in cash, by
check, or cash equivalent, (ii) by tender to the Company of whole shares of
Stock owned by the Optionee having a Fair Market Value (as determined by the
Company without regard to any restrictions on transferability applicable to such
stock by reason of federal or state securities laws or agreements with an
underwriter for the Company) not less than the aggregate Exercise Price, (iii)
by means of a Cashless Exercise, as defined in Section 4.3(c), or (iv) by any
combination of the foregoing.
4
<PAGE>
(b) Tender of Stock. Notwithstanding the foregoing, the Option
may not be exercised by tender to the Company of shares of Stock to the extent
such tender of Stock would constitute a violation of the provisions of any law,
regulation or agreement restricting the redemption of the Company's stock. The
Option may not be exercised by tender to the Company of shares of Stock unless
such shares either have been owned by the Optionee for more than six (6) months
or were not acquired, directly or indirectly, from the Company.
(c) Cashless Exercise. A "Cashless Exercise" means the
assignment in a form acceptable to the Company of the proceeds of a sale or loan
with respect to some or all of the shares of Stock acquired upon the exercise of
the Option pursuant to a program or procedure approved by the Company
(including, without limitation, through an exercise complying with the
provisions of Regulation T as promulgated from time to time by the Board of
Governors of the Federal Reserve System). The Company reserves, at any and all
times, the right, in the Company's sole and absolute discretion, to decline to
approve or terminate any such program or procedure.
4.4 Tax Withholding. At the time the Option is exercised, in whole
or in part, or at any time thereafter as requested by the Company, the Optionee
hereby authorizes withholding from payroll and any other amounts payable to the
Optionee, and otherwise agrees to make adequate provision for (including by
means of a Cashless Exercise to the extent permitted by the Company), any sums
required to satisfy the federal, state, local and foreign tax withholding
obligations of the Participating Company Group, if any, which arise in
connection with the Option, including, without limitation, obligations arising
upon (i) the exercise, in whole or in part, of the Option, (ii) the transfer, in
whole or in part, of any shares acquired upon exercise of the Option, (iii) the
operation of any law or regulation providing for the imputation of interest, or
(iv) the lapsing of any restriction with respect to any shares acquired upon
exercise of the Option. The Optionee is cautioned that the Option is not
exercisable unless the tax withholding obligations of the Participating Company
Group are satisfied. Accordingly, the Optionee may not be able to exercise the
Option when desired even though the Option is vested, and the Company shall have
no obligation to issue a certificate for such shares or release such shares from
any escrow provided for herein.
4.5 Certificate Registration. Except in the event the Exercise Price
is paid by means of a Cashless Exercise, the certificate for the shares as to
which the Option is exercised shall be registered in the name of the Optionee,
or, if applicable, in the names of the heirs of the Optionee.
4.6 Restrictions on Grant of the Option and Issuance of Shares. The
grant of the Option and the issuance of shares of Stock upon exercise of the
Option shall be subject to compliance with all applicable requirements of
federal, state or foreign law with respect to such securities. The Option may
not be exercised if the issuance of shares of Stock upon exercise would
constitute a violation of any applicable federal, state or foreign securities
laws or other law or regulations or the requirements of any stock exchange or
market system upon which the Stock may then be listed. In addition, the Option
may not be exercised unless (i) a registration statement under the Securities
Act shall at the time of exercise of the Option be in effect with
5
<PAGE>
respect to the shares issuable upon exercise of the Option or (ii) in the
opinion of legal counsel to the Company, the shares issuable upon exercise of
the Option may be issued in accordance with the terms of an applicable exemption
from the registration requirements of the Securities Act. THE OPTIONEE IS
CAUTIONED THAT THE OPTION MAY NOT BE EXERCISED UNLESS THE FOREGOING CONDITIONS
ARE SATISFIED. ACCORDINGLY, THE OPTIONEE MAY NOT BE ABLE TO EXERCISE THE OPTION
WHEN DESIRED EVEN THOUGH THE OPTION IS VESTED. Questions concerning this
restriction should be directed to the Chief Financial Officer of the Company.
The inability of the Company to obtain from any regulatory body having
jurisdiction the authority, if any, deemed by the Company's legal counsel to be
necessary to the lawful issuance and sale of any shares subject to the Option
shall relieve the Company of any liability in respect of the failure to issue or
sell such shares as to which such requisite authority shall not have been
obtained. As a condition to the exercise of the Option, the Company may require
the Optionee to satisfy any qualifications that may be necessary or appropriate,
to evidence compliance with any applicable law or regulation and to make any
representation or warranty with respect thereto as may be requested by the
Company.
4.7 Fractional Shares. The Company shall not be required to issue
fractional shares upon the exercise of the Option.
5. Nontransferability of the Option. The Option may be exercised during
--------------------------------
the lifetime of the Optionee only by the Optionee or the Optionee's guardian or
legal representative and may not be assigned or transferred in any manner except
by will or by the laws of descent and distribution. Following the death of the
Optionee, the Option, to the extent provided in Section 7, may be exercised by
the Optionee's legal representative or by any person empowered to do so under
the deceased Optionee's will or under the then applicable laws of descent and
distribution.
6. Termination of the Option. The Option shall terminate and may no
-------------------------
longer be exercised on the first to occur of (a) the Option Expiration Date, (b)
the last date for exercising the Option following termination of the Optionee's
Service as described in Section 7, or (c) a Transfer of Control to the extent
provided in Section 8.
7. Effect of Termination of Service.
--------------------------------
7.1 Option Exercisability.
(a) Disability. If the Optionee's Service with the Participating
Company Group is terminated because of the Disability of the Optionee, the
Option, to the extent unexercised and exercisable on the date on which the
Optionee's Service terminated, may be exercised by the Optionee (or the
Optionee's guardian or legal representative at any time prior to the expiration
of six (6) months after the date on which the Optionee's Service terminated, but
in any event no later than the Option Expiration Date.
(b) Death. If the Optionee's Service with the Participating
Company Group is terminated because of the death of the Optionee, the Option, to
the extent unexercised and exercisable on the date on which the Optionee's
Service terminated, may be exercised by the
6
<PAGE>
Optionee's legal representative or other person who acquired the right to
exercise the Option by reason of the Optionee's death at any time prior to the
expiration of six (6) months after the date on which the Optionee's Service
terminated, but in any event no later than the Option Expiration Date. The
Optionee's Service shall be deemed to have terminated on account of death if the
Optionee dies within thirty (30) days after the Optionee's termination of
Service.
(c) Other Termination of Service. If the Optionee's Service with
the Participating Company Group terminates for any reason, except Disability or
death, the Option, to the extent unexercised and exercisable by the Optionee on
the date on which the Optionee's Service terminated, may be exercised by the
Optionee within thirty (30) days (or such other longer period of time as
determined by the Board, in its sole discretion) after the date on which the
Optionee's Service terminated, but in any event no later than the Option
Expiration Date.
7.2 Additional Limitation on Option Exercise. Notwithstanding the
provisions of Section 7.1, the Option may not be exercised after the Optionee's
termination of Service to the extent that the shares to be acquired upon
exercise of the Option would be subject to the Unvested Share Repurchase Option
as provided in Section 11.
7.3 Extension if Exercise Prevented by Law. Notwithstanding the
foregoing, if the exercise of the Option within the applicable time periods set
forth in Section 7.1 is prevented by the provisions of Section 4.6, the Option
shall remain exercisable until three (3) months after the date the Optionee is
notified by the Company that the Option is exercisable, but in any event no
later than the Option Expiration Date.
7.4 Extension if Optionee Subject to Section 16(b). Notwithstanding
the foregoing, if a sale within the applicable time periods set forth in Section
7.1 of shares acquired upon the exercise of the Option would subject the
Optionee to suit under Section 16(b) of the Exchange Act, the Option shall
remain exercisable until the earliest to occur of (i) the tenth (10th) day
following the date on which a sale of such shares by the Optionee would no
longer be subject to such suit, (ii) the one hundred and ninetieth (190th) day
after the Optionee's termination of Service, or (iii) the Option Expiration
Date.
8. Transfer of Control.
--------------------
8.1 Definitions.
(a) An "Ownership Change Event" shall be deemed to have occurred
if any of the following occurs with respect to the Company:
(i) the direct or indirect sale or exchange in a single or
series of related transactions by the shareholders of the Company of more than
fifty percent (50%) of the voting stock of the Company;
(ii) a merger or consolidation in which the Company is a
party;
7
<PAGE>
(iii) the sale, exchange, or transfer of all or substantially
all of the assets of the Company; or
(iv) a liquidation or dissolution of the Company.
(b) A "Transfer of Control" shall mean an Ownership Change Event
or a series of related Ownership Change Events (collectively, the "Transaction")
wherein the shareholders of the Company immediately before the Transaction do
not retain immediately after the Transaction, in substantially the same
proportions as their ownership of shares of the Company's voting stock
immediately before the Transaction, direct or indirect beneficial ownership of
more than fifty percent (50%) of the total combined voting power of the
outstanding voting stock of the Company or the corporation or corporations to
which the assets of the Company were transferred (the "Transferee
Corporation(s)"), as the case may be. For purposes of the preceding sentence,
indirect beneficial ownership shall include, without limitation, an interest
resulting from ownership of the voting stock of one or more corporations which,
as a result of the Transaction, own the Company or the Transferee
Corporation(s), as the case may be, either directly or through one or more
subsidiary corporations. The Board shall have the right to determine whether
multiple sales or exchanges of the voting stock of the Company or multiple
Ownership Change Events are related, and its determination shall be final,
binding and conclusive.
8.2 Effect of Transfer of Control on Option. In the event of a
Transfer of Control the surviving, continuing, successor, or purchasing
corporation or parent corporation thereof, as the case may be (the "Acquiring
Corporation"), may either assume the Company's rights and obligations under the
Option or substitute for the Option a substantially equivalent option for the
Acquiring Corporation's stock. For purposes of this Section 8.2, the Option
shall be deemed assumed if, following the Transfer of Control, the Option
confers the right to purchase in accordance with its terms and conditions, for
each share of Stock subject to the Option immediately prior to the Transfer of
Control, the consideration (whether stock, cash or other securities or property)
to which a holder of a share of Stock on the effective date of the Transfer of
Control was entitled. The Option shall terminate and cease to be outstanding
effective as of the date of the Transfer of Control to the extent that the
Option is neither assumed or substituted for by the Acquiring Corporation in
connection with the Transfer of Control nor exercised as of the date of the
Transfer of Control. Notwithstanding the foregoing, shares acquired upon
exercise of the Option prior to the Transfer of Control and any consideration
received pursuant to the Transfer of Control with respect to such shares shall
continue to be subject to all applicable provisions of this Option Agreement
except as otherwise provided herein. Furthermore, notwithstanding the foregoing,
if the corporation the stock of which is subject to the Option immediately prior
to an Ownership Change Event described in Section 8.1(a)(i) constituting a
Transfer of Control is the surviving or continuing corporation and immediately
after such Ownership Change Event less than fifty percent (50%) of the total
combined voting power of its voting stock is held by another corporation or by
other corporations that are members of an affiliated group within the meaning of
Section 1504(a) of the Code without regard to the provisions of Section 1504(b)
of the Code, the Option shall not terminate unless the Board otherwise provides
in its sole discretion.
8
<PAGE>
9. Adjustments for Changes in Capital Structure. In the event of any
--------------------------------------------
stock dividend, stock split, reverse stock split, recapitalization, combination,
reclassification, or similar change in the capital structure of the Company,
appropriate adjustments shall be made in the number, Exercise Price and class of
shares of stock subject to the Option. If a majority of the shares which are of
the same class as the shares that are subject to the Option are exchanged for,
converted into, or otherwise become (whether or not pursuant to an Ownership
Change Event) shares of another corporation (the "New Shares"), the Board may
unilaterally amend the Option to provide that the Option is exercisable for New
Shares. In the event of any such amendment, the Number of Option Shares and the
Exercise Price shall be adjusted in a fair and equitable manner, as determined
by the Board, in its sole discretion. Notwithstanding the foregoing, any
fractional share resulting from an adjustment pursuant to this Section 9 shall
be rounded up or down to the nearest whole number, as determined by the Board,
and in no event may the Exercise Price be decreased to an amount less than the
par value, if any, of the stock subject to the Option. The adjustments
determined by the Board pursuant to this Section 9 shall be final, binding and
conclusive.
10. Rights as a Shareholder, Employee or Consultant. The Optionee shall
------------------------------------------------
have no rights as a shareholder with respect to any shares covered by the Option
until the date of the issuance of a certificate for the shares for which the
Option has been exercised (as evidenced by the appropriate entry on the books of
the Company or of a duly authorized transfer agent of the Company). No
adjustment shall be made for dividends, distributions or other rights for which
the record date is prior to the date such certificate is issued, except as
provided in Section 9. If the Optionee is an Employee, the Optionee understands
and acknowledges that, except as otherwise provided in a separate, written
employment agreement between a Participating Company and the Optionee, the
Optionee's employment is "at will" and is for no specified term. Nothing in this
Option Agreement shall confer upon the Optionee, whether an Employee or
Consultant, any right to continue in the Service of a Participating Company or
interfere in any way with any right of the Participating Company Group to
terminate the Optionee's Service as an Employee or Consultant, as the case may
be, at any time.
11. Unvested Share Repurchase Option.
--------------------------------
11.1 Grant of Unvested Share Repurchase Option. In the event the
Optionee's Service with the Participating Company Group is terminated for any
reason or no reason, with or without cause, or if the Optionee, the Optionee's
legal representative, or other holder of shares acquired upon exercise of the
Option attempts to sell, exchange, transfer, pledge, or otherwise dispose of
(other than pursuant to an Ownership Change Event) any shares acquired upon
exercise of the Option which exceed the Vested Shares as defined in Section 11.2
below (the "Unvested Shares"), the Company shall have the right to repurchase
the Unvested Shares under the terms and subject to the conditions set forth in
this Section 11 (the "Unvested Share Repurchase Option").
11.2 Vested Shares and Unvested Shares Defined. The "Vested Shares"
shall mean, on any given date, a number of shares of Stock equal to the Number
of Option Shares multiplied by the Vested Ratio determined as of such date and
rounded down to the nearest
9
<PAGE>
whole share. On such given date, the "Unvested Shares" shall mean the number of
shares of Stock acquired upon exercise of the Option which exceed the Vested
Shares determined as of such date.
11.3 Exercise of Unvested Share Repurchase Option. The Company may
exercise the Unvested Share Repurchase Option by written notice to the Optionee
within sixty (60) days after (a) termination of the Optionee's Service (or
exercise of the Option, if later) or (b) the Company has received notice of the
attempted disposition of Unvested Shares. If the Company fails to give notice
within such sixty (60) day period, the Unvested Share Repurchase Option shall
terminate unless the Company and the Optionee have extended the time for the
exercise of the Unvested Share Repurchase Option. The Unvested Share Repurchase
Option must be exercised, if at all, for all of the Unvested Shares, except as
the Company and the Optionee otherwise agree.
11.4 Payment for Shares and Return of Shares to Company. The purchase
price per share being repurchased by the Company shall be an amount equal to the
Optionee's original cost per share, as adjusted pursuant to Section 9 (the
"Repurchase Price"). The Company shall pay the aggregate Repurchase Price to the
Optionee in cash within thirty (30) days after the date of the written notice to
the Optionee of the Company's exercise of the Unvested Share Repurchase Option.
For purposes of the foregoing, cancellation of any indebtedness of the Optionee
to any Participating Company shall be treated as payment to the Optionee in cash
to the extent of the unpaid principal and any accrued interest canceled. The
shares being repurchased shall be delivered to the Company by the Optionee at
the same time as the delivery of the Repurchase Price to the Optionee.
11.5 Assignment of Unvested Share Repurchase Option. The Company
shall have the right to assign the Unvested Share Repurchase Option at any time,
whether or not such option is then exercisable, to one or more persons as may be
selected by the Company.
11.6 Ownership Change Event. Upon the occurrence of an Ownership
Change Event, any and all new, substituted or additional securities or other
property to which the Optionee is entitled by reason of the Optionee's ownership
of Unvested Shares shall be immediately subject to the Unvested Share Repurchase
Option and included in the terms "Stock" and "Unvested Shares" for all purposes
of the Unvested Share Repurchase Option with the same force and effect as the
Unvested Shares immediately prior to the Ownership Change Event. While the
aggregate Repurchase Price shall remain the same after such Ownership Change
Event, the Repurchase Price per Unvested Share upon exercise of the Unvested
Share Repurchase Option following such Ownership Change Event shall be adjusted
as appropriate. For purposes of determining the Vested Ratio following an
Ownership Change Event, credited Service shall include all Service with any
corporation which is a Participating Company at the time the Service is
rendered, whether or not such corporation is a Participating Company both before
and after the Ownership Change Event.
12. Right of First Refusal.
-----------------------
10
<PAGE>
12.1 Grant of Right of First Refusal. Except as provided in Section
12.7 below, in the event the Optionee, the Optionee's legal representative, or
other holder of shares acquired upon exercise of the Option proposes to sell,
exchange, transfer, pledge, or otherwise dispose of any Vested Shares (the
"Transfer Shares") to any person or entity, including, without limitation, any
shareholder of the Participating Company Group, the Company shall have the right
to repurchase the Transfer Shares under the terms and subject to the conditions
set forth in this Section 12 (the "Right of First Refusal").
12.2 Notice of Proposed Transfer. Prior to any proposed transfer of
the Transfer Shares, the Optionee shall deliver written notice (the "Transfer
Notice") to the Company describing fully the proposed transfer, including the
number of Transfer Shares, the name and address of the proposed transferee (the
"Proposed Transferee") and, if the transfer is voluntary, the proposed transfer
price, and containing such information necessary to show the bona fide nature of
the proposed transfer. In the event of a bona fide gift or involuntary transfer,
the proposed transfer price shall be deemed to be the Fair Market Value of the
Transfer Shares, as determined by the Board in good faith. If the Optionee
proposes to transfer any Transfer Shares to more than one Proposed Transferee,
the Optionee shall provide a separate Transfer Notice for the proposed transfer
to each Proposed Transferee. The Transfer Notice shall be signed by both the
Optionee and the Proposed Transferee and must constitute a binding commitment of
the Optionee and the Proposed Transferee for the transfer of the Transfer Shares
to the Proposed Transferee subject only to the Right of First Refusal.
12.3 Bona Fide Transfer. If the Company determines that the
information provided by the Optionee in the Transfer Notice is insufficient to
establish the bona fide nature of a proposed voluntary transfer, the Company
shall give the Optionee written notice of the Optionee's failure to comply with
the procedure described in this Section 12, and the Optionee shall have no right
to transfer the Transfer Shares without first complying with the procedure
described in this Section 12. The Optionee shall not be permitted to transfer
the Transfer Shares if the proposed transfer is not bona fide.
12.4 Exercise of Right of First Refusal. If the Company determines
the proposed transfer to be bona fide, the Company shall have the right to
purchase all, but not less than all, of the Transfer Shares (except as the
Company and the Optionee otherwise agree) at the purchase price and on the terms
set forth in the Transfer Notice by delivery to the Optionee of a notice of
exercise of the Right of First Refusal within thirty (30) days after the date
the Transfer Notice is delivered to the Company. The Company's exercise or
failure to exercise the Right of First Refusal with respect to any proposed
transfer described in a Transfer Notice shall not affect the Company's right to
exercise the Right of First Refusal with respect to any proposed transfer
described in any other Transfer Notice, whether or not such other Transfer
Notice is issued by the Optionee or issued by a person other than the Optionee
with respect to a proposed transfer to the same Proposed Transferee. If the
Company exercises the Right of First Refusal, the Company and the Optionee shall
thereupon consummate the sale of the Transfer Shares to the Company on the terms
set forth in the Transfer Notice within sixty (60) days after the date the
Transfer Notice is delivered to the Company (unless a longer period is offered
by the Proposed Transferee); provided, however, that in the event the Transfer
Notice provides for the payment for the
11
<PAGE>
Transfer Shares other than in cash, the Company shall have the option of paying
for the Transfer Shares by the present value cash equivalent of the
consideration described in the Transfer Notice as reasonably determined by the
Company. For purposes of the foregoing, cancellation of any indebtedness of the
Optionee to any Participating Company shall be treated as payment to the
Optionee in cash to the extent of the unpaid principal and any accrued interest
canceled.
12.5 Failure to Exercise Right of First Refusal. If the Company fails
to exercise the Right of First Refusal in full (or to such lesser extent as the
Company and the Optionee otherwise agree) within the period specified in Section
12.4 above, the Optionee may conclude a transfer to the Proposed Transferee of
the Transfer Shares on the terms and conditions described in the Transfer
Notice, provided such transfer occurs not later than ninety (90) days following
delivery to the Company of the Transfer Notice. The Company shall have the right
to demand further assurances from the Optionee and the Proposed Transferee (in a
form satisfactory to the Company) that the transfer of the Transfer Shares was
actually carried out on the terms and conditions described in the Transfer
Notice. No Transfer Shares shall be transferred on the books of the Company
until the Company has received such assurances, if so demanded, and has approved
the proposed transfer as bona fide. 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 this Section 12.
12.6 Transferees of Transfer Shares. All transferees of the Transfer
Shares or any interest therein other than the Company, shall be required as a
condition of such transfer to agree in writing (in a form satisfactory to the
Company) that such transferee shall receive and hold such Transfer Shares or
interest therein subject to all of the terms and conditions of this Option
Agreement, including this Section 12 providing for the Right of First Refusal
with respect to any subsequent transfer. Any sale or transfer of any shares
acquired upon exercise of the Option shall be void unless the provisions of this
Section 12 are met.
12.7 Transfers Not Subject to Right of First Refusal. The Right of
First Refusal shall not apply to any transfer or exchange of the shares acquired
upon exercise of the Option if such transfer or exchange is in connection with
an Ownership Change Event. If the consideration received pursuant to such
transfer or exchange consists of stock of a Participating Company, such
consideration shall remain subject to the Right of First Refusal unless the
provisions of Section 12.9 below result in a termination of the Right of First
Refusal.
12.8 Assignment of Right of First Refusal. The Company shall have the
right to assign the Right of First Refusal at any time, whether or not there has
been an attempted transfer, to one or more persons as may be selected by the
Company.
12.9 Early Termination of Right of First Refusal. The other provisions
of this Option Agreement notwithstanding, the Right of First Refusal shall
terminate and be of no further force and effect upon (a) the occurrence of a
Transfer of Control, unless the Acquiring Corporation assumes the Company's
rights and obligations under the Option or substitutes a substantially
equivalent option for the Acquiring Corporation's stock for the Option, or (b)
the
12
<PAGE>
existence of a public market for the class of shares subject to the Right of
First Refusal. A "public market" shall be deemed to exist if (i) such stock is
listed on a national securities exchange (as that term is used in the Exchange
Act) or (ii) such stock is traded on the over-the-counter market and prices
therefor are published daily on business days in a recognized financial journal.
13. Escrow.
------
13.1 Establishment of Escrow. To ensure that shares subject to the
Unvested Share Repurchase Option or the Right of First Refusal will be available
for repurchase, the Company may require the Optionee to deposit the certificate
evidencing the shares which the Optionee purchases upon exercise of the Option
with an escrow agent designated by the Company under the terms and conditions of
escrow and security agreements approved by the Company. If the Company does not
require such deposit as a condition of exercise of the Option, the Company
reserves the right at any time to require the Optionee to so deposit the
certificate in escrow. Upon the occurrence of an Ownership Change Event or a
change, as described in Section 9, in the character or amount of any of the
outstanding stock of the corporation the stock of which is subject to the
provisions of this Option Agreement, any and all new, substituted or additional
securities or other property to which the Optionee is entitled by reason of the
Optionee's ownership of shares of Stock acquired upon exercise of the Option
that remain, following such Ownership Change Event or change described in
Section 9, subject to the Unvested Share Repurchase Option or the Right of First
Refusal shall be immediately subject to the escrow to the same extent as such
shares of Stock immediately before such event. The Company shall bear the
expenses of the escrow.
13.2 Delivery of Shares to Optionee. As soon as practicable after the
expiration of the Unvested Share Repurchase Option and the Right of First
Refusal, but not more frequently than twice each calendar year, the escrow agent
shall deliver to the Optionee the shares and any other property no longer
subject to such restrictions.
13.3 Notices and Payments. In the event the shares and any other
property held in escrow are subject to the Company's exercise of the Unvested
Share Repurchase Option or the Right of First Refusal, the notices required to
be given to the Optionee shall be given to the escrow agent, and any payment
required to be given to the Optionee shall be given to the escrow agent. Within
thirty (30) days after payment by the Company, the escrow agent shall deliver
the shares and any other property which the Company has purchased to the Company
and shall deliver the payment received from the Company to the Optionee.
14. Stock Distributions Subject to Option Agreement. If, from time to
-----------------------------------------------
time, there is any stock dividend, stock split or other change, as described in
Section 9, in the character or amount of any of the outstanding stock of the
corporation the stock of which is subject to the provisions of this Option
Agreement, then in such event any and all new, substituted or additional
securities to which the Optionee is entitled by reason of the Optionee's
ownership of the shares acquired upon exercise of the Option shall be
immediately subject to the Unvested Share Repurchase Option and the Right of
First Refusal with the same force and effect as the
13
<PAGE>
shares subject to the Unvested Share Repurchase Option and the Right of First
Refusal immediately before such event.
15. Legends. The Company may at any time place legends referencing the
-------
Unvested Share Repurchase Option, the Right of First Refusal and any applicable
federal, state or foreign securities law restrictions on all certificates
representing shares of stock subject to the provisions of this Option Agreement.
The Optionee shall, at the request of the Company, promptly present to the
Company any and all certificates representing shares acquired pursuant to the
Option in the possession of the Optionee in order to carry out the provisions of
this Section. Unless otherwise specified by the Company, legends placed on such
certificates may include, but shall not be limited to, the following:
15.1 "THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD,
TRANSFERRED, ASSIGNED OR HYPOTHECATED UNLESS THERE IS AN EFFECTIVE REGISTRATION
STATEMENT UNDER SUCH ACT COVERING SUCH SECURITIES, THE SALE IS MADE IN
ACCORDANCE WITH RULE 144 OR RULE 701 UNDER THE ACT, OR THE COMPANY RECEIVES AN
OPINION OF COUNSEL FOR THE HOLDER OF THESE SECURITIES REASONABLY SATISFACTORY TO
THE COMPANY, STATING THAT SUCH SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION IS
EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SUCH ACT."
15.2 Any legend required to be placed thereon by the Commissioner of
Corporations of the State of California.
15.3 "THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO AN
UNVESTED SHARE REPURCHASE OPTION IN FAVOR OF THE CORPORATION OR ITS ASSIGNEE SET
FORTH IN AN AGREEMENT BETWEEN THE CORPORATION AND THE REGISTERED HOLDER, OR SUCH
HOLDERS PREDECESSOR IN INTEREST, A COPY OF WHICH IS ON FILE AT THE PRINCIPAL
OFFICE OF THIS CORPORATION."
15.4 "THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A
RIGHT OF FIRST REFUSAL OPTION IN FAVOR OF THE CORPORATION OR ITS ASSIGNEE SET
FORTH IN AN AGREEMENT BETWEEN THE CORPORATION AND THE REGISTERED HOLDER, OR SUCH
HOLDER'S PREDECESSOR INTEREST, A COPY OF WHICH IS ON FILE AT THE PRINCIPAL
OFFICE OF THIS CORPORATION."
16. Public Offering. The Optionee hereby agrees that in the event of any
---------------
underwritten public offering of stock, including an initial public offering of
stock, made by the Company pursuant to an effective registration statement filed
under the Securities Act, the Optionee shall not offer, sell, contract to sell,
pledge, hypothecate, grant any option to purchase or make any short sale of, or
otherwise dispose of any shares of stock of the Company or any rights to acquire
stock of the Company for such period of time from and after the effective date
14
<PAGE>
of such registration statement as may be established by the underwriter for such
public offering; provided, however, that such period of time shall not exceed
one hundred eighty (180) days from the effective date of the registration
statement to be filed in connection with such public offering. The foregoing
limitation shall not apply to shares registered in the public offering under the
Securities Act. The Optionee shall be subject to this Section provided and only
if the officers and directors of the Company are also subject to similar
arrangements.
17. Restrictions on Transfer of Shares. No shares acquired upon exercise
----------------------------------
of the Option may be sold, exchanged, transferred (including, without
limitation, any transfer to a nominee or agent of the Optionee), assigned,
pledged, hypothecated or otherwise disposed of, including by operation of law,
in any manner which violates any of the provisions of this Option Agreement and,
except pursuant to an Ownership Change, until the date on which such shares
become Vested Shares, and any such attempted disposition shall be void. The
Company shall not be required (a) to transfer on its books any shares which will
have been transferred in violation of any of the provisions set forth in this
Option Agreement or (b) to treat as owner of such shares or to accord the right
to vote as such owner or to pay dividends to any transferee to whom such shares
will have been so transferred.
18. Binding Effect. Subject to the restrictions on transfer set forth
--------------
herein, this Option Agreement shall inure to the benefit of and be binding upon
the parties hereto and their respective heirs, executors, administrators,
successors and assigns.
19. Termination or Amendment. The Board may terminate or amend the Plan or
------------------------
the Option at any time; provided, however, that except as provided in Section
8.2 in connection with a Transfer of Control, no such termination or amendment
may adversely affect the Option or any unexercised portion hereof without the
consent of the Optionee unless such termination or amendment is necessary to
comply with any applicable law or government regulation. No amendment or
addition to this Option Agreement shall be effective unless in writing.
20. Notices. Any notice required or permitted hereunder shall be given in
-------
writing and shall be deemed effectively given (except to the extent that this
Option Agreement provides for effectiveness only upon actual receipt of such
notice) upon personal delivery or upon deposit in the United States Post Office,
by registered or certified mail, with postage and fees prepaid, addressed to the
other party at the address shown below that party's signature or at such other
address as such party may designate in writing from time to time to the other
party.
21. Integrated Agreement. This Option Agreement and the Plan constitute
--------------------
the entire understanding and agreement of the Optionee and the Participating
Company Group with respect to the subject matter contained herein or therein,
and there are no agreements, understandings, restrictions, representations, or
warranties among the Optionee and the Participating Company Group with respect
to such subject matter other than those as set forth or provided for herein or
therein. To the extent contemplated herein or therein, the provisions of this
Option Agreement shall survive any exercise of the Option and shall remain in
full force and effect.
15
<PAGE>
22. Applicable Law. This Option Agreement shall be governed by 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 the State
of California.
DOWNTOWN WEB, INC. DBA
AUTOWEB INTERACTIVE
By: ____________________________________
Frank Zamard
President
Address:
100 Saratoga Avenue, Suite 200
Santa Clara, California 95051
16
<PAGE>
The Optionee represents that the Optionee is familiar with the terms and
provisions of this Option Agreement, including the Unvested Share Repurchase
Option set forth in Section 11 and the Right of First Refusal set forth in
Section 12 and hereby accepts the Option subject to all of the terms and
provisions thereof. The Optionee hereby agrees to accept as binding, conclusive
and final all decisions or interpretations of the Board upon any questions
arising under this Option Agreement. The undersigned acknowledges receipt of a
copy of the Plan.
OPTIONEE
Date: ________________________ ____________________________________
Optionee Address:
____________________________________
____________________________________
17
<PAGE>
Optionee: ___________________
Date: ______________________
IMMEDIATELY EXERCISABLE
INCENTIVE STOCK OPTION
EXERCISE NOTICE
Autoweb.com
3270 lay Street, Bldg. 6
Santa Clara, CA 95054
Attention: Chief Financial Officer
Ladies and Gentlemen:
1. Exercise of Option. I was granted an incentive stock option (the
------------------
"Option") to purchase shares of the common stock of Autoweb.com (the "Company")
on pursuant to the Company's 1997 Stock Option Plan (the "Plan") and pursuant to
the Immediately Exercisable Incentive Stock Option Agreement dated
__________________________________ (the "Option Agreement"). I hereby elect to
exercise the Option as to a total of ____ shares of the common stock of the
Company (the "Shares"), of which _______ are Vested Shares and are Unvested
Shares as determined in accordance, with the Option Agreement.
2. Payment. Enclosed herewith is full payment in the aggregate amount of
-------
$_____________ (representing $______ per share) for the Shares in the manner set
forth in the Option Agreement. I authorize payroll withholding and otherwise
will make adequate provision for foreign, federal and state tax withholding
obligations of the Company, if any.
3. Binding Effect. I agree that the Shares are being acquired in
--------------
accordance with and subject to the terms, provisions and conditions of the
Option Agreement, including the Unvested Share Repurchase Option, and the Right
of First Refusal set forth therein, to all of which I hereby expressly assent.
This Agreement shall inure to the benefit of and be binding upon my heirs,
executors, administrators, successors and assigns. I agree to deposit the
certificate or certificates evidencing the Shares, along with a blank stock
assignment separate from certificate executed by me, with an escrow agent
designated by the Company, to be held by such escrow agent pursuant to the
Company's Stand Joint Escrow Instructions, an executed copy of which I have
delivered herewith.
4 Transfer. I am aware that Rule 144, promulgated under the Securities
--------
Act of 1933, which permits limited public resale of securities acquired in a
nonpublic offering, is not currently available with respect to the Shares and,
in any event, is available only if certain conditions are satisfied. I
understand that any sale of the Shares that might be made in reliance
<PAGE>
upon Rule 144 may only be made in limited amounts in accordance with the terms
and conditions of such rule and that a copy of Rule144 will be delivered to me
upon request.
I agree that I will promptly notify the Chief Financial Officer of the
Company if I transfer any of the Shares acquired pursuant to the Option within
one (1) year from the date I exercise all or part of the Option or within two
(2) years of the date of grant of the Option.
My address of record is
_______________________________________________________________________
_______________________________________________________________________
My Social Security Number is: _____________________________________________
5. Election Under Section 83(b) of the Code. I understand and acknowledge
---------------------------------------
that if I am exercising the Option to purchase Unvested Shares (i.e., shares
that remain subject to the Company's Unvested Share Repurchase Option), that I
should consult with my tax advisor regarding the advisability of filing with the
Internal Revenue Service an election under Section 83(b) of the Code, which must
be filed no later than thirty (30) days after the date on which I exercise the
Option.
I acknowledge that I have been advised to consult with a tax advisor prior
to the exercise of the Option regarding the tax consequences to me of exercising
the Option. AN ELECTION UNDER SECTION 83(b) MUST BE FILED WITHIN 30 DAYS AFTER
THE DATE ON WHICH I PURCHASE SHARES. THIS TIME PERIOD CANNOT BE EXTENDED. I
ACKNOWLEDGE THAT TIMELY FILING OF A SECTION 83(b) ELECTION IS MY SOLE
RESPONSIBILITY, EVEN IF I REQUEST THE COMPANY OR ITS REPRESENTATIVES TO FILE
SUCH ELECTION ON MY BEHALF.
2
<PAGE>
I understand that I am purchasing the Shares pursuant to the terms of the
Plan and my Option Agreement, copies of which I have received and carefully read
and understand.
Very truly yours,
________________________________________
Receipt of the above is hereby acknowledged,
AUTOWEB.COM
By: ________________________________________
Title:______________________________________
Date:_______________________________________
3
<PAGE>
Exhibit 10.21
AUTOWEB.COM, INC.
1999 EQUITY INCENTIVE PLAN
As Adopted January ___, 1999
1. PURPOSE. The purpose of this Plan is to provide incentives to
-------
attract, retain and motivate eligible persons whose present and potential
contributions are important to the success of the Company, its Parent and
Subsidiaries, by offering them an opportunity to participate in the Company's
future performance through awards of Options, Restricted Stock and Stock
Bonuses. Capitalized terms not defined in the text are defined in Section 23.
2. SHARES SUBJECT TO THE PLAN.
--------------------------
2.1 Number of Shares Available. Subject to Sections 2.2 and 18,
--------------------------
the total number of Shares reserved and available for grant and issuance
pursuant to this Plan will be 2,800,000 Shares plus (a) Shares that are subject
to: (i) issuance upon exercise of an Option but cease to be subject to such
Option for any reason other than exercise of such Option; (ii) an Award granted
hereunder but are forfeited or are repurchased by the Company at the original
issue price; and (iii) an Award that otherwise terminates without Shares being
issued; and (b) any authorized shares not issued or subject to outstanding
grants under the Company's 1997 Stock Option Plan (the "Prior Plan") on the
Effective Date (as defined below) and any shares issued under the Prior Plan
that are forfeited or repurchased by the Company or that are issuable upon
exercise of options granted pursuant to the Prior Plan that expire or become
unexercisable for any reason without having been exercised in full, which shares
will no longer be available for grant and issuance under the Prior Plan, 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>
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>
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 Disability, deemed to be an NQSO), but in any event
no later than the expiration date of the Options.
-3-
<PAGE>
(c) Notwithstanding the provisions in paragraph 5.6(a) above, if a
Participant is terminated for Cause, neither the Participant, the
Participant's estate nor such other person who may then hold the
Option shall be entitled to exercise any Option with respect to
any Shares whatsoever, after termination of service, whether or
not after termination of service the Participant may receive
payment from the Company or Subsidiary for vacation pay, for
services rendered prior to termination, for services rendered for
the day on which termination occurs, for salary in lieu of
notice, or for any other benefits. In making such determination,
the Board shall give the Participant an opportunity to present to
the Board evidence on his behalf. For the purpose of this
paragraph, termination of service shall be deemed to occur on the
date when the Company dispatches notice or advice to the
Participant that his service is terminated.
5.7 Limitations on Exercise. The Committee may specify a
-----------------------
reasonable minimum number of Shares that may be purchased on any exercise of an
Option, provided that such minimum number will not prevent Participant from
exercising the Option for the full number of Shares for which it is then
exercisable.
5.8 Limitations on ISO. The aggregate Fair Market Value
------------------
(determined as of the date of grant) of Shares with respect to which ISO are
exercisable for the first time by a Participant during any calendar year (under
this Plan or under any other incentive stock option plan of the Company, Parent
or Subsidiary of the Company) will not exceed $100,000. If the Fair Market
Value of Shares on the date of grant with respect to which ISO are exercisable
for the first time by a Participant during any calendar year exceeds $100,000,
then the Options for the first $100,000 worth of Shares to become exercisable in
such calendar year will be ISO and the Options for the amount in excess of
$100,000 that become exercisable in that calendar year will be NQSOs. In the
event that the Code or the regulations promulgated thereunder are amended after
the Effective Date of this Plan to provide for a different limit on the Fair
Market Value of Shares permitted to be subject to ISO, such different limit will
be automatically incorporated herein and will apply to any Options granted after
the effective date of such amendment.
5.9 Modification, Extension or Renewal. The Committee may
----------------------------------
modify, extend or renew outstanding Options and authorize the grant of new
Options in substitution therefor, provided that any such action may not, without
the written consent of a Participant, impair any of such Participant's rights
under any Option previously granted. Any outstanding ISO that is modified,
extended, renewed or otherwise altered will be treated in accordance with
Section 424(h) of the Code. The Committee may reduce the Exercise Price of
outstanding Options without the consent of Participants affected by a written
notice to them; provided, however, that the Exercise Price may not be reduced
-------- -------
below the minimum Exercise Price that would be permitted under Section 5.4 of
this Plan for Options granted on the date the action is taken to reduce the
Exercise Price.
5.10 No Disqualification. Notwithstanding any other provision in
-------------------
this Plan, no term of this Plan relating to ISO will be interpreted, amended or
altered, nor will any discretion or authority granted under this Plan be
exercised, so as to disqualify this Plan under Section 422 of the Code or,
without the consent of the Participant affected, to disqualify any ISO under
Section 422 of the Code.
6. RESTRICTED STOCK. A Restricted Stock Award is an offer by the
----------------
Company to sell to an eligible person Shares that are subject to restrictions.
The Committee will determine to whom an offer will be made, the number of Shares
the person may purchase, the price to be paid (the "Purchase Price"), the
restrictions to which the Shares will be subject, and all other terms and
conditions of the Restricted Stock Award, subject to the following:
6.1 Form of Restricted Stock Award. All purchases under a
------------------------------
Restricted Stock Award made pursuant to this Plan will be evidenced by an Award
Agreement ("Restricted Stock Purchase Agreement") that will be in such form
(which need not be the same for each Participant) as the Committee will from
time to time approve, and will comply with and be subject to the terms and
conditions of this Plan. The offer of Restricted Stock will be accepted by the
Participant's execution and delivery of the Restricted Stock Purchase Agreement
and full payment for the Shares to the Company within thirty (30) days from the
date the Restricted Stock Purchase Agree-
-4-
<PAGE>
ment 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
-5-
<PAGE>
and to make such adjustments as 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.
-6-
<PAGE>
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
-7-
<PAGE>
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
-8-
<PAGE>
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.
-9-
<PAGE>
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 Autoweb.com, Inc. or any successor corporation.
"Disability" means a disability, whether temporary or permanent,
partial or total, as determined by the Committee. For ISO purposes, "Disability"
means a disability within the meaning of Code Section 22(e)(3).
"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;
-----------------------
-10-
<PAGE>
(b) if such Common Stock is publicly traded and is then listed on
a national securities exchange, its closing price on the date
of determination on the principal national securities exchange
on which the Common Stock is listed or admitted to trading as
reported in The Wall Street Journal;
-----------------------
(c) if such Common Stock is publicly traded but is not quoted on
the Nasdaq National Market nor listed or admitted to trading
on a national securities exchange, the average of the closing
bid and asked prices on the date of determination as reported
in The Wall Street Journal;
-----------------------
(d) in the case of an Award made on the Effective Date, the price
per share at which shares of the Company's Common Stock are
initially offered for sale to the public by the Company's
underwriters in the initial public offering of the Company's
Common Stock pursuant to a registration statement filed with
the SEC under the Securities Act; or
(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
-11-
<PAGE>
(k) Individual confidential business objectives.
"Performance Period" means the period of service determined by
the Committee, not to exceed five years, during which years of service or
performance is to be measured for Restricted Stock Awards or Stock Bonuses.
"Plan" means this Autoweb.com, Inc. 1999 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.
-12-
<PAGE>
EXHIBIT 10.22
AUTOWEB.COM, INC.
1999 DIRECTORS STOCK OPTION PLAN
As Adopted January ___, 1999
1. Purpose. This 1999 Directors Stock Option Plan (this "Plan") is
established to provide equity incentives for certain nonemployee members of the
Board of Directors of Autoweb.com, 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 150,000
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, or
representatives of venture capital funds or corporate investors (each such
person referred to as an "Optionee").
6.2 Initial Grant. Each Optionee who is or first becomes a member of
-------------
the Board on or after the Effective Date will automatically be granted an Option
for 15,000 Shares (an "Initial Grant") on the later of the Effective Date or on
the date such Optionee first becomes a member of the Board.
<PAGE>
6.3 Succeeding Grants. At each Annual Meeting of the Company, each
-----------------
Optionee will automatically be granted an Option for 7,500 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
--------------
2.08333% of the Shares on each 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
-----------------
2.08333% of the Shares on each 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.
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.
-2-
<PAGE>
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
Company at such time after the close of each fiscal year of the Company as they
are released by the Company to its stockholders.
-3-
<PAGE>
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.
-4-
<PAGE>
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.
-5-
<PAGE>
EXHIBIT 10.23
AUTOWEB.COM, INC.
1999 EMPLOYEE STOCK PURCHASE PLAN
As Adopted January_____, 1999
1. Establishment of Plan. Autoweb.com, 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 400,000 shares of the Company's Common Stock is reserved for
issuance under this Plan. In addition, on each January 1, the aggregate number
of shares of the Company's Common Stock reserved for issuance under the Plan
shall be increased automatically by a number of shares equal to one percent (1%)
of the total number of outstanding shares of the Company's Common Stock on the
immediately preceding December 31st; provided that the aggregate shares
--------
reserved under this Plan shall not exceed 3,000,000 shares. Such number shall
be subject to adjustments effected in accordance with Section 14 of this Plan.
2. Purpose. The purpose of this Plan is to provide eligible employees of
the Company and Participating Subsidiaries with a convenient means of acquiring
an equity interest in the Company through payroll deductions, to enhance such
employees' sense of participation in the affairs of the Company and
Participating Subsidiaries, and to provide an incentive for continued
employment.
3. Administration. This Plan shall be administered by the Compensation
Committee of the Board (the "Committee"). Subject to the provisions of this
Plan and the limitations of Section 423 of the Code or any successor provision
in the Code, all questions of interpretation or application of this Plan shall
be determined by the Committee and its decisions shall be final and binding upon
all participants. Members of the Committee shall receive no compensation for
their services in connection with the administration of this Plan, other than
standard fees as established from time to time by the Board for services
rendered by Board members serving on Board committees. All expenses incurred in
connection with the administration of this Plan shall be paid by the Company.
4. Eligibility. Any employee of the Company or the Participating
Subsidiaries is eligible to participate in an Offering Period (as hereinafter
defined) under this Plan except the following:
(a) employees who are not employed by the Company or a Participating
Subsidiary (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 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
-1-
<PAGE>
(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 April 30, 2001. 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
(b) The fair market value on the Purchase Date.
-2-
<PAGE>
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 fifteen percent (15%) or such
lower limit set by the Committee. Compensation shall mean a participant's base
salary or wages, including, 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 may not resume making payroll
deductions during the Offering Period in which he or she reduced his or her
payroll deductions to zero.
-3-
<PAGE>
(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, the
Maximum Share Amount shall be 1,000 shares. 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.
(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 Com-
-4-
<PAGE>
mittee 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 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
-5-
<PAGE>
"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.
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
-6-
<PAGE>
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
(b) change the designation of the employees (or class of employees)
eligible for participation in this Plan.
-7-
<PAGE>
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 23.02
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-1 of
our report dated January 25, 1999 on our audits of the financial statements and
financial statement schedule of Autoweb.com, Inc. We also consent to the
references to our firm under the captions "Experts" and "Selected Financial
Data." However, it should be noted that PricewaterhouseCoopers LLP has not
prepared or certified such "Selected Financial Data."
/s/ PricewaterhouseCoopers LLP
San Jose, California
January 25, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 2,714
<SECURITIES> 0
<RECEIVABLES> 2,645
<ALLOWANCES> (498)
<INVENTORY> 0
<CURRENT-ASSETS> 6,023
<PP&E> 1,912
<DEPRECIATION> (750)
<TOTAL-ASSETS> 7,185
<CURRENT-LIABILITIES> 5,223
<BONDS> 654
12,969
0
<COMMON> 2
<OTHER-SE> (11,663)
<TOTAL-LIABILITY-AND-EQUITY> 7,185
<SALES> 13,041
<TOTAL-REVENUES> 0
<CGS> 842
<TOTAL-COSTS> 23,624
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 59
<INCOME-PRETAX> (11,484)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (11,484)
<EPS-PRIMARY> (1.58)
<EPS-DILUTED> (1.58)
</TABLE>
